Under-reporting Bad Loans

May 19, 201932 days 00
  • Union Bank of India, Indian Bank and Central Bank of India have reported “divergence” in bad loan recognition.
  • Divergence takes place when the Reserve Bank of India (RBI) finds that a bank has
    • Under-reported bad loans
    • Not reported bad loans
  • RBI spotted the “divergence” in their 2018-19 4th quarter financial year results (Jan 2019 – March 2019) because these banks reported “loss”.
  • Their loss was reportedly due to “higher provisioning” for old bad loans which were given in 2017-18 financial year.

What is Provisioning?
  • When a loan is not being repaid, the Bank has to reconstitute this Money from its other sources like Profit.
  • Banks setting aside a part of money from Profits to compensate for a probable loss is called Provisioning.
  • Banks do Provisioning to cover the risk.

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