- 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.