In A Sharp Rebuke, RBI Tells Yes Bank It Misrepresented Risk Assessment Report

Twenty-Four hours after Yes Bank stated, publicly, that the Reserve Bank of India had not found any divergence in its non-performing asset recognition for 2017-18, the bank informed exchanges that the regulator has reprimanded it for selective disclosure of a confidential report.

In a first-of-its-kind rebuke, the RBI told Yes Bank that the risk assessment report was intended to a be a “confidential” document and that disclosures made by the lender was viewed by the regulator as a “deliberate attempt to mislead.”

On Thursday, Yes Bank informed stock exchanges that the RBI has found no divergence in bad loan divergence in FY18. The stock surged and analysts opined that the worst is over for Yes Bank.

The all-clear report from the RBI had come after two years of divergence in bad loan reporting.

In FY16, after its first assessment, the RBI found Yes Bank’s divergence of bad loans at Rs 4,176.70 crore—much higher the reported gross NPA of Rs 748.9 crore during the period.

Again, in FY17, the central bank found the private lender’s divergence at Rs 6,355 crore, or three times the reported bad loan amount. Yes Bank reported gross NPAs at Rs 2,018 crore in FY17, lower than Rs 8,373.8 crore.

According to RBI guidelines, banks have to disclose divergences if the additional provisioning requirements assessed by the RBI exceed 15 percent of the net profits after tax and/or additional gross NPAs identified by the RBI exceed 15 percent of the incremental gross NPAs for the reference period, or both.

For FY18, Yes Bank said that no divergences in bad loan classification had been found.

The RBI has now pushed the bank to clarify its assertion and release the contents of the letter sent out by the regulator to stock exchanges.

The full text of Yes Bank’s press release is as follows:

Further to YES Bank's Press Release dated February 13, 2019 which stated that the risk assessment report of the Bank dated February 12, 2019 observed NIL divergence, the Bank has received a letter from the Reserve Bank of India ("RBI") today, which states:

1. As the RAR report was marked "confidential", it was expected that no part of the report and information contained therein be divulged except for the information in the form and manner of disclosure prescribed by Regulations. Therefore, the Press Release breaches confidentiality and violates regulatory guidelines. Moreover, NIL divergence is not an achievement to be published and is only compliance with the extant Income Recognition and Asset Classification norms. The RAR also identifies several other lapses and regulatory breaches in various areas of the Bank's functioning and the disclosure of just one part of the RAR is viewed by RBI as a deliberate attempt to mislead the public.

2. The issuance of the Press Release has, therefore, been viewed seriously by the RBI and could entail further regulatory action/ s.

As directed by RBI, the contents of the letter are herewith being disclosed to the Stock Exchanges. Kindly take the above on record