Karnataka Bank, Bank of India and Saraswat Bank get fined by the RBI for hiding bad loans

The penalties have been imposed "for non-compliance with directions issued by RBI on ‘Income Recognition and Asset Classification (IRAC) norms.Wikimedia Commmons
  • The banking regulator imposed a fine on the three banks for non-compliance with directions issued by RBI.
  • Bank of India will have to pay up ₹5 crore, Karnataka Bank ₹1.2 crore, and Saraswat Bank ₹30 lakh.
  • The penalties have been imposed after an inspection conducted by the Reserve Bank of India (RBI).
The Reserve Bank of India (RBI) has imposed a penalty on three banks for not complying with the regulatory guidelines on identifying bad loans.

Bank Penalty
Bank of India₹5 crore
Karnataka Bank₹1.2 crore
Saraswat Bank₹30 lakh

The penalties have been imposed "for non-compliance with directions issued by RBI on ‘Income Recognition and Asset Classification (IRAC) norms." When the old loans are classified as non-performing assets, the profits posted earlier get reduced.

For Karnataka Bank, this is not the first time that RBI has seen a divergence in the way the NPA was calculated and the way it ought to be. The regulator found that loans worth ₹1,115 crore turned out to be gross NPA a year earlier, the one ended March 2017.
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Once the change in unpaid loans was accounted for, and a provision was made, Karnataka Bank had to change its bottomline for FY17 to a loss of ₹95 crore from a reported profit of ₹452 crore. The reported gross NPA for the year ended March 2018 was ₹2,376 crore, about 4.92% of all loans.

Once the change in unpaid loans was accounted for, and a provision was made, Karnataka Bank had to change its bottomline for FY17 to a loss of ₹95 crore from a reported profit of ₹452 crore. Business Insider

Nearly 5% of all loans made by Karnataka Bank were classified as gross NPA at the end of December 2019. The stocks has already lost 16% in the last one month due to the market's risk aversion to banking stocks.

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For the state-owned Bank of India, with a market capitalisation of over ₹10,400 crore, the bad loans are already at a whopping 16.3% at the December. The stock is down over 7% for the month of May.

The state-owned Bank of India has a market capitalisation of over ₹10,400 crore.Business Insider

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