India asks state banks not to overstate profit

NEW DELHI (Asia Pulse) – The Indian Finance Ministry has written to all public sector banks asking them to ensure profits are not overstated and to make appropriate provisions for bad loans. In a letter to heads of public sector banks, the Finance Ministry said “instances of over-reporting of profit have been continuing year after year and no corrective action seems to have been taken to stop the recurrence”.

The letter assumes significance in the light of rising bad debts in the banking sector.

According to a senior official of a public sector bank, the letter has been issued recently by the Finance Ministry.

Sometimes there could be a difference of opinion about the classification of NPA which gets sorted out at the time of external audit or Annual Financial Inspection (AFI) by the Reserve Bank of India (RBI), the official said.

If the bank is unable to convince the RBI for not classifying some loans as NPA and subsequently not making provisions, then the bank has to make provision after AFI, the official said.

To that extent the profit is depressed later, the official said.

Banks have been trying to follow prudential guidelines of RBI on NPA in letter and