In A Big Relief To Banks, RBI Defers Ind AS Implementation By A Year

Call this manna from heaven for the banking sector that is faced with the bad loans mess and weak balance sheets, especially in the public sector.

Coming to the rescue of banks, the Reserve Bank of India (RBI) on Thursday decided to defer implementation of Indian Accounting Standards, popularly known as Ind AS, by one year, in respect of scheduled commercial banks.

Ind AS is a set of accounting norms developed by Indian authorities, which converge with the International Financial Reporting Standards (IFRS).

The flip side

While this deferment could be a relief for banks and give them more time to move to global practices such as expected credit-loss model, it would certainly reduce the comparability of Indian banks’ performance vis-à-vis global peers, said accounting experts.

It may be recalled that as per the Centre’s roadmap for adoption of Ind AS in the financial sector, all scheduled commercial banks (excluding regional rural banks) were earlier required to prepare Ind AS-based financial statements for accounting periods beginning April 1, 2018. This was to be done with comparatives ending March 31, 2018, or thereafter.

The RBI on Thursday said that necessary legislative amendments – to make the format of financial statements, prescribed in the Third Schedule to the Banking Regulation Act, 1949, compatible with accounts under Ind AS – are still under consideration.

In view of this, as also the level of preparedness of many banks, it has been decided to defer implementation of Ind AS by one year when the necessary legislative changes are expected, the RBI said.

By that time, the necessary legislative changes are expected, the central bank said.

Experts’ take

Charanjit Attra, Partner, Financial Accounting Advisory Services (FAAS), EY India, said: “The extension of one year would help banks set up their IT infrastructure to meet the requirements of Ind AS, particularly for the computation of the expected credit loss. Banks should use this period to build robust processes for Ind AS adjustments ”

Attra said the implementation of Ind AS for banks was expected to make the results more comparable globally.

“However, the extension of one year would give more time to the banks for making proper processes for implementing the complex changes under Ind AS.”

Ashish Gupta, Director, Grant Thornton Advisory Private Limited, said that the deferment of Ind AS provides banks with more time to move their financial reporting processes that would have been significantly impacted due to Ind AS 109.

Further, the banks would have more time to prepare for the potential impact on capital due to enhanced provisioning under Ind AS.

However, it should be noted that Indian banks will be at a different platform of financial reporting with their global peers, who have either moved or will move to IFRS 9 this year, he said.