RBI defers Ind AS implementation by banks to 1st April, 2019

Dear Reader,

The Reserve Bank of India (RBI) has deferred implementation of Ind AS by commercial banks except regional rural banks, by one year, i.e. from April 1, 2018 to April 1, 2019 citing reasons of incompatible financial statements formats and unpreparedness of banks. As per the RBI, the financial statements as prescribed under Schedule 3 of Banking Regulations Act, 1949 are not compatible with reporting requirements under Ind AS. RBI is currently in the process to make the financial statements compatible with Ind AS requirements.

According to Ind AS 109, Financial Instruments, a company shall make provision for expected loss on a financial asset, such as loan & advance, as per Expected Credit Loss Method. Under this method, provisions are to be made even on the day of creation of a financial asset. So, whenever Ind AS 109 would apply to banks, they have to make provisions much before the loans go bad. On the other hand, currently they are required to make provisions only when the loans turned bad. Therefore, the deferment of Ind AS implementation has given a big relief to the banks amid increasing number of non-performing assets (NPAs). It will definitely strengthen the book value of banks in short-term.

On contrary, the deferment will reduce the comparability of financial statements of Indian banks with global banks as later’s financial statements will contain provisions in accordance with IFRS 9, Financial Instruments.

However, banks will continue to submit quarterly proforma financial statements to RBI.

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