Mumbai: Reserve Bank of India (RBI) deputy governor N.S. Vishwanathan on Wednesday said the central bank has not yet taken a decision on implementing the new accounting standards, IndAS, hinting at a possibility of missing the 1 April deadline.
Speaking to analysts and researchers during a conference call post the monetary policy, the deputy governor added that the system should be prepared for implementation given that the document was issued two years ago. With less than two months to go and final regulations not yet announced, bankers believe that meeting the April deadline is a challenge.
“Preparedness should be there as document was issued two years ago. RBI will decide on implementing IndAS later," said Vishwanathan, according to an analyst who attended the call.
Mint had also reported on 22 January that the government and RBI are looking to postpone the implementation of IndAS because of legislative changes and additional capital requirement.
The report had highlighted that the implementation of IndAS for public sector banks requires an amendment to the Banking Regulation Act. Section 29 of the BR Act deals with the accounts and balance sheets of public sector banks. Private sector banks are covered by the Companies Act, which is based on the new accounting standards.
Separately, the transition to IndAS is expected to see a significant jump in bad-loan provisions. Under the current rules, banks set aside money to cover loans that have turned bad. Under IndAS, they must make provisions after assessing the expected loss from the time a loan is originated rather than waiting for a trigger event. These norms, which are in line with international norms, the International Financial Reporting Standards, were designed to avoid credit shocks like those seen in the aftermath of the global financial crisis in 2008. On 23 June 2017, former RBI deputy governor S.S. Mundra had said migration to IndAS is likely to increase banks’ provisioning requirement by 30%.
“The lack of regulatory guidance around IndAS transition timelines in this monetary policy indicates a high probability of delayed implementation. Investors wouldn’t mind a delay in implementation (as against timely implementation but with more uncertainty) if it also brings with it greater clarity of instructions around the many moving variables (National Company Law Tribunal or NCLT haircuts and public sector banks’ recap)," said Krishnan A.S.V., banking analyst, SBICap Securities.