RBI recommends a road map for implementation of Ind AS for banks and NBFCs

RBI recommends a road map for implementation of I...

Recently on 16 February 2015, the Ministry of Corporate Affairs (MCA) issued the Companies (Indian Accounting Standards) Rules, 2015 which lays down a road map for companies other than insurance, banking companies and Non-Banking Financial Companies (NBFCs) for implementation of Ind AS (converged with International Financial Reporting Standards (IFRS)) in a phased manner starting from 1 April 2016. Currently, Ind AS for corporates is under implementation.

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Background
 
Recently on 16 February 2015, the Ministry of Corporate Affairs (MCA) issued the Companies (Indian Accounting Standards) Rules, 2015 which lays down a road map for companies other than insurance, banking companies and Non-Banking Financial Companies (NBFCs) for implementation of Ind AS (converged with International Financial Reporting Standards (IFRS)) in a phased manner starting from 1 April 2016. Currently, Ind AS for corporates is
under implementation.
 
New development
 
On 29 September 2015, the Reserve Bank of India (RBI) through its Fourth Bi-monthly Monetary Policy Statement, 2015-16 informed the stakeholders that it has recommended to the MCA a road map for the implementation of Ind AS for banks and NBFCs from 2018-19 onwards.
 
Next steps
 
The RBI has constituted a working group (Chairman: Shri Sudarshan Sen) for its implementation. The report of this working group will be uploaded on RBI’s website by the end of October 2015 for public comments. A detailed road map would be issued later.
 
Our comments
 
This is a welcome development and provides the much needed clarity to this sector on the expected timelines for this major financial reporting reform. The road map that is expected to be proposed would closely follow the timelines for the adoption of the new IFRS standard on financial instruments (IFRS 9), in particular the new expected loss model for impairment of financial assets (i.e. loan loss provisioning). IFRS 9 is applicable for the annual periods beginning on or after 1 January 2018, internationally. The RBI’s recommendation would help ensure that banks and NBFCs are not far behind their global counterparts, while having the benefit of learning from the global experience.
 
 
Ind AS road map for insurance companies still remains to be communicated by the Insurance Regulatory and Development Authority (IRDA).  
 
The transition to Ind AS has an organisation wide impact, and not just accounting. Banks and NBFCs would need to plan in advance and invest time. Given the pervasive nature of the impact of these new standards, in addition to the financial reporting impacts, the transition is expected to have an impact on the business models, systems, and regulatory requirements for banks and NBFCs. With emerging clarity on the timelines, companies in this sector should start assessing the impact and make the best use of the time available for implementation.
 
To access the text of RBI’s announcement, please click here.

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