RBI defers the effective date | KPMG | IN

RBI defers the effective date for implementation of Ind AS for banks to 1 April 2019

RBI defers the effective date

On 5 April 2018, the Reserve Bank of India (RBI) through its press release deferred the implementation of Indian Accounting Standards (Ind AS) by one year for scheduled commercial banks i.e. 2019-20 would be the first year of Ind AS with 2018-19 as the comparative year.

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New development

On 5 April 2018, the Reserve Bank of India (RBI) through its press release deferred the implementation of Indian Accounting Standards (Ind AS) by one year for scheduled commercial banks i.e. 2019-20 would be the first year of Ind AS with 2018-19 as the comparative year.

The implementation of Ind AS by banks requires certain legislative changes in the format of financial statements to comply with disclosures required by Ind AS. The change in format requires an amendment to the third schedule of the Banking Regulation Act, 1949 to make it compatible with accounts under Ind AS. Considering the pending amendments to the Banking Regulation Act, 1949, as well as the level of preparedness of several banks, RBI has taken a decision to defer the applicability of Ind AS. Also, RBI is yet to issue prudential norms and operational guidelines to facilitate the implementation of the new accounting standards.

Background

The following table presents the journey of Ind AS for banks:

Date Particulars
29 September 2015
  • The RBI recommended a road map for banks to Ministry of Corporate Affairs (MCA) for implementation of Ind AS from 2018-19 onwards.
  • Also constituted a Working Group in September 2015 for implementation of Ind AS by banks.
October 2015 The RBI issued a report of its Working Group, which provided recommendations on key areas with a focus on financial instruments, as well as formats for financial statements.
11 February 2016 The RBI issued a circular requiring scheduled commercial banks (excluding regional rural banks) to comply with Ind AS for accounting periods beginning from 1 April 2018 onwards, with comparatives for periods ending on or after 31 March 2018.
30 March 2016 The MCA clarified the applicability of Ind AS to scheduled commercial banks from 1 April 2018 onwards.
23 June 2016 The RBI issued directions to all scheduled commercial banks submit their Ind AS pro forma financial statements for the half-year ended 30 September 2016, latest by 30 November 2016.

Our comments

Deferment of Ind AS for banks

The deferral of Ind AS is expected to provide significant relief to the banking sector in India, considering the pending issuance of a revised format for financial statements and operational guidelines for implementation of Ind AS. The implementation of Ind AS is expected to have a pervasive impact on the banking sector, not only in terms of accounting changes, but also on several aspects of their business.

The largest impact is expected on accounting for financial instruments, on application of Ind AS 109, Financial Instruments (which is based on IFRS 9, Financial Instruments), Ind AS 32, Financial Instruments: Presentation (based on IAS 32, Financial Instruments: Presentation) and Ind AS 107, Financial Instruments: Disclosures (based on IFRS 7, Financial Instruments: Disclosures). The implementation of these financial instruments standards is expected to affect almost all line-items in the banks’ financial statements. Ind AS 109 also requires early recognition and significant increase in provisions for loans and off-balance sheet exposures based on an Expected Credit Loss (ECL) model. This change is likely to increase the capital requirements in banking sector. The Ind AS deferral would provide more time for implementation of Ind AS for the banking sector, to better prepare for this major financial reporting reform. Banks in India should enhance their efforts towards Ind AS transition and use the additional time available to implement robust processes and systems to ensure compliance with Ind AS from 1 April 2019 onwards.

Ind AS, being converged with global standards, is expected to enhance the comparability of the financial statements of Indian banks with their global counter parts. IFRS 9 being a global financial instruments accounting standard is applicable from 1 January 2018 in several countries across the world. With the Indian banking sector implementing the converged Ind AS 109 one year later, banks in India are expected to benefit from the collective implementation experience of their global peers. However, the delayed adoption would impact the comparability of financial statements of banks in India with their global counter parts.

Other road maps

Initially, RBI issued road maps of Ind AS implementation for:

  • Scheduled commercial banks (excluding regional rural banks), and
  • All-India Term Lending Refinancing Institutions.

The current notification covers deferral of Ind AS for scheduled commercial banks. This raises some uncertainty for application of Ind AS for All-India Term Lending Refinancing Institutions. A clarification from RBI would be welcome to resolve this uncertainty for such institutions.

The initial plan of MCA was to implement Ind AS for banks, insurance companies and NBFCs from 1 April 2018 onwards. With recent developments, the Ind AS implementation date has been deferred for banks by one year and for insurance entities by two years. With no announcement for any deferral in relation to NBFCs, it appears that they would be required to implement Ind AS in phases I and II from 1 April 2018 (transition date being 1 April 2017) onwards. In this case, Ind AS would be applicable to both, their separate and consolidated financial statements. Further, clarity from MCA on Ind AS applicability to NBFCs may be required.

To access the text of the RBI notification, please click here.



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