It’s postponed once again. Those in the banking circles were almost certain that the RBI will postpone again.
Starting 1st April 2019, the RBI was to start the Indian Accounting Standards (Ind AS) by banks. It came into effect for NBFCs on 1st April 2018.
The Ind AS is the Indian version of the International Financial Reporting Standards (IFRS). It has now been postponed by a year. This is the second time it has been postponed – earlier it was scheduled to start form 1st April 2018; this April too is gone, now are looking tentatively at 1st April, 2020.
The good part here – last year, the postponement happened on 5th April, much after the deadline was already kicked in. This time around at least it was announced ahead of time.
RBI stated that it was postponed as the requisite legislative amendments are still under consideration. 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 would have taken a decision to defer the applicability of Ind AS.
The RBI in February 2016 had proposed implementation of new accounting standards for banks for both standalone financial statements and consolidated financial statements.
These were much stricter norms and were proposed to be put in place in the aftermath of the banking crisis. The Ind AS meant that banks would need to provide right from the stage when they judge that a particular loan is going to turn bad; the new norms mean that they need to preempt the provision unlike the practice now where it is judged to be bad when the debtor starts missing a few payments. The new norm thus requires early recognition and significant increase in provisions for loans and off-balance sheet exposures based on an Expected Credit Loss (ECL) model.
Well, the banking crisis is an ongoing thing but if the Ind AS had indeed come in place, as per Fitch Ratings, it would have meant that the PSU banks would have had to increase their provisions by Rs.110000 crore, we talking about a staggering Rs.1.1 trillion or to bring all these zeroes into perspective - $16 billion. And this would have be raised before 30th June 2019.
Well, for us mere mortals, the mind cannot comprehend with trillions and thus looks staggering. But the truth is that the Govt had already committed to the infusion of Rs.1.9 trillion for FY18 and FY19. So in that context, Rs.1.1 trillion is not out of reach. But the banks are as such reeling under the pressure of raising additional capital and what about the provisions for yet-to-surface bad debts?
More than the legal and legislative hurdles, the real reason could be because RBI does not, at this point of time, expose the Indian banking system to another huge round of write-offs and stripping of profits; the industry is just about seeing some signs of green shoots in the NPAs and if this norm had come in now, it would have pushed down the system all over again.
Well, constant postponements do not reflect positively. If this is the established norm – give a deadline and then defer it, it makes people mock the system and there is a sense of surety that postponement will happen, so why work towards it? Just as we have car companies saying that the BS VI is likely to get postponed – it may not, yet, the precedence makes one believe such things.