Estimates stated that banks may need up to Rs 89,000 crore towards incremental provisioning for advances while transiting to the Ind-AS regime
The Reserve Bank of India has deferred the adoption of Indian Accounting Standards (Ind AS) by banks, for a year, due to unpreparedness of banks to migrate to the new accounting system.
“The format of financial statements as prescribed under Schedule 3 of Banking Regulation Act is not amenable to reporting financial statements under Ind-AS, so we have requested the government to amend it and that is under consideration,” said Deputy Governor NS Vishwanathan, at the post monetary policy press conference on Thursday.
“In our assessment also, some of the banks are still not prepared to move into the new regime and for that we should defer this by one year with the preparedness and amendments of Schedule 3 take place,” he added.
According to a February 2016 RBI circular, commercial banks, barring regional rural banks, had to implement the new accounting standards from April 1.
As part of this, the RBI has been asking banks to submit half-yearly returns based in Ind-AS format, Vishwanathan said. However, he added that the central bank's assessment showed that many banks are still not prepared to move to Ind-AS.
A key change under the new rules was the need to provision for accounts based on expected loss, instead of when an account turns into a non-performing asset (NPA).
Dinabandhu Mohapatra, MD & CEO, Bank of India, said: “The Ind AS implementation has been deferred by one more year, which will give the banks some time to align with the required changes.”
Estimates by India Ratings stated that scheduled commercial banks may need up to Rs 89,000 crore towards incremental provisioning for advances while transiting to the Ind-AS regime.
Of the estimates, a majority would be required to be made by public sector banks, which would need around Rs 63,000 crore, equivalent to an equity write-down of 1.10 percent of the banks’ risk weighted assets and 11.5 percent of net worth at the end of March last year.
Private sector banks would also need a whopping Rs 25,800 crore; however, their higher capitalisation would enable a smooth transition, the rating agency said.
Vishwanathan said that the RBI will continue to have the proforma of financial statements from banks to monitor the progress lenders are making towards migration to Ind-AS.
RP Marathe, Chairman and MD of Bank of Maharashtra, said, “Deferment of implementation of Ind-AS by one year comes as a big relief for the banks who are still trying to grapple with its implementation issues and struggling to stabilise after the impact of NPAs.”Meanwhile, on the monetary policy front, the RBI left repo rate unchanged at 6 percent.