In a clear pointer to RBI wanting banks to go the IFRS way, the central bank has issued new directives on the implementation of International Financial Reporting Standards (IFRS) converged Indian Accounting Standards (Ind AS) by banks.
Banks have been asked to submit proforma Ind AS financial statements to the RBI from the half-year ended September 30, 2016, onwards.
The implementation of Ind AS is expected to significantly impact the financial position of banks, including the adequacy of capital, taking into account Basel-III capital requirements. Banks have now been advised to place quarterly progress reports before their boards.
Also, each bank will now be required to set up a steering committee — headed by an executive director — comprising members from cross-functional areas of the bank to immediately initiate the implementation process.
The RBI also wants the audit committee of the bank's board to oversee the projects of the Ind AS implementation process.
IND AS ROADMAP
According to the roadmap announced by the Government, banks have to comply with Ind AS for financial statements for the accounting periods beginning from April 1, 2018.
Ind AS will be applicable to both standalone as well as consolidated financial statements.
Banks are permitted to adopt Ind AS only as per the specified timelines and not earlier.
EXPERT TAKE
Commenting on the latest RBI directives, Charanjit Attra, Partner in member firm of EY Global, said this was definitely a positive move.
"The banking regulator wants banks to gear up for IFRS converged Ind AS and enable them to become internationally competitive," he said.
Attra, however, noted that the short time period available for providing proforma financial statements may turn out to be a challenge for banks.
Indian banks are at varying stages of preparedness when it came to adoption of Ind AS. "Low-to-medium level" is how Attra described the state of preparedness.
Some private sector banks have reached out to consultants to enable them to migrate to Ind AS, while public sector banks have so far preferred to go slow on this front.
Sai Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG in India, said that RBI has now gone into detail as to how banks will need to approach the adoption of Ind AS.
"RBI has now set out its expectations. The central bank wants to use the two year window to firm its final approach on issues like capital adequacy, provisioning for loan loss under Ind AS framework", Venkateshwaran said.
Requiring proforma financial statements would ensure that RBI is not caught napping when the April 2018 implementation date becomes a reality for banks, he noted.