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The RBI issues directions to banks on Ind AS implementation

The RBI issues directions to banks

On 11 February 2016, the Reserve Bank of India (RBI) issued a circular RBI/2015-16/315 requiring scheduled commercial banks to comply with the Indian Accounting Standards (Ind AS) for accounting periods beginning from 1 April 2018 onwards, with comparatives for periods ending on or after 31 March 2018. Ind AS would be applicable to both standalone financial statements and consolidated financial statements. This circular reiterates the timeline for Ind AS implementation by banks that was issued by the Ministry of Corporate Affairs (MCA) in its press release dated 18 January 2016. It also provides further direction on critical issues that banks need to consider in their Ind AS implementation plan.


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The MCA notified the Companies (Indian Accounting Standards) Rules, 2015 on 16 February 2015. On 29 September 2015, RBI recommended a road map to MCA for implementation of Ind AS from 2018-19 onwards for banks and non-banking financial companies (NBFCs). Further, in October 2015, RBI issued a report of its Working Group on implementation of Ind AS by banks in
India, which provided recommendations on key areas with a focus on financial instruments, as well as formats for financial statements.

The MCA’s press release on 18 January 2016 and the recent RBI circular now provide certainty on the timing and manner of Ind AS implementation by banks in India. 

Overview of the recent circular

This circular requires all scheduled commercial banks (excluding Regional Rural Banks (RRBs)) to implement Ind AS for accounting periods beginning 1 April 2018 onwards, with early adoption being disallowed. It also draws attention to MCA’s press release which states that, notwithstanding the Ind AS road map for companies (issued by MCA on 16 February 2015), the holding, subsidiary, joint venture or associate companies of banks would also prepare Ind AS financial statements for accounting periods beginning 1 April 2018 onwards.

In addition, RBI has advised banks to set up a Steering Committee headed by an official of the rank of an Executive Director (or equivalent) and comprising members with cross-functional experience, to plan and initiate the implementation process. The strategy for this implementation has to be disclosed in the annual report from the financial year 2016-17 onwards. The Audit Committee should oversee the Ind AS implementation process and provide quarterly reports to the bank’s board on this subject.

The RBI has identified the following critical issues that should be considered by banks in their Ind AS implementation plan:

  • Technical accounting issues involving the entire financial reporting process, including an analysis of differences between the current accounting framework and Ind AS, determining significant accounting policies, preparation of proforma Ind AS financial statements as well as disclosures, related documentation and a dry-run of accounting systems.
  • Evaluation of changes to systems and processes, identifying issues that have a significant impact on information systems and developing systems to capture relevant data.
  • Determining business impacts, including those on profits, taxation, capital planning and capital adequacy (based on a consideration of Basel III requirements).
  • Evaluation of resources to ensure adequate staffing for a comprehensive training strategy and implementation.
  • Project management to ensure effective coordination between accounting, systems, people and business, in addition to managing communication with stakeholders.

Banks also need to be in preparedness to submit proforma Ind AS financial statements to the Reserve Bank from the half-year ending on 30 September 2016 onwards. The RBI intends to monitor and facilitate the implementation process by holding periodic meetings with banks beginning April 2016.

Next Step

The RBI has stated that it would issue further instructions, guidance or clarifications on relevant aspects as and when required.

Our comments

The adoption of Ind AS by banks is expected to have a pervasive impact on several aspects of their business in addition to the financial reporting process. As identified in RBI circular, there are several implications related to systems, business processes and regulatory aspects that banks need to evaluate and consider in detail. Some of these changes, especially those related to classification and measurement of financial assets, financial risk management and loan loss provisioning based on expected losses may prove challenging and require substantial time to implement.

Given the timelines for Ind AS implementation, banks should commence preparing for this change well in advance.

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

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