The RBI has again deferred ‘until further notice’ the implementation of new accounting rules for banks, which could have forced banks to raise bad loan provisions by $16bn in H2, said Fitch.
The RBI (Reserve Bank of India) has announced that it has again deferred the implementation of India’s new accounting standards, known as Ind AS for short.
According to the notice, the deferment was necessary as amendments to the Banking Regulation Act, 1949 have still not been made.
This is the second delay after the new rules were originally scheduled to be implemented by 1 April 2018. The deadline was extended for one year last April, and now, the implementation has been deferred without an implementation date being specified, pending new legislation.
“The legislative amendments recommended by the Reserve Bank are under consideration of the Government of India. Accordingly, it has been decided to defer the implementation of Ind AS till further notice,” says the RBI statement. Bankers said that they had expected the deferment, reported local media.
The new accounting standards would require banks to make provisions when they judge that a loan is likely to turn bad, rather than waiting for the borrower to start missing payments. This would have resulted in the country’s banks having to adding an additional USD 190 billion in bad loans to their books.
The new rules are based on IFRS 9 (the 9th International Financial Reporting Standard), promulgated by the IASB (International Accounting Standards Board) and originally introduced in the wake of 2008 financial crisis.
According to Fitch Ratings’ India unit, state-run lenders in the country would have had to increase their provisions by as much as USD 16 billion in the fiscal quarter ending 30 June 2019 if the rules had gone ahead, forcing many of them to raise substantial amounts of capital to meet the resulting shortfalls, beyond the estimated INR 1.9 trillion infusion already committed by the government for the two-year period to the end of this month.
Non-banking financial companies have already migrated to Ind AS regime in the current financial year.