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Ind AS impact on Indian banks

Vivek Prasad, partner at Price Waterhouse & Co, answers the million dollar question: ‘How will the transition to Ind AS impact Indian banks?:

It is already clear that banks would be impacted by the new Ind AS in a very significant manner. Ind AS would bring in pervasive changes, which would impact the capital adequacy needs of the banks and may require the banks to bring in changes in the IT environment.

Mehul Dani: What will be the major changes and impact of Ind AS adoption by banks?

Vivek Prasad

Vivek Prasad: Banks in India would adopt Ind AS from the financial year 2018-19 with comparatives of 2017-18. To completely understand the impact on the banking system, the Reserve Bank of India has told banks to present proforma Ind AS financial statement for the six- month period ended 30 September 2016, the timeline for which is 30 November 2016. This would help RBI to understand the implication on the sector. It is expected that RBI would come out with recommendations then. The main impact will be on the recognition of credit losses on ‘expected credit loss’ basis as opposed to the current time and percentage based norms.

Which are the key areas that Ind AS will have an impact?

The key areas of impact under Ind AS would include impairment of loans to customers. Banks have significant loan portfolio for which provisioning is currently computed on the standard provisioning methodology prescribed by RBI. This is predominantly based on the days past due basis. However, under Ind AS, provisioning would be in line with global standard IFRS 9 – Financial Instruments, which has a forward looking ‘three-stage’ expected credit loss (ECL) model for impairment.

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