Background
 
On 29 September 2015, the Reserve Bank of India (RBI) through its Fourth Bi-monthly Monetary Policy Statement, 2015-16 informed its stakeholders that it has recommended to the Ministry of Corporate Affairs (MCA) a road map for the implementation of Ind AS for banks and Non-Banking Financial Companies (NBFCs) from 2018-19 onwards.
 
The RBI constituted a working group (under the chairmanship of Shri Sudarshan Sen) for the same.
 
New development
 
Recently, the RBI issued a report of the working group which portrays the potential issues with respect to the implementation of Ind AS (Ind AS 109, Financial Instruments in particular) by banks in India along with its recommendations to ease out the implementation process.
 
The working group adopted a consultative approach and outreach meetings were held with bankers to understand their issues and apprehensions with regard to Ind AS, especially in the context of the current accounting practices. The group also reviewed several extant RBI instructions and guidelines as well as the Ind AS notified by the MCA to identify potential issues in relation to Ind AS implementation.
 
Accordingly, the working group structured its recommendations into the following key areas with a focus on financial instruments:
 

• Classification and measurement of financial assets
• Classification and measurement of financial liabilities
• Hedge accounting and derivatives
• Fair value measurement
• Impairment of financial assets
• Presentation of financial statements and disclosure
• Derecognition, consolidation and other residuary issues.   

The working group also devised formats for financial statements of banks under Ind AS and application guidance thereon which are comprised in the given annexures:

• Annexure I: Proposed third schedule to the Banking Regulation Act, 1949
• Annexure II: Suggested formats for notes to financial statements
• Annexure III: Application guidance for preparation of financial statements
• Annexure IV: Instrument wise comparison of valuation requirements
• Annexure V: List of RBI instructions that need review
• Annexure VI: Educational material by the Institute of Chartered Accountants of India (ICAI)
• Annexure VII: Legislative amendments
• Annexure VIII: Survey of international practices for presentation of financial statements.

 
Our comments
 
The report of the working group is a detailed document that compares the existing requirements of the RBI literature with the principles given in Ind AS 109. The recommendations provided are elaborate and represent the endeavour of the RBI towards smooth convergence of the Indian banking system.
 
Banks and NBFCs should take cognisance of the recommendations of the working group and start working towards addressing key impacts which are expected to take place during the implementation process with regard to their respective business models.
 
This could also require significant changes to systems and processes including
business and contracting processes, IT systems, internal controls, etc.

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