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NBFCs to Meet RBI on Ind AS Implementation

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NBFCs to Meet RBI on Ind AS Implementation
New norms to take effect for NBFCs from this fiscal itself
The non-banking finance companies are planning to meet the Reserve Bank of India on the issue of implementation of Indian Accounting Standards, popularly known as Ind AS.RBI has deferred the implementation of Ind AS for banks by a year, while it is applicable for NBFCs from April 1, 2018. NBFCs will have to compute their first quarter result this month and it is expected to have an impact on capital due to enhanced provisioning.
Ind AS is a global accounting practice that NBFCs are mandated to adopt, which may lead to initial credit losses. The practice is on a par with the International Financial Reporting Standard (IFRS) 9. The provisioning requirements under IFRS 9 would be higher as NBFCs will have to provide for on expected losses rather than incurred losses.

According to the initial plan, ministry of corporate affairs was to implement Ind AS for banks, insurance companies and NBFCs from 1 April 2018 onwards. In April 2018, RBI deferred the implementation of Indian Accounting Standards by one year for banks. Now, 2019-20 would be the first year of Ind AS with 2018-19 as the comparative year for banks. Also, Ind AS implementation date has been deferred for insurance companies by two years.
“Since RBI took a stance that it should be implemented from this year, the MCA secretary and NBFCs have decided to knock at the doors of RBI once again,” said Raman Aggarwal chairman Finance Industry Development Council umbrella body for NBFCs. “We would like clarity on issues like expected credit loss and effective interest rates.”
The sector is looking for clarification on certain issues. Under the Ind AS there is divergence in the way different entities report numbers. For instance, Ind AS mandates recognition of income on loans based on “effective interest rates.”This is based on expected pattern of the portfolio considering prepayment probability, fee income amortisation and delinquency.Currently fee income is usually recognised up front, while interest on all non-NPA loans is recognised on accrual basis.
The Economic Times, New Delhi, 05th June 2018

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