Ind AS adoption for banks could be deferred till FY24, say sources

Extended dispensation on capital conservation buffer and SLR holding in HTM instruments point at a delay in adoption

With some of the key reserve requirements getting further leeway for implementation, sources indicate that the adoption of Indian Accounting Standards (Ind AS) for banks may be further extended by two years – till FY24. 

Banks were expected to adopt Ind AS from April 1, 2018, though on April 5, 2018, the Reserve Bank of India (RBI) deferred its implementation by a year to FY 2019-20. Again, on March 22, 2019, it deferred the accounting standards implementation indefinitely. 

“There were earlier talks about Ind AS adoption in FY22, but due to the pandemic there was no progress. Now with the tenure extended in critical reserve and buffer ratios, the implementation is unlikely before FY24,” said a senior executive of a private bank.

In August 2020, the RBI increased the limits under Held to Maturity (HTM) instruments from 19.5 per cent to 22 per cent of net demand and time liabilities (NDTL) in respect of statutory liquidity ratio (SLR) eligible securities acquired on or after September 1, 2020. The limit was first increased till March 31, 2021 and subsequently to March 2022 in October last year. 

Again, on Friday, the governor indicated that the dispensation of enhanced HTM limits would be restored to 19.5 per cent in a phased manner starting from June 30, 2023. “It is expected that banks will be able to plan their investments in SLR securities in an optimal manner with a clear glide path for restoration of HTM limits,” according to the statement on developmental and regulatory policies issued by the RBI. Likewise, the full phase-in of capital conservation buffer (CCB) of 0.625 per cent has also been deferred to October 1, 2021 from April 1, 2021. “Considering the continuing stress on account of Covid-19, and in order to aid in the recovery process, it has been decided to defer the implementation of the last tranche of the CCB,” the statement said. 

 

According to Basel-III norms, CCB, which is a buffer that is intended to ensure that banks have an additional usable capital that can be drawn down when in case of losses, was to be implemented in tranches of 0.625 per cent and the transition to full CCB of 2.5 per cent was set to be completed by March 31, 2019. However, implementation of the last tranche of 0.625 per cent CCB was first deferred in November 2018 and subsequently in September 2020. Globally, banks had a deadline of 2019 to implement the CCB as per Basel III norms. 

“Among emerging markets, India is a laggard and delayed implementation of Ind AS and CCB could result in markdown of valuations of banks when they go to market in FY22,” said a partner of a big four accounting firm. 

Banks though say that if capital has to be set aside for ‘accounting reasons’, growing the balance sheet may not be possible and hence a deferment in Ind AS adoption is welcome. “Without knowing the full impact of Covid on our balance sheets, adoption of CCB is impossible,” said a CEO of a private bank.