RBI issues guidelines for Ind AS implementation by NBFCs, ARCs

The Reserve Bank on Friday came out with regulatory guidelines for implementation of Indian Accounting Standards (Ind AS) by non-banking financial companies (NBFCs) and asset reconstruction companies (ARCs) while preparing their financial results.

The guidelines, which are aimed at promoting high quality and consistent implementation of Ind AS as well as facilitate comparison and better supervision, will be applicable to NBFCs and ARCs for preparations of their financial results from FY20 onwards, RBI said in a notification.

The guidelines mandate NBFCs/ARCs to put in place board-approved policies that clearly articulate and document their business models and portfolios.

NBFCs/ARCs shall frame their policy for sales out of amortised cost business model portfolios and disclose the same in their notes to financial statements.

"The RBI expects the board of directors to approve sound methodologies for computation of expected credit losses (ECL) that address policies, procedures and controls for assessing and measuring credit risk on all lending exposures, commensurate with the size, complexity and risk profile specific to the NBFC/ARC," the guidelines said.

The audit committee of the board (ACB) will have to approve the classification of accounts that are due beyond 90 days but not treated as impaired, with the rationale for the same clearly documented.

The number of such accounts and the total amount outstanding and the overdue amounts should be disclosed in the notes to the financial statements, it said.

NBFCs/ ARCs shall hold impairment allowances as required by Ind AS, RBI said.

NBFCs/ARCs shall also maintain the asset classification and compute provisions as per extant prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP) including borrower/beneficiary wise classification, provisioning for standard as well as restructured assets and NPA ageing.

"Where impairment allowance under Ind AS is lower than the provisioning required under IRACP, NBFCs/ARCs shall appropriate the difference from their net profit or loss after tax to a separate impairment reserve," the guidelines said.

It said 12 month ECL allowances for financial instruments, that is where the credit risk has not increased significantly since initial recognition, will have to be included under general provisions and loss reserves in tier II capital within the limits specified by extant regulations.

The guidelines also asked NBFCs/ARCs to educate their customers on the need to make payments in a timely manner.