Reserve Bank expecting only first cut reporting from banks, says ED, RBI

The Reserve Bank of India (RBI) is expecting a rough, first cut reporting from banks vis-a-vis proforma Ind AS (Indian Accounting Standards) financial statements for the half year ending September by November 30 to ascertain the difficulties and problems faced by banks as part of transition to International Financial Reporting Standards from April 2018, a top RBI official said at an ASSOCHAM event held in New Delhi today.

"I know it will be very difficult to expect any kind of accuracy in that reporting, what I am hoping is it will throw up difficulties, problems which we will work on," said Sudarshan Sen, executive director (ED), RBI while inaugurating an ASSOCHAM seminar.

 

"We are not going to hold a sword to the banks and say that this reporting has to be absolutely perfect, on the contrary it will be a discovery and learning for us and banks which is why we have asked for this proforma reporting from September half year onwards," said Sen.

He also said that capacity building both in terms of human as well as IT (information technology) resources is the need of the hour for banks to follow Ind AS converged with International Financial Reporting Standards (IFRS) from April 2018.

"It is imperative for the human resources in banks to meet the challenges of implementing Indian Accounting Standards (Ind AS), another very big area is that huge modifications will be required to IT systems," he added.

He said that the basic Core Banking Solution (CBS) which exists in banks is a barebones nominal value recording framework, but to move the data there into the kind of financial reporting and the measurement which is required under the Ind-AS will require lot of application programming interfaces, lot of middleware will have to be developed which will basically convert all the raw numbers into numbers which are compliant in Ind-AS.

"But this is again a huge challenge and given this especially in public sector banks (PSBs) there are processes involved in upgrading software and hardware, it takes time, there are approvals required and there are budgets to be made, it is a big challenge as to how they would be able to meet the timelines given by us," he said.

He added that banks need to develop and strengthen their data capture systems to enable the assessment of impairment.

"Now we will be going to loss modeling, we will be looking at data based estimation of future losses and the additional problem is that we do not have a lot of work actually done internationally for us to draw from that so we will be inventing to a large extent domestically," said the RBI executive director.

Highlighting that Ind AS provides for extensive disclosures in respect of financial instruments and their attendant risks and also fair value measurements as well as consolidation requirements, he said "Banks will have to put in very robust systems in place and make lot of efforts and possibly expenses to meet the requirements in this regard."

He also said that RBI will have to very carefully review various regulations that are there and bring them in tune with the Ind-AS.

"Where we have to deviate, we will consciously deviate and where we have to join we will consciously join, but a lot of work is there," said Sen.

He further said that formats of balance sheets and the profit and loss account

under the Banking Regulation Act will change under the Ind-AS landscape. "All this is being looked at, all reporting formats will undergo a great change.