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The banks will have trouble with the new accounting standards
According to the Reserve Bank of India's instructions, new accounting standards in banks are to be implemented from April 1, 2019, but the banks are not able to implement them.

The banks are requesting relief from the Central bank, citing excessive capital provisions for the stranded debt, pending legislative amendments and delay in issuing the final rules by the banking regulator. Significantly, the Reserve Bank has already given the banks a year's moratorium in the case. According to the proposal of the central bank, 2016, the new accounting standards were to be implemented in banks from April 2018, but the Reserve Bank extended it one year further to 1 April 2019, as it required legislative amendment, changes in software, etc. as well as the banks were also struggling with capital constraints.

By the way, even today old problems related to implementation of accounting standards in banks are in place. Because of the Basel III and growing Non-Performing Assets (NPA), banks need huge amount of capital. However, keeping in mind the need of the capital, the government has recently provided some capital to the banks, but it cannot be said enough.

However, banks are under pressure to improve the current bad financial position and implementing new accounting standards will increase the additional burden on banks, especially in the case of provision of NPA accounts. Therefore, the banks have been seeking some timeframe from the Reserve Bank. According to the banks, they will be able to implement new accounting standards after their financial position has improved.

Banks say that the requirements of current capital are not taken into account in the new accounting standards. If the new accounting rules are enforced then the need for capital will increase, because the new accounting rules have stated the provision for NPA accounts under the estimated borrowing loss model, while the bank has found it to be based on historical debt loss experience as well as in the future, it is also taken into consideration for future economic conditions and estimates.

However, the Reserve Bank has not yet issued specific guidelines regarding new accounting rules. Banks need to evaluate the potential changes in the software system and strengthen the data collection system to give an impression to the assessment process. Before implementing new accounting standards, banks also need to make changes in software with immediate effect.

It is not easy for banks to implement new accounting standards from April 1, 2019 in this perspective. In fact, many banks had put the work of changes in software and systems in incomplete stage after the first year of the process of implementing new accounting standards. Therefore, banks will have to work on the change, which may take at least one quarter of the time to the banks. In the guidelines issued in the year 2016, the Reserve Bank had asked the banks to analyze the difference between current and proposed accounting format.

Thereafter, banks conducted parallel accounting assessment based on the proposed accounting standards and most banks found that it is not possible for them to implement new accounting standards immediately.

Before the implementation of new accounting standards, banks have to prepare financial statements for the previous financial year as well as financial statements for the financial year beginning April, 2019. In the case, the Indian Banks Association (IBA) said that the possibility of issuing direction in the case by the Reserve Bank in the near future is less.

According to IBA, the guidelines for new accounting standards have not been announced by the Reserve Bank, which indicates that the Reserve Bank is not in the mood to implement it from the new financial year i.e. April 1, 2019.

It can be said that the existing financial status of the banks is not very strong. However, the government has given capital help to the banks, but it cannot be said enough. Banks are still facing capital problems to meet the requirement for huge provisions for increasing NPAs and Basel's III various standards. It is not possible for banks to implement new accounting standards prescribed by the Reserve Bank.

Therefore, by looking at the current situation of the banks, the Reserve Bank may again defer the date of implementing of new accounting standards by the next financial year. However, the implementation of new accounting standards will reveal the real situation of banks' liabilities, transparency in banking system and accounting standards of Indian banks will also be in line with global accounting standards, which will enhance the credibility of Indian banks at international level.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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