1. Impact of IndAS on Banking Sector
Dr Naveen J Sirohi
School of Finance, IICA
Impact of IndAS on Banking Sector

2. Background 2014 Budget Speech by FM
Need for Integration with global Financial Reporting Standards
MCA timeline
Corporate (other than banks) starting April 1, 2016
Banks starting April 1, 2018
Banking Industry
Heavily regulated
Supersession of RBI over ICAI guidelines

3. Roadmap for IndAS Implementation in Banks
RBI Circular RBI/ /315 requires scheduled commercial banks to comply IFRS converged Indian Accounting Standards (IndAS)
Mandatory for accounting period beginning April 01, 2018
Comparative Information for the period ending March 31, 2018
Applicable for both standalone & consolidated financial statements
No earlier adoption permitted
Reiterates timeline issued by MCA press release dated Jan 18, 2016
Holding companies, RRBs, Foreign offices etc all have to be IndAS compliant

4. Working Group Set up by RBI for IndAS Implementation
Sen Committee Report dated Sept 8, 2015 giving recommendations into the following key areas with a focus on financial instruments:
- Classification & Measurement of Financial Assets
- Classification & Measurement of Financial Libilities
- Hedge Accounting and Derivatives
- Fair Value Measurement
- Impairment of Financial Assets
- Presentation of Financial Statements & Disclosures
- Derocognition, Consolidation and other Residuary Issues
Working Group also devised formats for financial statements of banks under IndAS and application guidance thereon

5. Activities & Reporting Requirement as per RBI Mandate
Set up Steering Committee headed by official ED rank official
Comprising members from cross-functional areas of banks to initiate the implementation process
Inform RBI name and details of designated official and the team
Audit committee to oversee progress & report to Board quarterly
Disclose in the Annual Report the strategy for IndAS implementation including the progress made in this regard starting FY till implementation
Boards of the Banks shall have the ultimate responsibility in determining the IndAS direction and strategy and in overseeing the development and execution on the IndAS implementation plan

6. Timeline FY 2016-17 Proforma Balance Sheet by September 2016
Preparatory Step
FY Parallel Run of both systems
Opening IndAS Balance Sheet
Crucial
FY IndAS system

7. Steps Step 1 Implementation Team Step 2 Capacity Building
Top Management Team & Execution Team
Step 2 Capacity Building
Not just an accounting exercise | Integrated approach
Step 3 Impact Study
Item by item analysis | Different for different banks
Step 4 Opening Balance Sheet (ending March 31, 2018)
Most difficult part | Lot of data required | Role of IT
Step 5 Final Statements (starting April 01, 2018)
Depends on 4 steps | Long & tough journey, but important

8. Impact Financial Fair Valuation
Increased loan loss provisioning (Example)
Consequent impact on capital
Human Resource
Alignment of right resources
Capacity building
IT Systems
Reliable data and credit models
Change in MIS due to change in Reporting
Stakeholders Expectation

9. Ground Reality
Possibility of delayed Implementation as banks are finding it difficult to meet Basel III capital requirements by end March 2019 estimated around $90 billion
Migration of IndAS 109 will require banks to switch to recognising and providing for Expected Credit Loss on financial assets rather than current practice of providing only when losses are incurred.
It will lead to greater provisioning and earlier recognition of credit losses that will require additional capital (in addition to Basel III requirements)
Operational challenges – Banks will need more data on how portfolios perform through the credit cycle and complex models of expected losses. Banks with sophisticated systems where there is robust data would have smooth journey.

10. Email: prof.sirohi@gmail.com
Thank You. 
Dr Naveen J Sirohi