Mumbai: In a move that will save the country’s banks from adding another US$190 billion to its stack of bad loans, India has delayed the introduction of tough new accounting rules for a second year straight. The Reserve Bank of India said that the legislative amendments that were required to bring the new Indian Accounting Standards into effect were still being considered by the government. “Accordingly, it has been decided to delay the implementation” of the rules “until further notice,” an official statement released by the RBI said.
New rules would have taken effect on April 1
After being delayed last year, the new Indian Accounting Standards, that are based on the IFRS9 standards created in the aftermath of the financial crisis, were supposed to take effect at the start of the new fiscal year on April 1. If the rules had taken effect, state-run lenders would have had to increase provisions by at least Rs 1.1 trillion in the fiscal first quarter ending June 30, Fitch Ratings’ local unit had said.
Fitch had said in a report last month that the new rules would have pushed public sector banks to raise “substantial” amounts of extra capital, beyond the estimated Rs 1.9-trillion infusion promised by the Centre for the two-year period to the end of this month.
The rulebook would have required banks to make provisions
The RBI had delayed the implementation of the new accounting rules last year, saying that it needed legal changes and more preparatory work by the public sector banks. The rulebook would have required banks to make provisions if they could see a loan going sour, instead of waiting for the borrower to start missing payments.
Before RBI made the announcement, Parthasarathi Mukherjee, chief executive officer of Lakshmi Vilas Bank Ltd, had said that had the rules been enacted this year, the impact on banks would have been less this year than the last. By virtue of taking hefty provisions and write-offs in past years, there were early signs that asset quality was improving, Mukherjee said.
“The system has overall mostly seen through its challenges on asset quality,” Mukherjee added.