Includes interest on bonds/debentures, liability component of financial instruments. Includes all balances with banks in India (including co-operative banks). Once the credit risk of a financial asset increases to the point that it is considered credit-impaired, interest revenue is calculated after netting the impairment allowance from the gross carrying amount (Stage 3). The difference may be treated as an employee benefit and expensed accordingly. With the exception of one bank which used the term Profit and Loss Account, other banks used the term Income Statement. This may give some indicative guidance for banks while not violating the spirit of the standard. Financial Statements shall disclose all ‘material’ items i.e. Banks need to work on historical data of DPD status and subsequent recoveries/slippages to rebut the 30-day presumption and arrive at the alternate threshold period. Includes interest on all subordinated liabilities. This classification includes any financial assets held for trading purposes and also derivatives, unless they are part of a properly designated hedging arrangement. Cash in hand and balances with Reserve Bank of India, 4. An impairment review is required for financial assets that are measured at fair value and any fall in fair value is taken to profit or loss or other comprehensive income for the year, depending upon the classification of the financial asset (see earlier). Similarly the carry forward of realised gains as ‘Other Liability’ is not Ind AS 109 compliant. Valuation policy for assets held for sale, (xv) Goodwill and other intangible assets, (xvii) Deposits, debt securities issued, subordinated liabilities and other borrowings, Components and basis of initial recognition and subsequent measurement, (xix) Offsetting financial assets and financial liabilities. Detailed entries have been prescribed for recording premium received/ paid and gains/losses on revaluation. These needed to be reviewed and updated in light of the implementation of Ind AS. Basis of considering derecognition of financial assets and liabilities. Concerns were raised whether the entity has a free option to classify the investments by banks in financial assets to meet the stipulated Statutory Liquidity Ratios under FVOCI or does it have to demonstrate by selling (though not frequently) some of these financial assets? The issue of DTL/DTA in respect of HTM investments and provision for bad and doubtful debts in the case of banks has been examined by the Expert Advisory Committee (EAC) of the ICAI in the past. The Working Group considered at length potential issues that could arise in the course of implementation of the impairment requirements of Ind AS 109. Therefore, similarly, SLR securities can be from any of those three categories under new accounting standard and subject to compliance with specific requirements, if any. In such cases RBI may consider placing prudential filters such as restrictions on dividend to address its regulatory and supervisory concerns. It is recognised that banks will not necessarily be using exactly the same estimates for both IRB and all internal purposes. Further, If it is impracticable4 (as defined in Ind AS 8) for an entity to apply retrospectively the effective interest method in Ind AS 109, the fair value of the financial asset or the financial liability at the date of transition to Ind ASs shall be the new gross carrying amount of that financial asset or the new amortised cost of that financial liability at the date of transition to Ind ASs. 2.5.1 As per Ind AS 109, an entity may recognise a financial asset in its Balance Sheet only when it becomes a party to the contractual provisions of the instrument. Any previously recognised gains, losses or interest cannot be restated. You are on page 1 of 27. 5.8.1 For investments in subsidiaries, jointly ventures and associates, the Working Group recommends valuation at cost subject to testing for impairment. Statement of Changes in Shareholders’ Equity, 6. Classified under HTM for initial period of three years and valued at cost during this period. In contrast, a non-integral foreign operation accumulates cash and other monetary items, incurs expenses, generates income and perhaps arranges borrowings, all substantially in the local currency (e.g. Thus, no reclassification is permitted or required when, for instance, the conversion option of a convertible bond lapses. The entity shall not restate any previously recognised gains, losses or interest.’ The issue that arises is that if a bank changes its business model during the year, and is required to reclassify all affected financial assets, when is the reclassification recorded? In respect of unquoted equity shares, the recommendation is the same as in Sr. No. The IASB is yet to provide a principle based approach to segregate items into OCI and classification of particular item into OCI is based on the specific requirements of individual standards. Guidelines on Compliance with Accounting Standards (AS) by Banks, Draft Guidelines for Consolidated Accounting and Other Quantitative Methods to Facilitate Consolidated Supervision. As a prudent measure to build a cushion against the build-up of non-performing assets (NPA), the RBI has also prescribed a provision on standard assets, which is broadly based on the principle of expected loss provisioning. For instance, there could be a rebuttable presumption that where there are more than 5% of sales by value of the total amortised cost of financial assets held in a particular business model, such a business model may be considered inconsistent with the objective to hold financial assets in order to collect contractual cash flows. RBI has also prescribed the accounting treatment for both types of participations as under, In the case of the issuing bank, the aggregate amount of participation would be reduced from the aggregate advances outstanding. The nature of the restriction and amount placed in deposits where there are restrictions on withdrawal should be disclosed. This kind of scenario has been considered in Ind AS 109 (Refer Example 4 in Paragraph B4.1.4 of Application Guidance) and it states that ‘if the entity is required by its regulator to routinely sell financial assets to demonstrate that the assets are liquid, and the value of the assets sold is significant, the entity’s business model is not to hold financial assets to collect contractual cash flows. RBI guidelines also provide that if different entities in a group are governed by different accounting norms laid down by the concerned regulator for different businesses then, where banking is the dominant activity, accounting norms applicable to a bank should be used for consolidation purposes in respect of like transactions and other events in similar circumstances. In such cases, it is suggested by the Working Group that banks and their auditors exercise caution to ensure that any change in risk is suitably factored in failing which an assessment of the fair value of the new financial asset being recognised may need to be made. However, where these are not available a valuation technique may be used based on market observable inputs. The accounting entries specified may not be entirely compliant with Ind AS 109. One alternative, the Standardised Approach, is to measure credit risk in a uniform manner, supported by external credit assessments. Based on this review, the issues identified by the Working Group and its recommendations thereon are given in the table below. Therefore, the existing RBI guidelines requiring RRBs to be treated as associates. An instrument that is subordinated to other instruments may have contractual cash flows that are payments of principal and interest on the principal amount outstanding if the debtor's non-payment is a breach of contract and the holder has a contractual right to unpaid amounts of principal and interest on the principal amount outstanding even in the event of the debtor's bankruptcy. Further, hedging requirements and the hedge accounting model of the RBI circular is not consistent with Ind AS 109. Investment in Regional Rural Banks (RRBs) sponsored by banks are treated as investments in associates for the purpose of consolidated financial Statements and accounted by “Equity Method” as prescribed under AS 23. Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks. Selling a financial asset because it no longer meets the credit criteria specified in the entity’s documented investment policy is an example of a sale that has occurred due to an increase in credit risk; (ii) sales made close to the maturity of the financial assets and the proceeds from the sales approximate the collection of the remaining contractual cash flows; or. Financial Liability -3. However, if an enterprise, due to any statutory or regulatory requirement, needs to present consolidated financial statements, it is required to comply with the requirements of AS 21. As per Ind AS 105, a discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and: (a) represents either a separate major line of business or a geographical area of operations, and, (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or. Annex I: Proposed Third Schedule to Banking Regulation Act, 1949, The Third Schedule to Banking Regulation Act, 1949, GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. BP DBR.No.BP.BC.101/21.04.132/2014-15 dated June 8, 2015, circular DBOD.No.BP.BC. 8. An analysis of such instruments particularly in the context of Basel III capital instruments issued by banks, the accounting practices/RBI guidelines currently adopted and the recommendations of the Working Group are given in the table below. Sale of securities for OMO and repurchase by Government out of a non-trading portfolio would be more consistent with a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets i.e. The Banking Regulation Act, 1949 The Third Schedule (see Section 29), Balance Sheet of ........................... (name of the Banking Company) as at March 31, ..........(Year), Statement of Changes in Equity of .............. 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