The extant instructions provide for the deferment of recognition of gains / losses as well as the non-recognition of gains which would not be in alignment with Ind AS 109. Ind AS 109 gives the example of an entity having access to historical evidence that demonstrates that there is no correlation between significant increases in the risk of a default occurring and financial assets on which payments are more than 30 days past due, but that evidence does identify such a correlation when payments are more than 60 days past due. In such cases RBI may consider placing prudential filters such as restrictions on dividend to address its regulatory and supervisory concerns. As per Ind AS 109, regardless of the way in which an entity assesses significant increases in credit risk, there is a rebuttable presumption that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due. However, banks can evaluate potential workarounds keeping in mind the following aspects: Banks in consultation with their auditors could consider gauging the materiality of continuing to use existing book values suitably adjusted with assumptions for receipts and payments to be included in the computation of EIR. In terms of Ind AS 109, when and only when, an entity changes its business model for managing financial assets it shall reclassify all affected financial assets. Several banks have subsidiaries which are Asset Management Companies (AMC) for mutual funds. The format specified in the guidelines dated February 25, 2003 may be inconsistent with the requirements of Ind AS 110. All equity in­vest­ments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value changes recog­nised in profit or loss, except for those equity in­vest­ments for which the entity has elected to present value changes in 'other com­pre­hen­sive income'. HTM, AFS and HFT are different from those under Ind AS (IFRS). Included in above are derivatives held for hedging and risk management purposes as follows: Subsidiaries, associates and joint ventures, Total Investments – Gross (C) = (A) + (B), A (i) Bills Purchased and Bills Discounted, (ii) Cash Credits, Overdrafts, Loans repayable on Demand, (ii) Covered by Bank/ Government Guarantees, Note: Amounts presented should be suitably disaggregated to reflect the policies and practices of managing and monitoring advances, At cost or fair value at the beginning of the year, At cost or fair value at the end of the year, Accumulated depreciation and impairment as at the beginning of the year, Accumulated depreciation and impairment as at the end of the year, Net carrying amount as at the end of the year, Capital Work in Progress including advances for capital assets, * Includes Land Rs.XXX (Previous Year Rs.XXX), - Out of the above, non-banking assets acquired in satisfaction of claims, Share application money pending allotment, Liability component of compound financial instruments, Preference Shares other than those that qualify as Equity, Others (specifying the nature and type of instrument issued), Claims against bank not acknowledged as debts, Guarantees given on behalf of constituents - in India, Guarantees given on behalf of constituents - outside India, Letters of Credit issued on behalf of constituents, Interest on balances with and dues from banks, Net gain/ (loss) on financial instruments at fair value through profit and loss account :-, b) On financial instruments designated at fair value through profit and loss account, Net gain/(loss) on derecognition of financial assets at amortised cost, Net gain/(loss) on ineffective portion of hedges, Net gain/(loss) on derecognition of property, plant and equipment, * Any item under the subhead ‘Others’ which exceeds one per cent of the total income to be presented separately, * Any item under the subhead ‘Other expenditure’ which exceeds one per cent of the total income to be presented separately, Includes cash in hand including foreign currency notes and also of foreign branches in the case of banks having such branches. RBI could also consider advising CCFs based on industry estimates. In case the sum of ‘Other Equity’ in the Statement of Changes in Equity is negative, it shall continue to be presented as a negative amount under ‘Other Equity’. IFRS 13 was originally … Keeping in view the rationale given in the standard, investments in rupee denominated SLR securities and central government guaranteed advances could be considered as low credit risk. The Reserve Bank of India may prescribe requirements for any of the components of Financial Statements including the Notes to Accounts which shall contain information in addition to that presented in Form A and Form B. Welcome to the refurbished site of the Reserve Bank of India. Thus, Ind AS 109 requires transaction costs (incremental costs in nature and directly attributable to issue of FL) to be recognised as part of the Effective Interest Rate ‘EIR’ of the instrument issued (in effect amortised over the life of the instrument). One alternative was to treat it as a matter of compliance with requirements of accounting standards like Cash Flow Statement and banks would have the discretion in the contents and structure of the format. In order to address its concerns as a regulator, RBI may consider using prudential tools/filters such as non-recognition of such profits in computation of regulatory capital as also for dividend distribution, etc. The declaration of dividend by banks is governed by instructions contained in RBI circular DBOD.No.BP.BC.88/21.02.067/2004-05 dated May 4, 2005. However, in terms of IAS 16 and its Indian equivalent Ind AS 16 on Property Plant and Equipment, the depreciable amount of asset shall be allocated on a systemic basis over its useful life. RBI categories of HTM, HFT and AFS as well as the accounting thereof are not consistent with the classification and accounting requirements of Ind AS 109. Other information; 59. Under IFRS 9, the default financial asset measurement category is fair value through profit or loss (FVTPL), while under IAS 39 it is available for sale (which also requires measurement at fair value, but results in less volatility in profit or loss because fair value changes are recognised in other comprehensive income). At least initially, till such time as data for generating lifetime PDs is available, banks may explore using statistical techniques and methods to convert 12 month PDs into lifetime PDs. Arrears of cumulative dividends on preference shares shall also be disclosed separately. The Working Group focussed on banking specific issues which may arise due to the extant RBI guidelines on the matter and the nature of the business of banking. Combined reading of the Ind AS 109 text, application guidance and implementation guidance, indicates that trade date or settlement date accounting may be required to be applied uniformly to all impacted financial assets classified within measurement category levels e.g. Hence all proceeds would be reflected as liability in terms of paragraph 28 and 29 of Ind AS 32. 11 It may be noted that there are several differences between the existing IRACP framework and the Ind AS framework. However, objective criteria that can be applied across the banking sector are not specified. Cumulative gain or loss on OCI is reclassified to profit or loss at reclassification date. The ICAI may be requested to issue clarifications in the context of Ind AS 12. If we begin with the classification of financial assets, IFRS 9 now classifies financial assets under three headings as follows: (1) Financial assets at fair value through profit or loss (FVTPL) Also, for the more senior and junior tranches, it may be obvious, with relatively little analysis, whether the tranche is less or more risky than the underlying assets. Where there are such differences, a bank must document them and demonstrate their reasonableness to the RBI.” The intention of these instructions is perhaps to avoid scenarios where banks use an IRB approach merely to compute capital and not to manage risk. While Ind AS 109 appears to envisage sale of assets held under the Amortised Cost category before maturity, the application guidance states that such sales may be consistent with a business model whose objective is to hold financial assets in order to collect contractual cash flows if those sales are infrequent (even if significant in value) or insignificant in value both individually and in aggregate (even if frequent). Equity instruments: fair value through other comprehensive income (FVOCI) Using FVOCI, the alternative treatment, transaction costs can be capitalised as part of the initial cost of the investment. Presentation of unrealised gains/losses (mark-to-market-MTM) of forex and derivatives. The granular details are to be given as per Note 6 on ‘Investments’. The guidance for compilation in brief, wherever found necessary, with respect to the line items and sub-line items in the Profit and Loss Account is given below. Fair value at the reclassification date becomes its new gross carrying amount. In most situations, the transaction value will equal the fair value on initial recognition and as such no significant changes from current practices will be required. In order to facilitate compliance with AS 18, RBI has advised banks that the related parties for a bank are its parent, subsidiary(ies), associates/joint ventures, Key Management Personnel (KMP) and relatives of KMP. The cash flow characteristics test – to pass this test, the contractual cash flows collected must consist solely of payment of interest and capital. Treatment of realised and unrealised gain or losses. Banks may rely on valuations determined by themselves internally based on sound and established internal systems with the approval of their Board of Directors provided, however, that a valuation of such instruments is carried out by an independent external valuer/expert at intervals not exceeding 12 months. Includes balances with banks outside India. For instance, in the case of financial guarantee contracts, Indian Accounting Standards specify certain recognition and measurement criteria. However, all banks coming under the purview of consolidated supervision of RBI, whether listed or unlisted are required to prepare and disclose Consolidated Financial Statements in addition to separate financial statements as per extant RBI guidelines. Under the functional currency approach the entity first determines its functional currency and then translates all foreign currency items into the functional currency. The accounting treatment for IRS on accrual basis is not aligned with Ind AS 109 as all derivatives are categorised under FVTPL. Ind-AS, which has been followed for preparation of financial statements. Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site. In case of default, the borrower is not liable because the lender is limited to collateral pledged for that loan—the lender has “no recourse” to the borrower’s other assets. Questions were raised what would be the suitable classification for such excess holdings. In case of a reclassification from amortised cost category to FVTPL or FVOCI categories, the fair value is measured at reclassification date and gain/loss is to be recognised in the profit or loss or OCI, respectively. The Conceptual Framework for Financial Reporting (QC 11) specifies that materiality is an entity specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity’s financial report. (1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. Tax effect of each item in OCI disclosed along with the item itself, Accounting Standards Board, Institute of Chartered Accountants of India, Department of Banking Regulation (formerly Department of Banking Operations and Development (DBOD)), Reserve Bank of India, Department of Banking Supervision, Reserve Bank of India, Department of Non-Banking Regulation, Reserve Bank of India, Financial Accounting Standards Board of United States of America, Foreign Exchange Dealers’ Association of India, Fixed Income Money Market and Derivatives Association of India, Fair Value through Other Comprehensive Income, Fair Value through Profit and Loss Account, Institute of Chartered Accountants of India, Internal Debt Management Department, Reserve Bank of India, International Financial Reporting Standards, IFRS converged Indian Accounting Standards notified by Ministry of Corporate Affairs, Government of India, Insurance Regulatory and Development Authority, National Bank for Agriculture and Rural Development, Small Industries Development Bank of India. The loss absorption feature would not be an embedded derivative as it has a non-financial underlying variable that is specific to a party to the contract. Investments in joint ventures are to be accounted for using the ‘proportionate consolidation’ method as per AS 27 on “Investments in Joint ventures” issued by ICAI. Paragraph D.2.1 to D.2.3 of the Implementation Guidance of Ind AS 109 illustrates how the above principles can be applied in practice. The Working Group discussed the issue as to whether financial instruments which have the best credit rating (say AAA or AA), and where the stability of ratings is high (say more than 95 per cent), can be considered to have low credit risk. In order to ensure consistency of application across the banking industry, the RBI may consider prescribing an ECL model to be used across the banking industry. If NAV is not available than valued at cost till the end of lock in period. In order to ensure consistent application across the banking industry, the RBI may consider prescribing formats for consolidated financial statements based on these formats with suitable modifications to include items arising on consolidation. Policy for accounting of capital improvements, repair and maintenance. which though in the nature of reimbursement of expenses incurred may be included under this head. The Working Group acknowledges the efforts of and is grateful to Shri A K Choudhary, General Manager (GM), DBR for his valuable inputs and suggestions in drafting the chapter on Impairment. Further, they should not be co-mingled with Trading Positions, should be managed with sole intent for use as a source of contingent funds and should be under the control of specific function/s charged with managing liquidity risk of the bank, e.g. Further, IAS 1 does not specify the order in which the various statements should be presented, 2. Includes all other payments like interest on participation certificates, penal interest paid, etc. 1. 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. The Application Guidance to Ind AS 109 provides that an entity can rebut the presumption of significant increase in credit risk when contractual payments become more than 30 days past due only when it has reasonable and supportable information available that demonstrates that even if contractual payments become more than 30 days past due, this does not represent a significant increase in the credit risk of a financial instrument. In the case of a reclassification from fair value to amortised cost, the fair value at reclassification date becomes the carrying amount. Loans provided for project finance may be linked to the performance of the project. Such evidence could include how the performance of the business model of the assets held within that business model are reported to the key management personnel (KMP). The issue is which transactions costs would be eligible for inclusion in the amount initially recognised. These views are not intended to be authoritative interpretations of accounting standards and are subject to modification by accounting standard setters and regulatory bodies in the future. regarding the following specific areas: Contractual cash flow characteristics of financial assets, Classification of the financial assets vis-à-vis the business model test. Apart from the cases above, where adequate, timely and reliable information is available, banks may rely on valuations determined by themselves internally if based on sound and established internal systems with the approval of their Board of Directors provided, however, that a valuation of such instruments is carried out by an independent external valuer/expert at intervals not exceeding 12 months. These are briefly summarised along with the Working Group’s recommendations in the table below. It is recommended that while RBI need not withdraw the circular, it may clarify that the rates prescribed are indicative and that the banks may comply with the accounting standards in this regard. Expenses on behalf of customers which are not likely to be covered by the Govt. Inter-Alia include loss absorption features that entail a write down/ conversion to equity in Earlier accounting periods commencing or... 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