reserve Bank of India But took the first important step towards shifting the banks ind-as This comes after accounting standards on Friday indicated that it would soon issue a discussion paper on loss-based credit loss provision expected by banks.

“As a further step towards convergence with globally accepted prudential norms, it is proposed to adopt a required loss approach for the loss allowance required to be maintained by banks in respect of their exposures.” reserve Bank of India Governor Shaktikanta Das Told. “As a first step, a discussion paper on various aspects of the transition will be issued shortly.”

The central bank has in the past conducted impact assessments on the implementation of Ind-AS, India’s version International Financial Reporting Standards (IFRS). In March 2019, RBI had announced the suspension of IndAS until further notice. Non-bank financing companies already follow this model.

IFRS 9 moves from the spent credit loss model to the expected credit loss model and this would mean that the timing of loss recognition can be undone. This will lead to increased provisioning and may affect the capital adequacy ratio.

Experts point out that banks have strengthened their capital position in the last two years, so this is an opportune time to introduce these rules.

Anil Gupta, Sector Head, Financial Sector, said, “We see that the central bank is gradually coming out with the roadmap for transition to Ind-AS, and this is a very good time as banks have a lot to do with strong balance sheets. There’s more headroom.” rating, ICRA Rating, “Even if there is a capital hit because of this, banks will be able to recover better.”

The credit loss model currently used by banks is based on RBI guidelines, where it takes into account the number of days delayed before the loan is classified as a stressed asset.

Banks, on the other hand, would be expected to factor in economic cycles, whether a potential bubble is forming, and then factor in arriving at the health of loans under the expected credit loss model.

This would mean that banks would have to calculate the probability of a loan going bad before there were any signs of it going bad.

If this model is followed, it would lead to banks making provisions for these stressed loans much in advance and would affect the time of recognition.