Lenders relieved of pressure to raise fresh capital in haste
MUMBAI: The banks will now heave a sigh of relief as the Reserve Bank of India (RBI) has once again deferred the implementation of Indian Accounting Standards (Ind AS) from April 1, 2019 until further notice.
An RBI notification to this end stated, “The legislative amendments recommended by the Reserve Bank are under consideration of the Government of India. Accordingly, it has been decided to defer the implementation of Ind AS till further notice.”
Though Ind AS was originally scheduled to take off from April 2018, RBI had deferred the applicability of Ind AS on commercial banks by one year, ie, until April 2019, and this has now been deferred until further notice.
In fact, the banks that have been busy preparing themselves for Ind AS from April 1, 2019 have now got a reprieve. According to accounting experts, the new Ind AS prescribes additional capital requirements as more items on the balance sheet will be brought under risk weighting or in other words, capital adequacy ratio (CAR) will apply to broader asset class under Ind AS.
Talking to businessbenchmark.news, an accounting expert explained that Ind AS will certainly send the banks running around for fresh capital. “Currently, CAR applies only to risks such as loans & advances and investments. With the new accounting system, Ind AS, to be in place, not only fixed assets, even the human resources aspect, will be risk-weighted for the calculation of CAR.
As far as the Kerala banks are considered, all banks are more than compliant on the CAR front and most banks are in the process of strengthening their capital base. While South Indian Bank (SIB) has recently announced its plan to raise Rs250 crore Tier 2 Basel- compliant bonds, Dhanlaxmi Bank is reported to be going in for doubling its share capital itself (businessbenchmark.news reported recently).
Federal Bank has always been well capitalized even ahead of its growth curve, whereas Catholic Syrian Bank (CSB) is waiting for its additional $108 million committed by its new celebrity shareholder – Fairfax, to shore up its capital base substantially.
