Ind AS Application on Banks- A Comprehensive Guide

Ind AS, ie Indian Accounting Standards, is one such accounting standard that is made to bring a map and transparency to the company doing business in different sectors in India. In this article, we will see how Ind AS Application on Banks and the whole banking sector and its effects.

Ind AS is one such set of accounting standards that is adapted from the International Financial Reporting Standards (IFRS). The main objective of Ind AS is to provide a common accounting language to companies doing business in India. you can read here what is Ind As. It is easy for investors to compare the investment pattern of companies in the world. Ind AS has been applied in place of Indian GAAP and it is mandatory for some companies.

How, Ind AS Application on Banks?

Ind AS has a substantial impact on the banking industry in India. Banks are one of the biggest users of accounting standards, and Ind AS has brought about a lot of changes in how they operate. Reserve Bank of India (RBI) has notified the details of Ind AS, as per which, starting from 1st April 2018, all scheduled commercial banks (except Regional Rural Banks) will have to adopt Ind AS. The introduction of Ind As has brought about a change in the financial system of various financial instruments and contexts in the banking industry. You can refer here for phases of Ind As Applicability on other Businesses.

Treatment of financial instruments after Ind As:-

Ind As has also come with changes in the presentation of financial instruments. According to the previous Indian GAAP, banks were required to classify their financial instruments into three categories. These categories are:-

• Held to maturity
• Held for sale
• Held for trading.

But according to Ind AS, banks need to classify their financial instruments into categories that show

• Amortized cost
• Fair value through profit or loss
• Fair value through other comprehensive income.

With this change, the instruments have more transparent reporting and they have a better understanding of risk. Under the new framework, Bank has to present more detailed information on their financial instruments like derivatives and securities. They are also required to disclose the risks associated with these instruments, which helps investors make more informed decisions. After Ind AS Application on Banks has to present in more detail their financial instruments and risk management practices. This new reporting framework helps investors to better understand the financial status and performance of a bank.

Changes in treatment of expected credit loss and NPA classifications:-

Ind AS’s second big change has happened in accounting for expected credit losses and NPA. According to earlier Indian GAAP, banks recognize losses only when they incurred them. This procedure was called incurred loss model. But according to Ind AS, banks will have to provide forward-looking information on the basis of expected credit losses. This means that banks need to consider the expected credit losses on their financial assets over their entire lifetime, rather than just over the next twelve months as required in earlier accounting standards. This change has made the reporting of impairment losses more accurate and timely. With this change, the damage has been identified earlier and the credit risk has been better managed.

what is expected credit loss:-

Expected credit loss refers to the amount of loss expected by banks and other financial institutions on their loans and investments. These losses can also be for loans not repaid by them.

How the banking sector get benefits from the new framework:-

There are endless benefits of the new framework of financial reporting on banks. It has made financial reporting more transparent and reliable, which is important for investors as well as regulators also. The new disclosure requirements under Ind AS help investors to make well-informed decisions about the risks associated with a bank’s financial instruments and the bank’s policy to manage that risks.

Conclusion:-

The new framework also brings a level of consistency and comparability to financial reporting. When Ind AS Application on Banks investors compare the financial statements of different banks not only in India but also out of India and make better investment decisions. Additionally, the adoption of Ind AS has helped improve the credibility of Indian banks in the eyes of foreign investors, who are more familiar with global accounting standards.

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