Delaying bad news (Indian Banks and NPAs)

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 Delaying bad news (Indian Banks and NPAs)

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• Ind AS indefinitely postponed : A new standard – the Indian Accounting Standard or Ind AS – was to be launched on 01-April 2018, but could not be due to delay in Centre’s enacting necessary amendments in Banking laws. Now, the 01-April 2019 deadline too is indefinitely postponed by RBI, citing same reasons.
• What would Ind AS do : It would bring Indian AS in line with international ones, but cause a lot of heartburn to Indian banks immediately. How? The Banks will have to prematurely recognise losses on their loans and build up capital to overcome impact of such losses.
• The basic ECL norms : In each reporting period, banks have to calculate the Expected Credit Losses (ECL) on their loans, and make necessary adjustments to profit-and-loss accounts even BEFORE a borrower may default on a loan. Today’s situation is reverse : Banks make credit loss entry in their accounts AFTER the outstanding loans have been in a state of default for a certain no. of days.
• Banks wary : The losses to be booked may be heavy, hence the hesitation. The delay is not surprising. The ability to actually predict future credit losses needs to be developed as well. Without that, Bank earnings will exhibit volatility. 
• Central government’s stand: It has shied from making deep reforms in the way Banks are run (and to clean up the balance sheets), but is bailing out the sinking PSBs. It too has no incentive to get the Ind AS going.
• A trillion rupees : Research shows that if the new Ind AS norms are launched right away, then the bad loans pile of PSBs will grow substantially, and an additional provision of upto Rs.1 trillion may be needed.  The Centre is in no position to help. So, hide! But kicking the can down the road may be no solution at all.
• Summary : The adoption of Indian Accounting Standards (Ind AS) for Indian banks is postponed indefinitely once more, probably because the bad loans pile will grow substantially.

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