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RBI issues guidelines for Ind AS implementation by NBFCs, ARCs

On March 13, 2020, the Reserve Bank of India (RBI) has framed regulatory guidance on Indian Accounting Standards (Ind AS) to be applicable on Ind AS implementing Non-Banking Financial Companies (NBFCs) and Asset Reconstruction Companies (ARCs) for preparation of their financial statements (FS) from financial year (FY) 2019-20 onwards. The guidance has been framed to promote a high quality, consistent implementation, and better supervision of FS.RBI NBFC

  • As per the guidance, all Non-Banking Financial Companies (NBFCs) covered by Rule 4 of the Companies (Indian Accounting Standards) Rules, 2015 are required to comply with Ind AS for the preparation of their FS.

Key Points regarding guidelines:

-The guidelines mandate NBFCs/ARCs to follow board approved policies stating clear and effective business models and portfolios.

-They are mandate to frame their policy for sales out of amortised cost business model portfolios and disclose the same in their notes to FS.

-The BoDs should approve sound methodologies to be computated for expected credit losses (ECL).

-The audit committee of the board (ACB) will have to approve the classification of accounts that are due beyond 90 days but not treated as impaired. The number of such accounts and the total amount outstanding and the overdue amounts should be disclosed in the notes to FS.

-NBFCs/ ARCs shall hold impairment allowances as required by Ind AS.

-NBFCs/ARCs shall also maintain the asset classification and compute provisions as per extant prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP).

-The guidelines also asked NBFCs/ARCs to educate their customers on the need to make payments in a timely manner.

Point to be noted:
For the matters that are not dealt with in the above guidelines, NBFCs/ARCs are required to refer to the notified accounting standards, application guidance, educational material and other clarifications issued by the Institute of Chartered Accountants of India (ICAI).

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, N S Vishwanathan (will retire on March 31, 2020), Mahesh Kumar Jain, Michael Debabrata Patra).