Page 45 - Banking Finance July 2025

ARTICLE

consultancy fees, training-has been significant. Public Standards (Ind AS), focusing on their application and impact
sector banks (PSBs), already strained by recapitalization on a hypothetical Indian company.
needs and NPAs, have found this particularly
challenging. A 2021 PwC report estimated that large This case study examines the journey of ABC bank, a mid-
Indian banks spent INR 50-100 crore each on Ind AS sized public sector bank, as it navigated the transition to
transition, a cost smaller banks can ill afford. Ind AS from 2018 to 2025. With assets of INR 2.5 lakh crore
and a network of 2,000 branches as of 2018, ABC represents
Benefits of Ind AS for Banks a typical Indian bank grappling with legacy systems,
regulatory pressures, and a diverse loan portfolio. We'll
Despite these hurdles, Ind AS offers transformative
explore how ABC implemented key Ind AS standards, the
advantages that justify the effort.
operational and financial impacts, the challenges faced, and
Enhanced Transparency
the broader implications.
By emphasizing fair value and expected losses, Ind AS
provides a truer picture of a bank's financial position.
Investors and depositors gain clarity on asset quality and Background: ABC Before Ind AS
risk exposure, crucial in an era of heightened scrutiny Founded in 1952, ABC had grown into a significant player in
post-IL&FS and Yes Bank crises. India's public sector banking landscape by 2018. Its loan book
comprised retail (40%), agriculture (25%), MSMEs (20%),
Global Comparability and corporates (15%), with deposits totalling INR 1.8 lakh
As Indian banks expand overseas or seek foreign crore. Like many peers, ABC operated under Indian GAAP,
investment, Ind AS alignment with IFRS enhances their relying on historical cost accounting and incurred loss
credibility. For example, when Axis Bank issued bonds provisioning. Its financial statements were straightforward
in international markets in 2023, its Ind AS-compliant but lacked the granularity and forward-looking insights
statements reassured global investors, securing demanded by global investors.
favourable terms.
The RBI's 2018 directive to adopt Ind AS came at a pivotal
Proactive Risk Management time. ABC was recovering from a high non-performing asset
(NPA) ratio of 15% in 2017, bolstered by government
The ECL model encourages banks to identify and
recapitalization. However, its systems-built on outdated core
mitigate risks early. Private banks like Kotak Mahindra
have leveraged this to reduce NPAs, using predictive banking software-were ill-prepared for the data-intensive
analytics to flag troubled accounts before they default- requirements of Ind AS. The bank's leadership recognized
a stark contrast to the reactive provisioning of the past. the transition as a chance to modernize but anticipated
significant hurdles.
Stakeholder Confidence
Detailed disclosures under Ind AS 107 and 109 build trust The Transition Process: A Phased
among regulators, shareholders, and customers. This is Approach
vital for PSBs, which have historically faced criticism for ABC's transition to Ind AS began in mid-2018, with a target
opaque reporting, as they work to restore public faith. compliance date of April 1, 2019, for the financial year 2019-
20. The bank adopted a phased approach, aligning with RBI
Long-Term Resilience guidelines and leveraging lessons from early adopters in
By aligning accounting with economic reality, Ind AS similar industry.
prepares banks for future shocks. The ECL framework,
though demanding, mirrors Basel III's focus on capital Phase 1: Planning and Assessment (July 2018 -
buffers, creating a more robust banking system.
December 2018)
ABC formed an Ind AS Task Force, comprising finance, risk,
Case Study: IT, and audit teams, chaired by the Chief Financial Officer.

Below is an illustrative case study on Indian Accounting The task force conducted a gap analysis, comparing Indian

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