Page 47 - Banking Finance July 2025

ARTICLE

instance, ABC's ECL provisions exceeded RBI Broader Implications for the Banking
requirements by INR 800 crore in FY 2019-20, but the Sector
excess was parked in a non-distributable impairment
reserve, limiting dividend payouts and frustrating ABC's experience offers lessons for Indian banks:
Technology is Non-Negotiable: Ind AS demands robust
shareholders.
IT systems, a gap still plaguing smaller banks.
Stakeholder Pushback Proactive Risk Management Pays Off: ECL's forward-
Investors questioned the initial dip in profits (down 15% looking lens reduces NPAs over time, as seen in ABC's
turnaround.
in FY 2019-20 due to higher provisions), while auditors
flagged ECL subjectivity. ABC conducted roadshows to Regulatory Alignment is Key: Divergences between
explain the long-term benefits, gradually restoring RBI norms and Ind AS need resolution to unlock capital
confidence. flexibility.
Transparency Wins Trust: Enhanced disclosures align
Financial and Operational Impacts (2019-2025) banks with global standards, attracting foreign
The transition's effects unfolded over years, reshaping ABC's investment.
financials and strategy.
Conclusion: A Transformative Milestone
Immediate Financial Impact (FY 2019-20) ABC's transition to Ind AS was a rollercoaster-marked by
initial pain, operational upheaval, and eventual triumph. By
Provisions: ECL provisions rose from INR 2,500 crore
(Indian GAAP) to INR 3,300 crore, reducing net profit February 2025, the bank emerged stronger, with a cleaner
balance sheet, sharper risk practices, and greater investor
from INR 1,000 crore to INR 850 crore.
appeal. For the Indian banking sector, ABC's journey
Balance Sheet: Assets grew by INR 3,500 crore (leases) underscores that Ind AS is more than an accounting shift;
and liabilities by INR 3,300 crore, lowering the capital it's a catalyst for resilience and competitiveness. As banks
adequacy ratio (CAR) from 12% to 11.5%. navigate digital disruption and economic uncertainties,
those embracing Ind AS's principles will lead the charge into
Revenue: Deferred fee income cut reported revenue
a globalized future.
by 5%, though cash flows remained unaffected.

Conclusion: A Transformative Legacy
Long-Term Transformation (2023-2025)
Ind AS has ushered Indian banking into a new era of
By February 2025, ABC's financial health stabilized. Net
accountability and resilience. While the transition has been
profit rebounded to INR 1,300 crore in FY 2024-25,
arduous-marked by technological, operational, and
reflecting lower provisions as ECL models matured.
regulatory challenges-the rewards are evident in stronger
risk management, global alignment, and stakeholder trust.
The CAR recovered to 13%, bolstered by an INR 2,000 crore
For an industry navigating digital disruption, geopolitical
equity infusion in 2023. Lease accounting stabilized, with uncertainties, and economic recovery, Ind AS is both a mirror
ROU assets depreciating predictably. ABC's stock price rose and a compass-reflecting current realities and guiding future
30% since 2020, signalling market approval. strategies.

Operationally, Ind AS catalysed modernization. ABC adopted Banks that view Ind AS as an opportunity, not a burden, will
AI-driven credit scoring by 2023, enhancing ECL accuracy. emerge as leaders. Whether it's leveraging technology to
Branch managers, now versed in risk metrics, shifted focus streamline compliance or aligning with RBI's vision for a
from loan disbursement to portfolio quality. The bank's robust financial system, the journey is far from over. As we
disclosures-detailing ECL assumptions and lease exposures- approach the next decade, Ind AS will remain a catalyst for
won praise from analysts, improving its rating from BBB to transformation, ensuring Indian banks not only survive but
BBB+ by 2024. thrive in a competitive global landscape.

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