In line with the global trend, the Institute of Chartered Accountants of India (ICAI) has proposed a plan for convergence with the International Financial Reporting Standards (IFRS) for certain defined entities, including banks, with effect from April 1, 2011. Convergence to IFRS would mean India would join a league of more than 100 countries, which have converged with IFRS. On Thursday, KPMG released a report on IFRS on the sidelines of the IBA/KPMG conference on ‘IFRS: Developing a roadmap to convergence for the Indian banking industry.’
According to the report titled, ‘IFRS Convergence: Challenges and Implementation Approaches for Banks in India,’ the financial impact of convergence with IFRS will be significant for banks in India, particularly in areas relating to loan loss provisioning, financial instruments and derivative accounting. This is likely to have a significant impact on financial position and financial performance, directly affecting key parameters such as capital adequacy ratios and the outcomes of valuation metrics that analysts use to measure and evaluate performance.
“Banks in India need to start thinking through the challenges and develop a roadmap for successful convergence at the earliest. The proposed convergence with IFRS is likely to create significant challenges. Most importantly, the initial and ongoing IFRS convergence will affect reported net worth, available capital and capital adequacy for Indian banks,” said K Ramakrishnan, chief executive with Indian Banks’ Association, on the release of the report.
Rakesh Jha, deputy chief financial officer, ICICI Bank said, “There may be an impact on regulatory norms like on the capital adequacy ratio. There will be huge system requirement and also changing the mindset within the organisation will become crucial,” he said.