The Reserve Bank of India on Thursday deferred until next year a new accounting standard for the country's banks that would have led to higher bad-loan provisioning requirements. The move comes as a relief to Indian lenders battling near-record bad loans and spurred a rally in bank shares in late trading on Thursday.
The regulator, which had earlier ordered the banks to move by April 1 to the Ind AS accounting standard, a variant of IFRS, said on Thursday pending rule changes it had decided to delay the implementation of the new accounting system. "Many of the banks are still not prepared ... so we thought that we should defer this by one year," said N.S. Vishwanathan, an RBI deputy governor at a news conference after the announcement of the bi-monthly monetary policy in which the central bank held key rates.
The announcement is a relief to investors who had feared that under the new accounting rules, among other things, banks' loan-loss provisions would shoot up as they will have to set aside funds based on expected credit losses, compared with the current practice of provisioning after a loan turns sour. India's banks, which had $146 billion of soured loans as of last year, are staring at a rise in stressed assets after the central bank in February tightened rules and withdrew existing restructuring schemes.
Although bankers were expecting the implementation of Ind AS rules to be delayed as the central bank had not announced any guidelines before April 1, RBI's formal announcement on Thursday helped extend gains in bank stocks that had already risen after the RBI on Wednesday eased provisioning needs tied to some big bankruptcy cases.
The state-run bank index closed 4.9 percent higher, while the overall banking sector index gained 2.6 percent. The main Mumbai market index rose 1.9 percent.