Delayed accounting rules bring reprieve to debt-ridden Indian banks

State banks would have to raise $16b in provisions in Q1 if the rules kicked into effect.

Bloomberg reports that the government has delayed the introduction of tougher new accounting rules for the second consecutive year in a move that spares the country's debt-ridden banks from adding $190b pile to their bad loan books.

Legislative amendments are still needed to implement the new accounting standards that were supposed to kick in at the start of the new fiscal year on April 1 after being postponed in 2017 and the implementation will be delayed ‘until further notice,’ the central bank said in a statement on its website.

Also read: Indian banks make headway in denting bad debt in Q3

According to Fitch Ratings, public-sector banks (PSUs) would have had to raise provisions by as much as $16b (INR$1.1t) in the fiscal quarter ending June 30 if the rules kicked into effect. 

In Q1, Indian state banks recovered $5.23b (INR365b) in non-performing assets which represent almost half the recoveries in the 2018-18 period, indicating a slight recovery in the sector.

Also read: The worst is almost over for worn out Indian banks

Based on the IFRS9 standards, the tougher accounting rules would have compelled PSUs to raise “substantial” amounts of extra capital, beyond the estimated $27.47b (INR1.9t) infusion already committed by the government for the two-year period to the end of March, Fitch’s India Ratings & Research noted in a report. 

Here’s more from Bloomberg.