Regulatory updates

Consequent to the implementation of Indian Accounting Standards (Ind AS) by Asset Reconstruction Companies (ARCs), it was observed that some ARCs were recognising the amount of management fees, even though such fees were not realised for more than 180 days.

In order to address this issue, the Reserve Bank of India (RBI) issued a notification dated 20 February 2023 on implementation of Ind AS by ARCs. Some of the key guidance discussed in the notification include:

• Applicability: The notification is applicable to all ARCs which prepare their financial statements using Ind AS.
• Determination of Capital Adequacy Ratio (CAR) and the amount available for payment of dividend: The ARCs that prepare their financial statements as per Ind AS, should reduce the following amounts from their net owned funds while calculating the CAR and the amount available for payment of dividend:
  1. Management fee recognised during the planning period¹ Planning period means a period not exceeding six months, allowed for formulating a plan for realisation of financial assets acquired for the purpose of reconstruction. that remains unrealised beyond 180 days from the date of expiry of the planning period
  2. Management fee recognised after the expiry of the planning period that remains unrealised beyond 180 days of such recognition, an
  3. Any unrealised management fee, notwithstanding the period for which it has remained unrealised, where the net asset value of the security receipts has fallen below 50 per cent of the face value. Further, the amount so reduced should be net of any specific expected credit loss allowances held on unrealised management fee, referred to in the aforementioned points and the tax implications thereon, if any.
• Review by Audit Committee of the Board (ACB): ACB must review the extent of unrealised management fee and satisfy itself on its recoverability while finalising the financial statements. It should also ensure that the management fee is computed in accordance with the specified regulations.
• Disclosure of the ageing of unrealised management fee: ARCs should disclose information on the ageing of the unrealised management fee recognised in their books in the format specified² The format of the ageing of unrealised management fee has been specified in the notification (as a part of the Notes to Accounts in the annual financial statements).

To access the text of the notification, please click here

Outstanding credit amount of any account in India with any bank which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years is required to be transferred to the Depositor Education and Awareness (DEA) Fund of RBI, within a period of three months from the expiry of the said period of ten years¹ Source: https://sbi.co.in/web/personal-banking/information-services/deaf-claim .

As per the current guidelines, commercial banks are required to present all unclaimed liabilities, where the amount due has been transferred to the DEA Fund under ‘Schedule 12 – Contingent Liabilities – Other items for which the bank is contingently liable’.

In order to ensure consistency in presentation of financial statements, RBI, vide a notification dated 25 October 2023 has stated that co-operative banks should present the unclaimed liabilities (where the amount due has been transferred to DEA Fund) under ‘Contingent Liabilities – Others’.

Additionally, all banks should disclose in the notes to accounts²Note C10- which deals with Transfers to Depositor Education and Awareness Fund (DEA Fund) that balances of the amount transferred to DEA Fund are included under 'Schedule 12 – Contingent Liabilities – Other items for which the bank is contingently liable' or 'Contingent Liabilities – Others,' as the case may be.

Effective date: The revised guidelines are applicable to all commercial and cooperative banks for preparation of financial statements for the year ending 31 March 2024 and onwards.

To access the text of the RBI notification, please click here