Regulatory updates

Recently, FASB proposed new chapter of its Conceptual Framework – Proposed Statement of Financial Accounting Concepts, Concepts Statement No. 8, Conceptual Framework for Financial Reporting – Chapter 6: Measurement relating to the measurement of items recognised in financial statements.

The proposed chapter would establish concepts that FASB would consider in developing standards of financial accounting and reporting. It provides concepts to consider when choosing a measurement system for an asset or a liability recognised in general purpose financial statements. It describes:

• Two relevant and representationally faithful measurement systems – the entry price system and the exit price system and
• Considerations when selecting a measurement system.

The comment period is open up to 20 March 2024.

To access the text of the new chapter, please click here

On 28 February 2024, RBI issued the draft disclosure framework on climate-related financial risks, 2024 (the draft framework). It would be applicable to the following entities:

• All Scheduled Commercial Banks (SCBs) (excluding local area banks, payments banks and regional rural banks)
• All Tier-IV primary (Urban) Co-operative Banks (UCBs)
• All-India Financial Institutions (AIFs) (i.e., EXIM Bank, NABARD, NaBFID, NHB and SIDBI)
• All top and upper layer Non-Banking Financial Companies (NBFCs)

As per the draft framework, the disclosures should cover four thematic areas/pillars – Governance, Strategy, Risk management, Metrics and Targets.

The glide path for the disclosures is given below:

To access the text of the draft framework, please click here

On 16 April 2024, the RBI placed on its website two draft directions pertaining to payment aggregators, these are:

• New draft directions on regulation of Payment Aggregators (Physical Point of Sale): These new directions would regulate those payment aggregators who handle proximity / face-to-face payments. In addition to the existing regulations, these circulars prescribe the authorization requirements and net-worth criteria for such payment aggregators.
• Amendments to existing directions on payment aggregators: The updates in the existing directions, inter alia cover KYC and due diligence of merchants, operations in escrow accounts, etc, and are intended to further strengthen the payment ecosystem.

The comment period on the draft directions ends on 31 May 2024.

To access the text of the circular, please click here

In order to enhance transparency, the RBI is considering new rules on digital lending.

Recently, RBI issued a draft circular on digital lending, proposing Lending Service Providers (LSPs) to digitally share all the available loan offers from willing lenders to the borrowers.

This will enable borrowers to have a clear view of their loan options with details such as lender names, amounts, rate of interest and key terms.

The comment period ends on 31 May 2024.

To access the text of the exposure draft, please click here

Currently, the RBI has issued a prudential framework for early recognition and resolution of stress in borrower accounts. However, this framework does not cover projects under implementation on account of change in Date of Commencement of Commercial Operations (DCCO).

In order to address the complexities involved in project finance, on 3 May 2024, RBI issued draft directions on a comprehensive framework applicable to financing of project loans¹¹ This includes financing of projects in Infrastructure, Non-Infrastructure and Commercial Real Estate.. The draft directions aim to provide the regulated entities with an enabling framework for addressing the risks of project loans.

The draft framework, inter alia, provides guidance on the following aspects:

• Phases of projects
• Conditions for project finance
• Resolution plans (including resolution plans involving extension of DCCO)
• Provisioning for standard assets, NPAs, etc.
• Timelines for compliance
• Penal consequences for non-compliance

The comment period ended on 15 June 2024.

To access the text of the exposure draft, please click here

Regulated Entities (REs) use various models in the credit management life cycle- this includes borrower selection, credit scoring/rating, pricing, risk management, credit loss provisions, etc.

However, model outputs are exposed to uncertainties as they are based on assumptions which may not manifest in envisaged ways. Accordingly, REs are exposed to model risks.

With a view to ensure prudence and robustness in the use of such models, RBI has proposed to lay down broad regulatory principles on model development and deployment, model validation and overall governance and oversight on credit risk models.

It has been proposed that the existing guidance note on credit risk management would be repealed as a result of issuance of the Draft circular on model risks management.

To access the text of the Draft circular on model risks management, please click here