Implementation of Indian Accounting Standards (Ind AS)

Last updated: 20 March 2023

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The Reserve Bank of India has issued new guidelines for Asset Reconstruction Companies (ARCs) that prepare their financial statements using Indian Accounting Standards (Ind AS). These new rules address concerns about ARCs recognising management fees that have not been realised for over 180 days. Consequently, ARCs will need to reduce certain unrealised management fees from their net owned funds when calculating their Capital Adequacy Ratio and the amount available for dividend payments.

RBI/2022-23/182
DOR.ACC.REC.No.104/21.07.001/2022-23

February 20, 2023

Dear Sir/ Madam,

Implementation of Indian Accounting Standards (Ind AS)

Please refer to circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020 on the captioned subject read with paragraph 13 (iii) of Master Circular DOR.SIG.FIN.REC 1/26.03.001/2022-23 dated April 1, 2022 on Asset Reconstruction Companies.

2. It has been observed that consequent to the implementation of Ind AS, some Asset Reconstruction Companies (ARCs) have been recognising management fees even though the said fee had not been realised for more than 180 days.

3. To address the prudential concerns arising from continued recognition of unrealised income, it has been decided that ARCs preparing their financial statements as per Ind AS, shall reduce the following amounts from their net owned funds while calculating the Capital Adequacy Ratio and the amount available for payment of dividend:

Management fee recognised during the planning period¹ that remains unrealised beyond 180 days from the date of expiry of the planning period.
Management fee recognised after the expiry of the planning period that remains unrealised beyond 180 days of such recognition.
Any unrealised management fees, 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.

The amount reduced from net owned funds and amount available for payment of dividend shall be net of any specific expected credit loss allowances held on unrealised management fee referred to in sub-paragraphs (a), (b) and (c) and the tax implications thereon, if any.

4. The Audit Committee of the Board (ACB) shall review the extent of unrealised management fee and satisfy itself on the recoverability of the same while finalising the financial statements. It shall be ensured that the management fee is computed strictly in accordance with extant regulations.

5. ARCs shall disclose information on the ageing of the unrealised management fee recognised in their books in the format specified below as part of the Notes to Accounts in the annual financial statements:

	As at the end of Current Year	As at the end of Previous Year
Outstanding amount of unrealised management fee receivable
1. Out of the above, amount outstanding for:
(a) Amounts where the net asset value of the security receipts has fallen below 50 per cent of the face value
(b) Other amounts unrealised for: (i) More than 180 days but upto 1 year (ii) More than 1 year but upto 3 years (iii) More than 3 years
Allowances held for unrealised management fee
Net unrealised management fee receivable

Applicability

6. This circular is applicable to all ARCs preparing their financial statements as per Ind AS.

Yours faithfully,

(Usha Janakiraman)
Chief General Manager

FAQ :

ARCs must now reduce specific unrealised management fees from their net owned funds when calculating capital adequacy and dividend availability.

Fees recognised during the planning period but unrealised beyond 180 days after expiry, fees recognised after expiry that remain unrealised beyond 180 days, and any unrealised fees where security receipt NAV has fallen below 50% of face value.

The ACB must review the extent of unrealised management fees and confirm their recoverability when finalising financial statements.

ARCs must disclose the ageing of unrealised management fees in their annual financial statements, including outstanding amounts, amounts outstanding for specific periods, allowances held, and the net unrealised amount.

This circular is applicable to all ARCs that prepare their financial statements as per Ind AS.

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Notification No : RBI/2022-23/182 DOR.ACC.REC.No.104/21.07.001/2022-23
Published in Community & General
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12458&Mode=0

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