Delaying bad news: on proposed banking reforms

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Delaying bad news: on proposed banking reforms

Banks that do not recognise their problems will likely not resolve them
For now, Indian banks burdened(बोझ/दब गए) by sour loans will not have to admit the true size of their likely losses. On Friday, the Reserve Bank of India postponed(स्थगित कर दिया/टालना) the implementation(कार्यान्वयन/अमल) of the Indian Accounting Standards (Ind AS) norms for banks indefinitely(अस्पष्टतापूर्वक/संदिग्ध रूप से) , citing(का हवाला देते हुए/तलब करना) the need for amendments(संशोधनों ) to be made by the government to the relevant(अनुरूप/योग्य) banking laws. The RBI had initially (शुरू ) planned to implement the norms starting April 1, 2018 in order to bring Indian accounting standards in line with international standards, but the Centre’s delay(देरी) in enacting(अधिनियमि/अभिनीतत ) the necessary amendments had given breathing space(विश्राम) for banks for another year. It is believed that the adoption(गोद लेना/स्वीकृति) of the accounting standard could cause(कारण/वजह) significant(महत्वपूर्ण/सार्थक) credit losses to banks, which will be forced to prematurely(समय से पहले ही) recognise(पहचानना) losses on their loans and build up the necessary underlying(अंतर्निहित ) capital(पूंजी) required to overcome the impact(प्रभाव) of such losses. Under the proposed(प्रस्तावित ) norms(नमूना/मानदंड) , financial institutions like banks will have to calculate expected credit losses (ECL) on their loans during(दौरान/अवधि में) each reporting period and make necessary adjustments to their profit-and-loss account even before a borrower(उधार लेने वाला/ऋणिया) may default on a certain(कुछ/निश्चित ) loan. This is in contrast to the present accounting norms wherein banks incur credit losses in their books only after outstanding loans have been in a state of default over a certain number of days as stated in the rules laid down by the RBI.

Given the losses they would likely have to incur(झेलना/(व्यय) करना/उकसाना ) , it is understandable why banks would try to avoid adopting the accounting norms for as long as possible. So the delay in the implementation of the Ind AS norms is not surprising at all. Further, to adjust to the new norms, banks will have to improve(सुधार) their ability(क्षमता ) to forecast future credit losses with precision(शुद्धता/यथार्थता) . Until this happens, bank earnings(कमाई/लाभ) could experience volatility(अस्थिरता /परिवर्तनशीलता) . The Central government, which has been trying to bail out public sector banks without carrying out the structural(संरचनात्मक ) reforms(सुधार) required(अपेक्षित/मांगा हुआ) to clean up balance sheets, might also prefer(चुनना/बढ़ाना) to delay the enactment of the legislation. For the new norms will cause more outstanding loans to be added to the huge(विशाल/बड़ा) existing pile(ढेर/इकट्ठा करना) of bad loans and cause further headaches(सिरदर्द) to the government. According to estimates(अनुमान) made by India Ratings & Research, public sector banks would have to make additional provision(प्रावधान) of over a trillion rupees( खरब रुपए ) if the norms are adopted right away. The Centre may not be able to foot the bill, and may instead(बजाय) prefer to help public sector banks to hide the true size of their bad loans. This does not bode well for the health of the banking system as banks that do not recognise their problems might not resolve(संकल्प/समाधान करना ) them.

 

 

Important Vocabulary

1. burdened(बोझ/दब गए)
Synonyms: laden, loaded, taxed

2. citing(का हवाला देते हुए/तलब करना)
Synonyms: allege, allude to, indicate, mention, name
Antonyms: conceal, deny, take, withhold, forget

3. initially (शुरू
Synonyms: originally, at the beginning, first

4. adoption(गोद लेना/स्वीकृति)
Synonyms: acceptance, approval, enactment, endorsement, maintenance
Antonyms: disapproval, opposition, refusal, rejection, pass

5. enacting(अधिनियमि/अभिनीतत )
Synonyms: achieve, execute, depict, discourse, do
Antonyms: fail, miss, direct, hinder, prevent, refuse

6. certain(कुछ/निश्चित )
Synonyms: convinced, positive, sure, assertive, assured
Antonyms: doubtful, indefinite, uncertain, unsure, doubting

7. borrower(उधार लेने वाला/ऋणिया)
Synonyms: bum, panhandler, vagabond, asker, deadbeat

8. relevant(अनुरूप/योग्य)
Synonyms: admissible, applicable, compatible, consistent, germane
Antonyms: improper, inapplicable, inappropriate, incompatible, insignificant

9. incur(झेलना/(व्यय) करना/उकसाना )
Synonyms: acquire, arouse, earn, obtain, provoke
Antonyms: forfeit, lose, discourage, miss, misunderstand

10. volatility(अस्थिरता /परिवर्तनशीलता) .
Synonyms: dryness, vaporization, vaporousness

11. resolve(संकल्प/समाधान करना )
Synonyms: boldness, courage, firmness, intention, steadfastness
Antonyms: cowardice, fear, weakness, indecision, question

12. pile(ढेर/इकट्ठा करना)
Synonyms: accumulation, assortment, chunk, hill, hunk
Antonyms: ditch, hole, poverty

13. huge(विशाल/बड़ा)
Synonyms: colossal, enormous, extensive. gargantuan, giant
Antonyms: dwarfed, insignificant, limited, little, miniature

14. precision(शुद्धता/यथार्थता)
Synonyms: rigor, attention, care, carefulness, correctness
Antonyms: carelessness, disregard, ignorance, inaccuracy, inattention

15. prefer(चुनना/बढ़ाना)
Synonyms: adopt, choose, go for, pick, promote
Antonyms: dislike, hate, refuse, reject, decrease

 

 

Credit To The Hindu News Paper

Banks that do not recognise their problems will likely not resolve them
For now, Indian banks burdened by sour loans will not have to admit the true size of their likely losses. On Friday, the Reserve Bank of India postponed the implementation of the Indian Accounting Standards (Ind AS) norms for banks indefinitely, citing the need for amendments to be made by the government to the relevant banking laws. The RBI had initially planned to implement the norms starting April 1, 2018 in order to bring Indian accounting standards in line with international standards, but the Centre’s delay in enacting the necessary amendments had given breathing space for banks for another year. It is believed that the adoption of the accounting standard could cause significant credit losses to banks, which will be forced to prematurely recognise losses on their loans and build up the necessary underlying capital required to overcome the impact of such losses. Under the proposed norms, financial institutions like banks will have to calculate expected credit losses (ECL) on their loans during each reporting period and make necessary adjustments to their profit-and-loss account even before a borrower may default on a certain loan. This is in contrast to the present accounting norms wherein banks incur credit losses in their books only after outstanding loans have been in a state of default over a certain number of days as stated in the rules laid down by the RBI.

Given the losses they would likely have to incur, it is understandable why banks would try to avoid adopting the accounting norms for as long as possible. So the delay in the implementation of the Ind AS norms is not surprising at all. Further, to adjust to the new norms, banks will have to improve their ability to forecast future credit losses with precision. Until this happens, bank earnings could experience volatility. The Central government, which has been trying to bail out public sector banks without carrying out the structural reforms required to clean up balance sheets, might also prefer to delay the enactment of the legislation. For the new norms will cause more outstanding loans to be added to the huge existing pile of bad loans and cause further headaches to the government. According to estimates made by India Ratings & Research, public sector banks would have to make additional provision of over a trillion rupees if the norms are adopted right away. The Centre may not be able to foot the bill, and may instead prefer to help public sector banks to hide the true size of their bad loans. This does not bode well for the health of the banking system as banks that do not recognise their problems might not resolve them.

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