Some
of India's biggest PSU banks are likely to get hit by
thousands of crores if they implement a new accounting
standard prescribed by the Institute of Chartered Accountants
of India or the ICAI, reports CNBC-TV18.
SBI
may have to brace itself for a few thousand crore hit
to its reserves, unless the ICAI defers the application
of accounting standard 15.
The
standard, which deals with accounting for employee benefits
like pension and gratuity, has been revised by the ICAI
from this financial year.
The
changes require companies to provide for pension and gratuity
liability as per the valuation of a professional actuary.
If that happens, corporate India, especially big PSU banks,
could be in for trouble.
Abizer
Diwanji, partner, KPMG says that there is a big mismatch
between government guaranteed returns and the asset funding,
and corporates will have to take a big hit if they have
to fill this hole.
Their
staff pension and gratuity liability is on the basis of
current salaries, but actual payment is made on the basis
of an employee's last drawn salary before retirement.
That's a complicated process and involves certification
from actuaries.
CNBC-TV18
learns top PSU banks have asked the Indian Banking Association
to defer this accounting standard. An IBA representative
is learnt to have told ICAI officials last week that the
net worth of big PSU banks would be substantially eroded
if the implementation of this standard is not postponed.
The
IBA admits as much. When asked about the financial impact
on banks, the CEO of the IBA says, "We have not worked
out the exact financial implication of this standard,
but we know it will be high. We have taken it up with
the RBI and requested a deferral or at least to give a
time frame of five years for the full provisioning."
The
ICAI is under pressure to postpone the applicability of
this accounting standard. The problem however, is, that
the Institute has
already notified the standard. For ICAI is likely to take
up this matter at its council meeting next month, it's
a catch 22 situation.
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