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Banks may have to adopt global norms in derivatives

The Reserve Bank of India (RBI) is considering asking banks to adopt the broad principles of international accounting standards (IAS) on derivatives trading.

The brisk pace at which banks’ activity in derivatives in the country is increasing has prompted the central bank to think of introducing IAS 39-like accounting principles, RBI Deputy Governor V. Leeladhar said today.

IAS 39 accounting principles require disclosure of market and credit risks resulting from the use of derivative instruments, which are currently not disclosed in banks’ balance sheets.

The Institute of Chartered Accountants of India (ICAI) is working on accounting standards for banks’ exposures to financial derivative instruments. These will be the Indian parallel to International Financial Reporting Standards.

A World Bank committee on accounting and auditing in India recently commented on the absence of accounting standards that deal with recognition, measurement, presentation and disclosures pertaining to financial instruments.

Introduction of accounting standards for derivatives exposure will require banks to invest in technical capability, apart from greater disclosures in financial statements.


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