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RBI issued uniform accounting norms for Asset Reconstruction Companies

Apr 25, 2014 12:10 IST

The Reserve Bank of India (RBI) on 23 April 2014 issued uniform accounting standards for Asset Reconstruction Companies (ARCs). The norms were issued with regard to acquiring non-performing loans, recognising revenue and management fees to ensure common treatment for firms.

RBI issued guidelines on uniform accounting standard for ARCs are as under

Acquisition cost (Pre and post acquisition)

Expenses incurred at pre acquisition stage for performing due diligence etc. for acquiring financial assets from banks/ Fls should be expensed immediately by recognizing the same in the statement of profit and loss for the period in which such costs are incurred.

Revenue Recognition

(i) Yield should be recognised only after the full redemption of the entire principal amount of Security Receipts.

(ii) Upside income should be recognized only after full redemption of Security Receipts.

(iii) Management fees may be recognized on accrual basis. Management fees recognized during the planning period must be realized within 180 days from the date of expiry of the planning period.

Valuation of Security Receipts (SRs)

imageConsidering nature of investment in SRs where underlying cash flows are dependent on realization from non performing assets, it can be classified as available for sale.

Applicability of Operating Cycle Concept under Schedule VI

Capital and Reserves will be treated as liabilities on liability side while investment in SRs and Long term deposits with banks will be treated as fixed assets on the assets side.

These recommendations are based on the views of the Key Advisory Group (KAG) headed by Alok Nigam constituted by the Union Government on ARCs in 2011. The new norms will be effective from the accounting year 2014-15.

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