The Hindu Business Line : RBI worried over lack of accounting norms on derivative transactions

Mr V. Leeladhar (right), Deputy Governor, RBI, and Mr N. Srinivasan, Chairman, India Cements Capital, at the third Natarajan Memorial Lecture in Chennai on Monday. — Bijoy Ghosh

Chennai , Nov. 14

THE Reserve Bank of India today said it was "a matter of significant concern" that there are no clear accounting guidelines for banks regarding derivative transactions.

At a meeting today, RBI's Deputy Governor, Mr V. Leeladhar, observed that as the volumes of transactions increases, "which is happening in the Indian banking system", the need to upgrade the accounting framework needs no emphasis.

He noted that the World Bank had issued a ROSC (Report on Observance of Standards and Codes) on accounting and audit in India and had commented on the absence of accounting standards that deals with recognition, measurement and disclosures pertaining to financial instruments.

Mr Leeladhar said that the Accounting Standards Board of the Institute of Chartered Accountants of India was considering issuing accounting standards on these aspects.

"The proposed accounting standards will be of considerable significance for financial entities and could therefore have implications for the financial sector," he said, adding that the proposals in this regard would be discussed with market participants before introduction.

Mr Leeladhar was delivering the third memorial lecture at the Sri Sarvatma Natarajan Memorial Trust on `Indian Banking - The Challenges ahead'.

Tier-III capital: Mr Leeladhar said that the RBI was likely to make an announcement shortly allowing banks to raise Tier-III capital, which could comprise "hybrid instruments".

It is understood that these instruments could be long-term debt or redeemable preference shares or other instruments that could be devised under RBI's to-be-announced guidelines.

Tier-III capital, allowed under the Basel-II dispensation, will provide some relief to banks from the pressures of maintaining adequate capital.

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