Reserve Bank of India issued a Circular dated 20th February, 2023 regarding the Implementation of Indian Accounting Standards (Ind AS). This has a reference to circular DOR (NBFC).CC.PD.No.109/22.10.106/2019-20 dated March 13, 2020 on the captioned subject read with paragraph 13 (iii) of Master Circular DOR.SIG.FIN.REC 1/26.03.001/2022-23 dated April 1, 2022 on Asset Reconstruction Companies.
As per this Circular ARCs shall prepare their financial statement as per Ind AS, and shall reduce the following amounts from their net owned funds while calculating the Capital Adequacy Ratio and the amount available for payment of dividend namely:
- Management fee recognised during the planning period that remains unrealised beyond 180 days from the date of expiry of the planning period.
- Management fee recognised after the expiry of the planning period that remains unrealised beyond 180 days of such recognition.
- Any unrealised management fees, notwithstanding the period for which it has remained unrealised, where the net asset value of the Security Receipts has fallen below 50 per cent of the face value.
The amount reduced from the net owned funds and the amount available for payment of dividend shall be net of any specific expected credit loss allowances held on unrealised management fee referred to in sub-paragraphs (a), (b) and (c) and the tax implications thereon, if any.
The Audit Committee of the Board (ACB) shall review the extent of unrealised management fee and satisfy itself on the recoverability of the same while finalising the financial statement and it shall ensure that the management fee is computed strictly in accordance with extant regulations.
ARCs shall disclose information on the ageing of the unrealised management fee recognised in their books in the format specified in the given Circular as part of the Notes to Accounts in the annual financial statements.
This Circular is applicable to all ARCs preparing their financial statements as per Ind AS and shall come into force with immediate effect.
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