ICAI-IFRS merger to impact banks: KPMG

New Delhi, Aug 24: A KPMG report said that the financial impact of convergence of the Institute of Chartered Accountants of India (ICAI) with International Financial Reporting Standards (IFRS) will be significant for banks in the country.

The ICAI has proposed a plan for convergence with the IFRS for certian defined entities, including banks with effect from April 1, 2011. According to the report titled ''IFRS Convergence: Challenges and Implementation Approaches for Banks in India,'' the financial impact would be more in areas relating to loan loss provisioning, financial instruments and derivative accounting.

Currently, banking companies are required to adhere to accounting policies and principles that are prescribed by the Reserve Bank of India (RBI).

''Our experience indicates that adoption of IFRS requires a significant change to such existing policies and could have a material impact on the financial statements of financial companies,'' said Mr Jamil Khatri, Head (IFRS Conversion Services), KPMG in India.

He expects that in addition to the financial accounting impact, the convergence process is likely to entail several changes to the financial reporting systems, including IT systems and processes adopted by banks in the country.

''Banks in India need to start thinking through the challenges and develop a roadmap for successful convergence at the earliest.

The proposed convergence with IFRS will affect reported networth, available capital and capital adequacy for Indian Banks,'' said Dr K Ramakrishnan, Chief Executive, Indian Banks' Association.

The report, released on the sidelines of the IBA/KPMG Conference on IFRS: Developing a roadmap to convergence for the Indian Banking Industry, said the convergence is likely to have a significant impact on financial position and financial performance, directly affecting key parameters such as capital adequacy ratios and the outcomes of valuation metrics that analysts use to measure and evaluate performance.

UNI