RBI/2013-14/571,
DNBS (PD) CC. No. 38/ SCRC/ 26.03.001/2013-14, dated 23rd April 23, 2014
The
Chairman/Managing Director/Chief Executive Officer
All registered
Securitisation Companies/Reconstruction Companies
Please
refer to "The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003" dated April 23, 2003 (herein after called Guidelines).
2. Pursuant to the
recommendations of the Key Advisory Group (KAG) constituted by the Government
of India on the Asset Reconstruction Companies (ARCs), Reserve Bank of India
advises the guidelines on uniform accounting standard for ARCs as under:
a. Acquisition cost (Pre and
post acquisition)
Expenses
incurred at pre acquisition stage for performing due diligence etc. for acquiring
financial assets from banks/ FIs should be expensed immediately by recognizing
the same in the statement of profit and loss for the period in which such costs
are incurred.
Expenses
incurred after acquisition of assets on the formation of the trusts, stamp
duty, registration, etc. which are recoverable from the trusts, should be reversed,
if these expenses are not realised within 180 days from the planning period [In
terms of RBI Notification No.DNBS.2/CGM(CSM)-2003, dated April 23, 2003
planning period means a period not exceeding twelve months allowed for
formulating a plan for realization of nonperforming assets (in the books of originator)
acquired for the purpose of reconstruction] or downgrading of Security receipts
(SRs) (i.e. Net Asset Value (NAV) is less than 50% of the face value of SRs )
whichever is earlier.
b. 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. Management fees recognized after the planning
period should be realized within 180 days from the date of recognition.
Unrealised Management fees should be reversed thereafter. Further any
unrealized Management fees will be reversed if before the prescribed
time for realisation, NAV of the SRs fall below 50% of face value. [In terms of
RBI Notification No.DNBS.2/CGM(CSM)-2003, dated April 23, 2003 planning period
means a period not exceeding twelve months allowed for formulating a plan for
realization of non-performing assets (in the books of originator) acquired for
the purpose of reconstruction.]
c. Valuation of Security Receipts (SRs)
Considering
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. Hence investments
in SRs may be aggregated for the purpose of arriving at net depreciation/ appreciation
of investments under the category. Net depreciation, if any shall be provided
for. Net Appreciation, if any should be ignored. Net depreciation required to
be provided for should not be reduced on account of net appreciation.
d. Applicability of 'Operating Cycle
Concept' under Schedule VI
SC/ RCs are
advised in their balance sheet to classify all the liabilities due within one year
as "current liabilities" and assets maturing within one year along
with cash and bank balances as "current assets". 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.
3. The accounting guidelines will be
effective from the accounting year 2014-15.
