The Reserve Bank of India (RBI) has issued a notification on Implementation of Indian Accounting Standards (Ind AS). This circular was issued on 20th February, 2023 and is applicable to all ARCs preparing their financial statements as per Ind AS.
The RBI has observed that consequent to the implementation of Ind AS, some Asset Reconstruction Companies (ARCs) have been recognising management fees even though the said fee had not been realised for more than 180 days.
Hence, RBI has been decided that ARCs preparing their financial statements as per Ind AS, shall reduce the following amounts from their net owned funds while calculating the Capital Adequacy Ratio and the amount available for payment of dividend:
- 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 net owned funds and amount available for payment of dividend shall be net of any specific expected credit loss allowances held on unrealised management fee 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 statements. It shall be ensured 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 specified format as part of the Notes to Accounts in the annual financial statements.