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$30 Billion Hit Looms for India Banks on New Accounting Rule

  • IndAS norms, based on IFRS9, due to take effect on April 1
  • Expect pressure on banks’ capital levels: Nomura and CLSA
Commuters disembark from a train as others walk along a platform during the morning rush hour at Churchgate Station near the financial district of Mumbai, India, on Friday, April 4, 2014. The biggest election in world history starts April 7 in the Himalayan foothills of northeastern India, with Narendra Modi's opposition party poised to win the most seats as it looks to regain power after a decade.
Photographer: Vivek Prakash/Bloomberg
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India’s lenders, already struggling with $210 billion of stressed assets, may have to prepare for another hit as early as the coming financial year if new accounting norms kick in as planned on April 1.

The IndAS -- based on the IFRS9 standards created in the aftermath of the financial crisis -- would require banks to make provisions for expected bad loans instead of the current system where they only cover actual losses incurred. CLSA estimates that would almost double stressed advances, boost provisioning by $30 billion and consume more than $26 billion in capital at state-run banks and $4 billion for private lenders.