April 2019

ASSESSMENT OF BUSINESS MODEL FOR NON-BANKING FINANCIAL COMPANIES (NBFCs)

Zubin F. Billimoria
Chartered Accountant

INTRODUCTION


India Incorporated continues its journey with the next phase of adoption of Ind As by Non-Banking Finance Companies in two phases commencing from the accounting period beginning 1 April, 2018. Whilst there are several implementation and transition challenges, assessment of the business model is an important area which is likely to impact most NBFCs.

 

The initial plan of the MCA was to implement Ind AS for the entire gamut of financial service entities covering NBFCs, banks and insurance entities, which has been deferred by a year for banks and by two years for insurance companies. Accordingly, the discussion in this article is restricted only to NBFCs.

 

It may be pertinent to note that the RBI had constituted a Working Group to deal with the various issues relating to Ind AS Implementation by Banks which had submitted a detailed report in September, 2015 which may be equally important and relevant to NBFCs since there is a fair degree of similarity in their business models and the same would be also taken into account in the course of our subsequent discussions.

 

BUSINESS MODEL ASSESSMENT FOR FINANCIAL ASSETS (INCLUDING THE MEASUREMENT AND CLASSIFICATION)


Assessing the business model for holding financial assets is the anchor on which the entire accounting for financial assets rests. Before going into the assessment of the business model for financial assets it is necessary to understand as to what constitutes a financial asset, since for NBFCs it represents the single most important component in the Balance Sheet and how its initial measurement is determined.

 

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