NFRA

The NFRA’s directive came out against the backdrop of instances interest expense on bank borrowings, which was been classified as Non-Performing Asset (NPA). Classifying the company’s borrowings as NPAs merely by the lender banks does not relieve interest and/or the principal liability payment of the borrowing company

The National Financial Reporting Authority’s (NFRA) has asked companies to continue to recognise the of interest expenses on borrowings only on the basis of expectations of a probable settlement, with or without any concessions from the banks.

The NFRA’s directive came out against the backdrop of instances interest expense on bank borrowings, which was been classified as Non-Performing Asset (NPA).

As per the regulator, such an accounting treatment was not going with the provisions of applicable Indian Accounting Standard (Ind AS). Classifying the company’s borrowings as NPAs merely by the lender banks does not relieve interest and/or the principal liability payment of the borrowing company.

Through a press release on 28 October, NFRA said, “It may be relevant to note that the RBI guidelines also require the banks to maintain a Memorandum Record of Accrued Interest on the loans classified as NPAs clearly reflecting the fact that the bank has not yet legally released the borrowers from their contractual liability to pay interest on their borrowings from the bank.”

Many violations regarding recording interest expenses on borrowing has been noted by the regulator with various companies. Against this backdrop, the watchdog has issued a circular too in order to draw the attention of all companies, audit committees, and statutory auditors. On the other hand, company secretaries are advised to draw attention of the board of directors of their companies towards the circular.

NFRA said that all companies falling under purview of Ind AS and their audit committees are hereby advised to continue to recognise the principal or interest. Only because of the borrowings being declared NPA or the management’s expected the probable settlement with or without concessions from the banks, it should not be discontinued.