If there is one industry that IFRS will have maximum impact on, it will have to be the banking industry. This fact has come as a wake-up call to many banks, which will now have to consider the IFRS conversion process seriously.

As India moves closer to the In- ternational Financial Report- ing Standards (IFRS) convergence date, i.e., April 1, 2011, the debate on `Why IFRS?' has quickly shifted to `How?' If there is one industry that IFRS will have maximum impact on, it will have to be the banking industry. Banks will not only have to grapple with technical accounting issues, but also the other challenges that come along with it, such as the changes that would be required to the IT systems, the management of capital adequacy, the impact on treasury, performance management, and much more.

As a result of the global credit crisis and responding to the G20's requirement, the International Accounting Standard Board (IASB) is rewriting the financial instrument standards. Various parts of the standard are being considered under different projects, such as Classification and Measurement, Fair Value Measurement, Derecognition, Hedging and Impairment. IASB has already issued the Exposure Draft (ED) on `Classification and Measurement', and the final standard would be available before the close of the year. However, hedging and impairment final standards would be issued only in 2010. All this brings additional uncertainty and challenges to Indian banks. The April 1, 2011 date actually translates to April 1, 2010 because of the requirement under IFRS to produce IFRS compliant comparable numbers. This would leave banks with very little time to convert under the new standards, and hence there would be a greater need for Indian banks to keep themselves well-prepared and ready to implement the changes swiftly. More importantly, Indian banks have to be mindful not to carry over concepts or practices from Indian Generally Accepted Accounting Principles (GAAP). If IFRS, as issued by IASB, is to constitute a single set of globally accepted accounting standards, it is vitally important not to promote separate national versions of IFRS. Therefore, this would require a mindset change by Indian banks.

Financial statements of banks will be significantly impacted by the conversion, though the extent and whether the impact would be positive or negative would depend on a number of interrelated factors. Also, a negative impact on opening equity may have a positive impact on subsequent P&L.

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