“A guarantee for only the first six months following a transaction would do little to encourage buyers and we therefore assume that the guarantee will apply for the full life of the assets purchased,” the agency said. The report however said NBFCs will benefit more from the Rs 70,000 crore recapitalisation of state-owned banks, which will increase their capacity to lend more. Investor confidence in the NBFC sector could also be boosted by a potential asset-quality review of wholesale non- banking lenders, leading to greater transparency and more robust capital requirements. “However, if an asset-quality review uncovers large under-reporting of NPAs, like in the case of banks, it might end up bringing things to a head by making clear to investors which entities have the biggest issues,” it said.

Sitharaman said the Centre was also looking at why benefits of interest rate reductions were not being passed on to customers, Business Standard reported. The finance minister said at a webinar organised by the Chennai International Centre (CIC) that the proposal for a one-time loan restructuring option was being discussed by the Centre and the RBI.

The banking sector is likely to witness a major spike in non-performing assets (NPAs) going forward on account of the impact of COVID-19 on industries, which will, in turn, impact the cash flows of companies and make the recovery process even more difficult.

This is why banks are pushing for the idea of a one-time loan restructuring option, even as the central bank seems wary. For this very reason, the banking sector, led by the Indian Banks’ Association (IBA), was pushing for a ‘bad bank’ to deal with the problem of non-performing assets.

Due to Covid-19, it is evident that many businesses supply and demand affected and this area must be assessed thoroughly to determine the impairment. Events such as inventory obsolescence or cash generating units whose market value decline is an indicator of impairment. Provision on trade receivables due to sudden extension in tenure would be another question to deal with.

Deferred tax Assessment

With uncertainty over the estimated profit for future years due to Covid-19, deferred tax assets recognized would be questionable.

Liquidity

non-payment of dues of loan instalment, concern over submission of necessary data to lenders, audit of inventories (stocks) for working capital requirements, and payment of salaries which in turn affects the production cycle.

Statutory dues

Cash flow issues would also affect the submission of statutory dues such as Provident Fund, Employee Provident Fund, and Goods and Services Tax. This may result in issue of an adverse opinion by auditors in their audit report.

Fair market value

What was reasonable and acceptable value till December 2019 is suddenly not acceptable in March 2020.

Revenue recognition

In current scenario, to identify customer’s ability with long term credit period, pose a big challenge for recognition of revenue. This certainly creates a question for auditor to accept recognized revenue.

Presentation

Due to Covid-19 any materially affected business may justify the low profitability with an additional presentation of line items. Then the question is, shall the entities present their financial statements properly and if how, it would be very complicated presentation.