What changed
RBI added a sentence to existing guidelines requiring that the fair value of share-linked instruments, calculated using the Black-Scholes model, be recognised as an expense starting from the accounting period for which approval was granted. Previously, banks were not consistently booking this expense concurrently with the grant.
What it means for you
Banks must now align their accounting practices to record share-linked compensation costs upfront, impacting profit and loss statements earlier. This ensures transparency and consistency in expense recognition, potentially reducing deferred compensation liabilities.
What you must do
- Update accounting policies to recognise fair value of share-linked instruments as expense from the approval accounting period.
- Ensure compliance for all share-linked instruments granted after March 31, 2021.
- Review and adjust financial statements for any past grants not yet expensed as per new instruction.
- Train finance teams on Black-Scholes model application and concurrent expense booking.
Who it affects
Private sector banks, Local area banks, Small finance banks, Payments banks, Foreign banks operating in India
What is the effective date for this clarification?
The instruction applies to all share-linked instruments granted after the accounting period ending March 31, 2021.
Does this change the valuation method for share-linked instruments?
No, the valuation method remains the Black-Scholes model as per the original 2019 guidelines. Only the timing of expense recognition is clarified.