In terms of Accounting Standard (AS) 11 FCTR or foreign currency translation reserve arises due to the translation of financial statements of bank’s foreign operations. FCTR is reckoned at a discount of 25% for the purpose of determining bank’s regulatory capital. The above treatment is subject to a condition that the FCTR are shown as ‘Reserves & Surplus’ in the Balance Sheet of the bank under schedule 2 and the external auditors of the bank have not expressed any qualified opinion on them.
The Reserve Bank of India after taking into consideration of Institute of Chartered Accountants of India explanation, clarified that the repatriation of accumulated profits shall not be considered as disposal or partial disposal of interest in non-integral foreign operations as per AS 11. Accordingly, banks have now stopped to recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations.
Earlier, banks have been recognizing gains in profit & loss account from Foreign Currency Translation Reserve (FCTR) on repatriation of accumulated profits / retained earnings from overseas branch/s by treating the same as partial disposal under AS 11.