Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT RATES :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: Central Excise rule to resale the machines to a new company :: TDS :: empanelment :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: due date for vat payment :: articles on VAT and GST in India :: ACCOUNTING STANDARDS :: cpt :: ACCOUNTING STANDARD :: form 3cd
 
 
News Headlines »
 GST Council fails to break deadlock over indirect tax regime, next meet on Dec 11 and 12 to hammer out differences
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful
 Your deposit may draw income tax notice
 Accepting payment under IDS 2016
 New disclosure scheme could see 50% tax and 4-year limit on cash use for unaccounted deposits
 Pay 50% tax on unaccounted deposits, or 85% if caught, says Modi government
 Deadline to pay property tax in old currency extended
 Cabinet clears amendments to Income Tax Act

Banks seek more clarity on takeout financing
December, 26th 2006
`Accounting, risk weighting, provisioning norms ticklish'


Takeout financing would be required to overcome asset-liability mismatches in the case of infrastructure funding by banks

Financial institutions have approached the Reserve Bank of India for detailed accounting guidelines on `takeout financing' (where one institution takes over the loan asset of another after an interval of time from date of the disbursement of the loan) for infrastructure.

Among the accounting issues involved are treatment of the assets in the loan books of both the financiers for purposes of , `risk weighting'- a process that determines of what proportion of a bank's own capital as opposed to depositors' monies that should finance its loan assets- and provisioning for a possible loss from non-recovery of the assets.

Risk weighting dilemma

Bankers said the issue is whether the `risk weighting' and standard loan loss provisioning be made at the time of the agreement or when the asset is taken over.

Takeout financing is a contractual agreement, where the secondary financier agrees to buyout the assets at the end of a fixed term, at a predetermined price. So the question is whether the institution taking out the loan off the books of the bank, which has lent money, in the first place keeps adequate capital from day one of the disbursement of the loan by the former or takes note of it only after it enters its own books as part of the `takeout' financing arrangement. By extension, should it also provide against the contingency of default and hence set aside a standard sum out of its profits as loss provision even before the loan is taken over?

The India Infrastructure and Finance Company Ltd (IIFCL) Chairman and Managing Director, Mr S.S. Kohli said, "Accounting for such funding is still a grey area for the banking sector and this issue needs to be clarified by the RBI."

Bankers said takeout financing would be required for infrastructure funding for overcoming asset liability mismatches. This was because banks' average maturity of deposit was currently around three years. On the other hand, the average maturity of any infrastructure asset would be in excess of 10 years, posing major asset-liability risks. This therefore requires intervention of long-term financiers for extending the maturity.

A major reason for the relative lack of enthusiasm on the part of banks for resorting to takeout financing in the past, is the liquidity overhang in the system where banks were chasing assets. However with liquidity beginning to tighten, thanks to a phenomenon of disintermediation that has hit banks' long-term deposit flows the interest in takeout financing has returned. Infrastructure is expected to sustain the current pace of credit growth that is averaging about 28 per cent.

Stamp duty concern

Besides accounting issues, stamp duty is also a major problem for the banks, they said. This was also one of the major issues in asset securitisation, prompting bankers to domicile such off- balance-sheet transactions in States where stamp duties were low. The ideal situation would be a uniform stamp duty rate across the States or duty exemption on takeout financing arrangements.

Capital concerns are also driving the fascination for takeouts. This is especially so in the case of big ticket assets. The fear is that assuming such large-sized assets would bring in capital pressures on the banks unless back-to-back arrangements could be worked out with long-term financiers.

Institutions that have the capability to provide takeout financing for infrastructure lending include Power Finance Corporation, Rural Electrification Corporation, HUDCO, Infrastructure Development and Finance Company besides IIFCL.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Work Flow Workflow Software Software Automation Workflow automation Software Design Workflow Design Business Work Flow Workflow automation tools

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions