ICICI Bank 2006 Annual Report Download - page 134

F75
c) Consolidation
The differences on account of consolidation are primarily on account of:
i) Majority owned entities where the Company has temporary control
ii) Variable interest entities
iii) Consolidation of insurance subsidiaries
Under Indian GAAP, the Company has not consolidated certain entities (primarily 3i Infotech Limited and
ICICI OneSource Limited) in which control is intended to be temporary. However under US GAAP, these
entities have been consolidated as SFAS No. 94 on “Consolidation of majority owned subsidiaries” requires
consolidation of such entities. The net income and total assets of these entities under US GAAP were Rs.
736.2 million for fiscal 2006 (fiscal 2005: Rs. 185.2 million) and Rs. 37,039.3 million at March 31, 2006
(March 31, 2005: Rs. 17,219.5 million).
Under Indian GAAP, consolidation is required only if there is ownership of more than one-half of the voting
power of an enterprise or control of the composition of the board of directors in the case of a company or
of the composition of the governing body in case of any other enterprise.
However, under US GAAP, the Company consolidates companies deemed to be Variable Interest Entities
(VIEs) where the Company is determined to be the primary beneficiary under FIN 46.
During the year, the Company transferred certain impaired loans to borrower specific funds/trusts managed
by an asset reconstruction company. The funds/trusts (which are separate legal entities) issued Security
Receipts (‘SRs’) to the Company and other transferors as consideration for the transaction. The funds/trusts
have been set up by the asset reconstruction company under recently enacted debt recovery legislation in
India and aim to improve the recoveries of banks from impaired assets by aggregating lender interests and
speeding up enforcement of security interest by lenders. Certain transfers did not qualify for sale accounting
under SFAS No. 140 and continue to be reflected as loans on the balance sheet of the Company. Other
transfers qualified for sale accounting but were impacted by FIN 46/FIN46R.
The funds/trusts to which these loans have been transferred are VIEs within the definition contained in
FIN 46.
The Company’s venture capital subsidiary is involved with entities that may be deemed VIEs. The FASB
permitted non-registered investment companies to defer consolidation of VIEs with which they are involved
until the proposed Statement of Position on the clarification of the scope of the Investment Company Audit
Guide is finalised, which is expected in 2006. Following issuance of the Statement of Position, the FASB will
consider further modification to FIN 46R to provide an exception for companies that qualify to apply the
revised Audit Guide. Following issuance of the revised Audit Guide and further modification, if any, to FIN
46R, the Company will assess the effect of such guidance on its venture capital business.
Under Indian GAAP the insurance subsidiaries (ICICI Prudential Life Insurance Company Limited and ICICI
Lombard General Insurance Company Limited) are fully consolidated whereas under US GAAP, these
subsidiaries are accounted for by the equity method of accounting as the minority shareholders have
substantive participating rights as defined in Issue No. 96-16 issued by the Emerging Issues Task Force.
Acquisition costs for insurance subsidiaries are those costs that vary with, and are primarily related to the
acquisition of new and renewal insurance contracts i.e. commissions, policy issue expenses, etc. Under
Indian GAAP, these costs are expensed in the profit and loss account while under US GAAP the same is
amortised over the life of the policy. The claims provisions under Indian GAAP are made in accordance with
IRDA guidelines whereas under US GAAP the provisions are made in accordance with the provisions of
SFAS 60 on “Accounting and Reporting by Insurance Enterprises” and SFAS 97 on “Accounting and Reporting
reconciliation to US GAAP and related notes
for the year ended March 31, 2006