ICICI Bank 2008 Annual Report Download - page 161

F87
Under US GAAP, larger balance, non-homogenous exposures representing significant individual credit exposures (both
funded and non-funded), are evaluated on the basis of borrower’s overall financial condition, resources and payment
record and the realisable value of any collateral. This estimate considers all available evidence including the present
value of the expected future cash flows discounted at the loan’s contractual effective rate and the fair value of collateral.
Allowances recognised on account of reductions of future interest rates as a part of troubled debt restructurings are
accreted as a credit to the provision for loan losses over the tenor of the restructured loan. Each portfolio of smaller-
balance, homogenous loans, including consumer mortgage, installment, revolving credit and most other consumer
loans is individually evaluated for impairment. The allowance for loan losses attributed to these loans is established
via a process that includes an estimate of probable losses inherent in the portfolio, based upon various statistical
analysis.
Under US GAAP, the allowance for loan losses for restructured loans is created by discounting expected cash flows
at contracted interest rates, unlike Indian GAAP, under which current interest rates are used.
Under US GAAP, the allowance on the performing portfolios are based on the estimated probable losses inherent in
the portfolio. The allowance on the performing portfolios are established after considering historical and projected
default rates and loss severities.
Under Indian GAAP, in respect of non-performing loan accounts subjected to restructuring, the account is upgraded
to standard category if the borrower demonstrates, over a minimum period of one year, the ability to repay the loan
in accordance with the contractual terms. However, the process of upgradation under US GAAP is not rule-based and
the timing of upgradation may differ across individual loans.
During fiscal years 2006, 2007 and 2008, the Group transferred certain impaired loans to borrower specific funds/
trusts managed by an asset reconstruction company against the issuance of security receipts by the funds/trusts. The
funds/trusts have been set up by the asset reconstruction company under enacted debt recovery legislation in India
and aim to improve the recoveries of banks from non-performing assets by aggregating lender interests and speeding
up enforcement of security interest by lenders. While under Indian GAAP the entire transfer was recognised as a sale,
under US GAAP these transfers are not recognised as a sale due to the following reasons:
• Certain transfers did not qualify for sale accounting under Statement No. 140 on “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities”.
• Certain transfers qualified for sale accounting but were impacted by FASB Interpretation No. 46 on “Consolidation
of Variable Interests” (FIN 46)/FASB Interpretation No 46(R) (FIN 46(R)). The funds/trusts to which these loans
have been transferred are variable interest entities within the definition contained in FIN 46(R). As the Bank is the
‘Primary Beneficiary’ of certain funds/trusts, it is required under US GAAP to consolidate these entities.
The difference in aggregate allowance for loan losses between Indian GAAP and US GAAP for the fiscal years 2006,
2007 and 2008 as attributable to the reconciling items is given in the table below.
Rupees in million
Reconciling items Year ended March 31,
2006 2007 2008
Differences due to provision on loans classified as troubled debt
restructuring under US GAAP (includes cases transferred to asset
reconstruction company) ......................................................................... (2,047.2) (547.6) 1,487.9
Differences due to provisions on loans classified as other impaired under
US GAAP .................................................................................................. (5,037.5) (4,462.1) (6,526.5)
Differences due to provisions created on performing assets ................. 1,870.0 5,310.0 633.9
Total difference in allowance for loan losses ....................................... (5,214.7) 300.3 (4,404.7)
b) Business combinations
The differences arising due to business combinations are primarily on account of:
i) Determination of the accounting acquirer.
ii) Accounting of intangible assets.
Under US GAAP, the amalgamation between ICICI Bank Limited and ICICI Limited was accounted for as a
reverse acquisition in fiscal 2003. This means that ICICI Limited was recognised as the accounting acquirer in the
amalgamation, although ICICI Bank was the legal acquirer. On the acquisition date, ICICI held a 46% ownership
interest in ICICI Bank. Accordingly, the acquisition of the balance 54% ownership interest has been accounted for as
a step-acquisition. Under Indian GAAP, ICICI Bank Limited was recognised as the legal and the accounting acquirer
and the assets and liabilities of ICICI Limited were incorporated in the books of ICICI Bank Limited in accordance
with the purchase method of accounting. Further, under US GAAP, the amalgamation resulted in goodwill and
intangible assets while the amalgamation under Indian GAAP resulted in a capital reserve (negative goodwill),
which was accounted for as Revenue and Other Reserves according to the scheme of amalgamation.
reconciliation to US GAAP and related notes
for the year ended March 31, 2008
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