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May 26, 2013

Role of Credit Rating Agencies in Lending

Well for a start off.. This article goes Non-conventional ways so open yourself a little.

What are Credit rating Agencies (CRA)?
CRA are considered to be Financial expert people who can guide/ advice Non-financial people on financi position of a company for investment purposes.

They are only for some non financial people?
No. With Time now users of this expert advice have increased from Banks to Creditors

So who uses it mainly?

Let take a story for off track for some time
Sub Prime Crisis > Sleuths said that Bank's have been accepting deposits and lending and as borrowers defaulted Banks defaulted to repay their depositors. Had Bank's had some of their capital in invesments I.e instead of Deposits on one side and loans on other side, Banks should had Capital+ Deposits on one side and assets on another. SO THE WHOLE THIS WAS THAT CAPITAL WAS MISSING.

To meet this risk a Hype called Basel Norms were invented.. Which in nutshell said that based on Loans given by Bank's there must be some capital. The linked capital to risk in loan given by bank i.e if given to more risky customer (i.e more chance of bad debt), more capital to be kept.

To judge the risk either Bank could have their internal model as approved by RBI or they can take the rating given by CRA.

So far RBI has not approved any Bank's Internal Rating Based (IRB) approach. So how to keep capital... Yes yes u are getting close to answer ..................... Credit Rating Agencies..............

They are left like a King with all of the loans in Bank (Plz exclude retail small loans in lacs for housing, education etc). Following RBI dictate bank's have to send any corporate borrower to these rating agencies to get their opinions.

So that answer's why these rating are sought.

So what's bad in it?
Who pays these rating agencies... The one those are there to be rated..

What stakes are involved of these rating agencies... Nothing.. the loan to be given is by Bank
Bank's fund are public funds whose responsibility is with Bank's Officials...

Means they sell/issue careless ratings?
No.. They do a little (YES I MEAN LITTLE) due diligence so as to ensure that the company rated good by them does not default .. Otherwise their creditability in the market will go down.. 

Means their rating can be trusted?
No.. As its not their money they are involved they do not care much.... They may rate a troubled account A.. Whats the big deal.. The day they come to know that the company may default they change it overnight to D...

So whats wrong in it?
The investment decisions taken by Bank's can not be changed overnight like that...  Once they have lent Crores of ruppes to a company based on these rating.. They can't withdraw/Call back overnight...
The trouble starts.. rating agency washes their hand of the dirt by simply downgrading a rating and thats it... They are out of here...
Left are the Bank's and investors who trusted their rating initially to invest their money.....

Ha.. Once they ditch Banks, no one will come for thier rating?
No. :(...... Sadly Once Decived Bank's will still knock at the doors of these rating agencies as RBI requires Bank's Loans over Rs 5 cr to be rated.

So let the things go why are you bothered buddy?
Because i work for Bank.
Because once the account goes Bad, no one see that loan was given based on external rating. All investigating/accountability/inquiry authorities catches hold of the Bank employee who processed/disbursed the loan. (and yes the junior most officer is the one most grilled, haven't seen any DGM level or above officer being questioned).

May 22, 2013

Save pdf in rotated view

First of all to save the rotated view feature is not available in Adobe Reader.. You can only view the rotated view in current session.

To Save the rotated view you need to have Adobe Acrobat Professional.

After Opening a file press Ctl + Shift + R

Rotate in Any direction you like

Press Ctl + S to save that View

Pre Operative Expenses under Revised Schedule VI

As per para 56 of AS 26.

In some cases, expenditure is incurred to provide future economic benefits to an enterprise but no intangible asset or other asset is acquired or created that can be recognised. In these cases, the expenditure is recognised as an expense when it is incurred. For example, expenditure on research is always recognised as an expense when it is incurred (see paragraph 41). Examples of other expenditure that is recognised as an expense when it is incurred include:
(a) expenditure on start-up activities (start-up  costs), unless this expenditure is included in the  cost of an item of fixed asset under AS 10. Start- up costs may consist of preliminary expenses  incurred in establishing a legal entity such as  legal and secretarial costs, expenditure to open  a new facility or business (pre-opening costs) or  expenditures for commencing new operations  or launching new products or processes (pre- operating costs);
(b) expenditure on training activities;
(c) expenditure on advertising and promotional  activities; and
(d) expenditure on relocating or re-organising part  or all of an enterprise.

Share issue expenses, discount on shares, ancillary costs-discount/premium on borrowing, etc., being special nature items are excluded from the scope of AS 26 Intangible Assets (Para 5).

Paragraph 9.2 of AS 10, is reproduced below:

9.2 Administration and other general overhead expenses are usually excluded from the cost of fixed assets because they do not relate to a specific fixed asset. However, in some circumstances,  such expenses as are specifically attributable to  construction of a project or to the acquisition  of a fixed asset or bringing it to its working  condition, may be included as part of the cost of the  construction project or as a part of the cost of the  fixed asset.

Expenses incurred on formation of an entity cannot be said to be attributable to bringing an asset/project into existence and, therefore, cannot also be included as part of cost of fixed assets.

The Revised Schedule VI does not contain any specific disclosure requirement for the unamortized portion of expense items such as share issue expenses, ancillary borrowing costs and discount or premium relating to borrowings. The Old Schedule VI required these items to be included under the head “Miscellaneous Expenditure.

The Revised Schedule VI does not deal with any accounting treatment and the same continues to be governed by the respective Accounting Standards/practices. Further, the Revised Schedule VI is clear that additional line items can be added on the face or in the notes. Keeping this in view, entity can disclose the unamortized portion of such expenses as “Unamortized expenses”, under the head “other current/ non-current assets”, depending on whether the amount will be amortized in the next 12 months or thereafter.

May 17, 2013

New Drug Order dated 15 May 13 for essential medicines

India on 15th May 2013 notified Drug Price Control Order 2013 that will bring down prices of essential medicines, increase the number of drugs under price control. The order is effective from 31 May 13. 

The government will regulate the rates of 652 medicines, a substantial increase over the 74 bulk drugs and their formulations that were previously under price control.
The new order authorises the National Pharmaceutical Pricing Authority (NPPA) to regulate prices of essential medicines as listed in the National List of Essential Medicines (NLEM) 2011. -

The current method of fixing prices on a cost-plus basis will be replaced by market price-linked cap for each drug.

Prices would be capped by taking the weighted average price of all brands having at least 1% or more market share (by volume)

It has clarified that players selling below the price caps cannot raise prices.

The new pricing policy seeks to incentivise domestic R&D by allowing locally discovered and developed drugs to skip price control for five years.
A new drug developed using indigenous R&D and granted patent under Indian law can seek exemption from price control from the date it starts commercial production in the country.
Second, if a pharma company discovers a new process to make an existing drug and gets a patent for it under Indian law, it can apply for a five-year relaxation from price regulation. This privilege would kick in for the drugmaker from the time it starts manufacturing the drug for the domestic market.

Drug makers will have to maintain records relating to the sales of APIs (Active Pharmaceutical Ingredients) and bulk drugs, manufactured or imported.

The order dated 15th May 13 can be downloaded from:- 

May 13, 2013

Sum from column number

OFFSET formula gives us reference to a range, from a given starting point with given number of rows to be considered and number of columns to be considered.

OFFSET formula looks like this:

=OFFSET (starting point, rows to move for starting point, columns to move for starting point, number of rows to be considered, number of columns to be considered)
To get total of number of row and/or number of columns use the formula

= Sum (Offset (SP, RSP, CSP, NOF, NOC))

Tip- In case dealing with years please -1 from the year variable to get exact results.

May 9, 2013

Rectification under Income Tax

Order Passed under
Summary Assessment u/s 143(1)
u/s 143(1)
Scrutiny (Regular) Assessment u/s 143(2)
u/s 143(2)

As per Sec 154, the income tax authorities (ITO/AO/CIT/CCIT) can rectify a mistake in an assessment order or intimation u/s 143(1) if such mistake is “apparent” from the record.
“apparent from record” *only when it is obvious or self-evident mistake and not something which can be established by a long-drawn process of reasoning on points in respect of which there may be two opinions.
No rectification shall be made by AO after the expiry of four years from the end of the financial year in which the order subject to rectification was passed.  The same is the time limit for assessee to apply for rectification. .[Sec 154(7)].

2. Rectification request made by assessee within the time limit as above to be accepted or rejected within 6months from  the end of the  month in which application was made. The acceptance or rejection of rectification request is to be communicated to assessee by sending him the rectified order passed u/s 154.

3. A rectification, which has the effect of enhancing an assessment (raising tax demand) or reducing a refund or otherwise increasing the liability of the assessee, shall not be made unless the AO has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

4. The power to rectify the assessment order   conferred upon AO  is to ensure that injustice to the assessee or to the revenue may be avoided. Therefore, it is mandatory for AO  to exercise his such power and rectify apparent mistakes. Therefore, power to rectify is mandatory and not discretionary.

5. AO can further rectify the order which he has rectified once, but within time limit only.