IndianCAs by Ashwin Nagar: December 2010

26 December 2010

RBI Circular on Housing Loans

RBI/BANKING MATTER

CIRCULAR/PRESS NOTE

Banking : Housing Loans by Commercial Banks – LTV Ratio, Risk Weight and Provisioning

CIRCULAR NO. DBOD.NO.BP.BC. 69 /08.12.001/2010-11, DATED 23-12-2010

Please refer to paragraphs 104 to 106 of the Second Quarter Review of Monetary Policy 2010-11 (extracts enclosed), proposing certain measures in regard to housing loans by commercial banks. Accordingly, banks are advised as under:

1. Loan to Value (LTV) Ratio

At present, there is no regulatory ceiling on the LTV ratio in respect of banks' housing loan exposures. In order to prevent excessive leveraging, the LTV ratio in respect of housing loans hereafter should not exceed 80 per cent. However, for small value housing loans, i.e. housing loans up to Rs. 20 lakh (which get categorised as priority sector advances), it has been decided that the LTV ratio should not exceed 90 per cent.

2. Risk Weight

In terms of circular DBOD.No.BP.BC.83/21.06.001/2007-08 dated May 14, 2008 the risk weights on residential housing loans with LTV ratio up to 75 per cent are 50 per cent for loans up to Rs. 30 lakh and 75 per cent for loans above that amount. In case the LTV ratio is more than 75 per cent, the risk weight of all housing loans, irrespective of the amount of loan, is 100 per cent. Henceforth, the risk weight for residential housing loans of Rs. 75 lakh and above, irrespective of the LTV ratio, will be 125 per cent to prevent excessive speculation in the high value housing segment.

3. Provisioning

It has been observed that some banks are following the practice of sanctioning housing loans at teaser rates i.e. at comparatively lower rates of interest in the first few years, after which rates are reset at higher rates. This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective. It has been also observed that many banks at the time of initial loan appraisal, do not take into account the repaying capacity of the borrower at normal lending rates. Therefore, in view of the higher risk associated with such loans, the standard asset provisioning on the outstanding amount has been increased from 0.40 per cent to 2.00 per cent with immediate effect. The provisioning on these assets would revert to 0.40 per cent after 1 year from the date on which the rates are reset at higher rates if the accounts remain 'standard'.

Housing Loans by Commercial Banks

Loan to Value Ratio in Housing Loans

104. At present, there is no regulatory ceiling on the loan to value (LTV) ratio in respect of banks' housing loan exposures. In order to prevent excessive leveraging, it is proposed:

l that the LTV ratio in respect of housing loans hereafter should not exceed 80 per cent.

Risk Weights on Residential Housing Loans

105. At present, the risk weights on residential housing loans with LTV ratio up to 75 per cent are 50 per cent for loans up to Rs. 30 lakh and 75 per cent for loans above that amount. In case the LTV ratio is more than 75 per cent, the risk weight of all housing loans, irrespective of the amount of loan, is 100 per cent. Accordingly, it is proposed:

l to increase the risk weight for residential housing loans of Rs. 75 lakh and above, irrespective of the LTV ratio, to 125 per cent.

Teaser Rates for Housing Loans

106. It has been observed that some banks are following the practice of sanctioning housing loans at 'teaser rates', wherein the loans are offered at a comparatively lower rate of interest in the first few years, after which rates are reset at higher rates. This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective. It has been observed that many banks at the time of initial loan appraisal do not take into account the repaying capacity of the borrower at normal lending rates. In view of the higher risk associated with such loans, it is proposed:

l to increase the standard asset provisioning by commercial banks for all such loans to 2 per cent.

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Best Wishes

CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx

25 December 2010

Decisions of the Council of the Institute regarding CPE

For information of the members
This is for information of all the members that the Council of the Institute has decided as follows:

1. An online e-learning module would be developed and implemented by ICAI for the all the members shortly. Under the cited e-learning module, the members would be required to answer on-line such number of questions as may be decided by the Council. On successful completion of the prescribed e-learning module, a credit of 3 CPE hours would be granted to the members under structured learning instead of the present category of Unstructured learning

2. A list of members who have completed the prescribed requirement of CPE hours for the block of 3 years (2008-10) may be hosted on the website of the Institute. The members are requested to verify whether the correct CPE hours have been clocked against their respective names and if there are any variation, kindly inform the CPE Secretariat with supporting evidence for making appropriate correction at their end , if necessary.

3. It may be noted that the Council at its next meeting scheduled in the middle of January, 2011 would deliberate on dealing with the cases of non-compliance with CPE specified requirements in respect of period 2008-10.

Secretary
Continuing Professional Education Committee

(forwarded by Ramchandran)

| Ashwin Nagar |

Success is not permanent and failure is not final

15 December 2010

Income Tax Refunds -CPC

CPC commences issue of refunds for AY 2010-11 returns.

Centralized Processing Center (CPC), Bangalore has begun processing of returns for AY 2010-11. Till 10/12/2010 it has processed over 15 lakh e-filed returns of AY 2010-11 in ITRs 1, 2, 3, 4 and issued refunds in over 1.6 lakh cases. These returns were filed during this year from April to October 2010. Marking the advent of Income Tax department in digital era, all intimation orders are being sent by e-mail to taxpayers as a digitally signed password protected PDF document. SMS alerts (where mobile number is provided) to taxpayers on completion of processing and determination of refunds has been introduced for ITRs of AY 2010-11.

--
Best Wishes

CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx

14 December 2010

Processing of IT Returns-CBDT Instructions

INSTRUCTION

INCOME TAX ACT

Section 143 of the Income-tax Act, 1961 - Assessment - General - Clarification regarding processing of ITR-1 and ITR-2 returns - Credit for tax deducted at source for A.Y. 2009-10

INSTRUCTION NO. 9/2010 [F. NO. 225/25/2010/IT (A-II)], DATED 9-12-2010

1. Reference may be made to Board's Instruction No. 7, dated 16-8-2010 in which it has been stated, inter alia, that in cases where the return is filed in ITR-1 and ITR-2 for the A.Y. 2009-10, and where the TDS claim does not exceed Rs. three lakh and where the refund computed does not exceed Rs. Twenty five thousand, the TDS claim of the taxpayer shall be accepted at the time of processing of the returns provided the TDS payment reported in AS-26 is more than Rs. zero.

2. Board has reconsidered the above instruction and it has been decided to increase the limit of TDS claim from Rs. three lakh to Rs. four lakh as was applicable for the A.Y. 2008-09. It is further clarified that if the limit of Rs. four lakh, or Rs.25,000 is exceeded in case of a return filed in ITR-1 and ITR-2 or there is nil matching with AS-26 statement, the credit should be allowed by the Assessing Officer after make 'due verification'. This verification may be done in the same manner as was being done in the earlier years.

3. This may be brought to the notice of all the Assessing Officers in your region for immediate compliance.

11 December 2010

e-Rectification u/s 154

Department introduces new facility for online submission of rectification request in cases where processing was completed by CPC Bangalore. Please review the guide for common errors to first rectify the return submitted and generate the rectification xml using excel utility (same utility is to be used). Taxpayer can log in My Account-> Rectification-> Rectification upload and follow

--
Best Wishes

CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
I Floor, Flat No.5,
Siddivinayaka Residency, I Cross,
Central Avenue, MSR Nagar,
Magunta Layout,
Nellore-524 003
Andhra Pradesh
India
Mobile:+91 - 0 9390221100
+91 - 0 9440278412
e-Mail: vmvsr@rediffmail.com
vmvsr@yahoo.co.uk
http://pdicai.org/MyPage/203038.aspx

07 December 2010

Exist Scheme Re-launched

Dear all,

Ministry of Corporate Affairs has decided to introduce a Scheme namely, "Easy Exit Scheme, 2011" under Section 560 of the Companies Act, 1956 to give an opportunity to the defunct companies, for getting their names struck off from the Register of Companies again.

The scheme will be in operation from 1st January, 2011 to 31st January, 2011 with filing fees of Rs. 3000/-.

IndianCAs by Ashwin Nagar