Q What is true sale in case of securitisation of assets?

Ans  For enabling the transferred assets to be removed from the balance sheet of the originator in a securitisation structure, the isolation of assets or ‘true sale’ from the originator to the SPV is an essential prerequisite.

In case the assets are transferred to the SPV by the originator in full compliance with all the conditions of true sale given below, the transfer would be treated as a 'true sale' and originator will not be required to maintain any capital against the value of assets so transferred from the date of such transfer.

      The criteria for "True Sale" of assets

1.      The sale should result in immediate legal separation of the originator from the assets which are sold to the new owner viz. the SPV.

2.      The originator should effectively transfer all risks/ rewards and rights/ obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale to the SPV.

3.      The originator shall not have any economic interest in the assets after its sale and the SPV shall have no recourse to the originator for any expenses or losses

4.      There shall be no obligation on the originator to re-purchase or fund the re-payment of the asset or any part of it or substitute assets held by SPV or provide additional assets to the SPV at any time except those arising out of breach of warranties or representations made at the time of sale.

5.      An option to repurchase fully performing assets at the end of the securitisation scheme where residual value of  such assets has, in aggregate, fallen to less than 10% of the original amount sold to the SPV ("clean up calls")

6.      The originator should be able to demonstrate that it has taken all reasonable precautions to ensure that it is not obliged, nor will feel impelled, to support any losses suffered by the scheme or investors.

7.      The sale shall be only on cash basis and the consideration shall be received not later than at the time of transfer of assets to the SPV.

8.      An opinion from the originating bank's Legal Counsel should be kept on record signifying that: (i) all rights, titles, interests and benefits in the assets have been transferred to SPV; (ii) originator is not liable to investors in any way with regard to these assets other than liability for certain permitted contractual obligations for example, credit enhancement/ liquidity facility; and (iii) creditors of the originator do not have any right in any way with regard to these assets even in case of bankruptcy of the originator.

9.      Any re-schedulement, restructuring or re-negotiation of the terms of the underlying agreement/s effected after the transfer of assets to the SPV, shall be binding on the SPV and not on the originator and shall be done only with the express consent of the investors, providers of credit enhancement and other service providers.

10.  The transfer of assets from originator must not contravene the terms and conditions of any underlying agreement governing the assets and all necessary consents from obligors (including from third parties, where necessary) should have been obtained.

11.  In case the originator also provides servicing of assets after securitisation, under an agreement with the SPV, and the payments/repayments from the borrowers are routed through it, it shall be under no obligation to remit funds to the SPV/investors unless and until these are received from the borrowers.

12.   The originator should not be under any obligation to purchase the securities issued by the SPV and should not subscribe to their primary issue. The originator may, however, purchase at market price only senior securities issued by the SPV if these are  at least ‘investment grade’, for investment purposes. Such purchase, along with the securities that may devolve on  account  of underwriting commitments, should  not exceed 10% of the original amount of the issue.

13.  The securities issued by the SPV shall not have any put options. The securities may have a call option to address the pre-payment risk on the underlying assets.

In case you want detailed guidelines you can ref guideline DBOD.NO.BP.BC.60 / 21.04.048/2005-06
issued by RBI website

Capital gain on agricultural land

 
Q: Is profit from sale of agricultural land is chargeable?

Ans: Under section 10(37) of Income Tax Act 1957, income would be exempt provided it fulfils following conditions:

• Assessee should be Individual or a Hindu undivided family
• such land is situate in any area referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of section 2;
• such land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his;
• such transfer is by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India;
• such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004

Also, In case assessee purchases agriclutural land from the proceed of agricultural land, the entire capital gain would be exmpt. He can also choose to deposit it with bank account where there will be lock in period.