Challenges to intangible asset financing
According to a recent article in the Indian press (“Banks & intangible assets”), the Reserve Bank of India (RBI) has decided that brands cannot be used at loan collateral. The specific case concerns a loan to Kingfisher Airlines. However, earlier, the RBI allowed bank financing for companies to bid on spectrum allocations – treating spectrum as a bankable asset. As the author of the article, economist Haseeb A. Drabu, summarizes the situation:
the government and the regulators have not worked out a proper functional and transparent set of guidelines for financing the creation of intangible assets or lending on the back of such assets. As of now there are no standardized lending norms or guidelines for lending to intangible assets such as brands, trademarks, licences, know-how and trade secrets, group synergies, assembled workforce, and formal intellectual property, such as patents and copyrights.
. . .
Pending a holistic change, one that includes changes in the accounting policy and norms, reporting formats, valuation principles, and taxation policy, it is imperative to spell out the lending norms. In this there is need for clarity and consensus.
The former has to come from the regulator and the latter from the banking fraternity itself. Given the current issue arising out of spectrum financing and the Kingfisher case, perhaps the Indian Banks Association could start the consensus building process, starting with the resolution of the key issue of “value in use” and “value in liquidation” of intangible assets.
The exact same thing can be said for the situation here in America! Regulators, bankers, accountants and others need to start the consensus building process of standard for intangible assets in the financial system. Otherwise, given that most companies’ asset base is now based on intangibles, our financial system will contain a major flaw.
2012-10-04 02:48:44
Source: http://www.athenaalliance.org/weblog/archives/2012/10/challenges-to-intangible-asset-financing.html
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