Why loan by Letter of comfort is under secured debt?

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6 Points Posted on 07 August 2020

In financial statement of  some company, I have found that loan borrowed from ICICI bank and BARODA Bank is categorized under secured debt.

However as per my understanding, debt by letter of comfrot is a loan by credit, since it does not have any legal enforceability (except in the letter where there are clear words saying that the third person will meet the debt if borrower fails to pay)

 

Then why these debts are written under secured debt? Please someone give me the guidance.

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On 07 August 2020 at 13:58 Report
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Finance/Compliance Consultant
69266 Points Posted on 01 July 2026

Loans backed by a Letter of Comfort are often classified as "secured" because accounting standards prioritize the substance over the legal form of the contract. If the letter is drafted with strong, binding language or provides significant credit enhancement that makes the lender feel protected, auditors may classify it as a secured obligation, effectively treating the parent company's backing as a form of collateral.

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On 01 July 2026 at 13:19

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