Valuation of Securities

Valuation of securities:

RBI has issued guidelines for valuing both the quoted and unquoted securities.

Valuation of Quoted Securities:

The market value for the purpose of periodical valuation of investments included in the Available for Sale and the Held for trading categories would be the market price of the scrip from any of the following sources:

• Quotes/Trades on the Stock exchanges

• SGL Account transactions

• Price list of RBI

• Prices declared by Primary Dealers Association of India (PDAI) jointly with FIMMDA

Valuation of Unquoted SLR Securities:

Central Govt. Securities should be valued on the basis of the prices/ YTM rates put out by the PDAI/ FIMMDA at periodical intervals. The 6.00 per cent Capital Indexed Bonds may be valued at “cost” and Treasury Bills should be valued at carrying cost.

State Government securities as well as the other approved securities will be valued applying the YTM method by marking it up by 25 basis points above the yields of the Central Government Securities of equivalent maturity put out by PDAI/ FIMMDA periodically.

Valuation of Unquoted Non-SLR Securities:

DEBENTURES/BONDS:

All debentures/ bonds other than debentures/ bonds which are in the nature of advance should be valued on the YTM basis. Such debentures/ bonds may be of different companies having different ratings. These will be valued with appropriate mark-up over the YTM rates for Central Government securities as put out by PDAI/ FIMMDA periodically. The mark-up will be graded according to the ratings assigned to the debentures/ bonds by the rating agencies subject to the following:

• The rate used for the YTM for rated debentures/ bonds should be at least 50 basis points above the rate applicable to a Government of India loan of equivalent maturity.

• The rate used for the YTM for unrated debentures/ bonds should not be less than the rate applicable to rated debentures/ bonds of equivalent maturity. The mark-up for the unrated debentures/ bonds should appropriately reflect the credit risk borne by the bank.

• Where the debenture/ bonds are quoted and there have been transactions within 15 days prior to the valuation date, the value adopted should not be higher than the rate at which the transaction is recorded on the stock exchange.

• Where interest/principle on the debentures/bonds is in arrears, the provisions will be made for the debentures as in the case of debenture/bonds treated as advances. The depreciation/provision requirements towards debentures where the interest is in arrears or principal is not paid as per due date shall not be allowed to be set off against appreciation against other debenture/bonds.

ZERO COUPON BONDS:

Zero coupon bonds should be shown in the books at carrying cost, i.e., acquisition cost plus discount accrued at the rate prevailing at the time of acquisition, which may be marked to market with reference to the market value. In the absence of market value, the zero coupon bonds may be marked to market with reference to the present value of the zero coupon bond. The present value of the zero coupon bonds may be calculated by discounting the face value using the Zero Coupon Yield Curve with appropriate mark up as per the zero coupon spreads put out by FIMMDA periodically. In case the bank is still carrying the zero coupon bonds at acquisition cost, the discount accrued on the instrument should be notionally added to the book value of the scrip, before marking it to market.

PREFERENCE SHARES:

The valuation of preference shares should be on YTM basis. The preference shares will be issued by companies with different ratings. These will be valued with appropriate mark-up over the YTM rates for Central Government securities put out by the PDAI/FIMMDA periodically. The mark-up will be graded according to the ratings assigned to the preference shares by the rating agencies subject to the following:

• The YTM rate should not be lower than the coupon rate/ YTM for a GOI loan of equivalent maturity.

• The rate used for the YTM for unrated preference shares should not be less than the rate applicable to rated preference shares of equivalent maturity. The mark-up for the unrated preference shares should appropriately reflect the credit risk borne by the bank.

• Investments in preference shares as part