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RBI No.2006-2007/224
DBOD.BP.BC No. 50 / 21.04.018/ 2006-07
January 4,
2007
The Chairmen/Chief
Executives
All Commercial Banks
(excluding RRBs)
Dear Sir,
Valuation of Properties
- Empanelment of Valuers
It has been
observed that different banks follow different policies for valuation of properties
and appointment of valuers for the purpose. The issue of correct and realistic
valuation of fixed assets owned by banks and that accepted by them as collateral
for a sizable portion of their advances portfolio assumes significance in view
of its implications for correct measurement of capital adequacy position of
banks. In this context, there is a need for putting in place a system/procedure
for realistic valuation of fixed assets and also for empanelment of valuers
for the purpose.
2. Banks
may be guided by the following aspects while formulating a policy on valuation
of properties and appointment of valuers:
(a) Policy
for valuation of properties
i)
Banks should have a Board
approved policy in place for valuation of properties including collaterals accepted
for their exposures.
ii)
The valuation should be done
by professionally qualified independent valuers i.e. the valuer should not have
a direct or indirect interest.
iii)
The banks should obtain minimum
two Independent Valuation Reports for properties valued at Rs.50 crore or above.
(b) Revaluation
of bank’s own properties
In addition
to the above, the banks may keep the following aspects in view while formulating
policy for revaluation of their own properties.
i)
The extant guidelines on
Capital Adequacy permit banks to include revaluation reserves at a discount
of 55% as a part of Tier II Capital. In view of this, it is necessary that revaluation
reserves represent true appreciation in the market value of the properties and
banks have in place a comprehensive policy for revaluation of fixed assets owned
by them. Such a policy should interalia cover procedure for identification
of assets for revaluation, maintenance of separate set of records for such assets,
the frequency of revaluation, depreciation policy for such assets, policy for
sale of such revalued assets etc. The policy should also cover the disclosure
required to be made in the 'Notes on Account' regarding the details of revaluation
such as the original cost of the fixed assets subject to revaluation and accounting
treatment for appreciation / depreciation etc.
ii)
As the revaluation should
reflect the change in the fair value of the fixed asset, the frequency of revaluation
should be determined based on the observed volatility in the prices of the assets
in the past. Further, any change in the method of depreciation should reflect
the change in the expected pattern of consumption of the future economic benefits
of the assets. The banks should adhere to these principles meticulously while
changing the frequency of revaluation/method of depreciation for a particular
class of asset and should make proper disclosures in this regard.
(c) Policy
for Empanelment of Independent valuers
i) Banks
should have a procedure for empanelment of professional valuers and maintain
a register of 'approved list of valuers'.
ii) Banks
may prescribe a minimum qualification for empanelment of valuers. Different
qualifications may be prescribed for different classes of assets (e.g. land
and building, plant and machinery, agricultural land, etc.). While prescribing
the qualification, banks may take into consideration the qualifications prescribed
under Section 34AB (Rule 8A) of the Wealth Tax Act, 1957.
3. Banks
may also be guided by the relevant Accounting Standard issued by the Institute
of Chartered Accountants of India.
Yours faithfully,
(Prashant
Saran)
Chief General Manager-in-Charge |