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Investment: Classification & Valuation

This document discusses the classification, valuation, and income recognition of investments held by banks. It outlines that investments can be classified as held-to-maturity, held-for-trading, or available-for-sale. Held-to-maturity investments cannot exceed 25% of the bank's total investments. Valuation depends on classification, with marks-to-market applied regularly for trading investments. Non-performing assets are based on payment delays and provisioning requirements increase as assets become more doubtful of recovery.

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70 views13 pages

Investment: Classification & Valuation

This document discusses the classification, valuation, and income recognition of investments held by banks. It outlines that investments can be classified as held-to-maturity, held-for-trading, or available-for-sale. Held-to-maturity investments cannot exceed 25% of the bank's total investments. Valuation depends on classification, with marks-to-market applied regularly for trading investments. Non-performing assets are based on payment delays and provisioning requirements increase as assets become more doubtful of recovery.

Uploaded by

kanna1808
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd

INVESTMENT

CLASSIFICATION & VALUATION


Investment Portfolio
• Balance sheet
• Government securities
• Other approved securities
• Shares
• Debentures and Bonds
• Subsidiaries/ Joint ventures
• Others ( CP, MF units etc)
Classification
• Entire Investment Portfolio
– Held to maturity
not to exceed 25 % of banks total Invst
– Held for Trading
To be held only for a period of 90 days
– Held for Sale
• Extent of holding decided on the basis
of intent, trading strategies, risk mgt, tax
planning, manpower skills, capital
position
Classification
• As per B/s
– Govt Securities
– Other approved Securities
– Shares
– Debentures & Bonds
– Subsidaries/ JV
– Others ( cp, MF units )
Valuation
• General Provision
– Eqty shares marked to MV on daily or weekly
basis
– Arrears from income from securities
– Provision for Depreciation
• Held to Maturity
– Need not Mark to MV
Valuation
• Held for Trading
– Marked to MV at monthly or regular
intervals
– Appreciation/ depr adjusted in the income
statement & BS
• Available for Sale
– Marked to MV at yr end
– Depreciation fully provided for, appreciation
ignored
– Shortage or excess adjusted under profit &
loss ac & Interest fluctuation reserve
Market Value
• Quoted Securities - SE quotes, RBI
prices, Quotes of Primary dealers Asson
of India & Fixed Income Money market
and Derivatives Asson of India
• Unquoted Securities – yield to maturity
rates + mark up
• MF units
Income Recognition on
Investments
• Accrual
– Income guaranteed by Central/ state Govt.
– Dividend declared at AGM
– Int on Govt securities predetermined,
received regularly and not in arrears

• Cash
– All others cash basis
– MF income
Income Recognition
• International Classification
• Performing Assets
• Non performing Assets – Only when it is
actually realized
• Income recognition – reversal of Income,
appropriation of recovery
NPA
• Not paid within 30 days from due date
• Term Loans – more than 90 days
• Cash Credit & OD – excess of sanctioned limit
for a period of 180 days
• BP or discounted – overdue for 90 days
• Agricultural advances – Int or instalment
overdue for 2 harvest season but for a period
not exceeding 2.5 yrs
• Other a/c – 90 days
Asset Classification on NPA
basis
• Sub Standard Assets –18 Months
• Doubtful Assets – > 18 Months
• Loss Assets – negligible realizable
value , but not written off fully
Provisioning Norms
• Taking into account the time lag
between an account becoming
doubtful of recovery, its recognition as
such, the realization of the security
and the erosion in the value of the
asset over time provisions are made
Provision
• Loss Assets – Entire asset be written off
– If permitted to be in books 100% Provision
• Doubtful Assets
– For the portion not realizable – 100%
– Secured portion
• Up to 1 yr -20%
• Up to 3 Yrs – 30% and
• More than 3 yrs – 50%
• Sub standard Assets – 10% on total O/s
• Standard Assets - 0.25 % as Contingent
provisions against standard assets

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