Valuation Under RBI Act

Enterslice offers expert business valuation services under the RBI Act, ensuring compliance and accuracy with experienced advisors and registered values.

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Valuation Under RBI Act

Our team of expert advisors will help a business get a valuation under the RBI Act as professionally and efficiently as possible. As per RBI guidelines, a registered valuer is to carry out the valuation process. Our valuation experts use multiple valuation techniques to get the fair market value of an asset. Important tasks like compliance, tax computation, financial reporting, etc., will comprise the day-to-day work of our valuation advisors. Enterslice's valuation advisors are listed with IBBI and are registered valuers. Our advisors have hands-on experience working with multiple businesses and business entities, and they will efficiently be able to compile and handle all your requisites; hence, Enterslice is a one-stop solution for all your business needs.

Overview of Valuation as per RBI Act (Reference: What Is A Virtual CFO Services ?)

The government bodies of various countries have set up an organized methodology to maintain the financial system’s proficiency, efficiency, and reliability. The Reserve Bank of India (RBI) takes up this responsibility in India. It is one of the oldest banks, nationalized in 1935. RBI holds accountability for various businesses and other commercial ventures in India. It is vital to process the RBI valuation in India to stand out positively. There are set criteria and directions for the valuation of all the investments a bank makes. The RBI has involved fair valuation necessities along with accounting handling for gain/loss, safeguarding that investment portfolios are evaluated precisely, reflecting their present market values. Fair value assessment is built on a hierarchy of level 1, level 2, and level 3.

Three Categories of Investment Portfolios (Reference:  Shared CFO services for startups)

Held to Maturity (HTM)

The investments classified under HTM must not be marked for the market. The venture shall be approved at acquisition cost, given that it is less than the face value of the security. These are some of the guidelines for the valuation of HTM as per RBI guidelines.

Available for Sale (AFS)

The individual securities in the AFS group shall be marked to market every three months or at extra frequent intervals. The book value of the explicit securities shall not bear any alteration after the marking of the market.

Held for Trading (HFT)

The individual securities in the HFT category shall be marked to market at monthly or at more recurrent intervals and delivered as in the case of those in the AFS category. These are some of the guidelines in the HFT category. 

Enterslice’s Expert RBI Valuation Services

Fair Value Analysis

A fair value report is an important Document that is made during the process of valuation. Our team of expert valuation advisors is fully proficient and has practical knowledge in assembling the fair-value report for your business according to the standards of the industry.

Legal Consultation

We at Enterslice are fully equipped to provide prime legal advice for all your needs. Our professionals are experts in giving the best legal advisory service according to your requirements. When talking about valuation under the RBI Act, our team of experts will handle all the due diligence on your behalf.

Financial Reporting

Economic reporting is an important aspect of valuation under the RBI Act. Our team of highly skilled professionals will suggest and help compile a standard financial report for your company to assist with valuation.

Tax Assessment

We understand that Tax assessment can be very complex and more inspected by governing institutions. Our experts have a hands-on understanding of the workings of tax valuation and will give apt guidance for similar.

Guidelines for Valuation as per RBI Act

The Reserve Bank of India has come up with thorough and wide-ranging guidelines and strategies that are required for the valuation procedure; the guidelines are listed below-

  • An empanelled autonomous valuer should mandatorily conduct the valuation; the valuer must not have a direct or indirect relation or concern with the assets being valued.
  • All the required/Documents/ Documents should flow directly from the branch to the valuer & vice versa without routing the same through the borrower/ guarantor concerned.
  • The valuation analysis to be submitted by the valuers consistently contains the book value, fair market value, realizable value, and distress sale value of the belongings being valued. Nonetheless, to regulate the present value of the property mortgaged, the attainable value should be taken into deliberation. Also, in the case of ‘Plant and Machinery’, attainable value is to be recognized for valuation purposes.
  • For credits above 1 crore wherein main/collateral kept as security is estimated at above 50 lacs, valuation reports from two employed valuers are to be obtained.
  • When the value of the property is below 50 lacs, a single valuation is to be obtained; only one empanelled valuer is required then.
  • A valuation report for assets/ properties must be attained once every 3 years.
  • Where the number of possessions offered as security surpasses ten and are located at diverse/different sites, an estimated discount of 5% is to be applied to the attainable value of the properties, and the reduced value should be measured while coming at the safety analysis.
  • In case of a difference of 20% or more between the fair market and attainable values as per the valuation and the standard value given in the state government statement or income tax gazette, validation for variation has to be provided by the valuer.
  • Particulars of the last two trades in the locality are to be provided in the valuation report, wherever existing.
  • The functioning units should also confirm that properties existing as security for credit facilities authorized are not bought from the loan amount disbursed.
  • The valuation report must encompass specific views/comments on the awaiting threats, if any.
  • In case of multiple banking arrangements, the valuation report format arranged by the bank is to be used.

Methods for RBI Valuation (Reference: Cash Flow Planning And Projections) 

Market Approach

The Market Approach is a valuation method used to establish the appraisal value of a business, intangible asset, business proprietorship interest, or security by considering the market prices of comparable attributes or businesses that have been sold in recent times or those that are still accessible. Price-related pointers like sales, book values, and price-to-earning are typically utilized. The two main valuation methods that are used under the market approach are Public Company Comparables, which entail valuation metrics from companies that have been traded publicly and are considered to be rightly similar to the subject entity, and Precedent Transactions, which involve deriving value using pricing multiples w.r.t observed transactions of companies in the same industry.

Income Approach

The income approach, sometimes referred to as the income capitalization approach, is a type of real estate appraisal method that allows investors to estimate the value of a property based on the income the property generates. It’s used by taking the net operating income (NOI) of the rent collected and dividing it by the capitalization rate. The approach is generally utilized for income-generating properties and is a reliable approach for appraising real estate. This approach is just like the DCF (Discounted cash flow) for finances. Attributes like property conditions, cost to repair, etc., are also considered in the valuation process as per the income-based approach. 

Cost Approach

The cost approach is a real estate valuation tactic that estimates the price a buyer should pay for a fragment of property, which is equal to the cost to build an analogous building. In the cost method, the property's value is equal to the cost of land plus the total cost of construction, less depreciation. It produces the most precise market value for when a property is new than through an alternative process or method. This method is not as reliable as any other real estate appraisal method, but it can be handy in several cases, such as when assessing new construction or a distinct home with lesser comparables.

Process of Determining the Valuation Method

Each of these valuation tactics includes different thorough methods of application. The goal in choosing valuation methods and methods for an asset is to find the most suitable method under particular conditions. No one method is apt for every possible situation. The selection procedure must consider the basis of value, respective merits and demerits, suitability of each method, and dependable info. Our valuation advisors consider the use of multiple tactics and methods, and more than one valuation method or process should be considered and may be used to reach a sign of value, particularly when there are inadequate accurate or noticeable inputs for a single technique to produce a reliable deduction. When more than one method or approach is used, or even numerous methods with a single tactic, the conclusion of those value-based methods and /or approaches should be rational, and the process of analyzing and integrating the differing values into a single deduction, without averaging, should be labelled by the valuer in the report.

Valuation of a Held to Maturity: Explained

Guidelines for the valuation of an HTM are listed below-

  • Investments classified under HTM must not be marked for the market.
  • The venture shall be approved at acquisition cost, given that it is less than the face value of the security.
  • If the procurement cost is more than face value, the premium ascending out of the difference between face worth and acquisition cost shall be remunerated over the period outstanding to maturity.
  • The book value of the security shall carry on being condensed to the degree of the amount remunerated during the appropriate accounting duration.
  • The need to decide whether impairment has happened is a constant process and shall ascend in situations like the following-
    • The company has defaulted in settlement of its debt obligations
    • The loan account of the business with any bank has been updated.
    • The company has suffered losses for an uninterrupted period of three years, and its net worth has consequently been condensed by 25% or more.
    • Banks shall get a valuation of the investment through a reputed/capable valuer and make establishment for the damage, if any, in case the need to determine whether damage has occurred arises in respect of a secondary, joint venture, or quantifiable investment.
    • Notwithstanding the endowment of points one and two stated above, investments in distinct securities received from the government of India towards the bank's recapitalization obligation from FY 2021-22 onwards shall be acknowledged at fair value on early recognition in HTM.

Valuation of (AFS) Available for Sale: Explained

The guidelines for the valuation of an AFS are that individual securities in the AFS shall be marked to market every three months or at extra frequent intervals, unlike HFTs. The book value of the explicit security will not bear any changes after the marking of the market. Domestic securities and foreign investment under this arrangement shall be valued security-wise, and an increase must be gathered with the motive of arriving at net depreciation. Investments in specific categories will be shared for the purpose of coming at the net appreciation/depreciation. If any Net depreciation is found, it shall be looked after, and if net appreciation is found, then it will be overlooked.  

Valuation of (HFT) Held for Trading: Explained

The guideline for the valuation of the HFTs is that the individual securities in the HTF group shall be marked to market on monthly or even more frequent intervals and delivered. The book value of the individual security will not go through any changes after marking it to market. A HFT security is a kind of debt or equity taken into account with the motive of short-term or quick gains. Any loss or gain for an HFT security within its period of holding should be indicated in the Balance sheet of the trading business. HFTs are reported at fair value.

Valuation Hierarchy as per RBI Act

Level 1

‘Level 1’ with respect to inputs utilized for the valuation of financial instruments are specific inputs that are quoted or unadjusted prices in active markets for similar instruments that the bank can reach the assessment or measurement data. With respect to the valuation of equipment, it refers to a valuation that is subsequently based on Level 1 inputs and does not have any important or significant Level 2 or Level 3.

Level 2

‘Level 2’ with respect to inputs used for the valuation of an economic instrument are those inputs, other than unadjusted or quoted prices included in Level 1, that are visible for the liabilities or assets, indirectly or directly. It refers to an appraisal that is based on Level 1 and Level 2 inputs and does not have any particular level 3. The level 1, 2, and 3 valuation hierarchy are very similar to the notifications and guidelines based on Indian Accounting Standards (IndAS).

Level 3

'Level 3' inputs utilized for the valuation of a financial attribute are unobservable inputs. With respect to the valuation of an attribute, it refers to a valuation where a significant level 3 input is present. The hierarchy portrays the dependability of the inputs utilized in the valuation. Level 3 is the least dependable, as it considers unobservable inputs.

Initial Recognitions Required for Valuation as per RBI Guidelines

Fair Value on Initial Recognition

The deal or transaction price on initial recognition will be the presumed fair value. In general situations, a paralleling between the market transactions with the latest price will not be needed. The investments are firstly recognized at acquisition cost. But, in many cases, the acquisition price may overvalue the investment.  Hence, RBI undertakes initial recognition at fair value, which aligns with the IndAS-issued guidelines.

Clarification for Special Securities

The fair worth of distinct securities procured from the government of India for recapitalization of banks would be established on the basis of prices or yield to maturity of equivalent central government securities produced by FBIL. The distinction between the acquisition price and fair value so obtained would be promptly identified in the loss and profit account.

Fair Value of Equity Shares

The fair value of equity shares acquired on the satisfaction of debt can be established when the shares are listed, and their fair value is the quoted or original price on the Bombay Stock Exchange or National Stock Exchange. In the situations where the shares are listed, the fair value will be the segmented value without taking into account the revaluation reservoirs.

Advantages of Hiring Enterslice’s RBI Valuation Experts

Compliance with Legal Protection

The valuation advisor will help to comply with valuation standards so that the company enjoys legal protection, and they will also reduce the risk of non-compliance with regulatory necessities. This safeguards the company's standing.

Consistency and Comparability

A valuation advisor will help establish a set of valuation standards that will generate a common language and approach to conducting a valuation. This will ensure uniformity across diverse organizations and sectors, allowing for eloquent analysis and assessment.

Transparency and Trust

Following standardized valuation practices by a valuation advisor increases transparency and instils confidence among investors and stakeholders. They can rely on the trustworthiness of valuation, reducing the information irregularity between management and external parties.

Dispute Resolution

Valuation standards are a strong set of rules that you can rely on if there is a dispute about the fair market value of your assets or stocks. If there is a dispute, your valuation advisor will help you settle the dispute objectively and fairly by advising you to follow accepted valuation standards.

Other Services Offered

Compliance Obligations

It is important for a bank to maintain legality throughout. Our team of capable advisors will direct and aid you in all the procedures of legal compliance.

Risk Vindication

There are several risks involved in the process of valuation under the RBI Act. Our team of expert advisors is familiar with the legalities as well as the significance of the valuation process.

ESOP Valuation

Employee Stock Ownership Plans (ESOPs) allow companies to sell fragments of their business shares to the employees. Our expert advisors will assist you in every aspect of ESOP valuation. 

Qualified Valuers

Our experts of qualified professionals are fully equipped to provide valuation services as per the norms of the RBI Act. Enterslice is a one-stop solution for all your requirements.

Revised RBI Guidelines for Valuation

With the introduction of practical standards on capital competence, income acknowledgement, asset cataloging, and provisioning necessities, the financial position of banks in India has developed in the last few years. In the assessment of these developments and taking into thought the budding international practices, an informal functioning group in the bank studied the existing directions on the valuation of investment cases. The guidelines on the valuation of investment by banks have been studied on the basis of references of the core group to bring them in consonance with the best transnational processes. The revised guidelines for valuation as per RBI state that the banks are obliged to segment their entire investment portfolio into three categories: HTM, HFT, and AFS. The investment will remain disclosed as per the six already existing categories in the balance sheet. AFS and HFTs are to be marked to market periodically or at more frequent intervals. Sorting of investment, shifting funds within categories, valuation of the investments, the process of stating profit/loss, and devaluation process must be according to the principles mentioned.

Enterslice’s Roadmap to Success

Enterslice has years of experience in handling procedures related to valuation. We always value all stakeholders’ opinions for alterations and transitions. Enterslice’s client-centric approach enables an unwrinkled valuation process for clients with different needs. Our valuation experts are registered and certified with IBBI, hence coming with a wealth of experience and knowledge required to do the job efficiently.

Policies in RBI Valuation Guidelines

Policies for Valuation of Properties

Banks are required to have a board-approved policy made for the valuation of property. The process of valuation is to be carried out by an independent qualified valuer. For properties valued over rupees 50 crore, valuation reports from 2 valuers are required.

Policies for Revaluation

It is mandatory that revaluation figures demonstrate actual appreciation in the market value of the assets and that the banks have a comprehensive revaluation policy fixed. It is required that the revaluation must reflect the alterations in the fair value of the fixed assets.

Empanelment of Independent Valuer

Banks must have a process set to empanel a registered valuer and must maintain a record of the approved list of valuers. Banks are also required to adhere to the accounting standards given by the Institute of Chartered Accountants of India.

Revaluation of Fixed Assets

The policy for the revaluation of fixed assets must also cover processes for the recognition of assets and maintain separate Paper works containing the list of such assets, regularity of revaluation, depreciation policy for those assets, and sale of such assets. Banks are required to make policies that cover the declarations required to be made in the Paper works containing details of revaluation. The details are the original cost of the asset, accounting standards for appreciations and depreciation, etc. Revaluation must also demonstrate the changes in the fair value of the asset along with the upcoming economic benefits of the assets. A registered valuer is supposed to carry out the revaluation process.

Risks of Not Hiring a Valuation Expert

A valuation is executed by a competent valuer with access to data on how much comparable investments performed. Inappropriate valuation can lead to either overvaluation or undervaluation. Overvaluing means overestimating how much it's worth. This can result in a lot of problems, such as unrealistic hopes for a payday that's likely to be less than expected. There is an inconsistency between the valuation report and how much the investment values can mislead potential investors or buyers, which can be difficult to authenticate and lead to potential differences. Undervaluing means underestimating how much an investment is worth. How much are you likely to harvest from your investment choices and the establishment of these plans? If the value is worth more than the valuation report mirrors, this could significantly modify the investor's plans.

Enterslice’s Registered Valuers

Enterslice houses valuation experts for different kinds of assets. Our valuation experts have the prescribed qualification as per Rule 8A (Section 34AB) of the Wealth Tax Act, 1957. We have a team of expert accountants who have hands-on experience in following the valuation process as per the accounting standards of ICAI, with years of experience in the field of valuation of plants and machinery, land and buildings, agricultural lands, etc. Enterslice is one of the best valuation service providers in India.

Frequently Asked Questions

The Reserve Bank of India Act of 1934 is the legislative act under which the Reserve Bank of India was formed. This act, along with the Companies Act.

The net income of RBI in fiscal year 2023 was around 874 billion rupees.

The investment classification in banks per RBI is divided into three categories-

• Held to Maturity

• Available for Sale

• Held for Trading

The net income of RBI in the fiscal year 2023 was around 874 billion rupees.

The assets of RBI include the following-

• Foreign country assets

• Gold rupee Investment

• Bonds and bills

• Loan sanctioned

• Domestic and foreign investments

• Rupee coin, etc.

The RBI serves as the administrator and regulator for the entire financial structure in India.

A SEBI-registered merchant banker or a qualified valuer, as per the norms, performs the valuation.

RBI predicts a 15% increase, as it’s the cash that banks loan to companies. This affects the capacity expansion and job growth of firms.

The size of the balance sheet increased by 1,54,453.97 crores, which is 2.5 % more.

Section 27 of the RBI act states that ‘Bank shall not re-issue notes which are torn defaced or excessively spoiled.’


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