RBI/2010-11/398

DBOD.FID.FIC.No.11/01.02.00/2010-11

February 01, 2011

The CEOs of select All-India Term Lending and Refinancing Institutions

(Exim Bank, NABARD, NHB and SIDBI)

Dear Sir,

Recognition of Permanent Diminution in the Value of Investments in Banks’ Subsidiaries / Joint Ventures

In terms of para 14 of Annexure to circular DBS.FID.No.C.9/01.02.00/2000-01 dated November 9, 2000 on ‘Guidelines for Classification and Valuation of investments ‘, FIs are required to recognise any diminution, other than temporary, in the value of their investments in subsidiaries / joint ventures which are included under Held to Maturity category and provide therefor. However, in the absence of any specific instructions on the method of assessment / measurement of permanent diminution, it has been observed that Banks/FIs are not making any attempt to determine whether there is any permanent diminution in their strategic equity investments held under HTM or AFS categories.

2. The need to determine whether impairment has occurred is a continuous process and the need for such determination will arise in the following circumstances:

(a) On the happening of an event which suggests that impairment has occurred. This would include:

(i)  the company has defaulted in repayment of its debt obligations.

(ii)  the loan amount of the company with any bank/FI has been restructured.

(iii) the credit rating of the company has been downgraded to below investment grade.

(b) When the company has incurred losses for a continuous period of three years and the net worth has consequently been reduced by 25% or more.

(c) In the case of new company or a new project when the originally projected date of achieving the breakeven point has been extended i.e., the company or the project has not achieved break-even within the gestation period as originally envisaged.

3. When the need to determine whether impairment has occurred arises in respect of a subsidiary, joint venture or a material investment, the FI should obtain a valuation of the investment by a reputed / qualified valuer and make provision for the impairment, if any.

4. These guidelines would be applicable with immediate effect.

Please acknowledge receipt.

Yours faithfully,

(B. Mahapatra)

Chief General Manager-In-Charge

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Category : Fema / RBI (3405)
Type : Notifications (15659) Notifications/Circulars (31380)
Tags : RBI Notifications (1932)

0 responses to “Recognition of Permanent Diminution in the Value of Investments in Banks' Subsidiaries / Joint Ventures”

  1. anuj says:

    hi this is anuj and doing my llb…actualy one of my friend was the victim of german bakery blast[pune] and now he is not able to any work…..what kind of benefits he will get under the article 32 and 226.. but he does”t have enough money to approch in honable high court or supreme court..

  2. muralidharan says:

    i have filed a writ petition in high court related to education.
    my career is depend upon court order.
    mistake was done from college, still i did not got certificates from university(i completed my degree but no proof).
    my problem is wheather i can get justice in this issue,because it depends upon my life(i studied all three valuable years)
    please help me out

  3. Dr. S. POOPATHI says:

    Sir
    Whether i would like to know:
    1)prohibition of SC/ST reservation in Government depts for the last several decades,comes under the section of violation of constitutional rights.Otherwise whether this issue is a departmental service matter.
    2) If it is a violation of constitional rights, Can we take up this issue to honb’le High court straight away instead of filing it in CAT (if it is a service matter).
    Please reply
    Thanking you
    Sincerely
    Dr. S. POOPATHI
    Scientist

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