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Unit 10: Audit of Financial Statements

net of transfer to Statutory Reserves as applicable to such excess provision) should be appropriated Notes
to an Investment Reserve Account in Schedule 2 –”Reserves & Surplus” under the head “Revenue
and other Reserves” and would be eligible for inclusion under Tier II within the overall ceiling
of 1.25 per cent of total Risk Weighted Assets prescribed for General Provisions/ Loss Reserves.
Banks may utilize Investment Reserve Account for provisions required to be created on account
of depreciation in the AFS and HFT categories.

Market Value

The ‘market value’ for the purpose of periodical valuation of investments included in the
Available for Sale and Held for Trading categories would be the market price of the scrip as
available from the trades/quotes on the stock exchanges, SGL account transactions, price list of
RBI, prices declared by Primary Dealers Association of India (PDAI) jointly with the Fixed
Income Money Market and Derivatives Association of India (FIMMDA) periodically. In respect
of unquoted securities, the procedure as detailed below should be adopted.
1. Unquoted SLR Securities: Central Government Securities—the prices/ YTM rates put out
by the PDAI/ FIMMDA at periodical intervals. Treasury Bills should be valued at carrying
cost.
2. State Government Securities—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.

3. Other ‘APPROVED’ Securities—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.
4. Unquoted Non-SLR Securities: Debentures/Bonds—in the nature of advance should be
valued on the YTM basis.
(a) 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.
(b) Preference Shares: The valuation of preference shares should be on YTM basis.
(c) Equity shares: The equity shares in the bank’s portfolio should be marked to market
preferably on a daily basis, but at least on a weekly basis.
(d) Mutual funds units: Investment in quoted Mutual Fund Units should be valued as per
Stock Exchange quotations. Investment in unquoted Mutual Fund Units is to be
valued on the basis of the latest re-purchase price declared by the Mutual Fund in
respect of each particular Scheme. In case of funds with a lock-in period, where
repurchase price/market quote is not available, Units could be valued at NAV. If
NAV is not available, then these could be valued at cost, till the end of the lock-in
period. Wherever the re-purchase price is not available the Units could be valued at
the NAV of the respective scheme.
(e) Commercial Paper: Commercial paper should be valued at the carrying cost.
(f) Investments in RRBs: Investment in RRBs is to be valued at carrying Cost (i.e. book
value) on consistent basis.

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