9911796707
TMI BlogGuidelines for valuation and provisioning of non-performing assets and corrigendum Gazette Notification dated July 26, 2000X X X X Extracts X X X X X X X X Extracts X X X X ..... e guidelines shall be effective from October 1, 2000. 2. A copy of corrigendum published in the gazette notification dated July 26, 2000 is also enclosed. Yours faithfully, P. K. NAGPAL Encl : a/a SECURITIES AND EXCHANGE BOARD OF INDIA MUTUAL FUNDS DEPARTMENT GUIDELINES FOR VALUATION OF SECURITIES FOR MUTUAL FUNDS Mutual funds shall categorise the securities according to the following norms: 1. Traded Securities : When a security (other than Government Securities) is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected stock exchange or any other stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date. 2. Thinly Traded Securities : (i) Thinly Traded Equity/Equity Related Securities : When trading in an equity/equity related security (such as convertible debentures, equity warrants, etc.) in a month is less than ₹ 5 lacs or the total volume is less than 50,000 shares, it shall be considered as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be followed consistently and changes, if any noted with proper justification thereof) shall be taken and discounted by 75% i.e. only 25% of the Industry average P/E shall be taken as capitalisation rate (P/E ratio). Earnings per share of the latest audited annual accounts will be considered for this purpose. (d) The value as per the net worth value per share and the capital earning value calculated as above shall be averaged and further discounted by 10% for ill-liquidity so as to arrive at the fair value per share. (e) In case the EPS is negative, EPS value for that year shall be taken as zero for arriving at capitalised earning. (f) In case where the latest balance sheet of the company is not available within nine months from the close of the year, unless the accounting year is changed, the shares of such companies shall be valued at zero. (g) In case an individual security accounts for more than 5% of the total assets of the scheme, an independent valuer shall be appointed for the valuation of the said security. (ii)(a) Non Traded /Thinly Traded Debt Securities of Upto 182 Days to Maturity : As the money market securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortfolio METHODOLOGY A. Construction of Risk Free Benchmark Using Government of India dated securities, the Benchmark shall be constructed as below : Government of India Dated securities will be grouped into the following duration buckets viz., 0.5-1 years, 1-2 years, 2-3 years, 3-4 years, 4-5 years, 5-6 years and 6 years and the volume weighted yield would be computed for each bucket. Accordingly, there will be a benchmark YTM for each duration bucket. The benchmark as calculated above will be set weekly, and in the event of any change in the Reserve Bank of India (RBI) policies affecting interest rates during the week, the benchmark will be reset to reflect any change in the market conditions. Note : The concept of duration over tenor has been chosen in order to capture the reinvestment risk. It is intended to gradually move towards a methodology that incorporates the continuous curve approach for valuation of such securities. However, in view of the current lack of liquidity in the corporate bond markets, a continuous curve approach to valuation would be necessarily based on limited data points, and this would result i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e event of lack of trades in the secondary market and the primary market the gaps in the matrix would be filled by extrapolation. If the spreads cannot be extrapolated for the reason of practicality, the gaps in the matrix will be filled by carrying the spreads from the last matrix. C. Mark-up/Mark-down Yield The Yields calculated would be marked-up/marked down to account for the ill-liquidity risk, promoter background, finance company risk and the issuer class risk. As the level of illiquidity risk would be higher for non rated securities the marking process for rated and non rated securities would be differentiated as follows C(I) Adjustments for Securities rated by external rating agencies The Yields so derived out of the above methodology could be adjusted to account for risk mentioned above. A Discretionary discount/premium of upto +/-50 Basis Points for securities having a duration of upto 2 years and upto +/- 25 Basis Points for securities having duration higher than 2 years will be permitted to be provided for the above mentioned types of risks. The rationale for the above discount structure is to take cognizance of the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on September 30, 2000 then such a scheme shall within a period of two years bring down the ratio of illiquid securities within the prescribed limit of 15% in the following time frame: (i) all the illiquid securities above 20% of total assets of the scheme shall be assigned zero value on September 30, 2001. (ii) All the illiquid securities above 15% of total assets of the scheme shall be assigned zero value on September 30, 2002. (b) All funds shall disclose as on March 31 and September 30 the scheme-wise total illiquid securities in value and percentage of the net assets while making disclosures of half yearly portfolios to the unitholders. In the list of investments, an asterisk mark shall also be given against all such investments which are recognised as illiquid securities. (c) Mutual Funds shall not be allowed to transfer illiquid securities among their schemes w.e.f. October 1, 2000. (d) In respect of closed ended funds, for the purposes of valuation of illiquid securities, the limits of 15% and 20% applicable to open-ended funds should be increased to 20% and 25% respectively. (e) Where a scheme has illiquid securities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheduled phasing which ever is earlier. The value of the asset must be provided in the following manner or earlier at the discretion of the fund. Fund will not have discretion to extend the period of provisioning. The provisioning against the principal amount or instalments should be made at the following rates irrespective of whether the principal is due for repayment or not. 10% of the book value of the asset should be provided for after 6 months past due date of interest i.e. 3 months form the date of classification of the asset as NPA. 20% of the book value of the asset should be provided for after 9 months past due date of interest i.e 6 months from the date of classification of the asset as NPA. Another 20% of the book value of the assets should be provided for after 12 months past due date of interest i.e 9 months form the date of classification of the asset as NPA. Another 25% of the book value of the assets should be provided for after 15 months past due date of interest i.e. 12 months from the date of classification of the asset as NPA. The balance 25% of the book value of the asset should be provided for after 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided for in the books will be written back at the end of the 2 nd quarter and 25% after every subsequent quarter where both instalments and interest were in default earlier. 5 An asset is reclassified as 'standard asset' only when both overdue interest and overdue instalments are paid in full and there is satisfactory performance for a subsequent period of 6 months. (F) Receipt of past dues : When the fund has received income/principal amount after their classifications as NPAs ; For the next 2 quarters, income should be recognized on cash basis and thereafter on accrual basis. The asset will be continued to be classified as NPA for these two quarters. During this period of two quarters although the asset is classified as NPA no provision needs to be made for the principal if the same is not due and outstanding If part payment is received towards principal, the asset continues to be classified as NPA and provisions are continued as per the norms set at (D) above. Any excess provision will be written back. (G) Classification of Deep Discount Bonds as NPAs : Investments in Deep Discount Bonds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an investment is redeemable by instalments, that will be shown as an investment until all instalments have become overdue. (J) Effective date for implementation / switchover to the current norms : The above norms shall be implemented by all mutual funds including UTI from 01.10.2000. THE GAZETTE OF INDIA EXTRA ORDINARY PART II SECTION 3 SUB-SECTION (ii) PUBLISHED BY AUTHORITY SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION CORRIGENDUM MUMBAI, THE 26th DAY OF JULY, 2000 SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) (SECOND AMENDMENT) REGULATIONS, 2000 S.O. 694(E). In Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2000 published in the Official Gazette, Extra-Ordinary, Part II, Section 3, Subsection (ii), dated 22nd May 2000 vide S.O. No. 484 (E), the following be read as under: In para (4), in sub-clause (a), the words in clause (1A) be read as in clause (1) . F. No. SEBI/LE/ 11694/2000 D.R. MEHTA CHAIRMAN SECURITIES AND EXCHANGE BOARD OF INDIA - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
