Allahabad Bank gains most from revaluation of real estate assets

RBI eased tier-I capital computing norms of PSU banks, by allowing them to add a of part revaluation gains on realty investments to their core capital

With the Reserve Bank of India (RBI) easing the Tier-I capital computing norms of public sector banks by allowing them to add part-revaluation gains on real estate investments to their core capital, a number of state-owned banks have reported addition in the reserves on account of the exercise.

In the eastern zone, Allahabad Bank has turned out to be the biggest gainer with addition of close to Rs 1,802 crore from its revalued commercial and residential real estate investments. The bank owns several sprawling properties in the central business districts of Kolkata.

Another Kolkata-based lender, UCO Bank, credited nearly Rs 1,737 crore as gains from revaluation of real estate investments. In the case of United Bank of India, the revaluation gain was vetted at Rs 347 crore at the end of FY16.

With the revaluation gains, Allahabad Bank’s capital adequacy ratio (Basel-III) improved from 10.38 per cent at the end of the third quarter of FY16 to nearly 11.02 per cent at the end of the fourth quarter of FY16.

However, despite the relaxation, in the case of UCO Bank, the capital adequacy ratio (CAR) reduced to 9.63 per cent at the end of FY16, against 10.54 per cent in the third quarter of the financial year. The lender posted a net loss of Rs 1,715 crore in the fourth quarter of FY16, against a net profit of Rs 209 crore in the year-ago period.“Much of our revaluation gains were washed away by the high losses in the last quarter,” said Charan Singh, executive director at UCO Bank. The bank’s gross non-performing assets (NPAs) touched a record high of 15 per cent in the last quarter of FY16 (6.76 per cent in year-ago quarter), while the net NPA stood at 9.09 per cent, up from 4.3 per cent.

In the case of United Bank of India, the CAR improved to 10.08 per cent at the end of FY16, against 9.92 per cent in the third quarter of FY16.

The current norms under Basel-III require banks to maintain a minimum capital adequacy of nine per cent and a Tier-I ratio of seven per cent.

According to recent changes in RBI guidelines, banks can now recognise 45 per cent of revaluation reserves to be included in the Common Equity Tier-I capital. This apart, banks are allowed to recognise 75 per cent of its foreign currency translation reserves and deferred tax assets related to timing difference up to 10 per cent as Common Equity Tier-I capital.