Move to shore up the bank's capital adequacy. | |
| Bank of India (BoI), the large public sector bank, has decided to revalue its 50 prominent real estate properties across the country"" the first such exercise since 1993""to shore up its capital adequacy. |
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This would add over Rs 800 crore to its revaluation reserves, which qualify as Tier II capital for meeting the capital adequacy requirements.
ESTATE ESTIMATES
BoI Capital Adequacy in June | | Rs crore | 2006 | 2007 | | Tier I capital | 4,757 | 6,014 | | Tier II capital | 2,659 | 4,379 | | Total capital | 7,416 | 10,393 | | Total assets | 1,14,535 | 1,41,733 | | Risk weighted assets | 71,590 | 90,312 | Capital to risk weighted
assets ratio (CRAR) in % | 10.36 | 11.51 | | CRAR -I (%) | 6.64 | 6.66 | | CRAR-II (%) | 3.71 | 4.85 |
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| The board of directors of the bank cleared the revaluation proposal at its meeting in New Delhi today. It decided to revalue identified fixed assets (properties) and take into account the appreciation in the value of fixed assets, during the current quarter ending September 30, 2007. |
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| According to the Reserve Bank of India guidelines, 45 per cent of the revaluation reserves are taken into account for inclusion in Tier II capital. |
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| The bank's capital adequacy was 11.51 per cent at the end of June 2007 "" Tier I 6.66 per cent and Tier II 4.85 per cent. Equity capital, reserves and perpetual bonds are considered Tier I capital, and revaluation reserves and long-term bonds Tier II capital. |
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| The bank has room for increasing its Tier II capital by about Rs 2,000 crore. "We can raise capital through Upper Tier II and subordinated bonds. The bank will have to pay at least 10 per cent annual interest for bonds but, when the proceeds are deployed in securities (10-year government paper), the annual return could be in the region of 8 per cent. This is certainly not cost-effective for the bank," a senior BoI official said. The addition to Tier II capital through revaluation of fixed assets comes free of cost. |
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| "Bank needs capital to support business growth. So we feel revaluing some of the fixed assets is a route available to add to our capital without incurring any cost. The book value of fixed assets at the end of March 2007 was about Rs 781 crore" he said. |
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| Analysts said the bank owns properties in prominent business districts, including the corporate office at Bandra-Kurla Complex and branches in Mumbai's fort region. Going by conservative estimates, the bank could see a rise of over Rs 1,500 crore in the value of properties. |
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| Two independent valuers will be appointed for the revaluation exercise. Generally, valuers use benchmarks such as the prices of few transactions in the area for arriving at the value of a property. The lowest valuation was being considered for prudence, the official said. |
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