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Go back DBOD.No. BC. 8/12.02.001/97-98 January 22, 1998 The Chairmen/Chief
Executives of all Scheduled Commercial
Banks Dear Sir, Valuation of 6 pecent
Capital Indexed Bonds, 2002 issued by Government of India Please refer to paragraph 24 of
Annexure II to our Circular DBOD. No. Leg. BC. 34/C.233A-85 dated 23 March
1985 relating to maintenance of liquid assets under Section 24 of the Banking
Regulation Act, 1949 and the Annexure to our Circular DBOD. No. FSC. BC.
143A/24.48.001/91-92 dated June 20, 1992, wherein the accounting standards
for investment transactions have been prescribed. 2. It is clarified that in
respect of the Capital Indexed Bonds issued by Government of India vide its
Notification No. 4(13)/W&M/96 dated December 19, 1997, the 'cost' may be
reckoned by using the index ratio calculated by taking the WPI with a three
months' lag. For example, the WPI for the month of November 1997 may be used
to calculate the index ratio for the month of March 1998. An illustrative
example is given in the Annexure. With this adjustment of the 'cost', the
banks can then use the standard valuation procedures. Yours faithfully (A. L. Narasimhan) Additional Chief General
Manager |
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Annexure ILLUSTRATION Calculation of 'cost' of the 5
year Capital Indexed Bonds, 2002 as on March 31, 1998 The bonds were issued in
December 1997 at par. The Wholesale Price Index (WPI) for August 1997 was
taken as the Base WPI. Similarly the Reference WPI for payment of the
redemption value in Dcember 2002 is taken as the WPI for August 2002. Thus, a
clear 3 months' lag is followed for indexation of capital. The same principle
can be applied for arriving at 'Cost' for the purpose of valuation of Capital
Indexed Bonds. If the valuation of the bond is to be done in March 1998, the
index ratio can be calculated by taking the WPI for November 1997 as the
Reference WPI. While thus for every quarter ending March of a year, the
numerator will take WPI of November of the previous year, for other quarters
ending in months viz. June, September and December, every year, the index
ratio will take in the numerator WPI for February, May and August of the
respective years. |
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Assuming that the Monthly
Average Index of Wholesale Prices (1981-82 = 100) for November 1997 is
329.90. The Reference WPI is 329.90. The base WPI, i.e. the WPI for August
1997 is 326.00. The calculation of 'Cost' of Capital Indexed Bonds is
illustrated below : Index Ratio for March 1998 1.01196 or 1.01 (rounded to two decimal places) |
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