What changed
RBI observed inconsistent practices among UCBs in property valuation and valuer appointment. This circular introduces standardized requirements: a Board-approved valuation policy, mandatory use of independent valuers, dual valuation for high-value properties (₹50 crore+), and formal empanelment procedures. It also clarifies revaluation reserve treatment for capital adequacy.
What it means for you
UCBs must tighten their property valuation processes to ensure accurate capital adequacy measurement. The 55% discount on revaluation reserves for Tier II capital remains, but banks must now prove reserves reflect true market value. This reduces risk of inflated collateral values and strengthens balance sheet transparency. Lenders need to update internal policies and maintain approved valuer registers.
What you must do
- Formulate a Board-approved policy for property valuation, covering collaterals and own assets.
- Ensure all valuations are done by independent, professionally qualified valuers with no conflict of interest.
- Obtain two independent valuation reports for any property valued at ₹50 crore or more.
- Create and maintain a register of empanelled valuers with minimum qualifications per asset class.
- Review revaluation frequency based on price volatility and align depreciation methods with expected benefit consumption.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Bank boards and risk management committees, Credit and collateral valuation teams, External valuers and empanelment agencies
What is the minimum number of valuation reports needed for high-value properties?
For properties valued at ₹50 crore or above, banks must obtain at least two independent valuation reports.
Can revaluation reserves be fully counted as Tier II capital?
No, only 55% of revaluation reserves can be included in Tier II capital, and only if the reserves represent true market appreciation as per the bank's comprehensive revaluation policy.
What qualifications should valuers have?
Banks should prescribe minimum qualifications for valuers, which may vary by asset class (e.g., land, plant). These should consider qualifications under Section 34AB (Rule 8A) of the Wealth Tax Act, 1957.