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Dear Colleques We are in the process of valuing land. The land was bought for Rs 10 crores and the market valuation as of today is 140 crores.One of the conditions stipulated by bank for project finance is equity to debt. On valuation the difference of Rs 130 crores has to be credited to revalaution reserve which can not be treated as equity by the bank. How to overcome this? Is there restriction by Reserve Bank of India on the banks in funding revalaution reserve. Please guide me.
RBI restriction - funding revaluation reserve
Giri Shanmugam
Revaluation reserve treatment: whether banks may accept it as regulatory capital for project finance remains legally unresolved. A borrower asks whether the surplus credited to a revaluation reserve after upward valuation of land can be treated as equity by a bank for project financing, noting the bank's position that the reserve is not acceptable as equity; the recorded reply states the issue requires detailed in depth examination and gives no definitive regulatory answer. (AI Summary)
