Final Accounts of Banking Companies
Final Accounts of Banking Companies
Final Accounts of Banking Companies
1. INTRODUCTION
in India, include:
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Banking has been defined by section 5 of the Banking Regulation Act and
means:
(b) Granting loans and advances (cash credits, overdraft, term loans,
etc.).
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Some banks are included in the Second Schedule to the Reserve Bank of
India Act, 1934; these are called Scheduled Banks. The Reserve Bank
includes a bank in this schedule if it fulfils certain conditions. The Reserve
Banks gives certain facilities to schedule banks including the following:
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(vii) acquiring and holding and generally dealing with any property or any
right, title or interest in such property which may form the security for any
loans and advances;
(viii) underwriting and executing trusts;
(ix) establishing and supporting or aiding in the establishment and support
of institutions, funds, trusts etc.
(x) acquisition, construction, maintenance and alteration of any building
and works necessary for the purpose of the banking company;
(xi) selling, improving, managing, developing, exchanging, leasing,
mortgaging, depositing of or turning into account or otherwise dealing
with all or any part of the property and rights of the company;
(xii) acquiring and undertaking whole or any part of the business of any
person or company;
(xiii) doing all such other things as are incidental or conductive to the
promotion or advancement of the business of the banking company;
(xiv) any other business which the Central Government may specify by
notification in the Official Gazette.
No banking company shall engage in any form of business other than
those referred to above.
Under section 10(a), not less than 51% of the total number of members of
the board of directors of a banking company shall consist of persons
having special knowledge or practical experience in one or more of the
following fields :
1. Accountancy;
2. Agriculture and rural economy;
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3. Banking;
4. Co-operation;
5. Economics;
6. Finance;
7. Law;
8. Small scale industry.
It is also required that not less than two directors should have special
knowledge or practical experience in respect of agriculture and rural
economy and co-operation or small-scale industry. Under section 10(b)
(1), every banking company shall have one of its directors as Chairman of
its board of directors. The Chairman is entrusted with the management of
the whole of the affairs of the banking company. Such Chairman is the
whole-time employee of the banking company and can hold office for a
period not exceeding five years. Other directors who are whole-time
directors can hold office continuously for a period not exceeding eight
years.
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• Bank Accounting
Thus the cash book gives a bird's-eye view each day of all the work of the
bank. Some banks still use, in addition to the cash book, a modified form
of the old-fashioned journal, but it is preferable to make the cash book the
only posting medium of the general ledger.
From the above it will be noticed that bank bookkeeping, although based
primarily on the cash book and ledger, is susceptible of indefinite
expansion in any direction to meet increased volume of business or other
local exigencies.
Loose-Leaf Accounting
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1. The keys of all loose-leaf ledgers and transfer binders are kept in the
custody of the manager or of the accountant or other officer specially
authorized, by whom blank sheets are inserted as required, and the used
sheets removed and filed in the transfer binder.
2. After removing the sheets, the officer who has custody of the key must
place a paper seal bearing his signature in the sealing device on the front
of the ledger, and, when opening the book again, must satisfy himself that
his last seal has not been tampered with.
3. A separate sheet must be used for each account, and each sheet must be
signed in the upper right-hand corner by the manager or accountant when
the first entry is made. The officer who signs the sheet must see that the
account is properly indexed.
4. A few blank sheets may be locked in the current ledger for emergency
use, but all others must be kept under lock in the custody of the officer
who holds the key of the ledger.
Bound books have not prevented manipulation and fraud, and the above
precautions combined with the comprehensive checking system of a bank
should practically eliminate the danger of fraudulent substitution of pages.
If a man is determined to be dishonest there are easier and less evident
methods of defrauding than by switching ledger leaves.
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Accounts must be audited by a person duly qualified under any law, for
the time being in force, to be an auditor of companies. However every
banking company is before appointing, reappointing or removing any
auditor, required to obtain the prior approval of Reserve Bank of India.
Publication of Accounts
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Banks, like most of the other large-sized institutions, follow the mercantile
system of accounting. Thus, the system of recording classifying and
summarizing the transactions in bank is in substance no different from that
followed in other entities having similar volume of operations. However in
the case of banks the need for the ledger accounts, especially those of
customers, being accurate and up to date is much stronger than most of
other types of enterprises. A bank cannot afford to ignore its ledgers
particularly those containing the accounts of its customers and has to enter
into the ledgers every transaction as soon as it takes place. In the case of
banks, relatively lesser emphasis is placed on books of prime entry such as
cash books or journals. This is unlike most other types of enterprises
where books of prime entry are generally kept up to date while ledgers,
including the general ledger and subsidiary books ledgers for debtors,
creditors are written up afterwards.
Types of Transactions
The transactions in banks are of two types, cash and non-cash. In the case
of letter, also called ‘transfer transactions’, one or both of account
concerned may be of customers or internal accounts of bank. For example,
if ‘A’ deposits a cheque drawn in his favor by ‘B’, who is also customer of
the branch, the accounts of the two customers will be affected. On the
other hand, if ‘A’ deposits a draft drawn on branch the ‘Draft Account, an
internal account of bank, will be debited’. Likewise, on payment of
interest on deposit accounts, the ‘Interest Account’ at the branch will be
debited and various personal accounts will be credited.
Vouchers
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Both the debit and credit operations on all accounts, either by customers or
by the banks itself, are made by means of vouchers. There are two kind of
vouchers, one, which evidences only debit to an account and which other,
which contains both debit and credit in different accounts. For the sake of
convenience, the latter kinds of vouchers may be called ‘composite
vouchers’.
8. Drafts / Pay orders issued by the branch itself which are cancelled at
the request of customer and amount is refunded to him.
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The credit vouchers are also of many kinds, broadly the following:
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As stated earlier apart from debit vouchers and credit vouchers, there is
also category of ‘composite vouchers’. These vouchers record the
particulars of both debit and credit accounts. Most of the transactions
covered by composite vouchers pertain to the internal accounts to the
bank, i.e. non-customers accounts. Examples are: bills received for
collection, letters of credit issued by the branch, guarantee issued by the
branch, etc. Such vouchers may also be prepared to rectify an error while
debiting or crediting accounts. For example, in case of current account is
debited in general ledger instead of cash credit account by mistake, the
composite vouchers will show debit to cash credit account with
corresponding credit to current account.
All entries in personal ledgers and the summary sheets are checked by
persons other than those who have made entries. Most clerical errors are
thus detected immediately.
Banker’s Books
Generally the following books are maintained by the bank to keep up-to-
date records of its customers.
Cash Book
All cash receipts and payments are recorded in the receiving cashier’s cash
book and paying cashier’s cash respectively. After this on the basis of pay-
in slips received by receiving cashier and cheques and withdrawal slips
received by paying cashier, these transactions are entered first in the
accounts of customers and after that Day Book are written. This is called
‘Slip System’ of posting.
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Ledger Book
General Ledger contains the total accounts of each ledger. Besides the GL,
the following ledger books are maintained:
2. FD Accounts Ledger
3. RD Accounts Ledger
4. Loan Ledger
5. Investment Ledger
Other Books
1. Clearing Register
2. Securities Register
3. Draft Register
Teller's Records
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A teller should arrange his entries, debit, and credit to conform with the
general system of the office. Cheque should be sorted out and entered
according to the divisions of the ledger, thus balancing with the various
supplementaries. If the checks are very numerous, separate sheets, suitably
ruled, can be used; these can be entered on an adding machine or by an
assistant.
A teller's book is, in reality, a skeleton cash book, and the entries should
be so arranged that the books of the various departments should balance
with the combined entries of the tellers.
In this book are entered all the deposit slips, checks, and other vouchers
pertaining to the ordinary deposit and savings bank ledgers. The ruling is
simple, requiring no printed headings, and consists of columns for folio,
names of customers and amount of vouchers - two sets of columns to a
page. Two pages will easily contain a day's entries for a small branch, the
first or left-hand column being used for deposits and the remaining three
for checks, the latter being much more numerous. The savings deposits
and checks, being comparatively few in number, are entered at the end of
the day under their own headings at the foot of the ordinary checks and
deposits respectively, though in some small branches they are entered in
the general cash book.
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In the larger offices of some of the banks, where the volume of checks is
unusually heavy, a loose-leaf form of supplementary cash book is used in
connection with the adding machine, the names being typewritten in
afterward. Where this form is adopted, care should be taken to see that the
sheets are consecutively numbered and filed, and that each sheet is signed
by the two checking officers.
General Ledger
The general Ledger contains the control accounts of all personal ledgers,
the profit and loss account and different asset and liabilities accounts.
There are certain additional accounts also (known as contra accounts)
which are kept with the view to keeping control over transactions which
have no direct effect on the asset and liabilities of bank and represent
agency business handled by bank on which it earns service charges, (or
commission) e.g. Letters of credit opened, bills received or sent for
collection, guarantees given, etc.
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1. Old Style
The general ledger most often found is the old-fashioned ledger, this
ledger needs no explanation. It is sometimes ruled with two columns on
each side, the inside columns being used to bring down the totals from day
to day, instead of directly under the day's work. These additional columns
prove a blessing, when an analysis of previous work is desired. The
footings are usually made in a hurry and are often so large and heavy that
it is hard to tell them from the actual debits and credits. It should be borne
in mind that the general ledger is continually used to prepare statements of
all kinds. Every item of unusual nature should be properly explained on
the ledger. For example, the profit and loss account frequently contains
debits representing loans, discounts, or overdrafts charged off. Money
subsequently recovered from these losses is credited to this account. The
record on each side should be so plain that any item may be traced back,
in order to show both debit and credit without referring to tickets or
journal of any kind. It is worth while to itemize the expense account in the
same way unless a detailed expense account is kept separately. Do not
debit expense with "Hargood & Co.'s bill, $122.30," but "Stationery,
$122.30." A few years hence the bank may be dealing with another
stationer.
Another form of ledger has the money columns together, making it much
easier to strike the balance. The debit balances should be struck in red and
the credit balances in black ink when using this form.
Boston Ledger
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the lower part. When the postings have been made and the balances struck
and proved, a complete daily statement will be made on the ledger it-self.
Balance Ledger
Boston Ledger
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each side of the resulting statement for charges and credits made directly
to profit and loss account.
Some banks maintain a profit and loss account in the general ledger and
maintain separate books for each revenue and expense heads/sub-heads.
Some banks maintain columnar books having separate columns for each
revenue and expense heads/sub-heads. These books are prepared from
vouchers. The total of debits and credits of each day are posted on profit
and loss account in general ledger from voucher summery sheets. In some
banks, the revenue accounts too maintained in general ledger itself, while
in others, board revenue heads are kept in general ledger and their details
are kept in subsidiary ledgers.
For managerial purpose, the accounts in profit and loss ledgers are more
detailed than those shown in published profit and loss accounts of banks.
For example, there are separate accounts for basic salary, dearness
allowance, and various others allowances, which are grouped together in
published accounts. Similarly various accounts comparing general
charges, interest paid, and interest received, etc. are maintained in the
profit and loss ledgers.
Subsidiary Books
Personal ledgers
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The ordinary or current deposit ledger is a very active and important book
in a bank, and one which calls for both accuracy and dispatch on the part
of the clerk in charge, as errors can easily be made, involving the bank in
serious loss. The deposit ledger is invariably a loose-leaf book and ruled
as shown in Figure 22. This form is invariably used by all the banks. The
so-called Boston ledger has been tried several times, but was not found
practicable in Canada, owing perhaps to the method of marking or
accepting checks by a direct debit to the account. The accounts are
arranged alphabetically, and are therefore self-indexing, but an index is
usually kept on the tagged sheet dividing the alphabet.
In small offices there is usually only one current ledger used, A-Z. As
work increases and becomes too much for one ledger-keeper, a second
ledger can be opened divided A-K and L-Z. For three ledgers the divisions
generally run A-G, H-O, and P-Z, and for four the divisions are A-C, D-K,
L-R and S-Z.
BANK
Sheet No. Account No.
Name
Address
Date Particulars Debit Credit Dr. Balance Date Particulars Debit Credit Dr. Balance
or Cr. or Cr.
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Bills Registers
Details of different types of bills are kept in separate registers which have
suitable columns. For example, bill purchased inward bills for collection;
outward bills for collection, etc. are entered serially on a daily basis in
separate registers. In the case of bill purchased or discounted party-wise
details are also kept in normal ledger form this is done to ensure that
sanctioned limits of parties are not exceeded.
DEPARTMENTAL JOURNALS
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As has been mentioned earlier, two vouchers are generally made for each
transaction by transfer entry, one for debit and the other for credit. The
vouchers are generally made by and entered into the journal of the
department which is affording credit to the other department. For example,
if any amount is to be transferred from Current Account of a customer to
his Saving Bank Account, the voucher will be prepared by the Current
Accounts Department and entered in the journal of that department.
Other Registers/Records
1. Telephonic transfers
2. Mail transfers
4. Letters of credit.
5. Letters of guarantee
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Entries in these registers are made from original documents which are also
summarized on vouchers every day. These vouchers are posted in Day
book.
There are frequent transactions amongst the branch of bank which are
settled through the mechanism of inter-office accounts. The examples of
such transaction include payment/realization of bills/cheques, etc. sent for
the collection by one branch to other e.g. for government related business.
All such transfers of funds are canalized through nodal account (this has
different names in different banks such as Head-office account, Inter-
office account, and so on.). This is a circular account for the banks as well
as the auditors for two reasons: first many funds have been prepared on
banks through this account and second, banks are now required to make
provision for entries routed through this account which remain
unreconciled beyond a time period specified by Reserve Bank of India.
a) Establishment expenses
d) Interest expenditure
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f) Fixed Assets
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Besides the books mentioned above, various departments of the bank have
to maintain a number of memoranda books to facilitate their work. Some
of the important books are described below:-
Cash Department
(a) Receiving Cashiers’ cash book
(b) Paying Cashiers’ cash book
(c) Main cash book
(d) Cash Balance book
The main Cash Book is maintained by persons other than the cashiers.
Each cashier keeps a separate cash book. When cash is received, it is
accompanied by pay-in-slip or other similar document. The cashier makes
the entry in this book
This book contains a record of all the vouchers and entries representing
the transactions of each day. Theoretically, the particulars of every item in
the cash book should be entered in detail, but owing to the wide extension
of banking facilities and the constantly increasing volume of checks and
other entries, it has been found necessary to use supplementary books for
recording particulars of any class of items whose volume is sufficient to
warrant a separate book - only the day's totals are carried into the general
cash book. The majority of entries, especially in a large office, are
therefore in the form of totals, and very few detailed entries have to be
made; but all entries, when made, should be definite as to source and
sufficiently self-explanatory to be understood by any one at any time - ten
years after, if necessary.
Debit and credit entries for cash book, other than the totals referred to
above, are represented by vouchers giving the necessary particulars,
signed by the manager, accountant or other authorized officer, and it
should be an imperative rule that any slip, which does not contain
sufficient particulars or which lacks the necessary signature, should be
refused by the cash-book clerk and referred back to the teller for
completion. In order to facilitate the sorting and checking of these
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It should constantly be borne in mind that as the cash book and its
supplementary books are recognized in a court of law as the books of
original entry, faulty or meager particulars might cause serious trouble.
Verbal explanation, even if available, would not be admitted. Examine a
bank cash book of twenty or thirty years ago: there could be no better
object lesson of what a cash book should be. Copper-plate writing and
ample particulars are characteristic.
Outward Clearing:
(b) Bank wise list of the above cheques, one copy of which is sent to the
Clearing House together with the cheques.
A person checks the vouchers (foil of pay-in slips) and lists with the
Clearing Cheque Received Book. The vouchers are then sent to
appropriate departments, where customers’ accounts are immediately
credited. If any cheque is received back unpaid the entry is reversed.
Normally, no drawings are allowed against clearing cheques deposited on
the same day but exceptions are often made by the manager in the case of
established customers.
Inward Clearing
Cheques received are checked with the accompanying lists. They are then
distributed to different departments and the number of cheques given to
each department is noted in a Memo Book. When the cheques are passed
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Project report of accounting in banks and balance sheet
and posted into ledgers, their number is independently agreed with the
Memo Book. If any cheques are found unplayable, they are returned back
to the Clearing House. The cheques themselves serve as vouchers. Book
which is checked by the chief cashier. The pay-in-slip then goes to the
Main Cash Book writer who makes an entry in his books. The cash book
checker checks the entry with the slip and then the counter-foil of the slip
is returned back to the customer and the foil is sent to the appropriate
department for entering into the ledger. The foil is used as a voucher. Cash
is paid against a cheque or other document (e.g. traveller’s cheque,
demand draft, pay order, etc.) after it has been duly passed and entered in
the appropriate account in the ledger. Cheques, demand drafts, pay orders,
etc. are themselves used as vouchers.
(a) Registers for shares and other securities held on behalf of each
customer.
(b) Summary Books of Securities giving details of Government securities,
shares of individual companies etc.
(c) Godown registers maintained by the godown-keeper of the bank.
(d) Price register giving the wholesale price of the commodities pledged
with the bank.
(e) Overdraft Sanction registers.
(f) Drawing Power book.
(g) Delivery Order books.
(h) Storage books.
Deposits Department
Establishment department
(a) Salary and allied registers, such as attendance register, leave register,
overtime register, etc.
(b) Register of fixed assets, e.g., furniture and fixtures, motor cars,
vehicles, etc.
(c) Stationery registers.
(d) Old records register.
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General
STATISTICAL BOOKS
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(000’s omitted)
Particulars Schedule As on As on
No. 31.3.__ 31.3.__
(current year) (pervious year)
CAPTIAL AND LIABILITES
Capital 1
Resaves and surplus 2
Minorities Interest 2A
Deposits 3
Borrowings 4
Other Liabilities and Provision 5
TOTAL
ASSETS
Cash and balance with RBI 6
Balance with banks and money at call 7
and short notice
Investments 8
Advances 9
Fixed Assets 10
Other Assets 11
TOTAL
Contingent liabilities 12
Total …
Total …
I Statutory Reserves
Opening balance …
Additions during the year …
Deductions during the year … …
II Capital Reserves
Opening balance …
Additions during the year …
Deductions during the year … …
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Total ( I + II + III + IV + V ) …
Schedule 3 Deposits
A I. Demand Deposits
From banks …
From others … …
II. Savings banks accounts …
III. Term Deposits
From banks …
From others … …
Total ( I, II, and III) …
Schedule 4 Borrowings
I. Borrowings in India
i) Reserve Bank of India …
ii) Other Banks …
iii) Other institutions and agencies … …
Total ( I and II ) …
Secured borrowings in I and II above …
i) Bills payable …
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Total …
Total I and II …
Schedule 7
Balance with banks and Money at Call and Short
notice
I. In India
i) Balance with banks:
a) in Current Accounts …
b) in Other Accounts … …
ii) Money at call and Short notice
a) With banks …
b) With other institutions … …
Total ( i and ii ) …
Schedule 8 Investment
I. Investments in India in
i) Government Securities …
ii) Other approved Securities …
iii) Shares …
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Schedule 9 Advances
C I Advances in India
i) Priority Sector …
ii) Public Sector …
iii) Banks …
iv) Others …
Total …
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I Premises
At cost as on 31st March of the preceding year
Additions during the year …
Deduction during the year …
Depreciation to date … …
II Other fixed assets ( incl. furniture and fixtures)
At cost as on 31st March of the preceding year
Additions during the year …
Deduction during the year …
Depreciation to date …
Total ( I and II ) …
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Schedule 1 : Capital
I. Nationalized Banks
Notes General: The changes in above items, if any, during the year say,
fresh contribution made by the government, fresh issue of capital
capitalization of reserves etc. may be explained the notes.
II. Capital Reserves: The expression Capital Reserves shall not include
any amount regarded as free for distribution through the profit and
loss account. Surplus on revaluation should be treated as a capital
reserves. Surplus on translation of financial statements of foreign
branch (which includes fixed assets also) is not a revaluation
reserve.
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IV. Revenue and other reserves: The expression ‘Reserve Revenue’ shall
mean any reserve other than capital reserve. This item will include
all reserves other than those separately classified. The expression
‘reserve’ shall not include any amount written –off or retained by
providing for any known liability.
Schedule 3 : Deposits
AI Demand deposits:
i) From banks
ii) From others: includes all bank deposits, repayable on demand,
of non-bank sectors. Credit balance in overdraft, cash credit
accounts, deposits payable at call, overdue deposits, inoperative
current accounts, matured time deposits, and cash certificates,
certificates of deposits, etc. are to be included under this category.
Notes: General:
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Schedule 4 : Borrowings
I Borrowings in India:
Notes: General:
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a) The total of I and II will agree with the total of borrowing shown in
the balance sheet.
b) Inter –office transactions should not be shown as borrowings.
c) Funds raised by foreign branches by way of certificates of deposits
notes; bonds, etc. should be classified depending upon
documentation, as ‘deposits, borrowings’ etc.
d) Refinance obtained by banks from Reserve Bank of India and
various institutions are being brought under the head borrowing,
hence advances will be shown at the gross amount on the assets
side.
I Bills payable: the bank provides the facility remitting funds from
one place to another by means of bank drafts, telegraphic transfer,
circular notes, pay orders etc. the person including to remit the
money with the bank and get a pay order or bank draft in exchange
money deposited. Alternatively he may request the bank for making
a telegraphic transfer from his account to the account of the person
to whom he want to remit the money. The paying bank reimbursed
by the bank who issues such draft or institutions. The banks also
issue travelers cheques and gift cheques for carrying or remitting
money .If any such drafts, cheques, etc. remain uncashed on day of
the preparation final accounts of final accounts, they are shown
under the heading ‘Bills Payable’ in the Balance Sheet.
II Inter Office (or Branch) Adjustment (Net): This item represents the
difference on account of incomplete recording of transactions
between one branch and another branch or one branch and head
office. It may have a debit or a credit balance. In case of credit
balance; it should be shown under this head It may be noted that
only net portion is to be shown of inter office accounts, inland as
well foreign.
III Interest Accrued: It includes accrued but not due on deposits and
borrowings
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Notes: General:
Includes cash in hand foreign currency notes and also foreign branches in
case of banks having such branches.
Schedule 7 : Balance with Other banks and Money at Call and short
notice
I In India:
i) Balance with banks
a) In current accounts;
b) In order to deposit accounts: include all balance with banks in
India (including co-operative banks). Balance in current accounts
and deposit accounts should be shown separately.
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II Outside India:
i) Currents accounts and
ii) Deposits accounts: Includes balance held by Indian branches of the
banks outside India. Balance held with the foreign branch by other
branches of bank should not shown under this head but should be
included in inter-branch accounts. The amounts held in ‘Current
Accounts’ and ‘Deposits Accounts’ should be shown separately.
iii) Money at Call and Short notice: Includes deposits usually classified
in
foreign countries as money at call and short notice.
Schedule 8 : Investment
I Investments in India:
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Schedule 9 : Advances
In case of a cash credit facility the borrower need not borrow at once
the whole of the amount he is likely to require, but draw such
amounts as when required. He/she can put back any surplus amount
which he may find with him for the time being. Interest on
cash credit account has to be paid on the amount actually drawn at
any time and not on the full amount of the credit allowed.
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Notes: General:
I Premises
i) At cost as on 31st March of the preceding year;\
ii) Additions during the year;
iii) Deductions during the year;
iv) Depreciation to the date.
Premises wholly or partly owned by the banking company for the
propose of business including residential premises should be shown
against ‘Premises’. In the case of premises and other fixed assets, the
previous balance, addition thereto, and deductions there from during
the year as also the total depreciations written off, should be shown.
Where sums have been written off on reduction of capital or
revaluation of assets, every balance sheet subsequent to the reduction
or revaluation should show the revised figures for the period of five
years with the date and amount of revision made.
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Motor vehicles and all other fixed assets other than premises but including
furniture and fixtures should be shown under this head.
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6) Others: This will include items like claims which have not been
met, for instance, clearing items debit items representing additions
to assets or reduction in liabilities which have not been adjusted for
technical reasons, want of particulars, etc., advances given to the
staff by a bank as employer and not as a banker, etc. Items which
are in the nature of expense, which are pending adjustments, should
be provided for and provision netted against this item so that only
the realizable value is shown under this head. Accrued income other
than the interest may also be included here.
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Compulsory deposits
General Instructions
1) The format of balance sheet and profit loss account cover all items
likely to appear in these statements. In case bank doesn’t have any
particular item to report, it may be omitted from formats.
2) Corresponding comparative figures of the previous year are to be
disclosed as indicated in the formats. The words ‘current year’ and
‘previous year’ used in the formats are only to indicate the order of
presentation and may not appear in accounts.
3) Figures should be rounded off to the nearest thousand rupees. Thus,
a sum of Rs. 19,75,940.78 will appear in balance sheet as Rs. 19.76.
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Form B
Third Schedule
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Particulars Rs.
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Includes all the provisions made for bad debts and doubtful debts,
provision for taxation, provisions for diminution in the value of
investments, transfer to contingencies and other similar items.
Accounting treatment of some specific items in the profit and loss account
and balance sheet are as per following.
The amount of bad debts and provision for bad debts has to be charged
under heading ‘Provision and Contingencies’ in the Profit and Loss
account. In the Balance Sheet, the advances are shown after deducting
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both bad debts and provisions for bad debts. It may be noted the banks
collect from their branches information regarding bad debts and doubtful
debts also. The schedule of Advances to be filled by the branches contains
separate column regarding doubtful debts in respect of ‘bills purchased
and discounted’, cash credits and overdrafts and unsecured loans.
However while consolidating the Schedule of Advances at the head office
level, for balance sheet purposes, the advances are shown net of any bad
or doubtful debts.
The amount of provision for taxation has to be charged to the Profit and
Loss account under heading ‘Provisions and Contingencies’ in the Balance
Sheet, it will be shown under the heading ‘Other liabilities and
Provisions’, on the liability side.
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deducted from the total discount in the profit and loss account and will
also appear as a liability in the balance sheet.
The various items of assets in the balance sheet are arranged according to
liquidity order.
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2. Advances
Customers deposit into bank the draft and the bills for collection and
credit to their accounts. The bank keeps the register for recording the bills
for collection. On collection, cash account is debited and customers
account is credited. At end of the accounting year, when some bills are left
uncollected, following entry is passed:
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It is contra item in the balance sheet. The first account denotes the amount
receivable and it is shown on assets side. The second one denotes the
amount payable to the customer and is shown on the liabilities side of the
balance sheet.
They represent the liabilities which the bank has assumed on behalf of its
customers, the bank may accommodate his customer in the following
ways:
1. by opening letters of credit
2. by accepting bills on behalf of the customer
3. by making endorsement on promissory notes prepared by the
customer
4. by issuing letters of guarantee to make payments if the customers
fail to pay
In all these cases, the bank is liable to third parties. Hence, it is liability.
While undertaking such liabilities the bank obtains customer guarantee
from its customers which enables it to claim the amounts from its
customers. Therefore, it is an asset. At the end of the accounting year, the
following entry is passed for recording unrecorded bills:
Constituent’s Liability for Acceptance, Endorsement or other
Obligations a/c ………………………..DR.
To Acceptance, Endorsement or other Obligations.
It is contra item in the balance sheet. The first accounts appears on assets
side while the other on liabilities side.
5. Non-Banking Assets
A bank cannot acquire certain assets but it can always lend against the
security of such assets. This means that some times, in case of failure on
part of the loanee to repay the loans, the bank may have to take possession
of such assets. Profit or loss on disposal of such assets should be disclosed
separately in the profit and loss account.
Gold appears under ‘Investment’ and silver appears under ‘other assets’
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These are assets and are included are included under furniture
There are many transactions that take place between the head office and
the branches and between one branch to another towards the end of
financial year. When such transactions appear they are properly recorded
in books of branch or head office when the transactions take place but in
the absence of any advice or completion of the transactions, they remain
unrecorded in the books of other party. Because of these transactions there
is always balance left in branch account in the head office books. This
balance is called ‘Branch adjustment account’. This appears on assets side
of the balance sheet if it has a debit balance and on liability side if it has
credit balance.
9. Share Capital
Under this head, authorised, subscribed and issued and paid up capital are
shown separately. As in the case of any other limited company, calls in
arrears are reduced from paid up capital and forfeited shares amount is
added to it.
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The banks have to classify their advances into four broad groups (i)
standard assets, (ii) sub-standard assets, (iii) doubtful assets and (iv) loss
assets. Broadly speaking, classification of assets into the above categories
should be done taking into account the degree of well defined credit
weaknesses and extent of dependence on collateral security for realisation
of dues. Banks should, therefore, keep the following definitions in mind
while classifying the assets.
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(iv) Loss Assets - A loss asset is one where loss has been identified by the
bank or internal or external auditors or the RBI inspection but the amount
has not been written off, wholly or partly. In other words, such an asset is
considered uncollectible and of such little value that its continuance as a
bank asset is not warranted although there may be some salvage or
recovery value.
It may be noted that the above classification is meant for the purpose of
computing the amount of provision to be made in respect of advances and
not for the purpose of presentation of advances in the balance sheet. The
balance sheet presentation of advances is governed by the Third Schedule
to the Banking Regulation Act, 1949, which requires classification of
advances altogether differently.
Taking into account the time lag between an accounts becoming doubtful
of recovery, its recognition as such, the realization of the security and the
erosion over time in the value of security charged to the banks, it has been
decided that banks should make provision against sub-standard assets,
doubtful assets and loss assets on the following basis:
(a) Loss assets: The entire amount should be written off or full provision
should be made for the amount outstanding.
(b) Doubtful assets: (i) Full provision to the extent of the unsecured
portion should be made. In doing so, the realizable value of the security
available to the bank should be determined on a realistic basis.
DICGC/ECGC cover is also taken into account (this aspect is discussed
later in this chapter). In case the advance covered by CGTSI guarantee
becomes non-performing, no provision need be made towards the
guaranteed portion. The amount outstanding in excess of the guaranteed
portion should be provided for as per the extant guidelines on provisioning
for non-performing advances.
(ii) Additionally, 20% - 100% of the secured portion should be provided
for, depending upon the period for which the advance has been considered
as a doubtful asset, as follows:
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Up to 1 year 20%
More than 1 year and up to 3 years 30%
More than three years 50%
ii. Advances classified as doubtful for more than three years on or after
01.04.2004
w.e.f. 31.03.2005 100%
The guidelines also deal with provisioning for certain specific types of
advances as follows :
Advances Secured Against Term Deposits, National Savings Certificates,
Surrender Value of Life Policies, etc.
Advances secured against term deposits, NSCs eligible for surrender,
Indira Vikas Patras, Kisan Vikas Patras and life insurance policies are
exempted from provisioning requirements. Accordingly, the banks need
not treat such accounts as NPAs. It may be noted that advances against
gold ornaments, government securities, and all other kinds of securities
are not exempted from provisioning requirements.
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Take-out Finance
In the case of take-out finance, if based on record of recovery, the account
is classified by their lending bank as NPA, it should make provision for
loan losses as per the guidelines. The provision should be reversed when
the account is taken over by the taking-over institution. On taking over the
account, the taking-over institution should make provisions as per the
guidelines. For this purpose, the account should be considered to have
become NPA from the actual date of its becoming so, even though the
account was not on the books of the taking-over institution on that date.
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Closing Balance
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The first two, viz., Government securities and Approved securities are
generally used for meeting statutory liquidity ratio and are called SLR
securities. The remaining securities are known as non-SLR securities.
The banks were required to bifurcate their SLR securities into ‘current’
and ‘permanent’ categories. The minimum ratio prescribed most recently
was 75; 25 for current and permanent investments. The current SLR
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(000’s omitted)
Particulars Schedule As on 31.3.09 As on 31.3.08
No. (current year) (pervious year)
CAPTIAL AND LIABILITES
Capital 1 634,88,02 631,47,04
Resaves and surplus 2 71755,51,31 60604,91,23
Minorities Interest 2A 2228,27,31 2028,12,09
Deposits 3 1011988,32,63 776416,51,88
Borrowings 4 64591,64,43 66023,17,07
Other Liabilities and Provision 5 153627ffl,37 121565,32,52
TOTAL 1304825,74,07 1027269,51,83
ASSETS Schedule As on 31.3.09 As on 31.3.08
No. (current year) (pervious year)
Cash and balance with RBI 6 741.81,06,66 74817,25,54
Balance with banks and money at 7
call and short notice 51100,62,90 14211,16,16
(000’s omitted)
PARTICULARS As on 31.3.09 As on 31.3.08
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3085,71,33 2419,83,14
VII Balance in 33,93 33,93
Profit and Loss Account
Schedule 3 Deposits
A I. Demand Deposits
From banks 107,61,84,16 12313,40,67
From others 99991,73,42 85820,12,34
II. Savings banks accounts 198224,26,85 154229,28,65
III. Term Deposits
From banks 13657,16,00 7065,47,74
From others 419438,12,37 277975,64,69
Schedule 4 Borrowings
I. Borrowings in India
i) Reserve Bank of India ---- 1300,00,00
ii) Other Banks 919,9460 7853,58,39
iii) Other institutions and agencies 2758,35,89 3648,95,17
Schedule 5
Other liabilities and provisions
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55546,17,27 51534,61,58
Schedule 7Balance with banks and Money at Call and Short notice
I. In India
i) Balance with banks:
a) in Current Accounts 926,20,81 1105,19,38
b) in Other Accounts 10688,99,53 2608,31,90
ii) Money at call and Short notice
a) With banks 13207,17,33 6559,00,00
b) With other institutions … …
Schedule 8 Investment
I. Investments in India in
i) Government Securities 226217,47,04 140734,03,68
ii) Other approved Securities 1892,68,08 2738,25,17
iii) Shares 4590,41,76 4502,53,72
iv) Debentures and Bonds 14888,97,79 17628,77,57
v) Subsidiaries and 3617,01,17 3766,46,03
/or joint ventures
vi) Others 18264,51,76 14960,04,07
(Units/Commercial Papers, etc.)
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Schedule 9 Advances
C I Advances in India
i) Priority Sector 143637,56,31 119230,51,18
ii) Public Sector 36241,55.02 23025,00,32
iii) Banks 334,21,71 77,66,24
iv) Others 276502,90,85 218295,16,99
I Premises
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Form B
Third Schedule
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(000’s omitted)
Particulars Schedule As on 31.3.09 As on 31.3.08
Number (current year) (pervious year)
I. Income:
Interest Earned 13 63788,43,38 48950,30,71
Other income 14 12690,78,90 8694,92,84
TOTAL 76479,22,28 57645,23,55
II. Expenditure:
Interest Expended 15 42915,29,37 31929,07,69
Operating Expenses 16 15648,70,44 12608,60,60
Provisions and Contingencies … 8793,99,82 6378,42,79
TOTAL 567357,99,63 50916,11,08
III. Profit/Loss:
Net Profit/(Loss) of the year 9121,22,65 6729,12,47
Profit brought forward 33,93 33,93
Transfer form general reserve … 9,37
TOTAL 9121,56,58 6792,55,77
IV. Appropriations:
Transfer to Statutory Reserves 5291,79,28 4839,07,23
Transfer to investment reserves … 62,17,87
Transfer to Capital reserves 826,55,32 4,43,98
Transfer to Revenue reserve and 306,89,30 300,00,00
Other reserves
Transfer to Proposed Dividend 1841,15,26 1357,66,13
Tax on Dividend 248,03,47 165,86,63
Loss from 606,80,02
State Bank of Saurashtra
Balance Carried over 33,93 33,93
to Balance Sheet
TOTAL 9121,56,58 6792,55,77
Particulars As on As on 31.3.08
31.3.09 (pervious
(current year)
year)
Schedule 13: Interest Earned
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In addition to the disclosure to be made in the balance sheet and profit and
loss account, in pursuance of the requirements of the Third Schedule to the
Act, the RBI has directed, Circular NO. BDOD.BP.BC.
NO.59/21.04.018/2005-06, dated January 30, 2006 that the following
information should be disclosed by way of notes on accounts:
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