Final Accounts of Banking Companies

Project report of accounting in banks and balance sheet

1. INTRODUCTION A banking company means and includes any company which carries on business or which transacts banking business in India. A banking business is generally governed by the provisions of the Companies Act 1956 and specifically by the Banking Regulation Act. The Banking regulation Act of 1949 came into force on 16th March 1949 as a result of long-felt need to regulate the banking business in India and protect the interest of number of depositors. The existence of well- organized, regulated and efficient banking system is pre-requisite for economic growth. Banks are agencies responsible for mobilizing and channeling of funds in a country. The major institutions carrying business, in India, include: (a) Nationalized banks (b) State bank of India and Associates banks (c) Foreign banks having branches in India (d) Co-operative banks (e) Rural banks and (f) Private sector banks.

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Project report of accounting in banks and balance sheet

2. DEFINITION AND FUNCTIONS OF A BANK Banking has been defined by section 5 of the Banking Regulation Act and means: (a) accepting deposits of money from public (b) for the purpose of lending or investment and deposits are repayable on demand or otherwise by cheque, draft, and order or otherwise. It should be noted that company which is engaged in manufacturing goods and for the purpose of financing business accepts deposits from the public should not be deemed to transact business of banking. In addition to banking business, a bank is permitted under Section 6 of the Banking Regulation Act to engage in certain class of business which is incidental to the business of banking. Section 8 of the Banking Regulation Act prohibits a bank from buying and selling or dealing in goods except in connection with realization of a security held by it or in connection with the business of collections or negotiating bills of exchange. Some of the main functions of modern commercial banks are: (a) Accepting deposits and providing facilities to depositors of payment by cheques. (b) Granting loans and advances (cash credits, overdraft, term loans,

etc.). (c) Dealing in securities on its own account or on behalf of its

customers. (d) Opening letters of credits. (e) Issuing guarantees. (f) Dealing in foreign exchange. (g) Transferring money from one place to another through demand

draft, telegraphic transfers, traveler’s cheques, bills, etc. (h) Merchant banking, i.e. acting as managers to public issues, etc.

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Project report of accounting in banks and balance sheet

However, any company which is engaged in the manufacturer of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as manufacturer or trader shall not be deemed to transact the business of banking. It may be mentioned that the Banking Regulation Act, 1949 is not applicable to a primary agricultural society, a co-operative land mortgage bank and any other co-operative society except in the manner and to the extent specified in Part V of the Act. 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: (a) The purchase, sale, and re-discounting of certain bills of exchange, or promissory notes; (b) Purchase and sale of foreign exchange; (c) Purchase, sale and re-discounting of foreign bills of exchange; (d) Making of loans and advances to scheduled banks; (e) Maintenance of accounts of the scheduled bank in its banking department and issue department; (f) Remittance of money between different branches of scheduled banks through the offices, branches or agencies of Reserve Bank free of cost or at nominal rates. Section 6 of the Banking Regulation Act, 1949 specifies the forms of business in which a banking company may engage. These are : (i) borrowing, raising or taking up of money; lending or advancing of money; drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, etc.; (ii) acting as agents for any government or local authority or any other person; (iii) directing for public and private loans and negotiating and issuing the same; (iv) effecting, insuring, guaranteeing, under-writing, participating in managing and carrying out of any issue of shares, stock, debentures etc.; (v) carrying on and transacting every kind of guarantee and indemnity business; (vi) managing, selling and realising property which may come into the possession of the banking company in satisfaction of its claim;

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Project report of accounting in banks and balance sheet

(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.  PROHIBITION OF TRADING (SECTION 8) A banking company cannot directly or indirectly deal in the buying or selling or bartering of goods. However, it may buy, sell or barter in connection with the bills of exchange received for collection or negotiation or can undertake the administration of estates as executors, trustees or otherwise.  DISPOSAL OF NON-BANKING ASSETS (SECTION 9) A banking company can only acquire immovable property for its own use. Other immovable properties acquired must be disposed off within seven years from the date of acquisition. However, in any particular case, the Reserve Bank of India may extend such period of seven years if it is satisfied, that such extension would be in the interest of the depositors of the banking company.  MANAGEMENT (SECTION 10) 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; Page4

Project report of accounting in banks and balance sheet

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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Project report of accounting in banks and balance sheet

3.

REQUIRMENTS ACCOUNTS

OF

BANKING

COMPANIES

AS

TO

• Bank Accounting The book-keeping system of a banking company is substantially different from that of a trading or manufacturing enterprise. A bank maintains a large number of accounts of various types for its customers. As a safeguard against any payment being made in the account of a customer in excess of the amount standing to his credit or a cheque of a customer being dishonoured due to a mistake in the balance in his account, it is necessary that customers’ accounts should be kept up-to-date and checked regularly. In many other mercantile enterprises, books of primary entry (i.e., day books) are generally kept up-to- date while their ledgers including the general ledger and subsidiary ledgers for debtors, creditors etc. are written afterwards. A bank cannot afford to ignore its ledgers particularly those concerning the accounts of its customers and has to enter into the ledgers every transactions as soon as it takes place. In bank accounting, relatively less emphasis is placed on day books. These are merely treated as a means to an end-the end being to keep up-to-date detailed ledgers and to balance the trial balance everyday and to keep all control accounts in agreement with the detailed ledgers. In this Unit, we shall concentrate on accounting system followed in, bank and books of accounts maintained for that purpose. That apart, we shall take a stock of the returns which a bank is required to file with the Reserve Bank. Another important aspect in the bank accounts is preparation of final accounts. The third schedule to the Banking Regulation Act provides formats for that purpose. Formats of bank final accounts are also covered The tendency of modern accounting is to adapt the books to a business, rather than the business to the books, and this practice is particularly noticeable in bank bookkeeping. Systems and devices may differ among banks, and even between branches of the same bank, but the basic principles are the same. Once a clear understanding of bank bookkeeping in general is obtained, there will be found little or no difficulty in mastering any of the methods or systems in use by banks. To grasp thoroly all the underlying principles of bank accounting, it is necessary to bear in mind that practically everything handled by a bank, in the ordinary course of its business, is either money itself, or a written claim or right to money. Consequently the cash book in a bank is the principal book, and thru its pages must pass a record of every transaction made by the bank, either in detail or as a total from a supplementary book. Page6

Project report of accounting in banks and balance sheet

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. It would be quite possible for a newly-opened branch to conduct its business for the first six months or so with the aid of a cash book and a ledger, which would serve for all accounts. A register would, however, soon be necessary. As the business grew it would be found convenient to have a special ledger for individual accounts, with the control or key account carried in the original led-ger, and to have the checks and deposits entered in a supplementary cash book, with only the totals entered in the general cash book. Similarly, it would be found necessary in time to open up a discount register and a liability ledger to look after the increased number of loans. As the volume of business increases, the deposit ledger is capable of being indefinitely subdivided, either alphabetically or numerically. Generally, the ordinary deposit ledger is divided alphabetically and the savings bank ledger numerically. 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 The vast increase in the number and volume of commercial transactions during the past twenty years has made the use of loose-leaf ledgers and other books a practical necessity in modern accounting. In Canadian banks, particularly, the system has been in successful operation for many years. The principal objection urged against loose-leaf ledgers - the question of their validity in a court of law - appears to have died a natural death. The courts rule so plainly and the logic is so clear, that it is the original entry that counts and not the assembly of entries in the ledger, that it is now generally conceded that the loose-leaf ledger is just as acceptable as evidence in a court as a bound ledger. In fact, with the precautions observed by the banks in their use of loose-leaf books, the evidence might be considered even more competent. The following rules are generally observed:

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Project report of accounting in banks and balance sheet

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.  Preparation of Financial Statements and Accounting Date (Section 29) A Company registered under the Companies Act 1956 is required to present its financial statements, i.e. balance sheet and profit and loss account in the format laid down in Schedule VI annexed to the Companies Act. Similarly, banking company, (since it is a company) is also required to prepare and submit its accounts in specified format. The Banking Regulation Act gives the format of balance sheet and the profit and loss account in which accounts of banks should be presented and this format is given in the third schedule annexed to the Banking Regulation Act. RBI has issued guidelines to follow the new form A (proforma balance sheet) and form B (proforma profit and loss account) by all companies doing banking business in India. The government has notified that the books of accounts of the banking companies shall be closed on 31st March every year as against 31st December earlier. In practice, banks also close books on 30th September for internal purpose. Page8

Project report of accounting in banks and balance sheet

 Audit (Section 30) 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. Submission of Accounts (Sec 31 and 32) Three copies of the balances sheet and profit and loss account prepared under Section 29 together with auditors’ report under Section 30 must be submitted to the Reserve Bank of India within three months from the period to which they refer. However, it can be extended up to the period of further three months by RBI.  Publication of Accounts Rule 15 of the Banking Regulating (Companies) Rules, 1949 prescribed that accounts and auditors’ report shall be published in newspaper circulating in a place where a banking company has its principal office, within six months from the end of period to which they relate.

4. SIGNIFICANT FEATURES OF ACCOUNTING SYSTEMS OF BANKS Page9

Project report of accounting in banks and balance sheet

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. Banks follow the accounting procedure of ‘voucher posting’ under which the vouchers are straightway posted to the individual accounts in the subsidiary ledgers. (Only in case of Personal Ledger) At the end of each day, the debit and credit vouchers relating to a particular type of transactions (e.g. savings bank accounts, current accounts, demand loans cash credit account etc.) are entered on separate vouchers summery sheets and the total thereof is posted to the respective control account in the general ledger. The general ledger trial balance is prepared every day.  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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Project report of accounting in banks and balance sheet

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’. The debit vouchers are of many kinds, broadly following: 1. Cheques issued by customers.

2. Cheques/ Pay orders issued by banks. 3. Withdrawal of money by saving bank account holders.

4. Drafts issued by another branches of banks payable at branch. 5. Draft issued by another banks on branch, in terms of an approved

arrangement between the two banks. 6. Dividend / Interest warrants issued by bank’s customers and

payable by branch in terms of an approved arrangement. 7. Traveler’s cheques issued by any branch of the bank which presented to the branch for payment. 8. Drafts / Pay orders issued by the branch itself which are cancelled at the request of customer and amount is refunded to him. 9. Letters of authority signed by the customers, containing standing instructions. 10. Instruments like traveler’s cheques/gift cheques, etc.of other banks

which are paid by branch in terms of an approved arrangement. 11. Debit vouchers prepared by the branch on its printed stationary

which are authorized by a designated official of the bank and may also carry authority from the customers in some cases to debit his account at the branch. 12.In respect of realization of collection instrument sent to other branches of the bank, a debit advice (which may be known by Page11

Project report of accounting in banks and balance sheet

different names in different banks) prepared by the other branch may itself as a debit voucher. 13.In case of remittance of funds by one branch to the other branch by means of telegraphic transferor mail transfer, the bank may treat the advice of transfer itself as debit voucher or may prepare a separate debit voucher. The credit vouchers are also of many kinds, broadly the following: 1. Pay –in-slip filled by customers (depositors as well as borrowers) for deposit the amounts in their accounts. Generally, the pay-inslips are in standard format adopted by the bank but there may be cases of a special kind of pay-in-slips in respect of some customers pursuant a formal agreement between the bank and customer. 2. Applications for issue of demand drafts, mail transfer telegraphic

transfer, banker’s cheques, pay orders, gifts cheques, traveler’s cheques, and other similar instruments. Some of these application may be made on behalf of the branch itself it has to make. 3. Credit vouchers prepared by the branch on its printed stationary

which are authorized by an official of the bank. Normally theses vouchers are signed on behalf of the branch only but there may be some instance where the customer concerned also signs on the voucher as evidence that the transaction actually pertains to him. Examples are: deposits of locker charges (credit to an income account of the bank), deposits of money for purchase of nonjudicial stamps requires for execution of document in favor of the bank, etc. 4. Challans for deposit into the account of Central/State Government,

e.g. on account of Direct/Indirect taxes or under schemes like public provident fund, etc. 5. On payment of collection instruments from other branches of the

bank, a credit advice (which may be known by different names in different banks) or copy of the collection schedule received from the other branch may itself be treated as a credit voucher. It may be stated here in case of debits or credits of similar nature to a large no. of accounts in the same ledger or group of ledgers (e.g. debit on account of periodic interest, inspection charges, etc. or credit on account Page12

Project report of accounting in banks and balance sheet

of periodic payment of interest to depositors), it is a common practice among the banks to prepare a consolidated voucher on their stationary and enclosed thereto a list containing details of accounts debited/credited and the amount of debit/credit. 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. A trial balance of personal ledgers is prepared periodically, usually every two weeks and agreed with general ledger control accounts. In banking parlance, this exercise is referred to as ‘balancing of books’.  Banker’s Books According to Section 2 (3) of the Banker’s Books Evidence Act, ‘Bankers Books’ include ledgers, day book, cash books, account books and all other books used in ordinary business of a bank. Generally the following books are maintained by the bank to keep up-todate 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 payin 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. Page13

Project report of accounting in banks and balance sheet

 Ledger Book General Ledger contains the total accounts of each ledger. Besides the GL, the following ledger books are maintained: 1. Current Accounts Ledger 2. FD Accounts Ledger 3. RD Accounts Ledger 4. Loan Ledger 5. Investment Ledger 6. Bills discounted and purchased Ledger  Other Books 1. Clearing Register 2. Securities Register 3. Draft Register 4. Bills for collection Register 5. Dishonored cheques Register 6. Safe deposit vault Register 7. Letter of credit Register  Teller's Records The teller's cash book or blotter consists of a skeleton ruling with no printed headings, these being written in daily by the teller according to his requirements. Were the headings printed it would require a specially printed book for each class of teller, and even then it might not be suitably spaced for local requirements. Page14

Project report of accounting in banks and balance sheet

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. All parcels of money received are acknowledged, and entered in a special book. If the advice comes in first it should be at once entered in this book, and the parcel inquired for if necessary. Money parcels dispatched are also entered in a book. Great care is necessary in handling money parcels. Both sent and received parcels should be counted by two men in each other's presence and, in the case of the former, it is necessary to have the parcel in the uninterrupted custody of two men from the time it is counted and sealed until it is delivered to the express company or post office. The relative advices and acknowledgments should be carefully watched and any delay immediately inquired into.  Supplementary Cash Book 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. In offices where it is found necessary to split up the deposit ledger into two or more alphabetical divisions, a special "supplementary" is devoted to each division including the savings bank ledger. It is not necessary to open up an account in the general ledger for each division of the deposit ledgers. Page15

Project report of accounting in banks and balance sheet

If the savings ledger contains a large number of accounts, it will be found of great advantage to split it up into several sections or blocks of accounts, as this greatly facilitates the location of errors when balancing. A special form of supplementary cash book should be used with a money column for each block of accounts. In the case of a current account which has an unusual number of checks at a certain period of the month or year - for instance, payroll or dividend checks - it is permissible to detail a day's checks once, either in the supplementary cash book or ledger, and enter the total only with a reference in the other book. 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. 5. PRINCIPAL BOOKS OF ACCOUNT

The principal books of accounts, subsidiary books and statistical records generally maintained by banks are described in the following. It may, however, be emphasized that the exact nature of such books may differ from one book to another, depending upon the individual requirement of each bank.  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.  Types of General Ledger: Page16

Project report of accounting in banks and balance sheet

1. Old Style Although bank book-keeping is supposed to be very simple, there are many ways of doing the same thing and therefore every bank may find something in the methods of some other bank, which would be worth its while to adopt. 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. Three Column Ledger 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 A ledger on the style of the Boston ledger, a thorough explanation of which will follow later, is used in many banks and found satisfactory. In this ledger the names of the accounts are written or printed down the middle or side of the page. The days are placed side by side, across the page. A small column may be left for remarks beside each of the debit and credit columns as noted in the figure. It is preferable to arrange the asset accounts in proper order on the upper part of the page and the liabilities on Page17

Project report of accounting in banks and balance sheet

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. The objection to this style of general ledger is that an analysis of any account is a very trying task because of the meager explanations of debits and credits. A large New York bank has adopted a form which does away with this objection. The front part of the ledger is a two column Boston. The back part of the ledger is ruled like the old style ledger. The postings are all made first in one section and then in the other. The bookkeeper takes off a trial balance of the old style section at frequent intervals and compares the balances in each account with the balances in his skeleton section. If this duplication of the ledger should seem useless, the desired results can be obtained by keeping a skeleton ledger and an analytical account for such accounts as "profit and loss," "expense," etc. The Boston ledger and the old style each have their advantages as a general ledger. A union of the two combines all the good points of both, and when bound in the same cover furnishes, with a very small amount of extra work, as comprehensive a volume as one could wish. Date Memorand a

Debit Credi t

Balance

Balance Ledger Assets

Monday, July 12, 2009 Memo.

Dr.

Memo.

Tuesday, July 13, 2009 Cr .

Balance

Memo.

Dr.

Memo.

Cr .

Balance

Boston Ledger

A very simple point overlooked by most general ledger keepers using a Boston ledger may prove valuable. When closing the books at the end of a fiscal period, enter a trial balance of the ledger in the statement book before any closing entries are made, and another after closing the earning and expense accounts into profit and loss. If a statement of earnings and charges is desired, covering a period dating from before the closing of the books to a period after the closing, it may be very easily prepared by simply deducting the balances in the accounts chargeable to profit and loss on the first day of the period from the balances shown as of the closing date, and adding to the differences obtained, the balances in the same accounts on the last day of the period. Proper addition must be made to

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Project report of accounting in banks and balance sheet

each side of the resulting statement for charges and credits made directly to profit and loss account.  Profit and Loss Ledger 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 Each control account in the general ledger is supported by a subsidiary ledger (or more than one subsidiary ledger if the number of accounts is large). Thus in respect to control accounts relating to accounts relating to accounts of customers, subsidiary ledgers are maintained for: a) Various types of deposits accounts (saving bank accounts, recurring account, current accounts, etc) which contains accounts of individuals customers. Each account holder is allotted a separate folio in the ledger: b) various types of loans and advances related accounts (cash credit, term loans, demand loans, bills purchased and discounted, letters of credit, bank guarantees issued, etc.) wherein the liability of each customer is reflected. Generally there is no separate ledger for overdraft accounts which are granted in current account. However some branches maintain these accounts in separate ledgers depending upon the number of regular borrowers under the facility. Page19

Project report of accounting in banks and balance sheet

Separate registers are maintained to record the particulars of term deposits (including derivatives like call deposits, certificate of deposits, etc.) Banks generally do not allot separate folios to each customer. The register divided in to various sections, each section for particular period of deposits and/or the rate of interest payable on deposits. As mentioned earlier, postings to these ledgers are made directly from summary sheets. The voucher summary sheets prepared in the department which originates the transactions, by the persons other than who writes the legers they are subsequently checked with the vouchers by persons generally unconnected with writing of ledgers/registers or the voucher summery sheets.  Current Deposit Ledger 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. As the ledger is loose-leaf there is no accumulation of dead leaves, but the general regulations regarding loose-leaf ledgers given in Section 3 of this chapter should be observed closely.

BANK Sheet No. Name Address Date Particulars

Account No.

Debit

Credit

Dr. or Cr.

Balance

Date

Particulars

Debit

Credit

Dr. or Cr.

Page20

Balance

Project report of accounting in banks and balance sheet Current Deposit Ledger

 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. Entries in registers are made by reference to the original documents. A voucher of the total amount of the transactions of each day is prepared in respect of each register. This voucher is entered in the day book. When the bill is realized or returned its original entry in register is marked off. A daily summery of such realization or returns is prepared in separate registers whose totals are taken to vouchers which are posted in day book. In respect of bills for collection, contra vouchers reflecting both sides of transactions are the prepared at the time of the original entry is reversed on realization. Outstanding entries are summarized at stipulated intervals and their totals agreed with the balance of the respective control accounts in general ledger.  DEPARTMENTAL JOURNALS Each department of the Bank maintains a journal to note the transfer entries passed by it. These journals are memoranda books only, as all the entries made there are also made in the Day Book through Voucher Summary Sheets. Their purpose is to maintain a record of all the transfer entries originated by each department. For example, the Loans and Overdraft Section will pass transfer entries for interest charged on various accounts every month, and as all these entries will be posted in the journal of that department, the office concerned can easily find out the accounts in respect of which the interest entry has been passed. Since all vouchers passed during the day are entered into the Day Book only in a summary form, it may not be possible to get this information from the Day Book without looking into the individual vouchers. Moreover, as the number of departments in a banks is quite large, the Day Book may not be accessible at all times to all departments. Page21

Project report of accounting in banks and balance sheet

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 There are different Registers/Records to record the detail particulars of various types of transactions. These Registers/Records do not from part of the books of accounts but support the entries/balances in the various accounts some of the important Registers/Records relate to the following: Drat issued (separated registers may be maintained for drafts issued by the branch on other branches of same bank and those on the branch of its correspondents in India or abroad). Depending upon the value of business, some branches may have separated registers on some other basis also like weather the draft issued advised is prepared or not, registers exclusively for some high volume customers of the bank, the range, within which amount of draft falls, e.g. below Rs. 1 lakh, Rs 1-10 lakh, Rs 10 -100 lakhs, etc. (a)

(b) Drafts paid (separate registers may be maintained on the same pattern as an in case of draft issued) (c)

Issue and payment of: 1.

Telephonic transfers

2.

Mail transfers

3. Bankers cheques

cheques/Pay

4.

Letters of credit.

5.

Letters of guarantee

orders/traveler’s

cheques/Gift

Page22

Project report of accounting in banks and balance sheet

Entries in these registers are made from original documents which are also summarized on vouchers every day. These vouchers are posted in Day book. Outstanding entries are summarized at stipulated intervals and their totals are agreed with respective control accounts in the ledger. 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, Interoffice 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. Banks maintain a Suspense Ledger to record various suspense accounts. As mentioned earlier a trial balance is prepared in banks every day. Sometimes due to clerical errors e.g. preparing the voucher summery sheet balance and the trial balance may not tally. In such situation the difference is temporarily transferred to a suspense account (in case of short debit) or to sundry deposits account (in case of short credit). Similarly transaction of transitory nature e.g. travel advance to employees, Are also recorded in suspense account pending their adjustment related income/expenses account. Some banks maintains separate ledger for suspense account and sundry deposit accounts. The amounts lying in theses accounts need regular monitoring to clear them. Suitable registers with back-up registers to record classification under numerous sub-heads are maintained for: a)

Establishment expenses

b)

Interest and discount income

c)

Incomes by way of commission

d) e)

Interest expenditure Provision for interest accrued but not due on deposits Page23

Project report of accounting in banks and balance sheet

f)

Fixed Assets

g)

Stationary consumed/in hand

Interest payable to and receivable from head office, in respect of advances and depositors respectively. A peculiar feature of accounting systems in banks is that the branches, nationally, have no funds of their own. All deposits accepted at branch are deemed to have been passed on bank’s head office and all loans made at branch are deemed to have been made out of funds received from the head office. The head office pays interest to branch for its deposits and charges interest from the branch for its loans and advances. The rates of such interest charged and paid by head office are decided by the head office during the course of the year and are an important factor in calculating profit and loss of branch. The mechanism may be known by different names in different banks. All calculation in this regard is done at the branches only and suitable entries are passed, generally at year end. These entries however get offset in the process of consolidation of accounts and have no effect on financial statement of the bank as a whole. h)

Instruments received from customers for payment/collection by branch. Clearing of locally payable instruments is an important function of banks. Some banks maintains separate registers to maintain details of various types of instruments lodged by customers where as some other banks use a common book to record all kind of instruments lodged by customers. i)

Separate Registers are maintained to record summaries the transactions relating to a particular head of account like Current Account, Saving Bank Account, Cash Credit, Term loans. Such books may be called ‘Log Books’, ‘Day Book’, etc. The totals of these books are carried over to Cash book. Some other registers may be: Stop Payment Register, Locker Access Register, Demat Register, Drawing Power Register used for monitoring of CC Accounts etc.

 OTHER MEMORANDA BOOKS

Page24

Project report of accounting in banks and balance sheet

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. In the larger offices, the officers in charge of the different departments after balancing their books hand to the cash-book clerk the totals in the form of a signed memorandum, and even in the smaller offices it is advisable to have the clerks entering up the various supplementary books, give a similar memorandum of their totals. This limits the responsibility and adds to the efficiency of the staff. 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 Page25

Project report of accounting in banks and balance sheet

vouchers, distinctive colored paper or printing should be used; for instance, yellow, debit slips and white, credit slips. 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. Quick Payment System - Banks introduce different systems so that their customers may receive payment of cash etc. quickly. The most prevalent system is the teller system. Under this system tellers keep cash as well as ledger cards and the specimen signature cards of each customer in respect of Current and Saving Bank Accounts. A teller is authorised to make payment up to a particular amount, say, Rs. 1,000. On receipt of the cheque, he checks it, passes it for payment, enters it in the ledger card and makes the payment to customer. The teller also receives cash deposited in these accounts. Outward Clearing: (a) A Clearing Cheques Received Book for entering cheques received from customers for 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 Page26

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. Loans & Overdraft Departments (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 (a) Account Opening & Closing registers. (b) For Fixed Deposits, Rate registers giving analysis of deposits according to rates. (c) Due Date Diary. (d) Specimen signature book. 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. Page27

Project report of accounting in banks and balance sheet

General (a) Signature book of bank’s officers. (b) Private Telegraphic Code and Cyphers.

 STATISTICAL BOOKS Statistical records kept by different banks are in accordance with their individual needs. For example, there may be books for recording (i) Average balance in loans and advances etc. (ii) Deposits received and amount paid out each month in the various departments, (iii) Number of cheques paid, (iv) Number of cheques, bills and other items collected. The above is not an exhaustive list of accounting records kept by a bank. 6.

PREPRATION AND PRESANTATION STATEMENTS OF BANKS

OF

FINANCIAL

A banking company is not required to prepare financial statements in accordance with Schedule VI of the Companies Act, 1956. Form A of third schedule gives the format of a balance sheet and form B gives the format of a profit and loss account. These formats have been revised w.e.f. 1st April 1991 and the profit and loss account and balance sheet of banking company for the year ended 31st March 1992 and onwards have to be prepared in new form as discussed below.

7. FORMS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT Page28

Project report of accounting in banks and balance sheet

With the nationalisation of major commercial banks and changes brought about in the economic and financial policies by the Government, the environment in which the banks operate has undergone a complete change. However, there was little effort to bring about a change in the financial statements of banks to reflect the reality of the impact of the environment. There were suggestions emphasising a need for revising formats in which banks publish their financial statements as prescribed under the Banking Regulation Act, 1949. A Committee under the Chairmanship of Shri A. Ghosh, Deputy Governor, RBI, was constituted to examine, inter alia the desirability of greater or full disclosure in the published accounts of banks having regard to the need for disclosure, public accountability of banks, requirement and maintenance of confidentiality between banker and customer and the requirement of maintaining the reputation and credit-worthiness of banks. The Committee after due deliberation has suggested suitable changes/amendments in the forms of balance sheet and profit and loss account of banks, having regard to : 1. Need for better disclosure 2. Expansion of banking operations both area-wise and sector-wise over the period, Need for improving the presentation of accounts etc. The revised formats are given below which include Form A for Balance Sheet, Form B for Profit and Loss Account and eighteen other schedules of which two relates to notes and accounting policies.

THIRD SCHEDULE: FORM A Page29

Project report of accounting in banks and balance sheet

Form of balance sheet Balance Sheet as on 31st March……….. (000’s omitted) Particulars CAPTIAL AND LIABILITES Capital Resaves and surplus Minorities Interest Deposits Borrowings Other Liabilities and Provision TOTAL ASSETS Cash and balance with RBI Balance with banks and money at call and short notice Investments Advances Fixed Assets Other Assets TOTAL Contingent liabilities

Schedule No.

As on 31.3.__

As on 31.3.__

(current year)

(pervious year)

1 2 2A 3 4 5

6 7 8 9 10 11 12

The Following schedules are required to be furnished with The Balance Sheet of Banking Companies: Page30

Project report of accounting in banks and balance sheet

PARTICULARS Schedule 1 Capital

RS.

I. For nationalized banks Capital (fully owned central government)

Rs.

…

II. For banks incorporated outside India i) Capital ( the amount brought in by banks by way of start-up capital prescribed by RBI should be shown under this head) ii) Amount of deposit kept with RBI under Section 11(2) of The Banking Regulation Act, 1949.

… …

Total

…

III.For other banks: Authorized capital (… shares of Rs. … each) Issued capital (… shares of Rs. … each) Subscribed capital (… shares of Rs. … each) Call-up capital (… shares of Rs. … each) Less: Calls unpaid Add: Forfeited shares

… … … … … …

Total

…

Schedule 2 Reserves and Surplus 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

… … …

…

III Share premium Opening balance Additions during the year

… … Page31

Project report of accounting in banks and balance sheet

Deductions during the year

…

…

IV Revenue and the other reserves Opening balance Additions during the year Deductions during the year

… … …

…

V Balance in Profit and Loss Account

…

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) B

i) Deposits of branches in India ii) Deposits of branches outside India

… … … … … …

Grand total ( A and B )

… … … … … …

Schedule 4 Borrowings I. Borrowings in India i) Reserve Bank of India ii) Other Banks iii) Other institutions and agencies

… … …

…

II. Borrowings outside India

…

Total ( I and II ) Secured borrowings in I and II above

… …

Schedule 5 Other liabilities and provisions i) Bills payable

… Page32

Project report of accounting in banks and balance sheet

ii) Inter office adjustment (net) iii) Interest accrued iv) Others ( including provisions)

… … …

Total

…

Schedule 6 Cash and bank with RBI I. Cash in hands ( including foreign currency notes) II. Balance with RBI in: i) Current Account ii) Other Accounts

… … …

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 )

… … … …

… … …

II. Outside India i) In Current Accounts ii) In other Deposits Accounts iii) Money at Call and Sort notice Total ( i, ii, and iii)

… … … …

Grand Total ( I and II)

…

Schedule 8 Investment I. Investments in India in i) Government Securities ii) Other approved Securities iii) Shares

… … … Page33

Project report of accounting in banks and balance sheet

iv) Debentures and Bonds v) Subsidiaries and/or joint ventures vi) Others to be specified Total

… … … …

II. Investments outside India in i) Government Securities ( including local authorities ) … ii) Subsidiaries and/or joint ventures abroad … iii) Other investment ( to be specified) … Total

…

Grand Total ( I and II)

…

Schedule 9 Advances A i) Bills Discounted and Purchased ii) Cash Credits, Overdraft, and Loans payable on Demand iii) Term loans Total

… …

B i) Secured by tangible Assets ii) Covered by bank/Govt. guarantees iii) Unsecured Total

… … …

C I Advances in India i) Priority Sector ii) Public Sector iii) Banks iv) Others Total II Advances out side India i) Due from banks ii) Due from others: a) Bills purchased discounted b) Syndicate Loans c) Others Total Grand Total ( CI. and C II)

… …

… … … … … … … … … … … … … Page34

Project report of accounting in banks and balance sheet

Schedule 10 Fixed Assets 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 )

… … …

…

… … … …

Schedule 11 Other Assets I. Inter office adjustment (net) … II. Interest acrrude … III. Tax paid in advance/ Tax deducted at source … IV. Stationary and stamps. … V. Non-banking assets acquired in satisfaction of claims … VI. Others* … Total … * In the case there is any unadjusted balance of loss (i.e. when the loss exceeds the aggregate of capital, reserves and surplus), the same may be shown under appropriate footnote. Schedule 12 Contingent liabilities I. Capital against the bank not acknowledged as debts II. Liability for partly paid investment III. Liability on Account of outstanding forward Exchange contracts IV. Guarantees given on behalf of constituents In India Outside India V. Accepts endorsements and other obligation VI. Other items for which the bank is contingently Liable Total

… … … … … …

2. Comments on Balance Sheet items Page35

… … .. …

Project report of accounting in banks and balance sheet

Schedule 1 : Capital I. Nationalized Banks a) Capital (fully owned by central government) : The capital owned by the Central Government as on the date of the balance sheet including the contribution on from government, if any. For the participating in the World Bank projects should be shown. b) Banking companies incorporated outside India: i) The amount brought in by banks by way of start-up capital as prescribed by RBI should shown under this head. ii) The amount deposit kept with RBI, under the subsection 2 of Section 11 of Banking Regulation Act 1949 should also be shown. II. Others Banks (Indian) Authorized, issued, subscribed, called up capital should be given separately. Calls-in-Arrears will be deducted from the called up capital while the paid up value of forfeited shares should be added thus arriving at the paid –up capital. Where necessary items which can be combined should be shown under on head for instance Issued and subscribed Capital 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. Schedule 2 : Reserves and surplus I. Statutory reserves: Reserves created in terms of Section 17, or other Section of Banking Regulation Act must be separately disclosed. 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. III. Share premium: Premium on issue of shares capital may be shown separately under this head. Page36

Project report of accounting in banks and balance sheet

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. V. Balance of profit: Includes balance of profit after appropriations. In case of loss balance may be shown as deduction. 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. AII Savings Banks Accounts: Includes all savings banks deposits including inoperative savings bank accounts. AIII Term Deposits: i) From banks: Includes all type of bank deposits repayable after specified term ii) From others: Includes all types of deposits of non banks sector repayable after specified term. Fixed deposit, cumulative and recurring deposits, cash certificates, certificates of deposits, foreign currency non resident deposits accounts, annuity deposits, deposits mobilized under various schemes, ordinary staff deposits, etc. are to be included under this category. BI Deposits of branches in India. II Deposits of branches outside India The total of two A and B will agree with total Deposits of bank. Notes: General:

Page37

Project report of accounting in banks and balance sheet

a) Interest payable on deposits which is accrued in but should not show under others liability. b) Matured time deposits and cash certificates, etc. should be treated as demand deposits. c) Deposits under special scheme should be included under term deposits if they are not payable on demand. When such deposits are matured for payment they should be shown under demand deposits. d) Deposits from banks will include deposits from the banking system in India, co-operative banks, foreign banks, which may or may not have presence in India.

Schedule 4 : Borrowings I Borrowings in India: Reserve bank of India: Includes the borrowings/refinance obtained by Reserve Bank of India. Other banks: Includes the borrowings/refinance obtained by commercial banks (including cooperative banks) Other institutions and agencies: Includes the borrowings/refinance obtained by Industrial Development Bank of India, Export Import Bank of India, National Bank for Agriculture and Rural Development of India and other institutions, agencies (including liability against participation certificate, if any) II Borrowings out side India: It includes the borrowing of Indian branches abroad as well as borrowing from foreign branches. Secured borrowings included above. This item will be separately shown Includes secured borrowings/refinance in India and outside India.

Notes: General: Page38

Project report of accounting in banks and balance sheet

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. Schedule 5 : Other liabilities and provisions 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

IV Others (Including provisions) : It includes net provision for income tax and other taxes like interest tax (less advance payments, tax deducted at source, etc.) surplus aggregate in provisions for bad debts provision account, surplus in aggregate in provisions for depreciation in securities contingency funds, which are not disclosed are reserves but are actually in the nature of reserves, Page39

Project report of accounting in banks and balance sheet

proposed dividend/transfer to Government, other liabilities which are not disclosed under any of many heads such as unclaimed dividend provisions and funds kept for specific purpose, unexpired discount, out standing charges, like rent conveyance, etc. certain types of deposits like staff security deposits, margin deposits, etc. where the repayment is not free, should also be included under this head. Notes: General: a)

For arriving at the net balance of inter-office adjustments all connected inter-office accounts should be aggregated and the net balance only will be shown, representing mostly items in transit and unadjusted items. b) The interest accruing all deposits, whether the payment is due or not, should be treated as a liability. c) It is proposed to show only pure deposits under this head ‘Deposits’ and hence all surplus provisions for bad and doubtful debts contingency funds, secret reserves, etc. which are not netted off against the relative assets, should be brought under the head ‘Others’ (including provisions). Schedule 6 : Cash and Balance with Reserve Bank of India I Cash in hand (including foreign currency notes); II Balance with RBI: a) in current account; b) in other accounts. 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. Page40

Project report of accounting in banks and balance sheet

ii) Money at Call and Short notice a) With banks b) With other institutions. This item mainly represents the loans given by one bank to another for a short period Call loans are repayable at any time the bankers recalls them while short notice advances are repayable within a short notice of (say) 24 hours. The maximum notice period is for two weeks. This includes deposits repayable within fifteen days or less than fifteen days notice lent in the inter-bank call money market. 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: i) Government securities: Includes Central and State Government treasury bills. Theses securities should be shown at the book value. However, the difference the book value and market value should be given in notes to balance sheet ii) Other approved Securities: Securities other than Government Securities which are according to Banking Regulation Act, 1949 are treated as approved securities, should be including here. iii) Shares: Investments in shares of companies and corporations not included in the b above should be included here. iv) Debentures and bonds: investment in debentures and bonds of companies and corporations not included in the b above should be included here. v) Investment in Subsidiaries/Joint ventures: Investment in Subsidiaries/ joint ventures (including RRBs) should be included here. vi) Others: Includes residual investment, if any, like gold, commercial papers, and other instruments in nature of shares/debentures/bonds. II Investments out side India: Page41

Project report of accounting in banks and balance sheet

a) Government Securities (including local authorities): All foreign Government securities issued by local authorities may be classified under this head. b) Subsidiaries and/or Joint ventures abroad: All investment made in share capital of subsidiaries floated outside India and/or joint ventures abroad can be classifies under this head. c) Others: All other investments outside India may be shown under this head. Schedule 9 : Advances A i) Bills Discounted and Purchased: The banks also give advances to their customers by discounting their bills. Net amount after deducting the amount of discount is credited to the account of customer. The banks may discount the bills with or without security from the debtor in addition to one or more persons are already liable on the bill. ii) Cash-credit, Overdrafts and Loans Repayable on Demand: Cash-credit: A cash credit is an arrangement by which a bankers allows his customer to borrow money up to certain limit. Cash credit arrangements are usually made against the security of commodities hypothecated or pledged with the bank. 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. Overdrafts: The customer may be allowed to overdraw his/her current account with or without security if he/she requires temporary accommodation. These arrangements is like cash credit is advantageous from the customer’s point of view, as he/she is require to pay interest on the actual amount used by him/her. Loans: A loan is kind of advance made with or without security. In case of loan the banks makes a lump sum payment to the borrower or Page42

Project report of accounting in banks and balance sheet

credits his deposits account with the money advanced. Repayments may be made in installments or or at the expiry of the certain period. The customer has to pay interest on the total advance whether he withdraws the money from his account (credited with the loan) or not. A loan once repaid full or in part cannot be drawn again by the borrower unless the banker sanctions as fresh loan. Term loans: A loan may be in form of demand loan Demand loan is payable on demand It is usually for a short period not exceeding a year. While term loans are given for a fixed term usually exceeding a year. In classification under Section ‘A’ all outstanding-in India as well as outside-less provisions made, will be made under three heads indicated above and both secured and unsecured advances will be included under these heads Term loans should be mentioned including overdue installments. B i) Secured by Tangible Assets: All advances or part advances which are secured by tangible assets may be shown here. The item will include advances in India and outside India. ii) Covered by Bank/ Government Guarantee Advances in India and Outside India, to extent they are covered by the guarantees of Indian and foreign Governments and Indian and foreign Banks, DICGC, ECGC, Indian and foreign banks are to be included. iii) Unsecured: All advances not classified under i) and ii) will be included here. Total of ‘A’ should tally with total ‘B’. C i) Advances in India (Priority Sectors, Public Sector; Banks and Others) Advances should be broadly classified into ‘Advance in India’ and ‘Advances outside India’. Advance in India can be further classified on sectoral basis as indicated. Advances to sectors, which for the time being are classified as priority sectors, according to the instructions of Reserve Bank are classified under the head ‘Priority Sectors’ such advances are excluded fro item ii i.e. advances to public sector. Page43

Project report of accounting in banks and balance sheet

advances to Central and State Government Companies and Corporation which are according to statutes, to be treated as public sector companies are to be included in the category ‘Public Sector’. All advances to the banking sector includes co-operative banks will come under the head ‘Banks’. All the remaining advances will be included under the head ‘Others’ and typically this category will include non-priority advances to the private, joint and co-operative sectors. Notes: General: a) The gross amount of advance including refinance and rediscounts but excluding provisions made to the satisfaction of auditors should be shown as advances. b) Term loans will be loans not repayable on demand c) Consortium advances would be shown net of share from other participating banks/institutions. Schedule 10 : Fixed Assets 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. II Other Fixed Assets (including furniture and fixtures) i) At cost as on 31st March of the preceding year;\ ii) Additions during the year; iii) Deductions during the year; Page44

Project report of accounting in banks and balance sheet

iv) Depreciation to the date. Motor vehicles and all other fixed assets other than premises but including furniture and fixtures should be shown under this head.

Schedule 11 : Other Assets They include following: 1) Inter-office Adjustment (Net): The inter office adjustment balance, if in debit, should be shown under this head. Only net positions of Inter-office accounts, includes as well as a foreign should be shown here. For arriving at the net balance of inter-office accounts should be aggregated and the net balance, if in debit only should be shown representing mostly items in transit and unadjusted items. 2) Interest Accrued: Interest accrued but not on investments and advances, and interest due but not collected on investments will be the main components of this item As a bank normally debits the borrower’s account with interest due on advances. Only such interest as can be realized in the ordinary course should be shown under this head. 3) Tax paid in advance/deducted at source: The amount of tax deducted at source securities on securities, advance tax paid, etc. the extent that these items are not set off against relative tax provisions should be shown under this head. 4) Stationary and Stamps: Only exceptional items of expenditure on stationary like bulk purchase of security paper, loose leaf or other ledger, etc., which are shown as quasi assets are to be written off over a period of time should be shown here. The value should be on realistic basis and cost escalation should not be taken into account as these items for internal use. 5) Non banking assets acquired in satisfaction of claims: Immovable properties/tangible assets acquired in satisfaction of claims are to be shown under this head.

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Project report of accounting in banks and balance sheet

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. Schedule 12 : Contingent liabilities 1) Claims against bank not acknowledge as debt 2) Liability of partly paid installments: Liabilities on partly paid shares, debentures, etc. will be included in this head. 3) Liquidity on account of outstanding forward contracts: Outstanding forwards exchange contracts may be include here. 4) Guarantees given on behalf of constituents: a) In India b) Outside India; Guarantees given on behalf of constituents in India and Outside India may be shown separately. 5) Acceptance, Endorsement, Other obligations: This item will include letters of credit and bills accepted by the bank on behalf of customers. In such cases the bank takes upon itself the responsibility for payment. In order to keep a paper record of such liability, the bank maintains customer acceptances, endorsement and guarantee register. All obligations undertaken by the bank as a result of guarantees, endorsement, acceptance, etc. are recorded here. At the end of the accounting year if some of these obligations remain undisbursed they are to be shown as contingent liabilities under this head. 6) Other Items For Bank is Contingent Liable: Arrears of cumulative dividends, bills rediscounted under underwriting contracts remaining to be executed on capital account and not provided for, etc. are to be include here.

Bills for collection A banking company receives a large number of bills of exchange for collection purpose. So in order to keep a systematic record of such bills, it maintains a book called ‘Bills for Collection Register’. On receipt of bill Page46

Project report of accounting in banks and balance sheet

for collection, an entry is made in this register. On collection of exchange, besides making a note of this fact in the bills for collection register, following accounting is also passed by the banker: Cash account (with the amount of bill collected) Dr ………. To Customers Account ………. (with the amount of bill collected less commission charges) To Commission ……….

Account

At the end of accounting period the amount of bills yet to be collected is ascertained from the bills for collection register. the total amount of such bill is shown here. Compulsory deposits In case certain persons are required to make compulsory deposits with a bank as per income tax, excise rules, etc. these deposits have been received by the concerned bank on behalf of the concerned authority. They may be include in the category of Demand Deposits and shown in the Balance Sheet accordingly. Notes and instructions for compilation 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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Project report of accounting in banks and balance sheet

PREPARATION OF PROFIT AND LOSS ACCOUNT Form B Third Schedule Page48

Project report of accounting in banks and balance sheet

Form of Profit and Loss Account Profit and Loss Account for the year ended 31st March …… Particulars Schedule Year ended Number (Rs.) I. Income: Interest Earned 13 …. Other income 14 …. II. Expenditure: Interest Expended 15 …. Operating Expenses 16 …. Provisions and Contingencies … …. III. Profit/Loss: Net Profit/(Loss) of the year …. Total …. IV. Appropriations: Transfer to Statutory Reserves ….. Transfer to other Reserves …. Transfer to Government Proposed Dividend …. Balance Carried over to Balance Sheet …. Total …. Schedules to be annexed with Profit and Loss Account Particulars

Rs.

Schedule 13: Interest Earned (I) Interest/ Discounts on Advances/Bills (II) Income on Investments (III) Interest on balances with RBI and other inter bank funds (IV) Others Total

... … … … …

Schedule 14: Other Incomes (I) Commission, Exchange and Brokerage (II) Profit on Sale of investment Less: Loss on Sale of investment (III) Profit on revaluation of Investment Less: Loss on revaluation of Investment (IV) Profit on Sale of Land/Building and Other Assets Less: Loss on Sale of Land/Building and Other Assets Page49

…

Project report of accounting in banks and balance sheet

(V) Profit on Exchange transactions Less: Loss on Exchange transactions (VI) Income earned by way of dividend, etc., from subsidiaries Companies and/or joint ventures abroad/in India. (VII) Misc. Income Total Note: Under items II to V loss figures be shown in brackets Schedule 15 : Interest Expended (I) Interest on Deposits (II) Interest on RBI/Inter-Bank Deposits (III) Others Total Schedule 16: Operating Expenses (I) Payment to and Provisions for Employees (II) Rent, Taxes and Lighting (III) Printing and Stationary (IV) Advertisement and Publicity (V) Depreciation on Banks Property (VI) Directors’ Fees, Allowances and Expenses (VII) Auditors’ Fee and Expenses (Including Branch Auditors) (VIII) Law Charges (IX) Postage, Telegrams, Telephones, etc. (X) Repairs and Maintenance (XI) Insurance (XII) Other Expenditure Total Note: Corresponding figures for the immediately preceding financial year should be shown in separate columns COMMENTS ON FROFIT AND LOSS ACCOUNT ITEMS Schedule 13 A Interest Earned 1. interest/Discount on Advances/Bills: includes interest and discount

on all types of loans and advances like cash-credit, demand loans, overdrafts, exports loans, term loans, domestic and foreign bills Page50

Project report of accounting in banks and balance sheet

purchased and discounted (including those rediscounted), overdue interest and also interest subsidy, if any relating to such advances/bills. 2. Income on Investments: Includes all income derived from the investment portfolio by way of interest and dividend 3. Interest on balances with Reserve Bank of India and other interbank funds: Includes the interest on balances with Reserve Bank of India and other banks, call loans, money market placements, etc. 4. Others: Includes any other interest/discount income not included in the above heads. Schedule 14 B Other Incomes 1. Commission, Exchange and Brokerage: Includes all remuneration

2. 3. 4.

5.

6. 7.

on services as a commission on collection, commission/exchange on remittance and transfers, commission on letter of credits, letting out lockers and guarantees, commission on Government business, commission on other permitted agency business including consultancy and other services, brokerage etc. on securities It does not include foreign exchange income. Profit on sale of investment: Less loss on sale of investment Profit on revaluation of investment: Less loss on revaluation of investment. Profit on sale of land, building and other assets: Less loss on sale of land, building and other assets. Includes profit/loss on the sale of securities, furniture land and buildings, motor vehicle, gold, silver, etc. Only the net position should be shown. If the net position is a loss, the amount should be shown as a deduction. The net profit/loss on revaluation of assets may also be shown under this item Profit on Exchange transactions: Less loss on exchange transactions Includes profit/loss on dealing in foreign exchange, all income earned by way of foreign exchange commission and charges on foreign exchange transactions excluding interest which will be shown under interest. Only the net position should be shown. If the net position is a loss, the amount should be shown as a deduction. Income earned by way of dividends, etc. from subsidiaries, companies, joint ventures, abroad/in India. Miscellaneous Income: Includes recoveries from constituents for godown rents, income from the banks properties, security charges, insurance, etc. and any other miscellaneous income. In case any item under this head exceeds one percentage of the total income, particulars may be given in the notes. Page51

Project report of accounting in banks and balance sheet

Schedule 15 C Interest Expenses 1. Interest on deposits: Includes interest paid on all types of deposits

from banks and other institutions. 2. Interest on RBI/Inter-Bank Borrowings: Includes discounts/interest on all borrowings and refinance from the Reserve Bank of India and other banks. 3. Others: Includes discount/interest on all borrowings and refinance, penal interest paid, etc. may also be included here. Schedule 16 D Operating Expenses 1. Payments to and provisions for employees: Include staff salaries

2.

3.

4.

5.

6.

7.

wages, allowances, bonus, other staff benefits, like provident fund, pension, gratuity, leave fare concessions staff welfare medical allowances to staff, etc. Rent, taxes and Lighting: Includes rent paid by the banks on buildings and municipal and other taxes paid excluding income tax and interest tax, electricity and other similar charges and levies. House allowance and all similar payments to staff should appear under head ‘Payments and provisions for employees’. Printing and Stationary: Includes books and forms and stationary used by bank and other printing which are not incurred by way of publicity expenditure. Advertisement and Publicity: Includes expenditure incurred by the bank for advertisement and publicity purpose including printing charges of publicity matter. Depreciation on Banks Property: Includes depreciation on bank’s own property, motor cars and other vehicles, furniture, electric fittings, vaults, lifts, leasehold properties, non banking assets, etc. Director’s fees, allowances and expenses: Includes sitting fees and all other items of expenditure incurred on behalf of directors. It includes the daily allowances, hotel charges, conveyance charges, etc. which though in the nature of reimbursement of expenses incurred may include under this head. Similar expenses of local committee members may also be included in this head. Auditors’ fees and expenses: (including branch auditor’s fees and expenses) Includes the fees paid to the statutory auditors and branch auditors for professional services rendered and all expenses for performing their duties, even though they may be in the nature of reimbursement of expenses. If external auditors have been appointed by the bankers themselves for internal inspection and Page52

Project report of accounting in banks and balance sheet

audits and other services, expenses incurred in that context including fees may not be included this head but shown under ‘ Other Expenses’. 8. Law Charges: All legal expenses and reimbursement of expenses, incurred in connection with legal services are to be included here. 9. Postage, telegrams, telephones, etc: Includes all postage charges like stamps, telegram, telephones, teleprinters, etc. 10. Repairs and maintenance: Includes repairs to bank’s property, their maintenance charges, etc. 11. Insurance: Includes insurance charges premium paid to DICGC, etc. to the extent they are not recovered from the concerned parties. 12. Other expenditure: All expenses other than those which are not included in any other heads like, licences fees, donation, subscription of papers, periodicals, entertainment expenses, travel expenses, etc. may be included in this head. In case any particular item under this head exceeds one percent of the total income particulars may be given in the notes.

E Provisions and Contingencies 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.

8. ACCOUNTING TREATMENT OF SPESIFIC ITEMS Accounting treatment of some specific items in the profit and loss account and balance sheet are as per following. A. Bad Debts and Provisions for Doubtful Debts 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 Page53

Project report of accounting in banks and balance sheet

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. B. Provision for Taxation 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. C. Rebate on b Bills Discounted This refers to unexpired discount. A banking company charges discount in advance for the full period of the bill of exchange or promissory note discounted with it. The accounting entry made is as follows: Bills discounted and purchased a/c To Customers’ a/c To Discount a/c

Dr.

Customer’s account is credited with the net amount remaining after deducting the amount of discount. The amount credited to discount account represents the earning of the bank. However it may be possible that the bills discounted may mature after the close of financial year, It will be not be appropriate to take to the credit of the Profit and Loss account, that part of the discount charged, which relates to next year. An accounting entry is, therefore, passed for unearned discount in the following manner: Discount a/c Dr. To Rebate on Bills Discounted a/c (with the amount of unearned discount to the next period) Rebate on bills discounted, if already appears in the trial balance, is taken to the Balance Sheet on ‘liabilities side’. However, if an adjustment has to be done after the preparation of the trial balance, in respect on bills discounted the amount of such rebate (i.e. unearned discount) will be Page54

Project report of accounting in banks and balance sheet

deducted from the total discount in the profit and loss account and will also appear as a liability in the balance sheet.

9. IMPORTANT ITEMS OF BALANCE SHEET Let us consider some of the peculiar items of assets and liabilities appearing in the bank’s balance sheet. Balance sheet: Assets Side The various items of assets in the balance sheet are arranged according to liquidity order. Page55

Project report of accounting in banks and balance sheet

1. Money at Call and Short Notice These are related to inter-bank transactions. Under this arrangement money borrowed one bank from other bank usually for one to fourteen days. Banks having surplus money advance such loans. Banks having short supply of money, contacts the banks having surplus funds or vice versa for this purpose. Alternatively, they may approach the primary dealers in the money market for deploying their surplus funds or making good the deficit. The rate of interest on which money is supplied fluctuates every day even within the day. 2. Advances Under this head, the following items are covered: 1. Loans 2. Cash credit 3. Overdraft Loans: A loan is advance of fixed amount given to customer for a specific period. Cash credit: A is an arrangement by which the bank agrees to lend money up to a fixed limit against pledge or hypothecation of some securities. Customers need not draw the whole at home. Overdraft: Under this arrangement, the customer is permitted to over draw the money from his current account up to a certain limit against some specific securities like L.I.C policy banks fixed deposits receipts national savings certificates, quoted shares.

3. Bills Receivable being Bills for Collection as Per Contra 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: Bills received being bills for collection a/c…………Dr. To bills for collection being bills receivable account Page56

Project report of accounting in banks and balance sheet

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. 4. Acceptance Endorsement and other Obligations 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. 6. Gold and Silver Gold appears under ‘Investment’ and silver appears under ‘other assets’ Page57

Project report of accounting in banks and balance sheet

7. Lockers or Safe Deposits Vaults These are assets and are included are included under furniture 8. Branch Adjustment Account 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. Balance Sheet: Liabilities side 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. 10. Reserves Fund and Other Reserves Every banking company incorporated in India shall before declaring a dividend, transfer a sum equal to twenty per cent of net profit each year (as per profit and loss account) to reserve fund. 11. Deposits and Other Accounts There are amounts lying in the credit of customers accounts. Fixed deposits are for a fixed period whereas savings bank and current accounts balances are repayable on demand. Contingency accounts, include the provision for contingencies, provision for taxation, etc. These are merged with current accounts. 12. Bills for Collection and Acceptances and Endorsements are Contra Items Page58

Project report of accounting in banks and balance sheet

These are explained in the above point’s number 3 and 4 10. DISCLOSURE REQUIRMENTS OF BANKS TO BE ADDED AS NOTES TO ACCOUNTS ( in Schedule 17) 1. Non- performing Assets (NPA) 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. Financial Statements of Banking Companies (i) Standard Assets - Standard asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business. Such an asset is not a NPA. (ii) Sub-standard Assets - Sub-standard asset is one which has been classified as NPA for a period not exceeding 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the bank in full. In other words, such an asset will have well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected. In the case of term loans, those where installments of principal are overdue for period exceeding one year should be treated as sub-standard. An asset where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after commencement of production, should be classified as sub-standard and should remain in such category for at least two years of satisfactory performance under the renegotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of the above condition. (iii) Doubtful Assets - A doubtful asset is one which has remained NPA for a period exceeding 18 months. In the case of term loans, those where instalments of principal have remained overdue for a period exceeding 18 months should be treated as doubtful. Here too, as in the case of substandard assets, rescheduling does not entitle a bank to upgrade the quality of an advance automatically. Page59

Project report of accounting in banks and balance sheet

A loan classified as doubtful has all the weaknesses inherent in that classified as sub-standard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. (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: Period for which the advance has been portion Considered as doubtful

% of provision on secured

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Project report of accounting in banks and balance sheet

Up to 1 year More than 1 year and up to 3 years More than three years i. Outstanding stock of NPA’s as on 31.03.2004 w.e.f. 31.03.2005 w.e.f. 31.03.2006 w.e.f. 31.03.2007

20% 30% 50% 60% 75% 100%

ii. Advances classified as doubtful for more than three years on or after 01.04.2004 w.e.f. 31.03.2005 100% (c) Sub-standard assets : A general provision of 10% on total outstanding should be made without making any allowance for DICGC/ECGC cover and securities available. An additional provision of 10% (i.e., total 20% of total outstanding) is required to be made on ‘unsecured exposure’ ab initio sanction of loan. Generally such a situation may arise in case of personal and education loans etc. Unsecured exposure is defined as ‘an exposure where the realizable value of security is not more than 10% of the outstanding exposure (fund based and non-fund based). Security should not include guarantees, comfort letters etc (d) Standard assets : A general provision of a minimum of 0.40% of total standard assets should be made. It has been clarified that the provision should be made on global laon portfolio basis and not on domestic advances alone. Provision for Certain Specific Types of Advances 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. Advances Guaranteed by Government of India and/or State Governments According to the guidelines, credit facilities where government guarantees are available, although overdue, should not be treated as NPA. However, it Page61

Project report of accounting in banks and balance sheet

needs to be noted that such exemption from classification of advances as NPA is only for the purposes of assets classification and provisioning norms and not for the purposes of recognition of income. In other words, if such a credit facility meets the criteria for being classified as NPA, income in respect of the facility should not be recognised until it is actually realized. Also, in the case of state government guarantees, this exemption is available only where the guarantees have not been invoked. The State Government guaranteed accounts which have been invoked upon becoming NPA are to be treated at par with other advances for purpose of asset classification, income recognition and provisioning norms. Advances Under Rehabilitation Packages Where additional facilities are granted to a unit under rehabilitation packages approved by the Board for Industrial and Financial Reconstruction (BIFR) or by term-lending institutions or the bank (on its own or under a consortium arrangement), provision should continue to be made for the dues in respect of existing credit facilities. As regards the additional facilities, provision need not to be made for a period of one year from the date of disbursement in respect of additional facilities sanctioned under rehabilitation packages approved by BIFR/term-lending institutions. Similarly, no provision need be made for a period of one year in respect of additional facilities granted to a sick small-scale industrial unit in accordance with a rehabilitation package/nursing programme drawn up by the bank itself or under a consortium arrangement. After the period of one year, the bank in consultation with its auditors would take a view whether there is need for making provision in respect of the additional facilities sanctioned. 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. Provisioning in advances covered by the guarantees of DICGC/ECGC : In the case of advances guaranteed by Export Credit Guarantee Corporation (ECGC) or by Deposit Insurance and Credit Guarantee Corporation (DICGC), provision is required to be made only for the balance in excess of the amount guaranteed by these corporations. In case the bank also holds a security in respect of an advance guaranteed by Page62

Project report of accounting in banks and balance sheet

ECGC/DICGC, the realizable value of the security should be deducted from the outstanding balance before the ECGC/DICGC guarantee is offset. The Reserve Bank of India has also clarified that if the banks are following more stringent method of provisioning in respect of advances guaranteed by ECGC/DICGC, such banks may continue to do so. The manner of determining the amount of provision in respect of ECGC/DICGC guaranteed advances in accordance with the above guidelines is illustrated below. (It may be noted that these illustrations are merely intended to facilitate understanding of the RBI guidelines; they have not been issued by the RBI.) Banking companies are required to make additional disclosure in the Schedule 17 on ‘Notes on Accounts’ regarding movement of the provisions for NPA (excluding the provisions on standard assets) and depreciation on investments as per the following format: 2 Movement of provisions held towards NPA Particulars As on 31-3-200x 200x (Current year) year) Opening Balance Add: Provisions made during the yr. Sub-total Less: Write off bad debts/ write Back of excess provisions Closing Balance

As on 31-3(Previous

3 Movement of provisions held towards Depreciation on Investments Particulars As on 31-3-200x As on 31-3200x (Current year) (Previous year) Opening Balance Add: (a) Appropriation from Investment Fluctuation Reserves during the yr (b) Provisions made during the year Less: (c) Transfer to Investment Fluctuation Reserves during the yr. (d) Provision made during the year Page63

Project report of accounting in banks and balance sheet

Closing Balance 4. Asset Classification, Income Recognition and Provision Norms Assets classification (a) A bank’s advances are divided between performing and nonperforming assets. An advance giving income on continuous basis is called a performing asset. A non–performing asset, on other hand, is one remains out of order for ninety days. A term loan is treated as NPA, if the interest instalment remains overdue for more than 180 days while a cash credit/overdraft account treated as NPA, if the outstanding amount remains over and above sanctioned limits/drawing power more than ninety days The bill purchased/discounted is treated as NPA, if bill remains overdue and unpaid for ninety days. In other case (i.e. where the outstanding amount is less than drawing power) it is treated as NPA it there is no credit is less than the debit to the account on account of interest, interest during the ninety days preceding the date of the balance sheet. (b) Incoming Recognition The income from performing assets is recognised on accrual basis and interest income from non-performing assets is recognised on cash basis. In case interest on NPA is already recognised in the books of accrual basis, the same should be adjusted by making provisions for income recorded but not received on NPA. (c)

Assets classification for provisioning requirement The rules regarding classification and provisioning requirements are listed below:

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Project report of accounting in banks and balance sheet

Category

Standard Assets

Definitional requirements

A performing asset with just normal risk attached

Provisioning requirement

0.40%

SubStandard Assets Which has remained NPA for a period not exceeding eighteen months 10% of total outstanding

Doubtful Assets

Loss Assets

Which has Which has been remained identified by NPA for a internal and period external auditors, exceeding RBI inspectors eighteen months Unsecured 100% of total portion outstanding -100% Secured portion – Debt doubtful 20% up to one year 1 to 3 years 30% more than 3 years 50%

(d) Investment Classification 1. 2. 3. 4. 5.

Investment by banks include as under: Government Securities Approved securities Shares Debenture and bonds 6. Subsidiaries/joint venture 7. Others (commercial paper, units of mutual funds, etc) 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 Page65

Project report of accounting in banks and balance sheet

securities and entire non-SLR securities were to be written down to market value. This leads to depreciation being shown in account. The permanent securities were carried at cost. As per new guidelines, both SLR and Non SLR securities are to be divided in three categories viz., 1. Held to maturity 2. Available for sale 3. Held for trading Category 1 is like old permanent category 2 and 3 are like current category. The investment under ‘Held to maturity’ should not exceed 25% of banks total investment. The banks have the freedom to decide on extent of holding under ‘available for sale’ and held for trading category. The securities acquired by banks to the intension to hold them up to maturity are classified as under Hold to the maturity. The security, acquired by banks with intention of trading, by taking advantage of short term price/interest rate movement, is classified under ‘held for trading’. The remaining securities are classified under the category ‘available for sale’. The securities held for trading are to be sold within ninety days. The profit and loss on securities ‘held to maturity’ is to be transferred to Profit and Loss account. The profit is subsequently transferred to Capital Reserves Account. The securities ‘held to maturity need not to be marked to market. The remaining two categories are marked to market.

THIRD SCHEDULE: FORM A BALANCE SHEET OF STATE BANK OF INDIA Page66

Project report of accounting in banks and balance sheet

AS ON 31ST MARCH 2009 (000’s omitted) Particulars

Schedule As on 31.3.09 As on 31.3.08 No. (current year) (pervious year)

CAPTIAL AND LIABILITES Capital Resaves and surplus Minorities Interest Deposits Borrowings Other Liabilities and Provision TOTAL ASSETS

1 2 2A 3 4 5

634,88,02 71755,51,31

8 9 10 11

372231,44,86 750362,38,45 5223,47,75 51746,73,45 3048Z5,74,07 860686,08,21 49938,35,27

631,47,04 60604,91,23

2228,27,31 2028,12,09 1011988,32,63 776416,51,88 64591,64,43 66023,17,07 153627ffl,37 121565,32,52 1304825,74,07 1027269,51,83 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 51100,62,90 14211,16,16 call and short notice Investments Advances Fixed Assets Other Assets TOTAL Contingent liabilities Bills for Collection

12

273841,72,43 603221,94,04 4662,78,97 56514,64,69 1027269,51,83 945770,20,75 25225,90,75

Schedules to be annexed with balance sheet (000’s omitted) PARTICULARS

As on 31.3.09

As on 31.3.08

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Project report of accounting in banks and balance sheet

Schedule 1 Capital

(Current Year) RS.

Authorized capital (100,00,00,000 shares of Rs. 10 each) Issued capital (63,49,68,500 (Previous Year 63,15,58,654) Equity Shares of Rs. 10 each) Subscribed and Paid up capital

(Pervious Year) Rs.

10,00,00,000

Total

10,00,00,000

634,96,85

631,55,87

634,88,02

631,47,04

634,88,02

631,47,04

Schedule 2 Reserves and Surplus I

Statutory Reserves Opening balance Additions during the year Deductions during the year

Rs. 25218,10,9 1 5508,57,95

Rs.

Rs. 20379,03,6 8 4839,07,23

30726,68,86 II

Capital Reserves Opening balance Additions during the year Deductions during the year

422,58,37 844,72,32

25218,10,91 418,14,39 4,43,98

1267,30,69 III Share premium Opening balance Additions during the year Deductions during the year

20098,96,7 5 560,16,95

422,58,37 3510,57.33 16617,09,6 7 28,70,25

1,21,18 20657,92,52

IV

Investment Reserves Opening balance Additions during the year Deductions during the year

20098,96,75

62,17,87 62,17,87 62,17,87 ----

V Revenue and the other reserves Opening balance Additions during the year Deductions during the year

2419,83,14 674,47,13 8,56,94

62,17,87 6195,56,07 300,00,00 4075,72,93

3085,71,33 VI Foreign currency Transaction Reserves Opening balance Additions during the year Deductions during the year

Rs.

179,18,14 674,47,13 8,58,94

2419,8314 6195,56,07 300,00,00 4075,72,93

Page68

Project report of accounting in banks and balance sheet 3085,71,33 33,93

2419,83,14 33,93

57312,81,62

48401,19,11

107,61,84,16 99991,73,42 198224,26,85

12313,40,67 85820,12,34 154229,28,65

13657,16,00 419438,12,37

7065,47,74 277975,64,69

Total ( I, II, and III)

742073,12,80

537403,94,09

B

710031,51,22 32041,61,58

514676,06,76 22727,87,33

742073,12,80

537403,94,09

---919,9460 2758,35,89

1300,00,00 7853,58,39 3648,95,17

II. Borrowings outside India

50035,37,72

38924,87,17

Total ( I and II ) Secured borrowings in I and II above

53713,68,21 2871,60,35

51727,41,13 4367,87,76

18929,87,60 5706,71,55 6981,15,56 79142,82,71

19159,90,43

110697,57,42

83362,29,84

VII

Balance in Profit and Loss Account

Total ( I + II + III + IV + V+ VI + VII ) Schedule 3 Deposits A I. Demand Deposits From banks From others II. Savings banks accounts III. Term Deposits From banks From others

i) Deposits of branches in India ii) Deposits of branches outside India

Total ( i and ii ) Schedule 4 Borrowings I. Borrowings in India i) Reserve Bank of India ii) Other Banks iii) Other institutions and agencies

Schedule 5 Other liabilities and provisions i) Bills payable ii) Inter office adjustment (net) iii) Interest accrued iv) Others ( including provisions) Total

5092,21,85 59110,17,56

Schedule 6 Cash and balance with RBI

Page69

Project report of accounting in banks and balance sheet I. Cash in hand (including foreign currency notes and gold) II. Balance with RBI In Current Account In Other Accounts

4295,51,58

3220,31,11

51248,14,36 2,51,33

20900,60,36 27413,70,11

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 b) in Other Accounts ii) Money at call and Short notice a) With banks b) With other institutions

926,20,81 10688,99,53

1105,19,38 2608,31,90

13207,17,33 …

6559,00,00 …

Total ( I and ii )

24822,37,67

10472,51,28

II. Outside India i) In Current Accounts ii) In other Deposits Accounts iii) Money at Call and Sort notice

13656,54,41 1326,93,90 9051,76,61

1252,31,93 749,15,34 3457,73,37

Total ( I, ii, and iii)

24035,24,92

5459,20,64

Grand Total ( I and II)

48857,62,59

15931,71,92

226217,47,04 1892,68,08 4590,41,76 14888,97,79 3617,01,17

140734,03,68 2738,25,17 4502,53,72 17628,77,57 3766,46,03

18264,51,76

14960,04,07

269471,07,60

184330,10,24

742,59,28

394,23,41

1255,45,95

613,80,25

Schedule 8 Investment I. Investments in India in i) Government Securities ii) Other approved Securities iii) Shares iv) Debentures and Bonds v) Subsidiaries and /or joint ventures vi) Others (Units/Commercial Papers, etc.) Total II. Investments outside India in i) Government Securities ( including local authorities ) ii) Subsidiaries and/or joint ventures abroad

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Project report of accounting in banks and balance sheet iii) Other investment (shares, debenture, etc.)

4484,82,86

4163,13,19

Total

6482,88,09

5171,16,85

275953,95,69

189501,27,09

A i) Bills Discounted and Purchased ii) Cash Credits, Overdraft, and Loans payable on Demand iii) Term loans

47183,96,60 223679,92,68

36733,49,02 151999,99,96

271639,31,14

228034,70,64

Total

542503,20,42

416768,19,62

B i) Secured by tangible Assets ii) Covered by bank/Govt. guarantees iii) Unsecured

350026,92,43 78601,23,99

284231,06,15 20244,75,74

112875,04,00

112292,37,37

Total

542503,20,42

416768,19,62

C I Advances in India i) Priority Sector ii) Public Sector iii) Banks iv) Others

143637,56,31 36241,55.02 334,21,71 276502,90,85

119230,51,18 23025,00,32 77,66,24 218295,16,99

Total

456716,23,92

360628,34,73

4411,79,75

2135,16,19

29308,58,76 27094,47,16 24972,10,83

15543,40,45 19856,62,20 18604,66,05

85786,96,50

56139,84,89

542503,20,42

416768,19,62

Grand Total ( I and II) Schedule 9 Advances

C II Advances out side India i) Due from banks ii) Due from others: a) Bills purchased discounted b) Syndicate Loans c) Others Total Grand Total ( CI. and C II) Schedule 10 Fixed Assets I Premises a) At cost as on 31st March of the preceding year Additions during the year

1488,44,58

1448,62,77

104,07,47

40,20,10

Page71

Project report of accounting in banks and balance sheet Deduction during the year Depreciation to date

1,48,03 637,90,51

b) Premises including other fixed Assets under construction 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

38,29 557,30,25 953,13,51

931,14,33

263,43,74

234,25,82

6561,73,29

5493,19,27

1345,72,26 20,92,03 5271,32,20

1145,34,90 76,80,88 4397,99,28 2615,21,32

2163,74,01

III. Leased Assets At cost as on 31st March Of the preceding year Additions during the year Deduction during the year Depreciation to date Less: Lease Adjustment and Provisions

938,16,91

1120,10,41

12,68,65 921,77,85 3,70,41

181,93,50 888,54,10 49,62,81

(2,35,74)

5,28,88 6,06,15

Total ( I, II and III )

3827,84,72

44,33,93

3373,48,09

Schedule 11 Other Assets I. Inter office adjustment (net) II. Interest accrued III. Tax paid in advance / Tax deducted at source

6729,50,51 3642,81,18

11340,53,28 6298,14,48 2477,86,74

IV. Deferred Tax Assets (net) V. Stationary and stamps. VI. Non-banking assets acquired in satisfaction of claims VII. Others

1026,88,68 95,65,85 35,18

42,04,56 95,60,12 34,91

26238,05,98

24162,48,42

Total

37733,27,38

44417, 02,91

2191,81,62

799,73,02

Schedule 12 Contingent liabilities I. Capital against the bank not acknowledged as debts

Page72

Project report of accounting in banks and balance sheet II. Liability for partly paid investment III. Liability on Account of outstanding forward Exchange contracts IV. Guarantees given on behalf of constituents In India Outside India V. Accepts endorsements and other obligation VI. Other items for which the bank is contingently Liable Total

2,80,00

2,80,00

289429,24,01

310457,51,74

4644,40,41 2417,29,03 109093,49,09

35159,13,45 14503,88,10 74706,09,41

250020,71,54

375167,32,35

7233699,75,70

810796,48,07

Form B Third Schedule PROFIT AND LOSS ACCOUNT OF STATE BANK OF INDIA FOR YEAR ENDED ON 31ST MARCH 2009 Page73

Project report of accounting in banks and balance sheet

(000’s omitted) Particulars

Schedule Number

As on 31.3.09 (current year)

As on 31.3.08 (pervious year)

I. Income: Interest Earned Other income TOTAL

13 14

63788,43,38 12690,78,90 76479,22,28

48950,30,71 8694,92,84 57645,23,55

II. Expenditure: Interest Expended Operating Expenses Provisions and Contingencies TOTAL

15 16 …

42915,29,37 15648,70,44 8793,99,82 567357,99,63

31929,07,69 12608,60,60 6378,42,79 50916,11,08

9121,22,65 33,93 … 9121,56,58

6729,12,47 33,93 9,37 6792,55,77

5291,79,28 … 826,55,32 306,89,30

4839,07,23 62,17,87 4,43,98 300,00,00

1841,15,26 248,03,47 606,80,02

1357,66,13 165,86,63

33,93

33,93

9121,56,58

6792,55,77

III. Profit/Loss: Net Profit/(Loss) of the year Profit brought forward Transfer form general reserve TOTAL IV. Appropriations: Transfer to Statutory Reserves Transfer to investment reserves Transfer to Capital reserves Transfer to Revenue reserve and Other reserves Transfer to Proposed Dividend Tax on Dividend Loss from State Bank of Saurashtra Balance Carried over to Balance Sheet TOTAL

Schedules to be annexed with Profit and Loss Account (000’s omitted) Particulars

As on As on 31.3.08 31.3.09 (pervious (current year) year)

Schedule 13: Interest Earned Page74

Project report of accounting in banks and balance sheet

(I) Interest/ Discounts on Advances/Bills (II) Income on Investments (III) Interest on balances with RBI and other inter bank funds (IV) Others Total

46404,71,49 15574,71,51 1474,37,74

35228,11,19 11944,16,36 1200,07,40

335,22,64 63788,43,38

577,95,76 48950,30,71

7617,23,54 2567,29,02 (56,50) (2,95,42)

5914,25,45 16498391 (703,50,07) 11,04,09

1179,24,92 409,60,28

692,69,81 197,40,55

26,67,00 894,78,06 12690,78,90

31,86,36 901,32,74 8694,92,84

Schedule 14: Other Incomes (I) Commission, Exchange and Brokerage (II) Profit on Sale of investment (net) (III) Profit on revaluation of Investment (net) (IV) Profit on Sale of Land/Building and Other Assets (net) (V) Profit on Exchange transactions (net) (VI) Income earned by way of dividend, etc., from subsidiaries Companies and/or joint ventures abroad/in India. (VII) Income from financial lease (VIII) Misc. Income Total Note: Under items II to V loss figures be shown in brackets Schedule 15 : Interest Expended (I) Interest on Deposits (II) Interest on RBI/Inter-Bank Deposits (III) Others Total Schedule 16: Operating Expenses (I) Payment to and Provisions for Employees (II) Rent, Taxes and Lighting (III) Printing and Stationary (IV) Advertisement and Publicity (V) Depreciation on Banks Property (other than leased assets) Depreciation on leased assets (VI) Directors’ Fees, Allowances and Expenses (VII) Auditors’ Fee and Expenses (Including Branch Auditors) (VIII) Law Charges

37936,84,73 27072,58,10 2555,01,04 3938,43,98 2423,43,60 1918,05,63 42915,29,37 319292,07,69 9747,31,23 1295,13,73 232,82,08 251,22,95 739,12,43

7785,86,94 993,41,81 188,87,76 173,23,16 651,04,24

24,01,69 99,81 103,69,68

28,93,67 1,23,20 97,34,58

74,61,19

60,45,14

Page75

Project report of accounting in banks and balance sheet

(IX) Postage, Telegrams, Telephones, etc. (X) Repairs and Maintenance (XI) Insurance (XII) Other Expenditure Total

279,73,25 160,58,83 529,01,89 2210,41,68 15648,70,44

216,57,72 235,82,73 415,84,36 1759,95,29 12608,60,60

11. ADDITIONAL DISCLOSURE PRESCRIBED BY RBI 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: List of Disclosure Items Page76

Project report of accounting in banks and balance sheet

• Capital adequacy ratio • Capital adequacy ratio-tier T capital • Capital adequacy ratio-tier II capital • Percentage of shareholding of the Government of India in nationalized banks • Amount of subordinated debt raised as tier II capital • Gross value of investments, etc. • Provisions made towards depreciation in the value of investments • Movement of provisions held towards depreciation on investments • Repo transactions • Non-SLR investment portfolio • Forward rate agreement/interest rate swap • Exchange traded interest rate derivatives • Disclosures on risk exposure m derivatives • Percentage of net NPAs to net advances • Movement in NPAs • Amount of provisions made towards NPAs • Movement of provisions made towards NPAs • Details of Loan assets subjected to restructuring • Restructuring under CDR • Details of financial assets sold to a SC/RC for asset reconstruction • Provision on standard assets • Interest income as a percentage to working funds • Non-interest Income as a percentage to working funds • Operating profit as a percentage to working funds • Return on assets • Business (deposits plus advances) per employee Profit per employee • Maturity pattern of loans and advances • Maturity pattern of investment securities • Maturity pattern of deposits • Maturity pattern of borrowings - • Foreign currency assets and liabilities • Exposure to real estate sector • Exposure to capital market: investment in equity shares, etc. • Bank financing for margin trading • Exposure to country risk • Details of single borrower/group borrower limit exceeded by the bank • Provision made towards income tax during the year • Disclosure of penalties imposed by RBI • Consolidated financial statements —AS 21 • Segment reporting —AS 17 Page77

Project report of accounting in banks and balance sheet

• Related party disclosure — AS 18 • Other disclosures as required under the relevant accounting standards

Page78