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21987582 Final Accounts of Banking Companies

21987582 Final Accounts of Banking Companies

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Project report of accounting in banks and balance sheet 1.

INTRODUCTION A banking company means and includes any company which carries o n business or which transacts banking business in India. A banking business is g enerally governed by the provisions of the Companies Act 1956 and specifically b y 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 busine ss in India and protect the interest of number of depositors. The existence of w ell- organized, regulated and efficient banking system is pre-requisite for econ omic growth. Banks are agencies responsible for mobilizing and channeling of fun ds in a country. The major institutions carrying business, in India, include: (a ) Nationalized banks (b) State bank of India and Associates banks (c) Foreign ba nks having branches in India (d) Co-operative banks (e) Rural banks and (f) Priv ate sector banks. Page1

Project report of accounting in banks and balance sheet 2. DEFINITION AND FUNCTIONS OF A BANK Banking has been defined by section 5 of t he 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 dema nd or otherwise by cheque, draft, and order or otherwise. It should be noted tha t company which is engaged in manufacturing goods and for the purpose of financi ng business accepts deposits from the public should not be deemed to transact bu siness of banking. In addition to banking business, a bank is permitted under Se ction 6 of the Banking Regulation Act to engage in certain class of business whi ch 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 conn ection with realization of a security held by it or in connection with the busin ess 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 i n 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. Page2

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 pu rpose 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 Regulati on 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 Sec ond 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 c onditions. The Reserve Banks gives certain facilities to schedule banks includin g 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) Pu rchase, sale and re-discounting of foreign bills of exchange; (d) Making of loan s and advances to scheduled banks; (e) Maintenance of accounts of the scheduled bank in its banking department and issue department; (f) Remittance of money bet ween different branches of scheduled banks through the offices, branches or agen cies 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, c ollecting and dealing in bills of exchange, hundies, promissory notes, etc.; (ii ) acting as agents for any government or local authority or any other person; (i ii) directing for public and private loans and negotiating and issuing the same; (iv) effecting, insuring, guaranteeing, under-writing, participating in managin g 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 banki ng company in satisfaction of its claim; Page3

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 a nd advances; (viii) underwriting and executing trusts; (ix) establishing and sup porting or aiding in the establishment and support of institutions, funds, trust s etc. (x) acquisition, construction, maintenance and alteration of any building and works necessary for the purpose of the banking company; (xi) selling, impro ving, managing, developing, exchanging, leasing, mortgaging, depositing of or tu rning 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 in cidental or conductive to the promotion or advancement of the business of the ba nking 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 (SE CTION 8) A banking company cannot directly or indirectly deal in the buying or s elling 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 underta ke the administration of estates as executors, trustees or otherwise. DISPOSAL O F NON-BANKING ASSETS (SECTION 9) A banking company can only acquire immovable pr operty for its own use. Other immovable properties acquired must be disposed off within seven years from the date of acquisition. However, in any particular cas e, the Reserve Bank of India may extend such period of seven years if it is sati sfied, that such extension would be in the interest of the depositors of the ban king 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 m ore 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 in dustry. It is also required that not less than two directors should have special knowledge or practical experience in respect of agriculture and rural economy a nd 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. T he 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. Page5

Project report of accounting in banks and balance sheet 3. REQUIRMENTS ACCOUNTS • Bank Accounting OF BANKING COMPANIES AS TO The book-keeping system of a banking company is substantially different from tha t of a trading or manufacturing enterprise. A bank maintains a large number of a ccounts of various types for its customers. As a safeguard against any payment b eing made in the account of a customer in excess of the amount standing to his c redit or a cheque of a customer being dishonoured due to a mistake in the balanc e in his account, it is necessary that customers’ accounts should be kept up-to-da te 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 incl uding the general ledger and subsidiary ledgers for debtors, creditors etc. are written afterwards. A bank cannot afford to ignore its ledgers particularly thos e concerning the accounts of its customers and has to enter into the ledgers eve ry transactions as soon as it takes place. In bank accounting, relatively less e mphasis is placed on day books. These are merely treated as a means to an end-th e 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 ledger s. 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 stoc k 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 thi rd schedule to the Banking Regulation Act provides formats for that purpose. For mats of bank final accounts are also covered The tendency of modern accounting i s to adapt the books to a business, rather than the business to the books, and t his practice is particularly noticeable in bank bookkeeping. Systems and devices may differ among banks, and even between branches of the same bank, but the bas ic principles are the same. Once a clear understanding of bank bookkeeping in ge neral 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 p rinciples of bank accounting, it is necessary to bear in mind that practically e verything handled by a bank, in the ordinary course of its business, is either m oney 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 tr ansaction 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 oldfashioned journal, but it is preferable to make the cash book the only posting m edium of the general ledger. It would be quite possible for a newly-opened branc h 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 suppl ementary cash book, with only the totals entered in the general cash book. Simil arly, it would be found necessary in time to open up a discount register and a l iability ledger to look after the increased number of loans. As the volume of bu siness increases, the deposit ledger is capable of being indefinitely subdivided , either alphabetically or numerically. Generally, the ordinary deposit ledger i s 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 T he 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 pract ical 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 i s so clear, that it is the original entry that counts and not the assembly of en tries in the ledger, that it is now generally conceded that the loose-leaf ledge r 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 evid ence might be considered even more competent. The following rules are generally observed: Page7


Project report of accounting in banks and balance sheet 1. The keys of all loose-leaf ledgers and transfer binders are kept in the custo dy 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 fil ed in the transfer binder. 2. After removing the sheets, the officer who has cus tody of the key must place a paper seal bearing his signature in the sealing dev ice on the front of the ledger, and, when opening the book again, must satisfy h imself that his last seal has not been tampered with. 3. A separate sheet must b e used for each account, and each sheet must be signed in the upper right-hand c orner 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 s heets 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 ledge r. Bound books have not prevented manipulation and fraud, and the above precauti ons combined with the comprehensive checking system of a bank should practically eliminate the danger of fraudulent substitution of pages. If a man is determine d to be dishonest there are easier and less evident methods of defrauding than b y switching ledger leaves. Preparation of Financial Statements and Accounting Da te (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 accoun t 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 submi t 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 shou ld be presented and this format is given in the third schedule annexed to the Ba nking Regulation Act. RBI has issued guidelines to follow the new form A (profor ma 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 ag ainst 31st December earlier. In practice, banks also close books on 30th Septemb er 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, requ ired to obtain the prior approval of Reserve Bank of India. Submission of Accoun ts (Sec 31 and 32) Three copies of the balances sheet and profit and loss accoun t prepared under Section 29 together with auditors’ report under Section 30 must b e 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 (Compan ies) Rules, 1949 prescribed that accounts and auditors’ report shall be published in newspaper circulating in a place where a banking company has its principal of fice, 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 sy stem of accounting. Thus, the system of recording classifying and summarizing th e 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 n eed for the ledger accounts, especially those of customers, being accurate and u p to date is much stronger than most of other types of enterprises. A bank canno t 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 tak es 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 ledge rs, including the general ledger and subsidiary books ledgers for debtors, credi tors are written up afterwards. Banks follow the accounting procedure of ‘voucher posting’ under which the vouchers are straightway posted to the individual account s in the subsidiary ledgers. (Only in case of Personal Ledger) At the end of eac h day, the debit and credit vouchers relating to a particular type of transactio ns (e.g. savings bank accounts, current accounts, demand loans cash credit accou nt etc.) are entered on separate vouchers summery sheets and the total thereof i s posted to the respective control account in the general ledger. The general le dger 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 calle d ‘transfer transactions’, one or both of account concerned may be of customers or i nternal accounts of bank. For example, if ‘A’ deposits a cheque drawn in his favor b y ‘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 Accou nt, an internal account of bank, will be debited’. Likewise, on payment of interes t on deposit accounts, the ‘Interest Account’ at the branch will be debited and vari ous personal accounts will be credited. Vouchers Page10

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 b oth debit and credit in different accounts. For the sake of convenience, the lat ter 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 issue d 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 cu stomers, 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 aut hority from the customers in some cases to debit his account at the branch. 12.I n 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 bra nch by means of telegraphic transferor mail transfer, the bank may treat the adv ice 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-sli p 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 bra nch 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 si gned on behalf of the branch only but there may be some instance where the custo mer concerned also signs on the voucher as evidence that the transaction actuall y 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 requ ires 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 led gers (e.g. debit on account of periodic interest, inspection charges, etc. or cr edit 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 th e banks to prepare a consolidated voucher on their stationary and enclosed there to a list containing details of accounts debited/credited and the amount of debi t/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 vo uchers 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 b ranch, guarantee issued by the branch, etc. Such vouchers may also be prepared t o 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 corr esponding credit to current account. All entries in personal ledgers and the sum mary sheets are checked by persons other than those who have made entries. Most clerical errors are thus detected immediately. A trial balance of personal ledge rs is prepared periodically, usually every two weeks and agreed with general led ger control accounts. In banking parlance, this exercise is referred to as ‘balanc ing of books’. Banker’s Books According to Section 2 (3) of the Banker’s Books Evidenc e 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 a re 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 a nd paying cashier’s cash respectively. After this on the basis of payin slips rece ived by receiving cashier and cheques and withdrawal slips received by paying ca shier, these transactions are entered first in the accounts of customers and aft er 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 t he 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. Securi ties Register 3. Draft Register 4. Bills for collection Register 5. Dishonored c heques Register 6. Safe deposit vault Register 7. Letter of credit Register Tell er s Records The teller s cash book or blotter consists of a skeleton ruling wit h no printed headings, these being written in daily by the teller according to h is 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 gener al system of the office. Cheque should be sorted out and entered according to th e divisions of the ledger, thus balancing with the various supplementaries. If t he 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 bo oks of the various departments should balance with the combined entries of the t ellers. 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, a nd the parcel inquired for if necessary. Money parcels dispatched are also enter ed in a book. Great care is necessary in handling money parcels. Both sent and r eceived parcels should be counted by two men in each other s presence and, in th e case of the former, it is necessary to have the parcel in the uninterrupted cu stody 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 sh ould be carefully watched and any delay immediately inquired into. Supplementary Cash Book In this book are entered all the deposit slips, checks, and other vou chers 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 c olumn being used for deposits and the remaining three for checks, the latter bei ng 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 foo t of the ordinary checks and deposits respectively, though in some small branche s they are entered in the general cash book. In offices where it is found necess ary to split up the deposit ledger into two or more alphabetical divisions, a sp ecial "supplementary" is devoted to each division including the savings bank led ger. It is not necessary to open up an account in the general ledger for each di vision 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 g reat advantage to split it up into several sections or blocks of accounts, as th is 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 acc ounts. 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 check s - 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 boo k. In the larger offices of some of the banks, where the volume of checks is unu sually 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 f orm is adopted, care should be taken to see that the sheets are consecutively nu mbered 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 genera lly maintained by banks are described in the following. It may, however, be emph asized 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 gener al Ledger contains the control accounts of all personal ledgers, the profit and loss account and different asset and liabilities accounts. There are certain add itional 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 ea rns service charges, (or commission) e.g. Letters of credit opened, bills receiv ed or sent for collection, guarantees given, etc. Types of General Ledger: Page1 6


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 i n the methods of some other bank, which would be worth its while to adopt. The g eneral 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 co lumns being used to bring down the totals from day to day, instead of directly u nder 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 o ften 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 prope rly 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 recor d 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 detail ed 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 d ealing with another stationer. Three Column Ledger Another form of ledger has th e 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 usin g this form. Boston Ledger A ledger on the style of the Boston ledger, a thoroug h explanation of which will follow later, is used in many banks and found satisf actory. 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 colum ns as noted in the figure. It is preferable to arrange the asset accounts in pro per 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 pro ved, a complete daily statement will be made on the ledger it-self. The objectio n to this style of general ledger is that an analysis of any account is a very t rying 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 par t of the ledger is a two column Boston. The back part of the ledger is ruled lik e 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 balance s 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 analyt ical 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 cov er furnishes, with a very small amount of extra work, as comprehensive a volume as one could wish. Date Memorand a Balance Ledger Assets Monday, July 12, 2009 Memo. Dr. Memo. Cr . Balance Tuesday, July 13, 2009 Memo. Dr. Memo. Cr . Balance Debit Credi t Balance Boston Ledger A very simple point overlooked by most general ledger keepers using a Boston led ger may prove valuable. When closing the books at the end of a fiscal period, en ter a trial balance of the ledger in the statement book before any closing entri es are made, and another after closing the earning and expense accounts into pro fit and loss. If a statement of earnings and charges is desired, covering a peri od 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 ch argeable to profit and loss on the first day of the period from the balances sho wn 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 Page18

Project report of accounting in banks and balance sheet each side of the resulting statement for charges and credits made directly to pr ofit and loss account. Profit and Loss Ledger Some banks maintain a profit and l oss account in the general ledger and maintain separate books for each revenue a nd expense heads/sub-heads. Some banks maintain columnar books having separate c olumns for each revenue and expense heads/sub-heads. These books are prepared fr om vouchers. The total of debits and credits of each day are posted on profit an d loss account in general ledger from voucher summery sheets. In some banks, the revenue accounts too maintained in general ledger itself, while in others, boar d revenue heads are kept in general ledger and their details are kept in subsidi ary 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, a nd various others allowances, which are grouped together in published accounts. Similarly various accounts comparing general charges, interest paid, and interes t 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 s ubsidiary ledger (or more than one subsidiary ledger if the number of accounts i s large). Thus in respect to control accounts relating to accounts relating to a ccounts of customers, subsidiary ledgers are maintained for: a) Various types of deposits accounts (saving bank accounts, recurring account, current accounts, e tc) which contains accounts of individuals customers. Each account holder is all otted a separate folio in the ledger: b) various types of loans and advances rel ated accounts (cash credit, term loans, demand loans, bills purchased and discou nted, 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 th ese 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 (in cluding derivatives like call deposits, certificate of deposits, etc.) Banks gen erally 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 rat e of interest payable on deposits. As mentioned earlier, postings to these ledge rs 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 ge nerally unconnected with writing of ledgers/registers or the voucher summery she ets. Current Deposit Ledger The ordinary or current deposit ledger is a very act ive and important book in a bank, and one which calls for both accuracy and disp atch 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 an d ruled as shown in Figure 22. This form is invariably used by all the banks. Th e so-called Boston ledger has been tried several times, but was not found practi cable 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 dividi ng 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 led ger 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 gener al regulations regarding loose-leaf ledgers given in Section 3 of this chapter s hould 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. Balance Page20

Project report of accounting in banks and balance sheet Current Deposit Ledger Bills Registers Details of different types of bills are kept in separate registe rs which have suitable columns. For example, bill purchased inward bills for col lection; outward bills for collection, etc. are entered serially on a daily basi s 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 sanction ed limits of parties are not exceeded. Entries in registers are made by referenc e to the original documents. A voucher of the total amount of the transactions o f each day is prepared in respect of each register. This voucher is entered in t he day book. When the bill is realized or returned its original entry in registe r is marked off. A daily summery of such realization or returns is prepared in s eparate registers whose totals are taken to vouchers which are posted in day boo k. 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 r ealization. Outstanding entries are summarized at stipulated intervals and their totals agreed with the balance of the respective control accounts in general le dger. DEPARTMENTAL JOURNALS Each department of the Bank maintains a journal to n ote 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 Summ ary Sheets. Their purpose is to maintain a record of all the transfer entries or iginated by each department. For example, the Loans and Overdraft Section will p ass transfer entries for interest charged on various accounts every month, and a s 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 ent ry has been passed. Since all vouchers passed during the day are entered into th e Day Book only in a summary form, it may not be possible to get this informatio n from the Day Book without looking into the individual vouchers. Moreover, as t he number of departments in a banks is quite large, the Day Book may not be acce ssible 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 transact ion 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 afford ing credit to the other department. For example, if any amount is to be transfer red from Current Account of a customer to his Saving Bank Account, the voucher w ill 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 deta il 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 vario us accounts some of the important Registers/Records relate to the following: Dra t 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 s eparated registers on some other basis also like weather the draft issued advise d is prepared or not, registers exclusively for some high volume customers of th e 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) 1. 2. Issue and payment of: Telephonic transfers Ma il transfers cheques/Pay orders/traveler’s cheques/Gift 3. Bankers cheques 4. 5. Letters of credit. Letters of guarantee Page22

Project report of accounting in banks and balance sheet Entries in these registers are made from original documents which are also summa rized 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 among st the branch of bank which are settled through the mechanism of inter-office ac counts. The examples of such transaction include payment/realization of bills/ch eques, etc. sent for the collection by one branch to other e.g. for government r elated business. All such transfers of funds are canalized through nodal account (this has different names in different banks such as Head-office account, Inter office account, and so on.). This is a circular account for the banks as well as the auditors for two reasons: first many funds have been prepared on banks thro ugh this account and second, banks are now required to make provision for entrie s routed through this account which remain unreconciled beyond a time period spe cified by Reserve Bank of India. Banks maintain a Suspense Ledger to record vari ous 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 differe nce 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 suspens e account pending their adjustment related income/expenses account. Some banks m aintains separate ledger for suspense account and sundry deposit accounts. The a mounts lying in theses accounts need regular monitoring to clear them. Suitable registers with back-up registers to record classification under numerous sub-hea ds are maintained for: a) b) c) d) e) Establishment expenses Interest and discou nt income Incomes by way of commission Interest expenditure Provision for intere st accrued but not due on deposits Page23

Project report of accounting in banks and balance sheet f) g) h) Fixed Assets 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 th at the branches, nationally, have no funds of their own. All deposits accepted a t branch are deemed to have been passed on bank’s head office and all loans made a t 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 a nd paid by head office are decided by the head office during the course of the y ear and are an important factor in calculating profit and loss of branch. The me chanism may be known by different names in different banks. All calculation in t his regard is done at the branches only and suitable entries are passed, general ly 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. I nstruments received from customers for payment/collection by branch. Clearing of locally payable instruments is an important function of banks. Some banks maint ains separate registers to maintain details of various types of instruments lodg ed by customers where as some other banks use a common book to record all kind o f 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 Pa yment Register, Locker Access Register, Demat Register, Drawing Power Register u sed 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 maint ain 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) Pa ying Cashiers’ cash book (c) Main cash book (d) Cash Balance book The main Cash Bo ok is maintained by persons other than the cashiers. Each cashier keeps a separa te cash book. When cash is received, it is accompanied by pay-in-slip or other s imilar document. The cashier makes the entry in this book This book contains a r ecord 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 consta ntly 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 car ried 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 suff iciently self-explanatory to be understood by any one at any time - ten years af ter, if necessary. In the larger offices, the officers in charge of the differen t 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 advis able to have the clerks entering up the various supplementary books, give a simi lar memorandum of their totals. This limits the responsibility and adds to the e fficiency of the staff. Debit and credit entries for cash book, other than the t otals referred to above, are represented by vouchers giving the necessary partic ulars, signed by the manager, accountant or other authorized officer, and it sho uld be an imperative rule that any slip, which does not contain sufficient parti culars or which lacks the necessary signature, should be refused by the cash-boo k clerk and referred back to the teller for completion. In order to facilitate t he 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, ye llow, 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 ser ious trouble. Verbal explanation, even if available, would not be admitted. Exam ine a bank cash book of twenty or thirty years ago: there could be no better obj ect lesson of what a cash book should be. Copper-plate writing and ample particu lars are characteristic. Quick Payment System - Banks introduce different system s so that their customers may receive payment of cash etc. quickly. The most pre valent 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, pass es it for payment, enters it in the ledger card and makes the payment to custome r. The teller also receives cash deposited in these accounts. Outward Clearing: (a) A Clearing Cheques Received Book for entering cheques received from customer s for clearing. (b) Bank wise list of the above cheques, one copy of which is se nt 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 vo uchers are then sent to appropriate departments, where customers’ accounts are imm ediately 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 cus tomers. Inward Clearing Cheques received are checked with the accompanying lists . They are then distributed to different departments and the number of cheques g iven to each department is noted in a Memo Book. When the cheques are passed Pag e26

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 Ho use. The cheques themselves serve as vouchers. Book which is checked by the chie f cashier. The pay-in-slip then goes to the Main Cash Book writer who makes an e ntry 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 s ent 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 c heque, 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, et c. are themselves used as vouchers. Loans & Overdraft Departments (a) Registers for shares and other securities held on behalf of each customer. (b) Summary Boo ks of Securities giving details of Government securities, shares of individual c ompanies etc. (c) Godown registers maintained by the godown-keeper of the bank. (d) Price register giving the wholesale price of the commodities pledged with th e bank. (e) Overdraft Sanction registers. (f) Drawing Power book. (g) Delivery O rder books. (h) Storage books. Deposits Department (a) Account Opening & Closing registers. (b) For Fixed Deposits, Rate registers giving analysis of deposits a ccording to rates. (c) Due Date Diary. (d) Specimen signature book. Establishmen t 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 reco rds register. Page27

Project report of accounting in banks and balance sheet General (a) Signature book of bank’s officers. (b) Private Telegraphic Code and Cy phers. STATISTICAL BOOKS Statistical records kept by different banks are in accordance with their individual needs. For example, there may be books for recording (i) A verage 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) N umber of cheques, bills and other items collected. The above is not an exhaustiv e list of accounting records kept by a bank. 6. PREPRATION AND PRESANTATION STAT EMENTS 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 accou nt. These formats have been revised w.e.f. 1st April 1991 and the profit and los s account and balance sheet of banking company for the year ended 31st March 199 2 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 eff ort 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 n eed for revising formats in which banks publish their financial statements as pr escribed under the Banking Regulation Act, 1949. A Committee under the Chairmans hip of Shri A. Ghosh, Deputy Governor, RBI, was constituted to examine, inter al ia the desirability of greater or full disclosure in the published accounts of b anks having regard to the need for disclosure, public accountability of banks, r equirement and maintenance of confidentiality between banker and customer and th e requirement of maintaining the reputation and credit-worthiness of banks. The Committee after due deliberation has suggested suitable changes/amendments in th e 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-wis e and sector-wise over the period, Need for improving the presentation of accoun ts etc. The revised formats are given below which include Form A for Balance She et, 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 CA PTIAL AND LIABILITES Capital Resaves and surplus Minorities Interest Deposits Bo rrowings 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. 1 2 2A 3 4 5 As o n 31.3.__ (current year) As on 31.3.__ (pervious year) 6 7 8 9 10 11 12 The Following schedules are required to be furnished with The Balance Sheet of B anking Companies: Page30

Project report of accounting in banks and balance sheet PARTICULARS Schedule 1 Capital I. For nationalized banks Capital (fully owned ce ntral government) II. For banks incorporated outside India i) Capital ( the amou nt brought in by banks by way of start-up capital prescribed by RBI should be sh own 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 (… sha res of Rs. … each) Call-up capital (… shares of Rs. … each) Less: Calls unpaid Add: Fo rfeited shares Total Schedule 2 Reserves and Surplus I Statutory Reserves Openin g balance Additions during the year Deductions during the year RS. Rs. … … … … … … … … … … … … … … … … … … … Page31 … II Capital Reserves Opening balance Additions during the year Deductions during the year III Share premium Opening balance Additions during the year …

Project report of accounting in banks and balance sheet Deductions during the year IV Revenue and the other reserves Opening balance Add itions during the year Deductions during the year V Balance in Profit and Loss A ccount 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) Depos its 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. Borrowing s 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 p rovisions) 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 Ac counts 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 Acc ounts ii) Money at call and Short notice a) With banks b) With other institution s Total ( i and ii ) II. Outside India i) In Current Accounts ii) In other Depos its Accounts iii) Money at Call and Sort notice Total ( i, ii, and iii) Grand To tal ( I and II) Schedule 8 Investment I. Investments in India in i) Government S ecurities 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 auth orities ) … 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 Di scounted 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) Pub lic Sector iii) Banks iv) Others Total II Advances out side India i) Due from ba nks ii) Due from others: a) Bills purchased discounted b) Syndicate Loans c) Oth ers 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 ye ar Additions during the year Deduction during the year Depreciation to date II O ther fixed assets ( incl. furniture and fixtures) At cost as on 31st March of th e preceding year Additions during the year Deduction during the year Depreciatio n 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. w hen the loss exceeds the aggregate of capital, reserves and surplus), the same m ay be shown under appropriate footnote. Schedule 12 Contingent liabilities I. Ca pital against the bank not acknowledged as debts II. Liability for partly paid i nvestment III. Liability on Account of outstanding forward Exchange contracts IV . Guarantees given on behalf of constituents In India Outside India V. Accepts e ndorsements and other obligation VI. Other items for which the bank is contingen tly 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 go vernment) : The capital owned by the Central Government as on the date of the ba lance sheet including the contribution on from government, if any. For the parti cipating in the World Bank projects should be shown. b) Banking companies incorp orated outside India: i) The amount brought in by banks by way of start-up capit al as prescribed by RBI should shown under this head. ii) The amount deposit kep t 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 c ombined 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 c ontribution made by the government, fresh issue of capital capitalization of res erves etc. may be explained the notes. Schedule 2 : Reserves and surplus I. Stat utory reserves: Reserves created in terms of Section 17, or other Section of Ban king Regulation Act must be separately disclosed. II. Capital Reserves: The expr ession Capital Reserves shall not include any amount regarded as free for distri bution through the profit and loss account. Surplus on revaluation should be tre ated as a capital reserves. Surplus on translation of financial statements of fo reign branch (which includes fixed assets also) is not a revaluation reserve. II I. Share premium: Premium on issue of shares capital may be shown separately und er this head. Page36

Project report of accounting in banks and balance sheet IV. Revenue and other reserves: The expression ‘Reserve Revenue’ shall mean any rese rve other than capital reserve. This item will include all reserves other than t hose separately classified. The expression ‘reserve’ shall not include any amount wr itten –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 d eposits, and cash certificates, certificates of deposits, etc. are to be include d under this category. AII Savings Banks Accounts: Includes all savings banks de posits including inoperative savings bank accounts. AIII Term Deposits: i) From banks: Includes all type of bank deposits repayable after specified term ii) Fro m others: Includes all types of deposits of non banks sector repayable after spe cified term. Fixed deposit, cumulative and recurring deposits, cash certificates , certificates of deposits, foreign currency non resident deposits accounts, ann uity 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 ot hers liability. b) Matured time deposits and cash certificates, etc. should be t reated as demand deposits. c) Deposits under special scheme should be included u nder term deposits if they are not payable on demand. When such deposits are mat ured for payment they should be shown under demand deposits. d) Deposits from ba nks 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 t he borrowings/refinance obtained by Reserve Bank of India. Other banks: Includes the borrowings/refinance obtained by commercial banks (including cooperative ba nks) 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, agen cies (including liability against participation certificate, if any) II Borrowin gs out side India: It includes the borrowing of Indian branches abroad as well a s borrowing from foreign branches. Secured borrowings included above. This item will be separately shown Includes secured borrowings/refinance in India and outs ide 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 bal ance sheet. b) Inter –office transactions should not be shown as borrowings. c) Fu nds raised by foreign branches by way of certificates of deposits notes; bonds, etc. should be classified depending upon documentation, as ‘deposits, borrowings’ et c. d) Refinance obtained by banks from Reserve Bank of India and various institu tions are being brought under the head borrowing, hence advances will be shown a t the gross amount on the assets side. Schedule 5 : Other liabilities and provis ions I Bills payable: the bank provides the facility remitting funds from one pl ace to another by means of bank drafts, telegraphic transfer, circular notes, pa y orders etc. the person including to remit the money with the bank and get a pa y 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 th e person to whom he want to remit the money. The paying bank reimbursed by the b ank who issues such draft or institutions. The banks also issue travelers cheque s 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 Of fice (or Branch) Adjustment (Net): This item represents the difference on accoun t 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, et c.) 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, Page3 9

Project report of accounting in banks and balance sheet proposed dividend/transfer to Government, other liabilities which are not disclo sed under any of many heads such as unclaimed dividend provisions and funds kept for specific purpose, unexpired discount, out standing charges, like rent conve yance, etc. certain types of deposits like staff security deposits, margin depos its, etc. where the repayment is not free, should also be included under this he ad. Notes: General: a) For arriving at the net balance of inter-office adjustmen ts 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 th is head ‘Deposits’ and hence all surplus provisions for bad and doubtful debts conti ngency funds, secret reserves, etc. which are not netted off against the relativ e 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 forei gn currency notes); II Balance with RBI: a) in current account; b) in other acco unts. 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 Mo ney at Call and short notice I In India: i) Balance with banks a) In current acc ounts; 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. Thi s item mainly represents the loans given by one bank to another for a short peri od Call loans are repayable at any time the bankers recalls them while short not ice 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 balan ce held by Indian branches of the banks outside India. Balance held with the for eign branch by other branches of bank should not shown under this head but shoul d be included in inter-branch accounts. The amounts held in ‘Current Accounts’ and ‘De posits Accounts’ should be shown separately. iii) Money at Call and Short notice: Includes deposits usually classified in foreign countries as money at call and s hort notice. Schedule 8 : Investment I Investments in India: i) Government secur ities: Includes Central and State Government treasury bills. Theses securities s hould be shown at the book value. However, the difference the book value and mar ket value should be given in notes to balance sheet ii) Other approved Securitie s: Securities other than Government Securities which are according to Banking Re gulation Act, 1949 are treated as approved securities, should be including here. iii) Shares: Investments in shares of companies and corporations not included i n the b above should be included here. iv) Debentures and bonds: investment in d ebentures and bonds of companies and corporations not included in the b above sh ould be included here. v) Investment in Subsidiaries/Joint ventures: Investment in Subsidiaries/ joint ventures (including RRBs) should be included here. vi) Ot hers: Includes residual investment, if any, like gold, commercial papers, and ot her instruments in nature of shares/debentures/bonds. II Investments out side In dia: Page41

Project report of accounting in banks and balance sheet a) Government Securities (including local authorities): All foreign Government s ecurities issued by local authorities may be classified under this head. b) Subs idiaries and/or Joint ventures abroad: All investment made in share capital of s ubsidiaries floated outside India and/or joint ventures abroad can be classifies under this head. c) Others: All other investments outside India may be shown un der this head. Schedule 9 : Advances A i) Bills Discounted and Purchased: The ba nks 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 add ition to one or more persons are already liable on the bill. ii) Cash-credit, Ov erdrafts and Loans Repayable on Demand: Cash-credit: A cash credit is an arrange ment 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 h ypothecated or pledged with the bank. In case of a cash credit facility the borr ower need not borrow at once the whole of the amount he is likely to require, bu t draw such amounts as when required. He/she can put back any surplus amount whi ch 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 o f the credit allowed. Overdrafts: The customer may be allowed to overdraw his/he r current account with or without security if he/she requires temporary accommod ation. 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 cas e 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 (c redited with the loan) or not. A loan once repaid full or in part cannot be draw n 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 usual ly for a short period not exceeding a year. While term loans are given for a fix ed term usually exceeding a year. In classification under Section ‘A’ all outstandin g-in India as well as outside-less provisions made, will be made under three hea ds indicated above and both secured and unsecured advances will be included unde r 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 O utside 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 Indi a (Priority Sectors, Public Sector; Banks and Others) Advances should be broadly classified into ‘Advance in India’ and ‘Advances outside India’. Advance in India can b e further classified on sectoral basis as indicated. Advances to sectors, which for the time being are classified as priority sectors, according to the instruct ions 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 acc ording 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-oper ative banks will come under the head ‘Banks’. All the remaining advances will be inc luded 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 provis ions made to the satisfaction of auditors should be shown as advances. b) Term l oans will be loans not repayable on demand c) Consortium advances would be shown net of share from other participating banks/institutions. Schedule 10 : Fixed A ssets I Premises i) At cost as on 31st March of the preceding year;\ ii) Additio ns during the year; iii) Deductions during the year; iv) Depreciation to the dat e. Premises wholly or partly owned by the banking company for the propose of bus iness 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 o ff, 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 reval uation should show the revised figures for the period of five years with the dat e and amount of revision made. II Other Fixed Assets (including furniture and fi xtures) 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 th an premises but including furniture and fixtures should be shown under this head . Schedule 11 : Other Assets They include following: 1) Inter-office Adjustment (N et): The inter office adjustment balance, if in debit, should be shown under thi s head. Only net positions of Inter-office accounts, includes as well as a forei gn should be shown here. For arriving at the net balance of inter-office account s should be aggregated and the net balance, if in debit only should be shown rep resenting mostly items in transit and unadjusted items. 2) Interest Accrued: Int erest accrued but not on investments and advances, and interest due but not coll ected 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 a s 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 securi ties on securities, advance tax paid, etc. the extent that these items are not s et off against relative tax provisions should be shown under this head. 4) Stati onary 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 i nto account as these items for internal use. 5) Non banking assets acquired in s atisfaction of claims: Immovable properties/tangible assets acquired in satisfac tion of claims are to be shown under this head. Page45

Project report of accounting in banks and balance sheet 6) Others: This will include items like claims which have not been met, for inst ance, clearing items debit items representing additions to assets or reduction i n liabilities which have not been adjusted for technical reasons, want of partic ulars, etc., advances given to the staff by a bank as employer and not as a bank er, 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 intere st may also be included here. Schedule 12 : Contingent liabilities 1) Claims aga inst bank not acknowledge as debt 2) Liability of partly paid installments: Liab ilities on partly paid shares, debentures, etc. will be included in this head. 3 ) Liquidity on account of outstanding forward contracts: Outstanding forwards ex change contracts may be include here. 4) Guarantees given on behalf of constitue nts: a) In India b) Outside India; Guarantees given on behalf of constituents in India and Outside India may be shown separately. 5) Acceptance, Endorsement, Ot her 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 re sponsibility for payment. In order to keep a paper record of such liability, the bank maintains customer acceptances, endorsement and guarantee register. All ob ligations undertaken by the bank as a result of guarantees, endorsement, accepta nce, 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 un der this head. 6) Other Items For Bank is Contingent Liable: Arrears of cumulati ve dividends, bills rediscounted under underwriting contracts remaining to be ex ecuted 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 excha nge for collection purpose. So in order to keep a systematic record of such bill s, it maintains a book called ‘Bills for Collection Register’. On receipt of bill Pa ge46

Project report of accounting in banks and balance sheet

for collection, an entry is made in this register. On collection of exchange, be sides 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 commis ion charges) To Commission ………. Account At the end of accounting period the amount of bills yet to be collected is ascer tained 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 com pulsory deposits with a bank as per income tax, excise rules, etc. these deposit s 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 repo rt, 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 presen tation and may not appear in accounts. 3) Figures should be rounded off to the n earest thousand rupees. Thus, a sum of Rs. 19,75,940.78 will appear in balance s heet as Rs. 19.76. Page47

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 …. T otal …. IV. Appropriations: Transfer to Statutory Reserves ….. Transfer to other Res erves …. Transfer to Government Proposed Dividend …. Balance Carried over to Balance Sheet …. Total …. Schedules to be annexed with Profit and Loss Account Particulars Schedule 13: Interest Earned (I) Interest/ Discounts on Advances/Bills (II) Inco me on Investments (III) Interest on balances with RBI and other inter bank funds (IV) Others Total Schedule 14: Other Incomes (I) Commission, Exchange and Broke rage (II) Profit on Sale of investment Less: Loss on Sale of investment (III) Pr ofit on revaluation of Investment Less: Loss on revaluation of Investment (IV) P rofit on Sale of Land/Building and Other Assets Less: Loss on Sale of Land/Build ing and Other Assets Page49 … Rs. ... … … … …

Project report of accounting in banks and balance sheet (V) Profit on Exchange transactions Less: Loss on Exchange transactions (VI) Inc ome earned by way of dividend, etc., from subsidiaries Companies and/or joint ve ntures 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 Dep osits (II) Interest on RBI/Inter-Bank Deposits (III) Others Total Schedule 16: O perating Expenses (I) Payment to and Provisions for Employees (II) Rent, Taxes a nd Lighting (III) Printing and Stationary (IV) Advertisement and Publicity (V) D epreciation on Banks Property (VI) Directors’ Fees, Allowances and Expenses (VII) Auditors’ Fee and Expenses (Including Branch Auditors) (VIII) Law Charges (IX) Pos tage, Telegrams, Telephones, etc. (X) Repairs and Maintenance (XI) Insurance (XI I) Other Expenditure Total Note: Corresponding figures for the immediately prece ding financial year should be shown in separate columns COMMENTS ON FROFIT AND L OSS 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, e xports 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 al so interest subsidy, if any relating to such advances/bills. 2. Income on Invest ments: Includes all income derived from the investment portfolio by way of inter est and dividend 3. Interest on balances with Reserve Bank of India and other in terbank funds: Includes the interest on balances with Reserve Bank of India and other banks, call loans, money market placements, etc. 4. Others: Includes any o ther interest/discount income not included in the above heads. Schedule 14 B Oth er 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 busines s 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 revaluatio n 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 se curities, furniture land and buildings, motor vehicle, gold, silver, etc. Only t he net position should be shown. If the net position is a loss, the amount shoul d 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 ea rned by way of foreign exchange commission and charges on foreign exchange trans actions excluding interest which will be shown under interest. Only the net posi tion 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, compa nies, 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 un der this head exceeds one percentage of the total income, particulars may be giv en 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: Inc ludes discounts/interest on all borrowings and refinance from the Reserve Bank o f 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, gr atuity, leave fare concessions staff welfare medical allowances to staff, etc. R ent, taxes and Lighting: Includes rent paid by the banks on buildings and munici pal and other taxes paid excluding income tax and interest tax, electricity and other similar charges and levies. House allowance and all similar payments to st aff should appear under head ‘Payments and provisions for employees’. Printing and S tationary: Includes books and forms and stationary used by bank and other printi ng which are not incurred by way of publicity expenditure. Advertisement and Pub licity: Includes expenditure incurred by the bank for advertisement and publicit y purpose including printing charges of publicity matter. Depreciation on Banks Property: Includes depreciation on bank’s own property, motor cars and other vehic les, furniture, electric fittings, vaults, lifts, leasehold properties, non bank ing assets, etc. Director’s fees, allowances and expenses: Includes sitting fees a nd all other items of expenditure incurred on behalf of directors. It includes t he daily allowances, hotel charges, conveyance charges, etc. which though in the nature of reimbursement of expenses incurred may include under this head. Simil ar expenses of local committee members may also be included in this head. Audito rs’ fees and expenses: (including branch auditor’s fees and expenses) Includes the f ees 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 appoi nted 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 leg al expenses and reimbursement of expenses, incurred in connection with legal ser vices are to be included here. 9. Postage, telegrams, telephones, etc: Includes all postage charges like stamps, telegram, telephones, teleprinters, etc. 10. Re pairs and maintenance: Includes repairs to bank’s property, their maintenance char ges, etc. 11. Insurance: Includes insurance charges premium paid to DICGC, etc. to the extent they are not recovered from the concerned parties. 12. Other expen diture: All expenses other than those which are not included in any other heads like, licences fees, donation, subscription of papers, periodicals, entertainmen t expenses, travel expenses, etc. may be included in this head. In case any part icular 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 an d 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 provisio n 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 ded ucting 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 f rom their branches information regarding bad debts and doubtful debts also. The schedule of Advances to be filled by the branches contains separate column regar ding doubtful debts in respect of ‘bills purchased and discounted’, cash credits and overdrafts and unsecured loans. However while consolidating the Schedule of Adv ances at the head office level, for balance sheet purposes, the advances are sho wn net of any bad or doubtful debts. B. Provision for Taxation The amount of pro vision for taxation has to be charged to the Profit and Loss account under headi ng ‘Provisions and Contingencies’ in the Balance Sheet, it will be shown under the h eading ‘Other liabilities and Provisions’, on the liability side. C. Rebate on b Bil ls Discounted This refers to unexpired discount. A banking company charges disco unt in advance for the full period of the bill of exchange or promissory note di scounted 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 a mount of discount. The amount credited to discount account represents the earnin g of the bank. However it may be possible that the bills discounted may mature a fter the close of financial year, It will be not be appropriate to take to the c redit of the Profit and Loss account, that part of the discount charged, which r elates to next year. An accounting entry is, therefore, passed for unearned disc ount 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 disco unted, 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 ap pear as a liability in the balance sheet. 9. IMPORTANT ITEMS OF BALANCE SHEET Let us consider some of the peculiar items o f assets and liabilities appearing in the bank’s balance sheet. Balance sheet: Ass ets 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 t o fourteen days. Banks having surplus money advance such loans. Banks having sho rt supply of money, contacts the banks having surplus funds or vice versa for th is purpose. Alternatively, they may approach the primary dealers in the money ma rket for deploying their surplus funds or making good the deficit. The rate of i nterest 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 cred it 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 l end 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 d eposits receipts national savings certificates, quoted shares. 3. Bills Receivable being Bills for Collection as Per Contra Customers deposit i nto bank the draft and the bills for collection and credit to their accounts. Th e 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 accoun ting year, when some bills are left uncollected, following entry is passed: Bill s received being bills for collection a/c…………Dr. To bills for collection being bills rec eivable 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 rec eivable and it is shown on assets side. The second one denotes the amount payabl e to the customer and is shown on the liabilities side of the balance sheet. 4. Acceptance Endorsement and other Obligations They represent the liabilities whic h 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 pre pared 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 cust omer 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 fo llowing entry is passed for recording unrecorded bills: Constituent’s Liability fo r Acceptance, Endorsement or other Obligations a/c ………………………..DR. To Acceptance, Endorsemen her Obligations. It is contra item in the balance sheet. The first accounts appe ars on assets side while the other on liabilities side. 5. Non-Banking Assets A bank cannot acquire certain assets but it can always len d against the security of such assets. This means that some times, in case of fa ilure on part of the loanee to repay the loans, the bank may have to take posses sion of such assets. Profit or loss on disposal of such assets should be disclos ed separately in the profit and loss account. 6. Gold and Silver Gold appears un der ‘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 include d 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 an other 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 p lace but in the absence of any advice or completion of the transactions, they re main 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 s heet if it has a debit balance and on liability side if it has credit balance. B alance Sheet: Liabilities side 9. Share Capital Under this head, authorised, sub scribed and issued and paid up capital are shown separately. As in the case of a ny 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 Eve ry banking company incorporated in India shall before declaring a dividend, tran sfer a sum equal to twenty per cent of net profit each year (as per profit and l oss 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. Con tingency accounts, include the provision for contingencies, provision for taxati on, etc. These are merged with current accounts. 12. Bills for Collection and Ac ceptances 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 sh ould be done taking into account the degree of well defined credit weaknesses an d extent of dependence on collateral security for realisation of dues. Banks sho uld, therefore, keep the following definitions in mind while classifying the ass ets. Financial Statements of Banking Companies (i) Standard Assets - Standard as set is one which does not disclose any problems and which does not carry more th an normal risk attached to the business. Such an asset is not a NPA. (ii) Sub-st andard 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 bor rower/guarantor or the current market value of the security charged is not enoug h to ensure recovery of the dues to the bank in full. In other words, such an as set will have well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will su stain some loss, if deficiencies are not corrected. In the case of term loans, t hose where installments of principal are overdue for period exceeding one year s hould be treated as sub-standard. An asset where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after co mmencement of production, should be classified as sub-standard and should remain in such category for at least two years of satisfactory performance under the r enegotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is sati sfactory compliance of the above condition. (iii) Doubtful Assets - A doubtful a sset 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 c ase of substandard assets, rescheduling does not entitle a bank to upgrade the q uality 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 collecti on 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 va lue 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 respec t 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 Sche dule to the Banking Regulation Act, 1949, which requires classification of advan ces 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 asse ts, 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 am ount outstanding. (b) Doubtful assets: (i) Full provision to the extent of the u nsecured portion should be made. In doing so, the realizable value of the securi ty available to the bank should be determined on a realistic basis. DICGC/ECGC c over 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 prov ision need be made towards the guaranteed portion. The amount outstanding in exc ess of the guaranteed portion should be provided for as per the extant guideline s 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 whic h the advance has been portion Considered as doubtful % of provision on secured Page60

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. Outstan ding 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 sanc tion of loan. Generally such a situation may arise in case of personal and educa tion 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 standa rd assets should be made. It has been clarified that the provision should be mad e on global laon portfolio basis and not on domestic advances alone. Provision f or Certain Specific Types of Advances The guidelines also deal with provisioning for certain specific types of advances as follows : Advances Secured Against Te rm Deposits, National Savings Certificates, Surrender Value of Life Policies, et c. Advances secured against term deposits, NSCs eligible for surrender, Indira V ikas Patras, Kisan Vikas Patras and life insurance policies are exempted from pr ovisioning requirements. Accordingly, the banks need not treat such accounts as NPAs. It may be noted that advances against gold ornaments, government securitie s, and all other kinds of securities are not exempted from provisioning requirem ents. Advances Guaranteed by Government of India and/or State Governments Accord ing to the guidelines, credit facilities where government guarantees are availab le, 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 fo r the purposes of recognition of income. In other words, if such a credit facili ty meets the criteria for being classified as NPA, income in respect of the faci lity should not be recognised until it is actually realized. Also, in the case o f state government guarantees, this exemption is available only where the guaran tees 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. Adva nces Under Rehabilitation Packages Where additional facilities are granted to a unit under rehabilitation packages approved by the Board for Industrial and Fina ncial 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 fa cilities, provision need not to be made for a period of one year from the date o f disbursement in respect of additional facilities sanctioned under rehabilitati on packages approved by BIFR/term-lending institutions. Similarly, no provision need be made for a period of one year in respect of additional facilities grante d to a sick small-scale industrial unit in accordance with a rehabilitation pack age/nursing programme drawn up by the bank itself or under a consortium arrangem ent. After the period of one year, the bank in consultation with its auditors wo uld take a view whether there is need for making provision in respect of the add itional 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 pro vision should be reversed when the account is taken over by the taking-over inst itution. On taking over the account, the taking-over institution should make pro visions as per the guidelines. For this purpose, the account should be considere d to have become NPA from the actual date of its becoming so, even though the ac count was not on the books of the taking-over institution on that date. Provisio ning in advances covered by the guarantees of DICGC/ECGC : In the case of advanc es guaranteed by Export Credit Guarantee Corporation (ECGC) or by Deposit Insura nce and Credit Guarantee Corporation (DICGC), provision is required to be made o nly 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 Page 62

Project report of accounting in banks and balance sheet ECGC/DICGC, the realizable value of the security should be deducted from the out standing 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 o f provisioning in respect of advances guaranteed by ECGC/DICGC, such banks may c ontinue to do so. The manner of determining the amount of provision in respect o f ECGC/DICGC guaranteed advances in accordance with the above guidelines is illu strated 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 Sched ule 17 on ‘Notes on Accounts’ regarding movement of the provisions for NPA (excludin g 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 th e yr. Sub-total Less: Write off bad debts/ write Back of excess provisions Closi ng 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) Provis ions 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 non performing assets. An advance giving income on continuous basis is called a perf orming asset. A non–performing asset, on other hand, is one remains out of order f or ninety days. A term loan is treated as NPA, if the interest instalment remain s overdue for more than 180 days while a cash credit/overdraft account treated a s NPA, if the outstanding amount remains over and above sanctioned limits/drawin g power more than ninety days The bill purchased/discounted is treated as NPA, i f 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, interes t during the ninety days preceding the date of the balance sheet. (b) Incoming R ecognition 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 sh ould be adjusted by making provisions for income recorded but not received on NP A. (c) Assets classification for provisioning requirement The rules regarding cl assification and provisioning requirements are listed below: Page64

Project report of accounting in banks and balance sheet Category Definitional requirements Standard Assets A performing asset with just normal risk attached 0.40% Provisioning requirement SubStandard Assets Which has remained NPA for a period not exceeding eighteen mo nths 10% of total outstanding Doubtful Assets Loss Assets Which has Which has been remained identified by NPA for a internal and period ex ternal auditors, exceeding RBI inspectors eighteen months Unsecured 100% of tota l portion outstanding -100% Secured portion – Debt doubtful 20% up to one year 1 t o 3 years 30% more than 3 years 50% (d) Investment Classification 1. 2. 3. 4. 5. Investment by banks include as unde r: Government Securities Approved securities Shares Debenture and bonds 6. Subsi diaries/joint venture 7. Others (commercial paper, units of mutual funds, etc) T he first two, viz., Government securities and Approved securities are generally used for meeting statutory liquidity ratio and are called SLR securities. The re maining securities are known as non-SLR securities. The banks were required to b ifurcate their SLR securities into ‘current’ and ‘permanent’ categories. The minimum rat io prescribed most recently was 75; 25 for current and permanent investments. Th e 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 we re carried at cost. As per new guidelines, both SLR and Non SLR securities are t o 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 b anks 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 b y banks to the intension to hold them up to maturity are classified as under Hol d to the maturity. The security, acquired by banks with intention of trading, by taking advantage of short term price/interest rate movement, is classified unde r ‘held for trading’. The remaining securities are classified under the category ‘avai lable 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 Profi t and Loss account. The profit is subsequently transferred to Capital Reserves A ccount. The securities ‘held to maturity need not to be marked to market. The rema ining 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 CAPTIAL AND LIABILITES Capital R esaves and surplus Minorities Interest Deposits Borrowings Other Liabilities and Provision TOTAL ASSETS Schedule As on 31.3.09 As on 31.3.08 No. (current year) (pervious year) 1 2 2A 3 4 5 634,88,02 71755,51,31 631,47,04 60604,91,23 2228,27,31 2028,12,09 1011988,32,63 776416,51,88 64591,64,43 66023,17,07 153627f fl,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 s hort notice Investments Advances Fixed Assets Other Assets TOTAL Contingent liab ilities Bills for Collection 8 9 10 11 12 372231,44,86 750362,38,45 5223,47,75 5 1746,73,45 3048Z5,74,07 860686,08,21 49938,35,27 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 Page67

Project report of accounting in banks and balance sheet (Current Year) RS. 10,00 ,00,000 634,96,85 (Pervious Year) Rs. 10,00,00,000 631,55,87 Schedule 1 Capital Authorized capital (100,00,00,000 shares of Rs. 10 each) Issu ed capital (63,49,68,500 (Previous Year 63,15,58,654) Equity Shares of Rs. 10 ea ch) Subscribed and Paid up capital Total Schedule 2 Reserves and Surplus I Statu tory Reserves Opening balance Additions during the year Deductions during the ye ar II Capital Reserves Opening balance Additions during the year Deductions duri ng the year 634,88,02 634,88,02 631,47,04 631,47,04 Rs. 25218,10,9 1 5508,57,95 Rs. Rs. 20379,03,6 8 4839,07,23 Rs. 30726,68,86 422,58,37 844,72,32 1267,30,69 III Share premium Opening balance Add itions during the year Deductions during the year IV Investment Reserves Opening balance Additions during the year Deductions during the year 20098,96,7 5 560,1 6,95 1,21,18 20657,92,52 62,17,87 62,17,87 62,17,87 ---V Revenue and the other r eserves Opening balance Additions during the year Deductions during the year VI Foreign currency Transaction Reserves Opening balance Additions during the year Deductions during the year 2419,83,14 674,47,13 8,56,94 3085,71,33 179,18,14 674 ,47,13 8,58,94 6195,56,07 300,00,00 4075,72,93 6195,56,07 300,00,00 4075,72,93 3 510,57.33 16617,09,6 7 28,70,25 418,14,39 4,43,98 25218,10,91 422,58,37 20098,96,75 62,17,87 2419,8314 Page68

Project report of accounting in banks and balance sheet 3085,71,33 33,93 57312,8 1,62 2419,83,14 33,93 48401,19,11 VII Balance in Profit and Loss Account Total ( I + II + III + IV + V+ VI + VII ) Schedule 3 Deposits A I. Demand Deposi ts From banks From others II. Savings banks accounts III. Term Deposits From ban ks From others Total ( I, II, and III) B i) Deposits of branches in India ii) De posits of branches outside India 107,61,84,16 99991,73,42 198224,26,85 13657,16,00 419438,12,37 742073,12,80 7100 31,51,22 32041,61,58 742073,12,80 12313,40,67 85820,12,34 154229,28,65 7065,47,74 277975,64,69 537403,94,09 514676 ,06,76 22727,87,33 537403,94,09 Total ( i and ii ) Schedule 4 Borrowings I. Borrowings in India i) Reserve Bank of India ii) Other Banks iii) Other institutions and agencies II. Borrowings out side India Total ( I and II ) Secured borrowings in I and II above Schedule 5 Ot her liabilities and provisions i) Bills payable ii) Inter office adjustment (net ) iii) Interest accrued iv) Others ( including provisions) Total Schedule 6 Cash and balance with RBI ---919,9460 2758,35,89 50035,37,72 53713,68,21 2871,60,35 1300,00,00 7853,58,39 3648,95,17 38924,87,17 51727,41,13 4367,87,76 18929,87,60 5706,71,55 6981,15,56 79142,82,71 110697,57,42 19159,90,43 5092,21,85 59110,17,56 83362,29,84 Page69

Project report of accounting in banks and balance sheet I. Cash in hand (includi ng foreign currency notes and gold) II. Balance with RBI In Current Account In O ther Accounts 4295,51,58 51248,14,36 2,51,33 55546,17,27 Schedule 7Balance with banks and Money at Call and Short notice I. In India i) Balance with banks: a) i n Current Accounts b) in Other Accounts ii) Money at call and Short notice a) Wi th banks b) With other institutions Total ( I and ii ) II. Outside India i) In C urrent Accounts ii) In other Deposits Accounts iii) Money at Call and Sort notic e Total ( I, ii, and iii) Grand Total ( I and II) Schedule 8 Investment I. Inves tments in India in i) Government Securities ii) Other approved Securities iii) S hares iv) Debentures and Bonds v) Subsidiaries and /or joint ventures vi) Others (Units/Commercial Papers, etc.) Total II. Investments outside India in i) Gover nment Securities ( including local authorities ) ii) Subsidiaries and/or joint v entures abroad 226217,47,04 1892,68,08 4590,41,76 14888,97,79 3617,01,17 18264,5 1,76 269471,07,60 742,59,28 1255,45,95 140734,03,68 2738,25,17 4502,53,72 17628, 77,57 3766,46,03 14960,04,07 184330,10,24 394,23,41 613,80,25 3220,31,11 20900,6 0,36 27413,70,11 51534,61,58 926,20,81 10688,99,53 13207,17,33 … 24822,37,67 13656,54,41 1326,93,90 9051,76,61 24035,24,92 48857,62,59 1105,19,38 2608,31,90 6559,00,00 … 10472,51,28 1252,31,93 749,15,34 3457,73,37 545 9,20,64 15931,71,92 Page70

Project report of accounting in banks and balance sheet iii) Other investment (s hares, debenture, etc.) Total Grand Total ( I and II) Schedule 9 Advances A i) B ills 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 C II Advances out side India i) Du e from banks ii) Due from others: a) Bills purchased discounted b) Syndicate Loa ns c) Others Total Grand Total ( CI. and C II) Schedule 10 Fixed Assets I Premis es a) At cost as on 31st March of the preceding year Additions during the year 1 488,44,58 104,07,47 1448,62,77 40,20,10 47183,96,60 223679,92,68 271639,31,14 54 2503,20,42 350026,92,43 78601,23,99 112875,04,00 542503,20,42 143637,56,31 36241 ,55.02 334,21,71 276502,90,85 456716,23,92 4411,79,75 29308,58,76 27094,47,16 24 972,10,83 85786,96,50 542503,20,42 36733,49,02 151999,99,96 228034,70,64 416768, 19,62 284231,06,15 20244,75,74 112292,37,37 416768,19,62 119230,51,18 23025,00,3 2 77,66,24 218295,16,99 360628,34,73 2135,16,19 15543,40,45 19856,62,20 18604,66 ,05 56139,84,89 416768,19,62 4484,82,86 6482,88,09 275953,95,69 4163,13,19 5171, 16,85 189501,27,09 Page71

Project report of accounting in banks and balance sheet Deduction during the yea r Depreciation to date b) Premises including other fixed Assets under constructi on II Other fixed assets ( incl. furniture and fixtures) At cost as on 31st Marc h Of the preceding year Additions during the year Deduction during the year Depr eciation to date III. Leased Assets At cost as on 31st March Of the preceding ye ar Additions during the year Deduction during the year Depreciation to date Less : Lease Adjustment and Provisions Total ( I, II and III ) Schedule 11 Other Asse ts I. Inter office adjustment (net) II. Interest accrued III. Tax paid in advanc e / Tax deducted at source IV. Deferred Tax Assets (net) V. Stationary and stamp s. VI. Non-banking assets acquired in satisfaction of claims VII. Others Total S chedule 12 Contingent liabilities I. Capital against the bank not acknowledged a s debts 2191,81,62 799,73,02 6729,50,51 3642,81,18 1026,88,68 95,65,85 35,18 262 38,05,98 37733,27,38 11340,53,28 6298,14,48 2477,86,74 42,04,56 95,60,12 34,91 2 4162,48,42 44417, 02,91 938,16,91 12,68,65 921,77,85 3,70,41 (2,35,74) 6,06,15 3 827,84,72 3373,48,09 1120,10,41 181,93,50 888,54,10 49,62,81 5,28,88 44,33,93 1, 48,03 637,90,51 953,13,51 263,43,74 38,29 557,30,25 931,14,33 234,25,82 6561,73,29 1345,72,26 20,92,03 5271,32,20 2615,21,32 5493,19,27 1145,34,90 76,80,88 4397,99,28 2163,74,01 Page72

Project report of accounting in banks and balance sheet II. Liability for partly paid investment III. Liability on Account of outstanding forward Exchange contr acts IV. Guarantees given on behalf of constituents In India Outside India V. Ac cepts endorsements and other obligation VI. Other items for which the bank is co ntingently Liable Total 2,80,00 289429,24,01 2,80,00 310457,51,74 4644,40,41 2417,29,03 109093,49,09 250020,71,54 7233699,75,70 35159,13,45 14503,88,10 74706,09,41 375167,32,35 810796,48,07 Form B Third Schedule PROFIT AND LOSS ACCOUNT OF STATE BANK OF INDIA FOR YEAR EN DED ON 31ST MARCH 2009 Page73

Project report of accounting in banks and balance sheet (000’s omitted) Particulars I. Income: Interest Earned Other income TOTAL II. Expenditure: Inter est Expended Operating Expenses Provisions and Contingencies TOTAL III. Profit/L oss: Net Profit/(Loss) of the year Profit brought forward Transfer form general reserve TOTAL IV. Appropriations: Transfer to Statutory Reserves Transfer to inv estment reserves Transfer to Capital reserves Transfer to Revenue reserve and Ot her reserves Transfer to Proposed Dividend Tax on Dividend Loss from State Bank of Saurashtra Balance Carried over to Balance Sheet TOTAL Schedule Number 13 14 As on 31.3.09 (current year) 63788,43,38 12690,78,90 76479,22,28 As on 31.3.08 ( pervious year) 48950,30,71 8694,92,84 57645,23,55 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 1841,15,26 248,03,47 606,80,02 33,93 9121,56,58 4839,07,23 62,17,87 4,43,98 300,00,00 1357,66,13 165,86,63 33,93 6792,55,77 Schedules to be annexed with Profit and Loss Account (000’s omitted) Particulars A s 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) Inter est on balances with RBI and other inter bank funds (IV) Others Total Schedule 1 4: Other Incomes (I) Commission, Exchange and Brokerage (II) Profit on Sale of i nvestment (net) (III) Profit on revaluation of Investment (net) (IV) Profit on S ale of Land/Building and Other Assets (net) (V) Profit on Exchange transactions (net) (VI) Income earned by way of dividend, etc., from subsidiaries Companies a nd/or joint ventures abroad/in India. (VII) Income from financial lease (VIII) M isc. Income Total Note: Under items II to V loss figures be shown in brackets Sc hedule 15 : Interest Expended (I) Interest on Deposits (II) Interest on RBI/Inte r-Bank Deposits (III) Others Total Schedule 16: Operating Expenses (I) Payment t o 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, Allo wances and Expenses (VII) Auditors’ Fee and Expenses (Including Branch Auditors) ( VIII) Law Charges 46404,71,49 15574,71,51 1474,37,74 335,22,64 63788,43,38 35228,11,19 11944,16,36 1200,07,40 577,95,76 48950,30,71 7617,23,54 2567,29,02 (56,50) (2,95,42) 1179,24,92 409,60,28 26,67,00 894,78,06 12690,78,90 5914,25,45 16498391 (703,50,07) 11,04,09 692,69,81 197,40,55 31,86,36 901,32,74 8694,92,84 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 24,01,69 99,81 103,69,68 74,61,19 Page75 7785,86,94 993,41,81 188,87,76 173,23,16 651,04,24 28, 93,67 1,23,20 97,34,58 60,45,14

Project report of accounting in banks and balance sheet (IX) Postage, Telegrams, Telephones, etc. (X) Repairs and Maintenance (XI) Insur ance (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 requi rements of the Third Schedule to the Act, the RBI has directed, Circular NO. BDO D.BP.BC. NO.59/21.04.018/2005-06, dated January 30, 2006 that the following info rmation should be disclosed by way of notes on accounts: List of Disclosure Item s Page76

Project report of accounting in banks and balance sheet • Capital adequacy ratio • Capital adequacy ratio-tier T capital • Capital adequacy ra tio-tier II capital • Percentage of shareholding of the Government of India in nat ionalized banks • Amount of subordinated debt raised as tier II capital • Gross valu e of investments, etc. • Provisions made towards depreciation in the value of inve stments • Movement of provisions held towards depreciation on investments • Repo tra nsactions • Non-SLR investment portfolio • Forward rate agreement/interest rate swap • Exchange traded interest rate derivatives • Disclosures on risk exposure m deriva tives • Percentage of net NPAs to net advances • Movement in NPAs • Amount of provisio ns made towards NPAs • Movement of provisions made towards NPAs • Details of Loan as sets subjected to restructuring • Restructuring under CDR • Details of financial ass ets sold to a SC/RC for asset reconstruction • Provision on standard assets • Intere st income as a percentage to working funds • Non-interest Income as a percentage t o working funds • Operating profit as a percentage to working funds • Return on asse ts • Business (deposits plus advances) per employee Profit per employee • Maturity p attern 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: investme nt in equity shares, etc. • Bank financing for margin trading • Exposure to country risk • Details of single borrower/group borrower limit exceeded by the bank • Provis ion made towards income tax during the year • Disclosure of penalties imposed by R BI • 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

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