SOME IMPORTANT ITEMS IN BALANCE SHEET

[1]

Minimum capital (schedule 1):

[4]

Bills payable (schedule 5):

These mean the demand drafts, telegraphic
transfers, mail transfers
And Travellers cheques issued by the bank but not presented for payment till
the year end.
These represent money deposited with the bank for transfer to a different
place, but not yet
Paid at that place.

[5]

Inter office adjustments (schedule 5):

The various branches of a bank

have numerous
Transactions with each other. At year end there remain some outstanding
entries which are
Shown under Inter-office adjustment (net) a/c if it is a net cr. Balance. (A
net Dr. balance is
Shown under other Assets in the balance sheets.) The outstanding occur
mainly because of
The time taken in transit by various documents and advices between the
various branches.
Such outstanding transactions between branches may be in respect of (a)
bills send for
Collection ; (b) demand drafts or telegraphic transfers; (c) travellers cheques; (d)
remittance
Of cash etc.

[6]

Provisions (schedule 5) :
Provisions for bad debts, for fall in value of
investments etc. (see

Profit & loss Accounts- provisions and contingencies) are included under
this head. It should
Be noted that the amounts in respect of all the above items are added up
together and
Disclosed against other Provisions as a single amount. This ensures
secrecy regarding the
amount provided by a bank against bad debts, losses on investments,
taxes etc., since the
amount against each item is not disclosed separately. This helps to
preserve public confidence
in the banking system.

[7]

Cash and balances with Reserve Bank of india (schedule 6):

S. 18 of the Banking Regulation
Act, requires that every banking company, other than a scheduled bank, shall maintain by
way of cash reserve, in cash, with itself and/ or in an account opened with Reserve Bank of
the India or state Bank of India, or any notified bank, a sum equal to at least 3% of its time
and demand liabilities. S.42 (1) Of the Reserve Bank of India Act requires every scheduled
bank to maintainan average daily bslance with the reserve Bank of India at least equal to
3% of its time and demand liabilities. The percentage may be increased by notification upto
15%. These are referred to as the Statutory Deposit and the Additional Statutory Deposit.
These amounts are reflected under the above heading in the Balance sheet.
Statutory Liquidity Ratio (SLR) for Scheduled Commercial Banks
Commercial banks are required to maintain Statutory Liquidity Ratio (SLR) and Cash Reserve
Ratio (CRR) under Section 42 of the RBI Act, 1934 and Section 18 and 24 of the Banking
Regulation Act, 1949. All scheduled commercial banks (excluding regional rural banks) are
required to maintain in India in the form of cash, gold or unencumbered approved securities,
Statutory Liquidity Ratio (SLR) of 24 percent is applicable for the entire net demand and time
liabilities.
Cash Reserve Ratio (CRR) for Scheduled Commercial Banks
As per Section 42 sub- section (7) of the Reserve Bank of india Act, 1934, all Scheduled
Commercial Banks (excluding regional rural banks) were required to maintain CRR at 6% on

liabilities to the banking system, w.e.f. May 3, 2011.

[8]

Money at call (Schedule 7):

Money at call etc. means amount lent by bank in the money market,
To other banks. In Liquidity it is next only to cash and bank balance. It constitutes the second line
of defence for a bank.

[9]

Investment (schedule 9):

S.24 of the Banking Regulation Act requires that every banking company
shall maintain in cash, gold, or clear approved securities , an amount at least equal to 25% of its
time and demand liabilities in demand liabilities in India. Investment in approved securities is
shown under item I. (ii) above. Approved Securities are those securities approved for investment
by aTrust, under the Indian Trust Act. A bank may, in addition to the above legal requirement,
invest its surplus funds in shares, debentures, Bonds or in subsidiaries or associate companies, in
India or outside India.

[10]

Advance (Schedule 9):

This is normally the largest item on the asset side of the balance sheet of a
bank and also a major source of its income. This head discloses all the money lent by a bank to its
customers.
(i)

Advances are to be classified as per nature as follows(a) Bills Purchased and discounted:

Banks purchase or discount bills of exchange drawn

Or endorsed by their customers. The bank pays the net amount of the bill to its
customers after deducting its discount. The total amount of the bills thus purchased and
discounted is shown against this item in the Balance sheet.

(b) Cash credit:

Cash credit is an arrangement by which the bank allows its customers to
Bank allows its customer to borrow money upto a certain limit. It is a flexible loan
account regularly operated by the customer by way of deposits and withdrawals. Unlike
fixed loan a/c however, it is not necessary that the money has to be immediately
withdrawn. Cash credit is usually secured by hypothecation or pledge of goods.

(c ) Overdraft:
If a customer requires funds for a short period, and he has a current
account with the bank, he may be allowed by the bank to overdraw his current
account upto a certain limit Thus overdraft is a temporary loan, unlike cash credit.
The customer has to pay interest only on the amount actually overdraft are usually
Secured against shares, securities, debentures etc.
(d) Loans:
A loan is an advance of a fixed amount for a fixed period.

(2)

Advances are to be classified according to the nature

security :
Into (a) secured (b)
Guaranteed and (c ) unsecured documentary bill, which is a bill along with the documents
Of title to goods may be classified as a secured bill, if it is either a sight bill or a D/P
(Documents against payment) bill. A bill neither secured nor guaranteed e.g. cheques, will
be classified as unsecured. Cash credits, overdrafts or Loans may be secured by pledge or
hypothecation of goods, by hypothecation of book debts, shares, documents of title to
goods, gold ornaments, bullion , life insurance policies, Banks own deposit certificate,

standing crops, immovable properties etc .i.e. secured by tangible assets. An advance is
considered secured Only if the market value of the security is not less than amount advance
is condidered secured only if the sheet An advance may be guaranteed by another bank or
by government. Thus advance priority sector may be guaranteed by government.

(3)

Advances are to be classified as per place :

Further into (a)

Advaces in india and

(b) Advances outside india.
(a) Advances in india:
Advances in india are to be further
classified according to the
Nature of the borrower- advances to priority sector, banks and
others. Under
Section 21 of the banking Regulation act, reserve bank may gives
direction to
Any or all banks as to the purpose for which advances are are to
be made e.g Rural
Sector, backward sector etc.

(b) Advances outsides india:

Those advances made (and not

necessarily utilized) outside
India are to be shown undewr this head. Normally, advances by
foreign branches will be
shown as Advances outside India;.

IIustration 1
The following are the balances of nominal accounts appearing in the books of famous Bank Ltd. As on
31st March, 2003:
particulars
Interest on Deposit
Interest on Reserve Bank of india/
Inter bank borrowings
Payments to and provisions
For employees
Rent, Taxes and lighting
Depreciation on Banks property
Printing & Stationery
Law Charges
Postage, Telegrams, Telephones etc.
Repairs & Mainteance
Insurance
Auditors Fees & Expenses
Directors Fees Allowances
& Expenses
Other Expenditure

Dr. Bal.
Rs in 000
7,81,42
50,47
1,98,03
27,18
14,16
6,75
1,89
9,67
10,49
25,90
3,03
1,44
25,01

Particulars
Interest on advances
Discount on bills
Income from investments
Interest on balances with n
Reserve Bank of india and other
inter bank funds
Commissions, Exchange and
Brokerage
Profit on sale of investments
Profit on exchange transactions
Miscellaneous

Cr. Bal
Rs in 000
8,37,45
48,19
2,80,31

72,33
1,03,45
25,69
16,04
1,13

Prepare Profit and Loss Accounts for the year ended 31st March 2003 after taking into
considerations
The following information also:
(1) The above mentioned interest on advances includes interests amounting to rs. 9thousand on
NPA which has not been received.
(2) Rebate on bills discounted on 31-3-2003 exceeds rebate on bills discounted on 31-3-2002 by
Rs. 21 thousand. The above mentioned amount of discount on the bills is to be adjusted for this
Excess.
(3) You are required to make provision against advances for rs. 8,85,000.
(4) Provision is to be made for income tax including surcharge @ 51.75%.
(5) Transfer is to be made to statutory Reserve @ 40% and to Revenue Reserve @ 20%.
(6) The Paid-up share capital of the bank is 1,00,000 thousand. Proposed dividend @ 25%.

Solution:
Profit and Loss Account for the year Ended 31st March 2003.

(rs.000)
Year Ended
31-3-2003
( current year)

Schedule No.
1. Income
Interest Earned
Other Income
Total
2. Expenditure
Interest Expended
16
Operating Expenses
Provisions and Contingencies
Total
3. Profit/ Loss
Net Profit/ Loss (-) for the year
Profit/ Loss (-) brought forward
Total

..
13
14
.
.

15

..

.
.

1,238
130
1,368
832
323
123
1,278

90
19
109

4. Appropriations
Transfer to Statutory Reserve
Transfer to Revenue Reserve
Proposed Dividend
Balance transferred to balance sheet
Total

36
18
25
30

109

Notes:
(1) Figures for previous year are not available.
(2) Amounts are in Thousands as prescribed in the statutory format.

Schedules
particulars
Schedule 13: Interest Earned
1. Interest/discount on Advances/bills
2. Income on investments
3. Interest on balances with Reserve Bank of
India and other inter- bank funds
Total

Rs (000)

..
.

885
280
72
1,237

Schedule 14- other incomes

1. Commission, Exchange and brokerage
2. Profit on sale of investments
3. Miscellaneous income
Total

.
.
.

103
26
1
130

Schedule 15- Interest Expended

1. Interest on deposits
2. Interest on RBI/ other inter- bank borrowings
Total

..

781
51
832

Schedule 16- Operating Expenses

1. Payments to provisions for Employees
2. Rent, Taxes and Lighting
3. Printing and stationery
4. Depreciation on Banks property
5. Directors Fees, Allowances and Expenses
6. Auditors Fees and Expenses
7. Law Charges
8. Postages, Telegrams, Telephones, etc.
9. Repairs and Maintence
10. Insurance
11. Other Expenditure
Total

..
...
..
.

..

198
27
7
14
1
3
2
10
10
26
25
323

Working Notes:
(1
)

Interest discount on Advances/Bills:

Interest on advances

Rs.
837.45

Less: Interest on NPA credited

0.09

Discount on bills discounted

48.19

Less: Excess of rebate

0.31

837.36

47.98
885.34

(2
)

(3
)

Tax:
Incomes
Less: Interest Expended
Operating Expenses
Provision for Advances
Profit Before Tax
Less : Income Tax @ 51.75%
Profit After Tax

Provision & Contingencies:

Provision for NPA (WN 2)
Provision for Tax ( WN 3)

Rs.
1,164.29
831.89
323.55
8.85

1,164.29
220.00
113.85.00
106.15

Rs.
8.85
113.85
122.70