Accounts of Banking Companies
Accounts of Banking Companies
Accounts of Banking Companies
Companies
DEFINITION
Section 5 of banking regulation act
defines banking as “the accepting, for
the purpose of lending or investment,
of deposit of money from the public
repayable on demand or otherwise
and withdrawable by cheque, draft,
order or otherwise.
Features Of Banking Company
The borrowing, raising, or taking up of money.
The lending or advancing of money either upon or without
security.
The granting and issuing of letters of credit, travellers
cheques and circular notes.
The buying and selling of bullion.
The buying and selling of foreign exchange including foreign
bank notes.
Contracting for public and private loans negotiating and
issuing the same.
Undertaking and executing trust.
Features Of Banking Company
The acquisition, constructing, maintenance and
alternation of any building or works necessary or
convenient for the purpose of the company.
Carrying on transacting of every kind of guarantee and
indemnity business.
The collecting and transmitting of money and securities.
Undertaking the administration of estates as executor,
trustee or otherwise
General Information
No banking company can carry on business in India
unless its subscribed capital is not less than one- half of
the authorized capital and its paid up capital is not less
than one – half of subscribed capital.
A banking company cannot create any charge upon its
uncalled capital.
Every banking co.shall transfer a sum equal to 25% of
profits to statutory reserve.
A bank can open a branch only at the permission of RBI
Accounting System
Substandard assets
When an asset or loan remains non-performing for 12 months or less
and the underlying guarantee is not enough to pay back the loan, it is
classified as a substandard asset. In other words, it is certain that the
bank is set to take a hit, even if partial, due to non-repayment
Provisions
Doubtful assets
An asset is classified as doubtful if it has remained substandard for
a period of more than 12 months. For these assets it is assumed that
even if the underlying security is liquidated, probability of
recovering the loan extended is doubtful.
Loss assets
These are assets which have been identified by either the bank or
external auditors to be permanent non-performer and there are
negligible chances of recovering the advance.
However, these assets may still not be written off from the books of
the banks as banks may hope to salvage some portion of the loan.
PROVISIONS
Assets % of Provision
Standard assets 40%
Substandard assets 15%
Doubtful assets
For one year 25%
For two years 40%
For three years 40%
For more than 3 years 100%