BANKS BALANCE SHEET

Banks are important link between the economic policies of the government and the various economic factors. Banks have become the most important financial intermediaries. The two basic financial reports that reflect the performance of the banks are the Balance Sheet and the Profit & Loss account. According to sec.29 of the Banking Regulation Act,1949, banks will have to prepare he B/S and P&L account in the format set out in the third schedule of the Act. The items that appear in the banks balance sheet and profit and loss account will be shown under different schedules. Form A is the form of the balance sheet and has 12 schedules. Form B or the P&L has 4 schedules and gives the details of income and expenditure of the banks

BANKS BALANCE SHEET

Schedule Liabilities Schedule Assets

01 02

Capital Reserve & surplus

06 07

Cash & Balances with RBI Balances with Banks and Money at Call and Short Notice Investments Advances Fixed Assets Other Assets

03 04 05 12

Deposits Borrowings Other Liabilities & Provisions Contingent Liabilities

08 09 10 11

FORM B PROFIT & LOSS ACCOUNT

Schedule 13 Income Interest Earned Other Income Schedule 15 Expenses Interest Expenses Operating Expenses

14

16

BANKS LIABILITIES
The various sources through which the bank raises funds for its business are broadly classified into: CAPITAL RESERVE & SURPLUS DEPOSISTS BORROWINGS OTHER LIABILITIES Within this broad classification lie the different liabilities of the bank. CAPITAL: Guidelines have been provided by RBI for the capital requirement. For existing nationalized banks and old private sector banks, there is no minimum requirement For banks incorporated outside India, the capital will be prescribed by RBI. New Bank incorporated in India need 500 cr

BANKS LIABILITIES
RESERVE AND SURPLUS Statutory Reserve: Sec 17(1) of BRA 1949, every banking company incorporated in India shall create a reserve fund out of the profit of each year as disclosed in the P&L account. The transfer of funds will be before any dividend is declared and the amount will be not less than 20% of the profit Capital Reserve: The surplus arising due to revaluation will be considered as the capital reserve. Profit made on sale of permanent investments shall also be taken to capital reserve. In case of excess depreciation, it shall be taken to capital reserve. SHARE PREMIUM: This item will show the premium on the issue of share capital by the bank. RVENUE AND OTHER RESERVE: All other reserve other than capital reserve will appear in this category. Excess provision for depreciation in investment will appropriated here

BANKS LIABILITIES
BALANCE IN P&L ACCOUNT: The profit remaining after the appropriation are considered under this head. DEPOSITS: This head includes balances in current account and term deposits which have become due for payment nut not paid yet. Saving deposit: Balances in SB and Term deposits will include here. BORROWINGS: Borrowing made in India and outside India will appear here. Borrowing in India will consist of borrowing / refinance from RBI, Commercial Banks and other institutions like IDBI, EXIM Bank of India, NABARD etc. OTHER LIABILITIES: Bills payable, Interoffice, Interest accrued and others ie surplus provision for bad debts and depreciation.

BANKS ASSETS
The funds mobilized by the banks, through various sources will be deployed into the various assets. These assets are: Cash and balances with RBI Balance with Banks and money at call and short notice. Investments Advances Fixed assets Other assets. CASH IN HAND: This includes cash in hand, including foreign currency notes and cash balances in the overseas branches of the bank. These are held in bank premises BALANCE WITH RBI: This includes balances held by each bank with RBI in order to meet the CRR. Cash maintained by banks in the currency chest is also reflected as maintained with RBI

BANKS ASSETS
INVESTMENTS: A major asset item in the balance sheet of a bank is investments in various kinds of securities. They are: Government securities Approved securities Shares Debentures and Bonds Subsidiaries and or Joint Venture Other Investments GOVT SECURITIES: includes those issued by both Central Govt and state Govt APPROVED SECURITIES: Sec 24 of BRA 1949 stipulates that a certain percentage of Net demand and time liabilities of a bank have to be deployed in specified

CONTINGENT LIABILITIES
Banks obligation under issuance of LC, BG and acceptances are reflected under contingent liabilities Others liabilities includes claims against the bank not acknowledged as debts, liability for partly paid up investments, liability on account of outstanding forward exchange contracts, bills rediscounted, underwriting commitments, etc.

BANKS PROFIT & LOSS ACCOUNT

Banks P&L Account has following components: INCOME: which includes interest income and other income and EXPENSES: which includes interest expended, operating expenses and provisions and contingencies. INTEREST INCOME: Interest income forms the major and most important revenue for the bank. Interest income is generated out of Interest/discount on advances/bills Interest on investments, others.

BANKS PROFIT & LOSS ACCOUNT

Other income: Commission, exchange and brokerage. Profit on sale of investments. Profit on revaluation of investments. Profit on sale of land , building and other assets. Profit on foreign exchange transaction Income earned by way of dividends and Miscellaneous income.

BANKS PROFIT & LOSS ACCOUNT

EXPENSES: Interest expended: Interest paid on all types of deposits raised by banks from banks, institutions and others will appear under this head. Interest on RBI/interbank borrowings Others: Discount/interest on all borrowings/refinance from FIs and other payments like interest on participation certificate, penal interest paid etc. OPERATING EXPENSES: the operating expenses include the cost of running the bank. Components are:

BANKS PROFIT & LOSS ACCOUNT

Payments to and provisions for employees. Rent, taxes and lighting (excluding income tax and interest tax) and other charges on electricity etc. Printing and stationery Advertisement and publicity Depreciation on bank's property Auditors fee and expenses. Law charges Postage Repairs and maintenance Insurance Other exenses.

ASSET LIABILITY MANGEMENT

Because business of banking involves the identifying, measuring, accepting and managing he risk, the heart of bank financial management isrisk management. ALM is concerned with strategic balance sheet management involving risks cased by changes in interest rates, exchange rate, credit risk an the liquidity position of bank.