Disclosure of accounts and balance sheets of banks

Disclosure of accounts and balance sheets of banks

There are various types of users of the financial statements of banks like shareholders, investors, creditors,
credit rating agencies, management students and others who need information about the financial position and
performance of the banks. The financial statements are required to provide the information about the financial
position and performance of the bank in making economic decisions by the users. The important information
sought by these users are, about bank’s Liquidity and solvency and the risks related to the assets and liabilities
recognized on its balance sheet and to its off balance sheet items This useful information can be provided by way
of ‘Notes’ to the financial statements, being supplementary information for market discipline. Market discipline
has been given due importance under Basel II framework on capital adequacy by recognizing it as one of its three
Pillars. To cover the full and complete disclosure, some very useful information is better provided, or can only be
provided, by notes to the financial statements. Hence notes become an integral part of the financials of banks.
The users can make use of these notes and supplementary information to arrive at a meaningful decision.


Summary of Significant Accounting Policies’ and ‘Notes to Accounts’ may be shown under Schedule 17 and
Schedule 18 respectively, to maintain uniformity.

Minimum Disclosures:

While complying with the requirements of Minimum Disclosures, banks should ensure to furnish all the required
information in ‘Notes to Accounts’. In addition to the minimum disclosures, banks are also encouraged to make
more comprehensive disclosures to assist in understanding of the financial position and performance of the
bank, that the disclosure as furnished is intended only to supplement, and not to replace, other disclosure
requirements under relevant legislation or accounting and financial reporting standards..

Summary of Significant Accounting Policies:

Banks should disclose the accounting policies regarding key areas of operations at one place (under Schedule
17) along with Notes to Accounts in their financial statements. The list includes – Basis of Accounting, Transactions
involving Foreign Exchange, Investments – Classification, Valuation, etc, Advances and Provisions thereon, Fixed
Assets and Depreciation, Revenue Recognition, Employee Benefits, Provision for Taxation, Net Profit, etc.

Disclosure Requirements

In order to encourage market discipline, Reserve Bank has over the years developed a set of disclosure
requirements which allow the market participants to assess key pieces of information on capital adequacy, risk
exposures, risk assessment processes and key business parameters which provide a consistent and
understandable disclosure framework that enhances comparability. Banks are also required to comply with the
Accounting Standard 1 (AS 1) on Disclosure of Accounting Policies issued by the Institute of Chartered Accountants
of India (ICAI). The enhanced disclosures have been achieved through revision of Balance Sheet and Profit &
Loss Account of banks and enlarging the scope of disclosures to be made in “Notes to Accounts”.

Additional/Supplementary Information

In addition to the 16 detailed prescribed schedules to the balance sheet, banks are required to furnish the following
information in the “Notes to Accounts”: Such furnished (Information should cover the current year and the previous

“Notes to Accounts” may contain the supplementary information such as:-
(a) Capital (Current & Previous year) with breakup including CRAR – Tier I/II capital (%), % of shareholding
of GOI, amount of subordinated debt raised as Tier II capital. Also it should show the total amount of subordinated debt through borrowings from Head Office for inclusion in Tier II capital., etc.
(b) Investments: Total amount should be mentioned in crores, with the total amount of investments, showing
the gross value and net value of investments in India and Abroad. The details should also cover the movement of provisions held towards depreciation on investments.

Under investments a separate note should cover on Repo Transactions (in face value terms- Amount in crores),
covering the details relating to minimum and maximum outstanding during the year, daily average outstanding
during the year and also outstanding as on March 31. Non-SLR Investment Portfolio would consist of (i) Issuer
composition of Non SLR investments. Sale and Transfers to/from HTM Category

Sale and Transfers to/from HTM Category

If the value of sales and transfers of securities to/from Hold To Maturity (HTM) category exceeds 5 percent of the
book value of investments held in HTM category at the beginning of the year, the bank should disclose the market
value of the investments held in the HTM category and indicate the provision not made for the excess of book
value over the market value. This disclosure is to be made in ‘ Notes to Accounts’ in banks’ audited Annual
Financial Statements. The 5 percent threshold referred to above will exclude the one time transfer of securities to/
from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning
of the accounting year and sales to the Reserve Bank of India under per-announced OMO auctions.
The changes in guidelines regarding HTM/HFT and AFS securities are very dynamic and reflect the market
developments and regulatory concerns. The students may do well to note the changes/developments in the area
by referring to RBI website.


Derivatives: Forward Rate Agreement/Interest Rate Swap

Important aspects of the disclosures would include the details relating to:
(a) The notional principal of swap agreements
(b) Losses which would be incurred if counterparties failed to fulfill their obligations under the agreements (c)
Collateral required by the bank upon entering into swaps
(d) Nature and terms of the swaps including information on credit and market risk and the accounting policies
adopted for recording the swaps
(e) Examples of concentration could be exposures to particular industries or swaps with highly geared
(f) If the swaps are linked to specific assets, liabilities, or commitments, the fair value would be the estimated
amount that the bank would receive or pay to terminate the swap agreements as on the balance sheet
date. For a trading swap the fair value would be its mark to market value
(g) Concentration of credit risk arising from the swaps
(h) The fair value of the swap book

Exchange Traded Interest Rate Derivatives:

As regards Exchange Traded Interest Rate Derivatives, details would include the notional principal amount
(i) during the year (instrument-wise),(ii) outstanding as on 31st March (instrument-wise),
(iii) outstanding and not “highly effective” (instrument-wise),
(iv) Mark-to-market value of exchange traded interest rate derivatives outstanding and not “highly effective”

Qualitative Disclosure

Banks should discuss their risk management policies pertaining to derivatives with a specific reference to the
extent to which derivatives are used, the associated risks and business purposes served. This discussion also
(a) the structure and organization for management of risk in derivatives trading,
(b) the scope and nature of risk measurement, risk reporting and risk monitoring systems,
(c) policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing
effectiveness of hedges/mitigants, and accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral
and credit risk mitigation

Quantitative Disclosures

Apart from qualitative disclosures, banks should also include the qualitative disclosures. The details for both
– Currency Derivatives
– Interest rate derivatives
Information required to be furnished are:
– Derivatives (Notional Principal Amount) showing separate details such as for hedging and for trading
– Marked to Market Positions – a) Asset (+) b) Liability (-)
– Credit Exposure
– Likely impact of one percentage change in interest rate (100*PV01) (a) on hedging derivatives (b) on
trading derivatives
– Maximum and Minimum of 100*PV01 observed during the year (a) on hedging (b) on trading
Asset Quality:
Banks’ performances are considered good based on the quality of assets held by banks. With the changing
scenario and due to number of risks associated with banks like Credit, Market and Operational risks, banks are
concentrating to ensure better quality assets are held by them. Hence, the disclosure needs to cover various
aspects of asset quality consisting of :
(a) Non-Performing Assets, covering various details like Net NPAs, movement of NPAs (Gross)/(Net) and
relevant details provisioning to different types of NPAs including Write-off/write-back of excess provisions,
etc., Details of Non-Performing financial assets purchased, sold, are also required to be furnished.
(b) Particulars of Accounts Restructured:
The details under different types of assets such as (i) Standard advances (ii) Sub-standard advances
restructured(iii) Doubtful advances restructured (iv) TOTAL with details of number of borrowers, amount
outstanding, sacrifice
(c) Banks disclose the total amount outstanding in all the accounts/facilities of borrowers whose accounts have been restructured along with the restructured part or facility. This means even if only one of the
facilities/accounts of a borrower has been restructured, the bank should also disclose the entire outstanding
amount pertaining to all the facilities/accounts of that particular borrower.
(d) Details of financial assets sold to Securitization/Reconstruction Company for Asset Reconstruction. Banks
which purchased non-performing financial assets from other banks are required to make the following
disclosures in the Notes to Accounts to their Balance sheets. Similarly banks which sold non-performing
financial assets furnish details of such assets sold.
(e) Provisions on Standard Assets:
Provisions towards Standard Assets need not be netted from gross advances but shown separately as
‘Provisions against Standard Assets’, under ‘Other Liabilities and Provisions – Others’ in Schedule No. 5
of the balance sheet.
(f) Other Details:
Business Ratios: (i) Interest Income as a percentage to Working Funds (ii) Non-interest income as a
percentage to Working Funds (iii) Operating Profit as a percentage to Working Funds (iv) Return on
Assets (v) Business (Deposits plus advances) per employee (vi) Profit per employee

Asset Liability Management:

As part of Asset Liability Management, the maturity pattern of certain items of assets and liabilities such as
deposits, advances, investments, borrowings, foreign current assets, and foreign currency liabilities.
Banks are required to disclose the information based on the maturity pattern covering daily, monthly and yearly
basis such as Day 1; 2 to 7 days; 8 to 14 days; 15 to 28 days; 29 days to 3 months ; Over 3 months and up to 6
months; Over 6 months and up to 1 year; Over 1 year up to 3 years; Over 3 years and up to 5 years; Over 5 years,
showing the amount in crores.


Breakup of Exposures:
Banks should also furnish details of exposures to certain sectors like Real Estate Sector, by giving details on
account of
(a) Direct Exposure for (i) Residential mortgages (ii) Commercial Real Estate (iii) Investments in mortgaged
based securities (MBS)
(b) Indirect Exposure covering fund based and non-fund based exposures on National Housing Bank (NHB)
and Housing Finance Companies (HFCs)

Exposure to Capital Market

Capital Market exposure details should be disclosed for the current and previous year in crores. The details would
(i) direct investment in equity shares, convertible bonds. convertible debentures and units of equity- oriented
mutual funds the corpus of which is not exclusively invested in corporate debt
(ii) details of advances against shares, debentures, bonds or other securities on clean basis to individuals to
invest in shares (including IPOs) and other capital market instruments
(iii) details of advances for any other purposes wherein securities in shares or debentures or bonds are held
as primary security
(iv) loans and advances to stock brokers

(v) loans sanctioned to corporates against the security of shares.debentures, bonds etc for meeting the promoter’s the quota in anticipation of raising resources

(vi)bridge loans to companies against expected equity flows, issues

(vii) financing to stockbrokers for margin trading

(viii) all exposures to Venture Capital Funds (both registered and unregistered_Country exposures should be furnished as risk category wise country exposure . The risks are to be categorized
as : (a) insignificant (b) low (c) moderate (d) high (e) very high (f) restricted (g) Off-credit
In case banks have not yet moved over to the internal rating system, they may use the seven category classification
followed by the Export Credit Guarantee Corporation of India Ltd (ECGC) for the purpose of classification and
making provisions for country risk exposures. Banks may on request obtain the details on quarterly basis from
The details should also include the net exposure and provision held as at Mach current year as well as the
previous year.
Apart from the above category of exposures, banks are required to disclose details relating to
Single Borrower Limit (SGL)/Group Borrower Limit (GBL) exceeded by the bank, and Unsecured Advances are
to be furnished.
Miscellaneous items would include Amount of Provisions made for Income Tax during the year, and Disclosure of
Penalties imposed by RBI, etc.
Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure
items for “Notes to Accounts”
(a) AS-5 – relating to Net Profit or Loss for the period, prior period items and changes in accounting policies.
(b) AS -9 – Revenue Recognition giving the reasons for postponement of revenue recognition.]
(c) AS – 15 – Employee Benefits
(d) AS – 17 – Segment Reporting such as Treasury, Corporate/wholesale Banking, Retails Banking, ‘Other
Banking Operations’ and Domestic and International segments, etc.
(e) AS – 18 – Related Party Disclosures
(f) AS – 21 – Consolidated Financial Statements (CFS)
(g) AS – 22 – Accounting for Tax & Income – Adoption of AS – 22 entails creation of Deferred Tax Assets
(DTA) and Deferred Tax Liabilities (DTL) which have a bearing on the computation of capital adequacy
ratio and banks’ ability to declare dividends. DTA represents unabsorbed depreciation and carry forward
losses which can set-off against Assets future taxable income which is considered as timing difference.
DTA has an effect of decreasing future income tax payments which indicates that they are prepaid income
taxes and meet the definition of assets. It is created by credit to opening balance of Revenue Reserves
on the first day of application of AS – 22 or P & L Account for the current year. DTA should be deducted
from Tier I capital.
Deferred Tax Liability (DTL) is created by debit to opening balance of Revenue Reserves on the first day
of application of AS-22 or P & L Account for the current year and will not be eligible for inclusion in Tier I
and Tier II capital for capital adequacy purpose. DTL have an effect of increasing the future year’s income
tax payments which indicates that they are accrued taxes and meet the definition of liabilities.
(h) AS – 23 – Accounting for investments in Associates in Consolidated Financial Statements. It relates to
the effects of the investments in associates on the financial position and operating results of a group
(i) AS – 24 – Discontinuing Operations – resulted in shedding of liability and realization of the assets by the
bank, etc.(j) AS – 25 – Interim Financial Reporting – Half yearly reporting.
(k) Other Accounting Standards: Banks are required to comply with the disclosure norms stipulated under
the various Accounting Standards issued by ICAI.

Additional Disclosures

(a) Provisions and contingencies – Banks are required to disclose in the “Notes to Accounts” the information
on all Provisions and Contingencies giving Provision for depreciation on Investment, Provision towards
NPA, Provision towards Standard Assets, Provision made towards Income Tax, and Other Provision and
(b) Floating Provisions – comprehensive disclosures on floating provisions.
(c) Draw Down from Reserves – Details of draw down of reserves are to be disclosed.
(d) Complaints – Brief details on Customer Complaints and Awards passed by the Banking Ombudsman.
(e) Letters of Comfort (LOC) issued by banks – Details of all the Letters of Comfort (LoCs) issued during the
year, including their assessed financial impact, etc.
(f) Provision Coverage Ratio (PCR) – ratio of provisioning to gross non-performing assets
(g) Bancassurance Business – Details of fees/remuneration received, etc.
Concentration of Deposits, Advances, Exposures, and NPAs
(a) Concentration of deposits – Total deposits of 20 large depositors and percentage of the deposits to total
deposits of the bank.
(b) Concentration of Advances – Total advances to 20 largest borrowers and percentage of the advance to
total advances of the bank.
(c) Concentration of Exposures – Total Exposure to 20 largest borrowers/customers and percentage of the
exposures to total exposure of the bank on borrowers/customers.
(d) Concentration of NPAs – Total exposure to top 4 NPA accounts.
01. Sector-wise NPAs – Details of sector-wise NPAs such as Agriculture & Allied Activities, Industry
(Micro & Small, Medium and Large), Services, and Personal Loans.
02. Movement of NPAs – Additions, Recoveries, Up gradation, Write-offs, etc. from Gross NPAs and
the final position as on the date of the Financial Statement.
03 Overseas Assets, NPAs, and Revenue -Giving the Total assets, Total NPAs, and Total Revenue.
(e) Off-balance sheet SPVs sponsored – (consolidated) giving Domestic and Overseas SPVs sponsored.
(f) Unamortized Pension and Gratuity Liabilities – Appropriate disclosures of the accounting policy followed
in regard to amortization of pension and gratuity expenditure may be made in the Notes to Accounts to
the financial statements.
(g) Disclosure of Remuneration – Composition & mandate of Remuneration Committee, meetings, details
of staff received variable remuneration awards, etc.
(h) Disclosures relating to Securitisation – Giving the total outstanding amount of securitized assets as
per books of the SPVs sponsored by the bank and total amount of exposures retained by the bank as on
the date of balance sheet to comply with the Minimum Retention Requirements (MRR), etc.
(i) Credit Default Swaps (CDS) – Banks using a proprietary model for pricing CDS, should disclose both
the proprietary model price and the standard model price in terms of extant guidelines in the Notes to the Accounts and should also include an explanation of the rationale behind using a particular model over
(The prescribed formats in respect of certain disclosures are given in RBI Circular)