Description
This is a presentation describes what is Bank’s Balance Sheet, what are sources and uses of funds in a bank, a bank’s profit and loss account and books of accounts in banks.
Sources and Uses of Funds in a Bank
Group 3
Statement of Sources and Funds – Bank Balance Sheet
? The sources of funds for the lending and investment
activities constitute the liabilities side of the bank’s balance sheet.
? Capital ? Reserves and surplus ? Deposits ? Borrowings ? Other Liabilities and provisions
Capital
? The RBI has provided guidelines for the capital
requirement of the banks. ? Also under this head is the amount of deposit kept with the RBI under Section 11(2) of the Banking Regulation Act, 1949.
? Bank is not incorporated in India will have to maintain a
deposit with the RBI either in cash or in the form of unencumbered approved securities or partly in cash and partly in such securities ? New banks will have to be incorporated under the Indian Companies Act and have a minimum capital requirement of Rs.100 crore. ? The old private sector banks which are also incorporated under Indian Companies Act are, however, exempted
Reserve and Surplus
? Statutory Reserves
? Capital reserves
? Share Premium ? Revenue and other reserves
? Balance in profit and loss account
Deposits
? Banks are highly leveraged organizations, relying
mainly on debt and the chief source of funds are the deposits that are raised
? Demand Deposits ? Savings Deposits ? Term Deposits
These term deposits which can be raised from banks and others will include fixed deposit, cumulative and recurring deposits, cash certificates, certificates of deposits, annuity deposits, deposits raised under various schemes, ordinary staff deposits, FCNR deposits, etc.
Borrowings
? Borrowings of the bank will include borrowing made within
India and those made in the overseas markets. ? Borrowings in India ? Borrowings/refinance obtained from the RBI ? Commercial banks (including co-operative banks) ? Other institutions and agencies like IDBI, EXIM Bank of India, NABARD
? Borrowings outside India ? Overseas borrowings made by the Indian branches and
the borrowings of the foreign branches ? Commercial banks (including co-operative banks) ? Other institutions and agencies like IDBI, EXIM Bank of India, NABARD
Other Liabilities and Provisions
? Bills Payable
? Interoffice Adjustments
? Interest Accrued ? Others
Application of Funds
? Cash and Balances with the Reserve Bank of India
? Balances with Banks and Money at Call and Short
?
?
? ?
Notice Investments Advances Fixed Assets Other Assets
Cash and Balance with RBI
? Cash in Hand
? This asset item includes cash in hand, including foreign
currency notes and cash balances in the overseas branches of the bank. ? These are held on the bank’s premises to meet customer requests for withdrawal and loan demands at short notice.
? Balances with the RBI
? Balances held by each bank with the RBI in order to meet
the statutory Cash Reserve Requirements (CRR) ? Cash will also be held by banks in current account with various offices of the RBI.
Balance with banks and money at call and short notice
? Bank balances include the amount held by the bank in
? ? ?
?
the current accounts and term deposit accounts of other banks The bank balances, both within and outside India should be shown separately The bank accounts within India will include all balances with banks, including co-operative banks. Balances with banks outside India will include balances held by the domestic/foreign branches of the bank with other banks, which are located outside India Balances maintained by the branches in India with their foreign branches will be considered as inter branch balances and shall not be classified here.
Investments
Banks’ investments are classified into six different baskets depending upon the nature of security. These include: ? Government Securities ? Approved Securities ? Shares ? Debentures and Bonds ? Subsidiaries and/or JVs ? Other Investments. Note: Bank’s can also invest in overseas markets. The overseas investments will include foreign government securities, subsidiaries and/or JVs and other investments.
Advances
? These advances , represent the credit, extended by the
bank to its customers ? This asset account will be presented in the balance sheet of a bank in three different formats
? Categorization based on the type/nature of the asset ? Categorized into secured and unsecured advances ? Categorization based on the sectoral credit
disbursements
? The total advances of all the three formats will be equal
since the same advances are presented in different ways.
Fixed Assets
? Classified into premises and other fixed assets which
include furniture and fixtures ? Premises which are wholly or partly owned by the bank for business/residential purpose will be shown after considering the additions or deductions made during the year and writing off the depreciation. ? If there is any write-off on reduction of capital and revaluation of assets, then the revised figures must be shown in the subsequent balance sheets for a period of five years ? Cost of the assets as given in the preceding year’s balance sheet will be adjusted for any additions and deductions made during the year and the write-offs due to depreciation
Other Assets
Miscellaneous assets that appear here are ? Interoffice Adjustments ? Interest Accrued ? Tax paid in advance ? Stationary and stamps ? Non-banking Assets Acquired in Satisfaction of claims ? Others
Banks Profit and Loss Account
? The bank’s income is broadly classified as interest
income and other income
? Interest income ? Other income
? Banks expenses are classified as interest expenses
and other expenses.
? Interest expenses ? Other expenses
Interest Earned
? Interest income forms the major and most important
revenue item for a bank. The bank thrives on the income earned under this head
? Interest/Discount on advances/bills ? Income on investments ? Interest on balances with RBI and other interbank funds ? Others
Other Income
? Apart from the interest income, banks will also have
certain income in the form of fees, commission, exchange etc.
? 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 Exchange Transactions
? Income Earned by way of Dividends, etc.
? Miscellaneous Income
Interest expenses
? Interest on deposits
? Interest on RBI/interbank borrowings
? Others - Discount/interest on all borrowings/refinance
from FIs and other payments like interest on participation certificates, penal interest, etc. are included here.
Operating expenses
? The operating expenses will generally include the costs of
running the bank.
? ? ? ? ? ? ? ? ? ? ? ?
Payments to and Provisions for Employees Rent, Taxes and Lighting Printing and Stationery Advertisement and Publicity Depreciation on Bank’s Property Director’s Fees, Allowances and Expenses Auditors’ Fees and Expenses Law Charges Postage, etc. Repairs and Maintenance Insurance Other expenditure
Provisions and Contingencies
? Provisions made for bad and doubtful debts
? Provision for taxation
? Diminution in the value of investments ? Transfers to contingencies
Books of Accounts
? Principal Books of Accounts
? General Ledger ? Profit and Loss Ledger
? Subsidiary Books
? Personal Ledgers ? Bill Registers
? Other Subsidiary Registers
? ? ? ? ? ? ? ? ?
Bills for Collection Register Demand Draft Register Share Security Register Jewellery Register Safe Custody Register Letters of Credit Register Safe Deposit Vault Register Standing Order Register Letter of Guarantee Register.
Books of Accounts contd..
? Other Memoranda Books - Besides, the books
mentioned above, various departments of the bank maintain a number of memoranda books to facilitate their work. ? Statistical Books - Statistical records are kept by the banks as per their requirements. Some of the common books maintained are as follows:
? For average balances in loans and advances
? Deposits
? Number of cheques paid ? Number of cheques, bills and other items collected
Asset Liability Management
Banks have to face risk in order to be profitable. Apart from losses incurred due to risks, there is also an ultimate danger that the bank itself may fail. In order to tackle the risks, banks require to have a strong risk management system to cover:
? assets, liabilities and off-balance sheet risks, ? information and scientific risk management techniques
and ? dedicated asset-liability managers or committee (ALCO).
ALM
? ALM primarily focuses on how various functions of the
bank are adequately coordinated in essentially covering planning, directing, and controlling the levels, changes and mixes of the various balance sheet accounts. The main reasons behind the growing significance of ALM are:
? Volatility in operating environment, ? Product innovations,
? Regulatory prescriptions,
? Enhanced awareness of the top management.
ALM
? The guidelines of RBI on ALM are primarily aimed at
enabling banks to tackle the liquidity risk and interest rate risk.
? For liquidity risk management, the assets and liabilities of
the bank are segregated into different groups based on their maturity profile ? To manage these risks, banks develop suitable models based on their product profile and operational styles ? Gap analysis ? Duration analysis ? VAR model ? Simulation model
ALM
? ALM includes management of the following types of
risks:
? ? ? ? ?
Liquidity Interest rate Trading Funding and capital planning Profit planning and growth projection.
? While targeting any one parameter, it is essential to
observe its impact on the other parameters also. ? It is not possible to completely eliminate the volatility in both income and market value, simultaneously. ? ALM is a critical exercise in balancing the risk profile with the long/short-term profits while ensuring its long run sustenance.
doc_565198856.pptx
This is a presentation describes what is Bank’s Balance Sheet, what are sources and uses of funds in a bank, a bank’s profit and loss account and books of accounts in banks.
Sources and Uses of Funds in a Bank
Group 3
Statement of Sources and Funds – Bank Balance Sheet
? The sources of funds for the lending and investment
activities constitute the liabilities side of the bank’s balance sheet.
? Capital ? Reserves and surplus ? Deposits ? Borrowings ? Other Liabilities and provisions
Capital
? The RBI has provided guidelines for the capital
requirement of the banks. ? Also under this head is the amount of deposit kept with the RBI under Section 11(2) of the Banking Regulation Act, 1949.
? Bank is not incorporated in India will have to maintain a
deposit with the RBI either in cash or in the form of unencumbered approved securities or partly in cash and partly in such securities ? New banks will have to be incorporated under the Indian Companies Act and have a minimum capital requirement of Rs.100 crore. ? The old private sector banks which are also incorporated under Indian Companies Act are, however, exempted
Reserve and Surplus
? Statutory Reserves
? Capital reserves
? Share Premium ? Revenue and other reserves
? Balance in profit and loss account
Deposits
? Banks are highly leveraged organizations, relying
mainly on debt and the chief source of funds are the deposits that are raised
? Demand Deposits ? Savings Deposits ? Term Deposits
These term deposits which can be raised from banks and others will include fixed deposit, cumulative and recurring deposits, cash certificates, certificates of deposits, annuity deposits, deposits raised under various schemes, ordinary staff deposits, FCNR deposits, etc.
Borrowings
? Borrowings of the bank will include borrowing made within
India and those made in the overseas markets. ? Borrowings in India ? Borrowings/refinance obtained from the RBI ? Commercial banks (including co-operative banks) ? Other institutions and agencies like IDBI, EXIM Bank of India, NABARD
? Borrowings outside India ? Overseas borrowings made by the Indian branches and
the borrowings of the foreign branches ? Commercial banks (including co-operative banks) ? Other institutions and agencies like IDBI, EXIM Bank of India, NABARD
Other Liabilities and Provisions
? Bills Payable
? Interoffice Adjustments
? Interest Accrued ? Others
Application of Funds
? Cash and Balances with the Reserve Bank of India
? Balances with Banks and Money at Call and Short
?
?
? ?
Notice Investments Advances Fixed Assets Other Assets
Cash and Balance with RBI
? Cash in Hand
? This asset item includes cash in hand, including foreign
currency notes and cash balances in the overseas branches of the bank. ? These are held on the bank’s premises to meet customer requests for withdrawal and loan demands at short notice.
? Balances with the RBI
? Balances held by each bank with the RBI in order to meet
the statutory Cash Reserve Requirements (CRR) ? Cash will also be held by banks in current account with various offices of the RBI.
Balance with banks and money at call and short notice
? Bank balances include the amount held by the bank in
? ? ?
?
the current accounts and term deposit accounts of other banks The bank balances, both within and outside India should be shown separately The bank accounts within India will include all balances with banks, including co-operative banks. Balances with banks outside India will include balances held by the domestic/foreign branches of the bank with other banks, which are located outside India Balances maintained by the branches in India with their foreign branches will be considered as inter branch balances and shall not be classified here.
Investments
Banks’ investments are classified into six different baskets depending upon the nature of security. These include: ? Government Securities ? Approved Securities ? Shares ? Debentures and Bonds ? Subsidiaries and/or JVs ? Other Investments. Note: Bank’s can also invest in overseas markets. The overseas investments will include foreign government securities, subsidiaries and/or JVs and other investments.
Advances
? These advances , represent the credit, extended by the
bank to its customers ? This asset account will be presented in the balance sheet of a bank in three different formats
? Categorization based on the type/nature of the asset ? Categorized into secured and unsecured advances ? Categorization based on the sectoral credit
disbursements
? The total advances of all the three formats will be equal
since the same advances are presented in different ways.
Fixed Assets
? Classified into premises and other fixed assets which
include furniture and fixtures ? Premises which are wholly or partly owned by the bank for business/residential purpose will be shown after considering the additions or deductions made during the year and writing off the depreciation. ? If there is any write-off on reduction of capital and revaluation of assets, then the revised figures must be shown in the subsequent balance sheets for a period of five years ? Cost of the assets as given in the preceding year’s balance sheet will be adjusted for any additions and deductions made during the year and the write-offs due to depreciation
Other Assets
Miscellaneous assets that appear here are ? Interoffice Adjustments ? Interest Accrued ? Tax paid in advance ? Stationary and stamps ? Non-banking Assets Acquired in Satisfaction of claims ? Others
Banks Profit and Loss Account
? The bank’s income is broadly classified as interest
income and other income
? Interest income ? Other income
? Banks expenses are classified as interest expenses
and other expenses.
? Interest expenses ? Other expenses
Interest Earned
? Interest income forms the major and most important
revenue item for a bank. The bank thrives on the income earned under this head
? Interest/Discount on advances/bills ? Income on investments ? Interest on balances with RBI and other interbank funds ? Others
Other Income
? Apart from the interest income, banks will also have
certain income in the form of fees, commission, exchange etc.
? 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 Exchange Transactions
? Income Earned by way of Dividends, etc.
? Miscellaneous Income
Interest expenses
? Interest on deposits
? Interest on RBI/interbank borrowings
? Others - Discount/interest on all borrowings/refinance
from FIs and other payments like interest on participation certificates, penal interest, etc. are included here.
Operating expenses
? The operating expenses will generally include the costs of
running the bank.
? ? ? ? ? ? ? ? ? ? ? ?
Payments to and Provisions for Employees Rent, Taxes and Lighting Printing and Stationery Advertisement and Publicity Depreciation on Bank’s Property Director’s Fees, Allowances and Expenses Auditors’ Fees and Expenses Law Charges Postage, etc. Repairs and Maintenance Insurance Other expenditure
Provisions and Contingencies
? Provisions made for bad and doubtful debts
? Provision for taxation
? Diminution in the value of investments ? Transfers to contingencies
Books of Accounts
? Principal Books of Accounts
? General Ledger ? Profit and Loss Ledger
? Subsidiary Books
? Personal Ledgers ? Bill Registers
? Other Subsidiary Registers
? ? ? ? ? ? ? ? ?
Bills for Collection Register Demand Draft Register Share Security Register Jewellery Register Safe Custody Register Letters of Credit Register Safe Deposit Vault Register Standing Order Register Letter of Guarantee Register.
Books of Accounts contd..
? Other Memoranda Books - Besides, the books
mentioned above, various departments of the bank maintain a number of memoranda books to facilitate their work. ? Statistical Books - Statistical records are kept by the banks as per their requirements. Some of the common books maintained are as follows:
? For average balances in loans and advances
? Deposits
? Number of cheques paid ? Number of cheques, bills and other items collected
Asset Liability Management
Banks have to face risk in order to be profitable. Apart from losses incurred due to risks, there is also an ultimate danger that the bank itself may fail. In order to tackle the risks, banks require to have a strong risk management system to cover:
? assets, liabilities and off-balance sheet risks, ? information and scientific risk management techniques
and ? dedicated asset-liability managers or committee (ALCO).
ALM
? ALM primarily focuses on how various functions of the
bank are adequately coordinated in essentially covering planning, directing, and controlling the levels, changes and mixes of the various balance sheet accounts. The main reasons behind the growing significance of ALM are:
? Volatility in operating environment, ? Product innovations,
? Regulatory prescriptions,
? Enhanced awareness of the top management.
ALM
? The guidelines of RBI on ALM are primarily aimed at
enabling banks to tackle the liquidity risk and interest rate risk.
? For liquidity risk management, the assets and liabilities of
the bank are segregated into different groups based on their maturity profile ? To manage these risks, banks develop suitable models based on their product profile and operational styles ? Gap analysis ? Duration analysis ? VAR model ? Simulation model
ALM
? ALM includes management of the following types of
risks:
? ? ? ? ?
Liquidity Interest rate Trading Funding and capital planning Profit planning and growth projection.
? While targeting any one parameter, it is essential to
observe its impact on the other parameters also. ? It is not possible to completely eliminate the volatility in both income and market value, simultaneously. ? ALM is a critical exercise in balancing the risk profile with the long/short-term profits while ensuring its long run sustenance.
doc_565198856.pptx