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BALANCE SHEET CONCEPTS

BASEL II

BASEL II – CAPITAL ADEQUACY NORMS

Capital

Tier – I• Share Capital• Disclosed Reserves• High Quality• Risk Absorption• Innovative Perpetual Debt Instruments (IPD)• Bonds/Debentures[15% of Tier – I]

Tier – II• Reserves• Subordinate Debts[Low Quality Risk Absorption]

Principle of Double Entry in Accounting

Financial Transactions in Bank

Banking Business (Deposits/Advances/

Ancillary Services)(Liabilities & Assets)

Bank – Other Banks/FI/RBI

(Liabilities & Assets)

Bank to Customer Customer to Bank

• Institutional Borrowing• Institutional Lending• Institutional Investment

Income

Customer – Banker• Interest on Advances• Commission on Ancillary Services

Non-Customer Vendee/Benefit• Interest on Investments• Sale of Assets

Accounts

Personal Accounts

Deposits Accounts and Advances

Property or Real Accounts

Fixed Assets(Furniture/ Premises/ Systems etc.)

Cash & Bank Balances

Nominal Accounts

Transitory Debit Balances

• Sundries Receivables

• Interest Accrued

Transitory Credit Balances

• Sundry Dep.• Bankers Cheques• Drafts Payable• Bills Payable

Cash Related Transactions

Payments Cheques (bearer) DDs on Counter (Small

amounts) Expenditure Remittances to Banks and

Branches/RBI

Receipts Deposits Bills Income Vouchers Remittances from Branch

Banks/RBI

Transfer Transactions

Payments Liabilities

o Customer Dep. A/co Other o Assets o Loan A/c o Other Assetso Expenditureo Remittances

Creditso Investmentso Incomeo Remittances Issuableo A/c to A/c Asset Recovery o Non-Banking Assets

Bank Accounts - Summary Every debit balance a/c is either an asset or expenditure Every credit balance a/c is either a liability or income All deposits of customers are credit balance a/c s and as such

liabilities payable on demand All advances given to customers are debit balances and hence

assets of the bank Liabilities indicate source of funds Assets indicate application of funds

Significance of Balance SheetLiabilities• Deposits – borrowings• Non-deposit liabilities –

external borrowings subordinated debts

Other Liabilities• Provision for dividends• Unclaimed dividends• Interest provisions• Intra office adjustments

Position of assets & liabilities at end of financial year March/

It is a financial synopsis of Bank All items are represented in

one monetary unit i.e., currency

Assets Banking assets – financial

assets – loans and advances Non-banking financial assets

o Sundries receivableo Investmentso Stationery & stampso Intra office adjustments

CURRENT a/c(No Interest)

SB dep.(Low Interest)

• CASA Deposits are low cost funds• High percentage of CASA deposits in total

deposits improves profitability

CASA Deposits

TYPES OF ADVANCES (ON THE BASIS OF DISBURSEMENT)

One time Loans / Secured / Unsecured Continuing Facilities

Consumer LoansHousing LoansEducation LoansAgriculture Short term loansSMALL LoansTerm LoansGold Loans

Over drafts-- BILLS PURCHASED-DISCOUNTEDopen cash credit OCC/ key cash credit KCCBILLS PAYABLE

Fund Based AdvancesDEMAND LOANS & ADVANCES TERM LOANS

Cash Credits Equipment Loans

Over draft Machinery Loans

Loans to small business Vehicle LoansMortgage or Home LoansEducation LoansInfrastructure

(repayable in one year) (repayable more than one year)

Fund Based All Loans & Advances

o Onetime Loanso Continuing Facilities

Non-Fund based Guarantees Acceptances Letters of Credit

Classification of Advances (Based on Funds Utilization)

Segment Reporting (Risk Exposure Basis)

Revenue/Assets/Liabilities under following heads –o Corporate/Wholesale Bankingo Retail Bankingo Other Banking Business

SLR Investments(approved securities)

Non-SLR Investments Govt. Securities Commercial Paper Shares and Debentures (Public Sector & Private

Sector)

Investments

Regulatory Reporting Criterion Retail Banking

ORIENTATION• Exposure to

individual persons or

• Individual Persons to a small business

(Not being partnerships and corporates)

PRODUCT• Individual

loans, credit cards, over drafts

• Personal term loans

• Small business micro enterprises

GRANULARITYDegree of risk that

warranty

VALUE OF EXPOSURE

Does not exceed the limit fixed by

RBI

Retail Banking Products &

Services

IndividualDeposits

IndividualAdvances

AncillaryServices