Final Accounts Overview for Banking Companies: Structure and Compliance

Overview of Final Accounts for Banking Companies

The Final Accounts for Banking Companies are governed by the Banking Regulation Act, 1949, along with its amendments and directives issued by the Reserve Bank of India (RBI). The critical components of these accounts include:

Balance Sheet
Profit and Loss Account

Ind AS Compliance

As of April 1, 2019, banks have been exempt from adhering to Indian Accounting Standards (Ind AS). The entities affected by this position include:

Scheduled commercial banks, excluding Regional Rural Banks (RRBs).
Institutions such as Exim Bank and NABARD that provide term-lending refinancing.
Holding, subsidiary, joint venture, or associate companies of scheduled commercial banks.

Balance Sheet Structure as of March 31

Capital and Liabilities

(Amounts in thousands omitted)

Particulars	Schedule No.	Amount
Capital	1
Reserves & Surplus	2
Deposits	3
Borrowings	4
Other Liabilities and Provisions	5
TOTAL

Assets

Particulars	Schedule No.	Amount
Cash and Balances with Reserve Bank of India	6
Balances with Banks and Money at Call/Short Notice	7
Investments	8
Advances	9
Fixed Assets	10
Other Assets	11
TOTAL

Contingent Liabilities

Schedule No.	Amount
Contingent Liabilities	12
Bills for Collection

Significant Accounting Policies - Refer to Schedule 17
Notes to Accounts - Refer to Schedule 18

Notes and schedules are an integral part of the Balance Sheet.

Profit and Loss Account for the Year Ended March 31

Income

(Amounts in thousands omitted)

Particulars	Schedule No.	Amount
Interest Earned	13
Other Income	14
TOTAL

Expenditure

Particulars	Schedule No.	Amount
Interest Expended	15
Operating Expenses	16
Provisions and Contingencies
TOTAL

Profit Calculation

Particulars	Amount
Net Profit for the Year
Add: Profit/(Loss) brought forward
TOTAL

Appropriations

Particulars	Amount
Transfer to Statutory Reserve
Transfer to Capital Reserve
Transfer to Investment Fluctuation Reserve
Transfer to Revenue and Other Reserves
Dividend for the Current Year
Balance Carried Over to Balance Sheet
TOTAL

Earnings Per Equity Share (Face value 1 per share)

Particulars	Basic (in )	Diluted (in)

Significant Accounting Policies - Refer to Schedule 17
Notes to Accounts - Refer to Schedule 18

The provided schedules are integral to the Profit & Loss Account.

Non-Performing Assets and Provisions

An asset, including a leased asset, is classified as non-performing when it ceases to generate income for the bank. A Non-Performing Asset (NPA) occurs when:

Interest and/or principal installments are overdue for more than 90 days in the case of a term loan.
The account is ‘out of order’ for an Overdraft/Cash Credit (OD/CC).
Bills remain overdue for more than 90 days from the date of discounting.
Principal or interest installments for short-duration crops are overdue for two crop seasons.
Principal or interest installments for long-duration crops are overdue for one crop season.
Liquidity facility amounts remain outstanding for more than 90 days as per RBI’s Securitisation Directions, 2021.
Derivative contracts have receivables that remain unpaid for 90 days past their due date.

Categories of Non-Performing Assets

Banks classify NPAs into three categories based on the duration of non-performance and collectability:

Substandard Assets: An asset that remains an NPA for 12 months or less.
Doubtful Assets: An asset classified as substandard for 12 months.
Loss Assets: Assets identified as losses by bank auditors or RBI inspections but not yet written off.

Upgradation of Loan Accounts

Loan accounts classified as NPAs may regain their standard status if the borrower clears all due interest and principal.

Provisioning Norms

Loss Assets

Loss assets should be written off, but if retained for any reason, 100% provisioning is mandatory.

Doubtful Assets

Provisioning must cover 100% of the unsecured portion not backed by realizable security.
For secured portions, provisions range from 25% to 100%, depending on how long the asset has remained doubtful:

Period of Doubtful Asset	Provisioning Requirement (%)
Up to One Year	25
One to Three Years	40
Over Three Years	100

Substandard Assets

A general provision of 15% on total outstanding amounts is required.
Unsecured exposures identified as substandard attract an additional 10%, totaling 25%.

Standard Assets

General provisions for standard assets are as follows:

Farm Credit to agricultural activities and Small and Micro Enterprises: 0.25%
Advances to the Commercial Real Estate Sector: 1.00%
Advances to Residential Housing Sector: 0.75%
Housing loans at teaser rates: as per specified guidelines.
Restructured advances under RBI's norms: 5%.
All other loans not specified above: 0.40%.

Provisions for standard assets should not be considered in net NPA calculations but should be distinctly reported as ‘Contingent Provisions against Standard Assets’ under ‘Other Liabilities and Provisions’ in Schedule 5 of the balance sheet.