Balance Sheet Concepts
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1
BALANCE SHEET CONCEPTS
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BASEL II
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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]
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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
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Income
Customer – Banker• Interest on Advances• Commission on Ancillary Services
Non-Customer Vendee/Benefit• Interest on Investments• Sale of Assets
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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
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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
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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
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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
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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
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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
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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
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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)
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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)
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Segment Reporting (Risk Exposure Basis)
Revenue/Assets/Liabilities under following heads –o Corporate/Wholesale Bankingo Retail Bankingo Other Banking Business
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SLR Investments(approved securities)
Non-SLR Investments Govt. Securities Commercial Paper Shares and Debentures (Public Sector & Private
Sector)
Investments
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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
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Retail Banking Products &
Services
IndividualDeposits
IndividualAdvances
AncillaryServices