Commerce

Lecture No.- 01
- For CA Intermediate

Subject Name
Advanced Accounts

• Accounts of Banking Companies &

NBFC
Nitin Goel
 ACCOUNTS OF BANKING COMPANIES
Introduction
“Banking” means,
➢ Accepting deposits of money from public for the purpose of lending or investing
➢ These deposits are repayable on demand or otherwise, and can be withdrawn by cheque, draft or
otherwise.

Non-Performing Assets (NPA)

FACILITY WHEN TO BE TREATED AS NPA

Term Loan If interest and/or instalments of principal remains over due for a period of > 90 days.
Bills purchased If they remain overdue and unpaid for a period of > 90 days.
& discounted
Cash Credit See chart below
/Overdraft Acc
Question RTP Nov 2020 / RTP May 2021 (Similar) / ICAI Study Material
State with reason whether the following cash credit accounts are NPA or not:
Case 1 Case 2 Case 3 Case 4
Sanctioned limit 50,00,000 60,00,000 55,00,000 45,00,000
Drawing power 44,00,000 56,00,000 50,00,000 42,00,000
Amount outstanding continuously 40,00,000 48,00,000 56,00,000 30,00,000
01-01-21 to 31-03-21
Total interest debited for the period 3,20,000 3,84,000 4,48,000 2,40,000
Total credits for the above period 1,80,000 Nil 4,48,000 3,20,000

Income from the non-performing assets can only be accounted for as and when it is actually received.
Question ICAI Study Material
Find out the income to be recognised by Bank for year ended 31st March, 2021 in respect of interest on
advances [₹ in Lakhs] as detailed below:.
Performing Assets Non Performing Assets
Interest Interest Interest Interest
earned received earned received
Cash credits and overdrafts 1800 1060 450 70
Term Loans 480 320 300 40
Bills purchased & discounted 700 550 350 36

Classification of Advances & Rates of Provisioning

 Rates of Provisioning
Category of Advances Rate (%)
1. Standard Advances
(a) Direct advances to Agricultural and Small & Micro Enterprises (SME) 0.25
(b) Advances to Commercial Real Estate (CRE) Sector 1.00
(c) Advances to Commercial Real Estate – Residential Housing Sector (CRE - RH) 0.75
(d) all other loans and advances not included in (a) , (b) and (c) above 0.40
2. Sub- standard Advances
(a) Secured Exposures 15
(b) Unsecured Exposures 25
(c) Unsecured Exposures in respect of Infrastructure loan accounts where certain 20
safeguards such as escrow accounts are available.
3. Doubtful Advances
A. Unsecured Portion 100
B. Secured Portion
(a) For Doubtful upto 1 year 25
(b) For Doubtful > 1 year and upto 3 years 40
(c) For Doubtful > 3 years 100
4. Loss Advances 100
NOTES:
❖ The secured value of assets is the realizable value of its security and not its face value or book value.
❖ The value of security is to be considered on the balance sheet date
❖ If Question is silent whether the Sub-standard Advances or Doubtful Advances are secured or
unsecured, assume it to be secured by giving note.

Question
From the following information, compute the amount of provisions to be made in the Profit and Loss
Account of a Commercial Bank for the year ending on 31-03-2021.
Assets (Category of Advances) ₹ in Lakhs
Standard Advances 5,000
Sub-standard Advances 3,500
(Include secured exposures ₹ 1,000 Lakhs and balances unsecured
exposures ₹ 2,500 Lakhs includes ₹ 1,500 Lakhs in respect of
infrastructure loan accounts where escrow accounts are available)
Doubtful advances- unsecured portion 1,600
Doubtful advances- secured portion
For doubtful up to 1 year 500
For doubtful more than 1 year and up to 3 years 600
For doubtful more than 3 years 300
Loss Advances 100

Solution
Computation of Provision
Assets Amount Provisioning Provision Amt.
(₹ In lacs) Rate (%) (₹ In lacs)
Standard assets 5,000 0.40 20
Sub-standard assets
: Secured 1,000 15 150
: Other unsecured 1,000 25 250
: Unsecured infrastructure 1,500 20 300
Doubtful assets
: Unsecured 1,600 100 1,600
 : Secured
: for upto 1 year 500 25 125
: for upto 3 years 600 40 240
: for >3 years 300 100 300
Loss assets 100 100 100
3,085

Provision in case of ECGC & DICGC

ECGC (Export Credit Guarantee Corporation)/ DICGC (Deposit
Insurance Credit Guarantee Corporation)
Outstanding Balance (A) xx
Less: Realizable Value of Security (B) (xx)
Unsecured Balance [C = A – B] xx
Less: ECGC/DICGC Cover (% of Unsecured Balance) (xx)
[D = C * %)
Net Unsecured Balance [ E = C – D] xx

Provision:
Secured Portion: Value (B) * Applicable Rate
Unsecured Portion: Value (E) * Applicable Rate

Question
A loan account remains out of order as on the date of Balance Sheet of a Bank. The account has been
classified as doubtful assets (upto 1 year).
Details of the accounts are:
Outstanding ₹ 6,73,000
ECGC coverage 25% (Limited to ₹ 1,00,000)
Value of security held ₹ 1,50,000
Compute the necessary provision to be made by a Bank as per applicable rates.

Solution
Particulars Amount
Outstanding Balance 6,73,000
Less: Realisable value of security (1,50,000)
Unsecured portion 5,23,000
Less: ECGC cover
25% of 5,23,000 = 1,30,750 Limited to 1,00,000 (1,00,000)
Net unsecured portion 4,23,000
Provision required (Doubtful) upto 1 year
Secured (1,50,000 * 25%) 37,500
Unsecured (4,23,000 * 100%) 4,23,000
4,60,500
 Rebate on Bill Discounted
It refers to the unearned discount on those bills that will mature after the date of closing of accounts or
that portion of the discount which relates to the period falling after the close of the year.

Unearned Interest: Bill Value x Discount rate x No. of days to Maturity from close of year
365
Question Inter Nov 2018 (5 Marks) / RTP May 2021
Forward Bank Ltd furnishes the following information as on 31st March, 2021
₹
Bills discounted 82,23,000
Rebate on bills discounted as on 01.04.2020 1,32,960
Discount received 6,33,990
Details of bills discounted are as follows:
Amount Due Date Rate of Discount (%)
(i) 10,95,000 15.6.2021 14
(ii) 30,00,000 25.6.2021 12
(iii) 16,92,000 5.7.2021 16
(iv) 24,36,000 15.7.2021 16
Calculate the rebate on bills discounted as on 31.3.2021 and pass necessary journal entries.

Solution
(i) Calculation of Rebate on bills discounted
Amount Due date Days after Rate Rebate on bills
2021 31.03.21 discounted
10,95,000 June 15 76 14% 31,920*
30,00,000 June 25 86 12% 84,822
16,92,000 July 5 96 16% 71,203
24,36,000 July 15 106 16% 1,13,191
TOTAL 3,01,136
*10,25,000 x 14% x 76/365 =31,920
(ii) Journal Entries
Particulars L.F. Dr. Cr.
Rebate on bills discounted A/c Dr. 1,32,960
To Discount on bills A/c 1,32,960
1
(Being the transfer of Rebate on Bills Discounted
on 1.4.2020 to Discount on Bills Account)
Discount on bills A/c Dr. 3,01,136
To Rebate on bills discounted A/c 3,01,136
2 (Being the transfer of rebate on bills discounted
required on 31.3.2021 from discount on Bills
Account)
Discount on bills A/c Dr. 4,65,814
To P & L A/c 4,65,814
3
(Being the amount of discount on Bills
transferred to Profit and Loss Account)

Working Note: Amount of discount to be credited to the P&L Account

Discount received 6,33,990
Add: Opening Rebate on B/D as on 31 March, 2021 1,32,960
Less: Rebate on B/D as on 31 March, 2021 (3,01,136)
4,65,814
Question RTP May 2020 / ICAI Study Material
ABC bank Ltd. has a balance of ₹ 40 crores in “Rebate on bills discounted” account as on 31st March,
2020. The Bank provides you the following information:
(i) During the financial year ending 31st March, 2021 ABC Bank Ltd. discounted bills ofexchange of ₹
5,000 crores charging interest @ 14% and the average period of discount being 146 days.
(ii) Bills of exchange of ₹ 500 crores were due for realization from the acceptors/customers after 31st
March, 2021. The average period of outstanding after 31st March, 2021 being 73 days. These bills of
exchange of ₹ 500 crores were discounted charging interest @ 14% p.a.
Pass necessary Journal Entries in the books of ABC Bank Ltd. forthe above transactions.

Solution
Journal Entries
Date Particulars L.F. Dr. (in crores) Cr. (in crores)
1/4/20 Rebate on bills discounted A/c Dr. 40
To Discount on bills A/c 40
1/4/20 Bills purchased & discounted A/c Dr. 5,000
to To Customer A/c 4,720
31/3/21 To Discount on bills A/c 280
31/3/21 Discount on bills A/c Dr. 14
To Rebate on bills discounted A/c 14
31/3/21 Discount on bills A/c Dr. 306
To P & L A/c 306

Working Note:
Opening Rebate on bills discounted (31/03/20) 40 crores
Discount during the year
146 280 crores
5,000 crores x 14% x
365
Closing Rebate on bills discounted (31/03/21)
73 14 crores
500 crores x 14% x
365

Bills for Collection

One of the services provided by banks to their customers is to collect the dues against Bills of Exchange
from their customers on the due dates. The particulars will be recorded in a separate book called Bills for
Collection Register. Bills sent for collection have to be shown by way of Note in Balance Sheet.
2 Accounts have to be opened which are mirror images of each other. They are:
(i) Bills for Collection (Asset) (ii) Bills for Collection (Liability)

Acceptances & Endorsements

A bank has a more acceptable credit as compared to that of its customers. On this account, it is often
called upon to accept or endorse bills on behalf of its customers.
A record of the particulars of the bills accepted as well as of the securities collected from the customers is
kept in the Bills Accepted Register.
Question
From the following facts drawn from the records of Honest Bank for the year ended 31st March, 2021,
prepare the accounts as mentioned below:
a) On 1st April, 2020 Bills for Collection were ₹28,00,000. During 2020-21, bills received for collection
were ₹2,58,00,000. Bills collected were ₹1,88,00,000. Bills dishonoured and returned were ₹22,00,000.
Prepare Bills for Collection (Assets) Account and Bills for Collection (Liability) Account.

b) On 1st April, 2020, Acceptance, Endorsement etc. not yet satisfied amounted to ₹58,00,000. During
the year, Acceptances, Endorsements, Guarantees etc. were ₹1,76,00,000. The Bank honoured
acceptances of ₹1,00,00,000 and a client paid ₹40,00,000 against guaranteed liabilities. The Bank paid
₹4,00,000 which clients failed to pay.
Prepare "Acceptances, Endorsements and Other Obligations Account" in the General Ledger.

Solution
(i) Bills for Collection (Assets) A/c
Particulars Amount Particulars Amount
To Balance b/d 28,00,000 By Bills for collection (Liability) A/c 1,88,00,000
To Bills for collection (Liability) A/c 2,58,00,000 By Bills for collection (Liability) A/c 22,00,000
By Balance c/d 76,00,000
2,86,00,000 2,86,00,000

Bills for Collection (Liability) A/c

Particulars Amount Particulars Amount
To Bills for collection (Assets) A/c 1,88,00,000 By Balance b/d 28,00,000
To Bills for collection (Assets) A/c 22,00,000 By Bills for collection (Assets) A/c 2,58,00,000
To Balance c/d 76,00,000
2,86,00,000 2,86,00,000

(ii) In the General Ledger

Acceptances, Endorsement & other Obligation Account
Particulars Amount Particulars Amount
To Constituents’ Liability for 1,00,00,000 By Balance b/d 58,00,000
Acceptance, Endorsement, etc.
To Constituents’ Liability for 40,00,000 By Constituents’ Liability for 1,76,00,000
Acceptance, Endorsement, etc. Acceptance, Endorsement, etc.
To Constituents’ Liability for 4,00,000
Acceptance, Endorsement, etc.
(amount paid on failure of clients)
To Balance c/d 90,00,000
2,34,00,000 2,34,00,000
 Final Accounts

FORM OF BALANCE SHEET

Balance sheet as on 31st March, _______________ (year)
Schedule As on 31.3... As on 31.3...
No. (Current year) (Previous year)
Capital & Liabilities
Capital 1
Reserves & Surplus 2
Deposits 3
Borrowings 4
Other Liabilities and Provisions 5
Total
Assets
Cash and balances with Reserves Bank of India 6
Balances with banks & money at call & short notice 7
Investments 8
Advances 9
Fixed Assets 10
Other Assets 11
Total
Contingent Liabilities 12
Bills for Collection

SCHEDULE 9 – ADVANCES
As on 31.3... As on 31.3...
(Current year) (Previous year)
A. (i) Bills purchased and discounted
(ii) Cash credits, overdrafts and loans repayable on demand
(iii) Terms loans
Total
B. (i) Secured by tangible assets
(ii) Covered by Bank/Government guarantees
(iii) Unsecured
Total
 FORM OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31stMARCH
Schedule No. As on 31.3... As on 31.3...
(Current year) (Previous year)
I. Income
Interest earned 13
Other income 14
Total
II. Expenditure
Interest expended 15
Operating expenses 16
Provisions and contingencies
Total
III. Profit/Loss
Net profit/ Loss (−) for the year
Profit/Loss (−)brought forward
Total
IV. Appropriations
Transfer to statutory reserves
Transfer to other reserves
Declared dividend
Balance carried over to balance sheet
Total

SCHEDULE 13- INTEREST EARNED

As on 31.3... As on 31.3...
(Current year) (Previous year)
I. Interest/discount on advances/bills
II. Income on investments
III. Interest on balances with RBI& other inter-bank funds
IV. Others
Total
SCHEDULE 14- OTHER INCOME
As on 31.3... As on 31.3...
(Current year) (Previous year)
I. Commission, exchange and brokerage
II. Profit on sale of investments
Less: Loss sale of investments
III. Profit on revaluation of investments
Less: Loss on revaluation of investments
IV. Profit on sale of land, buildings and other assets
Less: Loss on sale of land, buildings and other assets
V. Profit on exchange transactions
Loss: Loss on exchange transactions
VI. Income earned by way of dividends etc., from
subsidiaries/companies and/or joint ventures abroad/in
India
VII. Miscellaneous income
Total
Note: Under items II to V loss figures may be shown in brackets
SCHEDULE 15-INTEREST EXPENDED
As on 31.3... As on 31.3...
(Current year) (Previous year)
I. Interest on deposits
II. Interest on Reserve Bank of India/inter-bank borrowings
III. Others
Total
SCHEDULE 16- OPERATING EXPENSES
As on 31.3... As on 31.3...
(Current year) (Previous year)
I. Payments to and provisions for employees
II. Rent, taxes and lighting
III. Printing and stationery
IV. Advertisement and publicity
V. Depreciation on bank’s property
VI. Directors’ fees, allowances, and expenses
VII. Auditor’s fees & expense (incl. branch auditors fees & exp.)
VIII. Law charges
IX. Postages, telegrams, telephones, etc.
X. Repairs and maintenance
XI. Insurance
XII. Other expenditure
Total

Question RTP Nov 2018

From the following information, calculate the amount of Provisions and Contingencies and prepare
Profit and Loss Account of ‘Supreme Bank Limited’ for the year ending 31st March, 2021:

Income ₹ In Lakhs Expenditure ₹ In Lakhs

Interest and discount 1,835 Interest expended 1,136
Interest accrued on Investments 8 Printing & stationery 18
Profit on sale of investments 1 Repair & maintenance 2
Commission, exchange and 12 Payment to and provision for 80
brokerage employees (salaries, bonus etc.)
Rent received 2 Other Operating Expenses 5
Additional Information:
₹ ( in Lakhs)
a. Rebate on bills discounted to be provided for 3
b. Classification of Advances:
Standard assets 4,100
Sub-standard assets (fully secured) 380
Doubtful assets – not covered by security 155
Doubtful assets – covered by security
For 1 year 10
More than 1 year, but less than 2 years 18
More than 2 year, but less than 3 years 35
More than 3 years 22
Loss Assets 50
c. Make tax provisions @ 35% of the profit.
d. Profit & Loss A/c (Cr.) brought forward from the previous year 65
e. Transfer 25% of the profit to Statutory Reserve.
Solution
(i) Computation of Provision
Assets Amount Provisioning Amount of provision
(₹ In lakhs) Rate (%) (₹ In lakhs)
Standard assets 4,100 0.40 16.40
Sub-standard assets (fully secured) 380 15 57
Doubtful assets
: Unsecured 155 100 155
: Secured
: for 1 year 10 25 2.50
: More than 1 year, but less than 2 years 18 40 7.20
: More than 2 year, but less than 3 years 35 40 14
: More than 3 years 22 100 22
Loss assets 50 100 50
324.10
Provision for taxation
Profits available = 1,840+15-1,136-105-324.10 =394.90
Provision for tax = 394.90 x 35% = 101.47
Total provision and contingencies = 324.10+101.47 = 425.57

(ii) Supreme Bank Ltd.

Profit & Loss A/c for the year ended 31/3/21
Particulars Sch. No. ₹
(In Lakhs)
I. Income
Interest Earned 13 1,840
Other Income 14 15
Total 1,855
II.
Expenditure
Interest Expended 15 1,136
Operating Expenses 16 105
Provision and contingencies (WN-1) 425.57
Total 1,666.57
III. Profit and loss
Net profit for the year 188.43
Profit /loss carried forward 65
Total 253.43
IV. Appropriations
Transfer to Statutory reserve (188.43*25%) 47.11
Balance carried to balance sheet 206.32
Total 253.43
Schedule 13: Interest Earned
Particulars ₹ (In Lakhs)
Interest & Discount (1,835 – 3) 1,832
Interest on Investments 8
1,840
Schedule 14: Other Income
Particulars ₹ (In Lakhs)
Commission , exchange and brokerage 12
Profit on sale of investments 1
Rent received 2
15
Schedule 16: Operating Expenses
Particulars ₹ (In Lakhs)
Printing & stationery 18
Repair & maintenance 2
Payment to and provision for employees 80
(salaries, bonus etc.)
Other Operating Expenses 5
105

Question Inter July 2021 (10 Marks)

The following are the figures extracted from the books of New Bank Limited as on 31.03.2021.
Figure in ₹
Interest and Discount received 48,11,200
Interest paid on Deposits 22,95,920
Salaries and allowances 8,40,510
Directors fees and allowances 45,000
Issued and subscribed capital 16,00,000
Commission, Exchange and Brokerage received 1,45,000
Postage and Telegrams 60,000
Statutory Reserve Fund 8,00,000
Interest on cash credit 2,65,000
Profit on sale of Investments 1,15,800
Depreciation on Bank's Property 40,000
Interest on Overdraft 1,20,000
Rent Received 65,000
Legal Expenses 21,000
Auditors Fees 5,000
Statutory Expenses 38,000
The following information is also given:
a) A customer to whom a sum of ₹ 5 Lakhs was advanced has become insolvent and it is expected that
only 50% can be recovered from his estate.
b) Make necessary provisions on Risk Assets:
Standard (excluding above ₹ 5,00,000) 10,00,000
Sub-Standard (fully secured) 8,20,000
Doubtful assets covered by security for 1 year 40,000
Loss assets 1,00,000
c) Provide ₹ 6,50,000 for Income Tax.
d) The directors desire to declare 10% dividend.
e) 25% of profit is to be transferred to Reserve fund.
f) Rebate on Bills discounted on 31.03.2020 was ₹ 20,000 and ₹ 15,000 on 31.03.2021.
You are required to prepare Profit & Loss A/c of New Bank Limited for the year ended 31.03.2021.
Solution
New Bank Limited
Profit and Loss Account for the year ended 31st March, 2021
Schedule Year ended
31.03.2021
I. Income:
Interest earned 13 52,01,200
Other income 14 3,25,800
Total 55,27,000
II. Expenditure
Interest expended 15 22,95,920
Operating expenses 16 10,49,510
Provisions and contingencies 11,37,000
(6,50,000+2,37,000+2,50,000)
Total 44,82,430
III. Profits/Losses
Net profit for the year 10,44,570
Profit brought forward Nil
10,44,570
IV. Appropriations
Transfer to statutory reserve (25% of 10,44,570) 2,61,143
Dividend 1,60,000
Balance carried over to balance sheet 6,23,427
10,44,570
Note: Profit & Loss Account balance of 6,23,427 will appear under the head ‘Reserves and Surplus’ in
Schedule 2 of the Balance Sheet.

Schedule 13 – Interest Earned

I. Interest/discount on advances/bills (Refer W.N.) 48,16,200
Interest on cash credit* 2,65,000
Interest on overdraft * 1,20,000
52,01,200
Schedule 14 – Other Income
I. Commission, exchange and brokerage 1,45,000
II. Profit on sale of investment 1,15,800
III. Rent received 65,000
3,25,800
Schedule 15 – Interest Expended
I. Interests paid on deposits 22,95,920
22,95,920
Schedule 16 – Operating Expenses
I. Payment to and provisions for employees 8,40,510
(salaries & allowances)
II. Depreciation on assets 40,000
III. Director’s fee, allowances and expenses 45,000
IV. Auditor’s fee 5,000
V. Statutory (law) expenses 38,000
VI. Postage and telegrams 60,000
VII. Legal expenses 21,000
10,49,510
* Considered to be earned
Working Notes:
Interest and discount received 48,11,200
Add: Rebate on bills discounted on 31.3. 2020 20,000
Less: Rebate on bills discounted on 31.3. 2021 (15,000)
48,16,200

Classification of Assets Amount of % age of Amount of

Advances provision provision
Standard assets 10,00,000 0.40 4,000
Sub-standard assets 8,20,000 15 1,23,000
Doubtful assets:
For one year (secured) 40,000 25 10,000
Loss assets 1,00,000 100 1,00,000
Total provision required 2,37,000

Question Inter Nov 2019 (10 Marks)

From the following information, you are required to prepare Profit and Loss Account of Simple Bank for
the year ended as on 31st March, 2021:
₹ (‘000) Item ₹ (‘000)
2019-20 2020-21
71,35 Interest and Discount 1,02,25
5,70 Income from investment 5,60
7,75 Interest on Balances with RBI 8,85
36,10 Commission, Exchange and Brokerage 35,60
60 Profit on sale of investments 6,10
30,60 Interest on Deposits 41,10
6,35 Interest to RBI 7,35
36,35 Payment to and provision for employees 42,75
7,90 Rent, taxes and lighting 8,95
7,35 Printing and stationery 10,60
5,60 Advertisement and publicity 4,90
4,90 Depreciation 4,90
7,40 Director’s fees 10,60
5,50 Auditor’s fees 5,50
2,50 Law charges 7,60
2,40 Postage, telegrams and telephones 3,10
2,10 Insurance 2,60
2,85 Repair & maintenance 3,30
Other Information:
(i) The following items are already adjusted with Interest and Discount (Cr.):
a. Tax Provision (’000 ₹) 7,40
b. Provision for Doubtful Debts (’000 ₹) 4,60
c. Loss on sale of investments (’000 ₹) 60
d. Rebate on Bills discounted (’000 ₹) 2,75
(ii) Appropriations :
a. 25% of profit is transferred to Statutory Reserves
b. 5% of profit is transferred to Revenue Reserve.
You are required to give necessary Schedules also.
Solution
Simple Bank
Profit and Loss Account for the year ended 31-3-2021
Particulars Schedule (₹ 000’s) (₹ 000’s)
No. Year ended Year ended
31-03-2021 31-03-2020
I. Income
Interest Earned 13 1,29,30 84,80
Other Income 14 41,10 36,70
Total 1,70,40 1,21,50
II. Expenditure
Interest Expended 15 48,45 36,95
Operating Expenses 16 1,04,80 84,85
Provisions and Contingencies (W.N.-1) 12,00
Total 1,65,25 1,21,80
III. Profit/Loss
Net Profit/Loss for the year 5,15 (30)
Profit/Loss brought forward (30)
Total 4,85 (30)
IV. Appropriations
Transfer to Statutory Reserve 128.75 -
Transfer to Other Reserve 25.75 -
Balance carried over to Balance Sheet 330.5 (30)
Total 4,85 (30)

Schedule 13 - Interest Earned

Particulars (₹ 000’s) (₹ 000’s)
31-03-2031 31-03-2020
I. Interest/Discount 1,14,85 71,35
II. Income on Investments 5,60 5,70
III. Interest on Balances with RBI and other inter-
bank fund 8,85 7,75
Total 1,29,30 84,80

Schedule 14 - Other Income

Particulars (₹ 000’s) (₹ 000’s)
31-03-2021 31-03-2020
I. Commission, Exchange and Brokerage 35,60 36,10
II. Profit on Sale of Investments 6,10 60
Less: Loss on sale of Investments (60) -
Total 41,10 36,70

Schedule 15 - Interest Expended

Particulars (₹ 000’s) (₹ 000’s)
31-03-2021 31-03-2020
I. Interest on Deposits 41,10 30,60
II. Interest on RBI/inter-bank borrowings 7,35 6,35
Total 48,45 36,95
 Schedule 16 - Operating Expenses
Particulars (₹ 000’s) (₹ 000’s)
31-03-2021 31-03-2020
I. Payments to and provision for employees 42,75 36,35
II. Rent, taxes and lighting 8,95 7,90
III. Printing and stationery 10,60 7,35
IV. Advertisement and Publicity 4,90 5,60
V. Depreciation on the Bank’s Property 4,90 4,90
VI. Director’s fees, allowances and expenses 10,60 4,90
VII. Auditor’s fees and expenses (including 5,50 5,50
branch auditors)
VIII. Law charges 7,60 2,50
IX. Postage, telegrams, telephones etc. 3,10 2,40
X. Repairs and maintenance 3,30 2,85
XI. Insurance 2,60 2,10
Total 1,04,80 84,85

W.N.1 Provision & Contingencies

Particulars (₹ 000’s) (₹ 000’s)
31-03-2021 31-03-2020
Provision for Tax 7,40 -
Provision for Doubtful Debts 4,60 -
12,00 -

CRR & SLR

CRR (Cash Reserve Ratio)
It is 4% of Net Demand & Time Liabilities to be maintained in RBI (Current A/c)
* Changed to 4.5% from 21.05.2022

SLR (Statutory Liquidity Ratio)

It is 18%* of Net Demand & Time Liabilities to be maintained in form of
✓ Cash in Hand
✓ Balance with Other Banks
✓ Money at Call & Short Notice
✓ Gold
✓ Approved Government Securities (Unencumbered)
*Effective from 11.04.2020

Where Net Demand & Time Liabilities

Fixed Deposits XX
Recurring Deposits XX
Saving Deposits (Both Demand & Time liabilities portion) XX
Current Accounts (Credit Balance) XX
Demand Deposits XX
Gold Deposits XX
Unclaimed Deposits XX
Margins held against Letter of Credit XX
Total XX
 Capital Adequacy Ratio (CAR)
Capital adequacy is used to describe adequacy of capital resources of a bank in relation to the
risks associated with its operations. RBI requires Banks to maintain minimum capital risk
adequacy ratio of 9% on an ongoing basis.
Capital Adequacy Ratio = Capital Fund* . X 100
Risk weighted assets + Off Balance Sheet items

*Capital Fund consists of Tier I & Tier II Capital

A. Tier I capital:
The elements of Tier I capital include
(a) Paid-up capital
(b) Statutory reserves and other disclosed free reserves including share premium if any.
(c) Capital reserve representing surplus arising out of sale proceeds of assets.
(d) Perpetual Non-cumulative Preference Shares (PNCPS) eligible for inclusion as Tier Icapital - subject
to laws in force from time to time.
(e) Innovative Perpetual Debt Instruments (IPDI) eligible for inclusion as Tier I capital
As reduced by:
(i) Intangible assets.
(ii) Current and brought forward losses.
(iii) Deferred Tax Asset (DTA)

B. Tier II capital:
It comprises elements that are less permanent in nature or are less readily available thanthose comprising
Tier I capital. The elements comprising Tier II capital are as follows:
(a) Undisclosed reserves and Perpetual Cumulative preference shares
(b) Revaluation reserves (after discount of 55%)
(c) General provisions and loss reserves (Maximum of 1.25% of Risk Weighted assets)
(d) Hybrid debt capital instruments
(e) Subordinated debt
(f) Investment Reserve Account (Maximum of 1.25% of Risk Weighted assets)
Note: The quantum of Tier II capital is limited to a maximum of 100% of Tier I Capital.
Important weights for the purpose of Ascertainment of CAR are as follows:-
S,No. Item of Asset Risk Weight %
1 Cash, balances with RBI 0
2 Balances in current account with other banks/Claims on Bank 20
3 Investments in Government Securities 0
4 Investments in Bonds issued by Other Banks 20
5 Investments in Venture Capital Funds 150
6 Other Investments 100
7 Loans & Advances guaranteed by Government/Public sector 0
undertakings
8 Advances against term deposits, life policies, NSC, IVP, KVP etc. 0
where adequate margin is available
9 Loans & Advances granted to bank staff which are fully covered by 20
super annuation benefits & mortgage of flat/house
10 Loans & Advances guaranteed by ECGC/DICGC 50
11 Other Loans & Advances/Leased Assets/Educational Loans 100
12 Bank Premises, Furniture & Fittings etc. 100
13 All Off- Balance Sheet Items like LC’s, LG’s, Bills accepted. 100
14 Non funded exposure to Real estate 150
Question Inter Jan 2021 (10 Marks)
A commercial bank has the following capital funds and assets. Segregate the capital funds into Tier I and
Tier II capitals. Find out the risk-adjusted asset and risk weighted assets ratio:
Particulars ₹ in Lakhs
Equity Share Capital 29,00
Perpetual Non-cumulative Preference Shares 8,00
Perpetual Cumulative Preference Shares (fully paid up) 5,50
Statutory Reserve 13,50
Capital Reserve (of which ₹ 13.5 lakhs were due to revaluation of 45
assets and the balance due to sale of assets)
Securities Premium 7,00
Assets:
Cash Balance with RBI 3,50
Balance with other banks 4,75
Claims on Banks 10,25
Investments in Bonds issued by other banks 78,00
Investments in venture capital funds 17,00
Other investments 121,00
Loans and advances:
(i) Loans guaranteed by Government 16,10
(ii) Loans guaranteed by public sector undertakings 6,20
(i) Leased assets 4
(ii) Advances against term deposits 15,00
(v) Educational loans 12
Other Assets:
(i) Premises, Furniture & Fixtures and other assets 150,55
(ii) Intangible assets 18
(iii) Deferred tax asset 0.40
Off-Balance Sheet Items
(i) Acceptances, endorsements and letter of credit 203,00
(ii) Non funded exposure to real estate 19,00
Solution
Computation of Tier I and Tier II Capital Fund
S.No. Particulars Amount
(₹ in Lakhs)
I Tier -1 Capital
Equity Share Capital 29,00
Securities Premium 7,00
Perpetual non-cumulative pref. shares 8,00
Statutory Reserve 13,50
Capital Reserve (arising out of sale of assets i.e. (45 – 13.50) 31.50
57,81.50
Less: Intangible assets (18)
Less: Deferred tax assets (0.40)
57,63.10
II Tier II Capital
Perpetual cumulative pref. shares 5,50
Capital Reserve (arising out of revaluation of assets) 13.50
Less: Discount to the extent of 55% (7.43) 6.07
556.07
TOTAL (Tier-I + Tier-II) 63,19.17
Risk Adjusted Assets
Particulars (₹ in Lakhs) % of weight (₹ in Lakhs)
Funded Risk Assets
Cash balance with RBI 3,50 0 0
Balance with other banks 4,75 20 95
Claims on Bank 10,25 20 2,05
Investment in bonds issued by other banks 78,00 20 15,60
Investment in venture capital funds 17,00 150 25,50
Other investments 121,00 100 121,00
Loans and advances:
Guaranteed by Government 16,10 0 0
Guaranteed by public sector undertakings 6,20 0 0
Leased assets 4 100 4
Advances against term deposits 15,00 0 0
Educational Loans 12 100 12
Premises, furniture and fixture 150,55 100 150,55
Total (i) 315,81
Off-Balance Sheet Items
Acceptances, endorsements and letters of credit 203,00 100 203,00
Non-funded exposure to real estate sector 19,00 150 28,50
Total (ii) 231,50
Total [(i) + (ii)] 547,31

Risk Weighted Assets Ratio / Capital Adequacy Ratio:

= . Capital Fund x 100
Risk Adjusted Assets
6319.71
= × 100 = 11.55%
54731
NON BANKING FINANCIAL COMPANIES
A Non-Banking Financial Company (NBFC) is a company registered
under the Companies Act 1956/ 2013, engaged in the business of loans
and advances, acquisition of shares, debentures and other securities,
leasing, hire-purchase, insurance business and chit business.
MEANING
The term NBFC does not include any institution whose principal
business is that of agriculture activity, industrial activity or sale of any
good (other than securities) or providing any services and
sale/purchase/ construction of any immovable property.

A company incorporated under the Companies Act, 1956/2013 and

REGISTRATION desirous of commencing business of non-banking financial institution as
AND defined RBI Act, 1934 should comply with the following:
REGULATION a) it should be a company registered under the Companies Act, 1956/2013.
OF NBFC b) It should have a minimum net owned fund of ₹ 200 lakh.

DISTINCTION BETWEEN AN NBFC AND A BANK

S.No. NBFC BANK
1. NBFC cannot accept demand deposits. Bank can accept demand deposits.
NBFC is not a part of the payment and Bank is a part of the payment and
2.
settlement system. settlement system.
NBFC cannot issue cheques drawn on Bank can issue cheques drawn on itself.
3.
itself.
Deposit insurance facility of the Deposit Deposit insurance facility of the Deposit
Insurance and Credit Guarantee Insurance and Credit Guarantee
4.
Corporation (DICGC) is not available for Corporation (DICGC) is available for
NBFC depositors. banks.
Question 1 RTP May 2021
Calculate ‘Owned Fund’ of a NBFC based on the following facts:
Paid up share capital: ₹ 400 lakhs
Free reserves: ₹ 200 lakhs
Securities Premium: ₹ 50 lakhs
Capital Reserves (surplus arising due to sale of assets): ₹100 lakhs
Compulsory convertible preference shares (CCPS): ₹ 50 lakhs
Revaluation Reserve: ₹ 100 lakhs

Question 2 Inter Nov 2020 (5 Marks)

Vikas Finance Ltd. is a non-banking finance company. Extracts of its balance sheet are given below:
Liabilities Amount Assets Amount
(in ‘000) (in ‘000)
Paid-up equity capital 250 Leased out assets 2,000
Free reserves 1,250 Investment: In shares of 275
subsidiaries & group companies
Loans 1,000 In debentures of subsidiaries and 225
group Companies
Deposits 1,000 Cash and bank balances 500
Deferred expenditure 500
3,500 3,500
You are required to compute 'Net owned Fund' of Vikas Finance Ltd. as per Non-Banking Financial
Company - Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016.
Question 3 Inter Nov 2018 (10 Marks) /ICAI Study Material
While closing its books of accounts on 31st March 2021, a Non-Banking Finance Company has its
advances classified as follows:
₹ (lakhs)
Standard assets 18,400
Sub-standard assets 1,250
Secured Portion of doubtful debts:
Upto one year 300
One year to three years 90
More than three years 30
Unsecured portions of doubtful debts 92
Loss assets 47
Calculate the amount of provision which must be made against the Advances as per -
(i) The Non-banking Financial Company - Non-systemically Important Non-Deposit taking Company
(Reserve Bank) Directions, 2016; and
(ii) Non-banking Financial Company - Systemically Important Non- Deposit taking Company (Reserve
Bank) Directions, 2016

Solution
Calculation of provision required on advances as on 31st March, 2021 as per the Non-Banking Financial
Company – Non-Systemically Important Non Deposit taking Company (Reserve Bank) Directions, 2016

Amount in Provision % Provision in

Lakhs Lakhs
Standard assets 18,400 0.25 46
Sub-standard assets 1,250 10 125
Secured portions of doubtful debts:
- upto one year 300 20 60
- one year to three years 90 30 27
- more than three years 30 50 15
Unsecured portions of doubtful debts 92 100 92
Loss assets 47 100 47
412

Calculation of provision required on advances as on 31st March, 2021 as per the Non-Banking Financial
Company - Systemically Important Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016
Amount in Provision % Provision in
Lakhs Lakhs
Standard assets 18,400 0.40 73.60
Sub-standard assets 1,250 10 125
Secured portions of doubtful debts:
- upto one year 300 20 60
- one year to three years 90 30 27
- more than three years 30 50 15
Unsecured portions of doubtful debts 92 100 92
Loss assets 47 100 47
439.60
Question 4 Inter Nov 2020 (5 Marks)
PGL Finance Ltd. is a non-banking financial company. The following information is provided by the
company regarding its outstanding amounts: ₹ 600 Lakhs, of which instalments are overdue on 300
accounts for last two months (amount overdue ₹ 150 Lakhs), on 48 accounts for three months (amount
overdue ₹ 64 Lakhs), on 20 accounts for more than 30 months (amount overdue ₹ 120 Lakhs) and in 4
accounts for more than three years (amount overdue ₹ 60 Lakhs - already identified as sub-standard
asset) and one account of ₹ 40 Lakhs which has been identified as non-recoverable by the management.
Out of 20 accounts overdue for more than 30 months, 16 accounts are already identified as sub-standard
(amount ₹ 28 Lakhs) for more than fourteen 12 months and others are identified as sub-standard asset for
a period of less than fourteen 12 months.
Classify the assets of the company in line with Non-Banking Financial Company Systemically Important
Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016.

Solution
Statement showing classification as per Non-Banking Financial Company - Systemically Important Non-
Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016
₹ In Lakhs
Standard Assets
Accounts (Balancing figure) 166
300 accounts overdue for a period for 2 months 150
48 accounts overdue for a period by 3 months 64 380
Sub-Standard Assets
4 accounts identified as sub-standard asset for a period less than 14 months 92
Doubtful Debts
16 accounts identified as sub-standard for a period more than 14 months 28
4 accounts identified as sub-standard for a period more than 3 years 60 88
Loss Assets
40
1 account identified by management as loss asset
Total overdue 600
Question 5 Inter July 2021 (5 Marks)
Siddharth Auto Financiers Limited is a NBFC providing Finance for purchasing of Auto Rickshaws. The
following information is extracted from its books for the year 31st March, 2021:
Interest Overdue but recognized in Profit & loss Net Book Value of
Period Overdue Interest Amount Assets outstanding
(₹ in crores) (₹ in crores)
Upto 12 months 750.00 30,000
For 24 months 200.00 4,000
For 30 months 200.00 3,750
For 45 months 250.00 3,000
For 60 months 500.00 10,000
You are required to calculate the amount of provision to be made.

Solution
Amount of provision to be made is as under:
Provision
Category Provision Rate Working Amount
(in crores)
Upto 12 months Nil Nil -
For 24 months 10% of the net book value 4000*10% 400
For 30 months 40% of the net book value 3750*40% 1500
For 45 months 70% of the net book value 3000*70% 2100
For 60 months 100% of the net book value 10000*100% 10000
14000
Question 6 ICAI Study Material
XYZ Limited is an NBFC registered with RBI as non-deposit accepting company. Its main activity
includes issuing term loans of different tenures. One of its major customers, ABC Ltd, is engaged in the
business of manufacturing. However, due to fall in demand and non-recovery of existing trade
receivables, ABC Ltd. is facing working capital difficulties. As on 31st March, 2021 outstanding amount
in respect to ABC Ltd. is as under:
Principle amount outstanding (for more than 8 months): ₹ 250 lakhs
Interest and penalties on the above : ₹ 30 lakhs
XYZ Ltd. is following accrual system for accounting of its income. Following the same, the Company
has accrued ₹ 30 lakhs as interest income in the Financial Statements for the year ended 31st March,
2021.
You are required to state whether income accrual of ₹ 30 lakhs is in accordance with Non Banking
Finance Company – Non Systemically Important Non Deposit taking Company Directions, 2016?

Solution
As per the said directions, Non- performing asset shall mean: a term loan inclusive of unpaid interest,
when the instalment is overdue for a period of six months or more or on which interest amount remained
overdue for a period of six months or more. In the present case, dues of ABC Ltd. is outstanding for
more than 6 months. Hence, ABC Ltd. will need to be classified as NPA in the books of XYZ Ltd. as on
31st March, 2021.
Once an asset becomes NPA, any income on the said asset need to be recognized on cash basis. Also,
previous income accrued but not received, need to be reversed. Based on the same, XYZ Ltd. shall stop
accruing further interest accrual on term loan of ABC Ltd. Also, ₹30 lakhs accrued but not realized, need
to be reversed.