The document outlines the regulatory framework for banking companies in India, as defined by the Banking Regulation Act 1949, including the legal requirements such as licensing, capital reserves, and provisions for non-performing assets. It describes various accounting practices related to banking operations, such as handling bills for collection, cash credits, and the preparation of profit and loss accounts and balance sheets in a new format. Additionally, it categorizes assets into standard, sub-standard, doubtful, and loss assets, detailing the required provisions for each category.

1. SRM INSTITUTE OF SCIENCE AND TECHNOLOGY
RAMAPURAM- CHENNAI-89.
STAFF NAME: Dr.S.Mani
COURSE & SECTION: B.Com General – “F” & “K”
COURSE NAME: CORPORATE ACCOUNTING -1I
COURSE CODE: UCM23401J
UNIT – II

2. ACCOUNTS OF BANKING COMPANIES (NEW
FORMAT)
Sec.5 of the Banking Regulation Act 1949, defines a
banking company as any company which transacts the business
of banking in India. It further says that the world ‘banking’ used
with reference to the above definition of banking company
“means the accepting, further the process of lending or
investment, of deposits of money from the public, repayable on
demand or otherwise, and with drawable by cheque, draft, order
or otherwise”. Therefore any company which is engaged in the
manufacture of goods or carries on any trade and which accepts
deposits of money from the public merely for the purpose of
financing its business as manufacturer or trader is not considered
as a banking company.

3. Legal Requirements
• Licensing
• Prohibition of trading
• Capital and reserve
• Statutory reserve
• Statutory liquidity ratio (SLR
• Cash reserve ratio
• Payment of commission
• , brokerage etc.
• Payment of dividend
• Disposal of non banking assets
• Restriction on loans and advances

4. Bills for Collection & Rebate on Bills
Discounted
Bills for collection:
Customer’s bills are sent for collection at customers’ request. The bank merely
acts as an agent of the customer. On due date it presents the bill and if collected
credit the proceeds to customers account. If the bill dishonored notify as the
customer and proceed further to enforce right. Bills for collection are entered in
‘Bills for collection register’. No entry is made until collection. After collection
customers account is credited. This was an old practice, now under the new format
bill held for collection must be shown by way of the foot note.
Rebate on bills discounted:
One of the functions of the bank is to purchase or discount bills. When a bill is
purchased or discounted from the customer, the amount of the bill is debited to bills
purchased and discounted account and appears on the asset side of the balance sheet
under loan and advances. The discount is credited to discount on bills account and
the balance (the amount of the bill less discount) is credited to customer’s account
and the same appears under deposits. Discount on bills in income and appear under
the heading interest earned in the profit & loss account.

5. Cash Credit
The account remains out of order for more than 180
days. An account is out of order if any of the following
conditions is satisfied:
The outstanding balance remains continuously in
excess of sanctioned limit / drawing power.
Though the outstanding balance is less than the
sanctioned limit,
There are credits continuously for more than 180
days as on the date of balance sheet; or
Creditors during the aforesaid period are not enough
to cover the interest debited during the same period.

6. Non-Performing Assets
• Provision for non-performing assets:
For the purpose of provisioning they are classified in to
four board groups, namely, standard assets, sub-standard
assets, doubtful assets and loss assets.
• Standard assets: Standard assets is one which is not a
non-performing assets and does not disclose any problem
nor carry more than normal risk attached to the business.
Earlier no provision was required on standard assets.
However from the year ending 31.3.2000 banks are
required to make a provision of 0.25% on global loan
portfolio basis and not on domestic advance alone.

7. • Sub-standard assets: With effect from 31.3.2001, a sub-
standard assets is one which has remained non-performing
assets for a period less than or equal to 18 months. In the case
of term loans, the installments of principal are overdue for
more than six but less than 18 months. In this case and
general provision of 10% is to be made without making
allowances for DICGC/ECGC guarantee cover and securities
available.
• Doubtful assets: With effect from, 31.3.2001, an assets is to
be classified as doubtful, if it is has remained non-performing
assets for a period exceeding 18 months, with effect from
31.3.2005, the time frame is being further reduced to 12
months.

8. • There are 2 components for provision in respect of doubtful
debts. They are:
Full provision to the extent of unsecured position
should be made. In doing so, the realizable value of the
security available to the bank should be determined as a
realistic basis.
For the secured portion of the doubtful assets,
provision is required to be made between 20 & 50%
depending upon the period for which the asset has remained
doubtful.
Period for which the advance has
been considered doubtful
Percentage of
provision
Up to 1 year
1 to 3 year
Above 3 years
20
30
50

9. Loss assets: A loss asset is one where loss has
been identified by the bank or internal (or)
external auditors or the RBI inspection but the
amount has not been written off fully.

10. Preparation of Profit & Loss account and Balance Sheet (New
Format)
Specimen of profit & loss A/c: (FORM B)
Profit & loss A/c
Particulars
Schedule
No.
Year ending on
31.3…
(Current year)
Year ending on
31.3…
(Previous year)
I) Income:
Interest earned
Other income
13
14
XXX
XXX
Total XXX
II) Expenditure:
Interest expended
Operating expenses
Provision & contingency
15
16
XXX
XXX
XXX
Total XXX
III) Profit / Loss:
Net profit / loss (-) for the year
Profit / loss (-) brought forward
XXX
XXX
Total XXX
IV) Appropriation:
Transfer to statutory reserves
Transfer to other reserves
Transfer to government / proposed
dividend
Balance carried over to balance sheet
XXX
XXX
XXX
XXX
Total XXX

11. Specimen of Balance Sheet
Balance sheet of M/s… as on 31.3…
Particulars Schedule
No.
Year ending on
31.3…
(Current year)
Year ending
on 31.3…
(Previous
year)
Capital & liabilities:
Capital
Reserves & surplus
Deposits
Borrowings
Other liabilities & provision
1
2
3
4
5
XXX
XXX
XXX
XXX
XXX
Total XXX
Assets:
Cash & balance with RBI
Balance with banks & money at call &
short notice
Investment
Advances
Fixed assets
Other assets
6
7
8
9
10
11
XXX
XXX
XXX
XXX
XXX
XXX
Total XXX
Contingent liabilities
Bills for collection
12 XXX
XXX