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With the aim of streamlining all guidelines, instructions and guidelines relating to the presentation and disclosure of financial statements of banks, the Reserve Bank of India (RBI) has issued a “Principal Direction” for all categories of banks: banks commercial, primary banks (urban areas) Cooperative banks. This 106-page document will be entitled “Reserve Bank of India Guidelines (Financial Statements – Presentation and Disclosures), 2021”.

“A general management integrating, updating and, where appropriate, harmonizing across the banking sector, the existing directives / instructions / directives on the subject has been prepared to allow banks to have all the current instructions on the presentation and disclosure in the financial statements in one place for reference, “he said on Aug. 30.” However, it can be noted that in addition to these disclosures, commercial banks must comply with the disclosures specified within the framework of the applicable regulatory capital, ”he added.

Why did RBI publish this document? Under certain sections (Sections 35A and 56) of the Banking Regulation Acto, 1949, the Reserve Bank of India has the power to issue instructions to banks as it deems appropriate or required from time to time.

No window coverings

One of the main directions includes instructions to banks to ensure that the balance sheet and the profit and loss account reflect the “true” picture of its financial situation. It is called ‘Window Dressing’.

“Cases of financial data wrapping, short-term provisioning, misclassification of APMs, underreporting / incorrect calculation of exposure / risk weighting, incorrect capitalization of expenses, capitalization of interest on APMs, deliberate inflation of assets and liabilities at the end of the year and the subsequent cancellation immediately in the following year, etc. will be considered seriously and appropriate penal measures under the provisions of the Banking Regulation Act 1949 will be considered, ”he said. This is an important step in order to bring more transparency to the account book, especially after the recent events where banks are suddenly no longer able to perform their functions, causing chaos and panic among its customers. , depositors, shareholders and other stakeholders.

These guidelines, in accordance with the RBI, will apply to all banking companies, new correspondent banks, regional rural banks (“RRBs”) and the State Bank of India (collectively referred to as “commercial banks”). The definition of “all banks” includes banks incorporated outside India but licensed to operate in India (“foreign banks”), local banks (LAB), small financial banks (SFB), payment banks (PB) and primary cooperative banks (called urban cooperative banks).

In addition to stand-alone financial statements prepared in the formats prescribed under Section 29 of the Banking Regulation Act 1949, commercial banks (other than RRBs), whether listed or unlisted, must prepare and disclose consolidated financial statements (CFS) in their annual reports, in prescribed formats. The CFS should normally include a consolidated balance sheet, a consolidated statement of profit and loss, significant accounting policies and notes to the accounts. The CFS must also be submitted to the Department of Supervision (DOS), Reserve Bank of India within one month of the publication of the bank’s annual accounts.

For financial reporting purposes, the terms “parent”, “subsidiary”, “partner”, “joint venture”, “control” and “group” have the same meaning as that assigned to them in the applicable accounting standards. noted. “A parent company presenting the CFS must consolidate all subsidiaries – domestic and foreign, except those specifically permitted to be excluded under applicable accounting standards. However, the reasons for not consolidating a subsidiary must be disclosed in the CFS, “he added. The responsibility for determining whether or not a particular entity should be included for consolidation would rest with the management of the parent entity. The Statutory Auditors mention in their audit report if they believe that an entity which should have been consolidated has been omitted.


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