Final Accounts of Banking Companies
(How YOUR Bank Prepares ITS OWN Balance Sheet & P&L!)
Companies follow Schedule III. But banks? They follow the THIRD SCHEDULE of the Banking Regulation Act! Form A for Balance Sheet, Form B for P&L, 12 detailed Schedules, Statutory Reserve of 20%, and Basel III disclosures. This is YOUR bank’s financial statement — you should know it inside out!
Banky Reads HIS OWN Bank’s Annual Report! 🏦
Banky has been reading borrowers’ Balance Sheets. Now his manager hands him the BANK’s own annual report: “Read it. Know YOUR bank. You’ll understand where the bank’s money comes from (deposits), where it goes (advances, investments), and how much profit YOUR branch contributed!”
The Full Chapter — Bank’s Own Financials
📖 Part 1 — Legal Framework
Banking Regulation Act, 1949 governs bank accounts. Key sections: Section 5 — defines banking (accepting deposits for lending/investment, repayable on demand/otherwise by cheque/draft). Section 8 — prohibits banks from buying/selling/dealing in goods. Section 29 — preparation + signing of financial statements (signed by manager/principal officer + at least 3 directors). Section 30 — audit (prior RBI approval needed before appointing/reappointing/removing auditor). Section 31 — 3 copies submitted to RBI within 3 months (extendable by 3 more). Section 32 — also submit to Registrar of Companies.
Format: Form A = Balance Sheet format. Form B = P&L format. Both prescribed in Third Schedule of B.R. Act. Banks close books on 31st March every year (changed from 31st December). Also close on 30th September for internal purposes.
Publication: Published in a newspaper within 6 months from year-end.
8 types of banks in India: Nationalised, SBI, Foreign branches, Co-operative, RRBs, Private sector, Small Finance, Payments Banks.
📊 Part 2 — Balance Sheet: Form A (6+6 = 12 Schedules)
Capital & Liabilities side (Schedules 1–5):
Sch 1: Capital — For nationalised banks, just “Capital.” For other banks: Authorised → Issued → Subscribed → Called-up − Calls unpaid + Forfeited shares. Sch 2: Reserves & Surplus — Statutory Reserve, Capital Reserve, Share Premium, Revenue Reserves, Balance in P&L. Sch 3: Deposits — Demand Deposits (from banks + others), Savings Bank, Term Deposits (from banks + others). Also split: India branches + Outside India. Sch 4: Borrowings — From RBI, Other banks, Other institutions. India + Outside India. Sch 5: Other Liabilities — Bills Payable, Inter-Office Adjustments (net), Interest Accrued, Deferred Tax, Others.
Assets side (Schedules 6–11):
Sch 6: Cash & Balances with RBI. Sch 7: Balances with Banks & Money at Call. Sch 8: Investments — Govt securities, Other approved, Shares, Debentures/Bonds, Subsidiaries/JVs. Sch 9: Advances — Bills purchased/discounted, CC/OD/Demand loans, Term loans. Also classified: Secured by tangible/Govt guarantee/Unsecured. Also: Priority sector/Public sector/Banks/Others. Sch 10: Fixed Assets — Premises + Other fixed assets. Sch 11: Other Assets.
Sch 12: Contingent Liabilities — off-balance-sheet items (LCs, Guarantees, Acceptances). Plus Bills for Collection.
💰 Part 3 — Key Special Rules for Banks
Statutory Reserve: Before declaring dividend, EVERY banking company must transfer 20% of current year’s profit to Statutory Reserve. This is unique to banks!
Slip System: Banks follow voucher posting → then day books. Ledger updated first, journal later (as we learned in Ch 9).
“To” and “By” not used: In bank P&L accounts, the words “To” and “By” are NOT used (unlike normal companies).
P&L Appropriation not prepared separately: Appropriations and transfer to statutory reserve are shown directly in the Balance Sheet (not in a separate Appropriation A/c like other companies).
Rebate on Bills Discounted = UNEXPIRED discount. When a bank discounts a bill, it earns discount income upfront. But at year-end, the unearned portion (for days remaining till maturity after 31st March) must be reversed. This is the “rebate.”
Inter-Office Adjustments: Shown in Schedule 5 (Other Liabilities) — NET position of all unreconciled inter-branch entries.
Ind AS implementation for banks: Was due from April 2018, deferred multiple times, currently deferred till further notice due to pending legislative amendments and COVID impact.
Basel III disclosures: Pillar 3 (Market Discipline) requires banks to disclose capital adequacy, credit risk, risk exposures. Pillar 3 disclosures at least half-yearly; Capital Adequacy + Credit Risk disclosures quarterly.
Exam-Ready Points
🎯 Must Remember!
- Banks follow: Third Schedule of B.R. Act 1949 (NOT Schedule III of CA 2013). Form A = BS. Form B = P&L.
- Banking defined: Section 5 of B.R. Act. Accepting deposits for lending/investment, repayable by cheque/draft.
- Section 8: Banks CANNOT buy/sell/deal in goods. Only banking business!
- Section 29: Signed by manager + at least 3 directors. FY ends 31st March.
- Section 30: Audit. RBI’s prior approval needed for appointing/removing auditor.
- Section 31: Submit 3 copies to RBI within 3 months (extendable by 3 more).
- 12 Schedules: Sch 1–5 = Liabilities side. Sch 6–11 = Assets side. Sch 12 = Contingent Liabilities.
- Schedule 10 = Fixed Assets (Premises + Other). NOT investments, NOT current assets!
- Schedule 13 = Interest Earned (P&L). Schedule 14 = Other Income. Sch 15 = Interest Expended. Sch 16 = Operating Expenses.
- Statutory Reserve: 20% of current year’s profit BEFORE dividend. Unique to banks!
- “To” and “By”: NOT used in bank P&L. P&L Appropriation NOT prepared separately.
- Rebate on Bills Discounted = UNEXPIRED discount (unearned income at year-end).
- Operating expenses do NOT include: Interest expenditure (that’s in Sch 15, separate!)
- General Ledger = NOT a subsidiary book. It’s the MAIN book! Current A/c ledger, Loan ledger = subsidiary.
- Deposits classification: Demand, Savings, Term. Split by: Banks vs Others + India vs Outside India.
- Advances classification (3 ways): (A) By type: Bills/CC-OD-Demand/Term. (B) By security: Tangible/Govt guarantee/Unsecured. (C) By sector: Priority/Public/Banks/Others.
- Basel III Pillar 3: Capital Adequacy + Credit Risk = quarterly disclosure. Others = half-yearly.
- Ind AS for banks: Deferred till further notice (pending legislative amendments).
📝 Past Exam Questions
Memory Tricks
🧠 Trick 1
Form B = Business results (P&L) 💰
Third Schedule of B.R. Act
NOT Schedule III of CA!”
🧠 Trick 2
CRDBO = Capital, Reserves,
Deposits, Borrowings, Other Liabilities
Assets = Schedules 6-11
Sch 12 = Contingent (off-BS)”
🧠 Trick 3
give 20% to STATUTORY RESERVE!
Like paying TAX before SALARY!
Unique to banks only! 🏦”
🧠 Trick 4
= UNEXPIRED discount 📅
Like prepaid insurance!
Income NOT yet earned = reverse it!”
🧠 Trick 5
CA ledger, Loan ledger = WORKERS 👷
GL is NOT a subsidiary book!
It’s the MAIN control book!”
🧠 Trick 6
Operating Expenses = Schedule 16
Interest is NOT operating! 🚫
They’re SEPARATE schedules!”
Last-Minute Flash Cards
⚡ Module B • Chapter 6 (Unit 17) Done!
- Banks use: Third Schedule of B.R. Act (Form A = BS, Form B = P&L). NOT CA Schedule III.
- 12 Schedules: 1-5 Liabilities, 6-11 Assets, 12 Contingent. P&L: Sch 13-16.
- Statutory Reserve: 20% of profit before dividend. Mandatory for all banks.
- Special rules: No “To/By” in P&L. No separate Appropriation A/c. Rebate on bills = unexpired discount.
- GL = main book. Subsidiary books = CA, SB, FD, Loan, Investment ledgers.
- Basel III Pillar 3: Capital + Credit Risk = quarterly. Others = half-yearly. Ind AS deferred.
Banky says: “Form A = BS, Form B = P&L! 12 Schedules! 20% Statutory Reserve! Rebate = unexpired discount! Now I can read MY OWN bank’s annual report!” 🎉🏦
Next: Chapter 18 — Core Banking Systems! The FINAL chapter! 🏁