• Directive against write-back of excess provision on depreciation
• Amount of subordinated debt as tier II capital to be quantified

MUMBAI, May 22: Reserve Bank of India (RBI) has called for additional `disclosures' in bank balance sheets. For the first time, all commercial banks have been directed to mention the exact amount provided for depreciation in investments, non-performing assets and even income tax in their annual accounts.

The aim is to bring in more transparency in banks' books. The additional disclosures will be shown in the "notes on account" for the year ended March 31, 1997.

The central bank has also directed the banks not to `inflate' their net profits by using write-back of excess provision towards depreciation in investments. The directive was issued on Thursday.

The additional disclosures the central bank has called for include: percentage of share holding of the government of India in the nationalised banks; percentage of net NPAs to net advances; the amount of provisions made towards NPA; depreciation in the value of investments; and provisions towards income tax during the year.

So far, banks have been clubbing all these provisions and taxations under `provisions and contingencies' in the profit-and-loss account.The central bank has also directed the banks to quantify the amount of subordinated debt as tier II capital. "At present, the amount of subordinated debt is not separately shown in the balance sheet or in any of the schedules. Banks may suitably indicate the amount of subordinated debt raised as tier II capital by way of explanatory notes/remarks in the balance sheet as well as in Schedule 3 relating to "other liabilities and provisions," the note said.

Banks have also been directed to specify the gross value of investments in India and outside the country, aggregate of provisions for depreciations and the break-up of the net value of investments. Till now, banks were required to show the value of investments only on a net basis after adjusting for provisions towards depreciation.

"Any excess provision for depreciation in investments held by banks as at the end of 1995-96 over the requirement of the same for 1996-97 should be taken to the profit-and-loss account under the head `expenditure—provisions and contingencies' as a credit item. Thereafter, an equivalent amount should be appropriated to `capital reserve' account and shown under `reserves and surplus' in the balance sheet," the central bank had said in April.

It had also indicated that "the excess provision towards depreciation in investments held under `reserves and surplus' would be eligible for inclusion in tier II capital."

It has now revised its stand and clarified that "the write-back of the excess provision and credit thereof to `capital reserve account' should be accounted for in such a manner that the net profit for the year does not get inflated."

Several banks plan to use the written-back amount to boost the current category of investments. "We will use this to mark to market a higher amount of bank's investments," Bank of India chairman MG Bhide said. State Bank of India is also planning to push a higher percentage of its investments to the current category.

Senior bankers are also examining the tax implications of the Reserve Bank's directive to route excess provisions through the profit-and-loss account.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.