Towards this end, RBI has set up a working group recently under its Department of Banking Operations and Development to come out with necessary guidelines on consolidated accounts for banks. The move is aimed at providing the investor with a better insight into viewing a bank's performance in totality, including all its branches and subsidiaries, and not as isolated entities.

According to sources, this will be a path-breaking change to the existing norms wherein each bank conducts its accounts without taking into consideration the disclosures of its subsidiaries and other divisions for disclosure.

As per the proposed new policy guidelines, which are expected to be announced in the current quarter, the banks will be required to consolidate their accounts including all its subsidiaries and other holding companies for better transparency.

According to a senior banker, this will require the banks to have a stricter monitoring system of not only their own bank, but also the other subsidiaries in other sectors like mutual funds, merchant banking, housing finance and others. This is all the more important in the context of the recent announcements made by some major public sector banks where they have said they would hive off or close down some of their underperforming subsidiaries.

Getting all these accounts consolidated with that of the parent bank will provide the investor a better understanding of the banks' performances while deciding on their exposures. More so, since a number of public sector banks are now listed entities whose stocks are traded on the stock exchanges. Some public sector banks are even preparing their accounts in line with US GAAP norms in anticipation of a US listing. These norms will therefore be in line with the future plans of these banks as well, the sources said.

The working group was set up following the need to bring about transparency on the lines of international norms through better disclosures.

According to a banker, earlier subsidiaries were floated as external independent entities wherein the accounting details were not incorporated in the parent bank's balance sheet, but at the same time it was assumed that the problems will be dealt with by the parent. However, now these new norms will necessitate not only that the problems are handled by the parent, but investors are also aware of what exactly the problems are and how they affect the bottomlines of the parent banks. Now, under the new guildelines, this will no longer be an external disclosure to the parent banks' books of accounts. Rather, point out bankers, this will very much form an integral part of the parent's balance sheet. For instance, if a subsidiary is not performing well or making losses, this will reflect in the parent's balance sheet.