rbi circular on presentation of financial statements

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Reserve bank of india (financial statements – presentation and disclosures) directions, 2021 – disclosure of material items.

The Reserve Bank of India ( RBI ) governs the presentation of financial statements by Banks through their guidelines and directives. In this regard, they have issued the “Master Direction on Financial Statements – Presentation and Disclosures” (“ Master Directions ”) dated August 30, 2021. Further, based on the feedback received, they continue to update the Master Directions from time to time regarding clarification on compliance with accounting standards and disclosures.

The purpose is to have all current instructions on presentation and disclosure in financial statements in one place for reference. Part A of Annexure II of the Master Directions contains the general guidelines/instructions regarding the compilation of the Balance Sheet and the Profit and Loss Account which form the two most important financial statements. It applies to all Banking Companies, including the State Bank of India, Foreign Banks, Regional Rural Banks, Small Finance Banks, Payments Banks, etc.

Chapter IV or Clause 6 introduces us to “notes to accounts” which is specified in Annexure III of the Master Directions. It clearly states that these disclosures are in addition to and intended to supplement and not replace the disclosure requirements that are mandated by other laws, regulations, accounting and financial standards. It encourages Banks to make more comprehensive disclosures than the minimum threshold required under the Master Directions, especially if such disclosures significantly aid in the understanding of the financial position and performance of Banks.

On 13 December 2022, the RBI issued a notification in reference to the Master Directions clarifying the disclosure requirements regarding material items to bring in a greater degree of transparency. It refers to schedule 14 “other income” which has various categories of income such as “commission, exchangeand brokerage” which includes all remuneration on services such as commission on collections, commission/exchange on remittances and transfers, commission on letters of creditand bank guarantees, letting out of lockers, etc.

; “Profit on sale or revaluation of investments and profit on sale of land” which includes profit/loss on sale of securities, furniture, vehicles, land, buildings and other assets, etc.; “income earned by way of dividends from subsidiaries” and “miscellaneous income” which includes income from bank’s properties, security charges, insurance etc.

The notification clarifies that if any item under “miscellaneous income” exceeds one percent of the total income, then the Bank must include its particulars in the notes to accounts. Similarly, if any item included in “other expenditure” under Schedule 16 “Operating Expenses” exceeds one percent of the total income, particulars regarding the same must be given in the notes to accounts.

The notification also specifically clarifies that Payments Banks shall disclose the particulars of all such items in the notes to accounts, wherever any item under Schedule 14 (I) – Other Income – “Commission, Exchange, and Brokerage” exceeds one percent of the total income. It is also clarified in the Master Directions that, income from foreign exchange should not be included under “Commission, Exchange and Brokerage” to avoid confusion.

Further, the notification also clarifies that when items included under Schedule 5 “Other Liabilities and Provisions”, IV “Others”, which exceeds one percent of the total assets, particulars with respect to all such items shall be disclosed in the notes to accounts.

The notification clarifies that these changes will come into effect for disclosures in the notes to the annual financial statements for the year ending March 31, 2023, and onwards. The Master Directions as available on the Reserve Bank of India website have also been updated accordingly to reflect these changes, in order to avoid confusion.

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RBI (Financial Statements – Presentation and Disclosures) Directions, 2021 – Disclosure of material items

Reserve Bank of India

RBI/2022-23/154 DOR.ACC.REC.No.91/21.04.018/2022-23

Dated: December 13, 2022

Reserve Bank of India (Financial Statements – Presentation and Disclosures) Directions, 2021 – Disclosure of material items

Please refer to the notes and instructions for compilation of Balance Sheet and Profit and Loss Account, for commercial banks, as specified in Annexure II to the Reserve Bank of India (Financial Statements-Presentation and Disclosures) Directions, 2021 (hereinafter referred to as “Directions”).

2. In terms of Part A of Annexure II to the Directions, in case any item under the subhead “Miscellaneous Income” under the head “Schedule 14-Other Income” exceeds one per cent of total income, particulars shall be given in the notes to accounts. Similar instructions exist in case of subhead “Other expenditure” under the head “Schedule 16-Operating Expenses”.

3. In order to ensure greater transparency, it has been decided that banks shall also disclose the particulars of all such items in the notes to accounts wherever any item under the Schedule 5(IV)-Other Liabilities and Provisions-“Others (including provisions)” or Schedule 11(VI)-Other Assets-“Others” exceeds one per cent of the total assets.

4. Further, Payments Banks shall also disclose particulars of all such items in the notes to accounts, wherever any item under the Schedule 14(I)-Other Income-“Commission, Exchange and Brokerage” exceeds one per cent of the total income.

5. We also invite attention to Clause 6 of the Chapter IV of the Directions ibid, in terms of which more comprehensive disclosures than the minimum required are encouraged, especially if such disclosures significantly aid in the understanding of the financial position and performance of banks.

Applicability

6. These instructions are applicable to all commercial banks. These instructions shall come into effect for disclosures in the notes to the annual financial statements for the year ending March 31, 2023 and onwards.

7. The Reserve Bank of India (Financial Statements – Presentation and Disclosures) Directions, 2021 shall stand updated to reflect these changes.

Yours faithfully,

(Usha Janakiraman) Chief General Manager

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RBI Master Direction on Financial Statements - Presentation and Disclosures

notice date : 30 august 2021.

Reserve Bank of India

RBI/DOR/2021-22/83 DOR.ACC.REC.No.45/21.04.018/2021-22

August 30, 2021

All Commercial Banks and Primary (urban) Cooperative Banks

Madam/ Dear Sir,

Master Direction on Financial Statements – Presentation and Disclosures

The Reserve Bank of India has, from time to time, issued several guidelines/instructions/directives to the banks on the presentation of financial statements, regulatory clarification on compliance with accounting standards, and disclosures in notes to accounts.

2. A Master Direction incorporating, updating and where required, harmonizing across the banking sector the extant guidelines/instructions/directives on the subject has been prepared to enable banks to have all current instructions on presentation and disclosure in financial statements at one place for reference. However, it may be noted that in addition to these disclosures, Commercial Banks shall comply with the disclosures specified under the applicable regulatory capital framework.

3. Reserve Bank of India has issued this Direction in the exercise of its powers conferred under section 35A and section 56 of the Banking Regulation Act, 1949, and all the powers enabling it on this behalf.

Yours faithfully, -sd-

(Usha Janakiraman) Chief General Manager

Please refer to the attached file for full notification

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RBI issues circular on disclosure of material items under RBI (Financial Statement- Presentation and Disclosures) Directions, 2021

On 13-12-2022, the Reserve Bank of India (‘RBI’) has issued circular on Disclosure of material items under the Reserve Bank of India

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On 13-12-2022, the Reserve Bank of India (‘RBI’) has issued circular on Disclosure of material items under the Reserve Bank of India (Financial Statement- Presentation and Disclosures) Directions, 2021 in order to ensure greater transparency.

Applicability: Applicable to all commercial banks. The instructions of this circular will come into effect from the financial year ending 31-3-2023 and onwards.

Key Points:

In addition to the previous disclosures, the banks, now have to disclose to the accounts, the particulars of all such items in the notes wherever any item exceeds one percent of the total assets under:
the Schedule 5(IV)- Other Liabilities and Provisions- “Others (including; provisions)”
Schedule 11(VI)-Other Assets- “Others”.
In the case of Payments Banks, such disclosure has to be made where any item under the Schedule 14(I)-Other Income- “Commission, Exchange and Brokerage” exceeds one per cent of the total income.

*Kriti Kumar, Editorial Assistant has reported this brief.

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