Disclosure Requirements of Banks to Notes to Accounts,

Financial statement disclosures are non-financial information that appears at the end of a financial statement. This information helps investors, lenders, and others make decisions. The Basel Framework’s Pillar 3 outlines a set of public disclosure requirements for internationally active banks. These requirements provide market participants with information to assess a bank’s capital adequacy and material risks.

The disclosure norms for banks and other financial institutions were introduced by the Reserve Bank of India in March 2001 to bring about uniformity in the disclosure practices adopted by them and improve the degree of transparency in their affairs. Such disclosures, which came into effect from the financial year 2000-2001 and were subsequently enhanced, are required to be made as part of the “Notes to Accounts” to enable the auditors to authenticate the information, even though the same information might be contained elsewhere in the published financial statements. The disclosure norms prescribed by Ind-AS and RBI is the minimum requirement, and if a bank desires to make additional disclosures they are free to do so.

The various disclosure requirements prescribed are as under:

 Capital:

* CRAR, core CRAR, and supplementary CRAR

* The amount of subordinated debt raised and outstanding as Tier-II capital

* Risk-weighted assets – separately for on- and off-balance sheet items

* The share-holding pattern as of the date of the balance sheet

 * Asset Quality and Credit Concentration:

* Percentage of net NPAs to net loans and advances

* Amount and percentage of net NPAs under the prescribed asset classification categories

* Amount of provisions made during the year towards Standard assets, NPAs, investments (other than those like an advance), income tax

* Movement in net NPAs

 Credit exposure as a percentage to capital funds and as a percentage to total assets, in respect of :

* The largest single borrower;

* The largest borrower group;

* The 10 largest single borrowers;

* The 10 largest borrower groups;

(Names of the borrowers/borrower groups need not be disclosed).

* Credit exposure to the five largest industrial sectors (if applicable) as a percentage of total loan assets

Liquidity

*Maturity pattern of rupee assets and liabilities; and (l) Maturity pattern of foreign currency assets and liabilities, shall be in a tabular format containing (i)Less than or equal to 1 year, (ii) More than a year up to 3 years, (iii) more than 3 years up to 5 years,(iv) more than 5 years up to 7 years, (v)more than 7 years (vi) Total.

The above details are furnished in the above-said table format of 6 columns displaying items chronologically as under:

Assets: Rupee assets, foreign currency assets, total assets

Liabilities: Rupee liabilities, foreign currency liabilities, total liabilities

Total:

 Operating Results

* Interest income as a percentage to average working funds

* Non-interest income as a percentage to average working funds

* Operating profit as a percentage of average working funds

(*Return on average assets

* Net Profit per employee

Movement in the provisions

The movement in the provisions held toward Non-Performing Assets and depreciation in the investment portfolio should be disclosed as per the following format :

(I). Provisions for Non-Performing Assets (comprising loans, bonds, and debentures like advance and inter-corporate deposits) (excluding provision for standard assets)

a) Opening balance as at the beginning of the financial year

Add: Provisions made during the year

Less: Write off, write back of excess provision

b) Closing balance at the close of the financial year

(II). Provisions for Depreciation in Investments

a) Opening balance as at the beginning of the financial year

Add :

b) Provisions made during the year

* Appropriation, if any, from the Investment Fluctuation Reserve Account during the year

Less :

* Write off during the year

* Transfer, if any, to the Investment Fluctuation Reserve Account

* Closing balance as of the close of the financial year

 Restructured Accounts

The total amount of loan assets as also of the sub-standard assets / doubtful assets separately, which have been subjected to restructuring, etc should be disclosed.

Review of Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions

Banks should disclose the number and amount of restructured advances, and the amount of diminution in the fair value of the restructured advances in their annual balance sheets.

Income recognition

Banks should not charge and take to income account interest on any non-performing assets (NPA).

Restructuring application

The application for restructuring should be received before the expiry of the period mentioned in the guidelines and when the account is still standard.

Moratorium on interest payment

Banks should not book income on an accrual basis beyond two years for infrastructure projects and one year for non-infrastructure projects.

Restructuring involves modification of terms of advance/securities, which would generally include, among others, alteration of repayment period / repayable amount/ the number of installments/rate of interest, etc.

Read: PRUDENTIAL NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION, AND PROVISIONING

For disclosure in the above Format, the following instructions are required to be followed :

(i) Advances restructured under the CDR Mechanism, SME Debt Restructuring Mechanism, and other categories of restructuring should be shown separately.

(ii) Under each of the above categories, restructured advances under their present asset classification, i.e. standard, sub-standard, doubtful, and loss should be shown separately.

(iii) Under the ‘standard’ restructured accounts; accounts, which have objective evidence of no longer having inherent credit weakness, need not be disclosed. For this purpose, an objective criteria for accounts not having inherent credit weakness is discussed below :

(a) As regards restructured accounts classified as standard advances, given the inherent credit weakness in such accounts, banks are required to make a general provision higher than what is required for otherwise standard accounts in the first two years from the date of restructuring. In the case of a moratorium on payment of interest/principal after restructuring, such advances attract the higher general provision for the period covering the moratorium and two years thereafter.

(b) The risk weight for unrated corporate exposures is 100%, except for unrated exposures to small or medium-sized enterprises (SMEs). The risk weight for housing loans is 50%. (c) The aforementioned [(a) and (b)] additional / higher provision and risk weight ceases to be applicable after the prescribed period if the performance is as per the rescheduled programme. However, the diminution in the fair value will have to be assessed on each balance sheet date and provision should be made as required.

(d) Restructured accounts classified as sub-standard and doubtful (non-performing) advances, when upgraded to the standard category also attract a general provision higher than what is required for otherwise standard accounts for the first year from the date of up-gradation, in terms of extant guidelines on provisioning requirement of restructured accounts. This higher provision ceases to be applicable after one year from the date of upgradation if the performance of the account is as per the rescheduled program. However, the diminution in the fair value will have to be assessed on each balance sheet date and provision made as required.

(e) Once the higher provisions and/or risk weights (if applicable and as prescribed from time to time by RBI) on restructured standard advances revert to the normal level on account of satisfactory performance during the prescribed periods as indicated above, such advances, henceforth, would no longer be required to be disclosed by banks as restructured standard accounts in the “Notes on Accounts” in their Annual Balance Sheets. However, banks should keep an internal record of such restructured accounts till the provisions for diminution in fair value of such accounts are maintained.

* Disclosures should also indicate the intra-category movements both on upgradation of restructured NPA accounts as well as on slippage. These disclosures would show the movement in restructured accounts during the financial year on account of addition, upgradation, downgradation, write-off, etc.

* While disclosing the position of restructured accounts, banks must disclose the total amount outstanding in all the accounts/facilities of borrowers whose accounts have been restructured along with the restructured part or facility. This means that even if only one of the facilities/accounts of a borrower has been restructured, the bank should also disclose the entire outstanding amount about all the facilities/accounts of that particular borrower.

* Upgradation during the year (Sl No. 3 in the Disclosure Format) means movement of ‘restructured NPA’ accounts to ‘standard asset classification from substandard or doubtful category’ as the case may be. These will attract higher provisioning and/or risk weight’ during the ‘prescribed period’ as prescribed from time to time. A (-) and a (+) sign in the relevant category will indicate movement from one category into another.

* Movement of Restructured standard advances (Sr. No. 4 in the Disclosure Format) out of the category into normal standard advances will be indicated by a (-) sign in the column “Standard”.

* Downgradation from one category to another would be indicated by the (-) ve and (+) ve signs in the relevant categories.

* Upgradation, downgradation, and write-offs are from their existing asset classifications.

* All disclosures are based on current asset classification, not ‘pre-restructuring’ asset classification.

* Additional/fresh sanctions to an existing restructured account can be shown under Sr. No. 2 ‘Fresh Restructuring during the year’ with a footnote stating that the figures under Sr. No.2 include Rs. xxx crore of fresh/additional sanction (number of accounts and provision thereto also) to existing restructured accounts. Similarly, reductions in the quantity of restructured accounts can be shown under Sr.No.6 ‘write-offs of restructured accounts during the year’ with a footnote stating that it includes Rs. xxx crore (no. of accounts and provision thereto also) of reduction from existing restructured accounts by way of sale/recovery.

*  Closing balance as of March 31st of an FY should tally arithmetically with opening balance as of April 1st of the FY + Fresh Restructuring during the year including additional/fresh sanctions to existing restructured accounts + Adjustments for movement across asset categories – Restructured standard advances which cease to attract higher risk weight and/or provision – reductions due to write-offs/sale/recovery, etc. However, if due to some unforeseen / any other reason, arithmetical accuracy is not achieved, then the difference should be reconciled and explained by way of a footnote.

Details of financial assets sold to Securitisation / Reconstruction Company for Asset Reconstruction

When the bank sells its financial assets to a Securitisation Company (SC)/Reconstruction Company (RC), the same is removed from the books.  If the sale is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall is debited to the profit and loss account of the year of sale.

Income (other than interest) on investments in the “Held to Maturity” (HTM) category acquired at a discount to the face value, is recognised as follows :

 a. On Interest bearing securities, it is recognised only at the time of sale/ redemption.

 b. On zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.

 The dividend is accounted for on an accrual basis where the right to receive the dividend is established.

All other commission and fee incomes are recognised on their realisation except for: (i) Guarantee commission on deferred payment guarantees, which is spread throughout the guarantee; (ii) Commission on Government Business and ATM interchange fees, which are recognised as they accrue; and (iii) Upfront fees on restructured accounts, which is apportioned over the restructured period.