The Reserve Bank of India ( RBI ) has issued clarifications in response to queries from banks and the Indian Banks’ Association ( IBA ) regarding how certain items should be classified or disclosed in banks’ financial statements. These clarifications aim to ensure uniformity and transparency in how banks present key financial information.
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Key Clarifications Issued:
Lien Marked Deposits: Banks had asked whether margin money deposits with a lien (i.e., held as security) should be treated differently.
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Classification of Guaranteed Advances (CGTMSE etc.): There was confusion about where to disclose loans guaranteed by schemes like CGTMSE, CRGFTLIH, or NCGTC.
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Valuation of Repo and Reverse Repo Transactions: Banks asked whether market value or face value should be disclosed.
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Q&A
Q1: Reference is invited to Notes and Instructions for Compilation of Balance Sheet specified in Part A of Annex II with respect to Schedule 5: Other Liabilities and Provisions: Others (including provisions) of the Directions ibid in terms of which certain types of deposits where the repayment is not free, shall also be included under this head. We have received queries from banks on the classification in the balance sheet, of margin money received in the form of deposits, where lien is marked by banks in the ordinary course of business.
RBI Clarification: It is clarified that lien marked deposits shall continue to be classified under Schedule 3: Deposits with suitable disclosures.
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Q2: In terms of Notes and Instructions for Compilation for Balance Sheet in Annex II Part A for Schedule 9 (B) (ii): Advances Covered by Bank/Government Guarantee of the Directions ibid, whether advances guaranteed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) should be disclosed under Schedule 9 (B) (ii) (i.e., advances covered by bank/government guarantees) or under Schedule 9(B) (iii) (i.e., unsecured advances)?
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RBI Clarification: It is clarified that advances, to the extent they are covered by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and individual schemes under National Credit Guarantee Trustee Company Ltd. (NCGTC), which are backed by explicit Central Government Guarantee, in terms of paragraph 5.2.3 and 5.2.4 of Master Circular DOR.CAP.REC.4/21.06.201/2024-25 on Basel III Capital Regulations dated April 1, 2024, as amended from time to time, shall also be disclosed under Schedule 9 (B) (ii) i.e. ‘Advances Covered by Bank/Government Guarantee’.
Q3: Whether market value of repo and reverse repo transactions would better reflect the financials of banks instead of face value in terms of disclosures prescribed in Paragraph C. 3(e) of Annex III Disclosure in Financial Statements: Notes to Accounts to the Directions ibid?
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RBI Clarification: It is clarified that disclosures on repo/reverse repo transactions shall be done in market value terms as well as face value terms.
These clarifications apply to all commercial and cooperative banks, effective from the financial year ending March 31, 2025, and onwards.
The RBI has also confirmed that the 2021 Directions will be updated to reflect these changes officially.
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