Profit & Loss

Prof.b.p.mshra
ximb
 PROFIT AND LOSS ACCOUNT

15.Expenses
Income
13.Interest Income(85%)
Advances
Investment
Inter bank Bank lending
Interest on balances with RBI
14.Non Interest Income (15%)
Income earned from in form
of Commission and brokerage
Profit & sale of Investment
Profit on Forex Transaction
Profit on Sale of assets
Interest Expenses
(70%)(borrowings & deposits)
16. Non Interest Expenses -
19.67% (Operating Expenses)
Expenses on
Employee,Premises,Printing &
Stationery etc
Provisions & Contingencies
10.33%

Net Profit is Income net of expenses is apportioned to Reserves & Surplus

2
 Appropriation of Net Profit
Net Profit is transferred to
Statutory Reserve
Staff Welfare Fund
Investment Reserve
Capital Reserve
Special Reserve
General Reserve
Dividend
Tax on dividend
3
 Income
Interest IncomeS 13
Interest on Advances/Bills
Income on Investment
Interest on Inter Bank Deposits
Other/Non Interest IncomeS 14
Commission/Brokerage
Profit on Sale of Investment
Profit on Sale of Fixed assets
Profit on Derivative/ Forex Transaction
Income from Dividend
Income from Financial Lease 4
 Expenses
Interest Expenses.S 14
Interest on Deposits
Interests on RBI/ Inter Bank Borrowing
Others
Operating/ Non Interest Expenses.S 15
Salary/Pension
Rent, Taxes
Printing/Advertisement
Others..
Provision & Contingency
Investment Depreciation
Tax
NPA/Standard Asset/Country 5
 Burden management
Net Profit = Total Income Total Expenditure
= (Interest Income + Other Income)
- (Interest Expenditure + Operating Expenditure)
- (Provisions & Contingencies)
=>(Interest Income Interest Expenditure) +
(Other Income - Operating Expenditure) (Provisions & Contingencies)
= Net Interest Margin (Spread) + Burden Provisions & Contingencies

For Profitable operation these three elements to be managed.

Spread Management has imitation in a
deregulated interest rate regime.

Burden Management is the only recourse=>

Increasing Other Income
Reducing Operating Expenses
 Issues relating to other income
Theory of ROE decomposition:
ROE = ROA X EQUITY MULTIPLIER ( EM ), WHERE

ROE = Net Profit / Average Equity

ROA = Net Profit / Average Assets
EM = Average assets / Average Equity

Other thing remaining equal, A bank earning

Non- interest income without adding asset increases ROA.
Since asset are not added, the EM remains same.
The combined effect is higher RoE.
In addition, Non-creation of assets does not call for
any provisioning, which coupled with higher net profit
increases CRAR And lower NPA.

Limitation:
If higher income is originating from Contingent Liabilities
(Off-balance sheet items), bank has to risk-adjust
their capital requirement.
 Schedule 17.Accounting Policies P169
Schedule 18.Notes on Accounts P..169

9
 Balance Sheet Disclosures
Disclosure essential for objective assessment of the
stability of the banking system

Enhance market discipline(3rd pillar of Basel II)

Disclosures enable counterparties and other market

participants to take informed decisions

Important element of corporate governance

10
 Disclosures- Capital
CRAR (%)
CRAR-Tier I Capital (%)
CRAR-Tier II capital (%)
Percentage of shareholding of Govt. of India
in public sector banks
Amount of subordinated debt raised as Tier II
Capital
11
 Disclosures-Investments
Gross value of investment
1. In India
2. Outside India
Provisions for depreciation
1. In India
2. Outside India

Net value of investment

1. In India
2. Outside India 12
 Disclosures-Investments
Movement of provisions held towards depreciation
on investments

Non SLR investment portfolio:

1. Issuer ( PSUs, FIs, Banks, Private Corporate,
Subsidiaries/JVs, Others ) composition of non SLR
investment
2. Non performing non SLR investment

13
 Disclosures-Asset Quality

NPAs:
1. Net NPAs to Net advances (%)

2. Movement of NPAs (Gross)

3. Movement of Net NPAs

1. Movement of provisions for NPAs ( excluding provisions

on standard Assets)
14
 Disclosures-Asset Quality
Floating provisions
Details of loan assets subjected to
Restructuring
Details of financial assets sold to SC/RC for
Asset Reconstruction
Provisions on Standard Asset

15
 Disclosures-Business Ratios

Interest Income as a % to Average WF (w.e.f. 31-3-98)

Non Interest Income as a % to Average WF (w.e.f. 31-3-8)
Operating Profit as a % to Average WF (w.e.f. 31-3-98)
ROA
Business per employee
Profit per employee

16
 Disclosures-ALM
Maturity pattern of Advances and Investments
Maturity pattern of Deposits and Borrowings
Maturity pattern of Foreign Currency Assets and
Liabilities

17
 Disclosures-Lending to sensitive sectors

Exposure to Real Estate

Exposure to Capital Market

18
 Disclosures
Risk Category-wise Country Exposure
Risk category:
1. Insignificant
2. Low
3. Moderate
4. High
5. Very High
6. Restricted
7. Off-Credit
Details of Single Borrower Limit /Group Borrower
Limit exceeded by the bank 19
 Disclosures-Miscellaneous

Provisions made for income tax during the year

Disclosure of penalties imposed by RBI
Customer complaints
Awards passed by the Banking Ombudsman

20
Other Disclosures- Accounting Standard

Segmented Reporting (AS-17)

Business Segments
1. Banking Operations
2. Treasury operations
Geographic Segments
1. Domestic Operations
2. Foreign Operations
Related Party disclosures under (AS -18)
EPS (AS-20) 21
 Other Disclosures- Accounting Standard

Consolidated Financial Statements (AS 21 and

23)
DTA/DTL (AS-22)
Impairment of Assets (As-28)-Mostly
applicable to manufacturing concerns using
Plant and Machinery

22
 Balance Sheet Analysis
Guidelines on Framework on analysis of
Balance Sheet issued on February 8,1999
Objective:
1. To enable banks to undertake focused
scrutiny of the balance sheet to identify/
analyse the key measures of returns and risks
2. To demonstrate the relationship of returns
and risks

23
 Net worth analysis
. PUC
1

2. +Reserves
3. +Surplus (in P&L Account)
4. (-) Accumulated Losses
Net worth (Book Value)
Adjustments following inspection findings
5 (-)Additional loan loss provisions required
6. (-) Additional investment (depreciation) provisions required
7. (-)Provisions required for losses in other assets
8. (-) Provisions required for likely loss in off balance sheet items
9. (-) Additional provisions required for any other liabilities (tax, gratuity,
bonus, pension, etc.)
10. (-)Any liabilities ,likely to devolve ,but not recognised
11. (-)Intangibles
12. (-) Unrealised interest on NPAs taken to income
13. (+)Any items included under liabilities which may not be outside liabilities
14. (+) Any excess or surplus provisions or provisions no longer required
Real Net worth or Real/exchangeable value of PUC and reserves

24
 Net worth analysis
Compliance with section 22 (3)(a) of BR Act i.e. the
bank has adequate assets to meet its liabilities
Compliance with Section 11 of BR Act i.e. bank
continues to maintain in real value the minimum
capital required or prescribed for it for holding
license
Impairment in equity:
1. Erosion of reserves ( Rs. )
2. Erosion of capital ( Rs. )
3. Erosion of deposits ( Rs. )
25
ANW covers % of outside liabilities.
 Banking Book vs Trading Book
Assets are classified into Banking Book and Trading Book

A trading book consists of positions in financial instruments

and commodities held either with trading intent or in order to
hedge other elements of the Banking book.

Positions held with trading intent are those held intentionally

for short-term resale and/or with the intent of benefiting
from actual or expected short-term price movements.

26
Trading book consists of
AFS Securities
HFT Securities
Exposure in Gold
Forex Exposure
Derivative position

Banking Book Includes

All types of dvances
HTM Securties
thanks