RBI / 2008-2009/ 63
DBOD. No. FID. FIC.2 /01.02.00/2008-09

01 July, 2008

The CEOs of the all-India Term-lending and Refinancing Institutions
(Exim Bank, NABARD, NHB and SIDBI)

Dear Sir,

Master Circular - Disclosure Norms for Financial Institutions

Please refer to the Master Circular DBOD No.FID.FIC.2 /01.02.00/2007-08 dated July 02, 2007 consolidating instructions/ guidelines issued to banks till 30 June 2007 on matters relating to norms for disclosure in the published financial statements. The Master Circular has been consolidated and updated by incorporating instructions issued up to 30th June 2008 and has also been placed on the web-site of RBI (http://www.rbi.org.in).

2. It may be noted that the instructions contained in the Annex 3 have been consolidated in this master circular.

Yours faithfully,

(Vinay Baijal)
Chief General Manager

Master Circular – Disclosures in Financial Statements of
Financial Institutions – Notes to Accounts

Purpose

To provide a detailed guidance to all-India term-lending and refinancing institutions in the matter of disclosures in the ‘Notes to Accounts’ to the Financial Statements.

Previous instructions

This master circular consolidates and updates the instructions on the above subject contained in the circulars listed in the Annex 3.

Application

To all the all India Financial Institutions viz. Exim Bank, NABARD, NHB and SIDBI.

Structure

1. Introduction

1 Introduction

Recognising considerable divergence amongst the financial institutions in the nature and manner of disclosures made by them in their published financial statements the disclosure norms were introduced by Reserve Bank of India for the financial institutions in March 2001 with a view to bringing about uniformity in the disclosure practices adopted by them and improving 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 and notwithstanding the fact that the same information might be contained elsewhere in the published financial statements. These disclosures constitute only minima and if an FI desires to make any additional disclosures, it would be well advised to do so.

2 Guidelines on Disclosure requirements

The various disclosure requirements are as under:

2.1 Capital

a) CRAR, core CRAR and supplementary CRAR

b) The amount of subordinated debt raised and outstanding as Tier–II capital

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

(d) The share holding pattern as on the date of the balance sheet

2.2 Asset quality and credit concentration

(e) Percentage of net NPAs to net loans and advances

(f) Amount and percentage of net NPAs under the prescribed asset classification categories.

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

(h) Movement in net NPAs

(i) Credit exposure as percentage to capital funds and as
percentage to total assets, in respect of:

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

as percentage to total loan assets

2.3 Liquidity

(k) Maturity pattern of rupee assets and liabilities; and

(l) Maturity pattern of foreign currency assets and liabilities, in the following format:

2.4 Operating results

(m) Interest income as a percentage to average working funds

(n) Non-interest income as a percentage to average working funds

(o) Operating profit as a percentage to average working funds

(p) Return on average assets

(q) Net Profit per employee

2.5 Movement in the provisions

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

I. Provisions for Non Performing Assets (comprising loans, bonds and debentures in the nature of 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

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

Add:

i. Provisions made during the year
ii. Appropriation, if any, from Investment Fluctuation Reserve Account during the year

Less:

i. Write off during the year

ii. Transfer, if any, to Investment Fluctuation Reserve Account

d) Closing balance as at the close of the financial year

2.6 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.

2.7 Assets Sold to Securitisation Company/ Reconstruction Company

FIs which sell their financial assets to an SC/ RC, shall be required to make the following diclosures :

a) Number of Accounts

b) Aggregate value (net of provisions) of accounts sold to SC /RC

c) Aggregate consideration

d) Additional consideration realised in respect of accounts transferred in earlier years

e) Aggregate gain / loss over net book value.

2.8 Forward Rate Agreements and Interest Rate Swaps

The following disclosures should be made in the note to the balance sheet:

• The notional principal of swap agreements;

• Nature and terms of the swaps including information on credit and market risk and the accounting policies adopted for recording the swaps;

• Quantification of the losses which would be incurred if the counter parties failed to fulfil their obligations under the agreements;

• Collateral required by the entity upon entering into swaps;

• Any concentration of credit risk arising from the swaps. Examples of concentration could be exposures to particular industries or swaps with highly geared companies; and

• The "fair" value of the total swaps book. If the swaps are linked to specific assets, liabilities or commitments, the fair value would be the estimated amount that the entity would receive or pay to terminate the swap agreements at balance sheet date. For a trading swap, the fair value would be its mark to market value.

2.9 Interest Rate Derivatives

The FIs dealing in interest rate derivatives on exchanges should disclose as a part of the 'notes on accounts' to balance sheets the following details:

2.10 Investments in Non Government Debt Securities:

The FIs should disclose the details of the issuer composition of investments made through private placement and the non-performing investments in the ‘Notes on Accounts’ of the balance sheet in the format furnished in the Annex 1.

2.11 Consolidated Financial Statements (CFS)

2.11.1 Extent of Consolidation:

A parent, presenting the CFS, should consolidate the financial statements of all subsidiaries – domestic as well as foreign, except those specifically permitted to be excluded under the AS-21 the ICAI. The reasons for not consolidating a subsidiary should be disclosed in the CFS. The responsibility of determining whether a particular entity should be included or not for consolidation would be that of the Management of the parent entity. In case, its Statutory Auditors are of the opinion that an entity, which ought to have been consolidated, has been omitted, they should incorporate their comments in this regard in the "Notes to Account".

2.11.2 Accounting Policies: