Income

Expenditure

Appropriation

Balance Sheet

Assets

10.1 The Bank has continued to maintain high standards of disclosure and transparency in the presentation of its accounts. In the background of policy developments elucidated in the preceding sections, the key financial results of the Bank's operations are presented in this section.

Income

10.2 The total income of the Bank for the year 1998-99, after various provisions, showed an increase of Rs. 5,136.69 crore (36.5 per cent) from Rs.14,083.64 crore to Rs.19,220.33 crore. The increase in income was mainly due to increase in earnings from domestic and foreign sources (Table 10.1).

Table 10.1 : Income

(Rupees crore)

Item

1998-99

1997-98

1996-97

1995-96

1994-95

1

2

3

4

5

6

A.

Foreign Sources

Interest, Discount,

Exchange, Commission

6,306.59

5,687.34

4,585.66

3,722.97

2,939.29

B.

Domestic Sources

Interest

12,642.96

7,999.73

6,954.88

6,098.74

5,056.97

Discount

87.74

21.37

1,601.88

2,025.25

1,158.54

Exchange

0.19

0.37

0.25

0.44

1.17

Commission

175.02

365.03

105.16

70.21

61.69

Rent realised and

Others

7.83

9.80

9.03

14.06

4.63

Total - Domestic

12,913.74

8,396.30

8,671.20

8,208.70

6,283.00

Total Income(Gross) [A+B]

19,220.33

14,083.64

13,256.86

11,931.67

9,222.29

C.

Less transfer to :

(i)

Contingency Reserve

8,917.65

2,158.72

4,204.92

3,664.79

1,502.70

(ii)

Asset Development

1,274.59

1,181.71

-

-

-

Reserve

      Total (i + ii)

10,192.24

3,340.43

4,204.92

3,664.79

1,502.70

      Total Income (Net)

9,028.09

10,743.21

9,051.94

8,266.88

7,719.59

Income from Foreign Sources

10.3 During the accounting year ended June 30,1999, the Bank's net earnings from deployment of foreign currency assets including gold rose by Rs.619.25 crore (10.9 per cent) from Rs.5,687.34 crore in 1997-98 to Rs.6,306.59 crore in 1998-99. This was mainly due to higher average level of foreign currency assets at Rs.1,16,445 crore in 1998-99 as against Rs.96,659 crore in 1997-98. However, the net earnings on foreign currency assets and gold declined from 5.88 per cent in 1997-98 to 5.42 per cent in 1998-99, which is attributable to lower interest rates prevailing in the international market. Excluding gains/ losses on market operations, the net earning of foreign currency assets and gold worked out to 5.10 per cent for 1998-99 as against 5.86 per cent in 1997-98. There was capital loss (net) on sale of securities at Rs.20.67 crore (depreciation of Rs.189.62 crore less realised capital gain of Rs.168.95 crore) during the year 1998-99 as compared to capital gain of Rs.68.42 crore (realised capital gain of Rs.139.64 crore less depreciation of Rs.71.22 crore) in 1997-98. The foreign securities held in Bank's portfolio are valued at the end of every month at the lower of book value or market rate. If the market rate is lower than the book value, depreciation to the same extent is provided for. Appreciation is neither taken to profit and loss account nor to the reserves. Such unrealised appreciation in the value of foreign securities held in the Bank's portfolio as at the end of June 1999 was Rs.93.93 crore as against Rs.96.57 crore at the end of June 1998.

Income from Domestic Sources

10.4 Domestic income rose by Rs.4,517.44 crore (53.8 per cent) from Rs.8,396.30 crore to Rs.12,913.74 crore reflecting increase in interest from holdings in Government securities, Ways and Means Advances to Central and State Governments and loans and advances to banks and financial institutions partially offset by decrease in commission income.

10.5 The increase in interest from Government securities by Rs.3,089.98 crore from Rs.6,351.84 crore in 1997-98 to Rs.9,441.82 crore in 1998-99 is mainly on account of increase in Bank's holdings of Government paper from an average of Rs.1,24,887.62 crore in 1997-98 to Rs.1,45,184.70 crore in 1998-99 with a larger share of longer term securities carrying higher yield. The increase in interest earnings on Ways and Means Advances by Rs.299.30 crore from Rs.314.90 crore in 1997-98 to Rs.614.20 crore in 1998-99 was mainly due to increased recourse to this facility by the Central and State Governments during the year. Interest on loans and advances to banks/financial institutions also increased by Rs.388.48 crore from Rs.748.70 crore in 1997-98 to Rs.1,137.18 crore in 1998-99. Besides, there was an increase in profit booked on sale of Rupee securities at Rs.615.74 crore (from Rs.539.71 crore in 1997-98 to Rs.1,155.45 crore in 1998-99) on account of larger volume of open market operations (sales) in 1998-99. The rise in discount earnings is attributable to devolvement of Government Treasury bills on the Bank in various auctions.

Expenditure

10.6 Total expenditure of the Bank declined by Rs.217.02 crore (4.6 per cent) from Rs.4,762.11 crore in 1997-98 to Rs.4,545.09 crore (Table 10.2). The decrease is mainly due to decline in expenditure on establishment and security printing which has been partly offset by increase in agency charges.

Table 10.2 : Expenditure

(Rupees crore)

Item

1998-99

1997-98

1996-97

1995-96

1994-95

1

2

3

4

5

6

I.

Interest Payment

1,976.64

1,999.23

1,912.60

2,541.65

2,863.93

of which:

a)

Scheduled Banks

1,652.76

1,639.16

1,520.44

2,076.82

2,150.87

b)

Payment in

lieu of Service

Charges on

Borrowings from

IMF payable to

45.51

103.28

183.66

309.54

514.42

Government

of India

II.

Establishment

683.59

848.43

519.48

682.30

487.81

III.

Non-Establishment

1,884.86

1,914.45

1,352.43

1,100.54

805.84

of which:

a)

Agency Charges

924.02

884.25

829.93

601.00

432.08

b)

Security Printing

733.96

834.23

386.48

372.67

280.07

IV.

Total [I+II+III]

4,545.09

4,762.11

3,784.51

4,324.49

4,157.58

Interest Payment

10.7 Interest payment decreased marginally by Rs.22.59 crore (1.1 per cent) from Rs.1,999.23 crore in 1997-98 to Rs.1,976.64 crore in 1998-99 mainly due to decrease in payment in lieu of service charges on borrowings from IMF payable to Government of India, which has been offset partly by a small increase in interest paid to scheduled banks on their cash balances. While decrease in IMF charges is due to reduction in Government's Liability to IMF, increase in interest paid to scheduled banks is mainly due to increase in the level of their balances eligible for reckoning of interest receivable.

Establishment Expenditure

10.8 Establishment expenditure came down by Rs.164.84 crore (19.4 per cent) from Rs.848.43 crore in 1997-98 to Rs.683.59 crore in 1998-99. The higher expenditure in 1997-98 was mainly due to an ad hoc provision of Rs.220 crore made towards leave encashment liability in respect of the retiring employees for the first time in that year. No further provision was considered necessary for the year 1998-99 in terms of actuarial assessment.

Non-establishment Expenditure

Agency Charges

10.9 Expenditure towards agency charges increased by Rs.39.77 crore (4.5 per cent) from Rs.884.25 crore in 1997-98 to Rs.924.02 crore in 1998-99 mainly due to increase in commission paid to the agency banks for handling Government business, partly offset by decrease in commission paid to Primary Dealers for underwriting issues of Government securities. The rate of commission payable to the agency banks for handling Government business has been raised from 11.22 paise to 11.80 paise for turnover of every Rs.100 for the quinquennium April 1, 1997 to March 31, 2002.

Security Printing

10.10 Expenditure on security printing, comprising cost of printing of currency notes, cheque forms etc., has come down by Rs.100.27 crore (12.0 per cent) from Rs.834.23 crore in 1997-98 to Rs.733.96 crore. The reduction in expenditure during the year was mainly because only 971 million pieces of imported notes were received in 1998-99 as against 2,629 million pieces received in the preceding year. Besides, the reduced supply of currency notes from some presses also accounted for the lower expenditure in 1998-99.

Appropriation

Net Disposable Income

10.11 The net disposable income for the year 1998-99 amounted to Rs.9,028.09 crore as against Rs.10,743.21 crore in 1997-98 (Table 10.1). Since 1991-92 significant transfers to statutory funds have been discontinued but pending amendment to the Reserve Bank of India Act, 1934 for vesting Bank with the discretion in the matter of transfer of amounts to statutory funds from the profits of the Bank, a token contribution of Rupees one crore each, has been made to the four statutory funds.

Surplus transferable to Government of India

10.12 For the year 1998-99, a sum of Rs.4,479 crore is transferable to the Government inclusive of Rs.1,479 crore towards interest differential on special securities converted into marketable securities. In the year 1997-98, Special Securities of the order of Rs.20,000 crore carrying interest at 4.6 per cent, held by the Bank were converted into marketable securities at market related rates to augment the stock of eligible securities in the Bank's investment portfolio for open market operations. The above transfer is intended to compensate the Government for the difference in interest expenditure, which the Government had to bear consequent on the conversion. The appropriation of the net disposable income is summarised in Table 10.3.

Table 10.3 : Appropriation of Disposable Income

(Rupees crore)

Item

1998-99

1997-98

1

2

3

Total Income (Net)

9,028.09

10,743.21

Total Expenditure

4,545.09

4,762.11

Net Disposable Income

4,483.00

5,981.10

Less : Transfer to Funds #

4.00

4.00

Surplus transfer to

Government

4,479.00

5,977.10

of which

i)

Towards Normal Transfer

3,000.00

3,000.00

ii)

Towards FCNRA Losses

-

1,826.60

iii)

Interest differential on

account of Conversion of

Special Securities into

Marketable Securities

1,479.00

1,150.50

#

An amount of Rupees one crore each was transferred to NIC (LTO) Fund, NRC (LTO) Fund, NRC (Stabilisation) Fund and NHC (LTO) Fund during each of the two years.

Balance Sheet

Liabilities

National Industrial Credit (Long Term Operations) Fund

10.13 The National Industrial Credit (Long Term Operations) Fund was established by the Bank in July 1964 with an initial corpus of Rs.10 crore and annual contributions from the Bank's disposable surplus in terms of Section 46C(1) of Reserve Bank of India Act, 1934. The Fund was applied for the purpose of making loans and advances to eligible financial institutions. Consequent on the announcement in the Union Budget for 1992-93, the Bank decided to discontinue the practice of crediting large sums to the said fund, except a token contribution. Simultaneously, no further disbursements from the fund have been made. It was decided in 1997-98 to transfer the unutilised balance in the fund to Contingency Reserve (CR) on a year to year basis. Accordingly, an amount of Rs.300 crore has been transferred to CR in 1998-99 as against Rs.400 crore transferred in the preceding year.

Deposits - Banks

10.14 'Deposits-Banks' represent balances maintained by the banks in current account with Reserve Bank mainly for maintaining CRR and working funds for clearing adjustments. The aggregate deposits of scheduled commercial banks with the Reserve Bank increased by Rs.6,333.27 crore (9.9 per cent) from Rs.63,672.95 crore as on June 30, 1998 to Rs.70,006.22 crore as on June 30, 1999 mainly due to increase in net demand and time liabilities of the scheduled commercial banks. The aggregate deposits of the scheduled state co-operative banks, other scheduled cooperative banks, non-scheduled state cooperative banks and other banks, increased by Rs.757.93 crore (41.6 per cent) from Rs.1,819.55 crore as on June 30, 1998 to Rs.2,577.48 crore as on June 30, 1999.

Deposits - Others

10.15 'Deposits - Others' include deposits from financial institutions, employees' provident fund deposits, surplus earmarked pending transfer to the Government and sundry deposits. The amount under 'Deposits-Others' decreased marginally by Rs.550.37 crore (4.3 per cent) from Rs.12,778.20 crore as on June 30, 1998 to Rs.12,227.83 crore as on June 30, 1999 mainly due to lesser amount of surplus transferable to the Government for the year 1998-99.

Other Liabilities

10.16 'Other Liabilities' include internal reserves and provisions of the Bank and net credit balance in RBI General Account. These liabilities have increased by Rs.10,206.72 crore (23.0 per cent) from Rs.44,349.49 crore as on June 30, 1998 to Rs.54,556.21 crore as on June 30, 1999 mainly on account of increase in the levels of Contingency Reserve and Asset Development Reserve by Rs.10,492.24 crore, but have been partly offset by decrease of Rs.319.74 crore in the level of Exchange Fluctuation Reserve.

10.17 The reserves comprising Exchange Fluctuation Reserve, Exchange Equalisation Account, Contingency Reserve and Asset Development Reserve reflected in 'Other Liabilities' are in addition to the Reserve Fund of Rs.6,500 crore held by the Bank as a distinct balance sheet head.

Exchange Fluctuation Reserve and Exchange Equalisation Account

10.18 Gains/losses on valuation of foreign currency and gold are not booked in profit and loss account but in a separate account called Exchange Fluctuation Reserve (EFR), the balances in which represent accumulated net gain on valuation of foreign currency and gold. During 1998-99, there was a depletion of Rs.319.74 crore in the EFR reducing the balance to Rs.24,823.29 crore as on June 30, 1999 from Rs.25,143.03 crore as on June 30, 1998. This was mainly on account of depreciation in the international price of gold which was partially offset by appreciation in the value of foreign currency assets. EFR is also utilised for replenishing Exchange Equalisation Account (EEA) inter alia to meet exchange losses on accrual basis in respect of liabilities under schemes involving exchange guarantees provided by Reserve Bank in respect of funds parked by financial institutions like IDBI. The balance in the EEA as on June 30, 1999 amounted to Rs.618.61 crore and fully provides for the exchange difference on foreign currency funds parked by Indian financial institutions. These funds are expected to be withdrawn by December 1999. As exchange guarantees are no longer being given by the Reserve Bank and also the schemes which enjoyed such guarantees, have almost come to a close, the EFR will not come under pressure in future on this account. The EFR, however, comes under pressure whenever there is appreciation of rupee against US dollar and non-US dollar currencies and depreciation in the value of gold. In order to gauge the magnitude of the impact of these market movements on EFR, it may be noted that a one per cent appreciation of the Rupee against the US dollar at the current level of foreign currency assets will drain EFR by Rs.1,314 crore. Likewise an appreciation of US dollar against non-US dollar currencies by one per cent will deplete the EFR by about Rs.510 crore. Further a one per cent fall in gold prices will result in erosion of the EFR by about Rs.129 crore. The EFR at the end of June 1999 was equivalent to 17.2 per cent of foreign currency assets and gold holdings, as against 23.0 per cent at the end of June 1998. The balances in EFR and EEA, which are reflected in 'Other Liabilities' in the balance sheet, are given in Table 10.4.

Table 10.4: Balances in Exchange Fluctuation Reserve and Exchange Equalisation Account

(Rupees crore)

As on

Exchange

Exchange

June 30

Fluctuation

Equalisation

Reserve (EFR)

Account (EEA)

l

2

3

1995

7,538.15

2,681.69

1996

11,976.42

2,818.70

1997

10,080.93

758.89

1998

25,143.03

639.00

1999

24,823.29

618.61

Contingency Reserve and Asset Development Reserve

10.19 The Bank maintains a Contingency Reserve to be able to absorb unexpected and unforeseen contingencies. The Bank has been pursuing a pro-active policy of strengthening the CR and has accordingly set an indicative target of 12 per cent of the size of the Bank's assets to be achieved in phases by the year 2005, subject to review, if considered essential. In order to be in a position to meet the internal capital expenditure and investments in its subsidiaries and associate institutions, the Bank had created in 1997-98 a separate 'Asset Development Reserve' (ADR) with the aim of reaching one per cent of the size of the Bank's assets within the overall target of 12 per cent set for CR.

10.20 The balance in CR has gone up from Rs.13,789.41 crore as on June 30, 1998 to Rs.23,007.06 crore as on June 30, 1999 due to the transfer of Rs.8,917.65 crore from income and transfer of the unutilised balance of Rs.300 crore from National Industrial Credit (Long Term Operations) Fund in 1998-99. Further, in 1998-99, an amount of Rs.1,274.59 crore was transferred from income to ADR raising its level from Rs.1,181.71 crore as on June 30, 1998 to Rs.2,456.30 crore as on June 30, 1999. As a proportion of total assets, CR and ADR together constituted 7.6 per cent of total assets of the Bank as on June 30, 1999 as against 5.1 per cent as on June 30, 1998. Balances in CR and ADR are given in Table 10.5

Table 10.5 : Balances in the Contingency Reserve and Asset Development Reserve

(Rupees crore)

As on

Balance

Balance

Total

Percentage

June 30

in CR

in ADR

to total assets

1995

4,060.80

-

4,060.80

1.9

1996

7,725.59

-

7,725.59

3.3

1997

11,230.69

-

11,230.69

4.5

1998

13,789.41

1,181.71

14,971.12

5.1

1999

23,007.06

2,456.30

25,463.36

7.6

Assets

Foreign Currency Assets

10.21 The foreign currency assets comprise foreign securities held in Issue Department, balances held abroad and a part of the investments with the Banking Department. Such assets which stood at Rs.1,01,830.77 crore as on June 30, 1998 rose to Rs.1,32,505.09 crore as on June 30, 1999. In US dollar terms, these assets rose from US dollar 23.98 billion as on June 30, 1998 to US dollar 30.56 billion as on June 30, 1999.

Investment in Government of India Rupee Securities

10.22 Investment in Government of India rupee securities which stood at Rs.1,42,417.43 crore as on June 30, 1998 rose by Rs.5,548.52 crore (3.9 per cent) to Rs.1,47,965.95 crore mainly due to devolvement and private placement of Government securities with the Bank, largely offset by Open Market Operations (sales).

Investment in Subsidiaries and Associate Institutions

10.23 It has been decided by the Government that the authorised capital of NABARD should be increased from Rs.500 crore to Rs.2,000 crore. The increase of Rs.1,500 crore is to be jointly shared by the Central Government and Reserve Bank by annual contributions of Rs.100 crore and Rs.400 crore, respectively, for three years commencing from 1996-97. Accordingly, the Bank has paid the last instalment of its share of Rs.400 crore to NABARD for 1998-99. The total contribution made by the Bank to NABARD stood at Rs.1,200 crore and the amount is temporarily parked in 'Other Assets' pending amendment to the NABARD Act, 1981 for increasing its authorised capital. Investments in subsidiaries and associate institutions are given in Table 10.6.

Other Assets

10.24 'Other Assets' comprise mainly dead stock, gold holdings in the Banking Department, amounts spent on projects pending completion, contribution to NABARD towards equity pending allotment of shares, staff advances etc. These assets have increased by Rs.843.16 crore (6.9 per cent) from Rs.12,242.71 crore to Rs.13,085.87 crore mainly due to increase in income accrued but not received and contribution of Rs.400 crore made in 1998-99 to NABARD towards its equity, offset partly by decrease in the value of gold.

Auditors

10.25 The accounts of the Bank were audited by M/s. Lodha & Co., Calcutta, M/s. V.K. Mehta & Co., New Delhi, M/s. Brahmayya & Co., Chennai, M/s. Mukund M. Chitale & Co., Mumbai, M/s. N.C.Rajagopal & Co., Chennai and M/s. Kapoor Tandon & Co., Kanpur. While the first four audit firms were re-appointed by the Central Government, the latter two have been appointed for the first time.

Table 10.6 : Investments in Subsidiaries/Associate Institutions

(Rupees crore)

Institutions

Book value

Book value

of shares

of shares

held as at

held as at

30.6.99

30.6.98

1

2

3

1.

Deposit Insurance

and Credit Guarantee

Corporation

50.00

50.00

2.

NABARD

250.00

250.00

3.

State Bank of India

1,222.73

1,222.73

4.

Discount and Finance

House of India

20.99

20.99

5.

Securities Trading

Corporation of

India Ltd.,

72.06

72.06

6.

National Housing

Bank

350.00

350.00

7.

Bharatiya Reserve

Bank Note Mudran

Limited

800.00

800.00

8.

Infrastructure

Development

Finance Co. Ltd.

150.00

150.00

Total

2,915.78

2,915.78

Balance Sheet

As At 30th June 1999

ISSUE DEPARTMENT

(Rupees Thousands)

1997-98

LIABILITIES

1998-99

1997-98

ASSETS

1998-99

Rs.

Rs.

Rs.

Rs.

Notes held in the

Gold Coin and Bullion :

21,19,18

Banking Department

26,50,45

10474,63,23

(a)

Held in India

9584,16,17

-

(b)

Held outside India

-

156841,09,55

Notes in circulation

183703,44,54

50700,00,00

Foreign Securities

67700,00,00

156862,28,73

Total Notes issued

183729,94,99

61174,63,23

Total

77284,16,17

81,82,92

Rupee Coin

107,56,20

Government of India

95605,82,58

Rupee Securities

106338,22,62

Internal Bills of Exchange

-

and other Commercial Paper

-

156862,28,73

Total Liabilities

183729,94,99

156862,28,73

Total Assets

183729,94,99

BANKING DEPARTMENT

1997-98

LIABILITIES

1998-99

1997-98

ASSETS

1998-99

Rs.

Rs.

Rs.

Rs.

5,00,00

Capital paid-up

5,00,00

21,19,18

Notes

26,50,45

6500,00,00

Reserve Fund

6500,00,00

10,29

Rupee Coin

9,22

National Industrial Credit (Long Term

27,60

Small Coin

32,32

5281,00,00

Operations) Fund

4982,00,00

Bills Purchased and Discounted :

National Housing Credit (Long Term

-

(a)

Internal

-

881,00,00

Operations) Fund

882,00,00

-

(b)

External

-

-

(c)

Government Treasury Bills

-

Deposits

36241,26,79

Balances Held Abroad

41193,82,56

(a)

Government

64616,88,63

Investments

68154,77,49

50,27,60

(i)

Central Government

100,65,20

Loans and Advances to :

14,86,59

(ii)

State Governments

102,69,09

10013,00,00

(i)

Central Government

5620,00,00

1846,57,37

(ii)

State Governments

2971,53,56

(b)

Banks

Loans and Advances to :

63672,95,18

(i)

Scheduled Commercial Banks

70006,22,49

237,85,96

(i)

Scheduled Commercial Banks

6201,44,10

(ii)

Scheduled State Co-operative

2,00,00

(ii)

Scheduled State Co-operative Banks

2,50,00

718,35,91

Banks

793,60,25

-

(iii)

Other Scheduled Co-operative Banks

98,76,00

(iii)

Other Scheduled Co-operative

-

(iv)

Non-Scheduled State Co-operative Banks

-

864,54,37

Banks

1078,85,14

4255,09,57

(v)

NABARD

5073,36,27

(iv)

Non-Scheduled State

850,00,00

(vi)

Others

4515,67,20

56,48,19

Co-operative Banks

27,41,49

Loans, Advances and Investments from

180,16,77

(v)

Other Banks

677,61,97

National Industrial Credit (Long Term

12778,20,16

(c) Others

12227,83,35

Operations) Fund :

1098,21,56

Bills Payable

806,31,01

(a)

Loans and Advances to :

(i)

Industrial Development

44349,48,72

Other Liabilities

54556,21,03

2266,84,10

Bank of India

2000,00,00

807,00,00

(ii)

Export Import Bank of India

752,00,00

(iii)

Industrial Investment Bank

170,00,00

of India Ltd.

170,00,00

2004,75,00

(iv)

Others

2004,75,00

(b)

Investments in bonds / debentures

issued by :

(i)

Industrial Development Bank

-

of India

-

-

(ii)

Export Import Bank of India

-

(iii)

Industrial Investment Bank

-

of India Ltd.

-

-

(iv)

Others

-

Loans, Advances and Investments

from National Housing Credit

(Long Term Operations) Fund :

(a)

Loans and Advances to National

875,00,00

Housing Bank

875,00,00

(b)

Investments in bonds / debentures

-

issued by National Housing Bank

-

12242,70,56

Other Assets

13085,86,85

136450,55,05

Total Liabilities

152746,41,02

136450,55,05

Total Assets

152746,41,02

Significant Accounting Policies and Notes to the Accounts as per Annexure.

Profit and Loss Account for the Year Ended 30th June 1999

(Rupees Thousands)

1997-98

INCOME

1998-99

Rs.

Rs.

10743,21,29

Interest, Discount, Exchange, Commission, etc.¹

9028,09,47

10743,21,29

Total

9028,09,47

EXPENDITURE

1999,23,70

Interest

1976,63,80

848,43,09

Establishment

683,58,65

33,08

Directors' and Local Board Members' Fees and Expenses

38,27

24,92,87

Remittance of Treasure

30,83,86

884,25,43

Agency Charges

924,02,38

834,23,04

Security Printing (Cheque, Note forms etc.)

733,96,22

9,92,91

Printing and Stationery

10,33,02

10,26,19

Postage and Telecommunication charges

12,23,95

39,39,21

Rent, Taxes, Insurance, Lighting etc.

41,07,41

54,41

Auditors' Fees and Expenses

57,97

49,49

Law Charges

56,39

64,70,19

Depreciation and Repairs to Bank's Property

67,22,93

45,37,92

Miscellaneous Expenses

63,64,62

4762,11,53

Total

4545,09,47

5981,09,76

Available Balance

4483,00,00

LESS: Contribution to:

National Industrial Credit (Long Term Operations) Fund

1,00,00

National Rural Credit (Long Term Operations) Fund ²

1,00,00

National Rural Credit (Stabilisation) Fund ²

1,00,00

National Housing Credit (Long Term Operations) Fund

1,00,00

4,00,00

4,00,00

5977,09,76

Surplus Payable to Central Government

4479,00,00

1.  After making the usual or necessary provisions in terms of Section 47 of the Reserve Bank of India Act, 1934.

2.  These funds are maintained by National Bank for Agriculture and Rural Development (NABARD).

(B. Ramani Raj)

(Jagdish Capoor)

(Y.V. Reddy)

(S.P. Talwar)

(Bimal Jalan)

Chief General Manager

Deputy Governor

Deputy Governor

Deputy Governor

Governor

REPORT OF THE AUDITORS

TO THE PRESIDENT OF INDIA

We, the undersigned Auditors of the Reserve Bank of India, do hereby report to the Central Government upon the Balance Sheet of the Bank as at 30th June1999 and the Profit and Loss Account for the year ended on that date.

We have examined the above Balance Sheet of the Reserve Bank of India as at 30th June 1999 and the Profit and Loss Account of the Bank for the year ended on that date and report that where we have called for information and explanations from the Bank, such information and explanations have been given and have been satisfactory.

In our opinion and according to the best of our information and explanations given to us and as shown by the books of accounts of the Bank, the Balance Sheet read with Significant Accounting Policies and Notes to the Accounts is a full and fair Balance Sheet containing all necessary particulars and is properly drawn up in accordance with the Reserve Bank of India Act, 1934 and regulations framed thereunder so as to exhibit a true and correct view of the state of the Bank's affairs.

M/s. Lodha & Co.

M/s. V.K. Mehta & Co.

M/s. Brahmayya & Co.

M/s. Mukund M.Chitale&Co.

M/s. N.C. Rajagopal&Co.

M/s. Kapoor Tandon&Co.

Auditors

Auditors

Auditors

Auditors

Auditors

Auditors

Dated August 12, 1999

ANNEXURE

RESERVE BANK OF INDIA

Significant Accounting Policies and Notes to the Accounts

SIGNIFICANT ACCOUNTING POLICIES

1.

CONVENTION

The financial statements are prepared in accordance with the Reserve Bank of India Act, 1934 and the notifications issued thereunder and in the form prescribed by the Reserve Bank of India General Regulations.

Historical cost basis of accounting is used except where it is modified to reflect revaluation.

The accounting practices and policies followed in the statements, unless otherwise stated, are consistent with those followed in the previous year.

2.

REVENUE RECOGNITION

Income and expenditure are recognised on accrual basis except dividend, which is accounted for on cash basis. Only realised gains are recognised. Provision for outstanding expenditure is made only for unpaid bills in each case of Rs. 1 lakh and above.

Balances unclaimed and outstanding for more than three consecutive years in certain transitory heads of accounts including Drafts Payable Account, Payment Orders Account, Sundry Deposits Account are reviewed and written back to Bank's Income. Claims in this respect are considered and charged against Bank's Income as and when paid.

In respect of Zero Coupon Bonds, the income thereon is accounted for on redemption. Income and expenditure in foreign currency are translated on the basis of exchange rates prevailing on the last business day of the preceding week.

3.

GOLD AND FOREIGN CURRENCY ASSETS AND LIABILITIES

(a)

Gold

Gold is valued at the end of the month at 90 per cent of the daily average London price for the month. The rupee equivalent is determined on the basis of the exchange rate prevailing on the last business day of the month. Gains/ losses arising therefrom are adjusted to the Exchange Fluctuation Reserve.

(b)

Foreign Currency Assets and Liabilities

All foreign currency assets are translated at the exchange rates prevailing on the last business day of the week, and also on the last business day of the month.

At the year end, assets and liabilities in foreign currencies are translated at the exchange rates prevailing on the last business day except in cases where rates are contractually fixed. Foreign securities are valued at lower of book value or market price prevailing on the last business day of each month. The depreciation is adjusted against current income.

Forward exchange contracts are evaluated half-yearly and net loss, if any, is provided for.

Profit/loss on sale is recognised with respect to the book value of foreign currency assets. Exchange gains and losses arising from translation of foreign currency assets and liabilities are accounted for in Exchange Fluctuation Reserve and remain adjusted therein.

4.

RUPEE SECURITIES

Rupee securities other than Treasury bills are valued at lower of book value or market price or rates based on the yield curve prevailing on the last business day of the month where market price for such securities is not available. The depreciation in the value is adjusted against current income. Treasury bills are valued at cost.

5.

SHARES

Investments in shares are valued at cost.

6.

FIXED ASSETS

Fixed assets are stated at cost less depreciation.

Depreciation on computers, motor vehicles, office equipments, furniture and electrical fittings, etc., is charged on the straight-line basis. Depreciation on other assets including premises and fixtures is charged on written-down value basis.

Depreciation on fixed assets is charged only if held for a period of more than six months as at the year-end.

7.

RETIREMENT BENEFITS

The liability on account of retirement benefits including leave encashment to retiring employees is valued periodically on an actuarial basis.

8.

CONTINGENCY RESERVE AND ASSET DEVELOPMENT RESERVE

Contingency Reserve represents amount provided on a year to year basis for meeting unexpected and unforeseen contingencies including depreciation in value of securities, exchange guarantees and risks arising out of monetary/exchange policy compulsions.

In order to meet the internal capital expenditure and investments in subsidiaries and associate institutions a further specified sum is provided and credited to Asset Development Reserve.

9.

NATIONAL INDUSTRIAL CREDIT (LONG TERM OPERATIONS) FUND

Unapplied surplus on account of repayment of loans is transferred to Contingency Reserve on a year to year basis.

NOTES TO THE ACCOUNTS - 1998-99

1.

SURPLUS TRANSFER TO GOVERNMENT

Surplus transferable to Government includes an amount of Rs.1,479.00 crore representing interest differential pertaining to the period April 1, 1998 - March 31, 1999, on account of conversion of special securities into marketable securities.

2.

CHANGES IN THE ACCOUNTING POLICIES AND PROCEDURES

(i)

Leave Encashment

The liability for leave encashment for retiring employees was being accounted for on cash basis till 1996-97. In 1997-98, the Bank decided to account for leave encashment on accrual basis and made an ad-hoc provision of Rs.220 crore. In 1998-99, leave encashment liability has been determined on actuarial basis at Rs.127.59 crore. Accordingly, differential amount of Rs.92.41 crore has been written back to Income.

(ii)

Profit/Loss on sale of Rupee Securities

Profit/loss on sale of Rupee securities was recognised hitherto on redemption or when either the entire holding of a particular stock was sold or when the sale proceeds of part of the holding of particular stock exceeded the book value of that stock. From the current year, profit/loss on sale of Rupee securities has been recognised with respect to the book value of the respective securities.

3.

RBI GENERAL ACCOUNT

RBI General Account represents inter-office transactions and balances under reconciliation. During 1997-98, pending complete reconciliation, a provision of Rs.57.80 crore was made towards net amount of pending debit entries outstanding up to the period June 30, 1992. Reconciliation of the entries subsequent to June 30, 1992 is in progress and necessary adjustments are being effected as and when ascertained.

4.

RESERVE FUND

The Reserve Fund comprises initial contribution of Rs. 5 crore made by the Government of India and appreciation of Rs.6,495 crore on account of revaluation of gold up to October 1990. Subsequent gains/losses on monthly revaluation of gold are taken to Exchange Fluctuation Reserve.

5.

DEPOSITS - OTHERS

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

1999

1998

1

2

3

I.

Rupee Deposits from Foreign Central Banks and Foreign

Financial Institutions

4,932.91

4,107.98

II.

Deposits from Indian Financial Institutions

159.74

347.90

III.

Accumulated Retirement Benefits

2,258.36

2,021.48

IV.

Surplus transferable to Government of India

4,479.00

5,977.10

V.

Miscellaneous

397.82

323.74

Total

12,227.83

12,778.20

6.

OTHER LIABILITIES

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

1999

1998

1

2

3

I.

Contingency Reserve

Balance at the beginning of the year

13,789.41

11,230.69

Add :

Transfer from National Industrial

Credit (Long Term Operations) Fund

300.00@

400.00@

Add :

Accretion during

the year

8,917.65

2,158.72

Balance at the end of the year

23,007.06

13,789.41

II.

Asset Development Reserve

Balance at the beginning of the year

1,181.71

-

Add :

Net Accretion/ Utilisation(-) during year

1,274.59

1,181.71

Balance at the end of the year

2,456.30

1,181.71

III.

Exchange Fluctuation Reserve

Balance at the beginning of the year

25,143.03

10,080.93

Add :

Net Accretion/ Utilisation(-) during year

(-) 319.74

15,062.10

Balance at the end of the year

24,823.29

25,143.03

IV.

Exchange Equalisation Account

Balance at the beginning of the year

639.00

758.89

Add :

Net Accretion/ Utilisation(-) during year

(-) 20.39

(-) 119.89

Balance at the end of the year

618.61

639.00

V.

Provision for net debit entries in RBI General

Account for the period up to June 30, 1992

57.80

57.80

VI.

Provision for Outstanding Expenses

1,516.45

1,257.27

VII.

Miscellaneous

2,076.70

2,281.27

Total ( I to VII )

54,556.21

44,349.49

@ Represents transfer of the unapplied surplus resulting from repayment of loans made from National Industrial Credit (Long Term Operations) Fund.

7.

RUPEE INVESTMENTS

Securities acquired and sold under repo have been accounted for under investments. Accordingly, investments include Rs.237.79 crore against which there is commitment to sell for an aggregate consideration of Rs.237.90 crore on a future date.

8.

FOREIGN CURRENCY ASSETS

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

1999

1998

1

2

3

I.

Held in Issue Department

67,700.00

50,700.00

II.

Held in Banking Department -

a) Included in Investments

23,611.27

14,889.50

b) Balances Held Abroad

41,193.82

36,241.27

Total

1,32,505.09

1,01,830.77

Note:

(i)

There are outstanding forward exchange contracts under which the Reserve Bank has to sell US dollar equivalent to Rs. 4,214.59 crore (as against sale contracts of US dollar equivalent to Rs. 7,837.62 crore outstanding as at June 30, 1998). No forward purchase contracts are outstanding as on June 30,1999 (as against purchase contracts of US dollar equivalent to Rs.847.66 crore outstanding as at June 30, 1998).

(ii)

Uncalled amount on partly-paid shares of the Bank for International Settlements is at Rs.59.42 crore.

9.

OTHER ASSETS

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

1999

1998

1

2

3

I.

Fixed Assets ( Net of Accumulated Depreciation)

295.44

283.40

II.

Gold

2,147.86

2,351.71

III.

Income Accrued but not Received

5,844.67

5,171.34

IV.

(i)

Advance to National Bank for Agriculture

and Rural Development Towards Equity

1,200.00

800.00

(ii)

Advance to Infrastructure Development Finance

Co. Ltd., Towards Subordinated Debt

350.00

350.00

V.

Miscellaneous

3,247.90

3,286.26

Total

13,085.87

12,242.71

10.

INTEREST, DISCOUNT, EXCHANGE, COMMISSION ETC.

(Rupees crore)

Particulars

Year ended

Year ended

June 30,

June 30,

1999

1998

1

2

3

(i)

Profit on Sale of Foreign and Rupee Securities

1,324.40

679.35

(ii)

Rent Realised

7.65

9.38

(iii)

Net Profit on Sale of Bank's Property

0.18

0.42