1. Sources and Uses of Funds of Bank
Bank Balance Sheets
Sources and Uses of Funds of Bank
Samir K Mahajan

2. Financial Statement of an Enterprise
Balance Sheet
Profit and Loss Account

3. Assets= Liabilities + Capital + (Revenues – Expenses)
Balance Sheet contd.
LIABILITIES
Liabilities are the obligations payable by the enterprise in future in the form of money or goods or services. Liabilities are proprietors’ and creditors’ claims against the assets of the business.
ASSETS
Assets are what firm owns. Assets/properties are the valuable thing/ economic resources owned the firm/enterprise. Assets are measured in money terms)
In accounting sense,
Assets= Liabilities + Capital + (Revenues – Expenses)

4. Balance Sheet

5. Bank Liabilities /Sources of Bank Funds
Liabilities of a bank can be classified as type of debt and equity components.
Equity component/ Net worth comprises of the following:
Capital/Share Capital
authorised
issued
subscribed
paid up-capital
Reserves & Surplus
Statutory reserves
Capital Reserves
Share Premium
Revenue &other reserves
Debt component comprises of the following:
Deposits
Borrowings
Interest accrued on borrowings and deposits
Other liabilities and provisions
Others

6. Capital /share capital
Liabilities contd
Capital /share capital
The company has to show the authorised, subscribed and paid up-capital under capital head.
Authorised capital/registered capital is the total of the share capital which a limited company is allowed (authorised) to issue.
Capital Requirement (long run) = Rs. 1,000,00
Authorized Capital = Rs. 1,000,00
Issued capital is the total of the share capital issued (allocated) to shareholders. This may be less or equal to the authorised capital.
Current Requirement = Rs. 50,000
Issued Capital = Rs. 50,000 (5000 per share)
Subscribed capital is the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than or more than the issued capital.
Subscribed capital= Rs. 40,000 (4000 Rs. 10 per share)

7. Capital /share capital : An Illustration
Liabilities contd.
Capital /share capital : An Illustration
Called up capital is the total amount of subscribed capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by instalments.
If 4,000 shares of Rs. 10 each have been subscribed by the public, and of which Rs. 5 per share has been called up.
Called up capital= Rs. 20,000
Paid up capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in instalments ("calls-in-arrears"). Some of the shareholders might have defaulted in paying the called up money.
If some of the shareholders have defaulted in paying the called up money, say:
Paid Up capital  = Rs (2000 Rs 5 per share).

8. Bank Liabilities contd.
Reserve and surpluses
Typically the banks have to hold Statutory reserves, Capital Reserves, Share Premium Revenue and other reserves under this head.
Under statutory reserves, any banking company has to create a reserve fund out of the profit each year disclosed in the profit and loss account. Such transfers to the reserve funds will be before any dividend is declared, the amount being equivalent to not less than 20 percent of the profit.
Capital reserve: Capital reserve arises as a result of capital gains (capital profit) and not revenue profits. It is created out of profit earned from some specific capital transactions say profit from sale of investment or fixed assets, premium on issue of share and debentures. Capital reserve are not distributed as dividends.

9. Balance in profit and loss account
Bank Liabilities contd.
Reserve and surpluses
Share premium will include any premium on the issue of share capital by the bank
Revenue Reserve are the reserves created out of revenue profit (e.g. retained earnings, and profit and loss account under liabilities side etc). It is created to meeting unforeseen contingencies or some specific purposes such as fluctuations on investments. This can be distributed as dividend and also as bonus shares.
Balance in profit and loss account

10. Borrowing is shown under two categories:
Bank Liabilities contd.
Deposits
Deposits includes demand deposits, saving deposits, term deposits (such as: fixed deposits, recurring deposits, reinvestment deposits, cash certificates, certificates of deposits), NRI deposits.
Borrowings
Borrowing is shown under two categories:
Borrowings in India such( as: refinance from RBI, NABARD, SIDBI etc, borrowing from other banks or financial institutions, call/notice money market)
Borrowing outside of India
Interest accrued on borrowings and deposits
Inter-office adjustment i.e. net credit balance (claims of other banks over the bank is more than claim of later over former)
Other liabilities and provisions such as bills payable arising out of fee-based services such as: demand drafts, banker’s cheque, travellers’ cheque etc.
Others such as: unclaimed dividends, provision/funds for specific purposes, unexpired discount.

11. Bank Assets /uses of funds
The funds mobilised from various sectors of the economy are deployed into productive sectors of the economy. The credit thus deployed forms the assets on the bank’s balance sheet.
Assets of a bank includes the following :
Cash Holdings
Investment
Loans and advances
Fixed assets
Other assets

12. Cash holding by bank would comprise of
Bank Assets contd.
Cash Holding
Cash holding by bank would comprise of
cash in the bank’s vault including foreign currencies and cash balance with overseas branches of the bank
balances/deposits (cash reverses requirement)with RBI,
balances with other banks held for clearing house requirement and other uses
money at call and short notice
Investment
government securities
approved securities
shares,
debentures and bonds,
subsidiaries and joint ventures
other investments

13. Interest accrued on investment and advances but not collected
Bank Assets contd.
Loans and advances
Loans and advances includes bills purchased and discounted, cash credits, overdrafts and loans repayable on demand, term loans.
Fixed assets
Fixed assets includes premises including land, furniture and fixtures, assets on lease etc. These are of small size.
Interest accrued on investment and advances but not collected
Other assets includes
advance expenses
Inter-office adjustment i.e. net debit balance
advance tax paid/tax deducted at sources
stationaries and stamps
non-banking assets (such as immovable property or tangible assets ) acquired in satisfaction of claims

15. Contingent liabilities
Liabilities occur out of past events. But contingent liabilities are possible obligation which may arise depending on some future happenings.
Contingent liabilities are off balance sheet items.
Say Bank guarantee, letter of credit,

16. Income statement of Indian banks/ Profit & Loss Account
Income statement has two aspect such as:
Revenue
Expenses .

17. Profit & Loss Account contd.
Income/Revenue of the bank comprises of the following:
Interest income earned which includes interest/discount on advances/ bills
Income from investment which includes dividends and interest income earned from bank’s investment portfolio.
Interest on balances with RBI , other inter-bank funds , call loans
Other non-interest income
Commission, exchange and brokerage
 Profit and loss on sale of investment
Profit/loss on revaluation of investment
Profit/loss on sale of buildings and other assets
Profit earned through foreign exchange dealings
Dividend earned from subsidiaries, joint ventures
Miscellaneous income

18. Expenses of bank comprises of the followings:
Income statement contd.
Expenses of bank comprises of the followings:
Interest expended
Interest on deposits
Interest on RBI/interbank borrowings, refinance from other banks
Other interests such as interest on borrowings/refinance from financial institutions
Operating expense
Payment to and provisions for employees
Rents, taxes and lighting
Printing and stationeries
Advertisement and publicity
Depreciation on bank’s property
Directors’ fees, allowances and expenses
Auditor’s fees and expenses
Legal charges
Postage, telephone
Repairs and maintenance
Insurance,
Taxes
Diminution in the value of investments
Other expenses which includes provisions and contingencies for loans losses/bad loans

19. Net Income= Total income (Revenue) –Total Expenses – Taxes
Income statement
Net Income= Total income (Revenue) –Total Expenses – Taxes
Total income (Revenue) includes total interest + non-interest income + profit/loss on sale of investment
Total expenses include interest expenses, operating expenses and provisions .