Banking Company Accounts

Accounts of Banking Company

1. Savings Account: A savings account is a basic type of bank account that is used for day-to-day banking needs. It offers interest on the money deposited and allows withdrawals up to a certain limit. This type of account is usually held by individuals.
2. Current Account: A current account is primarily used for business transactions. It does not earn any interest but offers features such as overdraft facilities and cheque book facility.
3. Fixed Deposit Account: A fixed deposit account is a type of savings account that offers a higher rate of interest than a regular savings account. The account holder must deposit a lump sum amount for a fixed period of time, and the interest rate remains fixed for the entire tenure.
4. Recurring Deposit Account: A recurring deposit account is similar to a fixed deposit account, but the deposit amount is paid in installments over a fixed period of time. The interest rate is fixed and usually higher than a regular savings account.
5. NRI Account: An NRI account is designed for Non-Resident Indians (NRIs) who want to keep their money in India. It can be a savings or a fixed deposit account and offers features such as repatriability and tax benefits.
6. Demat Account: A Demat account is used to hold shares and other securities in an electronic format. It eliminates the need for physical share certificates and allows for easy transfer and trading of shares.
7. Credit Card Account: A credit card account is a type of revolving credit account that allows the cardholder to make purchases and pay for them at a later date. It charges interest on the outstanding balance and may offer rewards and benefits.

Rebate on bill discounted

Rebate on bill discounted refers to a discount that a seller offers to a buyer who pays their bill early. This discount is usually a percentage of the invoice value, and it serves as an incentive for the buyer to pay their bill before the due date.

For example, let's say a seller has invoiced a buyer for a total of Rs. 100,000 with a payment term of 30 days. The seller offers a rebate of 2% if the buyer pays the bill within 10 days. If the buyer pays the invoice within 10 days, they will receive a discount of Rs. 2,000 (2% of Rs. 100,000) on the invoice. This reduces the amount payable to Rs. 98,000.

Rebate on bill discounted is a way for sellers to encourage buyers to pay their bills early, which helps improve cash flow for the seller. It is also beneficial for buyers as they can save money by taking advantage of the discount.

Non - Performing assets and their treatment 

Non-Performing Assets (NPA) are loans or advances that have stopped generating income for the banks or financial institutions. In other words, when a borrower fails to repay the loan or interest for more than 90 days, it is classified as an NPA. The treatment of NPAs is an important aspect of banking as it has an impact on the financial health of the bank. Here are the treatments for NPAs in India:

• Identification of NPA: Banks and financial institutions must identify NPAs and classify them into various categories based on the length of the delay in payment.
• Provisioning for NPAs: Banks and financial institutions must set aside provisions for NPAs. The amount of provision depends on the category of the NPA and is aimed at covering the expected loss arising from the NPA.
• Recovery: Banks and financial institutions must take steps to recover the dues from the borrower. This may include legal action, recovery agents, or sale of the collateral.
• Restructuring: Banks and financial institutions can restructure the loan, which means modifying the terms and conditions of the loan to enable the borrower to repay the loan.
• Write-off: When the chances of recovery are low, banks and financial institutions may write off the loan from their books. However, this does not absolve the borrower from repaying the loan, and the bank can still pursue recovery.
• Sale of NPAs: Banks and financial institutions can also sell NPAs to asset reconstruction companies or other investors who specialize in managing distressed assets.

Classification of Bank Advances 

1.      Secured Advances: Secured advances are those loans that are backed by collateral or security provided by the borrower. The collateral could be in the form of assets such as property, stocks, or gold.
2.     Unsecured Advances: Unsecured advances are those loans that are not backed by any collateral. These loans are usually given to borrowers based on their creditworthiness and ability to repay the loan.
3.     Priority Sector Advances: Priority sector advances are those loans that are given to certain sectors identified by the government as priority sectors. Examples include agriculture, small-scale industries, and micro and small enterprises.
4.     Consumer Advances: Consumer advances are those loans given to individuals for personal or household purposes such as buying a home, vehicle, or appliances.
5.     Commercial Advances: Commercial advances are those loans given to businesses for their commercial activities such as working capital, expansion, or capital expenditure.
6.     Term Advances: Term advances are loans given for a specific period and are repaid in installments over the term of the loan. Examples include housing loans, education loans, and vehicle loans.
7.     Demand Advances: Demand advances are loans that are repayable on demand by the bank. Examples include overdrafts and cash credit facilities.

Provision for doubtful debts

Provision for doubtful debts (also known as allowance for doubtful accounts) is a financial provision that a company or a bank sets aside in its financial statements to cover the potential losses arising from the non-payment of its customers or borrowers.

In the context of banking, provision for doubtful debts refers to the amount that a bank sets aside to cover the expected losses from non-payment of loans. When a borrower fails to repay the loan or interest for a certain period, the loan is classified as non-performing and the bank sets aside provisions for the expected loss from the loan. The provision is made based on the estimated default rate and the amount of the outstanding loan.

The provision for doubtful debts is shown as an expense in the bank's income statement and as a liability in its balance sheet. The provision reduces the bank's profits and reserves and reflects the bank's prudence in anticipating potential losses.

Provision for doubtful debts is an important aspect of banking as it helps banks manage their credit risks and maintain their financial stability. It is also a regulatory requirement, and banks are required to maintain a certain level of provisions based on the risk profile of their loan portfolio. By maintaining adequate provisions for doubtful debts, banks can protect themselves from potential losses arising from non-payment of loans and ensure the safety of their depositors' money.

Guidelines of RBI for the Preparation of final accounts of banking companies

The Reserve Bank of India (RBI) has issued guidelines for the preparation of final accounts of banking companies in India. Here are some of the key guidelines:

1. Compliance with Accounting Standards: Banking companies are required to comply with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) while preparing their final accounts.

2. Provision for Bad and Doubtful Debts: Banks are required to make adequate provisions for bad and doubtful debts based on the guidelines issued by the RBI from time to time.

3. Classification of Advances: Banks are required to classify their advances into various categories based on their asset classification norms. Advances should be classified as standard assets, sub-standard assets, doubtful assets, or loss assets, based on their repayment status.

4. Valuation of Investments: Banks are required to value their investments at market value or fair value, whichever is lower. They are also required to classify their investments into various categories such as held-to-maturity, available-for-sale, and held-for-trading.

5. Disclosure Requirements: Banks are required to disclose certain information in their final accounts, such as the composition of their loan portfolio, the movement of provisions, and the composition of their investments.

6. Audit Requirements: Banks are required to get their final accounts audited by a qualified auditor who is registered with the Institute of Chartered Accountants of India.

7. Timely Submission: Banks are required to submit their final accounts to the RBI within a specified timeframe.