RBI/2010-2011/39
DBOD. No. FID. FIC.2 /01.02.00/2010-11
01 July, 2010
10 Aashadha 1932 (Saka)
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 /01.02.00/2009-10 dated
July 01, 2009 on the above subject. The enclosed Master Circular consolidates
and updates all the instructions/ guidelines on the subject up to June 30, 2010.
The Master Circular 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 4 have been
consolidated in this master circular.
Yours faithfully,
(Vinay Baijal)
Chief General Manager
Encls : As above
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 4.
Application
To all the all India Financial Institutions viz. Exim Bank, NABARD, NHB and
SIDBI.
Structure
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
- CRAR, core CRAR and supplementary CRAR
- The amount of subordinated debt raised and outstanding as Tier–II capital
- Risk weighted assets – separately for on- and off-balance sheet items
- The share holding pattern as on the date of the balance sheet
2.2 Asset quality and credit concentration
- Percentage of net NPAs to net loans and advances
- Amount and percentage of net NPAs under the prescribed asset classification
categories
- Amount of provisions made during the year towards Standard assets, NPAs,
investments (other than those in the nature of an advance), income tax
- Movement in net NPAs
- Credit exposure as percentage to capital funds and as percentage to total
assets, in respect of:
- The largest single borrower;
- The largest borrower group;
- The 10 largest single borrowers
- The 10 largest borrower groups;
(Names of the borrowers / borrower groups need not be disclosed).
- Credit exposure to the five largest industrial sectors (if applicable) as
percentage to total loan assets
2.3 Liquidity
- Maturity pattern of rupee assets and liabilities; and
- Maturity pattern of foreign currency assets and liabilities,in the following
format:
| Items |
Less than or equal to 1 year
|
More than a year up to 3 years
|
More than 3 years up to 5 years
|
More than 5 years up to 7 years
|
More than 7 years
|
Total |
| Rupee assets |
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| Foreign currency assets |
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| Total assets |
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| Rupee liabilities |
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| Foreign currency liabilities
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| Total liabilities |
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| Total |
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2.4 Operating results
- Interest income as a percentage to average working funds
- Non-interest income as a percentage to average working funds
- Operating profit as a percentage to average working funds
- Return on average assets
- 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:
| Sr.No. |
Particulars |
Amount |
| 1 |
Notional principal amount of exchange traded interest rate derivatives
undertaken during the year (instrument-wise)
a)
b)
c) |
|
| 2 |
Notional principal amount of exchange traded interest rate derivatives
outstanding as on 31st March ____ (instrument-wise)
a)
b)
c) |
|
| 3 |
Notional principal amount of exchange traded interest rate derivatives
outstanding and not “highly effective” (instrument-wise)
a)
b)
c) |
|
| 4 |
Mark-to-market value of exchange traded interest rate derivatives outstanding
and not “highly effective” (instrument-wise)
a)
b)
c) |
|
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:
CFS should be prepared using uniform accounting policies for like transactions
and other events in similar circumstances. (For the purpose, the FIs should rely
on a Statement of Adjustments for non-uniform accounting policies furnished by
the statutory auditors of the subsidiaries.) If it is not practicable to do so,
that fact should be disclosed together with the proportions of the items in the
consolidated financial statements to which the different accounting policies
have been applied.
2.12 Disclosures on Risk Exposures in Derivatives
Best international practices require meaningful and appropriate disclosures of
FIs' exposures to risk and their strategy towards managing the risk. FIs should
make meaningful disclosures of their derivatives portfolio. A minimum framework
for disclosures by FIs on their risk exposures in derivatives is furnished in
Annex 2. The disclosure format includes both qualitative and quantitative
aspects and has been devised to provide a clear picture of the exposure to risks
in derivatives, risk management systems, objectives and policies. FIs should
make these disclosures as a part of the 'Notes on Accounts' to the Balance Sheet
with effect from March 31, 2005 (June 30, 2005 in the case of National Housing
Bank).
2.13
Exposures where the FI had exceeded the prudential exposure limits during
the year
The FI should make appropriate disclosures in the ‘Notes on account’ to the
annual financial statements in respect of the exposures where the FI had
exceeded the prudential exposure limits during the year.
2.14 Corporate Debt Restructuring (CDR)
FIs should also disclose in their published Annual Accounts, under the ';Notes
on Accounts';, the following information in respect of CDR undertaken during the
year :
- Total amount of loan assets subjected to restructuring under CDR
- The amount of standard assets subjected to CDR.
- The amount of sub-standard assets subjected to CDR.
2.15 Additional Disclosures by FIs in Notes to Accounts
Reserve Bank has been taking several steps from time to time to enhance the
transparency in the operations of banks by stipulating comprehensive disclosures
in tune with the international best practices.
On a review of the existing disclosures, it has been decided to prescribe the
following additional disclosures in the ‘Notes to Accounts’ in the FIs’ balance
sheets, from the year ending March/June 2010:
- Concentration of Deposits, Advances, Exposures and NPAs
- Sector-wise NPAs
- Movement of NPAs (For calculation of gross NPA, please refer to circular
DBOD No. FID.FIC.9/01.02.00/2009-10 dated 26.03.2010)
- Overseas assets, NPAs and revenue
- Off-balance sheet SPVs sponsored by banks The prescribed formats are
furnished in Annex 3.
Notes:
i) The CRAR and other parameters
The CRAR and other related parameters, determined as per the extant capital
adequacy norms for the FIs, should be disclosed.
ii) The Asset quality and credit concentration
For the purpose of asset quality and credit concentration, the following should
also be reckoned for determining the amount of loans and advances and the NPAs
and included in the disclosures:
(i) Bonds and Debentures : The bonds and debentures should be treated in the
nature of advance when :
- The debenture / bond is issued as part of the proposal for project finance and
the tenor of the bond / debenture is for three years and above.
and
- The FI has a significant stake (i.e. 10% or more) in the issue.
and
- The issue is a part of private placement i.e. the borrower has approached the
FI, and not part of a public issue where the FI has subscribed in response to an
invitation.
(ii) Preference Shares : The preference shares, other than convertible
preference shares, acquired as part of project financing and meeting the
criteria as at (i) above.
(iii) Deposits : The deposits placed with the corporate sector.
(iii) The Credit Exposure
The “credit exposure” shall include funded and non-funded credit limits,
underwriting and other similar commitments. The sanctioned limits or
outstandings whichever is higher shall be reckoned for arriving at exposure
limit. In case of term loans, however the exposure limit should be reckoned on
the basis of actual outstandings plus undisbursed or undrawn commitments.
However, in cases where disbursements are yet to commence, exposure limit should
be reckoned on the basis of the sanctioned limit or the extent upto which the FI
has entered into commitments with the borrowing companies in terms of the
agreement.
FIs should include in the non-funded credit limit, the forward contracts in
foreign exchange and other derivative products like currency swaps, options, etc
as per the extant exposure norms.
(IV) Capital Funds
Capital funds for the purpose of credit concentration, would be the total
regulatory capital as defined under capital adequacy standards ( i.e.Tier I and
Tier II Capital ).
(V) The definition of Borrower Group
The definition of ' borrower group' would be the same as applied by the FIs in
complying with group exposure norms.
(VI) The maturity pattern of Assets and Liabilities
For the maturity pattern of assets and liabilities, the bucketing of various
items of assets and liabilities in the specified time buckets should be done in
accordance with the RBI Guidelines on Asset Liability Management System, issued
to FIs.
(VII) Operating results
For operating results, the working funds and total assets should be taken as the
average of the figures as at the end of the previous accounting year, the end of
the succeeding half year and the end of the accounting year under report. (The
“working funds” refer to the total assets of the FI.)
(VIII) Computing per employee net profit
All permanent, full-time employees in all cadres should be reckoned for
computing per employee net profit.
Annex 1
Format For Disclosure Of Issuer Composition For Investment In Debt Securities
A. Issuer categories in respect of investments made
(As on the date of the balance sheet)
(Rs. in crore)
Sr.No.
|
Issuer
|
Amount |
Amount of |
| invest-ment made through private place-ment
|
‘below invest-ment grade’ Securities held
|
‘unrated’
Securities held |
‘unlisted’
Securities |
| (1) |
(2) |
(3) |
(4) |
(5) |
(6) |
(7) |
| 1 |
PSUs |
|
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| 2 |
FIs |
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| 3 |
Banks |
|
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| 4 |
Private corporates |
|
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| 5 |
Subsidiaries/ Joint ventures |
|
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| 6 |
Others |
|
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|
|
| 7 |
# Provision held towards depreciation |
|
X X X |
X X X |
X X X |
X X X |
| |
Total * |
|
|
|
|
|
| # Only aggregate amount of provision held to be disclosed in column 3. |
* NOTES:
1. Total under column 3 should tally with the total of investments included
under the following categories in the balance sheet:
a. Shares
b. Debentures & Bonds
c. Subsidiaries/ joint ventures
d. Others
2. Amounts reported under columns 4, 5, 6 and 7 above might not be mutually
exclusive.
B. Non performing investments
(Rs. in Crore)
| Particulars
|
Amount |
| Opening balance |
|
| Additions during the year since 1st April |
|
| Reductions during the above period |
|
| Closing balance |
|
| Total provisions held |
|
Annex 2
Disclosures on risk exposure in derivatives
Qualitative Disclosure
FIs shall discuss their risk management policies pertaining to derivatives with
particular reference to the extent to which derivatives are used, the associated
risks and business purposes served. The discussion shall also include:
- the structure and organization for management of risk in derivatives trading,
- the scope and nature of risk measurement , risk reporting and risk monitoring
systems,
- policies for hedging and / or mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges / mitigants, and
- accounting policy for recording hedge and non-hedge transactions; recognition
of income, premiums and discounts; valuation of outstanding contracts;
provisioning, collateral and credit risk mitigation.
Quantitative Disclosures
(Rs. in Crore)
| Sl.No |
Particular |
Currency Derivatives
|
Interest rate derivatives |
| 1 |
Derivatives (Notional Principal Amount) |
|
|
| |
a) For hedging |
|
|
| |
b) For trading |
|
|
| 2 |
Marked to Market Positions[1]
|
|
|
| |
a) Asset (+) |
|
|
| |
b) Liability (-) |
|
|
| 3 |
Credit Exposure [2] |
|
|
| 4 |
Likely impact of one percentage change in interest rate (100*PV01)
|
|
|
| |
a) on hedging derivatives |
|
|
| |
b) on trading derivatives |
|
|
| 5 |
Maximum and Minimum of 100*PV01 observed during the year
|
|
|
| |
a) on hedging |
|
|
| |
b) on trading |
|
|
Notes:
1. The net position should be shown either under asset or liability, as the case
should be, for each type of derivatives.
2. FIs should adopt the Current Exposure Method prescribed by RBI on Measurement
of Credit Exposure of Derivative Products which is described in brief as
follows:
In order to calculate the credit exposure equivalent of off-balance sheet
interest rate and exchange rate instruments under current exposure method, a FI
would sum:
- the total replacement cost (obtained by “marking to market”) of all its
contracts with positive value (i.e., when the FI has to receive money from the
counterparty), and
- an amount for potential future changes in credit exposure calculated on the
basis of the total notional principal amount of the contract multiplied by the
following credit conversion factors according to the residual maturity of the
contract :
| Residual Maturity |
Conversion Factor to be applied on Notional Principal Amount
|
| |
Interest Rate Contract
|
Exchange Rate Contract |
| Less than one year |
Nil |
1.0 % |
| One year and over |
0.5% |
5.0 % |
Annex 3
Additional Disclosures
I. Concentration of Deposits, Advances, Exposures and NPAs
Concentration of Deposits
(Amount in Rupees Crores)
| Total Deposits of twenty largest depositors |
|
| Percentage of Deposits of twenty largest depositors to Total Deposits
|
|
Concentration of Advances*
(Amount in Rupees Crores)
| Total Advances to twenty largest borrowers |
|
| Percentage of Advances of twenty largest borrowers to Total Advances
|
|
| *Advances should be computed as per definition of Credit Exposure including
derivatives furnished in our Master Circular on Exposure Norms dated July 1,
2010. |
Concentration of Exposures**
(Amount in Rupees Crores)
| Total Exposure to twenty largest borrowers/customers
|
|
| Percentage of Exposures of twenty largest borrowers/customers to Total Exposure
on borrowers/customers |
|
| **Exposures should be computed based on credit and investment exposure as
prescribed in our Master Circular on Exposure Norms dated July 1, 2010. |
Concentration of NPAs
(Amount in Rupees Crores)
| Total Exposure to top four NPA accounts
|
|
II: Sector-wise NPAs
| Sl. No |
Sector |
Percentage of NPAs to Total Advances in that sector |
| 1 |
Agriculture & allied activities
Industry (Micro & small, Medium and Large) |
|
| 2 |
Industry (Micro & small, Medium and Large)
|
|
| 3 |
Services |
|
| 4 |
Personal Loans |
|
III. Movement of NPAs
| Particulars |
Amount in Rs. Crores |
| Gross NPAs* as on 1st April of particular year (Opening Balance)
|
|
| Additions (Fresh NPAs) during the year |
|
| Sub-total (A) |
|
| Less:- |
|
| (i) Upgradations |
|
| (ii) Recoveries (excluding recoveries made from upgraded accounts)
|
|
| iii) Write-offs |
|
| Sub-total (B) |
|
| Gross NPAs as on 31st March of following year (closing balance) (A-B)
|
|
| *Gross NPAs as per item 2 of Annex to DBOD Circular
DBOD.FID.FIC.9/01.02.00/2009-10 dated March 26, 2010 |
IV. Overseas Assets, NPAs and Revenue
| Particulars |
Amount in Rs. Crores |
| Total Assets |
|
| Total NPAs |
|
| Total Revenue |
|
V. Off-balance Sheet SPVs sponsored (which are required to be consolidated as
per accounting norms)
| Name of the SPV sponsore
|
| Domestic |
Overseas |
| |
|
Annex 4
Part A: List of instructions and circulars superseded
| No. |
Circular No. |
Date |
Subject |
| 1. |
DBS. FID. No. C- 18 / 01.02.00/ 2000-01
|
23.03.2001 |
Disclosures in the Published Financial statements. |
| 2. |
DBS. FID. No. C-14 / 01.02.00/2001-02
|
08.02.2002 |
Additional Disclosures in the Published Financial statements |
| 3. |
DBOD.No.FID. FIC- 1 /01.02.00/ 2004-05
|
26.04.2005 |
Disclosures on Risk Exposures in Derivatives |
| 4. |
DBOD.No.FID. FIC- 2 /01.02.00/ 2006-07
|
01.07.2006 |
Master Circular - Disclosure Norms for Financial Institutions |
| 5. |
DBOD.No.FID. FIC- 2 /01.02.00/ 2007-08
|
02.07.2007 |
Master Circular - Disclosure Norms for Financial Institutions |
Part B: List of other circulars containing Instructions/Guidelines/Directives
related to Disclosure Norms
| No. |
Circular No.
|
Date |
Subject |
| 1 |
DBS. FID . No. 20 / 02.01.00 / 1997-98
|
04.12.1997 |
Limits on Credit Exposures of Term Lending Financial Institutions to Individual/
Group Borrowers |
| 2 |
MPD. BC. 187 / 07.01.279 / 1999-2000
|
07.07.1999 |
Forward Rate Agreements / Interest Rate Swaps |
| 3 |
DBS. FID. No. C-9 / 01.02.00 /2000-01
|
09.11.2000 |
Guidelines – Classification and Valuation of Investments |
| 4 |
DBS. FID. No. C-19 / 01.02.00/2000-01
|
28.03.2001 |
Treatment of Restructured Accounts |
| 5 |
DBS. FID. No. C-26 / 01.02.00 /2000-01
|
20.06.2001 |
Monetary and Credit Policy Measures 2001-2002 – Credit Exposure Norms |
| 6 |
DBS. FID. No. C-2 / 01.11.00 /2001-02
|
25.08.2001 |
Corporate Debt Restructuring (CDR) |
| 7 |
DBS. FID. No. C-6 / 01.02.00 /2001-02
|
16.10.2001 |
Guidelines for Classification and Valuation of Investments –Modifications / Clarifications |
| 8 |
DBOD No. BP.BC. 96 / 21.04.048/ 2002-2003
|
23.04.2003 |
Guidelines on Sale of Financial Assets to Securitisation Company/ Reconstruction
Company |
| 9 |
IDMC. MSRD. 4801 / 06.01.03/2002-03
|
03.06.2003 |
Guidelines on Exchange Traded Interest Rate Derivatives |
| 10 |
DBS. FID. No. C-5 / 01.02.00/2003-04
|
01.08.2003 |
Guidelines for Consolidated Accounting and Consolidated Supervision |
| 11 |
DBS. FID. No. C-11 / 01.02.00/2003-04
|
08.01.2004 |
Final Guidelines on investment by the FIs in debt securities |
| 12 |
DBOD No. FID.FIC. 8/ 01.02.00/2009-10
|
26.03.2010 |
Additional Disclosures in Notes to Accounts |
| 13 |
DBOD No. FID.FIC. 9/ 01.02.00/2009-10
|
26.03.2010 |
Prudential Norms on Income Recognition, Asset Classification and Provisioning
pertaining to Advances – Computation of NPA Levels |