Reserve Bank of India has asked banks to divulge a host of details in the notes to account in the balance sheet for the year ending March 2010, which will vastly increase the level of transparency.
Among the information that banks are required to disclose include concentration of deposits, advances, exposures and non-performing assets (NPAs). In addition, banks will have to disclose sector-wise NPAs.
Disclosures relating to concentration of deposits will include total deposits of 20 largest depositors and the percentage of deposits of these 20 largest depositors to total deposits of the bank. Typically, banks that are stretched for resources or those that are keen to expand their balance sheets raise funds issuing certificate of deposits that offer a substantial higher rate of interest.
These funds are deployed with large corporates with active treasuries at a low rate of interest. While profits from such lending may be negligible, it helps banks display scale and growth.
Similarly, banks are required to display total advances to 20 largest borrowers and the percentage of advances to 20 largest borrowers to total advances of the bank. In connection with NPAs, RBI has asked banks to reveal which are the top four borrowers who have defaulted. They also have to disclose the extent of non-performing assets that banks have in respect of each industry.
Banks will also not be able to sweep bad loans under the carpet as they now have to declare gross non-performing assets at the beginning of the year and gross NPAs added during the year. If there is a reduction in bad loans, banks will need to provide a break-up of how much of these were due to upgradations, recoveries and write-offs.
A new disclosure requirement is the publication of off-balance sheet special purpose vehicles. Very often, banks facilitate funding through a third-party entity in the nature of a special purpose vehicle which is controlled by the bank.
These SPVs are created under a trust structure and therefore not reflected in the balance sheet of the bank. In their forthcoming balance sheet, banks will need to disclose all the SPVs that they have sponsored in India as well as abroad.
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