RBI/2004/84 Ref: DBS.FID. No. C-2 /01.02.00/2004-05 DT.02/08/2004

Master Circular - Disclosure Norms for the Financial Institutions

Please refer to the Master Circular No. DBS.FID.No. C- 2 /01.02.00/2003-04 dated July 10, 2003 consolidating instructions/ guidelines issued to banks till 30 June 2003 on matters relating to norms for disclosures in the published annual reports. The Master Circular has been suitably updated by incorporating instructions issued upto 30 June 2004 and has also been placed on the RBI web-site (http://www.rbi.org.in).

This Master Circular is a compilation of all the instructions contained in the circulars issued by RBI on the above subject, which are operational as on the date of this circular.

Yours faithfully,

(S.S Gangopadhyay)
Chief General Manager

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Disclosures in the Published Annual Reports of Financial Institutions

Recognising considerable divergence amongst the financial institutions in the nature and manner of disclosures made by them in their published annual reports, 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 annual report. These disclosures constitute only minima and if an FI desires to make any additional disclosures, it would be well advised to do so.

2. The various disclosure requirements are :

A. Capital

(a) CRAR, core CRAR and supplementary CRAR

(b) The amount of subordinated debt raised and outstanding as Tier–II capital

(c) Risk weighted assets-separately for on- and off-balance sheet items

(d) The share holding pattern as on the date of the balance sheet

B. Asset quality and credit concentration

(e) Percentage of net NPAs to net loans and advances,

(f) Amount and percentage of net NPAs under the prescribed asset classification categories;

(g) Amount of provisions made during the year towards Standard assets, NPAs, investments (other than those in the nature of an advance), income tax

(h) Movement in net NPAs

(i) 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).

(j) Credit exposure to the five largest industrial sectors (if applicable) as percentage to total loan assets

C. Liquidity

(k) Maturity pattern of rupee assets and liabilities; and

(l) 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
Foreign currency assets
Total assets
Rupee liabilities
Foreign currency liabilities
Total liabilities
Total

D. Operating results

(m) Interest income as a percentage to average working funds

(o) Non-interest income as a percentage to average working funds

(p) Operating profit as a percentage to average working funds

(q) Return on average assets

(q) Net Profit per employee

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

F. 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.

G. 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 :

Number of Accounts
Aggregate value (net of provisions) of accounts sold to SC /RC
Aggregate consideration
Additional consideration realised in respect of accounts transferred in earlier years
Aggregate gain / loss over net book value.

H. 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.

I. Interest Rate Derivatives

The FIs dealing in interest rate derivatives on exchanges may 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)

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, with effect from the year ending March 31, 2004 (June 30, 2004 in case of NHB) in the format furnished in the Annexure.

Consolidated Financial Statements

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".

Accounting policies:

CFS should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. (For the purpose, the FIs may 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.

Notes:

The CRAR and other related parameters, determined as per the extant capital adequacy norms for the FIs, may be disclosed.

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 at B above :

(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.

Preference Shares :The preference shares, other than convertible preference shares , acquired as part of project financing and meeting the criteria as at (i) above.

Deposits :The deposits placed with the corporate sector.

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 may 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.

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 )

The definition of ' borrower group' would be the same as applied by the FIs in complying with group exposure norms.

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.

For operating results, the working funds and total assets may 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.)

All permanent, full-time employees in all cadres should be reckoned for computing per employee net profit.

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ANNEXURE

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
			investment made through private placement	‘below invest-ment grade’ Securities held	‘unrated’ Securities held	‘unlisted’ Securities
(1)	(2)	(3)	(4)	(5)	(6)	(7)
1	PSUs
2	FIs
3	Banks
4	Private corporates
5	Subsidiaries/ Joint ventures
6	Others
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:

Shares

Debentures & Bonds

Subsidiaries/ joint ventures

Others

2. Amounts reported under columns 4, 5, 6 and 7 above might not be mutually exclusive.

B. Non performing investments

(Rs. Crore)

Particulars	Amount
Opening balance
Additions during the year since 1st April
Reductions during the above period
Closing balance
Total provisions held

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Appendix

No.	Circular No.	Date	Subject	Para No.
1.	DBS. FID. No. C-5 / 01.02.00/2003-04	01.08.2003	Guidelines for Consolidated Accounting and Consolidated Supervision	Para 1.3 & 1.7.1
2.	DBS. FID. No. C-11 / 01.02.00/2003-04	08.01.2004	Final Guidelines on investment by the FIs in debt securities	Para 9 of Annexure 2
3.	IDMC. MSRD. 4801 / 06.01.03/2002-03	03.06.2003	Guidelines on Exchange Traded Interest Rate Derivatives	Para 4 (x)
4.	DBOD No. BP.BC. 96 / 21.04.048/ 2002-2003	23.04.2003	Guidelines on Sale of Financial Assets to Securitisation Company/ Reconstruction Company	Para 6
5.	DBS. FID. No. C-14 / 01.02.00/2001-02	08.02.2002	Additional Disclosures in the Published Annual Reports	Entire circular
6.	DBS. FID. No. C-6 / 01.02.00 /2001-02	16.10.2001	Guidelines for Classification and Valuation of Investments –Modifications / Clarifications	Para 2 and 3 of the Annexure
7.	DBS. FID. No. C-26 / 01.02.00 /2000-01	20.06.2001	Monetary and Credit Policy Measures 2001-2002-Credit Exposure Norms	Para 2
8.	DBS. FID. No. C-19 / 01.02.00/2000-01	28.03.2001	Treatment of Restructured Accounts	Para 8
9.	DBS. FID. No. C- 18 / 01.02.00/ 2000-01	23.03.2001	Disclosures in the Published Annual Reports	Entire Circular
10.	DBS. FID. No. C-9 / 01.02.00 /2000-01	09.11.2000	Guidelines-Classification and Valuation of Investments	Para 4 of the Annexure
11.	MPD. BC. 187 / 07.01.279 / 1999-2000	07.07.1999	Forward Rate Agreements / Interest Rate Swaps	Annexure 3
12.	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	Entire Circular

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