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RBI should make balance sheet more transparent: Committee

Last Updated: Wednesday, June 5, 2013 - 21:11

Mumbai: The Reserve Bank should make its balance sheet more transparent by including information such as employee cost and expenses on printing of notes, a committee has said.

It has also suggested that gold should be revalue at the end of each month in line with global prices.

The balance sheet should contain only the main items of capital, reserves, assets and liabilities and all details be shown in the relevant schedules, said the RBI committee report, adding that the central bank should retain its financial year from July to June.

The committee was formed on modifying the central bank's balance sheet.

It said: "In determining the items which are to be shown separately in the schedules, items of similar nature can be grouped and shown as a single item and other items which are not material in value can be grouped and shown as a single item titled 'others'.

"Items which are considered as being of a sensitive nature may not be separately disclosed."

It also said the nomenclature 'Profit and Loss Account' is a misnomer and it should be replaced by the nomenclature 'Income Statement'.

The report said that an adequate amount of the profits should continue to be transferred each year to the contingency reserve.

Besides, it said gold should be revalue at the end of each month at the prevalent international price and unrealised gain or loss from such revaluation may continue to be transferred to the currency and gold revaluation account.

Presently, gold is revalue on a monthly basis at 90 percent of the daily average price quoted at London for the month.

For purpose of depreciation on buildings, a future life of 15 years may be assumed for buildings on hand as at June 30, 2012 and a life of 30 years may be assumed for all additions thereafter, the committee said.

It also suggested that all foreign securities should be treated as available for sale, repo and reverse repo transactions be accounted for as lending and borrowing of funds and not as sale and purchase of securities.

"In the event of an overall gain on forward contract, the amount should be reflected in the balance sheet as a recoverable asset with a corresponding credit to Exchange Equalisation Account, which is not presently being done," as per the recommendations.

The Committee report said: "RBI should prepare a single balance sheet which displays separately the assets and liabilities of the Issue Department. It is possible to disclose the assets and liabilities of the Issue Department separately within a single balance sheet."

RBI prepares two balance sheets. One relates to the sole function of currency management and is presented as the balance sheet of the Issue Department. The other one reflects the impact of all other functions of the Reserve Bank and is known as the balance sheet of the Banking Department.

With regard to accounting policies, the Committee has suggested that RBI should prepare its financial statements generally in accordance with IAS (International Accounting Standards) or IFRS (International Financial Reporting Standards). It may, however, make such departures as it considers appropriate, it added.

The Committee also recommended that the figures in the balance sheet and income statement should be in crores of rupees and up to two decimal points. Currently, the statements present figures in 'billion'.

The RBI had set up a technical committee under Y H Malegam in 2012 to examine the form of presentation of its financial statements, profit and loss account and the style and content of the management commentaries and notes to the accounts of the balance sheet as well as make recommendations to effect changes, if necessary.


First Published: Wednesday, June 5, 2013 - 21:11
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