Regulatory updates

Regulatory updates

Update from RBI

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Background

Before the clarifications issued by RBI, the RBI Master Direction on Financial Statements-Presentation and Disclosures (Master Directions) did not provide any specific guidance regarding the presentation requirements for disclosure of reverse repos of a bank with:

  • RBI (including those under Liquidity Adjustment Facility) and
  • Other banks and institutions having original tenors more than 14 days.

New development

In view of this, RBI, vide a notification dated 19 May 2022, has prescribed the disclosures to be provided in the balance sheet of banks, in order to bring more clarity on the presentation of reverse repo.

As per the revised requirements:

  1. All type of reverse repos with RBI including those under Liquidity Adjustment Facility should be presented under sub-item (ii) ‘In Other Accounts’ of item (II) ‘Balances with Reserve Bank of India’ under Schedule 6 ‘Cash and balances with Reserve Bank of India’.
  2. Reverse repos with banks and other institutions having original tenors up to and inclusive of 14 days should be classified under item (ii) ‘Money at call and short notice’ under Schedule 7 ‘Balances with banks and money at call and short notice’
  3. Reverse repos with banks and other institutions having original tenors more than 14 days should be classified under Schedule 9 –‘Advances’ under the following heads:
    1. A. (ii) ‘Cash credits, overdrafts and loans repayable on demand’
    2. B. (i) ‘Secured by tangible assets’
    3. C. (I)(iii) Banks or (iv) ‘Others’ (as the case may be)

The Master Directions have been updated on the basis of the above revised requirements.

To access the text of the RBI notification, please click here

To access the text of the revised Master Directions, please click here

Action points for auditors

Auditors should refer the text of the updated master directions and actively engage with the banking companies to understand the new requirements and the revised disclosures required in the financial statements.

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