RBI panel for single balance sheet of the central bank

The current practice sees then bank prepare two balance sheets

A committee appointed by the Reserve Bank of India (RBI) has suggested doing away with the current practice of preparing two balance sheets and instead, prepare a consolidated balance sheet of the issue and banking department of the central bank. It has, however, said assets and liabilities of the department should be displayed separately in this single balance sheet.  

Last November, RBI had set up a technical committee under the chairmanship of Y H Malegam to look into the form of presentation of the central bank’s financial statements, the style and content of the management commentaries and notes to the accounts of the balance sheet, and to make recommendations accordingly. The committee recently submitted its report to RBI, which the central bank made public today.

Most central banks across the globe present only a single balance sheet; some exceptions being the top banks in India, Saudi Arabia and the UK, the committee said in its report. The panel said the balance sheet should contain only the main items of capital, reserves, assets and liabilities and all other details should be shown in the accompanying schedules. Since RBI is not a commercial organisation and its primary objective is not to earn profits, the nomenclature ‘Profit & Loss Account’ tends to be a misnomer and, therefore, it should be replaced with the nomenclature ‘Income Statement’, the Malegam committee said.

Even this statement should be a single statement as it is done currently. It further recommended that since interest income is the main source of income for RBI, under the income head only interest income should be mentioned and all other income should be shown in head — others.

The technical group said repo and reverse repo transactions should be accounted for as lending and borrowing of funds and not as sale and purchase of securities as it just represents collateral security for the transactions. It also said RBI should not prepare a cash flow statement as part of its financial statements. The committee further examined if RBI can change its accounting year to April-March (it follows July- June accounting year) like most other agencies.

However, it recommended to continue with the present system in view of operational difficulties arising in closing of the year in March. RBI will examine the report in consultation with all stakeholders, it said in a statement.