Tackle Reconciliation, Banks Told
Concerned with mounting arrears in the reconciliation of inter-branch accounts, the Reserve Bank of India (RBI) has asked commercial banks to immediately tackle arrears for the last five years. These amounts are now required to be shown separately in the balance sheets of the banks.
In a recent circular issued to commercial banks, the RBI has specified that the aggregate amount of these arrears should not be allowed to be netted against debit entries.
"It has been decided that banks should first segregate the credit entries outstanding for more than five years in inter-branch accounts and transfer them to a separate blocked account and show it under `other liabilities and provisions-others' (schedule 5) in the balance sheet," says the circular issued by the Department of Banking Operations and Development (DBOD) of the apex bank.
The DBOD has further specified that while arriving at the net amount of inter-branch transactions for inclusion under schedule 5 or 11, the aggregate amount of blocked account should be excluded and only the amount representing the remaining credit entries should be netted against debit entries.
"The balance in the blocked amount will be reckoned for the purpose of maintenance of CRR/SLR," the circular said. The commercial banks have so far been concentrating on settling the reconciliation on the current-year basis. According to a senior officer of the State Bank of India, it takes most banks about six months to do so. Now, however, they will have to expedite the reconciliation of arrears as the RBI wants them to settle the arrears for the past five years.
According to banking circles, the RBI has changed the process of accounting for arrears in the banks' balance sheet. Earlier, banks were required to show net balance in the inter-branch account under `other liabilities and provisions' (schedule 5) when in credit and under `other assets' (schedule 11) when in debit. However, as this measure did not help in reducing the reconciliation arrears, the central bank has tightened the policy, bank sources said. According to RBI sources, reconciliation arrears pose the largest threat of banking frauds. Any irregularity, which can only be detected at the reconciliation stage, usually takes years to be noticed because of the delay in the process.
As a matter of precaution, the RBI has also prescribed that any adjustment from the blocked account should be permitted only with the authorisation of two officials, one of whom should be from outside the branch concerned.