"Assets & Liabilities OF Commercial Banking"

                             The balance sheet of a commercial bank is a statement of its liabilities and assets at a particular period of time. The liabilities of the bank are those items which are to be paid by the bank to shareholders, depositors and others. The assets of the bank are those items from which the bank hopes to get an income.

•  The liabilities of the bank enable it to undertake its operations. The liabilities include all the amounts due to depositors (deposits) and to shareholders (capital & reserves). The liabilities represent sources of funds.
• The assets of a bank enable it to earn its income. The assets include all the amounts owed by others to the bank. The assets represent application of funds.

      I) Liabilities OF Commercial Banking :-

                          It includes all those items which the bank owes to others. It shows the various sources through which the bank raises funds for its business. They are classified into:

i) Paid Up Capital :-

                           This refers to the contribution made by the shareholders of the bank. This indicates the bank’s liabilities to its shareholders.

ii) Reserve & Surplus :-

                         This is the amount accumulated by the bank over the years out of undistributed profits. This is maintained to meet contingencies. These funds are liabilities of the bank, as they actually belong to the shareholders.

iii) Deposits :-

                                 The deposits are the main source of funds for the banks. The deposits are broadly classified as deposits payable on demand and deposits accepted for a term and hence payable on a specified date. Generally, these deposits are classified as current deposits, saving bank deposits and term deposits. Current Deposits, Saving Deposits, Time Deposits etc.

iv) Borrowing :-

                            They consists borrowings or amount refinanced from RBI, commercial banks and other financial institutions. They also include overseas borrowings made by Indian branches and also borrowings made by foreign branches.

v) Other Liabilities :-

                            These are incurred by the bank during the course of business. They include bills payables such as drafts, traveler’s cheque, pay slips, bankers cheques etc. They also include provision for income tax.

       II) Assets of Commercial Banking :-

                                The assets side of balance sheet consists of all those items which give revenue to the bank. The assets side can be analysed as follows:

i) Cash Balance :-

                           This is the most liquid asset. It enables the bank to meet the demand of customers. By experience the banks know the amount of cash required to meet the demand of the people. They keep certain amount of deposits as reserves with themselves. Cash has 100% liquidity but 0% profitability.

ii) Investments :-

                        Generally commercial banks invest in short term and medium term securities. They prefer government securities as they are safe and marketable. Investments inshares, debentures and bonds are also made by banks. They are highly profitable but have less liquidity. Commercial banks investment are:

1.   Government of India securities,
2.   Other approved securities and
3.   Non-approved securities

iii) Investment in SLR Securities :-

                     The first two types of securities are known as SLR securities. At present the banks are statutorily required to invest 25% of their total deposits in government and approved securities. Government securities include securities issued by both the central and state government agencies and PSUs of state and central government. Approved securities include securities issued by Quasi-Government agencies. These securities are given SLR securities status on case-to-case basis.

iv) Loan & Advance :-

                             The most important asset of commercial banks balance sheet is loans and advances. They form the major part of assets for all the banks. The various types of loans and advances provided by the banks are:

• Cash Credit: Cash credit is sanctioned against a security of commodity stock, property etc
• Overdraft: It is allowed only for current account holders.
• Purchase of discounting bills: It is adopted to finance trade transactions and movement of goods.
• Loans: They are advances for fixed amounts repayable on demand or installments.

v) Other Assets :-

                          They include fixed assets, such as premises which are wholly or partly owned by banks for business/residential purpose, furniture etc.