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Accounting for Companies – II

notes for mobilising and channelling of funds in a country. The major institutions carrying business,
in India, include: (a) Nationalised banks (b) State Bank of India and Associates banks (c) Foreign
banks having branches in India (d) Cooperative banks (e) Rural banks and (f) Private sector
banks.
In addition to banking business, a bank is permitted under Section 6 of the Banking Regulation
Act to engage in certain class of business which is incidental to the business of banking.
Section 8 of the Banking Regulation Act prohibits a bank from buying and selling or dealing
in goods except in connection with realisation of a security held by it or in connection with the
business of collections or negotiating bills of exchange.
7.1 accounting for Banks

Section 5(h) of the Banking Companies Act defines banking as “The accepting for the purpose
of lending or investment, of deposits of money from the public, repayable on demand or
otherwise and withdrawable by cheque, draft, and order or otherwise”. (Till 1949 there was no
special legislation to regulate banking companies but since that year the provisions of Banking
Regulation Act and Companies Act, 1956 applies to corporation entities carrying on banking
business including the nationalised banks). Section 6 of the Act lay down that in addition to the
usual business, the following business may also be carried on by a banking company —
(a) Acting as agents for any Government or local authority or any other person or persons,
(b) Carrying on and transacting every kind of guarantee and indemnity business, and
(c) Undertaking and executing trusts.

Other types of business are prohibited for a banking company. No banking company can directly
or indirectly deal in the buying or selling or bartering of goods, except in connection with the
realisation of security given to or held by it or engage in any trade or buy or sell or barter goods
for others otherwise than in connection with bills of exchange. Immovable property, except that
required for its own use, however acquired, must be disposed of within seven years from the
date of acquisition.

7.1.1 non-banking assets

A bank cannot acquire certain assets but it can always lend against the security of such assets.
This means that sometimes, in case of failure on the part of the loan to repay the loans, the bank
may have to take possession of such assets. In that case, the assets will be shown in the balance
sheet as “non-banking assets”. These must be disposed of within seven years. Income from or
profit on sale and loss on sale of such assets has to be separately shown in financial statements
like Profit and Loss Account of the bank.



Caselet exchange rate interventions by Bank of Japan

apan has been criticised for its continuous & regular interventions in the foreign exchange
market. The motive behind these interventions was to control the extreme movement of
Jthe yen with respect to other currencies like the US dollar. But the intervention by the
Bank of Japan on September 15, 2010, was different from the earlier ones as it was the
first time it was being done after March 31, 2004, when the government of Japan had to
interfere in the foreign exchange market.
Contd...

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