Annual Report

Part Two : The Working and Operations of The Reserve Bank of India

Income

Expenditure

Appropriation

Balance Sheet

Assets

11.1 The key financial results of the Bank's operations during the year are presented in this chapter.

INCOME

11.2 The total income of the Bank for the year 1999-2000, after various provisions, showed an increase of Rs.2,740.64 crore (14.3 per cent) from Rs.19,220.33 crore to Rs.21,960.97 crore. The increase in income was mainly due to increase in earnings from domestic and foreign sources. However, the share of earnings from foreign sources has declined from 32.8 per cent in 1998-99 to 29.7 per cent in 1999-2000. The sources of income are set out in Table 11.1.

Income from Foreign Sources

11.3 During the accounting year ended June 30, 2000, the Bank's net earnings from deployment of foreign currency assets including gold increased by Rs.208.14 crore (3.3 per cent) from Rs.6,306.59 crore in 1998-99 to Rs.6,514.73 crore in 1999-2000 mainly due to higher average level of foreign currency assets at Rs.1,40,275 crore in 1999-2000 as against Rs.1,16,445 crore in 1998-99. However, in percentage terms the net earnings on foreign currency assets and gold declined from 5.4 per cent in 1998-99 to 4.6 per cent in 1999-2000. Excluding gains/losses on account of securities transactions, the net earnings on foreign currency assets and gold worked out to 5.0 per cent for 1999-2000 as against 5.1 per cent for 1998-99. There was capital loss (net) on sale of securities at Rs.464.68 crore (depreciation of Rs.496.53 crore as against realised capital gain of Rs.31.85 crore) during the year 1999-2000 as compared to capital loss (net) of Rs.20.67 crore (depreciation of Rs.189.62 crore, as against realised capital gain of Rs.168.95 crore) in 1998-99. The foreign securities held in Bank's portfolio are valued at the end of every month at the lower of book value or market rate. If the market rate is lower than the book value, depreciation to the same extent is provided for. Appreciation is neither taken to profit and loss account nor to the reserves. Such unrealised appreciation in the value of foreign securities held in the Bank's portfolio as at the end of June 2000 was Rs.216.97 crore as against Rs.93.93 crore as at the end of June 1999.

Table 11.1: Income

(Rupees crore)

Item

1999-2000

1998-99

1997-98

1996-97

1995-96

1

2

3

4

5

6

A.

Foreign Sources

Interest, Discount, Exchange,

Commission

6,514.73

6,306.59

5,687.34

4,585.66

3,722.97

B.

Domestic Sources

Interest

14,928.38

12,642.96

7,999.73

6,954.88

6,098.74

Discount

323.11

87.74

21.37

1,601.88

2,025.25

Exchange

0.14

0.19

0.37

0.25

0.44

Commission

185.62

175.02

365.03

105.16

70.21

Rent realised and others

8.99

7.83

9.80

9.03

14.06

Total - Domestic

15,446.24

12,913.74

8,396.30

8,671.20

8,208.70

Total Income (Gross) [A+B]

21,960.97

19,220.33

14,083.64

13,256.86

11,931.67

C.

Less transfer to :

(i) Contingency Reserve

6,554.50

8,917.65

2,158.72

4,204.92

3,664.79

(ii) Asset Development Reserve

711.55

1,274.59

1,181.71

-

-

Total (i + ii)

7,266.05

10,192.24

3,340.43

4,204.92

3,664.79

Total Income (Net)

14,694.92

9,028.09

10,743.21

9,051.94

8,266.88

Income from Domestic Sources

11.4 Domestic income rose by Rs.2,532.50 crore (19.6 per cent) from Rs.12,913.74 crore in 1998-99 to Rs.15,446.24 crore in 1999-2000 reflecting increase in income earnings from sale of rupee securities, interest earnings on Ways and Means advances to Central and State Governments and loans and advances to banks and financial institutions and discount on Government Treasury bills. The profit booked on sale of Rupee Securities increased by Rs.2,125.09 crore from Rs.1,155.45 crore in 1998-99 to Rs.3,280.54 crore in 1999-2000 on account of larger volume of open market operations (sales) coupled with higher security prices.

11.5 The decrease of Rs.479.50 crore in interest from Government securities from Rs.9,441.82 crore during 1998-99 to Rs.8,962.32 crore during 1999-2000 was mainly because of lower interest rates. The interest earnings on Ways and Means advances increased by Rs.101.63 crore from Rs.614.20 crore in 1998-99 to Rs.715.83 crore in 1999-2000 due to increased recourse to this facility by the Central and State Governments. Interest on loans and advances to banks/financial institutions also increased by Rs.200.66 crore from Rs.1,137.18 crore in 1998-99 to Rs.1,337.84 crore in 1999-2000. The increase in discount earned is attributable to devolvement of Government Treasury bills on the Bank in auctions and net purchases made in the open market.

EXPENDITURE

11.6 Total expenditure of the Bank increased by Rs.795.83 crore (17.5 per cent) from Rs.4,545.09 crore in 1998-99 to Rs.5,340.92 crore in 1999-2000 (Table 11.2). The increase is due to rise both in establishment and non-establishment expenses.

Interest Payment

11.7 Interest payment decreased by Rs.4.76 crore (0.2 per cent) from Rs.1,976.64 crore in 1998-99 to Rs.1,971.88 crore in 1999-2000 mainly due to substantial reduction in payment in lieu of service charges on borrowings from IMF payable to Government of India from Rs.45.51 crore in 1998-99 to Rs.7.82 crore in 1999-2000. Government's liability to IMF has been completely liquidated, as on June 30,2000.

Establishment Expenditure

11.8 Establishment expenditure increased by Rs.163.16 crore (23.9 per cent) from Rs.683.59 crore in 1998-99 to Rs.846.75 crore in 1999-2000. The higher expenditure in 1999-2000 was mainly due to provision made towards payment of arrears on account of wage revision of employees.

Non-establishment Expenditure

Agency Charges

11.9 Expenditure towards agency charges increased by Rs.269.60 crore (29.2 per cent) from Rs.924.02 crore in 1998-99 to Rs.1,193.62 crore in 1999-2000 mainly due to increase in Government business and payment of arrears of agency commission consequent to increase in the rate of commission.

Table 11.2: Expenditure

(Rupees crore)

Item

1999-2000

1998-99

1997-98

1996-97

1995-96

1

2

3

4

5

6

I.

Interest Payment

of which :

1,971.88

1,976.64

1,999.23

1,912.60

2,541.65

a)

Scheduled Banks

1,656.18

1,652.76

1,639.16

1,520.44

2,076.82

b)

Payment in lieu of service

7.82

45.51

103.28

183.66

309.54

charges on borrowings from IMF

payable to Government of India

II.

Establishment

846.75

683.59

848.43

519.48

682.30

III.

Non-Establishment

of which:

2,522.29

1,884.86

1,914.45

1,352.43

1,100.54

a)

Agency charges

1,193.62

924.02

884.25

829.93

601.00

b)

Security printing

1,068.44

733.96

834.23

386.48

372.67

IV.

Total [I+II+III]

5,340.92

4,545.09

4,762.11

3,784.51

4,324.49

Security Printing

11.10 Expenditure on security printing, comprising cost of printing of currency notes, cheque forms etc., has increased by Rs.334.48 crore (45.6 per cent) from Rs.733.96 crore in 1998-99 to Rs.1,068.44 crore in 1999-2000. The increase in expenditure during the year was mainly due to increase both in supply of note forms and cost of printing.

APPROPRIATION

Net Disposable Income

11.11 The net disposable income for the year 1999-2000 amounted to Rs.9,354 crore as against Rs.4,483 crore in 1998-99. Since 1991-92 significant transfers to statutory funds have been discontinued. However, pending amendment to the Reserve Bank of India Act, 1934 for vesting in the Bank the discretion in the matter of transfer to statutory funds from the profits of the Bank, a token contribution of Rupees one crore each, has been made to the four funds. The appropriation of the net disposable income is summarised in Table11.3.

Surplus transferable to Government of India

11.12 A sum of Rs.9,350 crore is transferable to the Government for the year 1999-2000 as against Rs.4,479 crore transferred during the year 1998-99 inclusive of Rs.1,479 crore each for both the years towards interest differential on special securities converted into marketable securities (Table11.3). In the year 1997-98, Special Securities of the order of Rs.20,000 crore carrying interest at 4.6 per cent per annum held by the Bank were converted into marketable securities at market related rates to augment the stock of eligible securities in the Bank's investment portfolio for open market operations. The above transfer is intended to compensate the Government for the difference in interest expenditure, which the Government had to bear consequent on the conversion. Transfer of higher amount of surplus to the Government for the year under reference has been considered after ensuring that indicative target to take Contingency Reserve balance to 12 per cent of the size of the Bank's assets by the year 2005, could be achieved.

Table 11.3: Appropriation of Net Disposable Income

(Rupees crore)

Item

1999-2000

1998-99

1

2

3

Total Income (Net)

14,694.92

9,028.09

Total Expenditure

5,340.92

4,545.09

Net Disposable Income

9,354.00

4,483.00

Less : Transfer to Funds *

4.00

4.00

Surplus transfer to Government

of which

9,350.00

4,479.00

i)

Towards Normal Transfer

7,871.00

3,000.00

ii)

Interest differential on

1,479.00

1,479.00

account of conversion of

special securities into

marketable securities

*

An amount of Rupees one crore each was transferred

to NIC (LTO) Fund, NRC(LTO) Fund, NRC(Stabilisation)

Fund and NHC(LTO) Fund during each of the two

years.

BALANCE SHEET

Liabilities National Industrial Credit (Long Term Operations) Fund

11.13 The National Industrial Credit (Long Term Operations) Fund was established by the Bank in July 1964 with an initial corpus of Rs.10 crore and annual contributions from the Bank's disposable surplus in terms of Section 46C(1) of Reserve Bank of India Act, 1934. The Fund was applied for the purpose of making loans and advances to eligible financial institutions. Consequent on the announcement in the Union Budget for 1992-93, the Bank decided to discontinue the practice of crediting large sums to the said Fund. Simultaneously, no further disbursements from the Fund have been made. It was decided in 1997-98 to transfer the unutilised balance in the Fund built up through repayments to Contingency Reserve (CR) on a year to year basis. Accordingly, an amount of Rs.350 crore has been transferred to CR in 1999-2000 as against Rs.300 crore transferred in the preceding year.

Deposits - Banks

11.14 'Deposits - Banks' represent balances maintained by the banks in current account with Reserve Bank mainly for maintaining Cash Reserve Ratio (CRR) and working funds for clearing adjustments. The aggregate deposits of scheduled commercial banks with the Reserve Bank decreased by Rs.9,151.75 crore (13.1 per cent) from Rs.70,006.22 crore as on June 30, 1999 to Rs.60,854.47 crore as on June 30, 2000 mainly due to reduction in CRR requirement from 10 per cent of total Net Demand and Time Liabilities (NDTL) to 8 per cent during the year 1999-2000. The aggregate deposits of the scheduled state co-operative banks, other scheduled co-operative banks, non-scheduled state co-operative banks and other banks, increased by Rs.603.30 crore (23.4 per cent) from Rs.2,577.48 crore as on June 30, 1999 to Rs.3,180.78 crore as on June 30, 2000.

Deposits - Others

11.15 'Deposits - Others' include deposits from financial institutions, employees' provident fund deposits, surplus earmarked pending transfer to the Government and sundry deposits. The sharp increase in the amount of ' Deposits-Others' during the year under reference by Rs.4,242.16 crore (34.7 per cent) from Rs.12,227.83 crore as on June 30, 1999 to Rs.16,469.99 crore is mainly due to higher amount of surplus transferable to the Government for the year 1999-2000.

Other Liabilities

11.16 'Other Liabilities' include the internal reserves and provisions of the Bank and net credit balance in RBI General Account. These liabilities have increased by Rs.10,513.09 crore (19.3 per cent) from Rs.54,556.21 crore as on June 30, 1999 to Rs.65,069.30 crore as on June 30, 2000 mainly on account of increase in the levels of internal reserves.

11.17 The reserves viz., Contingency Reserve, Asset Development Reserve, Exchange Fluctuation Reserve and Exchange Equalisation Account etc., reflected in 'Other Liabilities' are in addition to the 'Reserve Fund' of Rs.6,500 crore held by the Bank as a distinct balance sheet head.

Exchange Fluctuation Reserve and Exchange Equalisation Account

11.18 Gains/losses on valuation of foreign currency assets and gold are not booked in profit and loss account but in a separate account called Exchange Fluctuation Reserve (EFR), the balance in which represents accumulated net gain on valuation of foreign currency assets and gold. During 1999-2000, there was an accretion of Rs.2,785.14 crore to the EFR increasing the balance to Rs.27,608.43 crore as on June 30, 2000 from Rs.24,823.29 crore as on June 30, 1999. EFR is also utilised for replenishing Exchange Equalisation Account (EEA) inter alia to meet exchange losses on accrual basis in respect of liabilities under schemes involving exchange guarantees provided by Reserve Bank in respect of funds parked by financial institutions like IDBI. The balance in the EEA as on June 30, 2000 amounted to Rs.791.27 crore and fully provides for the exchange difference on foreign currency funds parked by Indian financial institutions which are expected to be withdrawn by February 2001. As exchange guarantees are no longer being given by the Reserve Bank and also the schemes which enjoyed such guarantees, have almost come to a close, the EFR will not come under pressure in future on this account. The EFR at the end of June 2000 was equivalent to 16.8 per cent of foreign currency assets and gold holdings of the Reserve Bank, as against 17.2 per cent at the end of June 1999. The balances in EFR and EEA, which are part of 'Other Liabilities' in the Balance Sheet, are given in Table 11.4.

Contingency Reserve and Asset Development Reserve

11.19 The Bank maintains a Contingency Reserve (CR) to be able to absorb unexpected and unforeseen contingencies. The Bank has been pursuing a pro-active policy of strengthening the CR and has accordingly set an indicative target of 12 per cent of the size of the Bank's assets to be achieved in phases by the year 2005, subject to review, if considered essential. In order to be in a position to meet the internal capital expenditure and make investments in its subsidiaries and associate institutions, the Bank had created in 1997-98 a separate 'Asset Development Reserve' (ADR) with the aim of reaching one per cent of the size of Bank's assets within the overall target of 12 per cent set for CR.

Table 11.4: Balances in Exchange Fluctuation Reserve and Exchange Equalisation Account

(Rupees crore)

As on June 30

Exchange

Exchange

Fluctuation

Equalisation

Reserve

Account

1

2

3

1996

11,976.42

2,818.70

1997

10,080.93

758.89

1998

25,143.03

639.00

1999

24,823.29

618.61

2000

27,608.43

791.27

11.20 The balance in CR has gone up from Rs. 23,007.06 crore as on June 30, 1999 to Rs.29,911.56 crore as on June 30, 2000 due to the transfer of Rs.6,554.50 crore from income and transfer of the unutilised balance of Rs.350 crore from National Industrial Credit (Long Term Operations) Fund in 1999-2000. The balance in CR is sufficient to meet contingent liabilities. Further, in 1999-2000, an amount of Rs.711.55 crore was transferred from income to ADR raising its level from Rs. 2,456.30 crore as on June 30, 1999 to Rs.3,167.85 crore as on June 30, 2000. As a proportion of total assets, CR and ADR together constituted 9.2 per cent of total assets of the Bank as on June 30, 2000 as against 7.6 per cent as on June 30, 1999. Balances in CR and ADR are given in Table 11.5.

ASSETS

Foreign Currency Assets

11.21 The foreign currency assets comprise foreign securities held in Issue Department, balances held abroad and investments in foreign securities held in Banking Department. Such assets which stood at Rs.1,32,505.09 crore as on June 30, 1999 rose to Rs.1,50,901.13 crore as on June 30,2000. In US dollar terms, these assets rose from US dollar 30.56 billion as on June 30,1999 to US dollar 33.77 billion as on June 30, 2000.

Investment in Government of India Rupee Securities

11.22 Investment in Government of India rupee securities which stood at Rs.1,47,965.95 crore as on June 30, 1999 marginally increased by Rs.942.41 crore (0.6 per cent) to Rs.1,48,908.36 crore as on June 30, 2000.

Table 11.5: Balances in the Contingency Reserve and Asset Development Reserve

(Rupees crore)

As on

Balance

Balance

Total

Percentage

June 30

in CR

in ADR

to total

assets

1

2

3

4

5

1996

7,725.59

-

7,725.59

3.3

1997

11,230.69

-

11,230.69

4.5

1998

13,789.41

1,181.71

14,971.12

5.1

1999

23,007.06

2,456.30

25,463.36

7.6

2000

29,911.56

3,167.85

33,079.41

9.2

Investments in Subsidiaries and Associate Institutions

11.23 The Bank's investments in the shares of its subsidiaries and associate institutions remained unchanged during the current accounting year as could be seen from the details furnished in Table 11.6.

Other Assets

11.24 'Other Assets' comprise mainly dead stock, gold holdings in the Banking Department, amounts spent on projects pending completion, advance contribution to NABARD towards capital, staff advances etc. 'Other Assets' have increased by Rs.886.94 crore (6.8 per cent) from Rs.13,085.87 crore as on June 30, 1999 to Rs.13,972.81 crore as on June 30, 2000 mainly due to appreciation in the value of gold and increase in income accrued but not received.

Auditors

11.25 The accounts of the Bank were audited by M/s Brahmayya & Co., Chennai , M/s V.K. Mehta & Co., New Delhi, M/s Mukund M. Chitale & Co., Mumbai, M/s N.C.Rajagopal & Co., Chennai, M/s Kapoor Tandon & Co., Kanpur, and M/s. P.K.Mitra & Co., Calcutta. While the first five Audit firms were re-appointed by the Central Government, M/s P.K.Mitra & Co. have been appointed for the first time.

Table 11.6: Investments in Subsidiaries/ Associate Institutions

(Rupees crore)

Institutions

Book value of shares held as at

30.6.2000

30.6.1999

1

2

3

1.

Deposit Insurance and

Credit Guarantee

Corporation

50.00

50.00

2.

NABARD

250.00

250.00

3.

State Bank of India

1,222.73

1,222.73

4.

Discount and Finance

House of India

20.99

20.99

5.

Securities Trading

Corporation of India Ltd.

72.06

72.06

6.

National Housing Bank

350.00

350.00

7.

Bharatiya Reserve Bank

Note Mudran Ltd.

800.00

800.00

8.

Infrastructure Development

Finance Co. Ltd.

150.00

150.00

Total

2,915.78

2,915.78

BALANCE SHEET AS AT 30TH JUNE 2000

ISSUE DEPARTMENT

(Rupees Thousands)

1998-99

LIABILITIES

1999-2000

1998-99

ASSETS

1999-2000

Rs.

Rs.

Rs.

Rs.

Notes held in the

Gold Coin and Bullion:

26,50,45

Banking Department

15,29,23

9584,16,17

(a) Held in India

10761,25,93

-

(b) Held outside India

-

183703,44,54

Notes in circulation

201486,11,42

67700,00,00

Foreign Securities

86700,00,00

183729,94,99

Total Notes issued

201501,40,65

77284,16,17

Total

97461,25,93

107,56,20

Rupee Coin

115,30,85

Government of India

106338,22,62

Rupee Securities

103924,83,87

Internal Bills of Exchange

-

and other Commercial Paper

-

183729,94,99

Total Liabilities

201501,40,65

183729,94,99

Total Assets

201501,40,65

BANKING DEPARTMENT

1998-99

LIABILITIES

1999-2000

1998-99

ASSETS

1999-2000

Rs.

Rs.

Rs.

Rs.

5,00,00

Capital paid-up

5,00,00

26,50,45

Notes

15,29,23

6500,00,00

Reserve Fund

6500,00,00

9,22

Rupee Coin

13,01

National Industrial Credit (Long Term

32,32

Small Coin

10,79

4982,00,00

Operations) Fund

4633,00,00

Bills Purchased and Discounted:

National Housing Credit (Long Term

-

(a)

Internal

-

882,00,00

Operations) Fund

883,00,00

-

(b)

External

-

-

(c)

Government Treasury Bills

-

Deposits

41193,82,56

Balances Held Abroad

32371,86,53

(a)

Government

68154,77,49

Investments

79728,58,63

100,65,20

(i)

Central Government

100,01,44

Loans and Advances to:

102,69,09

(ii)

State Governments

41,14,10

5620,00,00

(i)

Central Government

5298,00,00

2971,53,56

(ii)

State Governments

2386,65,37

(b)

Banks

Loans and Advances to:

70006,22,49

(i)

Scheduled Commercial Banks

60854,46,74

6201,44,10

(i)

Scheduled Commercial Banks

8712,61,15

(ii)

Scheduled State Co-operative

2,50,00

(ii)

Scheduled State Co-operative Banks

-

793,60,25

Banks

845,53,64

98,76,00

(iii)

Other Scheduled Co-operative Banks

215,88,00

(iii)

Other Scheduled Co-operative

-

(iv)

Non-Scheduled StateCo-operative Banks

-

1078,85,14

Banks

1624,99,51

5073,36,27

(v)

NABARD

5104,70,01

(iv)

Non-Scheduled State

4515,67,20

(vi)

Others

5187,26,15

27,41,49

Co-operative Banks

52,35,21

Loans, Advances and Investments from

677,61,97

(v)

Other Banks

657,89,27

National Industrial Credit (Long Term

12227,83,35

(c)

Others

16469,99,00

Operations) Fund:

806,31,01

Bills Payable

743,95,87

(a)

Loans and Advances to:

2000,00,00

(i)

Industrial Development

1740,00,00

54556,21,03

Other Liabilities

65069,30,47

Bank of India

752,00,00

(ii)

Export Import Bank of India

697,00,00

170,00,00

(iii)

Industrial Investment Bank

170,00,00

of India Ltd.

2004,75,00

(iv)

Others

2004,75,00

(b)

Investments in bonds/debentures

issued by :

-

(i)

Industrial Development Bank

-

of India

-

(ii)

Export Import Bank of India

-

-

(iii)

Industrial Investment Bank

-

of India Ltd.

-

(iv)

Others

-

Loans, Advances and Investments

from National Housing Credit

(Long Term Operations) Fund:

875,00,00

(a)

Loans and Advances to National

875,00,00

Housing Bank

-

(b)

Investments in bonds/debentures

-

issued by National Housing Bank

13085,86,85

Other Assets

13972,81,38

152746,41,02

Total Liabilities

158480,65,25

152746,41,02

Total Assets

158480,65,25

Significant Accounting Policies and Notes to the Accounts as per Annexure.

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE 2000

(Rupees Thousands)

1998-99

1999-2000

Rs.

INCOME

Rs.

9028,09,47

Interest, Discount, Exchange, Commission, etc.¹

14694,92,17

9028,09,47

Total

14694,92,17

EXPENDITURE

1976,63,80

Interest

1971,87,87

683,58,65

Establishment

846,75,36

38,27

Directors' and Local Board Members' Fees and Expenses

47,65

30,83,86

Remittance of Treasure

16,81,63

924,02,38

Agency Charges

1193,62,39

733,96,22

Security Printing (Cheque, Note forms etc.)

1068,43,68

10,33,02

Printing and Stationery

12,93,16

12,23,95

Postage and Telecommunication charges

18,68,19

41,07,41

Rent, Taxes, Insurance, Lighting etc.

44,94,69

57,97

Auditors' Fees and Expenses

64,35

56,39

Law Charges

1,49,64

67,22,93

Depreciation and Repairs to Bank's Property

81,23,32

63,64,62

Miscellaneous Expenses

83,00,24

4545,09,47

Total

5340,92,17

4483,00,00

Available Balance

9354,00,00

LESS: Contribution to:

National Industrial Credit (Long Term Operations) Fund

1,00,00

National Rural Credit (Long Term Operations) Fund ²

1,00,00

National Rural Credit (Stabilisation) Fund ²

1,00,00

National Housing Credit (Long Term Operations) Fund

1,00,00

4,00,00

4,00,00

4479,00,00

Surplus Payable to Central Government

9350,00,00

1.

After making the usual or necessary provisions in terms of Section 47 of the Reserve Bank of India Act, 1934.

2.

These funds are maintained by National Bank for Agriculture and Rural Development (NABARD).

(K.B. Chakraborti)

(Jagdish Capoor)

(S.P. Talwar)

(Bimal Jalan)

Chief General Manager

Deputy Governor

Deputy Governor

Governor

REPORT OF THE AUDITORS

TO THE PRESIDENT OF INDIA

We, the undersigned Auditors of the Reserve Bank of India, do hereby report to the Central Government upon the Balance Sheet of the Bank as at 30th June2000 and the Profit and Loss Account for the year ended on that date.

We have examined the above Balance Sheet of the Reserve Bank of India as at 30th June 2000 and the Profit and Loss Account of the Bank for the year ended on that date and report that where we have called for information and explanations from the Bank, such information and explanations have been given and have been satisfactory.

In our opinion and according to the best of our information and explanations given to us and as shown by the books of accounts of the Bank, the Balance Sheet read with Significant Accounting Policies and Notes to the Accounts is a full and fair Balance Sheet containing all necessary particulars and is properly drawn up in accordance with the Reserve Bank of India Act, 1934 and regulations framed thereunder so as to exhibit a true and correct view of the state of the Bank's affairs.

M/s. Brahmayya & Co.

M/s. V.K. Mehta & Co.

M/s. Mukund M. Chitale & Co.

Auditors

Auditors

Auditors

M/s. N.C. Rajagopal & Co.

M/s. Kapoor Tandon & Co.

M/s. P.K. Mitra & Co.

Auditors

Auditors

Auditors

Dated August 17, 2000

ANNEXURE

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS

SIGNIFICANT ACCOUNTING POLICIES

1. CONVENTION

The financial statements are prepared in accordance with the Reserve Bank of India Act, 1934 and the notifications issued thereunder and in the form prescribed by the Reserve Bank of India General Regulations, 1949.

Historical cost basis of accounting is used except where it is modified to reflect revaluation.

The accounting practices and policies followed in the statements, unless otherwise stated, are consistent with those followed in the previous year.

2. REVENUE RECOGNITION

Income and expenditure are recognised on accrual basis except dividend, which is accounted for on receipt basis. Only realised gains are recognised. Provision for outstanding expenditure is made for unpaid bills in each case of Rs. 1 lakh and above.

Balances unclaimed and outstanding for more than three consecutive years in certain transitory accounts including Drafts Payable Account, Payment Orders Account, Sundry Deposits Account, Remittance Clearance Account and Earnest Money Deposit Account are reviewed and written back to the Bank's Income. Claims in this respect are considered and charged against Bank's Income as and when paid.

Income and expenditure in foreign currency are translated on the basis of exchange rates prevailing on the last business day of the preceding week.

3. GOLD AND FOREIGN CURRENCY ASSETS AND LIABILITIES

(a) Gold

Gold is valued at the end of the month at 90 per cent of the daily average price quoted at London for the month. The rupee equivalent is determined on the basis of the exchange rate prevailing on the last business day of the month. Gains/losses arising therefrom are adjusted to the Exchange Fluctuation Reserve.

(b) Foreign Currency Assets and Liabilities

All foreign currency assets and liabilities are translated at the exchange rates prevailing on the last business day of the week, and also on the last business day of the month.

At the year end, assets and liabilities in foreign currencies are translated at the exchange rates prevailing on the last business day except in cases where rates are contractually fixed. Foreign securities are valued at lower of book value or market price prevailing on the last business day of each month. The depreciation is adjusted against current income.

Forward exchange contracts are evaluated half-yearly and net loss, if any, is provided for.

Profit/loss on sale of foreign currency assets is recognised with respect to the book value. Exchange gains and losses arising from translation of foreign currency assets and liabilities are accounted for in Exchange Fluctuation Reserve and remain adjusted therein.

4. RUPEE SECURITIES

Rupee securities, other than Treasury bills, are valued at lower of book value or market price or rates based on the yield curve prevailing on the last business day of the month where the market price for such securities is not available. The depreciation in the value is adjusted against current income. Treasury bills are valued at cost.

5. SHARES

Investments in shares are valued at cost.

6. FIXED ASSETS

Fixed assets are stated at cost less depreciation.

Depreciation on computers, motor vehicles, office equipments, furniture and electrical fittings, etc., is charged on the straight-line basis. Depreciation on other assets including premises and fixtures is charged on written-down value basis.

Depreciation on fixed assets is charged only if held for a period of more than six months as at the year-end.

7. RETIREMENT BENEFITS

The liability on account of retirement benefits and leave encashment to employees is valued on an actuarial basis at the year end.

8. CONTINGENCY RESERVE AND ASSET DEVELOPMENT RESERVE

Contingency Reserve represents amount provided on a year to year basis for meeting unexpected and unforeseen contingencies including depreciation in value of securities, exchange guarantees and risks arising out of monetary/exchange rate policy compulsions. In order to meet the internal capital expenditure and investments in subsidiaries and associate institutions a further specified sum is provided and credited to Asset Development Reserve.

9. NATIONAL INDUSTRIAL CREDIT (LONG TERM OPERATIONS) FUND

Unutilised balance in the Fund, built up through repayments, is transferred to Contigency Reserve on a year to year basis.

NOTES TO THE ACCOUNTS

1. SURPLUS TRANSFER TO GOVERNMENT OF INDIA

Surplus transferable to Government includes an amount of Rs.1,479 crore representing interest differential pertaining to the period April 1, 1999 - March 31, 2000, on account of conversion of special securities into marketable securities.

2. CHANGES IN THE ACCOUNTING POLICIES AND PROCEDURES

Zero Coupon Bonds

Income on Zero Coupon Bonds has been accounted for on accrual basis from the current year. Hitherto, the income was accounted for on redemption. The income for the year is higher by Rs.33.94 crore.

3. RBI GENERAL ACCOUNT

RBI General Account represents inter-office transactions and balances under reconciliation. Reconciliation of the entries subsequent to June 30, 1992 is in progress and necessary adjustments are being effected as and when ascertained.

4. RESERVE FUND

The Reserve Fund comprises initial contribution of Rs. 5 crore made by the Government of India and appreciation of Rs.6,495 crore on account of revaluation of gold up to October 1990. Subsequent gains/ losses on monthly revaluation of gold are taken to Exchange Fluctuation Reserve.

5.

DEPOSITS - OTHERS

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

2000

1999

1

2

3

I.

Rupee Deposits from Foreign Central Banks and Foreign Financial Institutions

3,559.79

4,932.91

II.

Deposits from Indian Financial Institutions

243.31

159.74

III.

Accumulated Retirement Benefits

2,590.88

2,258.36

IV.

Surplus transferable to Government of India

9,350.00

4,479.00

V.

Miscellaneous

726.01

397.82

Total

16,469.99

12,227.83

6.

OTHER LIABILITIES

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

2000

1999

1

2

3

I.

Contingency Reserve

Balance at the beginning of the year

23,007.06

13,789.41

350.00

300.00

6,554.50

8,917.65

Balance at the end of the year

29,911.56

23,007.06

II.

Asset Development Reserve

Balance at the beginning of the year

2,456.30

1,181.71

711.55

1,274.59

Balance at the end of the year

3,167.85

2,456.30

III.

Exchange Fluctuation Reserve

Balance at the beginning of the year

24,823.29

25,143.03

2,785.14

(-) 319.74

Balance at the end of the year

27,608.43

24,823.29

IV.

Exchange Equalisation Account

Balance at the beginning of the year

618.61

639.00

172.66

(-) 20.39

Balance at the end of the year

791.27

618.61

V.

Provision for net debit entries in RBI General Account for the period

up to June 30, 1992

57.80

57.80

VI.

Provision for Outstanding Expenses

1,201.78

1,516.45

VII.

Miscellaneous

2,330.61

2,076.70

Total ( I to VII )

65,069.30

54,556.21

* Represents transfer of the unutilised balance in the Fund built up through repayments.

7. RUPEE INVESTMENTS

Securities acquired and sold under REPO have been accounted for under investments. Accordingly, investments include Rs.289.99 crore against which there is commitment to sell for an aggregate consideration of Rs.289.68 crore on a future date.

8. FOREIGN CURRENCY ASSETS

(Rupees crore)

Particulars

As at As at

June 30, June 30,

2000 1999

1

2

3

I.

Held in Issue Department

86,700.00

67,700.00

II.

Held in Banking Department -

a)

Included in Investments

31,829.27

23,611.27

b)

Balances Held Abroad

32,371.86

41,193.82

Total

1,50,901.13

1,32,505.09

Note:

(i)

There are outstanding forward exchange contracts under which the Reserve Bank has to sell US dollar equivalent to Rs. 8,214.82 crore (as against sale contracts of US dollar equivalent to Rs.4,214.59 crore outstanding as at June 30, 1999). Forward purchase contracts of US dollar equivalent to Rs.637.21 crore are outstanding as on June 30,2000. No forward purchase contracts were outstanding as at June 30, 1999.

(ii)

Uncalled amount on partly-paid shares of the Bank for International Settlements as at June 30, 2000 - Rs.67.71 crore.

9. OTHER ASSETS

(Rupees crore)

Particulars

As at

As at

June 30,

June 30,

2000

1999

1

2

3

I.

Fixed Assets ( Net of Accumulated Depreciation)

342.52

295.44

II.

Gold

2,411.66

2,147.86

III.

Income Accrued but not Received

6,410.41

5,844.67

IV.

(i)

Advance to National Bank for Agriculture and Rural Development

Towards Capital

1,200.00

1,200.00

(ii)

Advance to Infrastructure Development Finance Co. Ltd., Towards

Subordinated Debt

350.00

350.00

V.

Miscellaneous

3,258.22

3,247.90

Total

13,972.81

13,085.87

10. INTEREST, DISCOUNT, EXCHANGE, COMMISSION ETC.

Interest, Discount, Exchange, Commission etc., include the following items:

(Rupees crore)

Particulars

Year ended

Year ended

June 30,

June 30,

2000

1999

1

2

3

(i)

Profit on Sale of Foreign and Rupee Securities

3,312.39

1,324.40

(ii)

Rent Realised

8.92

7.65

(iii)

Net Profit on Sale of Bank's Property

0.08

0.18