SPECTRUM STUDY CIRCLE

15/22 2 ND
FLOOR ASHOK NAGAR ND-18 (PH – 65711031, 9810378235,
9810865706)

BALANCE SHEET OF A BANK

The liabilities and assets of a bank at any time are indicated by its balance sheet.
The liabilities are the amounts which are due from the bank to its
shareholders, depositors, and others at the time.
The assets include all the possessions of the bank in the form of cash-in-hand
and at the central bank and with the other commercial banks, money-at-call and
short notice, bills discounted and purchased, investments, loans and advances, etc.

Table: Balance Sheet of a Bank

Liabilities (Li) Assets (Ai)
Paid-up-capital (L1) Cash-in-hand and at the central bank (A1)
Reserve Fund (L2) Money-at-call and short notice (A2)

Deposits:
Fixed deposits (L3) Bills discounted and purchased (A3)
Saving deposits (L4) Investment (A4)
Demand deposits (L5) Loans and advances (A5)
Net worth (NW)
Total = Rs. X Total = Rs. X

1. Liabilities of a Bank
(i) Capital
The paid-up capital is an important source of funds for a commercial bank, and
represents the liabilities of a bank to its shareholders. This is the amount
actually received by the bank as share capital. Adequate share capital is
considered as a source of strength to the bank.

(ii) Reserve Fund

Reserve fund is build up of the undistributed profits of a bank over a number of
years. It broadens the capital structure of a bank and is considered a source
of strength to the bank.

(iii) Deposits
Deposits are the mainstay of the banking business. A bank can sustain, grow
and prosper only with a simultaneous expansion in its deposits. Deposits can
take three forms, viz., fixed deposits, saving deposits and current deposits.
(a) Fixed deposits are also known as time deposits and can be withdrawn only
after a specified period of time.
(b) Current deposits are also known as demand deposits and are withdrawable
freely as and when required.
 (c) Saving deposits are withdrawable against cheques, but a limit is placed as
to the number of times and amount of withdrawals permitted during a
period.

2. Assets of a Bank

(i) Cash-in-hand
A commercial bank has to meet the demands of its customers; the essence of
banking lies in the fact that the bank must be in a position to meet the claims
of its depositors as and when they arise. Therefore, the banks have to keep
with themselves some amount of cash which can be used to meet its
obligations towards its customers. Similarly, commercial banks also keep a
part of their deposits with the central bank of the country. Cash-in-hand and at
the central bank thus form a significant asset of a commercial bank in as much
as they guarantee its solvency.

(ii) Money-at-Call and at Short Notice

These are generally the funds loaned out by a commercial bank to other
commercial banks and similarly other institutions operating in the money
market of an economy. These funds can be called back by the bank as and
when need arises.

(iii) Bills of Exchange

Bills of exchange are the income-earning assets of a commercial bank. These
are a form of loans given by a bank on the security of commercial bills of
exchange and treasury bills.

(iv) Loans and advances

These are the largest income-earning assets of a commercial bank. These
represent the accommodation given by a bank to industrialists, traders,
businessmen, or consumer household, etc. The loans are extended mostly for
short periods. They may take different forms like extending overdraft
facilities, or straightway sanction of a sum of money which can be used by the
borrower against an acceptable security.

(v) Investment
The last major form of assets of a commercial bank is the different types of
investments that it can undertake with the help of its funds.