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A limited review of banks' limited reviews
December, 28th 2006

A quick scan of the `limited review' filings by banks in the second half of December predominantly shows that the auditors haven't been able to reconcile to unreconciled items in the books.

For instance, "The effect, if any, as consequence of the unadjusted items in inter-branch/office transactions as on September 30, 2006 is not considered in the statement," commented the auditors of Syndicate Bank in their limited review for the latest quarter, as per an announcement dated December 21 on the BSE site.

The auditors of Bank of Baroda made a more elaborate observation, in their limited review, as follows: "Effect on the financial results for the quarter/half-year ended September 30, 2006 as arising out of matching/ reconciliation of debit and credit outstanding entries in various heads of accounts, included in inter-office adjustments, nostro, drafts / TTs (telegraphic transfers) payable, clearing adjustments (including inter se the bank's overseas branches and those with position maintaining offices in India), dividend/ interest/ refund orders paid/ payable etc., has not been ascertained, and accordingly not considered." One may wonder what is still left out!

For starters, though, nostro is `a banking term to describe an account one bank holds with a bank in a foreign country, usually in the currency of that foreign country,' as defines. Nostro finds mention in Allahabad Bank's limited review too. "The reconciliation of nostro/inter-branch reconciliation and balancing relating to deposits and advances at a few branches are in progress," reads a note to accounts, cited by the auditors. "In view of substantial progress made in this area, management is of the opinion that the impact of reconciliation, if any, on the accounts of the bank will not be material," assures the note. Yet the auditors deemed it necessary to draw `attention' to the note in their limited review.

The case of Bank of Maharashtra is no different. "Effect on the accounts, of balancing in subsidiary ledgers in respect of certain accounts like deposits, advances, suspense, sundry suspense, clearing differences, other assets/liabilities etc., with General Ledger which is incomplete in few branches/offices and inter branch accounts and inter branch transfer of fixed assets entries under reconciliation pending to be passed, is not ascertainable... "


There are a few mentions of tax in the recent limited reviews of banks. "Attention is drawn to Note no. 7 on recognition of MAT (minimum alternate tax) credit," write the auditors of Syndicate Bank. The cited note reads as follows: "Bank has not considered MAT credit of Rs 471 million for the half year ended September 30, 2006 while MAT credit of Rs 307.20 million was considered for the year ended March 31, 2006." And, auditors of Andhra Bank are not happy about `non-provision of FBT (fringe benefit tax) of Rs 16.84 crore.'


Three out of the six reviews in the sample under study make a mention of Accounting Standard (AS) 15 of the Institute of Chartered Accountants of India (ICAI) on `Accounting for Retirement Benefits in the Financial Statement of Employers'. For instance, Andhra Bank's review speaks of `non-adjustment and non-provision of the liability for employees benefits,' while the auditors of Bank of Maharashtra say, "Bank has not accounted for employees benefits as per revised AS-15."

In the case of Allahabad Bank, the auditors refer to a note to the accounts that informs as follows: "The ICAI has issued a revised AS-15 on employees benefits effective from April 1, 2006.

Pending Reserve Bank of India / Indian Banks Association guidelines/ clarifications, the bank has made an ad hoc provision of Rs 115.40 million towards retirement benefits of the employees."


Capital adequacy ratio (CAR) is mentioned in two limited reviews. One, in Bank of Baroda's, where paragraph 2 states, `The figures of CAR and EPS (earnings per share) shown are subject to the auditors' observation in para 1 above.' Yes, above, because the para in question is what is mentioned in the beginning of this story.

"Not too differently, auditors of Bank of Maharashtra write, "CAR, as worked out by the Bank based on data compiled by them and EPS are subject to the effect of observations in para (1) above."

Yen and rate swap

Allahabad Bank's limited review for the quarter ended September 30, invites readers to see a note to the accounts on `in-built Japanese yen interest rate swap'. Catch up with that note in the unaudited financial results for the half-year ended September 30, `compiled as per Clause 41 of the listing agreement'. It reads as follows: "The Bank raised tier-II bonds of Rs 5000 million @ 8% on March, 2006 with in-built Japanese yen interest rate swap. RBI vide Circular No. DBOD.BP.BC.87/21. 01.002/2005-06 dated June 8, 2006 advised banks who have already entered into interest rate swap in foreign currency for hedging their tier-II bonds, to compute losses or gains separately and to handle such gains and losses through their books as per procedure given in the circular."

But there seems to be a problem. Read on: "The RBI circular does not cover the embedded product like raising of rupee tier-II bonds with built-in foreign currency interest rate swap where the coupon of tier-II bond is lowered with inbuilt price of swap. In the absence of guidelines for such embedded products the Bank has provided, as a prudent measure, Rs 160 million in the current half-year."

(With inputs from CT Thenammai and Nivesh Shankar)

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