The observation on consolidated balance sheets is in line with the reccomendation of the second Narasimham Committee, which says that the Reserve Bank must direct banks to publish, in addition to financial statements as independent entities, a consolidated balance sheet to reveal the true financial position of the group.

According to the Reserve Bank of India's discussion paper on the ``Harmonising the role and operations of development financial institutions and banks'' released on Wednesday, a call for full disclosure has been made while lending to related companies and sensitive sectors. Such disclosures are seen enabling a bank's creditors, investors and rating agencies to get a true picture of its functioning.

Says the Reserve Bank's discussion paper: "This observation (on consolidated balance sheets) by the Narasimham Committee is equally applicable to developmental financialinstitutions (DFIs), especially when there is a bank directly under their umbrella."

The paper also mentions that it would desirable to evolve a general policy towards reflecting the activities of banks/DFIs' subsidiaries in the parent bank's/DFI's accounts. This is particularly so in the light of the proven link between the liabilities of a subsidiary and its parent, as for example, in respect of subsidiaries engaged in mutual fund activities.

The Institute of Charterted Accountants of India (ICAI) is currently examining the move towards consolidated balance sheets of banks. At present, private sector banks disclose, along with their balance sheets, the final account of their subsidiaries. Public sector banks with their diversified ownership are not 100 per cent owned by the Centre.

"The ultimate objective should, therefore, be to move towards a consolidated banlance sheet in respect of each public-sector banks also," says the Reserve Bank's discussion paper.