Under the new norms, banks have to disclose the amounts outstanding in their credit card operations in their balance-sheets under a separate head. The RBI has also decided that banks should be allowed to treat advances against book debts under the head "Secured by Tangible Assets".

In a circular issued on March 30, the Reserve Bank has directed banks to appropriate the excess provision made towards depreciation on investments to an "Investment Fluctuation Reserve Account" instead of the Capital Reserve Account. This figure will have to be shown as a separate item of Reserves and Surpluses under the head "Revenue and other Reserves". This excess provision will be eligible for inclusion in Tier-II capital.

Bankers said the move is a long-expected one, given the huge yearlyfluctutations in the provisions being made for depreciation (or being written back) due to interest rate volatility. With the RBI now allowing the creation of an Investment Fluctuation Reserve Account, banks' profit after tax will not jump up and down like a yo-yo. The peaks and troughs will be evened out with the Fluctuation Reserve Account being used to even out the swings.

The State Bank of India is likely to one of the biggest beneficiaries of this new reserve account, analysts said. "The existing amount of excess provision towards depreciation on investment held under the Capital Reserve Account should stand transferred to the Investment Fluctuation Reserve Account as on March 31, 1999. The amount held in the latter account could be utilised to meet the future depreciation requirements on investment in securities, the RBI directive said. The banking industry as a whole is expected to gain about Rs 300 crore in FY 1999 through excess provisions towards depreciation on investments. In FY 1998, however,the banking industry stood to gain nearly Rs 2,000 crore. Bankers said that although the RBI had not clearly said that the amount transferred to capital reserve could be treated as Tier-II capital, banks were treating it as such on their own. RBI has also brought about changes in capital adequacy norms. It has directed banks that while calculating the risk-adjusted values of assets, they can "net off" claims received from DICGC/ECGC and kept in a separate account pending adjustment against the total outstanding exposure of the borrower. It has also allowed banks to do a similar netting off against subsidies received on IRDP advances and kept in a separate account. The apex bank has clarified that certain issues relating to the applicablity of Accounting Standard AS-11 (Revised) to authorised dealers are still under examination in consultation with the Institute of Chartered Accountants of India (ICAI).

INSIGHT

So far, the excess provision for depreciation in investments held by banks at the end ofthe financial year over that required used to be taken to the P&L account as a credit item under the head "Expenditure-Provision & Contingencies" and appropriated to Capital Reserve. Under the new rules the amount will now be appropriated to an "Investment Fluctuation Reserve Account", which will be under the head "Revenue and Other Reserves." This will give the banks greater flexibility in adjusting writebacks in difficult years.