Accounting Of Banking Companies

Section 5(h) of the Banking Companies Act defines banking as "The accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise". Till 1949 there was no special legislation to regulate banking companies but since that year the provisions of Banking Regulation Act and Companies Act, 1956 applies to corporation entities carrying on banking business including the nationalized banks. Section 6 of the Act lay down that in addition to the usual business, the following business may also be carried on by a banking company —

• acting as agents for any Government or local authority or any other person or persons,
• carrying on and transacting every kind of guarantee and indemnity business, and
• undertaking and executing trusts.

Other types of business are prohibited for a banking company. No banking company can directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it or engage in any trade or buy or sell or barter goods for others otherwise than in connection with bills of exchange. Immovable property, except that required for its own use, however acquired, must be disposed of within seven years from the date of acquisition.

Non-banking Assets:

A bank cannot acquire certain assets but it can always lend against the security of such assets. This means that sometimes, in case of failure on the part of the loan to repay the loans, the bank may have to take possession of such assets. In that case, the assets will be shown in the balance sheet as "non-banking assets". These must be disposed of within seven years. Income from or profit on sale and loss on sale of such assets has to be separately shown in financial statements like Profit and Loss Account of the bank.