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Banks must prepare consolidated fin statements: RBI panel

The Reserve Bank of India's working group on consolidated accounting has recommended that all banks, listed or unlisted, should prepare and disclose consolidated financial statements from the fiscal year beginning April 2002, in addition to solo financial statements as present.

A parent entity presenting CFS should consolidate all subsidiaries, domestic as well as foreign, except those specifically permitted to be excluded under AS 21, the group said in its recommendations released on the RBI Web site for views from interested parties.

The reasons for not consolidating a subsidiary should be disclosed in CFS, it added.

Referring to the scope of consolidation, the group, which submitted the report in December 2001, said banks having a network of subsidiaries constitute banking group were clear candidates for consolidated supervision.

The issue for supervisory policy decision should apply to:

• Banks, which were subsidiaries in group structures, with non-banks as parents or holding companies as in financial conglomerates or mixed conglomerates;
• Non-bank deposit taking credit institutions, which have networks of subsidiaries providing para banking or other financial services.

The working group chaired by Vipin Malik (director of Bharatiya Reserve Bank Note Mudran Ltd and ex-director Central Board of RBI) was of the view that initially, consolidated supervision may be mandated for all groups where the parent company in the sense of controlling entity was a supervised institution.

This would cover all banks in banking groups, banks which are promoted and 'controlled' by financial institutions or non-banking financial companies, and all registered non-banking deposit taking financial companies which have networks of subsidiaries and were in control of the group.

In respect of NBFCs, consolidated supervision may be applied on selective basis, based on pre-determined parameters such as the size of the group (in terms of assets and/or income) vis-a-vis that of the parent and the strength of linkages and controls between them.

In due course, the net may be cast wider to bring under consolidated supervision, banks and NBFCs in mixed conglomerates where parents may be non-financial entities, or financial entities falling under the jurisdiction of other regulators like IRDA or SEBI, or the supervised institution may not constitute a substantial or significant part of the group.

In all the cases, the consolidation may not extend to group companies, which were engaged in insurance business, and businesses which do not pertain to financial services.

It may also be pertinent to mention that the supervisor's purpose in consolidated supervision was not to supervise all the companies in a group containing a bank but to supervise the bank (or supervised institution) as part of the group.

The working group has also recommended that consolidated prudential reports be initially introduced on half-yearly basis from April one, 2002 as part of the off-site monitoring system and then increased subsequently to higher frequency as appropriate.

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