Disclosure Practices in Banking Sector of India A Comparative Study Jul 2012

GURU ARJAN DEV INSTITUTE OF DEVELOPMENT STUDIES
Guru
DISCLOSURE PRACTICES IN
BANKING SECTOR OF INDIA
A Comparative Study
Dr Gursharan Singh Kainth

and Jyoti Agnihotri
2012
14-PREET AVENUE, MAJITHA ROAD, NAUSHERA, AMRITSAR-143008
DISCLOSURE PRACTICES IN BANKING SECTOR
CHAPTER 1
EVOLUTION OF DISCLOSURE PRACTICES IN BANKING
SECTOR
The growth in the size of business enterprise, divorce of ownership and management,
increasing public interest in the affairs of the companies and greater emphasis on rational
decision making have greatly enhanced the need for and significance of quantitative
financial information to the external users (Singh, 1973). The financial and quantitative
information generated need to be communicated to the stakeholders in an effective
manner and through appropriate medium, ensuring transparency and timeliness. The
financial statements act as an important medium of communicating such information to
the stakeholders. Preparation of these financial statements is facilitated by a well laid out
system of accounting.
Accounting is often called the language of business. Language helps in forming an

opinion about reality and in communication of information. The American Accounting
Association defines accounting as the process of identifying, measuring and
communicating economic information to permit informed judgments and decisions by
users of the information. The Accounting Principle Board (1970) regarded accounting as
a service activity and its function is to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to be useful in making
economic decisions. Thus, the end objective of accounting is to produce and report the
quantifiable financial data to the interested groups to be used by them in their respective
decisions (Chander, 2005). These interested groups can be internal users, viz.,
management or external users, viz., shareholders, debenture holders, financial institutions,
security analysts, government, creditors, suppliers and general public. These users want
accounting information communicated to them should be useful so that it helps in rational
decision making. Thus the essence of accounting is in communication which is termed as
disclosure or reporting.
The complexity of business operations and decisional needs of the users have led to the
necessity of having a disclosure system which ensures the dissemination of financial,
quantitative and qualitative information, not only in the respect of what has happened but
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also relating to future plans, prospects and actions. This calls for a disclosure mechanism
as well as strategy to have favorable impact on value to all stakeholders (Kant, 2002).
1.1
CORPORATE DISCLOSURE: THE CONCEPT
1.1.1 Disclosure Defined

Disclosure is the process through which an entity communicates with the outside world
(Chandra, 1974). Disclosure refers to the publication of any economic information
relating to a business enterprise, quantitative or otherwise, which facilitates the making of
investment decisions (Choi, 1973). The American Accounting Association defines it as
the movement of information from private (i.e., inside information) into the public
domain. It emerges from these definitions that disclosure means reporting of
quantitative and qualitative information of financial and non-financial nature regarding
the reporting, entity to outsiders for the purpose of their decision making. Information
about the affairs of the company can be communicated through different media viz.
prospectus, financial press releases, annual report, interim reports and personal contacts
with company officials. In addition, newspapers, business and industry magazines,
investment advisory services and government statistics also provide information about a
company. Despite the existence of different sources of information, the annual report is
regarded as the most important of information about a companys affairs. Corporate
annual reports represent the most easily accessible and extremely important source of
basic information concerning an enterprise.
The central focus of corporate financial reporting has changed with the passage of time.
In the past, corporate financial reporting was oriented to providing stewardship
information, which was essentially backward looking. The essence of stewardship
reporting lies in giving an account of what management has done with the money
entrusted to it. Today, the preparation and presentation of corporate financial reports is
being driven by the consideration of providing information that is useful for making
economic decisions, i.e., decision oriented financial reporting. Decision oriented
financial reporting is basically concerned with providing information that will enable the
users of the financial statements to judge the ability of the company to generate cash
flows in the future. This shift in emphasis is fully reflected in the objectives of financial
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statements developed by Financial Accounting Standards Board (FASB). According to
the True Blood Study Group Report, the basic objective of financial statements is to
provide information useful for making economic decisions (Sorter & Gams, 1974).
1.1.2 Significance of Disclosure

The need for full disclosure is irrefutable in a free enterprise economy (Chandra, 1975).
Proper disclosure increases investor confidence and makes financing through the
securities market easier (Maloo, 1986).
Sorter and Gams (1974) affirm the significance of corporate disclosures when they say
that, Society looks to corporations for assistance in the efficient allocation of resources
and expects the corporations to assume the responsibility of providing information that
furthers this goal . The quality of corporate disclosures influences to a great extent the
quality of investment decisions made by investors (Singhvi & Desai, 1971).
P.B. Miller (2002) asserts that quality driven financial reporting will produce a more
efficient capital market, a more productive economy and a more prosperous society.
Nothing can defeat the unarguable truth that more complete reporting can produce large
economic rewards. Companies that provide better information on their products to their
customers are likely to command a better price in the market (Venkatesh, 1997). Studies
further give evidence to the positive relationship between higher disclosure levels and
lower cost of capital be it cost of equity capital (Bostosan, 1997) or cost of debt
(Sengupta, 1998).
Investors would prefer to invest in a company that discloses fully than in a company that
doesnt. Not only investors benefit from full disclosure, as they do not have to bear the
uncertainty caused by the lack of corporate disclosure, but the corporation also gain
because an upward move in stock price reduces its cost of capital. Additionally it
improves allocation of capital and productivity in the economy. Another argument in
favour of full disclosure is that it stabilizes the fluctuations in stock prices. Further lack of
adequate disclosure can create ignorance in the securities market and can result in
misallocation of resources in the economy.

Disclosure of information has a greater significance in achieving accounting objectives
and for this disclosure needs to be adequate. Adequate disclosure means fair and full
disclosure so that it helps the users in making rational decisions. It reflects economic
efficiency of the resource use and thereby helps in directing the flow of capital into
productive channels. It would also prevent and mitigate fraud and manipulation. The
more the information available, the less is the opportunity for fraud and greater the
confidence in the company. Thus adequate disclosure relates particularly to
objectives of relevance, neutrality, completeness and understandability. Information
should be presented in a way that facilitates understanding and avoids erroneous
implications.
There is no accurate measurement of the adequacy of disclosure, it can be judged in

the light of the need and requirements of the users and the purpose for which disclosure is
made. In determining the true nature of adequate disclosure, Buzby (1974) feels that five
questions must be answered:
(1) for whom is the information to be disclosed?
(2) What is the purpose of the information?
(3) How much information should be disclosed?
(4) How should the information be disclosed?
(5) When should the information be disclosed?
The achievement of adequate disclosure is a challenge which the accounting profession

must meet if it is to maintain and hopefully improve its contribution to our society
(Buzby, 1974).
1.1.3 Objectives of Disclosure

As pointed out by Stephen L. Buzby (1974), any comprehensive discussion of the nature
of adequate disclosure depends in part on the objectives of financial accounting. A set
of carefully defined objectives is basic to the development of any theory, including
disclosure theory (Maloo, 1986). Numerous accounting professionals, committees and
bodies around the world including APB [1970], The True Blood Report [1973], The
Corporate Report [London, 1975], FASB [1978], The Stamp Report [1980] and Jenkins
Committee [1994] have attempted to define the objectives of corporate reporting.
The Accounting Principles Board has identified Relevance, Understandability,

Verifiability, Neutrality, Timeliness, Comparability and Completeness as qualitative
objectives of financial reporting. A study group was appointed in 1971 by the American
Institute of Certified Public Accountants (AICPA) under the chairmanship of Robert M.
True Blood, for the development of objectives of financial statements. The True Blood
Committee recommended twelve objectives. The main objective was stated as, The
basic objective of financial statements is to provide information useful for making
economic decisions. The True Blood Report also presented seven qualitative
characteristics which the financial statement information should possess in order to
satisfy user needs:
1.
Relevance and Materiality
2.
Substance rather than Form
3.
Reliability
4.
Freedom from Bias
5.
Comparability
6.
Consistency
7.
Understandability
The most comprehensive statement on objectives of financial reporting is the SFAC

(Statement of Financial Accounting concepts) No. 1 [1978] Objectives of Financial
Reporting by Business Enterprises issued by FASB. The brief overview of the objectives
of financial reporting developed in this statement are as follows:
Objectives of
Financial Reporting
(Specific)
Provide information about economic
resources, claims to resources and
changes in resources and claims.
Provide information useful in assessing amount,
timing and uncertainty of future cash flows
Provide information useful in making investment and credit decisions

(General)
Source: Robert Meigs et.al (1999); Accounting: The Basis for Business Decisions, Mc Graw Hill
The International Accounting Standards Committee (IASC) in 1989, has stated the
objectives of financial statements in the following words:
The objective of financial statements is to provide information about the financial

position, performance and changes in financial position of an enterprise that is useful to a
wide range of users in making economic decisions.
The Accounting Standards Board of UK states that the objective of financial statements
is to provide information about the financial position, performance and financial
adaptability of an enterprise that is useful to a wide range of users in making economic
decisions.
It is evident from the above discussion that the primary objective of financial reporting is
providing useful information to users for decision making. In the words of Beaver (1978)
the comprehensive and fundamental objective of corporate reporting is, to assure the
public availability in an efficient and reasonable manner on a timely basis of reliable, firm
oriented information material to informed investment and corporate suffrage decision
making .
Having discussed the concept of corporate disclosures; the next section discusses the
importance of disclosure in baking industry.
1.2
INDIAN BANKING
Banking is the fulcrum of an Economy. The banking industry is one of the basic
instruments of Economic Growth. According to C.H. Bhabha (1956), Banking is the
kingpin of the chariot of economic progress.
Indian Banking has come a long way since independence and has really transformed itself
from a fully regulated institution to a live, vibrant organization responding to
environmental dynamics (Chaddha, 2006).

In 1786 General Bank of India was established and it was the first development in the
structural banking system in India. Later Bank of Hindustan and Bengal Bank came into
existence. The East India Company established three banks, the Bank of Bengal [1809],
the Bank of Bombay [1840] and the Bank of Madras [1843]. These banks were
amalgamated in 1920 to form Imperial Bank of India. The Imperial Bank was
nationalized and was renamed as State Bank of India (SBI) in the year 1955 to improve
social control with a view to remedy the basic weakness of Indian Banking system and to
ensure that banks would cater to the needs of the hither to neglect and weaker sections of
community instead of big business and those connected with them. The Reserve Bank of
India (RBI) came into existence in 1935. The RBI has a centralized control over all these
banks and performs a wide range of functions such as issue of bank notes, supervise and
administer exchange control, banking regulations, grant licenses to new banks and to new
bank branches etc.
It was further felt that the banks which play a vital role in economic growth catered to
mostly the credit requirements of large corporate. Credit requirements of small scale
industries, agriculture and export sectors were not given priority. Thus an important
development took place in 1969 when 14 major commercial banks were nationalized
with the main objective of rendering the largest good to the largest number of people.
Further 6 more banks were nationalized in 1980.
At present Indian banking system can be classified as follows:
PUBLIC SECTOR BANKS

Reserve Bank of India also called as Central Bank
State Bank of India and its 7 associated Banks
Nationalized Banks (19)
Regional Rural Banks sponsored by Public Sector Banks
PRIVATE SECTOR BANKS

Old Generation private Banks
New Generation private Banks
Foreign Banks

Scheduled Co-operative Banks
Non Scheduled Banks
Development Banks
Till 1990s, the Indian banking sector was mostly used by the government as one of its
department to finance its fiscal deficits at low costs, channelize money to the weaker
sections of the society and control the money supply in the economy. The Reserve Bank
of India controlled all banks with iron fist and the banks had very little discretion in fixing
the interest rates for advances and deposits, recruitment policies, decision on branch
expansion, etc. The 1990s changed everything with LPG (Liberalization, Privatization
and Globalization) becoming the buzz word and really changed the way country
functions. Thus the reform process in the Indian Banking sector was also ignited. The
reforms in the Banking Sector were initiated by the Narasimham Committee, which
submitted its report in two phases one in 1992 and the other in 1998. Deregulation, entry
to private banks, easing of Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio
(CRR), providing more freedom to banks for fixing interest rates on advances / deposits,
recruitment policies, branch network, etc., were initiated on the recommendations of the
committee.
Now the Indian Banking has all together a new address and a metamorphosed road map.
Competition, convergence and consolidation have become the key drivers of Indian
Banking. The banking system is in the process of innovation and the innovation has been
the order of the day. The most exotic in innovative behavior will be the ultimate winner,
for which banks have forayed into the arena where they think innovation, dream
innovation and eat innovation (Mohanty, 2006). Banking in the new millennium would be
a unique experience with emphasis shifting from brick and mortar to click and portal
(Chaddha, 2006).
Thus one thing is for sure that the reform process is on and the Indian banks are in the
right direction. They have adopted best structures, processes and technologies available
worldwide and have moved from strength to strength. Still future poses various
challenges for the banking industry like cost management, recovery management,
technological intensity, risk management and corporate governance. New avenues are

being looked into by the various banks such as exposure to capital market, selling
insurance policies, expanding retail credit and banking etc. Banks are planning to move in
the direction to implement Basel II by 2007. Mergers and consolidation is one of the
important steps being taken to compete in the global markets by banks. Thus the Indian
banking industry has come from a long way from being passive business institution to a
highly proactive and dynamic entity.
1.2.1 Importance of Disclosure in Banking

It is generally agreed that the most important means of communication with stockholders
is the annual report. The extent of disclosure adequacy in the annual reports may be a
major determinant of the quality of investment decision making in particular, and
economic resource allocation in general. Although these arguments are applicable to all
kinds of corporations, they have, thus far, received inadequate attention in the case of
financial institutions. It is generally agreed that the reporting practices of banks have not
yet reached the same level of adequacy as the non-financial corporations (Kahl &
Belkaoui, 1981).
Banks, commercial or developmental are also business entities. They produce and sell
financial services instead of products. That is how they are referred to as financial
institutions or financial intermediaries. They perform the middleman function of pooling
surplus resources of the saving surplus sector and channelize them to saving deficit
sector. The distinct feature about commercial banks, the focus of the present study, is that
they are highly leveraged firms. More than 90 percent of working funds is obtained from
deposit liability. For a bank, unlike other companies, which has as its principal obligation
the fostering of well being of its shareholders who must be well served, there are far more
public than just shareholders who must be well served. If a bank goes into trouble the
entire community is affected. They subsist on confidence and the confidence is best
demonstrated through the financial solidity. At all time they have to show that there is
even not a shadow about their financial standing. This explains why banking legislations
all over the world make special provisions for the preparation and presentation of
financial statements of banks.
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Thus banks form a crucial link in a countrys financial system and their well being is
imperative for the economy. In addition the fact that the people by and large deposit their
money with banks and the amount of trust they presuppose necessitates the good
disclosure mechanism for banks.
Banks have two related characteristics that inspire a separate analysis of disclosure
practices of banks. First, banks are generally more opaque than non-financial firms (i.e.,
bank activities are less transparent). Second, banks are frequently heavily regulated,
because of the importance of banks in the economy, because of the opacity of bank assets
and activities and because banks are a ready source of fiscal revenue, thus government
imposes an elaborate array of regulations on banks. At the extreme government owns
banks. Thus from the above discussion we can conclude that the study of disclosure
practices of banks have a special significance.
Having discussed the concept of corporate disclosure together with its relevance and
significance in Banking, the next section reviews the existing literature on the subject
matter highlighting the need and scope of the present study; objectives and corresponding
hypothesis formulated; as well as the specific details of research design and methodology
followed in the study.
1.3 REGULATORY FRAMEWORK OF DISCLOSURE

PRACTICES OF BANKS IN INDIA
The banks are enjoying a dominant position in the Indian financial sector and they are not
merely the economic entities, but are engines of economic growth and social
transformation. The failure of a bank not only affects its own stakeholders, but also has a
systematic impact on the stability of banking system as a whole. The rapid changes
brought in by economic reforms and in innovation in financial products combined with
technological advances, have an effect on increased risk on banking sector. Thus financial
reporting of banking companies is important for several reasons. First, the rapid changes
brought out by economic reforms have exposed the Indian financial sectors in general and
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the banking sector in particular to the challenges of global banking business. Second,
banking companies in India are also moving towards public participation and are coming
up with their Initial public offerings and also raising funds through Global Depository
Receipts and American Depository Receipts from abroad. Last, unlike other companies
most of the funds used by banks to conduct the business belong to creditors, particularly
to depositors (Singh,2007). Thus, financial reporting norms for banks, assume pertinent
importance in the present context.
Banks must provide full, reliable, and high quality disclosures of their operations and
risks in a timely fashion and must use prudent accounting policies. Such transparency in
bank disclosures (a) enables investors to more accurately assess a banks financial strength
and performance; (b) increases the credibility of the information disclosed by the bank;
(c) demonstrates the risk management ability of the bank by disclosing relevant
information about the quality and quantity of risks it faces and (d) reduces market
uncertainty associated with its cash flow stream. Better quality public disclosures reduce
the level of information asymmetry between bank managers and investors and thereby
enhance investor confidence in banks stock and in the banking industry
(Chipalkatti,2002).
Environment of Financial Reporting in India

The major objective of regulating the disclosure practices is to check the window dressing
in the financial statements to make them comparable more informative and hence useful,
and safeguarding the interest of the investors and other users (Chander,2005).
The financial reporting and disclosure of banking companies in India are regulated by the
Banking Regulation Act 1949, the Companies Act 1956, the rules of the Securities and
Exchange Board of India, the guidelines of the Reserve Bank of India, the
recommendations of the Institute of Chartered Accountants of India (ICAI) and the
recommendations of the Basel Committee on Banking Supervision.
1.3.1 The Banking Regulation Act, 1949

The provisions relating to banking companies were incorporated in part X-A of the Indian
companies Act 1913. These provisions were first introduced in 1936. They were found to
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be inadequate and difficult to administer. Moreover while the primary objective of
companies law is to safeguard the interests of the stakeholder, that of banking legislation
should be the protection of the interest of the depositor. Therefore, it was felt that a
separate legislation was necessary for the regulation of banking in India. This need
became more consistent on account of the considerable development that had taken place
in banking, especially the rapid growth of banking resources and of the number of banks
and branches. Thus the enactment of a separate comprehensive measure had become
imperative.
With this object in view, a bill to amend the law relating to Banking Companies Act was
introduced in the Legislative Assembly in November 1944 and was subsequently
circulated for eliciting public opinion through the Provincial Governments. In the ensuing
budget session of the Assembly the Bill was referred to a Select Committee which was
due to meet in October,1945, but it was lapsed before its consideration by the Committee.
A fresh Bill with certain modifications which suggested themselves on consideration of
the opinions and criticisms received on the 1944 Bill was introduced in the Legislative
Assembly in March,1946 and was referred to a Select Committee in April,1946. The
report of the Select Committee was presented to the Assembly on the 17th February, 1947.
As it was the original intention of the Government that the Bill should be taken up for
disposal by the Legislative Assembly in the form in which it emerged from the Select
Committee and that the changes necessitated in the bill as a result of the passing of the
Indian Independence Act, 1947 and other developments should be moved in the House as
separate amendments, a motion for the continuation of that Bill was adopted on the 17th
November,1947. In view however, of a fairly large number of amendments, government
considered that the passage of the measure would be facilitated if the Bill as reported
upon by the Select Committee were withdrawn and a fresh Bill incorporating all the
amendments were introduced and referred to a Select Committee. The Bill was
accordingly with drawn on the 30th Jan 1948 and the Banking Companies Bill was
introduced.
The Banking Companies Bill was passed by the Legislative Assembly on 10th March,
1949 as The Banking Companies Act 1949. Later on the nomenclature of the Act was
changed and now it stands as the Banking Regulation Act, 1949.
Banks in India are set up and governed by different statutes. The State Bank of India is set
up under the SBI Act 1953, the associate banks under the SBI (Subsidiary Banks) Act,
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1959. The first group of nationalized banks under The Banking companies (Acquisition
and Transfer of undertakings) Act, 1970. The record group of six nationalized banks
under The Banking Companies (Acquisition and Transfer of undertakings) Act, 1986 and
the private sector banks under the Companies Act 1956. These statutes under which they
are set up, however do not govern the formats of balance sheet and profit and loss account
to be prepared and the provisions regarding the separate formats for such final
accounts by banks have been prescribed under the provisions of the Banking
Regulation Act, 1949.
The Banking Regulation Act 1949 provides a frame work for regulation and supervision
of commercial banking activity. Section 29(1) of the Banking Regulation Act 1949 states
that at the expiration of each calendar year every banking company shall prepare a
balance sheet and profit and loss account in the forms set out in the Third schedule Form
A and Form B of the act respectively. Section 30(1) states that the balance sheet and
profit and loss account should be prepared in accordance with Section 29 and audited by a
person duly qualified under law. Section 31(1) also states that the accounts and balance
sheet, together with the auditors report, shall be published in the prescribed manner and
three copies thereof shall be furnished as returns to the RBI within three months from the
end of the period. Section 32 requires that three copies of the accounts and balance sheet,
together with the auditors report, should be sent to the registrar of Company Affairs.
1.3.2 The Companies Act, 1956

The history of company legislation in India dates back to the year 1882, when for the first
time country had Indian Companies act passed on the lines of the British Companies Act.
This made preparation and audit of the balance sheet compulsory. The Companies Act,
1913 contained more detailed provisions regarding published accounts introducing a new
form of balance sheet. Further, the Companies (Amendment) Act, 1936 brought
significant changes giving a status to profit and loss account equal to that of balance sheet
and making it compulsory to prepare Directors Report on accounts. After India became
independent it was in 1950 that Bhabha Committee was appointed which made
recommendations that formed the basis for the Indian Companies Act, 1956. This Act of
1956 has been amended from time to time depending upon the contemporary
developments and need for regulation.
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The Banking Regulation Act, 1949 is the chief legislative measure governing banking
business in India. However, the provisions of Indian Companies Act, 1956 are also
applicable to banking companies with regard to matters not covered by the Banking
Regulation Act, 1949.
Sections 210, 211, 212, 216, 217, 227 (1A), 227(2), 227(3), 227(4A), 619 and 641 of the
Indian Companies Act contain various provisions relating to the corporate disclosure.
Sections 210, 211, 212 and 216 contain the provisions relating to the preparation of
Balance sheet and profit & loss account which are not applicable on banking companies
because the preparation of balance sheet and profit & loss account is governed by Section
29(1) the Banking Regulation Act, 1949.
Section 217 of Indian Companies Act requires the preparation of report by the Board of
Directors of the company to be attached with the balance sheet. The section also specifies
the particulars to be included in the boards report. A report by the board of directors
of the banking company is to be prepared as per section 217 of the companies Act,
1956 with respect to:
The state of the banking companys affair.
The amount, if any, proposed to be transferred to reserves.
The amount, if any, proposed to be paid as divided; and
Material changes and commitment, if any, affecting the financial position of the
company which has occurred between the ends of the financial year of the
company to which the balance sheet relates and the date of the report.
The report of the board must include a Directors Responsibility Statement indicating
therein having complied with all applicable Accounting Standards, selected and applied
accounting policies consistently, made reasonable and prudent judgments and estimates,
taken proper and sufficient care in maintaining adequate accounting records for
safeguarding the assets, prevention and detection of fraud and the irregularities and
prepared the annual accounts ongoing concern basis.
Sections 227(1A), 227(2), 227(3), 227(4A) of the Companies Act deal with the matters to
be included in the auditors report. However, preparation of the auditors report is
governed by section 30 of banking regulation Act, 1949. Section 619 of companies Act
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deals with the annual reports of the government companies. Section 641 deals with the
power of central Government to alter schedules by notification in the official Gazette.
1.3.3 Reserve Bank of India (RBI)

The Reserve Bank of India is the apex financial institution of the countrys financial
system entrusted with the task of control, supervision, promotion, development and
planning. As Indias central bank, the RBI came into existence on 1st April, 1935 under
the Reserve Bank of India Act, 1934.
The RBI influences the management of commercial banks through its various policies,
directions and regulations. The RBI is committed to enhancing and improving the
levels of transparency and disclosure in banks annual accounts. In addition to its
traditional central banking functions, the RBI has certain non-monetary functions
regarding the nature of banks supervision, and the promotion of sound banking in India.
The Reserve Bank Act 1934 and the Banking Regulation Act 1949 invested the RBI with
wide powers of supervision and control over commercial banks relating to licensing and
establishments, branch expansion, liquidity of their assets, management and methods of
working, amalgamation, reconstruction, and liquidation. Consequently, it is authorized to
carry out periodical inspections of the banks to call for returns and necessary information.
Section 35A of the Banking Regulation Act 1949, empowered the Reserve Bank of India
to give directions to the Banking Companies whenever it deems fit and the banking
companies shall be bound to comply with such directions. Thus the RBI provides a
detailed guidance to banks in the matter of disclosures in the Notes to Accounts to
the Financial Statements.
The users of the financial statements need information about the financial position and
performance of the bank in making economic decisions. They are interested in its
liquidity and solvency and the risks related to the assets and liabilities recognized on its
balance sheet items. In the interest of full and complete disclosure, some very useful
information is better provided, or can only be provided, by notes to financial statements.
The use of notes and supplementary information provides the means to explain and
document certain items, which are either presented in the financial statements or
otherwise affect the financial position and performance of the reporting enterprise.
Recently, a lot of attention has been paid to the issue of market discipline in the banking
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sector. Market discipline, however, works only if market participants have access to
timely and reliable information, which enables them to assess banks activities and risks
inherent in these activities. In order to encourage market discipline, the Reserve Bank of
India has over the years developed a set of disclosure requirements which allow the
market participants to assess key pieces of information of capital adequacy, risk
exposures, risk assessment processes and key business parameters which provide a
consistent and understandable disclosure frame work that enhances comparability. The set
of disclosure requirements listed is intended only to supplement, and not to replace, other
disclosure requirements under relevant legislation or accounting and financial reporting
standards. Where relevant a bank should comply with such other disclosure requirements
as applicable.
In addition to the 16 detailed prescribed schedules to the balance sheet banks are required
to furnish the following information in the Notes to Accounts.
Table 1.1: List of disclosure items to be disclosed in the Notes on Accounts
1.
Capital
(i)
Capital Adequacy Ratio
(ii)
Capital Adequacy Ratio Tier - I capital
(iii)
Capital Adequacy Ratio Tier - II capital
(iv)
Percentage of the shareholding of the Govt. of India in nationalized banks
(v)
Amount of subordinated debt raised as Tier 11 capital
2.
Investments
(i)
The gross value of investments in India and abroad.
(ii)
Provisions made towards depreciation in the value of investments.
(iii)
Movement of provisions held towards depreciation on
3.
Repo Transactions
(i)
Securities sold under repos
(ii)
Securities purchased under reverse repo.
4.
Non SLR Investment Portfolio
(i)
Issues composition of Non SLR investment
(ii)
Non-performing Non SLR investments
5.
Derivatives
(i)
Forward Rate Agreement / Interests Rate Swap
(ii)
Exchange traded Interests Rate Derivatives
17
investments.

(iii)
Disclosure on risk exposure in derivatives
6.
NonPerforming Assets
(i)
Percentage of Net NPAs to Net advances
(ii)
Movement in NPAs
(iii)
Amount of provisions made towards NPAs
(iv)
Movement of provisions held towards NPAs
7.
Details of loan assets subjected to restructuring
8.
Details of financial assets sold to securitization / Reconstruction Company for

Asset reconstruction
9.
Details of Non-performing financial assets purchased/sold
10.
Provision on standard asset
11.
Business Ratio
(i)
Interest income as a percentage to working funds
(ii)
Non-interest income as a percentage to working funds
(iii)
Operating profit as a percentage to working funds
(iv)
Return on assets
(v)
Business per employee
(vi)
Profit per employee
12.
Asset Liability Management
(i)
Maturity pattern of loans and advances
(ii)
Maturity pattern of investment securities
(iii)
Maturity pattern of deposits
(iv)
Maturity pattern of borrowings
(v)
Foreign currency assets and liabilities
13.
Exposures
(i)
Exposure to real sector
(ii)
Exposure to capital market
(iii)
Exposure to country risk
(iv)
Details of Single Borrower Limit, Group Borrower Limit exceeded by Bank
14.
Miscellaneous
(i)
Provision made for Income Tax during the year
(ii)
Disclosure of penalties imposed by RBI
15.
Disclosure requirements as per accounting standards
16.
Additional Disclosures
(i)
Disclosure of Provisions and contingencies
(ii)
Disclosure on floating provision

18

(iii)
Disclosure on draw down of reserves
(iv)
Disclosure of complaints
(v)
Disclosure of letters of comforts issued by banks
Source: Master Circular Disclosures in financial statements Notes to Accounts, 2008
1.3.4 Securities and Exchange Board of India (SEBI)

The stock exchanges also have significant bearing on the disclosure information. They
can prescribe the information to be disclosed in the annual reports. For example the
companies, such as Infosys, Satyam, Dr. Reddys Lab and Wipro recast their financial
statements as per US GAAP and present this information in their annual reports as these
companies are listed on NYSE / NASDAQ and The Securities and Exchange Commission
(SEC) requires the compliance and disclosure with such GAAP.
The Government of India established the Securities and Exchange Board of India (SEBI)
on the pattern of SEC of USA. SEBI was constituted on April 12, 1988 as supervisory
body to regulate and promote securities markets. It became a statutory body on passing of
the Securities and Exchange Board of India Act in 1992. One of the specific objective of
SEBI is to provide a high degree of protection to the rights of investors and their interests
through adequate, accurate and authentic information and its disclosure on a continuous
basis. It has laid down disclosure requirements as far as annual reports of corporate
entities are concerned, which are enforced through the stock exchange listing agreements.
In respect of annual report disclosures, SEBI has laid down through listing agreements by
companies with stock exchanges the following main disclosure requirements:
Cash Flow Statement: As per clause 32, every company listed on the stock exchanges
will annex a cash flow statement (as prescribed by AS-3) providing information in
respect of operating, investing and financing activities carried out during the financial
year along with figures for the previous year as in case of other financial statements.
Corporate Governance Report: The genesis of corporate governance lies in business
scams and failures. The failure of several renowned companies in UK viz. Maxwell,
BCCI, Poly pack, Exco, Coloroll and and their collapse in the late 1980s and the early
resulted in the setting up of the Cadbury Committee in UK in May 1991 as the impact of
the series of financial scandals were severe on the British economy and society as a
whole. The committee chaired by Sir Adrian Cadbury was formed by the Financial
Reporting Council, the London Stock Exchange, and the accountancy profession to
19

address the financial aspects of corporate governance. The committee issued a draft report
for public comment on 27 May 1992.
The SEBI is entrusted with the task of overhauling the process of corporate governance
practices in India. Over the last decade SEBI has performed well and has formed various
committees to look into the ways and means to regulate the corporate governance practice
in India. On the recommendations of Kumar Mangalam Birla Committee, SEBI
introduced Clause 49 in February 2000. The clause 49 of the listing agreement, which
deals with the corporate governance issues lays down that every company listed on stock
exchange or getting listed shall have a separate section on Corporate Governance in its
annual report with a detailed compliance report on corporate governance. Noncompliance of any mandatory requirements with the reasons thereof, and the extent to
which the non-mandatory requirements have been adopted should be specifically
highlighted. The annexure-2 of clause 49 of the listing agreement gives the suggested list
of items to be the part of corporate Governance report. The major items to be included in
the report are : A statement on companys philosophy on Corporate Governance.
Board: composition, attendance of each member at the Board meetings and last
AGM, other directorships and memberships of Board committees, and number
and dates of Board meetings held.
Audit committee: composition terms of reference meetings and attendance details.
Remuneration
committee:
composition,
terms
of
reference,
attendance,
remuneration policy and details of remuneration to the directors.

Shareholders committee: composition, number of complaints received and solved
and number of pending share transfers.
General Body meetings: location and time details of last three AGMS held,
special resolutions put through postal ballot, procedure adopted and the person
conducting the postal ballot, and details of voting pattern.
Disclosures: on materially significant related party transactions, details of noncompliance by the company with any requirement, and the penalties and strictures
imposed by the SEBI, stock exchange or any other statutory authority during the
last three years.
20

Means of communication: detail regarding half-yearly report sent to each
household of shareholders, quarterly results, newspapers in which results
published, website of the company, presentations made to institutional investors or
to analysts, and whether Management Discussion and Analysis is a part of
annual report or not.
General shareholder information: AGM information with date, time and venue,
financial calendar, dates of book closure, dividend payment date, listing details,
stock code, market price data, performance as compare to broad based indices
such as BSE sensex, registrar and transfer agents, share transfer system,
shareholding distribution, dematerialization, outstanding GDRs/ADRs/warrants or
convertible instruments, plant locations, and address for correspondence.
The company must also obtain a certificate from either the auditors or practicing
company secretaries regarding compliance of conditions of corporate governance
as stipulated in this clause, and annex the certificate with the directors report,
which is sent annually to all the shareholders of the company. The same certificate
must also be sent to the stock exchanges along with the annual report filed by the
company.
Effective corporate governance is necessary for commercial banks if they have to grow
and compete successfully in liberalized environment. Governance for banks assumes
special significance for the fact that they accept and deploy large amount of
uncollateralized public funds and leverage such funds through credit creation, as also
administer the payment mechanism. Governance in banks is a considerably more complex
issue than in other sectors. Public sector banks attempt to comply with the same codes of
board governance as other companies, but, in addition, factors like risk management,
capital adequacy and funding, internal control and compliance all have an impact on their
matrix of governance.
1.3.5 The institute of Chartered Accountants of India (ICAI)

It is a premier professional accountancy body in India. It plays a significant role in
regulating the corporate disclosure practices in India. The institute is one of the members
of the international accounting standards committee (IASC) and has agreed to support the
objectives of IASC.
21

Having recognized the fact that different accounting and reporting practices are followed
by the corporate sector in India, ICAI constituted the Accounting Standards Board (ASB)
in April 1977. The basic objective of ASB is to harmonize the diverse accounting policies
and practices being followed by companies in India keeping in view the international
developments in the field of accounting. To achieve this objective ASB has undertaken to
formulate and popularize the accounting standards and to persuade the concerned parties
to adopt them in the preparation and presentation of the financial statements. ASB has
issued 32 accounting standards till now. A list of these accounting standards is presented
below:
AS-1
Disclosure of Accounting Policies
AS-2
Valuation of inventories
AS-3
Cash Flow Statements
AS-4
Contingencies and Events occurring after the Balance sheet date.
Net profit & loss for the period, prior period items and changes in
AS-5
accounting policies.
AS-6
Depreciation accounting
AS-7
Accounting for construction contracts
AS-8
Accounting for Research and Development
AS-9
Revenue Recognition
AS-10
Accounting for fixed assets
AS-11
Accounting for the effects of changes in foreign exchange rates.
AS-12
Accounting for Government grants
AS-13
Accounting for investments
AS-14
Accounting for Amalgamations
AS-15 Accounting for Retirement Benefits in the financial Statements of

Employers
AS-16
Borrowing costs
AS-17
Segment reporting
AS-18
Related Party Disclosure
AS-19
Leases
AS-20
Earning per share
AS-21
Consolidated Financial Statements
AS-22
Accounting for taxes on income

22
AS-23 Accounting for investments in associates in consolidated financial

statement
AS-24
Discontinuing operations
AS-25
Interim financial reporting
AS-26
Intangible assets
AS-27
Financial reporting of interests in joint ventures
AS-28
Impairment of assets
AS-29
Provisions, contingent liabilities and contingent assets
AS-30
Financial Instruments: Recognition and measurement
AS-31
Financial Instruments: Presentation
AS-32
Financial Instruments: Disclosures
ICAI requires that while discharging their attest function, it will be the duty of the
members of the institute to examine whether these accounting standards have been
followed in the preparation of financial statements covered by their audit. In the event of
any deviation from these standards, it will be their duty to make adequate disclosures /
qualifications in their audit reports so that the users of financial statements may be made
aware of such deviations. However, while making a disclosure / qualification in the audit
report, the auditor should consider the materiality of the relevant items.
Besides these accounting standards the institute has also assumed some exposure drafts,
guidance notes and expert opinions on various controversial issues in accounting and
reporting. The adoption of these shall make the financial statements comparable and more
relevant to their users.
With a view to promote better standards, recognize and encourage excellence in the
presentation of information in the annual reports, the Institute of Chartered Accountants
of India has been holding an annual competition for the ICAI awards for excellence in
Financial Reporting. This competition is held in three categories of organizations as
follows:
Category I:
Non-financial public and private sector enterprises (other than those

covered by category III).
Category II:
Financial institutions in public, private and co-operative sector, such as

banks, insurance companies, NBFCs etc.
23

Category III: Not for profit organizations including companies registered under section
25 of the companies Act, 1956 educational and research institutions and
trusts.
The institute also organizes a number a seminars, workshops and conferences covering
different aspects of disclosures every year. These programs are specifically conducted for
the members of the institute and the officials working in different organizations who are
related to the preparation of the corporate annual reports one way or the other.
The ICAI has clarified that it will issue the accounting standard for use in the presentation
of the general purpose financial statements issued to the public by the commercial,
industrial or business enterprise. These accounting standards are applicable to public
sector companies, private sector listed companies, large borrowers of banks from banks
and financial institutions in the corporate sector, societies, partnership firms, trusts, HUF
etc. General purpose financial statements include the balance sheet, the profit loss
statement and other statements and explanatory notes which form part thereof, and are
issued to external financial users, e.g. shareholders, creditors, employees and the public at
large. Banks are also required to comply with these accounting standards. There are few
accounting standards where RBI has issued guidelines in respect of disclosure items for
Notes to accounts which are as follows:
2.5.1 Accounting Standard 5 - Net Profit or Loss for the period, prior period items
and changes in a accounting policies: Since the format of the profit and loss account of
banks prescribed in Form B under Third Schedule to the Banking Regulation Act 1949
does not specifically provide for disclosure of the impact of prior period items on the
current years profit and loss, such disclosures, wherever warranted, may be made in the
Notes on Accounts to the balance sheet of banks.
2.5.2 Accounting Standard 9 Revenue Recognition: This Standard requires that in
addition to the disclosures required by Accounting Standard 1 on Disclosure of
Accounting Policies (AS 1), an enterprise should also disclose the circumstances in
which revenue recognition has been postponed pending the resolution of significant un
certainties.
2.5.3 Accounting Standard 15 Employee Benefits: Banks may disclose the change in
accounting policy in the appropriate schedule relating to Significant changes in
Accounting Policies / Principle Accounting Policies. The Board of Directors of a bank
24

must disclose the accounting policies followed in respect of VRS expenditure. If VRS
applications were accepted subsequent to the closure of the accounting year the Board of
Directors would be required to make a disclosure in the Board Report of that fact and of
the likely impact of the VRS.
2.5.4 Accounting Standard 17 Segment Reporting: While complying with the
accounting standard, banks are required to adopt the following:
a) The business segment should ordinarily be considered as the primary reporting
format and geographical segment would be the secondary reporting format.
b) The business segment will be treasury, Corporate/Wholesale Banking, Retail
Banking and other banking operations.
c) Domestic and international segments will be the geographic segments for
disclosure.
d) Banks may adopt their own methods, on a reasonable and consistent basis, for
allocation of expenditure among the segments.
2.5.5 Accounting Standard 18 Related Party Disclosure: This Standard is applied in
reporting related party relationships and transactions between a reporting enterprise and
its related parties. The disclosure format recommended by the ICAI has been suitably
modified to suit banks.
2.5.6 Accounting Standard 21 Consolidated Financial Statements (CFS): As
regards disclosures in the Notes on Accounts to the Consolidated Financial Statements,
banks may be guided by general clarifications issued by Institute of Chartered
Accountants of India from time to time.
A parent company, presenting the CFS, should consolidate the financial statements of all
subsidiaries-domestic as well as foreign, except those specifically permitted to be
excluded under the AS-21. The reasons for not consolidating a subsidiary should be
disclosed in the CFS. The responsibility of determining whether a particular entity should
be included or not for consolidation would be that of the Management of the parent entity.
In case, its Statutory Auditors are of the opinion that an entity, which ought to have been
consolidated, has been omitted, they should incorporate their comments, in this regard in
the Auditors report.
25

2.5.7 Accounting Standard 22 Accounting for Taxes on Income: This Standard is
applied in accounting for taxes on income. This includes the determination of the amount
of the expense of saving related to taxes on income in respect of an accounting period and
the disclosure of such an amount in the financial statements. Adoption of AS 22 may give
rise to creation of either a deferred tax asset (DTA) or a deferred tax liability (DTL) in the
books of accounts of banks and creation of DTA or DTL would give rise to certain issues
which have a bearing on the computation of capital adequacy ratio and banks ability to
declare dividends.
2.5.8 Accounting Standard 23 Accounting for Investments in Associates in
Consolidated Financial Statements: This Accounting sets out principles and procedures
for recognizing, in the consolidated financial statements, the effects of the investments in
associates on the financial position and operating results of a group. A bank may acquire
more than 20 per cent of voting power in the borrower entity in satisfaction of its
advances and it may be able to demonstrate that it does not have the power to exercise
significant influence since the rights exercised by it are protective in nature and not
participative. In such a circumstance, such investment may not be treated as investment in
associate under the Accounting Standard. Hence the test should not be merely the
proportion of investment but the intention to acquire the power to exercise significant
influence.
2.5.9 Accounting Standard 24 Discounting Operation: Merger / closure of branches
of banks by transferring the assets / liabilities to the other branch of the same bank may
not be deemed as a discounting operation and hence this Accounting Standard will not be
applicable to merger / closure of branches of banks by transferring the assets / liabilities
to the other branches of the same bank. Disclosure would be required under the Standard
only when:
a) discounting of the operation has resulted in shedding of liability and realization of
the assets by the bank or decision to discontinue an operation which will have the
above effect has been finalized by the bank and
b) the discontinued operation is substantial in its entirety.
2.5.10 Accounting Standard 24 Interim Financial Reporting: The half yearly review
prescribed by the RBI for public sector banks, in consultation with SEBI, is extended to
26

all banks (both listed and unlisted) with a view to ensure uniformity in disclosures. Banks
may adopt the format prescribed by the RBI for the purpose.
2.5.11 Other Accounting Standards: Banks are required to comply with the disclosure
norms stipulated under the various Accounting Standards issued by the Institute of
Chartered Accountants of India.
As already mentioned the ICAI is one of the members of the IASC, and has agreed to
support the objectives of IASC. While formulating accounting standards, the ASB gives
due consideration to international accounting standards (IAS), issued by the IASC, and
tries to integrate them to the maximum extent possible, in the light of the conditions and
practices prevailing in India. IASC came into existence on June 29, 1973, as a result of an
agreement by the accounting bodies in Australia, Canada, France, Germany, Japan,
Mexico, the Netherlands, the United Kingdome and others. Since its inception, IASC has
issued 41 international accounting standards. IAS-30 pertains to the disclosures in the
Financial Statements of Banks and similar Financial Institutions. A brief summary of the
same is given below:
IAS-30: Disclosures in the Financial Statements of Banks and similar Financial
Institutions
This standard prescribes special presentation and disclosure for banks and similar
financial institutions.
A bank's income statement should group income and expenses by nature and should
report the principal types of income and expense.
Income and expense items may not be offset except those relating to hedges, and
assets and liabilities for which the legal right of offset exists.
Specific minimum line items for income and expenses are prescribed.
A bank's balance sheet should group assets and liabilities by nature
Assets and liabilities may not be offset unless a legal right of offset exists and the
offsetting is expected at realization.
Specific minimum line items for assets and liabilities are prescribed.
Disclosures are required for various kinds of contingencies and commitment, include
off-balance sheet items.
Disclosures are required for information relating to losses on loans and advances.
27
Other required disclosure include:

- Maturities of various kinds of liabilities.
- Concentrations of assets and liabilities, and off-balance sheet items.
- Net foreign currency exposures.
- Market values of investments.
- Amounts set aside as appropriations of retained earnings for general banking
risks.
- Secured liabilities and pledges of assets as security.
International Accounting Standards were issued by IASC from 1973 to 2000. The
International Accounting Board (IASB) replaced IASC in 2001. Since then IASB has
amended some IASs and has proposed to amend others, has replaced some IASs with new
International Financial Reporting Standards (IFRS) and has adopted or proposed certain
new IFRSs on topics for which there was no previous IAS. IAs 30 is now superseded by
IFRS 7: Financial Instruments: Disclosures. IFRS issued by the IASB are increasingly
being recognized as the global FRS. Convergence with IFRS has gained worldwide
momentum in recent years. ICAI has decided to converge its accounting standards with
IFRS for accounting period commencing on or after 1st April 2011 for listed entities and
other public interests entities such as banks, insurance companies and large sized entities
for smooth transition to IFRS.
1.3.6 BASEL NORMS

The Basel Committee on Banking supervision (BCBS) was established in 1971 by the
Bank of International Settlements (BIS) - an international organization founded in Basel,
Switzerland in 1930 to serve as a bank for central banks. Basel Committee on Banking
Supervision is a committee of bank supervisors consisting of members from each of the G
10 countries. It is represented by central bank governors of each of the G 10 countries.
In 1988, the BCBS came out with its recommendations for a set of minimum capital
requirements for banks, which came to be known as the Basel Capital Accord (Basel I).
Focusing primarily on credit risk, Basel I made a clear distinction between the credit risk
of various entities such as a sovereign, a bank, mortgage obligations from non bank
private sector and commercial loan obligations. In principle, Basel I classified bank assets
into five risk groups, which carried respective credit risk weights of 0 percent 10 percent,
28

20 percent, 50 percent and 100 percent, based on which the minimum capital
requirements of a bank was to be calculated. Generally Government held securities
were attributed a zero risk while bank borrowings (20 per cent) and loan to others (50-100
per cent) were attributed higher risks. Banks were advised to hold capital equal to 8 per
cent of the risk weighted value of assets. The accord also provided a detailed definition of
capital, with Tier 1 or core capital (which included equity and disclosed reserves), and
Tier 2 or supplementary capital (included undisclosed reserves, hybrid capital instruments
and subordinated debts).
The accord brought some sense of standardization and equality among the banks. It made
the banks and the central banks around the world more willing to talk about the embedded
risks in banking and to work towards developing metrics for measuring credit risks and
carrying capital to cushion against it. However, it has been felt over the years that Basel I
accord was a good first step, but not sufficient to take care of the fast rising complexities
in credit risk management. For instance, it had a one- size-fit-all approach for capital
regulation, and did not adequately differentiate credit risk across exposures from a stand
point of likely losses that could arise. Basel I requires banks too classify all commercial
loans into five categories of borrowers on the basis of the nature of ownership of the
entities rather than on their inherent creditworthiness, based on which the capital
requirement for the bank would be computed. Further, the capital requirements did not
take into account the collateral offered or the covenants that formed that formed a part of
the transaction.
To set right these deficiencies, the Basel Committee issues a proposal in June 1999 for a
New Capital Adequacy Framework to replace the 1988 framework. Following extensive
interactions with banks and industry groups worldwide, the proposal underwent couple of
revisions at its drafting stage and the final version International Convergence of
Capital Measurement and Capital standards A Revised Framework was issued by the
BCBS in June 2004 (Basel II).
Basel II is based on three pillars that allow banks and supervisors to evaluate properly the
various risks that banks face. These three pillars are:
1. Minimum capital requirements
2. Supervisory review of an institutions capital adequacy and internal assessment
process
29

3. Market discipline through effective disclosure to encourage safe and sound
banking practices.
These three pillars are mutually reinforcing and contribute to safety and soundness in
financial system.
Table 2.2 depicts the three pillars that Basel II ushered in as a substantial mark up over
Basel I.
Table 1.2: Pillars of Basel III

PILLAR 1
PILLAR 2
PILLAR 3
1. Minimum
Capital 2. Supervisory Review of 3. Market Discipline
Requirements
Capital Adequacy
Sets
minimum
acceptable capital
Credit risk
ratings
tied
to
o Public ratings
o Internal ratings
Banks must assess

solvency
to
their
solvency to their risk
profile
Supervisors
review
assessment
should
banks
Explicit treatment or
Operational Risk
Banks should hold in

excess level of capitals
o Excludes Business
Risk
Regulators
will
intervene if capital
levels deteriorate
Increased disclosure of
capital structure
Improved disclosure or
Risk Measurement and
management practices
Improved disclosure of
risk profile
Improved disclosure of
capital adequacy
Source: Rao, 2005
Pillar 1 Minimum Capital Requirements

The prescription of minimum capital requirement is nothing new. Basel I since 1988 has
been in operation requiring banks to maintain minimum 8 per cent capital adequacy ratio.
This minimum capital otherwise known as regulatory capital acts as sort of insurance for
the interest of the depositors. Basel Committee, while initially suggesting aforesaid
regulatory capital towards credit risk subsequently in 1996 covered market risk
transactions. Now in accord II regulatory capital requirement for operational risk has also
30

been prescribed. Thus pillar 1 deals with adequacy of capital for the banks build up assets
carrying credit, market and operational risk.
Keeping in view RBIs goal to have consistency and harmony with international
standards, it has been decided that all commercial banks in India shall adopt standardized
approach for credit risk and basic indicator approach for operational risk. Banks shall
continue to apply standardized duration approach for computing capital requirement for
market risks.
Pillar 2 Supervisory Review of Capital Adequacy

The role of supervisory review process is viewed as a critical component to other two
pillars, viz. capital requirement and market discipline. Here the new accord stresses the
importance and need for supervisors of banks to take a comprehensive view on how
banks have gone about in handling the risk sensitive issues, risk management, capital
allocation process etc. In this regard the guiding principles for the supervisors are:
a) Banks to hold capital above minimum requirement.
b) Intervention at an early stage to prevent capital from declining below the
benchmark level.
c) Review of internal capital adequacy assessment and strategy.
d) Banks to assess their overall capital in relation to risk profile and supervisors to
review the same.
Pillar II requirements give supervisors, i.e., the RBI, the discretion to increase regulatory
capital requirements. The RBI can administer and enforce minimum capital requirements
for banks even higher than the levels specified in Based II, based on risk management
skills of the bank. RBI will consider prescribing a higher level of minimum capital ratio
for each bank under the pillar 2 framework on the basis of their respective risk profiles
and their risk management systems.
Pillar 3 Market Discipline
31

This pillar seeks to bring market discipline through greater transparency by asking banks
to make adequate disclosures for the benefit of shareholders / investors, depositors,
customers, rating agencies, government and policy makers and of course for the
regulators / supervisors. Market discipline has two components:
a) Market signals, manifest from share price movement, banks lending and
borrowing rates etc.
b) Responsiveness of the banks as also the supervisors to the market signals.
Pillar 3 provides a comprehensive menu of public and regulatory disclosures related to
the capital structure, capital adequacy, risk assessment and risk management process to
enhance transparency in banking operations. This pillar is complementary to the first two
pillars and seeks to encourage market discipline and public disclosures, so as to allow
shareholders, stakeholders and market players to know about risk profits and available
capital resources to absorb unexpected losses.
Indian banking companies were required to ensure full implementation of Basel II
guidelines by March 31, 2009. The first phase of Basel II was implemented in India with
foreign banks operating in India and Indian banks having operational presence outside
India complying with the some effective end of March 2008. In second phase all other
scheduled commercial banks (except local area banks and RRBs) were to adhere to Basel
II guidelines by March 31, 2009.
Basel II mandates capital to Risk Weighted assets ratio (CRAR) of 8 per cent and Tier
capital of 6 per cent. The RBI has stated that Indian banks must have a CRAR of
minimum 9 per cent effective March 31, 2009. Further, the Government of India has
stated that public sector banks must have a capital cushion with CRAR of at best 12 per
cent, higher than the thresh old of 9 per cent prescribed by the RBI.
BASEL III
Basel III is a globally regulatory standard on bank adequacy, stress testing and market
liquidity risk agreed upon by the members of the Basel Committee on Banking
Supervision in 2010-11.
This, the third of the Basel Accords was developed in response to the deficiencies in the
financial regulations revealed by the Lates-2000s financial crisis. Basel-III strengthens
32

bank capital requirements and introduces new regulatory requirements on the bank
liquidity and bank leverage. For instance, the change in the calculation of loan risk in
Basel II which some consider a casual factor in the credit bubble prior to the 2007-08
collapse: in Basel II one of the principal factors of financial risk management was outsourced to companies that were not subject to supervision: credit rating agencies. Rating
of creditworthiness and of bonds, financial bundles and various other financial
instruments were conducted without supervision by official agencies, leading to AAA
ratings on mortgage-backed securities, credit default swaps and other instruments that
proved in practice to be extremely bad credit risks. In Basel III a more formal scenario
analysis is applied (three official scenario from regulators, with ratings agencies and firms
urged to apply more extreme ones.
Overview
Basel III will require banks to hold 4.5 per cent of common equity (up from 2 per cent in
Basel II) and 6 per cent if Tier I capital (up from 4 per cent in Basel II) of risk-weighted
assets (RWA). Basel III also introduces additional capital buffers, (i) a mandatory capital
conservation buffer of 2.5 per cent and (ii) a discretionary countercyclical buffer, which
allows national regulators to require up to another 2.5 per cent of capital during periods of
high credit growth. In addition, Basel III introduces a minimum 3 per cent leverage ratio
and two required liquidity ratios. The Liquidity Coverage Ratio requires banks to hold
sufficient high-quality liquid assets to cover its total net cash outflows over 30 days; the
Net Stable Funding Ratio requires the available amount of stable funding over a one-year
period of extended stress.
Objectives
Basel III measures aim to:
1. improve the banking sectors ability to absorb shocks arising from financial and
economic stress, whatever the source
2. improve risk management and governance
3. strengthen banks transparency and governance
Thus we can say that Basel III guidelines are aimed to improve the ability of banks to
withstand periods of economic and financial stress as the new guidelines are more
stringent than the earlier requirements for capital and liquidity in the banking sector.
33
Macroeconomic Impact of Basel III

An OECD study released on 17 February 2011, estimates that the medium term impact of
Basel III implementation on GDP growth is in the range of -0.05 per cent to -0.15 per
cent per year. Economic output is mainly affected by an increase in bank lending spreads
as banks pass a rise in bank funding costs, due to higher capital requirements, to their
customers. To meet the capital requirements affective in 2015 (4.5 per cent for the
common equity ratio, 6 per cent for the Tier I capital ratio), banks are estimated to
increase their lending spreads on average by about 15 basis points. The capital
requirements affective as of 2019 (7 per cent for the common equity ratio. 8.5 per cent for
the Tier I capital ratio), could increase bank lending spreads by about 50 basis points. The
estimated affects on GDP growth assume no active response from monetary policy. To
the extent that monetary policy will no longer be constrained by the zero lower bound, the
Basel III impact on economic output could be offset by a reduction in monetary policy
rates by about 30 to 80 basis points.
Basel III is an opportunity as well as challenge for the banks. It can provide a solid
foundation for the next developments in the banking sector, and it can ensure that past
excesses are avoided. Basel III is changing the way that banks address the management of
risk and finance. The new regime seeks much greater integration of the finance and risk
management functions. This will probably drive the convergence of the responsibilities of
the CFOs and CROs in delivering the strategic objectives of the business. However, the
adoption of a more rigorous regulatory stance might be hampered by a reliance on
multiple data silos and by a separation of powers between those who are responsible for
finance and those who manage risk. The emphasis on risk management that is inherent in
Basel III requires the introduction of evolution of a risk management framework that is as
robust as the existing finance management infrastructures. As well as being a regulatory
regime, Basel III in many ways provides framework for true enterprise risk management,
which involves covering all risks to the business.
Summary:
34

In the end it can be summarized that banks today are not merely economic entities but
they are the pillars on which the overall financial economic growth depends. A
transparency in banks disclosures further reduces the level of information asymmetry and
hence boosts the investors confidence in the banking industry. But such banking
disclosures in India are regulated by the Banking Regulation Act 1949, the Companies
Act 1956, the RBI, the ICAI, the SEBI and the recommendations of the Basel Committee.
The Banking Regulation Act 1949 provides a framework for the regulation and
supervision of commercial banking activity whereas the Companies act deals with the
state of the banking companys affairs. RBI the apex financial institution of India, not
only controls but also supervises, promotes, develops and plans the role of commercial
banks through its policies, directions and regulations. Hence it gives a detailed guidance
to the banks in matters of banking disclosures. SEBI on the other hand lays down
disclosure requirements though stock exchange listing agreements via various disclosure
requirements such as Cash Flow Statement and Corporate Governance Report. ICAI a
premium professional accountancy body in India plays an important role in regulating the
corporate disclosure practices in India by issuing various accounting standards. Finally
the Basel Committee on banking supervision gave its recommendations as to how the
banks and supervisors are to evaluate properly the various risks that banks can face. It
based its study on three important pillars: minimum capital requirements, supervisory
review of capital adequacy and market discipline. Only when these three pillars are
mutually reinforced then only they can contribute to the safe and sound banking practices.
1.4 NEED OF THE STUDY

Financial disclosure is an effective communication of accounting information to its users
for decision making. The users of financial statements should be in a position to evaluate
and assess the companys earnings performance and financial position, so that, they are
able to make intelligent investment decisions necessary for efficient allocation of scarce
resources. The aim of financial disclosure is to portray economic performance of an
enterprise. Financial information can be disclosed by using various modes, but annual
reports occupy a very significant position among them. Today there is general acceptance
of the value of fair reporting in the business community. Fair reporting brings with it
motivation, increased competitiveness, comparability and credence.
35
Banks are also business entities, i.e. they produce and sell financial services instead of
products. The distinctive feature about banks is that they are highly leveraged firms. They
have to foster the well being of shareholders and general public at large. The essential
part of the banking system is its financial viability. It is not only necessary for its
survival but also to discharge its various obligations. If a bank goes into trouble the entire
community is affected. Banks subsists on confidence and disclosure of prudent banking
practices is the only way to build confidence.
Further the need of the study was felt because of growing importance of corporate
governance in banks. Governance is a reform package to strengthen the banks and
corporate with the objective of making them more accountable, open, transparent,
democratic and participatory. Governance in banks is considerably a more complex issue
than in other sectors because bank activities are less transparent and thus it is more
difficult for shareholders and creditors to monitor their activities. The core of
governance rests on the quality of transparency and disclosure.
Another area which focuses on the need for present study is Basel II. Managing risk is
increasingly becoming an important issue for the regulators and financial institutions.
Bank regulation is now increasingly getting risk concentric. This process had its origin in
Basel I proposals in 1988. The thrust of first accord was adequate capitalization of banks
in relation to credit risk, the second accord recognizes that banks face a number of risks in
the form of credit, market and operational risk. Basel II is built around three pillars
minimum capital requirement, supervisory review and market discipline. Pillar three
provides a comprehensive menu of public and regulatory disclosures related to capital
structure, capital adequacy, risk assessment and risk management process to enhance
transparency in banking operations. Thus, Basel II provides a list of desirable best
practices for banking safety and efficiency.
Protecting the interest of the depositors becomes a matter of paramount importance to

banks. Regulators, the world over, have recognized the vulnerability of depositors to the
whims of managerial misadventures in banks and therefore have been regulating the
banks more tightly than other corporate. Thus there seems to be a little question
36

concerning the need for serious research in the area of reporting practices of commercial
banks.
1.5 OBJECTIVES OF THE STUDY
The objectives of the study have been as below

1.
To examine the disclosure practices of commercial banks in India over the period of
study.
2.
To compare the disclosure practices of selected private sector banks with the public
sector banks.
3.
To find out highly disclosed and least disclosed elements of banking disclosures.
4.
To examine the discriminatory power of total, mandatory and voluntary disclosures

in relation to public and private sector banks.
5.
To make suggestions for improving the quality of disclosure.
1.6
HYPOTHESIS
Corresponding to the aforesaid objectives, the following sets of broad hypothesis
1.
Ho (1) : There are no significant differences in the disclosure practices of public

sector banks and private sector banks.
Ha (1) : There are significant differences in the disclosure practices of public sector
banks and private sector banks.
2.
Ho (2) : There are no significant differences in the reporting of various elements of

banking disclosures.
Ha (2) : There are significant differences in the reporting of various elements of
37
CHAPTER 2
REVIEW OF LITERATURE
It is a known fact that education is a social activity and no research whatsoever can be
conducted in isolation. Every scholar is therefore deeply indebted to his predecessors in
the field who have already conducted related studies and brought to light hitherto
unrevealed aspects of the subject matter in hand. It is only after reviewing the existing
literature on the subject that one can gauge the gap where further research is required or
identify the lacunae in previous studies and make an attempt to overcome them by
undertaking ones own study.
A number of studies have been conducted in India and abroad with a view to examine the
information needs of different user groups like investors, financial and security analysts,
public accountant and auditors, creditors etc. as well as to evaluate the quantitative and
qualitative status of corporate financial reporting and disclosures. A brief overview of
such studies and research papers is being presented below:
38

Copeland and Fredericks (1968) examined the relation between materiality and
disclosure with aggregate data from 200 companies. The research design consisted of the
selection of a variable, a measurement of its materiality and disclosure, and a comparison
of the two measures. The variable selected was changes in common stock because
changes affect individual stockholders interest in a companys assets and earnings, and
data concerning materiality and extent of disclosure can be obtained independently of
each other. The tests found a positive correlation between materiality and disclosure but
the correlation coefficient was insignificant at the 0.5 level.
Singhvi and Desai (1971) undertook an empirical analysis of the quality of corporate
financial disclosures in annual reports of 100 listed and 55 unlisted American
corporations for the year 1965-66 by using an index of disclosures containing 34 items.
They also studied the influence of various variables like asset size, number of
shareholders, listing status, CPA (certified public accountant) firms, rate of return and
earnings margin on the quality of disclosures. The findings of the study demonstrated that
corporations disclosing inadequate information were likely to be small in size, free from
listing requirements, audited by a small CPA firm and less profitable. It also empirically
showed that inadequate corporate disclosures in annual reports were likely to widen
fluctuations in the market price of a security. Thus, the quality of disclosure was one of
the variables affecting the price of a security.
Baker and Haslem (1973) examined the information needs of individual investors in
common stock. A survey was conducted on a sample of 1523 individual common stock
investors. The data was gathered by means of a questionnaire including 33 items of
information used in investment analysis, with respondents indicating the relevance of
each factor on a 5-point scale. Interpretation of findings was based on the arithmetic mean
of responses and its standard deviation for each of the 33 factors. The authors observed
that corporate management paid inadequate attention to the needs of equity investors.
They further concluded that investors made investment decisions on the basis of
expectations of future economic outlook of the company and industry, earnings and sales
forecast and the quality of management. The study also revealed that individual investors
had information needs different from the professional analysts. They considered stock
39

brokers followed by advisory services and newspapers as important source of corporate
information, while attaching minor importance to financial statements in annual reports.
Buzby (1974) in his study indicates that many items which financial analysts believe to be
important are inadequately disclosed. A list of 38 items of financial and non-financial
information which might appear in an annual report has been constructed. The relative
importance of each of the items has been estimated by a survey of financial analysts.
They were to rate each factor on a scale of 0 to 4. On the basis of survey responses a
detailed set of weighted disclosure index for each of the items was constructed. It was
then applied to a sample of annual reports for 88 small and medium sized companies. The
results indicated that many of the items were inadequately disclosed in the sample. It was
concluded that an opportunity exists for an expansion of the extent of disclosure in the
annual reports of small and medium sized companies.
Chandra Gyan (1974) made an attempt to examine whether those who attest the
corporate reports and those who use such reports, i.e. the public accountants and the
security analysts respectively, have any consensus about the value of information
included in the published corporate annual reports. The test vehicle of the study was
questionnaire containing 58 information items nailed to public accountant and security
analysts. The study concluded that accountants generally do not value information for
equity investment decisions the same as security analysts do. Thus there was lack of
consensus.
Barretts (1976) study focused on the overall extent of financial disclosures and the
degree of comprehensiveness of firms financial statements reflected in the annual
reports of 103 major firms located in US, UK, Japan, France, Germany, Sweden and
Netherlands for years 1963 to 1972. The results indicated that while the overall level of
financial disclosures steadily improved from 1963 to 1972, there still existed a wide
variance between the disclosure levels of American and British firms, on one hand, and
those in the rest of countries, on the other. Also, the American and British firms financial
statements were considerably more comprehensive in terms of including the results of
related companies and taking or broad view of income related items, than that of firms in
other five countries. The findings of the study were certainly consistent with the general
40

belief that there existed a link between the quality of financial reporting practice and the
degree of efficiency of national equity markets, which supported the position that
continental European equity markets were less efficient than their Anglo-American
Counterparts.
Siegal and Dauber (1976) in their article try to determine the true nature of adequate
disclosure. The article further states that adequate disclosure can be achieved by
extending current disclosure standards. Forecast disclosures, social accounting, segment
reporting, price level restatement and human resource accounting are few possible
extensions. At the end it has been concluded that accounting profession can expect an
expansion of disclosure requirements in light of the pressures exerted by government
agencies, security analysis, investors and the like.
Siegal and Vissichelli (1978) are of the view that information should be presented in a
way that facilitates understanding and avoids erroneous implications. Due care must be
taken in giving too little information to readers of financial statements as well as too
much information. At the end it is concluded that disclosure is attempting to give the
investor all the information he needs in order to make the best possible decisions with
respect to his past, present and future investments.
Kahl and Belkaoui (1981) investigated the annual reports of 70 commercial banks from
18 countries during 1975. Disclosure adequacy was measured by the extent to which 30
selected information items were presented in the annual reports. Differences were found
to exist in disclosure adequacy internationally. U.S. banks, it was learned, were leaders in
the extent of disclosure. The positive correlation between asset size and extent of
disclosure was supported by the evidence in this study. The information items used in the
study to measure disclosure adequacy, when classified according to the consensus
between producers and users of bank financial statements, indicate ten items of low
consensus.
Khanna and Singh (1981) analyze the relationship between disclosure of marketing
information and different organizational correlates like age, size, profitability and type of
industry. For this annual reports of 45 companies for 1976-77 were selected as a sample
41

for the study. It comprised of private enterprises operating in different industries. To
identify important marketing information to be disclosed an index of disclosure of 50
items was prepared. Weight age ranging from one to five was assigned to these items
depending upon their relative importance. Chi-square test and t-test was applied to test the
significance of null hypothesis. With the help of statistical tools it was concluded that
marketing information disclosure differs from company to company in most cases. Net
worth, net sales, total assets, net profit, rate of return sum to influence the disclosure of
marketing information whereas age earning margin, nature of industry and ownership do
not influence the marketing information disclosure.
Patell and Wolfson (1982) examine firms behavior with respect to the systematic
intraday timing of earnings and dividend announcements. It tests the hypothesis that good
news is more likely to be released when the security markets are open while bad news
appears more frequently after the close of trading. Both endogenous (stock price change)
and exogenous (comparison to the preceding periods earnings or dividends)
classifications are used to distinguish good news from bad, and both forms support the
hypothesis. An information content analysis using daily stock price data is performed to
illustrate how differences in disclosure timing may affect inferences about the magnitude
of stock price response, announcement, anticipation or news leakage and the speed of
price adjustment.
McNally, Hock and Hasseldine (1982) studied three aspects of discretionary disclosures
of financial and non-financial information examining the importance of disclosing
selected items of information by surveying the attitudes of two groups of external users,
namely financial auditors and stock exchange members; examining the disclosure
practices of manufacturing companies listed on the New Zealand Stock Exchange; and
ascertaining the association between disclosure practices and selected corporate
characteristics. The respondents were asked to score the relative importance of 41
information item (financial and non-financial) on a 5-point scale High scoring items
included future dividends, profit forecasts historical summary of operating and financial
data, capital expenditure and EPS; moderately important included indicators of employee
morale, number and type of shareholders, age of debtors, companys history etc., while
the least important was information on corporate social responsibility. Thus, a
42

considerably divergence was observed between the degree of disclosure practiced by the
companies and that perceived by the external users.
Lal (1982) conducted the study to determine the adequacy of disclosure in annual reports
of Indian Companies so that efforts can be made to improve the quality of disclosures
therein. An index of disclosures consisting of 50 items (104 with sub items) was prepared.
This index was applied to the annual reports of 180 manufacturing companies for the
years 1965 and 1975. The study concluded that a large number of items of information
are not being disclosed by the Indian Companies. Hence, there is great need for
improving the quality of disclosure in corporate annual reports.
Maloo (1986) made an attempt to determine whether or not the accounting profession has
arrived at a consensus as to the meaning of the phrase adequate disclosure. He tries to
answer the questions what, when, how much, how should and for whom the information
to be disclosed. The article further states that there are no pat answers to these questions.
Further more, there are those who feel that disclosures, other than voluntary, are totally
unnecessary. At the end it is concluded that there is no real consensus as to what
constitutes adequate disclosure.
Chow & Wong-Boron (1987) studied the extent of voluntary financial disclosures by a
sample of 52 Mexican Stock Exchnage listed firms and tested the influence of three
variables suggested by the Agency Theory firm size, financial leverage and proportion
of assets in place on the disclosure level. Using an index of 24 information items, it was
found that voluntary disclosures vary widely within the sample. While items like names
of company directors, inventory accounting method, amount of pension fund liability,
depreciation method and breakdown of borrowings were disclosed by a majority of the
firms, however, none revealed items like cash projections, responsibilities and experience
of key executive and personnel, principal business or professional affiliations of outside
directors and earnings breakdown. The results of the regression analysis indicated that the
extent of voluntary disclosures was positively and significantly related to firm size but not
to financial leverage or assets in place.
43

Gibbins, et .al., (1990) interviewed representatives from 11 disclosing firms and 9
external organizations over the period 1985 -1986. An inventory of the results of the
interviews was maintained on both the disclosure media and topics disclosed. A twodimensional internal preference for managing disclosures was developed. The first
dimension measured the degree of uncritical acceptance of rules and norms; the second
dimension measured the propensity to seek firm-specific advantage vis--vis how
disclosures were made and interpreted.
Eresi (1996) in his article examined the extent to which companies are environmentally
sensitive and ascertained the extent and different forms of disclosure of information on
environment. A study of the annual reports of 68 companies was made for the years 199192 and 1992-93. He concluded only 30 percent of the sample companies disclosed
environment information that to with reference to protection of environment, pollution
control, conservation of energy and raw materials. Environmentally sensitive companies
shared only positive information. The extent of disclosure remained less than one-fourth
page.
Lang and Lundhlom (1996) examines the relations between the disclosure practices of
firms, the number of analysts following each firm and properties of the analysts earnings
forecasts. Data from the report of Financial Analysts Federation corporate Information
Committee (FAF Report 1985-89) have been used. Results indicate that firms with more
informative disclosure policies have a large analysts following, more accurate analyst
earnings forecast, less dispersion among individual analyst forecasts and less volatility in
forecast revisions. Further it has been suggested that potential benefits to disclosure
include increased investor following, reduced estimation risk and reduced information
asymmetry.
Venkatesh (1997) examines the important issue of mandatory vs. voluntary disclosure.
Admitting that mandatory requirements improve credibility, ensure minimum disclosure
and facilitate standardization for easy interpretation and comparability, the author
explains that voluntary disclosure not only does invite positive investor sentiments, but it
also improves chances of attracting foreign funds. It is further stated citing some research
44

studies that there is a positive relation between the company size and the level of
voluntary disclosure.
Ahmed (1997) assesses empirically whether significant association exists between

internal environment and accounting regulations in developing countries. The five
selected environmental variables are type of economy, equity market capitalization,
turnover of shares, uncertainty avoidance and individualism. The paper argues that since
the accounting systems in developing countries are predominantly imposed by or
imported from developed countries, rather than evolved within these countries, no
significant relationships are expected to be found between disclosure regulations and
internal environmental factors. The results are consistent with the hypothesis and the
multiple regressions showed no significant association between disclosure regulations and
internal environmental factors.
Wallman Steven M.H (1997) examines the impact of changes in information technology
on the future of accounting and financial reporting. Accounting is divided into two
primary functions compiling and attestation. Information technology will assume an
enhanced role with respect to the former function. Advancements in technology will
increasingly offer users the ability to manage large amounts of disaggregated data. As a
result, rather than rely on traditional financial statements, users would have the
opportunity to access, analyze and focus on data that is most relevant to their particular
needs, including forward looking and soft information. The author also notes the benefits
that would insure to corporations providing information under this new system. The
author also asserts that the attestation function will shift from a focus on attesting the
financial statements to attesting to the procedures and processor used to present data for
access by end users. Under such a changed accounting and information paradigm, the
roles of accountants, standard setters and regulators would undergo substantial change.
Kohli Pooja (1998) analyzed the corporate disclosure practices of the Indian companies
for the year 1994-95. The disclosure level was measured through an index of disclosure
consisting of 212 items classifying them into historical, contemporary and futuristic.
Other objectives of the study included to capture the improvement in disclosure levels of
Indian companies following the liberalization of the economy by making a temporal
45

comparison of years 1990-91 and 1994-95, to compare the timeliness of annual reports of
US and Indian companies; and finally to study the influence of certain corporate
attributed like size, age, profitability, nature of industry and auditing firm on the
disclosure levels and timeliness. While the temporal analysis indicated an improvement in
the disclosure scores of Indian companies post liberalization, the cross national
comparison revealed that Indian companies were far behind their US counterparts in the
overall disclosure levels as well as in timeliness of annual reports. Linear and step wise
regression results reflected that size and age were significant determinants of disclosure
levels as well as timeliness for Indian companies, whereas profitability was the
significantly influencing variable for the US companies.
Baruch and Zarowin (1999) investigated the usefulness of financial information to

investors in comparison to the total information in the market place. They found that there
has been systematic decline in the usefulness of financial information to investors over
the past 20 years, as manifested by a weakening association between capital market
values and key financial variables earnings, cash flows and book values. This
deterioration in usefulness, in the face of both increasing investor demand for relevant
information and persistent regulator efforts to improve the quality and timeliness of
financial information is due to change. Whether driven by innovation, competition, or
deregulation, the impact of change on firms operations and economic conditions was not
adequately reflected by the current reporting system. They linked change empirically to
loss of informativeness of financial data to further validate their conjecture, that business
change is responsible for deterioration in informativeness of financial information. Of the
various change drivers main focus was on intangible investments.
Francis and Schipper (1999) investigate the popular claim that financial accounting
information has become less value relevant over time, especially over the period 1952-94.
Analyses show that return to perfect foresight trading strategies based on the sign and
magnitude of earnings have decreased over the sample period. However returns based on
cash flows and the sign of earnings have not changed significantly over time. Tests
indicate that the explanatory power of earnings level and changes for returns has
significantly decreased over time. Whereas the tests of explanatory power of book values
of assets and liabilities for market equity value provide no evidence of a decline in the
46

explained variability of the balance sheet relation or the book value and earnings relation.
Thus the results overall provide a mixed evidence on whether financial reports have lost
relevance over the 1952-94 period.
Dhar (2001) examined the relevance of Indian corporate annual reports to individuals
from various angles i.e. from the frequency of their use, reasons for non-usage, usage
according to age and profession, degree of comprehensibility, perception about different
indicators, and investors need for summary reports and forecasts. Data was collected
through responses to a questionnaire survey of 193 respondents. The results revealed that
complexity in annual reports and lack of expertise naine investors has reduced their
importance to only a secondary source, with financial magazines and newspaper being
tapped as major sources of investment information. The primary reason cited being that,
investors found information content of these reports not relevant for investment decisions
or movement of share prices. The findings also indicate a significant positive association
between level of investment and frequency of use of annual reports, with investors having
commerce background comprehending them better than others. The survey results
revealed that indicators concerning shares are considered to be more important than
profits, changes in profits and sales. Also, majority of the respondents favored receiving
summary annual reports and forecasts of share prices, dividend and EPS in the annual
reports.
Papas (2002) assesses the compliance of non-financial Greek firms with statutory
disclosure requirements and examines the impact of market factors and firm
characteristics on disclosure policies. Disclosure was measured against an index of 76
information items. A regression model was used to determine which of the independent
variables explain the variation in the index better. The causes of the observed departures
from mandatory disclosures were examined by means of an interview survey. Results
show that not all sample firms comply with the statutory disclosure requirements. The
extent of disclosure in their annual reports was found to be significantly associated with
their listing status and state of international affiliations.
Kant (2002) ascertained the disclosure levels of companies for the years 1995-96 and
19999-2000 and studied the influence of certain corporate attributes on the disclosure
47

levels. The level of disclosure was studied with the help of Disclosure Index of 275 items.
Another objective was to develop a framework for the measurement of the quality of
corporate governance and to measure the quality of governance in the selected
companies. Another objective was to establish and analyze the relationship of corporate
disclosure, quality of governance and shareholder value. The results indicate that
disclosure of the companies under study have improved over a period of time.
Improvement across all groups into which disclosure items have been categorized in the
disclosure Index is also shown. Analysis further shows that size is positively associated
with disclosure. The quality of governance in case of companies covered under the study
has been found to be reasonably good. The relationship analysis makes it amply clear that
there exists a positive and significant relationship between and among disclosure, quality
of governance and shareholder value.
Chipalkatti (2002) in his paper investigates whether enhanced transparency in the case of
Indian Banks is indeed rewarded with increased market liquidity. It also examines the
markets reaction to the enhanced disclosure requirements as required by Reserve Bank of
India guidelines. Indian case, enhanced transparency had no significant impact on the
market liquidity of private sector banks. In the case of public sector banks, it is observed
that enhanced transparency is associated with reduced market liquidity. In addition, no
significant change in the market liquidity was observed with the release of the additional
disclosure information as required by Reserve Bank of India.
Khanna, Palepu & Srinivasan (2004) examines the hypothesis that foreign companies
that have significant interactions with US product, labor and financial markets are more
likely to use US disclosure practices relative to those that do not have such interactions.
These hypotheses are tested using a sample of 794 companies from 24 countries from
Asia, the Asia-Pacific, and Europe. Scores from S & Ps Transparency and Disclosure
Survey for the companies have been used in the analysis. These scores use the US
disclosure standards as an implicit benchmark; therefore they measure the degree of
similarity of a companys disclosure practices to US practices. To measure the extent of
market interaction with the United States, a variety of country and company level
variables had been collected. The results indicate US listing by a company, the extent of
investment interaction, the extent of operation interaction and the extent of business travel
48

to the United States from the companys country are all positively associated with the
companys disclosure scores. No significant association has been found between a
countrys trade with the United State and the disclosure scores of companies in that
country.
Tamboli (2004) analyzed impacts of disclosure and regulatory authorities efforts on

investor protection. Study discussed philosophy, concepts, accounting disclosure norms
and actual practices. Based on information collected from 100 respondents, the study
concluded that the individual investors relied highly upon, Materials on Financial
Products followed by Annual Reports and Verbal Advice. Investors preferred small
saving schemes than corporate securities followed by consumers durables and real estates.
Personal lending remained at last and least preference. The investors faced grievance on
corporate investments remaining unknown about the right authorities to be approached.
Bibhuti and Patnaik (2004) in their research paper explored the need for companies to
make more information available to the market on a voluntary basis rather than as a
regulatory requirement. By questioning a group of 30 investors and the same number of
analysts they tried to determine whether there is any empirical evidence to the claim that
investors are demanding more information. Their study found out that while a significant
percentage of investors were satisfied with the corporate financial reports, the analysts
were not satisfied with them. EPS (Earnings per share) still remained the most popular
tool of analysis, though now a majority of them were using cash-based valuation
measures and were placing greater emphasis on predictive data having a forward looking
perspective. The study found a significant difference between the traditional reporting and
the requirements of investors and analysts. The authors concluded by recommending a
value-reporting framework that incorporated both financial and non financial measures
to minimize the gap between intrinsic value of the company and its market value as
perceived by the investors and analysts.
Sahrawat and Davis (2005) investigate the readiness of financial institutions operating
within the banking sector in New Zealand for the transition from existing New Zealand
financial reporting standards and to ascertain how motivated they are to ensure they have
an effective corporate governance regime. Paper also reports on a qualitative investigation
49

of the perceptions of senior management in New Zealand banks on the effects of the
revised standards. For this 16 officials from 8 banks agreed to be part of structured
interviews. From responses it was concluded that the changes required for convergence to
IFRS would be complex but worthwhile exercise. Respondents were aware of the fact that
there would be new financial reporting standards that must be adopted but, overall, there
was a somewhat alarming lack of awareness of the details on how they would impact the
banks financial reports, it was concluded that the adoption of IFRS s mean high initial
costs of transition training, setting up systems and processes which may spin off positive
yields in the long term.
Baroko,et.al., (2006) in their examined voluntary disclosure in a developing country,

namely Kenya. Over the last decade the Kenyan govt. has initiated several far reaching
reforms at the Nairobi Stock Exchange in order to mobilize domestic savings and attract
foreign capital investment. These measures include privatization of state corporations
through the stock exchange and allowing foreign investors to own shares in the listed
companies. This study provides a longitudinal examination of voluntary disclosure
practices in the annual reports of listed companies in Kenya from 1992 to 2001. The
results suggest that the extent of voluntary disclosure is influenced by a firms corporate
governance attributes, ownership structure and company characteristics. The presence of
an audit committee is a significant factor associated with the level of voluntary disclosure
and the proportion of no-executive directors on the board is found to be significantly
negatively associated with the extent of voluntary disclosures. The study also finds that
the levels of institutional and foreign ownership have a significantly positive impact on
voluntary disclosure. Large companies and companies with high debt voluntarily disclose
more information. In contrast, board leadership structure, liquidity, profitability and type
of external audit firm do not have a significant influence on the level of voluntary
disclosure by companies in Kenya.
Basu (2006) discusses the potential benefits of having a single, universally accepted
financial reporting language and makes an assessment of the progress that has so far been
made towards the establishment of such a language. At the end he concludes that a
common set of universally accepted accounting standards is a necessary condition for the
orderly development of the global capital markets. However, the financial reporting
50

framework the IASB has developed is not a complete one; it has many gaps and
loopholes.
Rocco (2006) assigned a composite bank disclosure index to each of the 180 countries
surveyed in the study, yearly since 1994. Using a thick box approach to analyze financial
statement of individual banks, the index seeks to quantitatively measure the actual
disclosure practices of commercial banks around the world, in relation to their assets,
liabilities, funding, incomes, and risk profiles. The measurement framework is compatible
with IMFs Financial Soundness Indicators (FSI) System, as well as Basel committee
prescriptions on bank accounting disclosures. The framework is applicable to banks in
low and mid-income countries. Specific policy prescriptions can be made automatically
based on the sub-index and sub-component scores linked to individual disclosure
categories. The report also utilizes the time-series and cross-sectional variations of the
index to conduct a series of assessment and diagnosis on several systematically important
developing countries and regions, as examples to demonstrate the indexs policy
applications.
Rao,et.al., (2006) have tried to pursue and analyze the changing needs of information
disclosure in accounting. They are of the view that accounting disclosures should be
responsive to the expansion and change of direction of all economic activities. They
studied the global standard setting exercise. They are of the opinion that ethics in
accounting are concerned with the ethical standards of the accountant himself. Some
specific cases of inadequate disclosure in accounts in the form of deliberate contravention
of accounting standards and the consequent absence of ethical values in accounting have
been examined. At the end it has been concluded that incomplete disclosure in reporting
fails to ensure the credibility and reliability of data.
Singh (2007) in his article focused on the financial reporting norms for banks. He
classified the reporting norms into two categories statutory reporting and non-statutory
reporting. He concluded that most of the banks are disclosing only the statutory items in
their annual reports. He further identified the gap in the compliance of accounting
standard of segment reporting, EPS, Related Party Disclosure, Assets on lease and
51

differed tax liability, etc. He suggested that ICAI should bring an accounting standard
suitable to Indian conditions with the help of RBI.
Singh (2007) examined empirically the non-mandatory disclosure practices of banking

companies in India, both item-wise and bank-wise for the year 2004-05. An index of
disclosure of 21 reporting items was constructed and the annual reports of 40 banking
companies of the public and private sectors were analyzed to check the level of disclosure
of non-mandatory reporting items. The results of the study showed that the level of
reporting of non-mandatory items was very low and wide variation in disclosure score
existed among various banking companies of public and private sector. However, the
banking companies of both the sectors show a great deal of similarity in respect of
reporting non-mandatory information among them.
Schipper (2007) considered required disclosures from both a standard setting

perspective and a research perspective. Required disclosures mean display in the notes
and supporting schedules that accompany financial statements. The author considered the
purpose of required disclosures and concluded that the purpose is to present items that are
relevant but cannot be measured with the requisite amount of reliability, analysis of
standards revealed that this distinction does not explain existing disclosure requirements.
Further author also concluded that disclosed items are less reliable than recognized items
due to differences in the preparation and auditing of disclosed versus recognized amounts,
as opposed to intrinsic differences. However it was not clear from existing research, why
preparers and auditors might treat recognized items with more care than disclosed items.
However, research suggested that users do in fact process disclosed items differently
from, and probably less thoroughly than, recognized items. It was unclear what causes
this difference, and how much the difference might matter for capital market outcomes. In
particular, processing differences that arise because of lack of financial statement user
attention and expertise are amenable to interventions in the form of better education and
training. On the other hand, processing differences that arise because of cognitive factors
that are impervious to education and incentives might require standard setter
consideration in setting disclosure requirements.
52

Francis,et.al.; (2008) investigated the relations among voluntary disclosure, earnings
quality, and cost of capital. For this they used a self constructed score of voluntary
disclosures of financial information included in firms annual filings. They found that
firms with good earnings quality have more expansive voluntary disclosure than firms
with poor earnings quality. In unconditional tests, it was found that more voluntary
disclosure is associated with a lower cost of capital. However, consistent with the
complementary association between disclosure and earnings quality, they discovered that
the disclosure effect on cost of capital is substantially reduced or disappears completely
once earnings quality is conditioned. Extensions probing alternative proxies show that the
findings were robust to measures of earnings quality and cost of capital, but not to other
measures of voluntary disclosure.
Achalapathi and Devarajan (2008) aimed to study corporate governance practices in
information technology sector. A disclosure index model has been developed to measure
the levels of disclosures. The sample of the study was a list of 20 companies contained in
CNX IT Index. The analysis for governance practices have been studied for the year 2005
and 2006. A disclosure scoresheet was operationally prepared as a checklist for corporate
governance disclosure based on selected information, which may be disclosed in the
company annual report for measuring the extent of disclosure. The disclosure model
measures the total disclosure score of a company each for mandatory and voluntary
parameter. The results show that there is cent per cent compliance with regard to almost
all the mandatory aspects of clause 49. It has been concluded that Disclosure Index model
facilitates well in measuring the level of disclosure in the corporate governance reports.
Bergman and Roychowdhury (2008) examined the relation between investor setiment
and firm disclosure policy. They present evidence that managers strategically vary their
voluntary disclosure policies in response to prevailing sentiment. During low-sentiment
periods, managers increase forecasts to walk up current estimates of future earnings over
long horizons. In contrast, during periods of high sentiment, managers reduce their longhorizon forecasting activity. Further, while there is an association between sentiment and
the biases in analysts estimates of future earnings management disclosures vary with
sentiment even after controlling for analyst pessimism, indicating that managers attempt
to communicate with investors at large, and not just analysts. Study provides evidence
53

that firms long-horizon disclosure choices reflect mangers desire to maintain optimistic
earnings valuations.
Bogdan,et.al., (2009) aimed to investigate the voluntary disclosure practices among

Romanian listed companies, to measure the voluntary disclosure and to analyze the
influence of ownership structure on the extent of voluntary disclosure of these companies.
The population studied constituted of the first and second tiers listed on the Bucharest
Stock Exchange and the sample is made up by the top fifteen listed companies selected
after market capitalization. The results of exploratory investigation showed a low level of
voluntary disclosed information by the selected companies. In order to test the association
between ownership structure and the extent of voluntary disclosure hypotheses were
drawn. The figures have conducted to the conclusion that companies with a majority of
institutional shareholders are disclosing more voluntary information.
Hossain and Hanmami (2009) sets out to examine empirically the determinants of
voluntary disclosure in the annual reports of 25 listed firms of Doha Securities Market
(DSM) in Qatar forming approximately 86 per cent of the total firms incorporated in
DSM. It also reports the results of the association between company-specific
characteristics and voluntary disclosure of the sample companies. A disclosure checklist
consisting of 44 voluntary item of information is developed and statistical analysis is
performed using multiple regression analysis. The findings indicate that age, size,
complexity and assets-in-place are significant and other variable profitability is
insignificant in explaining the level of voluntary disclosure.
Dhaliwal and Yang (2009) examined a potential benefit associated with the voluntary
reporting of corporate social responsibility performance, a reduction in firms cost of
equity capital. They found that firms with high cost of equity capital tend to release
corporate social responsibility reports and that reporting firms with relatively superior
social responsibility performance enjoy a reduction in the cost of equity capital. Further,
reporting firms with superior social responsibility performance attract dedicated
institutional investors and analyst coverage. Superior social responsibility performance
also serves to reduce forecast errors and dispersion. Finally, firms appear to exploit the
benefit of a reduction in the cost of equity capital associated with social responsibility
54

reporting: by raising a significantly larger amount of equity capital than non-reporting
firms.
Gao (2009) in his study showed that the argument that disclosure quality improves
investor welfare by reducing cost of capital is valid only in limited circumstances. Based
on a production economy with perfect competition among investors, the analysis
demonstrated three points. First, cost of capital could increase with disclosure quality
when new investment is sufficient elastic. Second, there are plausible conditions under
which disclosure quality reduces the welfare of current and/or new investors. Finally, cost
of capital could move in opposition to the welfare of either current or new investors as
disclosure quality changes.
Wen (2009) examined the determinants and economic efficiency of corporate voluntary
disclosure. The focus was on the trade-off for an individual firm when the benefits and
costs of voluntary disclosure stem from the consequences of its investment decision and
the impact on its share price. Investment and voluntary disclosure decisions are
intertwined. First, voluntary disclosure leads to a more accurate pricing which, in turn,
may improve investment efficiency. Second, the firm may affect the market pricing in its
favor by strategically voluntary disclosure. This opportunistic use of disclosure may cause
the real investment to be distorted at the margin. The analysis showed that efficiency of
voluntary disclosure is influenced by both effects. In addition, the presence of a separate
mandatory accounting report improves the market pricing and may discipline the
voluntary disclosure by limiting the opportunistic behaviour and enhance efficiency.
Adelopo (2010) examined voluntary disclosure practices among listed companies in

Nigeria. Results from Univariate and Multivariate analyses of 52 listed companies,
representing 41 per cent of the population studied, suggested an average voluntary
disclosure of 44 per cent based on modified Meek et al. (1995) disclosure index
comprising 24 disclosure items. The study found significant positive relationship between
voluntary disclosure and firm size, measured as the natural logarithm of total asset.
Significant positive relationship was also found between market based definition of firm
performance and voluntary disclosure. Percentage of block share ownership and
percentage of managerial share ownership were found to be negatively related to firm
55

disclosures. The study has important implications for both individual and institutional
investors globally, regulator and policy makers in developing economies.
Athanasakou and Hussainey (2010) investigated investors reliance on forward-looking

performance disclosures that managers provide in the narrative sections of the annual
report. The proxy for these disclosures was an index of statements conveying information
about future performance. They focused on management credibility as a determinant of
disclosure credibility and used earnings quality as a gauge. They argued that forwardlooking disclosures complement the quality of the financial reporting outcome and that
investors use earnings quality to infer the credibility of these disclosures. They found that
forward-looking performance disclosures increase with a firms earnings quality. The
abnormal returns associated with these disclosures also increase with a firms earnings
quality. Further analysis showed that earnings quality serves as a credibility signal only
when primarily driven by managerial incentives rather than by intrinsic factors from the
firms economic environment.
The foregoing review of the existing literature on the subject reveals that while numerous
researchers in India and abroad have made commendable efforts in evaluating the
reporting practices in Annual Reports of companies from various perspectives and view
points; yet no study has been undertaken specifically for banks. Accordingly, the present
study is an attempt to study the disclosure practices of commercial Banks in India. As we
scan through the existing literature on the subject we realize that, despite none of the
studies exactly fit in the framework of this study; yet they do pursue a similar area of
interest, i.e., corporate disclosures and consequently have a significant bearing on the
scope and objectives of the present study.
56
CHAPTER 3
RESEARCH METHODOLOGY
The study has been an attempt to examine and identify major strengths and weaknesses in
disclosure practices of commercial banks in India. This chapter discusses in detail the
research methodology designed to achieve these objectives.
3.1 SAMPLE SELECTION

Sampling frame is a list of all the individual sampling units (elements) in the population.
Sampling frame in this study has been all the scheduled commercial banks of India. A
sampling unit is that element or set of elements considered for selection in some stage of
sampling. Sampling Unit in the study has been any scheduled commercial bank registered
in India and among top banks on the basis of market capitalization.
There were 26 public sector banks operating in india. All these banks were grouped into
five categories based on their total assets . 20 percent from each group were selected.
Table 3.1: Selected Public sector banks with their Total Assets
Assets (in crores)
Rs.
No. of Banks
Total
Name of selected Bank
Selected
up to 210
Dena Bank (Rs. 207 crores*)
211-290
Allahabad Bank (Rs. 284 crores*)
291-450
Corporation Bank (Rs. 331 crores*)
450-800
Oriental Bank of Commerce (Rs. 511 crores*)
800 above
Bank of India (Rs. 1161 crores*)
* Figures in brackets show Total assets of the selected banks.

Likewise, there are 21 private sector banks (14 old Banks and 7 new) banks. However,
data of 9 old banks is not available. Twenty percent of banks were selected for detailed
57

analysis. Hence there were 3 old private sector banks and 2 new private sector banks
selected as shown in Table 3.2
Table 3.2: Selected Private sector banks with their Total Assets
Type
No. of Banks
Total
Data
Name of selected Bank
Selected
available
Old
14
New
1. Karur vysya Bank (137.82 cores)

2. South Indian Bank (205.22 crores)
3. Jammu and Kashmir Bank (393.77 crores)
4. Indusind Bank (371.11 crores)
5. HDFC Bank (2170.65)

* Figures in brackets show Total assets of the selected banks.
3.2 DATA COLLECTION

Based on the list, each banks website was searched through the Google search engine
(www.google.com) in order to obtain copies of its annual report for the financial year
2010-11. For each company, a PDF version of the annual report was downloaded, and in
case of companies who did not have contact details or send hard copies, their PDF annual
reports were printed out for the purpose of analysis. Out of all the commercial banks of
India, the final sample comprised of 10 commercial banks; 5 Public sector banks and 5
private sector banks. The present study is based on secondary data which was obtained
from the published Annual Reports of banks.
3.3 PERIOD OF STUDY

The time frame of the study is one financial year i.e. 2010-11. Annual reports of the
selected banks were collected/downloaded from their websites for further analysis.
3.4 DISCLOSURE INDEX

The index of disclosure was used in the study to evaluate the annual reports of
commercial banks.
Though disclosure indices have been prepared by a number of previous researchers like
Singhvi and Desai [1971], Baker and Haslem [1973], Buzby [1974-75], Chandra [1975,
58

2001], Barrett [1976], McNally et al [1982], Chow & Wong Boren [1987], Vasal
[1997], Kohli [1998] etc., but they all have been used to evaluate disclosures in the
Annual Reports of joint stock companies.
The index of disclosure which was used in the present study (Refer Appendix-1) is
different from the previous indices because of the fact that the disclosure requirements of
banking companies are different from non-banking companies. The index of disclosure
used in the present study was framed in the following manner:
After reviewing the items of information included under the indices prepared and used
in previous studies.
After a thorough review of a number of annual reports of banks.
After taking into consideration the relevant provisions of the Reserve Bank of India
Act, 1934 and Banking Regulation Act, 1949.
After giving due consideration to the opinion and advice of experts in the field on what
factors are to be considered and which information items are to be analyzed.
Following the above mentioned path, a total of 348 elements were identified. These
included 161 mandatory disclosure elements and 187 voluntary disclosure elements.
Detailed index of disclosure is available in Appendix-1. Further, these elements were
divided into twenty sub-groups. Number of elements under each category is provided in
the table below.
Table 3.3: Number of Elements under Categories

S.No.
Category
No. of Items
Mandatory Items
1
Balance Sheet Items
13
Profit and Loss Account items
Board's Report
Management Discussion and Analysis
Corporate Governance
46
RBI Guidelines
46
59

S.No.
7
Category
Basel II (Pillar 3)
No. of Items
35
Voluntary Items
8
General corporate information
Corporate Governance
11
10
Financial performance
37
11
Information relating to key personnel
12
Corporate Strategy
19
13
General Risk management
14
Key Non- financial statistics
13
15
Employee related information
16
Disclosure regarding committees
21
17
Corporate Social disclosure
20
18
Information relating to Borrowers/Shareholders
19
Information/Forms for shareholders
12
20
Others
26
Total
348
3.5 TOOLS OF ANALYSIS
A. Level of Disclosure Practices

Both a weighted disclosure index and an unweighted disclosure index are usually
used to determine disclosure level. Researchers such as Wallace et al. (1994),
Cooke (1991 and 1992), Karim (1995), Hossain et al (1994), Ahmed and
Nicholls (1994), and Hossain (2000 and 2001), adopted a dichotomous procedure
in which an item scores one if disclosed and zero if not disclosed and this
approach is conventionally termed the unweighted approach. The weighted
disclosure approach (used by for example by Barrett, 1977, and Marston, 1986),
involves the application of weights above zero but less than one to items of
information which are disclosed (zero is the weight for non-disclosure).
60
Previous experiences also show that the use of unweighted and weighted scores
for the items disclosed in the annual reports and accounts can make little or no
difference to the findings (Coombs and Tayib, 1998). Thus, unweighted disclosure
index methodology has been adopted. In this case, the key fact is whether or not a
bank discloses an item of information in the annual report. If a bank discloses an
item of information in its annual report, then 1 is awarded and if the item is not
disclosed, then 0 is awarded. Thus, the unweighted disclosure method measures
the total disclosure (TD) score of a banking company as additive (suggested by
Cooke, 1992) as follows:
Where,
d = 1 if the item is disclosed
= 0 if the item is not disclosed
n = number of items
The fundamental theme of the unweighted disclosure index is that all items of
information in the index are considered equally important to the average user. The
following statistical measures of central value and variation have been applied to
study the disclosure levels in this study:
Arithmetic mean of Disclosure scores

The arithmetic mean is a single value and a measure of central tendency
within the range of data that is used to represent all of the values in the series.
It has been calculated by applying the formula
Arithmetic Mean
i.e
Sum of all values

Number of values
X
N
Coefficient of Range
Coefficient of range is a relative measure of dispersion corresponding to
ranges and has been obtained by applying the formula
61
Coefficient of range
Maximum disclosure score Minimum disclosure score

Maximum disclosure score Minimum disclosure score
Standard Deviation
The standard deviation measures in absolute terms variability in the
disclosure score from the mean and has been obtained by applying the
formula
Standard deviation,
X X
Coefficient of Variation
Coefficient of Variation is a relative measure of dispersion corresponding to
standard deviation and is considered better than standard deviation in
problems where variability of one series of data is required to be compared
against variability in another data series. It has been calculated by applying
the formula
Coefficient
of
variation
i.e. C.V.
Mean
Standard Deviation
A comparison of the results of these statistical techniques over the study period
will help in analyzing if there has been any improvement or deterioration in the
mean levels as well as any increase or decrease in the variation among the
disclosure practices of public sector and private sector banks in their annual
reports.
LIMITATIONS OF THE STUDY
1.
The study has covered both mandatory and voluntary disclosures of Indian banks.
Though, mandatory disclosures are supposed to be disclosed by all the banks, yet some of
the mandatory disclosures are made only if applicable. This primarily has been the reason
62

of difference in mandatory disclosure scores of banks. Any variation in total disclosure
score due to this reason has not been ruled out.
2.
Finally, this study focused on one avenue of banking disclosure, namely, annual
reports, nd the extent to which banks voluntarily release information through other means
(such as the prospectuses, pamphlets, media and the internet) represent a limitation of this
study. This raises further uncertainty about the extent to which the results can be
generalized in the Indian context.
PLAN OF THE STUDY
The entire study has been divided into six chapters. Chapter 1 includes the introduction
and overview of the concept of corporate disclosures, History of Banking sector in India,
present scenario of Indian banking, importance of disclosures in banking sector,
regulatory framework of disclosure practices of Banks in India, need and scope of the
study, objectives and corresponding hypothesis . Chapter 2 deals with the review of
literature. Chapter 3 covers the research methodology. Chapter 4 provides the analysis of
disclosure performance of selected banks along with the comparative analysis of Public
Sector Banks vs Private Sector Banks and multiple discriminant analysis. Chapter 5
provides element wise analysis of disclosure practices of banks, thus highlighting the
elements which have been disclosed and which have not been disclosed by the banks.
Chapter 6 sums up the entire research study and provides concluding observations.
63
CHAPTER 4
BANK-WISE DISCLOSURES PRACTICES
Enhanced accounting disclosure leads to better transparency and stronger market
discipline in the banking sector. The third pillar of Basel II, Basel Core Principles No.21,
and the Policy Brief released by the OECD Corporate Governance of Banks Task
Force, have explicitly asked for better disclosures by banks to allow the market to have a
better picture of the overall risk position of the banks and to allow the counterparties of
the banks to price and deal appropriately. More disclosures should reduce information
asymmetry between those with privileged information and outside small investors, and
facilitate more efficient monitoring, because sufficient information is necessary for
market participants to exert effective disciplinary roles. Enhanced accounting disclosures
should be required for not only publicly-traded banks, but also for privately-held and
state-owned banks, because of the systematic importance of banks in national economy,
their deposit-taking from the general public, and the safety net extended to them financed
by taxpayers. Keeping in mind the importance of banking disclosures, this chapter of the
dissertation has been designed to assess the disclosure levels in case of sample banks
individually and as a group viz. public sector banks and private sector banks. It covers the
data analysis and interprets the results related to bank-wise overall disclosures for
financial year 2010-11. In this chapter, disclosure performance of selected banks has been
analyzed. Besides, a multiple discriminant analysis of disclosure performance of public
and private sector banks has also been carried.
Mandatory Banking Disclosures

DISCLOSURE SCORE ON BALANCE SHEET ITEMS
Table 4.1 depicts the disclosure score of the selected public and private sector banks for
this along with their ranks relating to Balance sheet items for the year 2010-11. Banking
Regulation Act, 1949 requires all the banks to prepare their Balance sheet in a given
64

format and to categorize all the items under specific 13 headings making total disclosure
score 13. Table 4.1 clearly shows that all the banks were making cent per cent disclosure
and that is why the score and rank of all them is 13 and one respectively, being
mandatory.
TABLE 4.1: DISCLOSURE SCORE OF SELECETED BANKS ACCORDING TO

BALANCE SHEET ITEMS
(Total items: 13)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
13
BANK OF INDIA
13
CORPORATION BANK
13
DENA BANK
13
ORIENTAL BANK OF
5
COMMERCE
13
HDFC BANK
13
INDUSIND BANK
13
J & K BANK
13
KARUR VYASYA BANK
13
10
SOUTH INDIAN BANK
13
DISCLOSURE SCORE ON PROFIT & LOSS ACCOUNT ITEMS
Table 4.2 shows the disclosure score of the selected banks relating to Profit and Loss
items and their ranks based on these scores for the selected period of study. Banking
Regulation Act, 1949 requires all the banks to prepare their Profit and Loss Account in a
given format and to categorize all the items under specific 6 headings making total
disclosure score of 6. Further this reveals that all the banks were making cent per cent
disclosure and that is why the score and rank of all them is 6 and one respectively
65

PROFIT & LOSS ACCOUNT ITEMS
(Total items: 6)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON DIRECTORS REPORT
Table 4.3 provides information relating to disclosure scores and ranks of the selected
banks relating to the Directors report for the year 2010-11. This is a mandatory
requirement as per section 217 of the Companies Act, 1956. A total disclosure as per this
report is 6. It is clear from the table that except three banks named Allahabad Bank,
Corporation Bank and J&K Bank, who managed to have eighth position by securing
disclosure score of 5 each, all the other banks were making full disclosure of 6 items and
thereby achieved rank one because they were not supplying information w.r.t. one item
naming Material changes and commitments affecting the financial position of the
company.
66

DIRECTORS REPORT
(Total items: 6)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON MANAGEMENT DISCUSSION AND ANALYSIS

REPORT
Table 4.4 reflects the information relating to Management Discussion and Analysis
Report. One column in the table is allocated to disclosure scores and other column is
awarded for ranks of the banks. Three banks named Dena Bank, HDFC Bank and Karur
Vysya Bank shared the top ranking with 9 score. This is followed by the four banks
named Bank of India, Oriental Bank of Commerce, J&K Bank and South Indian Bank
with a disclosure score of 8. Furthermore, three banks named Allahabad Bank,
Corporation Bank and Indusind Bank are at the bottom of the ladder with a disclosure
score of 7 each as per Management Discussion and Analysis Report.
67

MANAGEMENT DISCUSSION AND ANALYSIS REPORT
(Total items: 9)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON CORPORATE GOVERNANCE
Table 4.5 shows the list of selected banks and their respective disclosure scores and ranks
relating to information on Corporate Governance. It is clear from the table that during the
year 2010-11, Allahabad Bank grabbed the first position with the disclosure score of the
44 out of total score of 46. Next in the row is Dena Bank (second rank) with disclosure
score of 42. Followed by this are two banks, namely, Corporation Bank and Indusind
Bank with rank three, disclosure score being 41. Oriental Bank of commerce with the
disclosure score of 40 is at rank five. Further rank six has been shared by J&k Bank,
Karur Vyasya Bank and South Indian Bank with score of 38 each. HDFC Bank has a
disclosure score of 37 and so has been ranked ninth. Finally with disclosure score of 34,
Bank of India stood at tenth position.
68
CORPORATE GOVERNANCE
(Total items: 46)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
44
BANK OF INDIA
34
10
CORPORATION BANK
41
DENA BANK
42
ORIENTAL BANK OF
40
COMMERCE
6
HDFC BANK
37
INDUSIND BANK
41
J & K BANK
38
KARUR VYASYA BANK
38
10
SOUTH INDIAN BANK
38
DISCLOSURE SCORE ON RBI GUIDELINES
Table 4.6 reveals the disclosure score and rank of the selected public and private sector
banks relating to RBI GUIDELINES. RBI requires banks to make mandatory disclosure
of 46 items in the Notes to Accounts. This table clearly shows that Dena Bank and
Karur Vysya Bank with the disclosure score of 44 each have been awarded rank one in
the year. At the third rank is J&K Bank with the disclosure score of 43. All the other
banks namely Allahabad Bank, Bank of India, Corporation Bank, Oriental Bank of
commerce, HDFC Bank, Indusind Bank and South Indian Bank are at fourth position
with the disclosure score of 42 each. Although, information was available in the annual
reports of these companies but not in a proper format.
69
RBI GUIDELINES
(Total items: 46)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
42
BANK OF INDIA
42
CORPORATION BANK
42
DENA BANK
44
ORIENTAL BANK OF
42
COMMERCE
6
HDFC BANK
42
INDUSIND BANK
42
J & K BANK
43
KARUR VYASYA BANK
44
10
SOUTH INDIAN BANK
42
DISCLOSURE SCORE ON BASEL II (PILLAR 3)
Table 4.7 shows the disclosure performance with ranks of the selected banks in relation to
BASEL II (PILLAR 3) requirements. Disclosure under Pillar 3 of Basel II is mandatory
as per RBI guidelines, which requires maximum of 35 items to be disclosed by banks. All
the banks were making cent per cent disclosure of all the items under this category in the
selected year and that is why all are ranked one.
70
BASEL II (PILLAR3)
(Total items: 35)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
35
BANK OF INDIA
35
CORPORATION BANK
35
DENA BANK
35
ORIENTAL BANK OF
35
COMMERCE
HDFC BANK
35
INDUSIND BANK
35
J & K BANK
35
KARUR VYSYA BANK
35
10
SOUTH INDIAN BANK
35
Voluntary Banking Disclosures

DISCLOSURE SCORE ON GENERAL CORPORATE INFORMATION
Table 4.8 shows the disclosure score with ranks of the banks selected for study relating to
General corporate information. It is clear from the table that in the year 2010-11, five
banks, namely, Allahabad Bank, Bank of India, Corporation Bank, Dena Bank and South
Indian Bank had disclosed maximum information. All these banks have been ranked one
with the disclosure score of 4 out of total score of 6. Followed by this are Oriental Bank
of commerce, HDFC Bank and Indusind Bank with the disclosure score of 3 and rank six.
71

At ninth rank are two banks namely J&K Bank and Karur Vysya Bank. They managed a
disclosure score of 2 only.

GENERAL CORPORATE INFORMATION
(Total items: 6)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
5
COMMERCE
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
Table 4.9 presents the information relating to Corporate Governance. One column in the
table is allocated to disclosure scores and other column is awarded for ranks of the banks.
The table clearly shows that the in the year selected for study, Dena Bank has highest
disclosure score of 8 out of total score of 11. Hence this bank has placed at first rank.
Corporation Bank and Oriental Bank of Commerce with the disclosure score of 6 each
have been awarded rank two. Next in the row are two banks, namely, Indusind Bank and
J&K Bank who disclosed 5 items each and grabbed fourth position. Rank six has been
secured by two banks, namely, Karur Vysya Bank and South Indian Bank with disclosure
72

score of 4 each. Eighth rank is achieved not only by Bank of India but also by HDFC
Bank making same disclosure score of 3. Last in the list is Allahabad Bank with
disclosure score on 2 only.
(Total items: 11)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
10
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON FINANCIAL PERFORMANCE
Table 4.10 depicts the information on disclosure score relating to financial performance
of the selected banks and their ranking based on that. In the year 2010-11, Bank of India
is ranked one on the basis of quantum of disclosure. This bank managed to get a
disclosure score of 22 out of total score of 36. This is followed by two banks, Allahabad
Bank and Dena Bank who secured rank two with disclosure score of 19 each. Corporation
Bank, with a disclosure score of 15 is at rank four. Rank five is secured by HDFC Bank
with a disclosure score of 13. Indusind Bank and Karur Vysya Bank shares rank six with
73

a disclosure score of 8 each. Rank eight goes to J & K Bank with a disclosure score of 7.
South Indian Bank has managed ninth rank with a disclosure score of 6. Finally, tenth
rank goes to Oriental Bank of Commerce which disclosed only 4 items out of total of 22
items.
FINANCIAL PERFORMANCE
(Total items: 37)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
19
BANK OF INDIA
22
CORPORATION BANK
15
DENA BANK
19
ORIENTAL BANK OF
10
COMMERCE
6
HDFC BANK
13
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON INFORMATION RELATING TO KEY PERSONNEL

INFORMATION
Table 4.11 shows the disclosure performance of selected public and private sector banks
in relation to Key personnel information and their ranking based on that for the year
2010-11. Indusind Bank and South Indian Bank share the top rank with disclosure score
of 4 each out of total score of 5. Rank third is again shared by three banks i.e. Corporation
Bank, Dena Bank and HDFC Bank who managed a disclosure score of 3 each. Bank of
74

India and Karur Vysya Bank with a disclosure score of 2 got rank sixth. Finally,
Allahabad Bank, Oriental Bank of Commerce and J & K Bank has been placed at the
bottom position with a disclosure score of one each.
INFORMATION RELATING TO KEY PERSONNEL

(Total items: 5)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
5
COMMERCE
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON CORPORATE STRATEGY
Table 4.12 provides the disclosure performance of the selected banks relating to corporate
strategy and their score based on that information for the selected year of study i.e. 201011. Rank one is obtained by Oriental Bank of Commerce who secured a disclosure score
of 13 out of total score of 19. Next in the queue is Bank of India at rank two, who got a
score of 11. Allahabad Bank and Corporation Bank with a disclosure score of 10 each are
at rank three. Fifth rank has gone to South Indian Bank who was making nine disclosures.
75

Dena Bank managed the sixth rank by obtaining disclosure score of 8. HDFC Bank
bagged seventh rank by attaining score of 6. Karur Vysya Bank as well as Indusind Bank
achieved eight ranks in the list managing score of 5 each. At tenth rank is J & K Bank. It
only managed to score 4 out of 19.
CORPORATE STRATEGY
(Total items: 19)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
10
BANK OF INDIA
11
CORPORATION BANK
10
DENA BANK
ORIENTAL BANK OF
13
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
10
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON GENERAL RISK MANAGEMENT
Table 4.13 presents the list of disclosure performance of selected banks relating to
General Risk Management strategy and their rank based on that in relation to selected
year of study. This table clearly depicts that disclosure score of all public and private
76

sector banks was 5 i.e. all the banks were supplying full information on disclosures
related to General Risk management.
GENERAL RISK MANAGEMENT

(Total items: 5)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON KEY NON FINANCIAL STATISTICS
Table 4.14 provides with the information relating to Key non financial statistics. First in
the list are Bank of India and Dena Bank. They managed a disclosure score of 8 each out
of the total score of 13 in the year 2010-11. This is followed by both the Corporation
Bank and South Indian Bank who hold third rank by securing a disclosure score of 7
each. Furthermore fifth rank is secured again by two banks i.e. Oriental Bank of
77

Commerce and HDFC Bank with a disclosure score of 6 each. Once more the same rank
is being shared by two banks, as seventh rank is bagged by both J & K Bank and Karur
Vysya Bank, each one of them managed a score of 5. Yet again, in the list are two banks,
Allahabad Bank and Indusind Bank with rank nine and disclosure score of 4 each.
KEY NON FINANCIAL STATISTICS

(Total items: 13)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON EMLOYEE RELATED INFORMATION
Table 4.15 provides disclosure performance with ranks of the selected banks in respect of
Employee related information during the year of study. First rank is attained and shared
by two banks, namely, HDFC Bank and Dena Bank. Both these banks managed a score of
Dena Bank and HDFC Bank. Likewise five banks i.e. Allahabad Bank, Corporation
Bank, Indusind Bank, Karur Vysya Bank and South India Bank are awarded rank three as
their disclosure score is 1 each. Bank of India, Oriental Bank of commerce and J & K
78

Bank did not make any disclosure under this category because of this, these are placed at
the end. It implies that these banks are not taking or lacking in the welfare of their
employees a very unhealthy sign from HRM angle. To improve the efficiency of the
banks, bank management must introduce various incentives/awards for boosting Labour
productivity of the banks.
EMPLOYEE RELATED INFORMATION
(Total items: 4)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
10
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
10
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
10
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON DISCLOSURE REGARDING COMMITTEES
Table 4.16 deals with disclosure score of information relating to committees along with
ranks of the respective banks during the year 2010-11. Indusind Bank bagged first rank
with a disclosure score of 11 out of total score of 21 in this series. Next in the list are
Dena Bank and Allahabad Bank who competed with each other for the same rank. Both
secured second rank with disclosure score of 10 each. However fourth rank faced a severe
competition as three banks i.e. Corporation Bank , Oriental Bank of commerce and J & K
79

Bank grabbed this rank with the score of 9 each. South Indian Bank is placed at seventh
rank in this list with the score of 8. In addition to that HDFC Bank is at ninth rank and
Bank of India is at tenth rank having disclosure score of 5 and 1 respectively.
DISCLOSURE REGARDING COMMITTEES

(Total items: 21)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
10
BANK OF INDIA
10
CORPORATION BANK
DENA BANK
10
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
11
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON CORPORATE SOCIAL DISCLOSURE
Table 4.17 provides disclosure performance with ranks of the selected banks in relation to
corporate social disclosures. Top rank is being scored by Allahabad Bank by disclosing
11 out of the total 20 items. Bank of India and Dena Bank grabbed second position in the
table as both disclosed 10 items each. Moreover Oriental Bank of commerce and HDFC
Bank secured fourth position as both of them provided the information on 7 items. Karur
Vyasya Bank managed sixth rank and South Indian Bank got seventh rank as they
80

received a score 6 and 5 respectively. The Corporation Bank and J&K Bank competed for
eighth rank as both of them disclosed 4 items. Last rank is scored by Indusind Bank, who
disclosed merely 3 items. The discussion reveals that, most of the banks drawing their
fields from CSR function which is not a healthy sign for banking development.
CORPORATE SOCIAL DISCLOSURE

(Total items: 20)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
11
BANK OF INDIA
10
CORPORATION BANK
DENA BANK
10
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
10
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON INFORMATION REGARDING

BORROWERS/DEPOSITORS
Table 4.18 reflects the disclosure score and ranks of the banks relating to attain any
information regarding Borrowers/ Depositors in the year 2010-11. Dena bank has not
been attained any rank as it did not disclose any information under this head. With the
81

exception of J&K Bank, which has disclosed 7 items and attained rank nine, all the other
banks have made full disclosure of all the 8 items and there by grabbed the top position.

INFORMATION REGARDING BORROWERS/DEPOSITORS
(Total items: 8)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
10
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON INFORMATION/FORMS FOR SHAREHOLDRES
Table 4.19 deals with disclosure performance along with the ranks of the selected banks
in relation to Information/Forms for shareholders for the selected year of study. Total
disclosure score under this Table is 12 and J&K Bank has been ranked one as it provided
maximum information/forms for shareholders. It attained disclosure score of 8. This is
followed by five banks named Allahabad Bank, Bank of India, Oriental Bank of
commerce, Indusind Bank and South Indian Bank; all these having a disclosure score of 7
82

and sharing rank two. Next rank being seventh rank is bagged by HDFC Bank as it
disclosed 6 items under this heading. Corporation Bank has a disclosure score of 4 and so
has been ranked nine. Finally Karur Vyasya Bank has been ranked tenth. This bank had
made least disclosure of only two items under this head.

INFORMATION/FORMS FOR SHAREHOLDERS
(Total items: 12)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
BANK OF INDIA
CORPORATION BANK
DENA BANK
ORIENTAL BANK OF
COMMERCE
6
HDFC BANK
INDUSIND BANK
J & K BANK
KARUR VYASYA BANK
10
10
SOUTH INDIAN BANK
DISCLOSURE SCORE ON MISCELLANEOUS INFORMATION
Table 4.20 provides disclosure performance with ranks of the selected banks in relation to
Miscellaneous information. Any information which cannot be put in the above mentioned
categories has been put in this category of miscellaneous information. Twenty six such
elements have been identified. These include Information on Chairmans/MDs report,
ISO 9001: 2000 certification, Graphical presentation of performance indicators,
Performance at a glance-3 year, Review of other products and services, Publications,
83

Bilingual Report, Benchmark prime lending rate (BPLR), Macro Economic scenario,
Disclosure regarding Movement of interest rates, Domestic economic scenario, Progress
under different plans, Restructuring of debt, Asset quality and NPA management,
Recovery under SARFAESI Act 2002, Visit of parliamentary committee, Government
business, IT initiatives, Strategic investment, Credit rating, Accounts under US GAAP,
Information on Industrial relations, Promoting financial awareness, Conscious corporate
citizen, Bullion Banking/precious metal business, Loan review mechanism and Bullion
Banking/precious metal business
The table clearly shows that Dena Bank with disclosure score of 17 has secured
rank one. At the second rank is Bank of India with a disclosure score of 16. Third rank
has been awarded to Corporation Bank which managed a disclosure score of 14. Next in
the row J&K Bank with fourth rank and disclosure score of 12. South India Bank with a
disclosure score of 11 is at rank five. Rank six has been shared by two banks named
Allahabad Bank and Karur Vysya Bank. Both these banks attained a score of 10 each.
With a disclosure score of 9, Indusind Bank stood at eighth position. HDFC Bank
grabbed position of nine giving disclosure of seven items. Last rank is allotted to Oriental
Bank of commerce as it did not disclose any items under this head.

MISCELLANEOUS INFORMATION
(Total items: 26)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
10
BANK OF INDIA
16
CORPORATION BANK
14
DENA BANK
17
ORIENTAL BANK OF
5
COMMERCE
10
HDFC BANK
INDUSIND BANK
J & K BANK
12
84

SR.
NO.
DISCLOSURE
BANKS
SCORE
RANK
KARUR VYSYA BANK
10
10
SOUTH INDIAN BANK
11
DISCLOSURE SCORE ON MANDATORY ITEMS
Table 4.21 provide with the information on all the mandatory requirements disclosed by
the banks. One column in the table is allocated to disclosure scores and other column is
awarded for ranks of the banks. Maximum mandatory disclosures under this head are 161
items. The top most position is achieved by Dena bank which has disclosed the
maximum information of 155 items. Whereas Bank of India has been given the lowest
rank i.e. tenth rank, which provided the least information of merely 144 items. Second
rank being grabbed by Allahabad Bank who disclosed 152 items. Karur Vysya Bank is
right behind Allahabad Bank at third rank with 151 disclosures.

MANDATORY DISCLOSURES
(Total items: 161)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALL AHABAD BANK
152
BANK OF INDIA
144
10
CORPORATION BANK
149
DENA BANK
155
ORIENTAL BANK OF
150
COMMERCE
6
HDFC BANK
148
INDUSIND BANK
150
85

8
J & K BANK
148
KARUR VYASYA BANK
151
10
SOUTH INDIAN BANK
148
scores. Chasing Karur Vysya Bank is ORIENTAL BANK OF COMMERCE and

INDUSIND BANK, both at fourth ranks with same 150 disclosure scores. Furthermore
Corporation Bank with 149 disclosure scores attained sixth rank. Next to it are three
banks, namely, HDFC Bank, J&K Bank and South Indian Bank, all are at seventh rank
having disclosure score of 148. From the above disclosure it was clear that private sector
banks are lacking behind the public sector banks in respect of mandatory disclosures. The
imperative of the hour is to adopt strict regulatory measures for healthy Banking
development.
DISCLOSURE SCORE ON VOLUNTARY ITEMS
Table 4.22 depicts the information related to the information disclosed by banks on their
own. It means that Banks have disclosed this information voluntarily. There are
maximum of 187

VOLUNTARY DISCLOSURES
(Total items: 187)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
92
BANK OF INDIA
97
CORPORATION BANK
90
DENA BANK
99
ORIENTAL BANK OF
82
COMMERCE
86

6
HDFC BANK
74
INDUSIND BANK
73
J & K BANK
69
KARUR VYASYA BANK
64
10
10
SOUTH INDIAN BANK
79
disclosures being provided by various banks. Dena Bank has grabbed first rank by
disclosing maximum number of 99 items out of 187 total disclosures. Bank of India has
achieved second rank and has missed the first rank by only two items as it disclosed 97
items. However Allahabad Bank has achieved third and fourth rank is attained by
Corporation Bank with having the disclosure score of 92 and 90 respectively. Oriental
Bank of commerce managed to have fifth rank by disclosing 82 items. Moreover South
Indian Bank holds sixth rank in this table by getting disclosure score of 79.HDFC Bank
got seventh rank, Indusind Bank managed eighth rank and J&K Bank survived to get
ninth rank with the disclosure scores of 74, 73 and 69 respectively. Whereas, Karur
Vysya Bank has disclosed least information of only 64 items and have been awarded the
lowest rank.
DISCLOSURE SCORE ON TOTAL ITEMS
Table 4.23 is the sum total of all the mandatory and voluntary disclosures given by the
banks. The total of both mandatory and voluntary disclosures is 348. Dena Bank by
disclosing maximum number of 255 items has grabbed the top most position. Second
position is attained by Allahabad Bank as it lacked behind by 10 items as their disclosure
score is 245. In addition to Bank of India by disclosing 242 items achieved third rank and
Corporation Bank managed fourth rank as it disclosed 240 items. Fifth rank being
awarded to Oriental Bank of Commerce for its disclosure score of 233. South Indian
Bank has taken sixth rank and seventh rank is obtained by Indusind Bank as they have a
87

disclosure score of 228 and 224 respectively. Eighth rank is acquired by HDFC Bank by
scoring 223. J & K Bank and Karur Vysya Bank have reached ninth and tenth position
respectively. Both have gained 218 and 216 marks correspondingly.

TOTAL DISCLOSURES
(Total items: 348)
DISCLOSURE
SR.
NO.
BANKS
SCORE
RANK
ALLAHABAD BANK
245
BANK OF INDIA
242
CORPORATION BANK
240
DENA BANK
255
ORIENTAL BANK OF
233
COMMERCE
6
HDFC BANK
223
INDUSIND BANK
224
J & K BANK
218
KARUR VYASYA BANK
216
10
10
SOUTH INDIAN BANK
228
COMPARISON OF PUBLIC AND PRIVATE SECTOR BANKS
88

In this section an attempt is made to compare the disclosure system of public sector banks
with that of private sector banks. Estimated Mean values of disclosure score is reported in
Table 4.24
Average Disclosure score of public sector banks was estimated at 243 as compared to 222
of private sector banks. The difference between the two means is significantly different.
Mean disclosure score of different banks were also examined for different type of
disclosure. There were no difference in the average score under mandatory disclosure, the
average score being 149 and 150 respectively for private and public sector banks.
However, there were significant differences in the average disclosure score under
voluntary category. The average disclosure score was 92 for public sector banks as
compared to 72 for private sector banks. To confirm these, ANOVA was run and the
resulting (Table 4.25) estimates confirmed significant difference of Total disclosure score
as well as voluntary disclosure score.
Table 4.24 : Mean and Standard Deviation of Disclosure Score
Total
Voluntary
Mandatory
Public Sector Banks

Private Sector Banks
Total
Public Sector Banks
Total
Public Sector Banks
Total
N
5
5
10
5
5
10
5
5
10
Mean
243.00
221.80
232.40
92.00
71.80
81.90
150.00
149.00
149.50
Std. Deviation
8.031
4.817
12.799
6.671
5.630
12.133
4.062
1.414
2.915
Table 4.25 Resulting Estimates of ANOVA of Disclosure Score
Total
Between Groups
Within Groups
Total
Voluntary Between Groups
Within Groups
Total
Mandatory Between Groups
Within Groups
Sum of
Squares
df
1123.600
350.800
1474.400
1020.100
304.800
1324.900
2.500
74.000
1
8
9
1
8
9
1
8
89
Mean
Square
Sig.
1123.600
43.850
25.624
.001
1020.100
38.100
26.774
.001
2.500
9.250
.270
.617

Table 4.25 Resulting Estimates of ANOVA of Disclosure Score
Total
Between Groups
Within Groups
Total
Voluntary Between Groups
Within Groups
Total
Mandatory Between Groups
Within Groups
Total
Sum of
Squares
df
1123.600
350.800
1474.400
1020.100
304.800
1324.900
2.500
74.000
76.500
1
8
9
1
8
9
1
8
9
Mean
Square
Sig.
1123.600
43.850
25.624
.001
1020.100
38.100
26.774
.001
2.500
9.250
.270
.617
Further, to supplement these results, Discriminant analysis has been used to identify
which of the disclosure (s) financial attributes/ratios have the maximum discriminatory
power to explain the variation among public sector banks and private sector banks in
india. Also, the analysis has a purpose to examine the magnitude of variation caused by
Discriminant functions. Towards the end, the objective has been to examine and compare
the group membership on the basis of ownership and on the basis of prior probabilities
calculated by Discriminant analysis. In this analysis, ownership based grouping has been
the dependent variable. Independent variables have been the total, mandatory and
voluntary disclosure scores of public and private sector banks.
Mentioned below is the information related to Discriminant functions. As there were two
groups, number of functions have been two minus one i.e. one. Table below provides
information related to Eigen values of Discriminant functions. These are the Eigen values
of the matrix product of the inverse of the within-group sums-of-squares and crossproduct matrix and the between-groups sums-of-squares and cross-product matrix. These
Eigen values are related to the canonical correlations and describe how much
discriminating ability a function possesses. The magnitudes of the Eigen values are
indicative of the functions' discriminating abilities.
Canonical correlation has been recorded at 0.877. Thus, coefficient of determination

comes out to be 0.769. This indicates that Discriminant function has managed to explain
90

almost 77 percent of the variation. The total variation explained by this function shows
that this is significant function with high Eigen value of 3.347 and is causing cent per cent
variation.
Table 4.26: Eigen Values
Function
Eigenvalue % of Variance Cumulative % Canonical Correlation
1
3.347a
100.0
100.0
.877
a. First 1 canonical discriminant functions were used in the analysis.
Wilks lambda indicates the significance of the Discriminant function. Table indicates a
highly significant function (p = 0.001) and provides the proportion of total variability not
explained, i.e. it is the converse of the squared canonical correlation. Therefore, this
function has unexplained variation up to approximately 23 percent only. Value of chisquare is 11.021, which is significant at 5% level of significance.
Table 4.27: Wilks' Lambda
Test of Function(s)
1
Wilks' Lambda
.230
Chi-square
11.021
df
1
Sig.
.001
Standardized Canonical Discriminant Function Coefficients was also used to calculate the
Discriminant score for a given case. The score is calculated in the same manner as a
predicted value from a linear regression, using the standardized coefficients and the
standardized variables.
VOL(Voluntary disclosure ) is the variable created by
standardizing our discriminating variables. The distribution of the score this function is
standardized to have a mean of zero and standard deviation of one.
91

A further way of interpreting Discriminant analysis results is to describe each group in
terms of its profile, using the group means of the predictor variables. These are the
means of the Discriminant function scores by group for each function calculated. These
group means are called centroids. These are displayed in the Group Centroids table. In
case of this function , Public sector banks have a mean of 1.636 and private sector banks
have -1.636. Cases with scores near to a centroid are predicted as belonging to that
group. These values indicate that public sector banks have greater degree of disclosure
as compared with private sector banks.
Table 4.28: Functions at Group Centroids

Function
Category
1
Public Sector Banks
1.636
-1.636
Unstandardized canonical discriminant functions evaluated at group means
Finally, there is the classification phase. The classification table, also called a confusion
table, is simply a table in which the rows are the observed categories of the dependent and
the columns are the predicted categories. When prediction is perfect all cases will lie on
the diagonal. The percentage of cases on the diagonal is the percentage of correct
classifications. The cross validated set of data is a more honest presentation of the power
of the Discriminant function than that provided by the original classifications and often
produces a poorer outcome. The cross validation is often termed a jack-knife
classification, in that it successively classifies all cases but one to develop a Discriminant
function and then categorizes the case that was left out. This process is repeated with each
case left out in turn. This cross validation produces a more reliable function. The
argument behind it is that one should not use the case you are trying to predict as part of
the categorization process.
Table presents a summary of classification of both categories of banks in matrix form

based on their original classification and their classification based on prior probabilities of
Discriminant analysis. It is clear that all the cases have been correctly classified.
92
Table 4.29: Classification Resultsa

Predicted Group Membership
Public Sector Private Sector
Category
Banks
Banks
Original Count Public Sector Banks
5
0
0
5
%
Public Sector Banks
100.0
.0
0
100.0
a. 100.0% of original grouped cases correctly classified.
Total
5
5
100.0
100.0
Thus it can be said that voluntary disclosure score has played the role of perfect
discriminator between public sector and private sector banks. Also the voluntary
disclosure score of public sector banks has been significantly higher than that of private
sector banks.
CHAPTER 5
ITEM-WISE ANALYSIS OF BANKING DISCLOSURES
Accounting disclosure is raised to a particularly high level of importance for banking
organizations compared to non-financial firms, for banks are inherently more opaque.
Accounting reports are almost the sole source of information for bank investors and other
stakeholders. Banks own few physical and visible assets, and investors can acquire a
sense of a banks performance and asset quality only from accounting numbers. Earnings
93

numbers alone are not adequate for assessing the valuation of banks, the main business of
which is to take risks and to provide liquidity (and thus earnings can be inflated through
doing more of them). Thus profitability does not give investors the whole picture of the
banks financial situation, until risk profile of the bank is holistically disclosed. Finally,
aggregate accounting numbers (e.g., total profits, total loans) without reasonable level of
breakdown is less informative for banks than it is for industrial firms, because the most
important information usually lies in the details of the sources of income and expenses, or
quality of assets. Investors need this information to make judgments on which incomes
are sustainable and which expenses are recurring. Following this theme of importance of
disclosure of various accounting elements this chapter has been designed and provided
with the element wise analysis of disclosure practice of selected banks. Main purpose of
this chapter is to highlight elements which have been disclosed by all the banks and those
which have not been disclosed at all by any bank. Besides, growth in disclosures of such
elements over the period of study has also been examined. In total 348 elements under 20
categories have been covered in analysis. To analyze element wise disclosures, simple
frequencies and percentages have been used.
MANDATORY BANKING DISCLOSURES

There have been 161 elements identified as mandatory disclosures under banking
regulatory framework. These elements have been divided in seven broad categories and
analyzed. Disclosure percentage has been calculated on the basis of maximum possible
disclosure, i.e. if all the banks disclose the element in annual reports. Results of
disclosures of each element under specified categories are as below.
DISCLOSURE SCORE ON BALANCE SHEET ITEMS
First category of mandatory disclosures is Balance Sheet items. This category has thirteen
items in total. These items include Capital and its breakdown, Reserve and surplus and
their breakdown, Deposits and its breakdown, Borrowings and its breakdown, Other
liabilities and provisions and their breakdown, Cash and Balance with RBI and their
breakdown, Balances with other banks and their breakdown, Money at call and short
notice, Investments and its breakdown, Advances and its breakdown, Fixed assets and
94

their breakdown, Other Assets and their breakdown, Contingent Liabilities and their
breakdown, Bills for Collection.
TABLE 5.1: BALANCE SHEET ITEMS
No. of Disclosures
Sr.
No. Balance Sheet items
1
2
3
4
5
6
7
8
9
10
11
12
13
Capital and its breakdown

Reserves and Surplus and their
breakdown
Deposits and its breakdown
Borrowings and its breakdown
Other liabilities and provisions and
their breakdown
Cash in hand and balance with RBI
and their breakdown
Balance with other banks and
Money at call and short notice
Investments and its breakdown
Advances and their breakdown
Fixed Assets and their breakdown
Other assets and their breakdown
Contingent liabilities their
breakdown
Bills for collection
percentage of
Disclosures
Public
Private
Total Public Private Total
10
100
100
100
5
5
5
5
5
5
10
10
10
100
100
100
100
100
100
100
100
100
10
100
100
100
10
100
100
100
5
5
5
5
5
5
5
5
5
5
10
10
10
10
10
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
5
5
5
5
10
10
100
100
100
100
100
100
Table 5.1 shows that all these items have been disclosed by all the selected public and
private sector banks during year 2010-11. Hence, the disclosure percentage is 100 in this
category. Similar results also holds true in respect of private as well as public sector
banks.
DISCLOSURE SCORE ON PROFIT & LOSS ACCOUNT ITEMS
Second category deals with Profit & Loss account items. There are six items in total in
this category. These items include Interest earned and their breakdown, Other Income and
its breakdown, Interest expenses and its breakdown, Operating expenses and its
breakdown, Net Profit / Loss and Appropriations.
TABLE 5.2: PROFIT & LOSS ACCOUNT ITEMS
No. of Banks
95
Percentage of
Disclosures
1
2
3
4
5
6
Profit and Loss Account items

Interest earned and their
breakdown
Other income and its breakdown
Interest expended and its
breakdown
Operating expenses and its
breakdown
Net Profit/Loss for the year
Appropriations
Public
Private Total Public
Private Total
5
5
5
5
10
10
100
100
100
100
100
100
10
100
100
100
5
5
5
5
5
5
10
10
10
100
100
100
100
100
100
100
100
100
Table 5.2 shows the information related to disclosures of various profit & loss account
elements. Again in this category, all the items have been disclosed by all the selected
public and private sector banks in the selected year of study. Hence, the category
disclosure is 100.
DISCLOSURE SCORE ON DIRECTORS REPORT
Third category deals with Boards Report. This category has six elements named
Directors Report, Narrative statement of company's affair, Amount of dividend
recommended, Narrative discussion of material changes and commitments, Narrative
discussion of any changes occurring during the year and Directors responsibility
statement.
TABLE 5.3: DIRECTORS REPORT
1
2
3
4
5
Percentage of
No. of Banks
Disclosures
Public Private Total Public
Private Total
5
5
10
100
100
100
5
5
10
100
100
100
DIRECTOR'S REPORT
Directors report
Statement of companys affairs
Amount proposed to carry to any
reserve
Amount recommended to be paid by
way of dividend
Material changes and commitments
affecting the financial position of the
company
Director's Responsibility Statement
96
10
100
100
100
10
100
100
100
3
5
4
5
7
10
60
100
80
100
70
100

As per Table 5.3, except one item named Material changes and commitments affecting
the financial position of the company in which disclosure performance of public sector
banks is slightly low than private sector banks as this information is disclosed by 3 public
sector banks in comparison to 4 private sector banks disclosing this information. This
may be because of two reasons , either no material change has occurred in the banks
financial position or banks are voluntary hiding this information. All other items have
been fully disclosed by both the categories of the banks during the year 2010-11. Hence,
the disclosure of all these five elements is 100 by both public sector and private sector
banks.
DISCLOSURE SCORE ON MANAGEMENT DISCUSSION AND ANALYSIS

REPORT
This category has nine elements of disclosures. These elements are Report on
management discussion and Analysis, Disclosure of narrative discussion on industry
structure and development, Narrative discussion of opportunities and threats, Disclosure
of performance on segment or product wise, Narrative discussion of outlook, Discussion
of information regarding risks and concerns, Disclosure of information on internal control
system and adequacies, Discussion of financial performance with respect to operational
performance and Discussion of material development in HR including number of people
employed.
TABLE 5.4: MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Percentage of
Disclosures
No. of Banks
1
2
3
4
5
MANAGEMENT DISCUSSION AND

ANALYSIS REPORT
Report on Management Discussion and
Analysis
Disclosure regarding industry structure
and developments
Disclosure regarding opportunities and
threats
Disclosure regarding segment wise or
product wise performance
Disclosure regarding Outlook
97
Public Private
Total
Public Private Total
10
100
100
100
10
100
100
100
80
80
80
3
5
4
4
7
9
60
100
80
80
70
90

6
7
8
Disclosure regarding Risks and concerns

Disclosure regarding Internal control
systems and their adequacy
Disclosure regarding discussions on
financial performance vis--vis
operational performance
Disclosure regarding material
development in human resource
including number of people employed
10
100
100
100
40
80
60
10
100
100
100
10
100
100
100
Table 5.4 clearly shows that disclosure regarding Internal control system and their
adequacy is low in case of public sector bank as only two out of five public sector banks
are disclosing this information. But in case of private sector banks disclosure of this item
is quite high as it is disclosed by four out of five banks, total disclosure however is
average. The reason for poor disclosure by public sector banks can be that they do not
have internal control system or it is not working effectively. Disclosure regarding
segment wise or product wise performance and Disclosure regarding opportunities and
threats is quite high by both the selected public and private sector banks. However
disclosure regarding Outlook is very high by both the category of Banks with slightly low
performance on the part of private sector banks. Apart from this remaining 5 items are
being disclosed fully by all the selected public and private sector banks. These items are
Report on Management Discussion and Analysis, Disclosure regarding industry structure
and developments, Disclosure regarding Risks and concerns, Disclosure regarding
discussions on financial performance vis--vis operational performance and Disclosure
regarding material development in human resource including number of people
employed.
Some of the elements of corporate governance have been mandatory while the others
voluntary by nature. This section deals with the elements which are mandatory to be
disclosed. This category has 46 elements in total. These elements are Brief statement of
company on corporate governance, Composition of Board of Directors, Category of
Directors, Details of attendance of each director at BOD meetings, Number of BOD
meetings held, Dates of BOD meetings, Number of other BOD's or Board committees in
which he is a member or chairperson, Brief description of terms of reference of audit
committee, Composition, name of members and chairperson of audit committee,
Meetings and attendance during the year of audit committee, Brief description of terms of
98

reference of remuneration committee, Composition, name of members and chairperson of
remuneration committee, Attendance during the year of remuneration committee,
Remuneration policy, Details of remuneration to all the directors, Information on
Management committee, Name of non-executive director heading the shareholder
committee, Name and designation of compliance officer, Number of shareholders
complaints received so far, Number not solved to the satisfaction of shareholders,
Number of pending complaints, Location and time, where last three AGM's held,
Disclosure of any special resolution passed in the previous three AGM's, Details of voting
pattern, Details of persons conducting postal ballot, Disclosure of materially significant
related party transactions, Disclosure of accounting treatment, Details of non-compliance
penalties imposed by stock exchange or SEBI, Information on half-yearly report sent to
each household of shareholders, Information on the quarterly result / press release to
website, Information on presentations made to institutional investors / analysts,
Disclosure of current AGM, date, time and venue, Disclosure of financial calendar, Date
of book closure, Dividend payment date, Listing information on stock exchanges,
Disclosure of stock code, Market price data, Disclosure of performance, Disclosure of
registrar and transfer agents, Information on the share transfer system, Information on
distribution of shareholders category wise, Information of shareholding pattern,
Dematerialization of shares, Profile of directors appointed during the year and Auditors
certificate on compliance with condition of corporate governance.
Table 5.5 shows that disclosure regarding Disclosures relating to penalties imposed by
SEBI, Dematerialization of shares and liquidity, Number of complaints not solved to the
satisfaction of shareholders, Number of shareholders complaints received so far, Name
and designation of compliance officer and Number of board meetings held with date is
better in case of Public sector banks, whereas disclosure regarding the items naming
Composition of remuneration committee, Name of members and chairperson of
remuneration committees, Attendance in the meetings of remuneration committee and
Newspapers wherein results normally published is much better in case of Public sector
banks as these items are being disclosed by almost all the public sector banks with only 2
or 3 private sector banks disclosing this information. Position is reverse in case of few
items, where disclosure performance of public sector banks is poor in comparison to
private sector banks.
TABLE 5.5: CORPORATE GOVERNANCE
99
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Brief statement of companies on
corporate governance
Composition of Board of directors
Category of Board of directors
Attendance of directors at board
meetings
Attendance of directors at last AGM
Number of other boards in which the
director is member or chairperson
Number of board meetings held with
date
Composition of audit committee
Name of members and chairperson of
audit committee
Meetings and attendance during the
year
Composition of remuneration
committee
Name of members and chairperson of
remuneration committees
Attendance in the meetings of
remuneration committee
Remuneration policy
Details of remuneration to all directors
as per format
Name of non executive director heading
the shareholders committee
Name and designation of compliance
officer
Number of shareholders complaints
received so far
Number of complaints not solved to the
satisfaction of shareholders
Number of pending complaints
Location and time of last three AGMs
Disclosure regarding special resolution
passed in previous 3 AGMs
Disclosure regarding special resolution
passed last year through postal ballotdetails of voting pattern.
Person who conducted the postal ballot
exercise
Whether any special resolution is
proposed to be conducted through
postal ballot
100
Percentage of
No. of banks
Disclosures
Public Private Total Public Private Total
5
5
5
5
5
5
10
10
10
100
100
100
100
100
100
100
100
100
4
4
5
5
9
9
80
80
100
100
90
90
10
100
100
100
5
5
4
5
9
10
100
100
80
100
90
100
10
100
100
100
10
100
100
100
100
40
70
100
40
70
4
5
2
5
6
10
80
100
40
100
60
100
40
40
40
10
100
100
100
80
60
70
100
80
90
5
5
5
4
5
5
9
10
10
100
100
100
80
100
100
90
100
100
60
100
80
80
100
90
80
80
80
80
80
80
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
Procedure for postal ballot
Disclosures relating to related party
transactions
Disclosures relating to non compliance
by the Company (SEBI guidelines)
Disclosures relating to penalties
imposed by SEBI
Whistle blower policy
Quarterly results
Newspapers wherein results normally
published
Information relating to website
Time, date and venue of AGM
Date of book closure
Dividend payment date
Listing of stock exchanges
Stock code
Market price data
Registrar and Transfer Agents
Share Transfer System
Distribution of shareholding
Dematerialization of shares and
liquidity
Outstanding GDRs/ADRs/Warrants or
any Convertible instruments,
conversion date and likely impact on
equity
Address for correspondence
Auditors certificate on corporate
governance
Percentage of
No. of banks
Disclosures
0
0
0
0
0
0
4
80
80
80
40
40
40
4
3
5
3
5
5
7
8
10
80
60
100
60
100
100
70
80
100
4
5
5
5
5
5
5
5
5
5
5
2
5
5
5
5
5
5
5
5
5
5
6
10
10
10
10
10
10
10
10
10
10
80
100
100
100
100
100
100
100
100
100
100
40
100
100
100
100
100
100
100
100
100
100
60
100
100
100
100
100
100
100
100
100
100
100
80
90
2
5
2
5
4
10
40
100
40
100
40
100
80
80
80
These items are Attendance of directors at board meetings, Attendance of directors at last
AGM, Disclosure regarding special resolution passed in previous three AGMs, Disclosure
regarding special resolution passed last year through postal ballot-details of voting pattern
and Whistle blower policy. There is one item, naming Procedure for postal ballot, which
remained undisclosed by all the selected Public and Private sector banks. Furthermore in
case of few items, there is no difference between the disclosure practices of the public and
private sector banks although the disclosure level is very low. These items are Details of
remuneration to all directors as per format, Disclosures relating to non compliance by the
Company (SEBI guidelines) and Outstanding GDRs/ADRs/Warrants or any Convertible
101

instruments and conversion date and likely impact on equity. All the remaining items are
equally and highly disclosed by both categories of selected banks.
DISCLOSURE SCORE ON RBI GUIDELINES

Reserve Bank of India (RBI) has issued comprehensive guidelines related to banking
disclosures in annual reports. Information elements based on RBI guidelines are 46 in
number. These include Capital Adequacy ratio - Tier I & Tier II capital, Percentage of
shareholding of the Govt. of India in the nationalized banks, Amount of subordinated debt
raised as Tier II capital, Gross Value of investments, Provisions made towards
depreciation in the value of investments, Movement of provisions held towards
depreciation on investments, Repo transactions, Non-SLR investment portfolio, Forward
rate agreement / interest rate swap, Exchange traded interest rate derivatives, Disclosure
on risk exposure in derivatives, Percentage of net NPA's to net advances, Movement in
NPA's, Amount of provisions made towards NPA's, Movement of provisions held
towards NPA's, Details of loan assets subjected to restructuring, Details of financial
assets sold to an SC/RC for asset reconstruction, Details of non-performing assets
purchased / sold, Provision on standard assets, Interest income as a percentage to working
funds, Non-interest income as a percentage to working funds, Operating Profit as a
percentage to working funds, Return on assets, Business (deposits plus advances) per
employee, Profit per employee, Foreign currency assets and liabilities, Exposure to real
estate sector, Exposure to capital market, Exposure to country risk, Details of single
borrower / group borrower limit exceeded by the bank, Provisions made towards Income
tax during the year, Disclosure of penalties imposed by RBI, AS 17 -Segment Reporting,
AS 18 - Related Party Disclosures, AS20 - Earnings per share, AS 21 Consolidated
Financial Statements, AS 22 - Accounting for Taxes on Income, Other Accounting
Standards, Provisions and contingencies, Disclosure of complaints, Disclosure of letter of
comforts issued by banks,
Revenue Recognition, Staff Benefits and Cash Flow
statement.
TABLE 5.6: RBI GUIDELINES
1
2
RBI GUIDELINES
Details relating to capital adequacy ratio
(Tier I and Tier II capital)
Percentage shareholding by Govt. of
102
No. of banks
5
5
5
4
10
9
Percentage of
Disclosures
100
100
100
80
100
90
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
RBI GUIDELINES
India in nationalized banks
Amount raised by issue of IPDI
Amount raised by issue of upper Tier II
instruments
Gross and net value of investments held
by bank in India and outside India
Securities sold under repo
Securities purchased under reverse repo
Details regarding non SLR investment
Forward rate agreement
Exchange traded interest rate
derivatives
Disclosure relating to risk exposure in
derivatives
Percentage of net NPAs to Net advances
Movement of NPAs
Movement of provisions for NPAs
Particulars of accounts restructured
Details of financial assets sold for asset
reconstruction
Details of non performing financial
assets purchased /sold
Provision on standard assets
Interest income as a percentage to
working funds
Non- Interest income as a percentage to
working funds
Operating profit as a percentage to
working funds
Return on assets
Profit per employee
Asset liability management
Exposure to Real Estate sector
Risk category wise country exposure
Details of SGL(Single Borrower
limit)\GBL (Group Borrower limit)
exceeded by the Bank
Unsecured Advances
Provision for income tax made during
the year
AS 5 Net profit and loss for the
103
No. of banks
Percentage of
Disclosures
80
60
70
10
100
100
100
5
5
5
5
4
5
5
5
5
5
10
10
10
10
9
100
100
100
100
80
100
100
100
100
100
100
100
100
100
90
80
100
90
5
5
5
5
5
5
5
5
5
5
10
10
10
10
10
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
10
100
100
100
5
5
5
5
10
10
100
100
100
100
100
100
10
100
100
100
10
100
100
100
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
10
10
10
10
10
10
10
10
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
5
5
5
5
10
10
100
100
100
100
100
100
5
5
3
5
5
3
10
10
6
100
100
60
100
100
60
100
100
60
34
35
36
37
38
39
40
41
42
43
44
45
46
RBI GUIDELINES
period, prior period items and changes
in the economic policy
AS 9 Revenue recognition
AS 15 Employee benefits
AS 17 Segment Reporting
AS 18 Related Party disclosures
AS 21 Consolidated Financial
statements
AS 22 Accounting for taxes on
income
AS 23 Accounting for investment in
Associates in Consolidated Financial
Statements
AS 24 Discontinuing operations
AS 25 Interim financial reporting
Provisions and contingencies
Disclosure of LoCs issued by the bank
Cash Flow Statement
No. of banks
Percentage of
Disclosures
4
5
5
4
3
5
5
5
7
10
10
9
80
100
100
80
60
100
100
100
70
100
100
90
80
100
90
10
100
100
100
4
1
0
5
5
5
5
5
0
0
5
5
5
5
9
1
0
10
10
10
10
80
20
0
100
100
100
100
100
0
0
100
100
100
100
90
10
0
100
100
100
100
Table 5.6 depicts that Public sector banks are giving better and high disclosure in
comparison to private sector banks for three items naming Percentage shareholding by
Govt. of India in nationalized banks, Amount raised by issue of IPDI and AS 9 Revenue
recognition. Although disclosure for five items naming Forward rate agreement,
Exchange traded interest rate derivatives, AS 18 Related Party disclosures, AS 21
Consolidated Financial statements and AS 23 Accounting for investment in Associates
in Consolidated Financial Statements is comparatively low in case of Public sector banks.
Further there are two items naming AS 24 Discontinuing operations and AS 25
Interim financial reporting are not disclosed at all by both the categories of the banks
except one public sector bank disclosing information regarding AS 24. However
information regarding AS 5 - Net profit and loss for the period, prior period items and
changes in the economic policy is equally disclosed by both the category of the banks but
the disclosure level is average as only six banks [i.e.3 public and 3 private banks]
disclosed this information. Disclosure regarding remaining 15 items is full and equal.
DISCLOSURE SCORE ON BASEL II (PILLAR 3)
104

Basel Committee on Banking Supervision has issued guidelines relating to Minimum
capital requirement, Supervisory review and Market discipline. Indian banking companies
were required to ensure full implementation of Basel II guidelines by March 31, 2009.
Information elements based on Basel committee are 35 in number. These include
Overview of the group companies, Restrictions for capital transfer within the group,
Details of surplus capital of insurance and capital shortage of all subsidiaries, Effects of
capital deduction of insurance participants on tier I and tier II capital, Description of
individual capital elements, Details of innovative and hybrid instruments, Capital
requirements in individual risk areas and capital parameters on consolidated basis,
Individual components of core capital and items which deduct capital, Information
considering core risks of the institution, Comparison between current risk profile and risk
which actually occurred (for assessing the reliability of the procedure chosen for risk
management), Details of portfolio which are using the standardized approach and their
measuring methods, Corresponding capital requirements for the interest rate risk, equity
position risk, foreign exchange risk and commodity risk, Details for which approach the
bank qualifies, Description of the risk and control procedure, Increase or decline in
earnings or economic value in case of upward and downward rates shocks, Definition of
the overdue, impaired and defaulted loans, Breakdown of credit volume according to
counter
TABLE 5.7: BASEL II (PILLAR3)
1
2
5
6
BASEL II(PILLAR3)
Scope
Qualitative information
Overview of the group companies
Restrictions for capital transfer within
the group
Quantitative information
Details of surplus capital of insurance
and capital shortage of all subsidiaries
Effects of capital deduction of
insurance participants on tier I and tier
II capital
Capital structure and adequacy
Description of individual capital
elements
Details of innovative and hybrid
instruments
105
Percentage of
Disclosures
No. of Banks
Public Private Total Public Private

5
5
10
100
100
Total
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
11
12
13
14
15
16
BASEL II(PILLAR3)
Scope
Capital requirements in individual risk
areas and capital parameters on
consolidated basis
Individual components of core capital
and items which deduct capital
Risk position and assessment
General Information
Information considering core risks of
the institution
Comparison between current risk
profile and risk which actually
occurred (for assessing the reliability
of the procedure chosen for risk
management)
Market Risk : Standardized
Approach
Details of portfolio which are using
the standardized approach and their
measuring methods
Corresponding capital requirements
for the interest rate risk, equity
position risk, foreign exchange risk
and commodity risk.
Operational Risk
Details for which approach the bank
qualifies
Interest rate risk in the banking
book
Description of the risk and control
procedure
Increase or decline in earnings or
economic value in case of upward and
downward rates shocks
Credit risk :General requirements
Definition of the overdue , impaired
and defaulted loans
106
Percentage of
Disclosures
No. of Banks
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
17
18
19
20
21
22
23
24
25
26
27
28
29
30
BASEL II(PILLAR3)
Scope
Breakdown of credit volume
according to counter parties, regions,
industries, risk concentration and
NPAs
Charges of specific allowances and
charge offs during the period
Breakdown of specific allowances
according to sectors and regions
Credit risk : Standardized
Approach
Details via external rating agencies
Details specifying positions for which
external ratings are used
Mapping of external ratings to risk
classes
Breakdown of exposures over the
individual risk classes
Credit risk : Equity holdings in the
banking book
Differentiation between equities held
Discussion of key valuation and
accounting principles for the equities
in the banking book
Details of book value and current
value of equity
Capital requirements for equities for
which supervisory transition is
applicable
Credit risk : Risk reduction
techniques
Qualitative disclosure requirements
for application of credit risk mitigation
techniques
For every portfolio : the total exposure
which is covered by recognized
financial collaterals
For every portfolio : the total exposure
which is covered by guarantees or
credit derivatives
107
Percentage of
Disclosures
No. of Banks
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
31
32
33
34
35
BASEL II(PILLAR3)
Scope
Credit risk : Securitization of loans
Qualitative disclosure requirements
for securitization of loans
Summary of accounting policies for
securitization activities
Name of rating agencies which are
used and type of securitization
Type and total amount of securitized
loans, amount of NPAs and realized
losses
Total outstanding of securitized
revolving exposures
Percentage of
Disclosures
No. of Banks
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
parties, regions, industries, risk concentration and NPAs, Charges of specific allowances
and charge offs during the period, Breakdown of specific allowances according to sectors
and regions, Details via external rating agencies, Details specifying positions for which
external ratings are used, Mapping of external ratings to risk classes, Breakdown of
exposures over the individual risk classes, Differentiation between equities held,
Discussion of key valuation and accounting principles for the equities in the banking
book, Details of book value and current value of equity, Capital requirements for equities
for which supervisory transition is applicable, Qualitative disclosure requirements for
application of credit risk mitigation techniques, For every portfolio : the total exposure
which is covered by recognized financial collaterals, For every portfolio : the total
exposure which is covered by guarantees or credit derivatives, Qualitative disclosure
requirements for securitization of loans, Summary of accounting policies for
securitization activities, Name of rating agencies which are used and type of
securitization, Type and total amount of securitized loans, amount of NPAs and realized
losses and Total outstanding of securitized revolving exposures
Table 5.7 makes it clear that all the selected Public and Private sector banks are following
Basel II guidelines as every single one of them is making cent percent disclosure of all
the items covered under this category.
108
VOLUNTARY BANKING DISCLOSURES

There have been 187 elements identified as voluntary disclosures under banking
regulatory framework. These elements have been divided in thirteen broad categories and
analyzed. Disclosure percentage has been calculated on the basis of maximum possible
disclosure, i.e. if all the banks disclose the element in annual reports. Results of
disclosures of each element under specified categories are as below.
DISCLOSURE SCORE ON GENERAL CORPORATE INFORMATION
This category requires disclosures related to the basic information and profile of the bank.
Six elements in total have been put in this category. These include Date of Establishment,
Registration number, Implementation of official language, Information on Associates &
Subsidiaries, Awards and Overseas assets.
TABLE 5.8: GENERAL CORPORATE INFORMATION

Percentage of
Disclosures
No. of banks
1
2
3
4
5
6
GENERAL CORPORATE
INFORMATION
Date of establishment
Registration number
Implementation of official
language
Information on
Associates/Subsidiaries
Awards
Overseas Assets
Public
3
0
Private
2
1
Total Public Private

5
60
40
1
0
20
80
40
5
5
2
5
5
1
10
10
3
100
100
40
100
100
20
100
100
30
Table 5.8 depicts that the two items naming information on Associates/Subsidiaries and
Awards is equally and fully disclosed by both the categories of the bank, whereas, one
item naming registration number is not disclosed by public sector banks but one private
sector bank is making disclosure of this. In case of information regarding implementation
of Official language, disclosure performance of public sector banks is much better and
109
Total
50
10

high with no private sector bank disclosing this information. As far as information
regarding Date of establishment and Overseas assets is concerned, there is not much
difference between the disclosure practices of public and private sector banks but overall
disclosure level is comparatively low.
DISCLOSURE SCORE ON CORPORATE GOVERNANCE (VOLUNTARY)
This category includes all those disclosures which are related to corporate governance
practices and are not necessarily to be disclosed by the banking companies. Eleven such
disclosure elements have been identified in this category.
TABLE 5.9: CORPORATE GOVERNANCE
3
4
5
6
7
8
9
10
11
Details about the chairman (other than
name/ title) background of the
chairman/academic/professional/business
experiences
Details about directors (other than
name/title) background of the
chairman/academic/professional/business
experiences
Number of shares held by directors
List of senior managers (not on the board
of directors)/senior management
structure
Background of senior managers
Details of the CEOs contact address
Are the independent directors well
defined?
Picture of all directors/board of directors
Picture of chairperson only
Shareholders rights
Certificate of compliance of mandatory
stipulations under corporate governance
No. of banks
Percentage of
Disclosures
60
40
50
3
2
2
2
5
4
60
40
40
40
50
40
1
1
0
3
0
0
4
1
0
20
20
0
60
0
0
40
10
0
5
3
4
1
5
2
3
2
10
5
7
3
100
60
80
20
100
40
60
40
100
50
70
30
40
20
These elements include Details about the chairman (other than name/ title) /
background of the chairman/ academic/ professional/ business experiences, Details about
the directors (other than name/ title) / background of the directors/ academic/
professional/ business experiences, Number of shares held by directors, List of senior
110

managers (not on the board of directors)/ senior management structure, Background of
senior managers, Details of CEO's contact address, Are the independent directors well
defined?, Directors' engagement/ directorship of other companies, Picture of all directors /
board of directors and Picture of Chairperson and Shareholders right.
Table 5.9 reveals poor disclosure performances regarding three items, namely,
Background of senior managers, Details of the CEOS contact address and Certificate of
compliance under Corporate governance as no private sector bank is making disclosure
of any of these items in their annual reports, although information regarding Background
of senior managers and Certificate of compliance under corporate governance is disclosed
by very few public sector banks with information on Details of CEOs contact address is
still not disclosed by any of the public sector banks. Furthermore, there is one item
naming, Are the independent directors well defined is disclosed fully by all the selected
public and private sector banks. There are few items in regard to which disclosures made
by both the categories of selected banks are equal but the disclosure level is not very high.
In addition to this Information on Number of shares held by directors is equally given by
selected public and private sector banks with disclosure level being minimal. However
disclosure level in relation to two items has been observed to be low in case of public
sector banks in comparison to private sector banks. These items are List of senior
managers (not on the board of directors)/senior management structure and shareholders
rights.
DISCLOSURE SCORE ON FINANCIAL PERFORMANCE
Besides the information disclosed in Balance sheet and Profit & loss account, some useful
pieces of financial information can also be disclosed elsewhere in the annual report. Such
disclosures in general include 37 elements named Qualitative forecast of earnings, Return
on equity, Net interest margin, Cost-to-income ratio, Earnings per share, Risk-weighted
assets, Debt-to-equity ratio, Total liquid assets to assets ratio, Total liquid assets to
deposit ratio, Loan to deposit ratio, Dividend per share, Provision coverage ratio, Book
value per share, Yield on advances, Yield on investment, Yield on funds, Cost of
Deposits, Cost of funds, Non interest income to Operating income, Asset utilization ratio,
Non- interest income to Total income, Non-interest income to Net income, Dividend
payout ratio, Percentage of Net NPA to customer assets, Percentage of Gross NPA to
111

Gross Advances, Deposits mobilization, Business highlights, Ratio of establishment
expenses to total expenses, Ratio of other operating expenses to total expenses,
Performance of Banks share price in comparison with the stock exchanges, Productivity
per employee, Percentage increase in Bank advances during the year, Credit deposit ratio,
Amount of Income from Third party product, Export credit information, Information on
Retail credit and Net worth.
TABLE 5.10: FINANCIAL PERFORMANCE
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Qualitative forecast of earnings
Return on equity
Net interest margin
Cost-to-income ratio
Earnings per share
Risk weighted assets
Debt to equity ratio
Total liquid assets to assets ratio
Total liquid assets to deposits ratio
Loan to deposit ratio
Dividend per share
Provision coverage ratio
Book value per share
Yield on advances
Yield on investment
Yield on funds
Cost of Deposits
Cost of funds
Non-interest income to Operating
income
Asset utilization ratio
Non- interest income to Total income
Non-interest income to Net income
Dividend payout ratio
Percentage of Net NPA to customer
assets
Percentage of Gross NPA to Gross
Advances
Deposits mobilization
Business highlights
Ratio of establishment expenses to total
112
No. of Banks
0
1
1
3
2
5
3
2
5
4
0
4
5
5
10
5
5
10
0
0
0
0
0
0
0
0
0
0
0
0
2
1
3
3
5
8
4
4
8
3
1
4
2
0
2
4
0
4
3
1
4
4
0
4
Percentage of
Disclosures
0
20
10
60
40
50
60
40
50
80
0
40
100
100
100
100
100
100
0
0
0
0
0
0
0
0
0
0
0
0
40
20
30
60
100
80
80
80
80
60
20
40
40
0
20
80
0
40
60
20
40
80
0
40
1
1
2
1
1
0
0
0
0
1
1
1
2
1
2
20
20
40
20
20
0
0
0
0
20
10
10
20
10
20
20
10
1
3
5
1
4
0
5
0
5
3
10
1
20
60
100
20
80
0
100
0
50
30
100
10
29
30
31
32
33
34
35
36
37
expenses
Ratio of other operating expenses to
total expenses
Performance of Banks share price in
comparison with the stock exchanges
Productivity per employee
Percentage increase in Bank advances
during the year
Credit deposit ratio
Amount of Income from Third party
product
Export Credit information
Information on Retail credit
Net worth
No. of Banks
Percentage of
Disclosures
20
10
4
1
2
0
6
1
80
20
40
0
60
10
2
1
0
0
2
1
40
20
0
0
20
10
1
1
4
3
0
0
0
2
1
1
4
5
20
20
80
60
0
0
0
40
10
10
40
50
Table 5.10 depicts that information relating to 16 items namely Qualitative forecast of
earnings, Yield on investment, Cost of Deposits, Non-interest income to Operating
income, Asset utilization ratio, Non- interest income to Total income, Non-interest
income to Net income, Percentage of Net NPA to customer assets, Deposits mobilization,
Ratio of establishment expenses to total expenses, Ratio of other operating expenses to
total expenses, Productivity per employee, Dividend per share, Percentage increase in
Bank advances during the year, Credit deposit ratio, Amount of Income from Third
party product and Export Credit information is very low and negligible by the banks
selected for this study with poor or nil disclosure on the part of private sector banks.
In addition, four items, namely cost-to-income ratio, Yield on funds, Cost of funds and
Information on retail credit which are highly disclosed by public sector banks but
remained undisclosed by private sector banks. Furthermore disclosure regarding
information on two ratios naming Return on equity and Net interest margin is almost
equal but low by both the categories of the banks.
In addition to this, there are five items which are equally disclosed by all the selected
public and private sector banks with information on Earning per share, Risk weighted
assets, Business highlight and Book value per share remain highly disclosed and dividend
payout ratio remain poorly disclosed by both the categories of selected banks. However
information on Debt to equity ratio, Total liquid assets to assets ratio, Total liquid assets
to deposit ratio and Loan to deposit ration remain undisclosed by all the selected banks of
113

study. Further public sector banks are giving better disclosures than private sector banks
on information related to yield on advances, Performance of banks share price in
comparison with stock exchanges and Net worth. Lastly, there are two items naming
Provision coverage ratio and Percentage of gross NPA to gross advances in relation to
which public sector banks lacked far behind in disclosure performance than private sector
banks. At the end, we can say that overall disclosure performance of private sector banks
is comparatively poor than public sector banks under this category.
DISCLOSURE SCORE ON INFORMATION RELATING TO KEY PERSONNEL

INFORMATION
This category has information which is related to the Key personnel of the bank. It
includes five elements and those elements are Profile of directors seeking appointment
and reappointment, Percentage of shareholding by directors, Key management personnel
information, Training and development of employees, Awards to employees.
TABLE 5.11: INFORMATION RELATING TO KEY PERSONNEL

Percentage of
Disclosures
No. of Banks
1
2
3
4
5
INFORMATION RELATING TO
KEY MANAGEMENT
PERSONNEL
Profile of directors seeking
appointment and reappointment
Percentage of shareholding by
directors
Key management personnel
information
Training and development of
employees
Awards to employees
Public
Private Total Public Private Total
60
80
70
40
20
40
60
50
5
0
5
0
10
0
100
0
100
0
100
0
Table 5.11 clearly shows that Private sector banks are leading in disclosure performance
than Public sector banks in this category of Information relating to Key personnel.
However there is one item naming training and development of employees where both
public and private sector banks selected for study are giving 100 disclosures and another
item naming Awards to employees remain undisclosed by both the categories of the
114

banks. In case of all the remaining items disclosure level is average with private sector
banks giving better disclosure than public sector banks.
DISCLOSURE SCORE ON CORPORATE STRATEGY
This category has nineteen elements named Management's objectives and strategies/
corporate vision / motto / statement of corporate goals or objectives, Future strategyinformation of future expansion (capital expenditures) / general development of business ,
Impact of strategy on future results, new products and services, third party products,
disclosure regarding future incentives, forex business, education loan, gold coins, UID
cards, E-stamping, gold loans, mobile banking, internet banking, international banking,
Hindi software, marketing and publicity and use of Hindi in publicity.
TABLE 5.12: CORPORATE STRATEGY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
CORPORATE STRATEGY
Management objectives and
strategies/corporate vision/ motto/
statement of corporate goals or
objectives
Future strategy Information of future
expansion (capital expenditure)/general
development of business
Impact of strategy on future results
New products and services
third party products
Bancassurance business
Disclosure regarding future initiatives
Forex business
Education loan
Gold coins
UID cards
E stamping services
Gold loans
Mobile banking services
Internet Banking
Information on international banking
facilities
115
Percentage of
No. of Banks
Disclosures
40
40
40
2
2
2
4
5
4
3
2
2
2
1
1
4
4
2
2
3
1
2
1
1
0
0
0
0
1
2
5
4
4
5
5
7
5
4
2
2
2
1
2
6
9
40
40
40
80
100
80
60
40
40
40
20
20
80
80
40
40
60
20
40
20
20
0
0
0
0
20
40
100
40
40
50
50
70
50
40
20
20
20
10
20
60
90
80
60
70
17
18
19
Percentage of
No. of Banks
Disclosures
1
0
1
20
0
10
5
4
9
100
80
90
2
0
2
40
0
20
CORPORATE STRATEGY
Hindi software
Marketing and publicity
Use of Hindi in publicity
In this category of corporate strategy Table 5.12, shows that in case of very few items
naming marketing and publicity, Information on International banking facilities and
Internet banking, the disclosure level by both the categories of the banks is almost equal
and high. In respect of all the remaining items, disclosure level is poor of nil with Public
sector banks are having edge over private sector banks.
DISCLOSURE SCORE ON GENERAL RISK MANAGEMENT
Five elements have been identified and put under this category. These elements include
Discussion of overall risk management philosophy and policy, Narrative discussions on
risk assets, risk measurement and monitoring, Discussion on risks rise, how risk are
managed and controlled and Inform nation on Risk management committee.
TABLE 5.13: GENERAL RISK MANAGEMENT
2
3
4
5

Disclosure of overall risk performance
philosophy and policy
Narrative discussion on risk assets, risk
measurement and monitoring
Discussion on risks rise, how risk are
managed and controlled
Whether and how hedges and
derivatives are used to manage risks
Information on risk management
structure
Percentage of
No. of Banks
Disclosures
5
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
10
100
100
100
Table 5.13 shows that full disclosure is made by both the categories of the selected banks.
Hence, the disclosure score is 100.
DISCLOSURE SCORE ON KEY NON FINANCIAL STATISTICS

116
Key non-financial statistics which can be disclosed by banks in the annual reports include
Details of branch location, Number of branches, Number of branch expansion during the
year, Information on branch computerizations, Information on ATM, Location of ATM
and their address, NRI Portfolio (NRI Branches), Information of Data centre and MIS,
Retail Assets branches, Product wise capabilities, Information on Financial inclusion,
Information on credit card business, Information regarding debit cards.
TABLE 5.14: KEY NON FINANCIAL STATISTICS

Percentage of
Disclosures
No. of Banks
1
2
3
4
5
6
7
8
9
10
11
12
13
KEY NON FINANCIAL

Public
STATISTICS
NRI Portfolio (NRI Branches)
0
Details of branch location
0
Number of branch
5
No. of branch expansion during the
year 2010-11
5
Information on branch
computerizations
3
Information on ATM
4
Location of ATM and their address
0
Information of Data centre and MIS
2
Information regarding debit cards
2
Retail Assets branches
2
Product-wise capabilities
1
Information on Financial inclusion
5
Information on credit card business
4
Private Total Public Private

1
1
0
20
2
2
0
40
5
10
100
100
5
10
100
100
100
1
5
0
1
2
0
0
4
1
4
9
0
3
4
2
1
9
5
60
80
0
40
40
40
20
100
80
20
100
0
20
40
0
0
80
20
40
90
0
30
40
20
10
90
50
It is clear from the Table 5.14 that, there is one item naming location of ATM with
address, which is not disclosed at all by any of the banks selected for the study. However
in case of two items, 100 disclosures are made by both the public and private sector
banks. These items are - Number of branches and Number of branch expansion during the
year 2010-11. Apart from this information relating to the Debit cards is equally disclosed
by both categories of the banks. There are few items, in relation to which, disclosure
level of Public sector banks is much better than Private sector banks. These items are
Information on branch computerization, Information on financial inclusion and
Information of credit card business. However, in case of two items naming Retail Assets
117
Total
10
20
100

branches and Product-wise capabilities, the disclosure level is zero in case of private
sector banks and very low in case of public sector banks. In opposite to this, there are two
items naming NRI portfolio and Details of branch location, where disclosure level is zero
in case of Public sector banks and is low in case of Private sector banks.
DISCLOSURE SCORE ON EMLOYEE RELATED INFORMATION
This section includes the information which is related to the employees of the banks. Age
of key employee, ESOP/ESOS, Information on welfare of employees and Awards to
employees are included is this heading.
TABLE 5.15: EMPLOYEE RELATED INFORMATION

Percentage of
Disclosures
No. of Banks
1
2
3
4
EMPLOYEE RELATED
INFORMATION
Age of key employee
ESOP/ESOS
Information on welfare of
employees
Awards to employees
Public Private Total Public

0
0
0
0
1
3
4
20
3
0
2
0
5
0
Private
0
60
60
0
40
0
Table 5.15 discloses that Banks have not disclosed much of the information related to the
employees. Awards to employees and Age of key employees remained missing from the
annual reports of both the selected public and private sector banks. However Information
relating to ESOP/ESOS is fairly disclosed by private sector banks with poor disclosure by
Public sector banks. Moreover, the case in different for Information on welfare of
employees, where almost equal disclosure is given by both the categories of the selected
banks with 3 out of 5 public sector banks and 2 out of 5 in case of private sector banks
are making disclosure.
DISCLOSURE SCORE ON DISCLOSURE REGARDING COMMITTEES
118
Total
0
40
50
0

Every bank forms committees to improve the performance of the bank. This category has
twenty one elements Management committee, Nomination committee, NPA Review
committee, Fraud Monitoring committee, Customer service committee, Premises
committee, Risk Management committee, IT Committee, Share transfer scrutiny
committee, Share transfer committee, Advances/credit approval committee, Staff and
development
committee, Compensation committee, Legal Committee, Director
Promotion committee, Flat purchase
TABLE 5.16: DISCLOSURE REGARDING COMMITTEES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
DISCLOSURE REGARDING
COMMITTEES
Management committee
Nomination committee
NPA Review committee
Fraud Monitoring committee
Customer service committee
Premises committee
Risk Management committee
IT Committee
Share transfer committee
Share transfer scrutiny committee
Advances/Credit approval
committee
Staff and development committee
Compensation committee
Legal Committee
Director Promotion committee
Flat purchase committee
(residential flats)
Share allotment committee
Finance committee
Vigilance committee
HR committee
State level bankers committee
Percentage of
No. of Banks
Disclosures
Privat Tota
Public e
l
Public Private
5
3
8
100
60
3
5
8
60
100
0
1
1
0
20
4
5
9
80
100
4
4
8
80
80
0
2
2
0
40
4
4
8
80
80
4
3
7
80
60
3
0
3
60
0
2
0
2
40
0
2
1
0
0
1
1
1
1
4
2
0
0
3
2
4
2
1
1
40
20
0
0
20
20
20
20
80
40
0
0
30
20
40
20
10
10
2
1
0
0
2
0
1
1
1
1
2
2
1
1
3
40
20
0
0
40
0
20
20
20
20
20
20
10
10
30
committee (residential flats), Share allotment committee, Finance committee, Vigilance

committee, HR committee and State level bankers committee.
119
Total
80
80
10
90
80
20
80
70
30
20

Table 5.16 depicts that disclosure regarding 14 items naming NPA Review
committee, Premises committee, Share transfer scrutiny committee, Advances/credit
approval committee, Share transfer committee, Staff and development committee, Legal
Committee, Director Promotion committee, Flat purchase committee, Share allotment
committee, Finance committee, Vigilance committee, HR committee and State level
bankers committee is very poor by both the categories of selected banks. There are few
committees which are being disclosed by public sector banks but remain undisclosed by
private sector banks and vice-versa. The reason behind such a poor disclosure for these
committees can be that every individual bank is forming committees as per their own
requirements. Apart from this there is one committee naming Share transfer committee
which not disclosed at all by selected Private sector banks with 3 out of 5 public sector
banks disclosing this information whereas another item naming Compensation committee
for which position is reverse as it is disclosed by 4 private sector banks will nil disclosure
on the part of public sector banks. Furthermore there are two committees naming
Management committee and IT committee in which public sector banks are giving more
disclosure as compared to private sector banks. On the other hand disclosure performance
of private sector banks is better in comparison to public sector banks in relation to two
committees naming Nomination committee and Fraud monitoring committee with equal
and high disclosure score by both public and private sector banks in case of Customer
service committee and Risk management committee.
DISCLOSURE SCORE ON CORPORATE SOCIAL DISCLOSURE
Being a social part of community, banks are supposed to be actively participating in

social activities. Twenty such disclosures have been identifies named Sponsoring public
health, sporting of recreational projects, Information on donations to charitable,
Information on social banking activities/banking for the society, Credit flow to women,
RTI Information, Anti money laundering, Information regarding environment
sustainability, Advances to and development in MSME sector, PSC to Adjusted Net Bank
Credit, Agriculture credit to adjusted Net Bank credit, Micro Enterprises to total Micro
and small enterprises, Weaker section credit to Net Bank credit, Banks exposure to
Micro Finance Institution, Advances to priority/sensitive sector/Rural Banking, Code of
Banks commitment to customer/operational excellence,
120
TABLE 5.17: CORPORATE SOCIAL DISCLOSURE

Percentage of
Disclosures
No. of Banks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
CORPORATE SOCIAL
DISCLOSURE
Sponsoring public health, sporting of
recreational projects
Information on donations to charitable
Information on social banking
activities/banking for the society
Credit flow to women
RTI Information
Anti money laundering
Information regarding environment
sustainability
Advances to and development in
MSME sector
PSC to Adjusted Net Bank Credit
Agriculture credit to adjusted Net
Bank credit
Micro Enterprises to total Micro and
small enterprises
Weaker section credit to Net Bank
credit
Banks exposure to Micro Finance
Institutions
Advances to priority/sensitive
sector/Rural Banking
Code of Banks commitment to
customer/operational excellence
Disclosure regarding lead bank
responsibility (District credit plan)
Financial literary and credit
counseling centers
Compliances with reservation policy
Representation of SC/ST in staff
strength
Disclosure regarding Information
security
Public Private
Total
Public
Private Total
4
0
5
1
9
1
80
0
100
20
90
10
5
2
3
2
4
1
0
2
9
3
3
4
100
40
60
40
80
20
0
40
90
30
30
40
40
80
60
3
1
1
1
4
2
60
20
20
20
40
20
20
10
20
10
20
10
20
10
80
20
50
40
20
80
60
70
1
1
0
0
1
1
20
20
0
0
10
10
20
10
60
40
50
Disclosure regarding lead bank responsibility (District credit plan), Financial literary and
credit counseling centers, compliances with reservation policy, Representation of SC/ST
in staff strength and Disclosure regarding Information security.
121

It is clearly shown in Table 5.17 that in case of 5 items naming Information on social
banking activities/banking for the society, Advances to and development in MSME
sector, Advances to priority/sensitive sector/Rural Banking, Disclosure regarding lead

bank responsibility (District credit plan) and Disclosure regarding Information security,
disclosure performance of public sector banks is much better than private sector banks.
However, public sector banks are lacking behind in disclosure performance from private
sector banks in case of disclosure of 2 items naming Information regarding environment
sustainability and Sponsoring public health, sporting of recreational projects. Furthermore
Information relating to RTI [Right to Information Act] is not at all being disclosed by
private sector bank with three public sector banks disclosing this information. There are
four elements naming Agriculture credit to adjusted Net Bank credit, Micro Enterprises to
total Micro and small enterprises, Weaker section credit to Net Bank credit, Banks
exposure to Micro Finance Institutions, Financial literary and credit counseling centers,
Compliances with reservation policy and Representation of SC/ST in staff strength are
disclosed by only one public sector bank with nil disclosure on the part of private sector
banks. Remaining all the items are poorly disclosed by both public sector and private
sector and private sector banks.
DISCLOSURE SCORE ON INFORMATION REGARDING

Banks usually disclose information related to borrowers/depositors in their annual report.

This category includes 8 such elements named Total deposits of twenty largest depositors,
Total advances to twenty largest borrowers, Percentage of deposits of twenty largest
depositors to total deposits of the Bank, Percentage of Exposure to twenty largest
borrowers /customers to Total Exposure of the Bank on borrowers /customers, Total
Exposure to twenty largest borrowers / customers, Percentage of advances to twenty
largest borrowers to total advances of the bank, Total Exposure to top four NPA accounts
and Sector wise NPAs
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Table 5.18 clearly shows that all the items in this category are highly disclosed by both
the categories of the banks with slightly better performance on the part of private sector
banks as almost all the elements are fully disclosed by them.
TABLE 5.18: INFORMATION REGARDING BORROWERS/DEPOSITORS

Percentage of
Disclosures
No. of Banks
1
2
3
INFORMATION REGARDING
Total deposits of twenty largest
depositors
Percentage of deposits of twenty largest
depositors to total deposits of the Bank
Total advances to twenty largest
borrowers
Public
Private Total Public Private Total
80
100
90
80
100
90
80
100
90
80
100
90
4
4
5
5
9
9
80
80
100
100
90
90
4
4
5
4
9
8
80
80
100
80
90
80
5
6
7
8
Percentage of advances to twenty largest

borrowers to total advances of the bank
Total Exposure to twenty largest
borrowers / customers
Percentage of exposure to twenty largest
borrowers/customers to Total Exposure of
the Bank on borrowers/customers
Total Exposure to top four NPA accounts
Sector wise NPAs
DISCLOSURE SCORE ON INFORMATION/FORMS FOR SHAREHOLDRES

TABLE 5.19: INFORMATION/FORMS FOR SHAREHOLDERS
Percentage of
Disclosures
No. of Banks
1
2
3
4
5
6
7
8
INFORMATION/FORMS FOR
SHAREHOLDERS
Information regarding unclaimed dividend
Information regarding term of statutory
auditors
Proxy form and attendance slip
National Electronic Clearing system
(NECS)
National ECS form
Depository participants services
Application supported by blocked amount
Statement showing details of locked in
Public
5
123
Private
5
Total
10
Public
100
Private
100
Total
100
0
4
2
4
2
8
0
80
40
80
20
80
3
1
3
2
1
4
3
1
0
0
7
4
4
2
1
60
20
60
40
20
80
60
20
0
0
70
40
40
20
10

shares
9
10
11
12
Voting rights
Procedure for appointment of proxy
List of top five shareholders of the bank
ISIN Code/Number
1
5
1
4
1
4
2
4
2
9
3
8
20
100
20
80
20
80
40
80
There are twelve such items have been identified and put under this category. These items
are named Information regarding unclaimed dividend, Information regarding term of
statutory auditors, Proxy form and attendance slip, National Electronic Clearing system
(NECS), National ECS form, Depository participants services, Application supported by
blocked amount, Statement showing details of locked in shares, Procedure for
appointment of proxy, Voting rights, List of top five shareholders of the bank and ISIN
Code/Number
In the table 5.19 there are four items named Information regarding term of statutory
auditors, Application supported by blocked amount, Statement showing details of locked
in shares and Voting rights, where the level of disclosure is almost negligible by both the
categories of the banks. Further, three items naming, Information regarding unclaimed
dividend, proxy form and attendance slip and ISIN code/no. are highly and equally
disclosed by public and private sector banks. In case of two items, performance of private
sector banks is slightly better than public sector banks. These items are National ECS
form and List of top five shareholders. Apart from this, disclosure performance relating to
two items naming, Depositary participant services and Procedure for appointment of
proxy is better in case of public sector banks in comparison to private sector banks.
DISCLOSURE SCORE ON MISCELLANEOUS INFORMATION
Any information which cannot be put in the above mentioned categories has been put in
this category of miscellaneous information. Twenty six such elements have been
identified. These include Information on Chairmans/MDs report,
ISO 9001: 2000
certification, Graphical presentation of performance indicators, Performance at a glance-3

year, Review of other products and services, Publications, Bilingual Report, Benchmark
prime lending rate (BPLR), Macro Economic scenario, Disclosure regarding Movement
of interest rates, Domestic economic scenario, Progress under different plans,
124
20
90
30
80

Restructuring of debt, Asset quality and NPA management, Recovery under SARFAESI
Act 2002, Visit of parliamentary committee, Government business, IT initiatives,
Strategic investment, Credit rating, Accounts under US GAAP, Information on Industrial
relations, Promoting financial awareness, Conscious corporate citizen, Bullion
Banking/precious metal business, Loan review mechanism and Bullion Banking/precious
metal business.
It is evident from table 5.20 that information relating to five items namely, Information on
ISO 9001: 2000 certification, Review of other products and services, Progress under
different plans, Restructuring of debt, Visit of parliamentary committee, Government
business, Strategic investment, Information on Industrial relations, Promoting financial
TABLE 5.20: MISCELLANEOUS INFORMATION
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Miscellaneous information
Chairmans/MDs report
Information on ISO 9001: 2000
certification
Graphical presentation of performance
indicators
Performance at a glance-3 year
Review of other products and services
Publications
Bilingual Report
Benchmark prime lending rate (BPLR)
Macro Economic scenario
Domestic economic scenario
Disclosure regarding Movement of
interest rates
Progress under different plans
Restructuring of debt
Asset quality and NPA management
Recovery under SARFAESI Act 2002
Visit of parliamentary committee
Government business
IT initiatives
Strategic investment
Credit rating
Accounts under US GAAP
Information on Industrial relations
125
Percentage of
No. of Banks
Disclosures
5
5
10
100
100
100
2
40
20
3
2
1
3
5
3
5
4
5
5
0
2
0
2
3
0
8
7
1
5
5
5
8
4
60
40
20
60
100
60
100
80
100
100
0
40
0
40
60
0
80
70
10
50
50
50
80
40
5
1
1
5
3
1
2
3
1
3
4
2
5
0
0
2
0
0
0
3
0
5
5
2
10
1
1
7
3
1
2
6
1
8
9
4
100
20
20
100
60
20
40
60
20
60
80
40
100
0
0
40
0
0
0
60
0
100
100
40
100
10
10
70
30
10
20
60
10
80
90
40

23
24
25
26
Promoting financial awareness

Conscious corporate citizen
Loan review mechanism
Bullion Banking/precious metal
business
1
1
2
1
1
3
2
2
5
20
20
40
20
20
60
20
20
50
40
20
awareness, Conscious corporate citizen and Bullion Banking/precious metal business is

poorly disclosed by both public and private sector banks. In addition to this, disclosure
performance relating to three items naming Publications, Benchmark Prime Lending Rate
and IT initiatives is average. Furthermore performance of public sector banks is much
better than private sector banks in case of information on Bilingual report,
Macroeconomic scenario and Asset quality and NPA management, whereas they are
lacking behind in the disclosure relating to Graphical presentation of performance
indicators, Performance at glance-3 years, Credit rating and Account under US GAAP.
Two items naming Chairmans/MDs report and Disclosure regarding movement of
Interest rates is fully and equally disclosed by both public and private sector banks.
Finally, there are two items naming Domestic economic scenario and Recover under
SARFASEI Act is highly disclosed by public sector banks with nil disclosure on the part
of private sector banks.
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CHAPTER 6
SUMMARY & CONCLUSIONS
Disclosure is the process through which an entity communicates with the outside world
(Chandra, 1974). Disclosure refers to the publication of any economic information
relating to a business enterprise, quantitative or otherwise, which facilitates the making of
investment decisions (Choi, 1973). The American Accounting Association defines it as
the movement of information from private (i.e., inside information) into the public
domain. It emerges from these definitions that disclosure means reporting of
quantitative and qualitative information of financial and non-financial nature regarding
the reporting, entity to outsiders for the purpose of their decision making. Information
about the affairs of the company can be communicated through different media viz.
prospectus, financial press releases, annual report, interim reports and personal contacts
with company officials. In addition, newspapers, business and industry magazines,
investment advisory services and government statistics also provide information about a
company. Despite the existence of different sources of information, the annual report is
regarded as the most important of information about a companys affairs. Corporate
annual reports represent the most easily accessible and extremely important source of
basic information concerning an enterprise.
The central focus of corporate financial reporting has changed with the passage of time.
In the past, corporate financial reporting was oriented to providing stewardship
information, which was essentially backward looking. The essence of stewardship
reporting lies in giving an account of what management has done with the money
entrusted to it. Today, the preparation and presentation of corporate financial reports is
being driven by the consideration of providing information that is useful for making
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economic decisions, i.e., decision oriented financial reporting. Decision oriented
financial reporting is basically concerned with providing information that will enable the
users of the financial statements to judge the ability of the company to generate cash
flows in the future. This shift in emphasis is fully reflected in the objectives of financial
statements developed by Financial Accounting Standards Board (FASB). According to
the True Blood Study Group Report, the basic objective of financial statements is to
provide information useful for making economic decisions (Sorter & Gams, 1974).
Disclosure of information has a greater significance in achieving accounting objectives
and for this disclosure needs to be adequate. Adequate disclosure means fair and full
disclosure so that it helps the users in making rational decisions. It reflects economic
efficiency of the resource use and thereby helps in directing the flow of capital into
productive channels. It would also prevent and mitigate fraud and manipulation. The
more the information available, the less is the opportunity for fraud and greater the
confidence in the company. Thus adequate disclosure relates particularly to
objectives of relevance, neutrality, completeness and understandability. Information
should be presented in a way that facilitates understanding and avoids erroneous
implications.
NEED OF THE STUDY
Financial disclosure is an effective communication of accounting information to its users

for decision making. The users of financial statements should be in a position to evaluate
and assess the companys earnings performance and financial position, so that, they are
able to make intelligent investment decisions necessary for efficient allocation of scarce
resources. The aim of financial disclosure is to portray economic performance of an
enterprise. Financial information can be disclosed by using various modes, but annual
reports occupy a very significant position among them. Today there is general acceptance
of the value of fair reporting in the business community. Fair reporting brings with it
motivation, increased competitiveness, comparability and credence.
Banks are also business entities, i.e. they produce and sell financial services instead of
products. The distinctive feature about banks is that they are highly leveraged firms. They
have to foster the well being of shareholders and general public at large. The essential
part of the banking system is its financial viability. It is not only necessary for its
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survival but also to discharge its various obligations. If a bank goes into trouble the entire
community is affected. Banks subsists on confidence and disclosure of prudent banking
practices is the only way to build confidence.
Further the need of the study was felt because of growing importance of corporate
governance in banks. Governance is a reform package to strengthen the banks and
corporate with the objective of making them more accountable, open, transparent,
democratic and participatory. Governance in banks is considerably a more complex issue
than in other sectors because bank activities are less transparent and thus it is more
difficult for shareholders and creditors to monitor their activities. The core of
governance rests on the quality of transparency and disclosure.
Another area which focuses on the need for present study is Basel II. Managing risk is
increasingly becoming an important issue for the regulators and financial institutions.
Bank regulation is now increasingly getting risk concentric. This process had its origin in
Basel I proposals in 1988. The thrust of first accord was adequate capitalization of banks
in relation to credit risk, the second accord recognizes that banks face a number of risks in
the form of credit, market and operational risk. Basel II is built around three pillars
minimum capital requirement, supervisory review and market discipline. Pillar three
provides a comprehensive menu of public and regulatory disclosures related to capital
structure, capital adequacy, risk assessment and risk management process to enhance
transparency in banking operations. Thus, Basel II provides a list of desirable best
practices for banking safety and efficiency.
Protecting the interest of the depositors becomes a matter of paramount importance to
banks. Regulators, the world over, have recognized the vulnerability of depositors to the
whims of managerial misadventures in banks and therefore have been regulating the
banks more tightly than other corporate. Thus there seems to be a little question
concerning the need for serious research in the area of reporting practices of commercial
banks.
OBJECTIVES OF THE STUDY
The objectives of the study have been as below
129

1. To examine the disclosure practices of commercial banks in India over the period
of study.
2. To compare the disclosure practices of selected private sector banks with the
public sector banks.
3. To find out highly disclosed and least disclosed elements of banking disclosures.
4. To examine the discriminatory power of total, mandatory and voluntary
disclosures in relation to public and private sector banks.
5. To make suggestions for improving the quality of disclosure.
Corresponding to the aforesaid objectives, the following sets of broad hypothesis
1. Ho (1): There are no significant differences in the disclosure practices of public

sector banks and private sector banks.
Ha (1): There are significant differences in the disclosure practices of public sector
banks and private sector banks.
2. Ho (2): There are no significant differences in the reporting of various elements of
Ha (2): There are significant differences in the reporting of various elements of
The study is based upon 10 commercial banks 5 each selected from public and private
sector. The time frame of the study is one financial year i.e. 2010-11. Annual reports of
the selected banks were collected/ downloaded from their websites for further analysis.
Mandatory disclosures contain 161 items. The top most position is achieved by Dena
bank which has disclosed the maximum information of 155 items. On the other hand,
Bank of India has been at the bottom of the ladder that is, tenth rank, which provided the
least information of merely 144 items. Second position is being grabbed by Allahabad
Bank who disclosed 152 items. Karur Vysya Bank is right behind Allahabad Bank at third
rank with 151 disclosure scores. Chasing Karur Vysya Bank is Oriental Bank of
Commerce and Indusind Bank, both at fourth ranks with same 150 disclosure scores.
Furthermore Corporation Bank with 149 disclosure scores attained sixth rank. Next to it
are three banks, namely, HDFC Bank, J&K Bank and South Indian Bank, all are at
130

seventh rank having disclosure score of 148. Apparently, private sector banks are lacking
behind the public sector banks in respect of mandatory disclosures. The imperative of the
hour is to adopt strict regulatory measures for healthy Banking development.
Banks also disclosed some information voluntarily. There were 187 disclosures being
provided voluntarily by various banks. Dena Bank here again has grabbed first rank by
disclosing maximum number of 99 items out of 187 total disclosures. Bank of India has
achieved second rank and has missed the first rank by only two items as it disclosed 97
items. However Allahabad Bank has achieved third position and fourth rank is attained by
Corporation Bank with the disclosure score of 92 and 90 respectively. Oriental Bank of
Commerce managed to have fifth rank by disclosing 82 items. Moreover South Indian
Bank holds sixth rank in this table by getting disclosure score of 79.HDFC Bank got
seventh rank, Indusind Bank managed eighth rank and J&K Bank survived to get ninth
rank with the disclosure scores of 74, 73 and 69 respectively. Karur Vysya Bank has
disclosed least information of only 64 items and have been attained the lowest rank.
Item-wise analysis of banking disclosures was also examined. In total 348 elements under
20 categories have been covered in his study. To analyze element wise disclosures,
simple frequencies and percentages have been used. There have been 161 elements
identified as mandatory disclosures under banking regulatory framework. These elements
have been divided in seven broad categories and analyzed. All these items have been
disclosed by all the selected public and private sector banks during the year 2010-11.
Hence, the disclosure score is 100 in this category. Similar results also holds true in
respect of private as well as public sector banks. The information related to disclosures of
various profit & loss account elements have been disclosed by all the selected public and
private sector banks in the selected year of study. Hence, the category disclosure is 100.
Except one item named Material changes and commitments affecting the financial
position of the company in which disclosure performance of public sector banks is
slightly low than private sector banks as this information is disclosed by 3 public sector
banks in comparison to 4 private sector banks disclosing this information. This may be
because of two reasons, either no material change has occurred in the banks financial
position or banks are voluntary hiding this information. Disclosure regarding Internal
Control System and their adequacy is low in case of public sector bank as only two out of
131

five public sector banks are disclosing this information. But in case of private sector
banks disclosure of this item is quite high as it is disclosed by four out of five banks, total
disclosure however is average. The reason for poor disclosure by public sector banks can
be that they do not have internal control system or it is not working effectively.
Disclosures relating to penalties imposed by SEBI, Dematerialization of shares and
liquidity, Number of complaints not solved to the satisfaction of shareholders, Number of
shareholders complaints received so far, Name and designation of compliance officer
and Number of board meetings held with date is better in case of Public sector banks,
whereas disclosure regarding the items naming Composition of remuneration committee,
Name of members and chairperson of remuneration committees, Attendance in the
meetings of remuneration committee and Newspapers wherein results normally published
is much better in case of Public sector banks as these items are being disclosed by almost
all the public sector banks with only 2 or 3 private sector banks disclosing this
information. Position is reverse in case of few items, where disclosure performance of
public sector banks is poor in comparison to private sector banks. There is one item,
naming Procedure for postal ballot, which remained undisclosed by all the selected Public
and Private sector banks. Furthermore in case of few items, there is no difference between
the disclosure practices of the public and private sector banks although the disclosure
level is very low. These items are Details of remuneration to all directors as per format,
Disclosures relating to non compliance by the Company (SEBI guidelines) and
Outstanding GDRs/ADRs/Warrants or any Convertible instruments and conversion date
and likely impact on equity. All the remaining items are equally and highly disclosed by
both categories of selected banks.
Public sector banks are giving better and high disclosure in comparison to private sector
banks for three items naming Percentage shareholding by Govt. of India in nationalized
banks, Amount raised by issue of IPDI and AS 9 Revenue recognition. Although
disclosure for five items naming Forward rate agreement, Exchange traded interest rate
derivatives, AS 18 Related Party disclosures, AS 21 Consolidated Financial
statements and AS 23 Accounting for investment in Associates in Consolidated
Financial Statements is comparatively low in case of Public sector banks. Further there
are two items naming AS 24 Discontinuing operations and AS 25 Interim financial
reporting are not disclosed at all by both the categories of the banks except one public
132

sector bank disclosing information regarding AS 24. However information regarding AS
5 - Net profit and loss for the period, prior period items and changes in the economic
policy is equally disclosed by both the category of the banks but the disclosure level is
average as only six banks [i.e.3 public and 3 private banks] disclosed this information.
Disclosure regarding remaining 15 items is full and equal. All the selected Public and
Private sector banks are following Basel II guidelines as every single one of them is
making cent percent disclosure of all the items covered under this category.
Poor disclosure performances regarding three items, namely, Background of senior

managers, Details of the CEOS contact address and Certificate of compliance under
Corporate governance as no private sector bank is making disclosure of any of these
items in their annual reports, although information regarding Background of senior
managers and Certificate of compliance under corporate governance is disclosed by very
few public sector banks with information on Details of CEOs contact address is still not
disclosed by any of the public sector banks.
Information relating to 16 items namely Qualitative forecast of earnings, Yield on

investment, Cost of Deposits, Non-interest income to Operating income, Asset utilization
ratio, Non- interest income to Total income, Non-interest income to Net income,
Percentage of Net NPA to customer assets, Deposits mobilization, Ratio of establishment
expenses to total expenses, Ratio of other operating expenses to total expenses,
Productivity per employee, Dividend per share, Percentage increase in Bank advances
during the year, Credit deposit ratio, Amount of Income from Third party product and
Export Credit information is very low and negligible by the banks selected for this study
with poor or nil disclosure on the part of private sector banks.
Private sector banks are leading in disclosure performance than Public sector banks in this
category of Information relating to Key personnel. However there is one item naming
training and development of employees where both public and private sector banks
selected for study are giving 100 disclosures and another item naming Awards to
employees remain undisclosed by both the categories of the banks. In case of all the
remaining items disclosure level is average with private sector banks giving better
disclosure than public sector banks.
133

In the category of corporate strategy very few items naming marketing and publicity,
Information on International banking facilities and Internet banking, the disclosure level
by both the categories of the banks is almost equal and high. In respect of all the
remaining items, disclosure level is poor of nil with Public sector banks are having edge
over private sector banks.
There is one item naming location of ATM with address, which is not disclosed at all by
any of the banks selected for the study. However in case of two items, 100 disclosures are
made by both the public and private sector banks. These items are - Number of branches
and Number of branch expansion during the year 2010-11. Apart from this information
relating to the Debit cards is equally disclosed by both categories of the banks. There are
few items, in relation to which, disclosure level of Public sector banks is much better
than Private sector banks. These items are Information on branch computerization,
Information on financial inclusion and Information of credit card business. However, in
case of two items naming Retail Assets branches and Product-wise capabilities, the
disclosure level is zero in case of private sector banks and very low in case of public
sector banks. In opposite to this, there are two items naming NRI portfolio and Details of
branch location, where disclosure level is zero in case of Public sector banks and is low
in case of Private sector banks.
Banks have not disclosed much of the information related to the employees. Awards to
employees and Age of key employees remained missing from the annual reports of both
the selected public and private sector banks. However Information relating to
ESOP/ESOS is fairly disclosed by private sector banks with poor disclosure by Public
sector banks. Moreover, the case in different for Information on welfare of employees,
where almost equal disclosure is given by both the categories of the selected banks with 3
out of 5 public sector banks and 2 out of 5 in case of private sector banks are making
disclosure.
Disclosure regarding 14 items naming NPA Review committee, Premises committee,

Share transfer scrutiny committee, Advances/credit approval committee, Share transfer
committee, Staff and development committee, Legal Committee, Director Promotion
committee, Flat purchase committee, Share allotment committee, Finance committee,
134

Vigilance committee, HR committee and State level bankers committee is very poor by
both the categories of selected banks. There are few committees which are being
disclosed by public sector banks but remain undisclosed by private sector banks and viceversa. The reason behind such a poor disclosure for these committees can be that every
individual bank is forming committees as per their own requirements. Apart from this
there is one committee naming Share transfer committee which not disclosed at all by
selected Private sector banks with 3 out of 5 public sector banks disclosing this
information whereas another item naming Compensation committee for which position is
reverse as it is disclosed by 4 private sector banks will nil disclosure on the part of public
sector banks. Furthermore there are two committees naming Management committee and
IT committee in which public sector banks are giving more disclosure as compared to
private sector banks. On the other hand disclosure performance of private sector banks is
better in comparison to public sector banks in relation to two committees naming
Nomination committee and Fraud monitoring committee with equal and high disclosure
score by both public and private sector banks in case of Customer service committee and
Risk management committee.
Being a social part of community, banks are supposed to be actively participating in
social activities. In case of 5 items naming Information on social banking
activities/banking for the society, Advances to and development in MSME sector,
Advances to priority/sensitive sector/Rural Banking, Disclosure regarding lead bank
responsibility (District credit plan) and Disclosure regarding Information security,
disclosure performance of public sector banks is much better than private sector banks.
However, public sector banks are lacking behind in disclosure performance from private
sector banks in case of disclosure of 2 items naming Information regarding environment
sustainability and Sponsoring public health, sporting of recreational projects. Furthermore
Information relating to RTI [Right to Information Act] is not at all being disclosed by
private sector bank with three public sector banks disclosing this information. There are
four elements naming Agriculture credit to adjusted Net Bank credit, Micro Enterprises to
total Micro and small enterprises, Weaker section credit to Net Bank credit, Banks
exposure to Micro Finance Institutions, Financial literary and credit counseling centers,
Compliances with reservation policy and Representation of SC/ST in staff strength are
disclosed by only one public sector bank with nil disclosure on the part of private sector
135

banks. Remaining all the items are poorly disclosed by both public sector and private
sector and private sector banks.
Any information which cannot be put in the above mentioned categories has been put in
this category of miscellaneous information. Twenty six such elements have been
identified. Information relating to five items namely, Information on ISO 9001: 2000
certification, Review of other products and services, Progress under different plans,
Restructuring of debt, Visit of parliamentary committee, Government business, Strategic
investment, Information on Industrial relations, Promoting financial awareness,
Conscious corporate citizen and Bullion Banking/precious metal business is poorly
disclosed by both public and private sector banks. In addition to this, disclosure
performance relating to three items naming Publications, Benchmark Prime Lending Rate
and IT initiatives is average. Furthermore performance of public sector banks is much
better than private sector banks in case of information on Bilingual report,
Macroeconomic scenario and Asset quality and NPA management, whereas they are
lacking behind in the disclosure relating to Graphical presentation of performance
indicators, Performance at glance-3 years, Credit rating and Account under US GAAP.
Two items naming Chairmans/MDs report and Disclosure regarding movement of
Interest rates is fully and equally disclosed by both public and private sector banks.
Finally, there are two items naming Domestic economic scenario and Recover under
SARFASEI Act is highly disclosed by public sector banks with nil disclosure on the part
of private sector banks.
The sum total of all the mandatory and voluntary disclosures given by the banks is 348.
Dena Bank by disclosing maximum number of 255 items has grabbed the top most
position. Second position is attained by Allahabad Bank as it lacked behind by 10 items
as their disclosure score is 245. Bank of India by disclosing 242 items achieved third rank
and Corporation Bank managed fourth rank as it disclosed 240 items. Fifth rank being
awarded to Oriental Bank of Commerce for its disclosure score of 233. South Indian
Bank has taken sixth rank and seventh rank is obtained by Indusind Bank as they have a
disclosure score of 228 and 224 respectively. Eighth rank is acquired by HDFC Bank by
scoring 223. J & K Bank and Karur Vysya Bank have reached ninth and tenth position
respectively, their disclosure scores being 218 and 216 marks correspondingly.
136

Average Disclosure score of public sector banks was estimated at 243 as compared to 222
of private sector banks. The difference between the two means is significantly different.
However, there were no difference in the average score under mandatory disclosure, the
average score being 149 and 150 respectively for private and public sector banks.
However, there were significant differences in the average disclosure score under
voluntary category. The average disclosure score was 92 for public sector banks as
compared to 72 for private sector banks. ANOVA estimates confirmed significant
difference of Total disclosure score as well as voluntary disclosure score.
Further, to supplement these results, Discriminant analysis has been used to identify
which of the disclosure (s) financial attributes/ratios have the maximum discriminatory
power to explain the variation among public sector banks and private sector banks in
India. The objective of the study has been to examine and compare the group membership
on the basis of ownership and on the basis of prior probabilities calculated by
Discriminant analysis. Ownership based grouping has been the dependent variable.
Independent variables have been the total, mandatory and voluntary disclosure scores of
public and private sector banks. As there were two groups, number of functions have been
two minus one i.e. one. The Eigen values of Discriminant function relate to the canonical
correlations and describe how much discriminating ability a function possesses. The
magnitudes of the Eigen values are indicative of the functions' discriminating abilities.
Canonical correlation has been recorded at 0.877. Thus, coefficient of determination
comes out to be 0.769. This indicates that Discriminant function has managed to explain
almost 77 percent of the variation. The total variation explained by this function shows
that this is significant function with high Eigen value of 3.347 and is causing cent per cent
variation.
Wilks lambda indicates the significance of the Discriminant function. The resulting
estimates were indicative of a highly significant function (p = 0.001) and provides the
proportion of total variability not explained, i.e. it is the converse of the squared canonical
correlation. Therefore, this function has unexplained variation up to approximately 23
percent only. Value of chi-square is 11.021, which is significant at 5 per cent level of
significance.
137

Standardized Canonical Discriminant Function Coefficients was also used to calculate the
Discriminant score for a given case. The score is calculated in the same manner as a
predicted value from a linear regression, using the standardized coefficients and the
standardized variables.
VOL (Voluntary disclosure) is the variable created by
standardizing our discriminating variables. The distribution of the score this function is
standardized to have a mean of zero and standard deviation of one. A further way of
interpreting Discriminant analysis results is to describe each group in terms of its profile,
using the group means of the predictor variables. These are the means of the Discriminant
function scores by group for each function calculated. These group means are called
Centroids. Public sector banks have a mean of 1.636 and private sector banks have 1.636. Cases with scores near to Centroids are predicted as belonging to that group. These
values indicate that public sector banks have greater degree of disclosure as compared
with private sector banks.
The classification table, also called a confusion table, is simply a table in which the rows
are the observed categories of the dependent and the columns are the predicted categories.
When prediction is perfect all cases will lie on the diagonal. The percentage of cases on
the diagonal is the percentage of correct classifications. The cross validated set of data is
a more honest presentation of the power of the Discriminant function than that provided
by the original classifications and often produces a poorer outcome. The cross validation
is often termed a jack-knife classification, in that it successively classifies all cases but
one to develop a Discriminant function and then categorizes the case that was left out.
This process is repeated with each case left out in turn. This cross validation produces a
more reliable function. The argument behind it is that one should not use the case you are
trying to predict as part of the categorization process.
Thus it can be said that voluntary disclosure score has played the role of perfect
discriminator between public sector and private sector banks. Also the voluntary
disclosure score of public sector banks has been significantly higher than that of private
sector banks.
138
Appendix-I
Disclosure Index for Banks
S.No.
Item of Disclosure
MANDATORY DISCLOSURES
1
2
3
4
5
6
7
8
9
10
BALANCE SHEET ITEMS

Capital and its breakdown
Reserves and Surplus and their breakdown
Deposits and its breakdown
Borrowings and its breakdown
Other liabilities and provisions and their breakdown
Cash in hand and balance with RBI and their breakdown
Balance with other banks and Money at call and short notice
Investments and its breakdown
Advances and their breakdown
Fixed Assets and their breakdown
139
S.No.
11
12
13
14
15
16
17
18
19
Item of Disclosure
Other assets and their breakdown
Contingent liabilities their breakdown
Bills for collection
PROFIT & LOSS ACCOUNT ITEMS
Interest earned and their breakdown
Other income and its breakdown
Interest expended and its breakdown
Operating expenses and its breakdown
Net Profit/Loss for the year
Appropriations
DIRECTOR'S REPORT
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Directors report
Statement of companys affairs
Amount proposed to carry to any reserve
Amount recommended to be paid by way of dividend
Material changes and commitments affecting the financial position of the
company
Director's Responsibility Statement
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Report on Management Discussion and Analysis
Disclosure regarding industry structure and developments
Disclosure regarding opportunities and threats
Disclosure regarding segment wise or product wise performance
Disclosure regarding Outlook
Disclosure regarding Risks and concerns
Disclosure regarding Internal control systems and their adequacy
Disclosure regarding discussions on financial performance vis--vis operational
performance
Disclosure regarding material development in human resource including number
of people employed
Brief statement of companies on corporate governance
Composition of Board of directors
Category of Board of directors
Attendance of directors at board meetings
Attendance of directors at last AGM
Number of other boards in which the director is member or chairperson
Number of board meetings held with date
140
S.No.
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
Item of Disclosure
Composition of audit committee
Name of members and chairperson of audit committee
Meetings and attendance during the year
Composition of remuneration committee
Name of members and chairperson of remuneration committees
Attendance in the meetings of remuneration committee
Remuneration policy
Details of remuneration to all directors as per format
Name of non executive director heading the shareholders committee
Name and designation of compliance officer
Number of shareholders complaints received so far
Number of complaints not solved to the satisfaction of shareholders
Number of pending complaints
Location and time of last three AGMs
Disclosure regarding special resolution passed in previous 3 AGMs
Disclosure regarding special resolution passed last year through postal ballotdetails of voting pattern.
Person who conducted the postal ballot exercise
Whether any special resolution is proposed to be conducted through postal
ballot
Procedure for postal ballot
Disclosures relating to related party transactions
Disclosures relating to non compliance by the Company (SEBI guidelines)
Disclosures relating to penalties imposed by SEBI
Whistle blower policy
Quarterly results
Newspapers wherein results normally published
Information relating to website
Time, date and venue of AGM
Date of book closure
Dividend payment date
Listing of stock exchanges
Stock code
Market price data
Registrar and Transfer Agents
Share Transfer System
Distribution of shareholding
Dematerialization of shares and liquidity
Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion
date and likely impact on equity
Address for correspondence
141
S.No.
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
Item of Disclosure
Auditors certificate on corporate governance
RBI GUIDELINES
Details relating to capital adequacy ratio (Tier I and Tier II capital)
Percentage shareholding by Govt. of India in nationalized banks
Amount raised by issue of IPDI
Amount raised by issue of upper Tier II instruments
Gross and net value of investments held by bank in India and outside India
Securities sold under repo
Securities purchased under reverse repo
Details regarding non SLR investment
Forward rate agreement
Exchange traded interest rate derivatives
Disclosure relating to risk exposure in derivatives
Percentage of net NPAs to Net advances
Movement of NPAs
Movement of provisions for NPAs
Particulars of accounts restructured
Details of financial assets sold for asset reconstruction
Details of non performing financial assets purchased /sold
Provision on standard assets
Interest income as a percentage to working funds
Non- Interest income as a percentage to working funds
Operating profit as a percentage to working funds
Return on assets
Profit per employee
Asset liability management
Exposure to Real Estate sector
Risk category wise country exposure
Details of SGL(Single Borrower limit)\GBL (Group Borrower limit) exceeded
by the Bank
Unsecured Advances
Provision for income tax made during the year
AS 5 Net profit and loss for the period, prior period items and changes in the
economic policy
AS 9 Revenue recognition
AS 15 Employee benefits
AS 17 Segment Reporting
142
S.No.
117
118
119
120
121
122
123
124
125
126
Item of Disclosure
AS 18 Related Party disclosures
AS 21 Consolidated Financial ststements
AS 22 Accounting for taxes on income
AS 23 Accounting for investment in Associates in Consolidated Financial
Statements
AS 24 Discontinuing operations
AS 25 Interim financial reporting
Provisions and contingencies
Disclosure of LoCs issued by the bank
Cash Flow Statement
BASEL II(PILLAR3)
SCOPE
127
128
Overview of the group companies
Restrictions for capital transfer within the group
129
130
Details of surplus capital of insurance and capital shortage of all subsidiaries
Effects of capital deduction of insurance participants on tier I and tier II capital
131
132
133
134
135
136
137
CAPITAL STRUCTURE AND ADEQUACY

Description of individual capital elements
Details of innovative and hybrid instruments
Capital requirements in individual risk areas and capital parameters on
consolidated basis
Individual components of core capital and items which deduct capital
RISK POSITION AND ASSESSMENT
General Information
Information considering core risks of the institution
Comparison between current risk profile and risk which actually occurred (for
assessing the reliability of the procedure chosen for risk management)
MARKET RISK : STANDARDISED APPROACH
Details of portfolio which are using the standardized approach and their
measuring methods
143
S.No.
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
Item of Disclosure
Corresponding capital requirements for the interest rate risk, equity position
risk, foreign exchange risk and commodity risk.
OPERATIONAL RISK
Details for which approach the bank qualifies
Interest rate risk in the banking book
Description of the risk and control procedure
Increase or decline in earnings or economic value in case of upward and
downward rates shocks
CREDIT RISK : GENERAL REQUIREMENTS
Definition of the overdue , impaired and defaulted loans
Breakdown of credit volume according to counter parties, regions, industries,
risk concentration and NPAs
Charges of specific allowances and charge offs during the period
Breakdown of specific allowances according to sectors and regions
CREDIT RISK : STANDARDISED APPROACH
Details via external rating agencies
Details specifying positions for which external ratings are used
Mapping of external ratings to risk classes
Breakdown of exposures over the individual risk classes
CREDIT RISK : EQUITY HOLDINGS IN THE BANKING BOOK
Differentiation between equities held
Discussion of key valuation and accounting principles for the equities in the
banking book
Details of book value and current value of equity
Capital requirements for equities for which supervisory transition is applicable
CREDIT RISK : RISK REDUCTION TECHNIQUES
144
S.No.
154
155
156
157
158
159
160
161
Item of Disclosure
Qualitative disclosure requirements for application of credit risk mitigation
techniques
For every portfolio : the total exposure which is covered by recognized financial
collaterals
For every portfolio : the total exposure which is covered by guarantees or credit
derivatives
CREDIT RISK : SECURITISATION OF LOANS
Qualitative disclosure requirements for securitization of loans
Summary of accounting policies for securitization activities
Name of rating agencies which are used and type of securitization
Type and total amount of securitized loans, amount of NPAs and realized losses
Total outstanding of securitized revolving exposures
VOLUNTARY DISCLOSURES
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
GENERAL CORPORATE INFORMATION

Date of establishment
Registration number
Implementation of official language
Information on Associates/Subsidiaries
Awards
Overseas Assets
Details about the chairman (other than name/ title) background of the
chairman/academic/professional/business experiences
Details about directors (other than name/title) background of the
chairman/academic/professional/business experiences
Number of shares held by directors
List of senior managers (not on the board of directors)/senior management
structure
Background of senior managers
Details of the CEOs contact address
Are the independent directors well defined?
Picture of all directors/board of directors
Picture of chairperson only
Shareholders rights
145
S.No.
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
Item of Disclosure
Certificate of compliance of mandatory stipulations under corporate governance
Qualitative forecast of earnings
Return on equity
Net interest margin
Cost-to-income ratio
Earnings per share
Risk weighted assets
Debt to equity ratio
Total liquid assets to assets ratio
Total liquid assets to deposits ratio
Loan to deposit ratio
Dividend per share
Provision coverage ratio
Book value per share
Yield on advances
Yield on investment
Yield on funds
Cost of Deposits
Cost of funds
Non- interest income to Operating income
Asset utilization ratio
Non- interest income to Total income
Non-interest income to Net income
Dividend payout ratio
Percentage of Net NPA to customer assets
Percentage of Gross NPA to Gross Advances
Deposits mobilization
Business highlights
Ratio of establishment expenses to total expenses
Ratio of other operating expenses to total expenses
Performance of Banks share price in comparison with the stock exchanges
Productivity per employee
Percentage increase in Bank advances during the year
Credit deposit ratio
Amount of Income from Third party product
Export Credit information
Information on Retail credit
146
S.No.
215
216
217
218
219
220
Item of Disclosure
Net worth
INFORMATION RELATING TO KEY MANAGEMENT PERSONNEL
Profile of directors seeking appointment and reappointment
Percentage of shareholding by directors
Key management personnel information
Training and development of employees
Awards to employees
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
CORPORATE STRATEGY
Management objectives and strategies/corporate vision/ motto/ statement of
corporate goals or objectives
Future strategy Information of future expansion (capital expenditure)/general
development of business
Impact of strategy on future results
New products and services
Third party products
Bancassurance business
Disclosure regarding future initiatives
Forex business
Education loan
Gold coins
UID cards
E stamping services
Gold loans
Mobile banking services
Internet Banking
Information on international banking facilities
Hindi software
Marketing and publicity
Use of Hindi in publicity
240
241
242
243
244

Disclosure of overall risk performance philosophy and policy
Narrative discussion on risk assets, risk measurement and monitoring
Discussion on risks rise, how risk are managed and controlled
Whether and how hedges and derivatives are used to manage risks
Information on risk management structure
245
KEY NON FINANCIAL STATISTICS

NRI Portfolio (NRI Branches)
221
147
S.No.
246
247
248
249
250
251
252
253
254
255
256
257
Item of Disclosure
Details of branch location
Number of branch
No. of branch expansion during the year 2010-11
Information on branch computerizations
Information on ATM
Location of ATM and their address
Information of Data centre and MIS
Information regarding debit cards
Retail Assets branches
Product-wise capabilities
Information on Financial inclusion
Information on credit card business
258
259
260
261
EMPLOYEE RELATED INFORMATION

Age of key employee
ESOP/ESOS
Information on welfare of employees
Awards to employees
262
263
264
265
266
267
268
269
270
271
272
273
274
275
276
277
278
279
280
DISCLOSURE REGARDING COMMITTEES

Management committee
Nomination committee
NPA Review committee
Fraud Monitoring committee
Customer service committee
Premises committee
Risk Management committee
IT Committee
Share transfer committee
Share transfer scrutiny committee
Advances/credit approval committee
Staff and development committee
Compensation committee
Legal Committee
Director Promotion committee
Flat purchase committee (residential flats)
Share allotment committee
Finance committee
Vigilance committee
148
S.No.
281
282
283
284
285
286
287
288
289
290
291
292
293
294
295
296
297
298
299
300
301
302
Item of Disclosure
HR committee
State level bankers committee
CORPORATE SOCIAL DISCLOSURE
Sponsoring public health, sporting of recreational projects
Information on donations to charitable
Information on social banking activities/banking for the society
Credit flow to women
RTI Information
Anti money laundering
Information regarding environment sustainability
Advances to and development in MSME sector
PSC to Adjusted Net Bank Credit
Agriculture credit to adjusted Net Bank credit
Micro Enterprises to total Micro and small enterprises
Weaker section credit to Net Bank credit
Banks exposure to Micro Finance Institutions
Advances to priority/sensitive sector/Rural Banking
Code of Banks commitment to customer/operational excellence
Disclosure regarding lead bank responsibility (District credit plan)
Financial literary and credit counseling centers
Compliances with reservation policy
Representation of SC/ST in staff strength
Disclosure regarding Information security
308
309
310
INFORMATION REGARDING BORROWERS/DEPOSITORS

Total deposits of twenty largest depositors
Percentage of deposits of twenty largest depositors to total deposits of the Bank
Total advances to twenty largest borrowers
Percentage of advances to twenty largest borrowers to total advances of the
bank
Total Exposure to twenty largest borrowers / customers
Percentage of Exposure to twenty largest borrowers /customers to Total
Exposure of the Bank on borrowers /customers
Total Exposure to top four NPA accounts
Sector wise NPAs
311
312
INFORMATION/FORMS FOR SHAREHOLDERS

Information regarding unclaimed dividend
Information regarding term of statutory auditors
303
304
305
306
307
149
S.No.
313
314
315
316
317
318
319
320
321
322
323
324
325
326
327
328
329
330
331
332
333
334
335
336
337
338
339
340
341
342
343
344
345
346
347
348
Item of Disclosure
Proxy form and attendance slip
National Electronic Clearing system (NECS)
National ECS form
Depository participants services
Application supported by blocked amount
Statement showing details of locked in shares
Voting rights
Procedure for appointment of proxy
List of top five shareholders of the bank
ISIN Code/Number
MISCELLANEOUS INFORMATION
Chairmans/MDs report
Information on ISO 9001: 2000 certification
Graphical presentation of performance indicators
Performance at a glance-3 year
Review of other products and services
Publications
Bilingual Report
Benchmark prime lending rate (BPLR)
Macro Economic scenario
Domestic economic scenario
Disclosure regarding Movement of interest rates
Progress under different plans
Restructuring of debt
Asset quality and NPA management
Recovery under SARFAESI Act 2002
Visit of parliamentary committee
Government business
IT initiatives
Strategic investment
Credit rating
Accounts under US GAAP
Information on Industrial relations
Promoting financial awareness
Conscious corporate citizen
Loan review mechanism
Bullion Banking/precious metal business
150
S.No.
Item of Disclosure
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GURU ARJAN DEV INSTITUTE OF DEVELOPMENT STUDIES

Dr Gursharan Singh Kainth

14-PREET AVENUE, MAJITHA ROAD, NAUSHERA, AMRITSAR-143008

DISCLOSURE PRACTICES IN BANKING SECTOR

Accounting is often called the language of business. Language helps in forming an

DISCLOSURE PRACTICES IN BANKING SECTOR

CORPORATE DISCLOSURE: THE CONCEPT

1.1.1 Disclosure Defined

DISCLOSURE PRACTICES IN BANKING SECTOR

1.1.2 Significance of Disclosure

DISCLOSURE PRACTICES IN BANKING SECTOR

There is no accurate measurement of the adequacy of disclosure, it can be judged in

The achievement of adequate disclosure is a challenge which the accounting profession

1.1.3 Objectives of Disclosure

DISCLOSURE PRACTICES IN BANKING SECTOR

The Accounting Principles Board has identified Relevance, Understandability,

Relevance and Materiality

Substance rather than Form

Freedom from Bias

The most comprehensive statement on objectives of financial reporting is the SFAC

Provide information useful in making investment and credit decisions

DISCLOSURE PRACTICES IN BANKING SECTOR

The objective of financial statements is to provide information about the financial

DISCLOSURE PRACTICES IN BANKING SECTOR

At present Indian banking system can be classified as follows:

PUBLIC SECTOR BANKS

PRIVATE SECTOR BANKS

DISCLOSURE PRACTICES IN BANKING SECTOR

DISCLOSURE PRACTICES IN BANKING SECTOR

1.2.1 Importance of Disclosure in Banking

DISCLOSURE PRACTICES IN BANKING SECTOR

1.3 REGULATORY FRAMEWORK OF DISCLOSURE

DISCLOSURE PRACTICES IN BANKING SECTOR

Environment of Financial Reporting in India

1.3.1 The Banking Regulation Act, 1949

DISCLOSURE PRACTICES IN BANKING SECTOR

DISCLOSURE PRACTICES IN BANKING SECTOR

1.3.2 The Companies Act, 1956

DISCLOSURE PRACTICES IN BANKING SECTOR

DISCLOSURE PRACTICES IN BANKING SECTOR

1.3.3 Reserve Bank of India (RBI)

DISCLOSURE PRACTICES IN BANKING SECTOR

Capital Adequacy Ratio

Capital Adequacy Ratio Tier - I capital

Capital Adequacy Ratio Tier - II capital

Percentage of the shareholding of the Govt. of India in nationalized banks

Amount of subordinated debt raised as Tier 11 capital

The gross value of investments in India and abroad.

Provisions made towards depreciation in the value of investments.

Movement of provisions held towards depreciation on

Securities sold under repos

Securities purchased under reverse repo.

Non SLR Investment Portfolio

Issues composition of Non SLR investment

Non-performing Non SLR investments

Forward Rate Agreement / Interests Rate Swap

Exchange traded Interests Rate Derivatives

DISCLOSURE PRACTICES IN BANKING SECTOR

Disclosure on risk exposure in derivatives

Percentage of Net NPAs to Net advances

Amount of provisions made towards NPAs

Movement of provisions held towards NPAs

Details of loan assets subjected to restructuring