When a bank prepares its annual accounts, it doesn't use the standard Companies Act Schedule III format. Instead, banking companies follow the Third Schedule to the Banking Regulation Act, 1949 — which prescribes Form A (Balance Sheet) and Form B (Profit & Loss Account). This is the foundation of the entire topic.
The Balance Sheet has two sides: Capital & Liabilities (Capital, Reserves & Surplus, Deposits, Borrowings, Other Liabilities & Provisions) and Assets (Cash & Balances with RBI, Balances with Banks & Money at Call, Investments, Advances, Fixed Assets, Other Assets). Every item is a numbered Schedule — so Deposits is Schedule 3, Advances is Schedule 9, and so on. You need to know which item falls in which schedule — examiners love asking this.
The most exam-critical concept is Non-Performing Assets (NPAs). An advance becomes an NPA when interest or principal is overdue for more than 90 days. NPAs are classified into three buckets: Sub-standard (NPA up to 12 months), Doubtful (NPA beyond 12 months — further split into D1, D2, D3), and Loss assets (identified as unrecoverable). The bank must make provisions against these at RBI-prescribed rates — Sub-standard secured loans carry 15%, while Loss assets require 100% provisioning.
Critically, interest on NPAs is not recognised on an accrual basis. A bank can only book interest income from an NPA when it is actually received in cash. This is a departure from the normal accrual concept and is a favourite exam pitfall. Also remember: CRR (Cash Reserve Ratio) is the cash a bank must keep with RBI (earns no interest), while SLR (Statutory Liquidity Ratio) is the proportion of net demand and time liabilities maintained in approved securities. Both affect how a bank's Balance Sheet looks but are set by RBI, not the bank itself.
This topic is asked frequently as an 8–10 mark question — either a full Balance Sheet preparation or an NPA provisioning calculation. Focus on the Schedule format, NPA classification periods, and provisioning percentages.