What is balance sheet of a commercial bank? | The balance sheet of a commercial bank

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What is balance sheet of a commercial bank?

The balance sheet of a commercial bank is a statement of its liabilities and assets at a particular point of time. Liabilities refers to all debit item representing the obligations of all the bank or others claims of the bank. On the other hand assets refers to all credit items representing the banks claims or other its ownership of wealth.

Thus, the balance sheet shows how a bank raises funds and how it invests. It is assumed that the liabilities are mentioned on the left side and the assets on the right side of the balance sheet. A balance sheet of a bank is shown on a below table-

1. Share capital1. Cash- (i) Cash in hand, (ii) Cash with central bank and (iii) Cash with other bank
2. Reserve fund2. Money at call short run notice
3. Deposits- (i) Demand deposits, (ii) Time deposits and (iii) Saving deposits3. Bills purchased
4. Borrowing from other bank4. Investment
5. Acceptance and endorsements5. Loans and advances
6. Other liabilities.6. Liabilities of customers for acceptance and endorsement  
 7. Building and other fixed assets.

Liabilities of the bank

Share Capital- Share capital is the contribution made by the share holders. Share capital is in the form or authorized co-subscribed capital and paid up capital. Or, It refers to the contribution made by the share holders of the bank, it indicates the bank’s liabilities to its share holders.

Reserve fund- Reserve fund is the amount accumulated over the years out of undistributed profits. Normally, all the profits of the banks are not distributed among the share holders. Some part is retained undistributed for meeting contingencies. ( or The amount accumulated out of undistributed profits by the banks over the years to meet contingencies constitutes reserve funds.)

Deposits- Deposits from the public contributed the major portion of the banks working capital. Deposits are a primary source of funds for banks. Various types of deposits accepted by the bank. They are

Demand deposits- Demand deposits which can be withdrawn at any time and on which no interest is paid

Time deposits- Time deposit is the deposits  which can be withdrawn after a fixed period of time and which high rate of interest is paid.

• Saving deposits- Saving deposit is the deposits which can be withdrawn to the limited extend in a given period and on which some interest is paid.

Borrowing from banks- Sometimes the banks borrows the loans from other banks to meet the increased demand for money. All there borrowing from the liability of the borrowing banks. These borrowings are also a chain against the borrowing bank and represent its liabilities.

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Acceptance and endorsements- The bank also creates labilities by accepting and endorsing the bills of exchange on behalf of its customer.

Other liabilities- Certain other liabilities are incurred by the bank. For example- The profit earned by the bank represented the liabilities because they are payable to the share holders.

Assets of the bank

Cash- Cash is the most liquid but non-earning asset and considered as the first line define. Every banks keeps certain amount of cash in order to meet the cash requirement of its depositors. Cash may be of three form- (i) Cash in hand, (ii) Cash with central bank and (iii) Cash with other bank.

Money at call and short notice- It refers to loans which are recoverable by the bank on demand or at a very short notice. These loans are for a maximum period of 15 days. Such loans are earning as well as highly liquid assets which can be converted into cash quickly and without loss.

Bills purchased and discounted- The banks utilizes its funds in trade bills which is discounted. The amount of bills is collected by the banks on maturity. The bills discounted are short term (90 days) self liquidating assets.

What is balance sheet of a commercial bank? | The balance sheet of a commercial bank

Investments- Some funds are invested in profit yielding assets, mainly the govt. securities. Government securities are relatively safe because there is certainty of repayment after maturity loans and advances.

Loans and advances- There are the most profitable and most liquid assets of the bank. Banks provides loans and advanced to the businessman either through over drafts or by discounting of bills of exchange. Loans and advance earn high rate of interest and earn greater risk.

Acceptance and endorsement- When a bank accepts or endorse exchange bills for its customers, the amount of the bill becomes customers liability and the bank assets.

Building and other fixed assets- Banks assets also include the value of the moveable and immoveable properties of the bank like- office building and furniture etc. These assets do not contribute to the income of the bank.


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