ACCOUNTING ENTRIES AND BOOKING OF PROFIT

[VASANT KULKARNI]

OURS IS A URBAN COOP BANK REGD. IN MAHARASHTRA AND DOING BANKING BUSINESS AS PER THE BANKING LICENCE ISSUED BY RBI.

OUR BANK CAN ACQUIRE THE PROPERTY OF A BORROWER U/S 100 (RULE 85) OF THE MAHA. COOP SOCIETIES ACT 1960.ACCORDINGLY BY FOLLOWING DUE PROCEDURE THE BANK ACQUIRED THE PROPERTIES OF BORROWERS AND THE ARE NOW SHOWN AS NON-BANKING ASSETS IN THE BOOKS OF BANK.THE DUES OF THE SAID BORROWERS STAND SETTELED AT THE PRICES FIXED BY COOP DEPT..IN SOME CASES FULL AMOUNT IS RECOVERED (PRINCIPLE+INTERSET).NOW THE BANK INTENDS TO SELL THE NON- BANKING ASSETS.PL ADVISE ON THE FOLLOWING.

1)WHETHER THE EXCESS AMOUNT REALISED BY THE BANK AFTER THE SALE OF ASSETS IS TO BE RETURNED TO THE BORROWER OR TAKEN AS CAPITAL GAIN BY BANK?

2)WHILE PASSING THE ENTRIES, THE LOAN ACCOUNT IS CREDITED BY THE VALUE OF ASSETS ACQUIRED viz.THE PRINCIPLE AS WELL AS THE INTEREST THEREON IS BOOKED.BUT THIS IS NOT ALLOWED BY RBI AS IT IS A MERE BOOK ENTRY AND THERE IS NO REALISATION OF INTEREST THEREON.IS THIS VIEW CORRECT?

AI Summary

Urban Cooperative Bank Seeks Guidance on Handling Excess from Asset Sales and Loan Account Crediting per RBI Rules An urban cooperative bank in Maharashtra, operating under the RBI license, acquired properties from borrowers under the Maharashtra Cooperative Societies Act. These properties are listed as non-banking assets after settling borrower dues. The bank seeks guidance on whether excess amounts from asset sales should be returned to borrowers or treated as capital gains. Additionally, clarification is sought on the appropriateness of crediting loan accounts with the asset value, including interest, despite RBI's stance against such book entries without actual interest realization. A respondent inquired if the issues were clarified, indicating ongoing discussion.