INDIAN INSTITUTE OF BANKING & FINANCE

'THE ARCADE', WORLD TRADE CENTRE, CUFFE PARADE

MUMBAI 400 005

Established on 30th April 1928

MISSION

To develop professionally qualified and competent bankers and financial professionals primarily
through a process of education, training, examination, consultancy/counselling and continuing
professional development programs.

VISION

To be the premier Institute for developing and nurturing competent professionals in banking and
finance field.

OBJECTIVES

To facilitate study of theory and practice of banking and finance.

To test and certify attainment of competence in the profession of banking and finance.
To collect, analyse and provide information needed by professionals in banking and finance.
To promote continuous professional development.
To promote and undertake research relating to Operations, Products, Instruments, Processes, etc..
in banking and finance and to encourage innovation and creativity among finance professionals so
that they could face competition and succeed.
COMMITTED TO PROFESSIONAL EXCELLENCE
Website: www.iibf.org.in

3.

ACCOUNTING FINANCE
FOR BANKERS
(For JAIIB/Diploma in Banking &
Finance Examination)
2nd Edition

Indian Institute of Banking & Finance

MACMILLAN

 INDIAN INSTITUTE OF BANKING & FINANCE, MUMBAI, 2005, 2008

(This book has been published by Indian Institute of Banking & Finance. Permission of
the Institute is essential for reproduction of any portion of this book. The views
expressed herein are not necessarily the views of the Institute.)
All rights reserved. No part of this publication may be reproduced or
transmitted, in any form or by any means, without permission. Any
person who does any unauthorised act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
First edition, 2005
Second edition, 2008
Reprinted, 2008 (twice) 2009 (twice)

MACMILLAN PUBLISHERS INDIA LIMITED

Delhi Bangalore Chennai Kolkata Mumbai Ahmedabad
Bhopal Chandigarh Coimbatore Cuttack Guwahati Hubli
Hyderabad Jaipur Lucknow Madurai Nagpur Patna Pune
Thiruvananthapuram Visakhapatnam
Companies and representatives throughout the world
ISBN 10: 0230-63612-8 ISBN
13: 978-0230-63612-5
Published by R AJIV BERI for Macmillan Publishers India Limited
Printed by S.M. YOGAN at Macmillan India Press, Chennai 600 041.

The book was originally written under the guidance of A.D. Bhorkar. and co-authored by
S.K. Dutta, P.S.R. Prasad and S.D. Bargir.
Revised and updated by:
1.

R. Sridhar, F.C.A.
Thriuvananthapuram

2. H. Subramania Iyer
Chief Manager, State Bank of Travancore (Core Banking Project)
Mumbai

This book is meant for educational and learning purposes. The author(s) of the book has/have taken all reasonable care to ensure that the contents of the
book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event the author(s) has/have
been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action.

FOREWORD

The world of banking and finance is changing very fast and banks are leveraging knowledge and
technology in offering newer services to the customers. Banks and technology are evolving so rapidly
that bank staff must continually seek new skills that enable them not only to respond to change, but also
to build competence in handling various queries raised by customers. Therefore, there is a need for
today's bank employees to keep themselves updated with a new set of skills and knowledge.
The Institute, being the main provider of banking education, reviews the syllabus for its associate
examinations, viz., JAIIB/CAIIB and various other examinations with the help of Expert Groups from
time to time to make the contents relevant and contemporary in nature. The latest revision has been
done by an expert group under the Chairmanship of Prof. Y.K. Bhushan. This book and the other two
books mentioned below are the courseware for JAIIB, which aims to impart up-to-date knowledge in
the field of banking and finance and equip the bankers to face the emerging challenges of today and
tomorrow.
As there is a growing demand for qualified manpower in the banking sector with accent on banking
knowledge and skills, together with technology-familiarity, customer-orientation and hands-on
application skills - which will substantially reduce the training intervention at the bank level before/
immediately after they are employed - the institute has launched the Diploma in Banking & Finance in
2007 for graduation-plus level candidates. Candidates to the course will get extensive and detailed
knowledge on banking and finance and details of banking operations. The Diploma is offered in the
distance learning mode with a mix of educational support services like provision of study kits, contact
classes, etc. The key features of the Diploma is that it aims at exposing students to real-life banking
environment and that it is equivalent to JAIIB.
The JAIIB and the Diploma in Banking & Finance has three papers, viz.
1. Principles & Practices of Banking
2. Accounting & Finance for Bankers
3. Legal & Regulatory Aspects of Banking
This book, the courseware for the second paper on Accounting & Finance for Bankers, provides the
basic knowledge necessary to understand the accounting principles and practices of different entities
with special focus on banks, and apply these numeric and accounting skills to aid decision making
while working on a branch banking desk. This would help the students to understand the various steps
involved even in a computerized banking system since the mechanization is based on the basic accounting
principles only.
The Institute had constituted teams consisting of eminent bankers and academicians to prepare the
reading material for all the subjects as self-instructional study kits obviating the need for the intervention
of a teacher. This book represents the outcome of this endeavourto bring out self-contained
comprehensive courseware/book on the subject. The Institute acknowledges with gratitude the valuable
services rendered by the authors in preparing the courseware in a short period of time
The team, which developed the book, has made all efforts to cover the entire syllabus prescribed for
the subject. However, the candidates could still refer to a few standard textbooks to supplement this

VI
material which we are sure, will enhance the professional competence of the candidates to still a higher
degree. We have no doubt that the study material will be found useful and will meet the needs of the
candidates to prepare adequately for the examinations. In addition, we are sure that these books will
also be useful to practitioners, academicians, and other interested readers.
We welcome suggestions for improvement of the book.
Mumbai
3.7.2008

R. Bhaskaran
Chief Executive Officer

RECOMMENDED READING
The Institute has prepared comprehensive courseware in the form of study kits to facilitate
preparation for the examination without intervention of the teacher. An attempt has been made to
cover fully the syllabus prescribed for each module/subject and the presentation of topics may not
always be in the same sequence as given in the syllabus.
Candidates are also expected to take note of all the latest developments relating to the subject
covered in the syllabus by referring to Financial Papers, Economic Journals, Latest Books and
Publications in the subjects concerned.

OBJECTIVES: To introduce the students to the basics of financial mathematics, accountancy and to develop
an understanding in the basic financial concepts
MODULE A - BASICS OF BUSINESS MATHEMATICS
Calculation of Simple Interest and Compound Interest - Fixed and Floating Interest Rates-Calculation of EMIs
- Calculation of the Front End and Back End Interest - Calculation of Annuities - Calculation of Provisions for
NPA and Risk Weights for Basel II - Interest Calculation using Products/Balances
Amortisation and Sinking Funds
Bonds-Calculation of YTM-Duration-Bond Pricing-Premium and Discount Bond Valuation Rules Preliminary
Method, Definition of Debt, Rules on Compounding in Respect of Loan Accounts, Penal Interest, etc.
Capital Budgeting - Discounted Cash Flow - Net Present Value - Pay Back Methods
Depreciation - Different Types - Methods of Calculation Foreign Exchange Arithmetic for
Beginners

MODULE B- ACCOUNTING IN BANKS/BRANCHES

Definition & Scope and Accounting Standards - Nature and Purpose of Accounting; Historical Perspectives
- Origins of Accounting Principles Accounting Standards and its Definition and Scope.
Generally Accepted Accounting Principles - USA Transfer
Price Mechanism