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Liabilities and Assets of Scheduled Commercial Banks (principal products)

The table shows (a) that banks enhance the almost all their funds by attempting to sell deposits—their principal obligation, and (b) they hold their assets mostly by means of (i) loans and improvements and bills discounted and bought, together constituting bank credit, (ii) investment, and (iii) money.

A explanation that is brief of primary components of liabilities and assets is offered below:

Liabilities of Banking institutions:

1. Capital and Reserves:

Together they constitute owned funds of banking institutions. Capital represents capital that is paid-up i.e., the total amount of share money really added by owners (shareholders) banking institutions. Reserves are retained earnings or undistributed earnings of banking institutions accumulated over their lives that are working. What the law states requires that such reserves are accumulated and that not totally all the earned profits are distributed among the list of investors.

The banking institutions additionally think it is wise to produce reserves to-improve their capital place, in order to satisfy better unexpected liabilities or losses that are unexpected. Reserves is distinguished from ‘provisions’ made for redeeming known liabilities and impacting known reductions within the value of specific assets. Continue reading