BANKING

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Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2010 Profit appropriation:
whether 20% is transferred to Statutory Reserve or it is 25%?
is it 25% ?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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13 October 2010 Section 17 of the Banking Regulation Act, 1949, makes it necessary for a banking company to create a reserve fund and transfer not less than 20 per cent. of its profits to that reserve fund :

" 17. Reserve fund. --(1) Every banking company incorporated in India shall create a reserve fund and shall, out of the balance of profit of each year as disclosed in the profit and loss account prepared under section 29 and before any dividend is declared, transfer to the reserve fund a sum equivalent to not less than twenty per cent. of such profit."

The mandate of section 17 is that every banking company will have to transfer to a reserve fund every year, a sum equivalent to " not less than twenty per cent. of such profit ". In other words, at least 20 per cent. of the profit as shown in the profit and loss account before declaration of any dividend has to be transferred to the reserve fund. This is the statutory requirement. If a banking company transfers any amount in excess of 20 per cent. of its profit of any year to this reserve fund, the exclusion in clause (xi)(a) will be limited to 20 per cent. of the profit which is the requirement of section 17(1) of the Banking Regulation Act.

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Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2010 THANKS A LOT SIR... BUT IF QUESTION SPECIFIES TO CREATE FOR A PARTICULAR % THEN THE Section 17 of the Banking Regulation Act, 1949 WILL NOT APPLY?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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13 October 2010 Yes. But only if the % is more than 20%. Else your should mention the provision of 20% in your note.

Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2010 thanks a lot sir

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