DBOD.No. FSC. BC. 75/21.04.048/98

August 4, 1998

Shravana 13, 1920 (Saka)

All Commercial Banks

(excluding Regional Rural Banks)

Dear Sir,

Acquisition of Government and Other Approved Securities - Broken Period Interest - Accounting Procedure

It is observed that some banks capitalise the Broken Period Interest (interest accrued on the securities purchased upto the time of acquisition) included in the cost price, on the ground that such accrued interest paid to the seller at the time of purchase is not recognised as a Revenue Expenditure for tax purposes.

The matter has been examined and with a view to bringing about uniformity in the accounting treatment of Broken Period Interest on Government Securities paid at the time of acquisition and also complying with the Accounting Standards prescribed by the Institute of Chartered Accountants of India, it has been decided that banks should not capitalise the Broken Period Interest paid to seller as part of cost, but treat it as an item of expenditure under Profit and Loss Account as per AS 13.

It may please be noted that the accounting treatment explained above does not take into account taxation implications and hence banks will have to comply with the requirements of Income Tax Authorities in the manner prescribed by them.

Yours faithfully

(C.R. Muralidharan)

General Manager