Off balance sheet activities of commercial banks in a deregulated environment

The off Balance Sheet activities are generally deemphasised, as they are shown under Schedules as Annexures to the main accounts of banks in the financial sector. These transactions have expanded considerably during the last decade far exceeding the Balance Sheet (BS) transactions, which are motivated to generate additional income with deals in speculative trading and risks thereof. The policies of deregulation and liberalisation and consequent competition among various entities in the financial sector together with the growing business of derivative markets, further accelerated the tempo of these activities. In the System of National Accounts (SNA) 2008, it is mentioned that satellite accounts need to be developed to cover the OBS activities also, supplementing the scope of financial assets and liabilities. Further OBS transactions are also assigned risk weights along with other assets in the BS in working out the Capital Adequacy Ratios (CAR) in the Basel norms, which are stipulated for implementation by lending institutions in all the countries. Against this background, an attempt is made in this paper to analyse the OBS activities of commercial banks and their impact on income and profit. As the OBS activities of foreign banks (covered under commercial banks) are on a higher scale compared to Public and Private sector banks, analysis is done separately for this bank group. Inview of the sizeable activities of OBS, it felt necessary to have a suitable information system covering all subsectors financial sector).