Creation of Reserve fund

Creation of Reserve Fund: Every banking company incorporated in India has to create a reserve fund under Section 17 of the BR Act out of the profits as shown in the profits and loss account prepared under Section 29 of the Act. Every year, a sum equivalent to not less than twenty per cent of such profits has to be transferred to the reserve fund. Such transfer of profits to reserve fund has to be made before any dividend is declared.
Exemption from Contribution: If any banking company has an adequate paid-up capital and reserves in relation to its deposit liabilities, the Reserve Bank may recommend to the Government of India for exemption from the requirement of transfer of profits to reserve fund. No such order shall be made unless the amount already in the reserve fund together with the amount in the share premium account is not less than the paid-up capital of the banking company.

Accounting & Finance for Banking

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