DIFFERENT TYPE OF RESERVES:
Required Reserves:
Statutory funds that are to be kept
with RBI as to meet liquidity requirements like CRR and SLR.
CAPITAL RESERVES:
- Reserves which are kept aside by the company profits to pay for the company's long-term projects/plans /investments.
- Ex. Money kept aside by a corporation to construct a new office building.
- There is no legal need to distribute any portion of the reserve as dividends to shareholders, the whole sum may be used to construct a brand-new headquarters.
Excess Reserve:
- Those funds available with the bank or any financial institution which are in excess of the minimum reserve that is required to be kept as per the statutory law ie CRR and SLR.
- These reserves act as a safety fund or a buffer that protects the institution against any unforeseen contingency.
Free Reserve:
- Funds in a company’s balance sheet that are available for distribution as dividends.
- Essentially, these are the extra amounts, after deductions, that can be utilized to reward shareholders.
Undisclosed Reserves:
- Those reserves which are on the books of the banks but not put in public domain and not listed on the balance sheets or other financial statements.
- These often have characteristics similar to equity and disclosed reserves like profit which is unrealized.
