Off-balance sheet exposures

Off-balance sheet exposures refer to activities that are effectively assets or liabilities of a company but do not appear on the company’s balance sheet. The off-balance sheet exposures in banking activities refers to activities that do not involve loans and deposits but generate fee income to the banks. The non-fund based facilities like Issuance of letter of guarantee, letter of credit, deferred payment guarantee, letter of comfort; Investments of clients held by an investment company etc. which are contingent in nature are some of the examples off -balance sheet exposures of the banks. The above mentioned items do not appear on the institution’s balance sheet until and unless they become actual assets or liabilities. Nevertheless, off-balance sheet items are detectable as they are appearing in the notes to financial statement of the organization. As per generally accepted accounting principles (GAAP) require an organization to disclose these and financing arrangements in the notes to their audited financial statements