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Accounting Policies of Andhra Bank Company

Mar 31, 2017

SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES:

1. GENERAL:

1.1.Basis of preparation

The financial statements are prepared on historical cost convention and on accrual basis of accounting, unless otherwise stated, by following going concern assumption and conform in all material aspects to Generally Accepted Accounting Principles in India which comprise applicable statutory provisions, regulatory norms/ guidelines prescribed by the Reserve Bank of India (RBI), Banking Regulation Act, 1949, Accounting Standards, Guidance Notes issued by the Institute of Chartered Accountants of India (ICAI) and practices prevailing in the banking industry in India.

1.2.Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision in the accounting estimates is recognized prospectively in the current and future periods.

2. REVENUE RECOGNITION:

2.1 Income and Expenditure are generally recognized on accrual basis, except the following;

i. Interest on non-performing advances and non performing investments is recognized based on realization as per prudential norms laid down by Reserve Bank of India, in view of uncertainties of collection of income in such cases.

ii. Income by way of Commission, exchange, brokerage, fee, interest on overdue bills, and rent on lockers are accounted for on realization.

iii. Dividend is accounted on accrual basis when the right to receive the same is established

iv. In case of suit filed accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

2.2 Partial recoveries in non performing advances are appropriated in the following order of priority.

i. Expenditure/out of pocket expenses incurred for recovery.

ii. Interest irregularities/accrued interest.

iii. Principal irregularities i.e., Principal outstanding in the account.

2.3 In case of non performing advances involving compromise settlements in which case the recoveries are first adjusted towards principal.

3. FOREIGN EXCHANGE TRANSACTIONS:

3.1 Income and Expenditure items are recorded at the exchange rates prevailing on the date of transaction.

3.2 Monetary Assets and Liabilities are revalued at the Exchange Rates notified by FEDAI at the close of the year and the resultant gain/loss is recognized in the Profit and Loss Account.

3.3 Forward exchange contracts are initially recorded at exchange rate prevailing at the time of booking of the contract. These are translated at the yearend rates notified by FEDAI and the resultant gain/loss is taken to Profit & Loss Account.

3.4 Foreign Letters of Credit/Letters of Comfort and Letters of Guarantee are recorded at the rates prevailing on the date of entering into such commitment. Outstanding items are restated at the rates notified by FEDAI as at the close of the financial year.

3.5 Derivative contracts undertaken on back-to-back basis or for hedging Bank''s own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

4. INVESTMENTS:

4.1 Investments are classified and shown in Balance Sheet under the following six heads.

i. Government Securities

ii. Other Approved Securities

iii. Shares

iv. Debentures and Bonds

v. Subsidiaries / Joint Ventures /Associates and

vi. Others.

4.2 Investments are further classified into the following three categories:

i. Held to Maturity (HTM)

ii. Available for Sale (AFS)

iii. Held for Trading (HFT)

4.3 Basis of classification

i. “Held to Maturity” category comprises - securities acquired with the intention to hold them up to maturity.

ii. “Held for Trading” category comprises securities acquired with the intention of trading.

iii. "Available for Sale" securities are those which are not classified under either of the above two categories. .

iv. Investments in Subsidiaries/Joint ventures/Associates are classified as “Held to Maturity”.

v. An investment is classified as HTM, HFT or AFS at the time of its purchase and subsequent shifting amongst categories is done in conformity with the guidelines issued by Reserve Bank of India.

4.4 Valuation:

In determining the acquisition cost of an investment

i. Brokerage/commission received on subscriptions is reduced from the cost of Investments. The incentives received after the sale of securities is credited to Profit and Loss Account

ii. Brokerage, commission, securities transaction tax and stamp duty paid in connection with acquisition of investments are treated as revenue expenditure.

iii. Broken period interest paid/received on debt instruments is treated as interest expense/income and is excluded from cost/sale consideration.

iv. Cost is determined on the weighted average cost method for all the categories of investments

The Investments are valued in accordance with guidelines issued by Reserve Bank of India on the following basis:-

i. Held to Maturity:

a. Investments classified under this category are stated at acquisition cost, net of amortization. The excess of acquisition cost over the face value, if any, is amortized over the remaining period of maturity. Such amortization of premium is adjusted against income under the head ''Interest on Investments''

b. Investments in subsidiaries, joint ventures and associates (both in India and abroad) are valued at historical cost.

c. Any diminution, other than temporary in nature, in the value of investments is determined and provided for on each such investment individually.

ii. Available for Sale:

a. Investments classified under this category are marked to market on quarterly basis and valued as per Reserve Bank of India guidelines at the market rates available on the last day of each quarter (Balance Sheet date) from trades/ quotes on the Stock Exchanges, prices/yields declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Unquoted securities are also valued as per the Reserve Bank of India guidelines.

b. The net depreciation under each of the five heads (other than investment in Subsidiaries / Joint Ventures /Associates) is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

c. Treasury bills and Commercial Papers are valued at carrying cost

iii. Held for Trading:

a. Investments classified under this category are valued at market price based on market quotations, prices/yields declared by FIMMDA at the end of every month.

b. The net depreciation under each of the five heads (other than investment in Subsidiaries / Joint Ventures /Associates) is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

4.5 Prudential Norms:

i. The identification of non performing investments and provisions made thereon is as per Reserve Bank of India guidelines.

ii. Accounting for Repo/Reverse Repo transactions

The securities sold and purchased under Repo/ Reverse repo (including repo/ reverse repo transactions under Liquidity Adjustment Facility (LAF) and the Marginal Standing Facility (MSF) with rBi) are accounted as Collateralized lending and borrowing transactions. However, securities are transferred as in the case of normal outright sale/ purchase transactions and such movement of securities is reflected using the Repo/ Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo A/c is classified under schedule 4 (Borrowings) and balance in Reverse Repo A/c is classified under schedule 7 (Balances with Banks & Money at Call & Short Notice) as per RBI Master directions issued.

4.6 Profit / Loss on Sale of Investments:

i. Profit or loss on sale of investments is recognized on the value dates on the basis of weighted average cost. Premium on redemption of Debentures/ Bonds is recognized on the date of redemption.

ii. Profit on sale of investments held in “Available for Sale” and “Held for Trading” categories is recognized in the Profit and Loss Account.

iii. Profit on sale of investments in “Held to Maturity” category is first taken to the Profit and Loss Account and an equivalent amount of profit is appropriated to the Capital Reserve (net of taxes and amount required to be transferred to Statutory Reserve).

iv. Loss on sale of investments in all the three categories is recognized in Profit and Loss Account.

4.7 General

i. Purchase and sale transactions in Government and other than Government Securities are recorded on the date of settlement.

ii. a) Transfer of scrips from AFS/HFT category to HTM category: Transfer is made at the lower of book value or market value. In cases where the market value is higher than the book value at the time of transfer, the appreciation is ignored and the security is transferred at book value. In cases where the market value is less than the book value, the provision against depreciation already held against that security and the additional provision, if any, required based on valuation done on the date of transfer is recognized and adjusted to reduce the book value to the market value and the security is transferred at the market value.

b) In case of transfer of securities from HTM to AFS/HFT category:

If the security originally placed under HTM category;

- is at a discount, it is transferred to AFS/HFT category at the acquisition price/ book value.

-is at a premium, it is transferred to AFS/HFT category at the amortized cost.

After transfer in both the above cases, these securities are immediately re-valued and resultant depreciation, if any, is provided.

c) In case of transfer of securities from AFS to HFT category or vice-versa, the securities are not re-valued on the date of transfer and depreciation already held if any, is transferred to the provision for depreciation against the HFT securities and vice-versa.

iii. In case of sale of NPA (financial asset) to Securitization Company (SC)/ Asset Reconstruction Company (ARC) against issue of Security Receipts (SR), investment in SR is recognized at lower of: (i) Net Book Value (NBV) (i.e., book value less provisions held) of the financial asset; and (ii) Redemption value of SR. SRs issued by an SC/ ARC are valued in accordance with the guidelines applicable to non-SLR instruments. Accordingly, in cases where the SRs issued by the SC/ ARC are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Net Asset Value, obtained from the SC/ ARC, is reckoned for valuation of such investments.

5. INTEREST RATE SWAPS:

5.1 Interest Rate Swaps: (Hedging)

i. Income on continuing swap transactions is recognized on accrual basis except the swap designated with an asset or liability that is carried at lower of cost or market value in the financial statements. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value or designated asset or liability.

ii. Gains/ losses on terminated swap transactions are recognized when the offsetting gain or loss is recognized on the designated asset or liability. Thus, the gain or loss on the terminated swap is deferred and recognized over the shorter of the remaining contractual life of the swap or the remaining life of the designated asset/liability.

5.2 Interest Rate Swaps: (Trading)

i. Trading swaps are marked to market with changes recorded in the Profit and Loss Account;

ii. Income and Expenses relating to these swaps are recognized on the settlement date;

iii. Fee is recognized as income or expense as the case may be;

iv. Gains or losses on the termination of the swaps are recorded immediately as income or expenses on such termination.

6. ADVANCES

6.1 Loans and Advances are classified as performing and non-performing, based on the guidelines issued by the Reserve Bank of India.

6.2 Advances are classified into Standard, Sub-Standard, Doubtful and Loss Assets borrower wise.

6.3 Provisions are made for NPAs as per the extant guidelines prescribed by Reserve Bank of India and additional provision as assessed.

6.4 Advances stated in the Balance Sheet are net of specific loan loss provisions.

6.5 For restructured/rescheduled assets, provisions are made in accordance with the guidelines issued by the RBI, which require that the difference between the fair value of the loan before and after restructuring is provided for. The Provision for Diminution in Fair Value (DFV) is reduced from advances.

6.6 In the case of loan accounts classified as NPAs, account may be reclassified as a performing asset if it conforms to the guidelines prescribed by the regulators.

6.7 Amounts recovered against debts written off in earlier years are recognized as revenue in the year of recovery.

6.8 General provision is also made for standard assets as per extant RBI Guidelines. These provisions are reflected in Schedule 5 of the Balance Sheet under the head “Other Liabilities and Provisions” and are not considered for arriving at Net NPAs.

7. FIXED ASSETS

7.1 Fixed Assets are stated at historical cost except Land/ premises, which have been revalued. At the date of revaluation, accumulated depreciation is calculated by restating proportionately with the change in gross carrying amount so that the carrying amount after revaluation equals its revalued amount, as per the Accounting Standard AS-10-(Revised) Property, Plant and Equipment. The appreciation on revaluation is credited to revaluation reserve and incremental depreciation attributable to the revalued amount is deducted there from.

7.2 Depreciation

i. Depreciation on Premises and on other Fixed Assets, is provided on WDV method at the following rates considered appropriate by the Management.

ii. The depreciation on Computers and other Peripherals is provided @ 33.33 % on Straight Line Method.

iii. Depreciation on ATMs is provided on straight line method based on the estimated useful life of seven years.

iv. Assets having original cost less than or equal to Rs 5000/are being depreciated 100% leaving a residual value of '' 1/- only.

7.3 Amortization

i. Premium wherever is paid for acquisition of leasehold land, such premium along with cost of the buildings constructed thereon is amortized over the period of lease.

ii. Depreciation has been charged on composite cost of Land and Building, where separate cost of land is not available.

iii. Acquisition cost of software is treated as intangible assets.

a. Software acquired under Core Banking Solution (CBS) is amortized over its estimated useful life of five years.

b. Other software acquired is charged off in the year of acquisition.

8. EMPLOYEES BENEFITS

8.1 Short Term Employee Benefits:

The undiscounted amounts of short-term employee benefits payable wholly within twelve months of rendering the service by employees are classified as short term, and are recognized during the period in which the employee renders the related service.

8.2 Long Term Employee Benefits:

i. Defined Contribution Plans:

Contributions payable to the recognized provident fund / National Pension Scheme (NPS), are defined contribution plan and charged to the profit & loss account.

The Bank operates a new pension scheme (NPS) for all officers/ employees joining the Bank on or after 1st April, 2010, which is a defined contribution plan, such new joiners not being entitled to become members of the existing Pension Scheme. As per the scheme, the covered employees contribute 10% of their basic pay plus dearness allowance to the scheme together with a matching contribution from the Bank. Pending completion of registration procedures of the employees concerned, these contributions are retained with the Bank. The Bank recognizes such annual contributions in the year to which they relate. Upon receipt of the Permanent Retirement Account Number (PRAN), the consolidated contribution amounts are transferred to the NPS Trust.

ii. Defined Benefit Plans

Employees'' gratuity, pension and leave encashment are defined benefit plans.

a. Gratuity:

The employees Gratuity Fund Scheme is funded by the Bank and managed by a separate trust who in turn manage their funds through approved schemes of Life Insurance Companies. The present value of the Bank''s obligations under Gratuity is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

b. Pension:

The employees’ Pension Fund is funded by the Bank and is managed by a separate trust. The present value of the Bank''s obligations under Pension is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

c. Leave Encashment:

The privilege leave is considered a long term benefit and is recognized based on independent actuarial valuation on ''Projected Unit Credit method'' at each balance sheet date.

iii. Other Long Term Employee Benefits:

a. All eligible employees of the Bank are eligible for compensated absences, silver jubilee award, leave travel concession, retirement award and resettlement allowance. The costs of such long term employee benefits are internally funded by the Bank.

b. The cost of providing other long term benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Past service cost is immediately recognized in the statement of profit and loss and is not deferred.

9. TAXES ON INCOME

9.1 Income tax expense is the aggregate amount of

i. current tax provision and

ii. deferred tax charge.

9.2 Current tax provision is the amount of tax for the period which is determined in accordance with the provisions of Income tax Act, 1961 and the rules made there under.

9.3 Deferred tax charge is determined in accordance with the provisions of Income tax Act, 1961 and as per Accounting Standard 22 ''Accounting for Taxes on Income'' issued by the Institute of Chartered Accountants of India and is the net change in the deferred tax asset or liability during the year. Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income and reversal of timing differences of earlier years.

9.4 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date.

9.5 Deferred tax assets are not recognized unless there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets will be realized.

9.6 Deferred tax assets are recognized and reassessed at each reporting date, based upon the management''s judgment as to whether realization is considered as reasonably/virtually certain.

9.7 Special Reserve:

Revenue and other Reserves include Special Reserve created under Section 36(1)(viii) of the Income Tax Act, 1961.The Board of Directors of the Bank has passed a resolution approving creation of the reserve and confirming that there is no intention to make withdrawal from the Special Reserve.

10. IMPAIRMENT OF ASSETS

An assessment is made at each balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for.

11. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

11.1 In conformity with AS-29 “Provisions, Contingent Liabilities and Contingent Assets” issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only when :

i. it has a present obligation as a result of a past event.

ii. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and

iii. when a reliable estimate of the amount of the obligation can be made.

11.2 No provision is recognized for :

i. any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank; or

ii. any present obligation that arises from past events but is not recognized because;

a. It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or

b. A reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that Part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

11.3 Contingent Assets are not recognized in the financial statements.

12. NET PROFIT

The Net Profit disclosed in the Profit and Loss Account is after:-

i. Provision for depreciation on Investments.

ii. Provision for Taxation.

iii. Provision on loan losses

iv. Provision on Standard Assets.

v. Provision for non-performing investments

vi. Other usual and necessary provisions.

# Investment includes Rs,2.60 (Rs, 0.70) Crore invested in 26,04,770 (70,000) shares of Rs,10 (Rs,100) each of Regional Rural Bank and Share Capital Deposit amounting to ''Nil (Rs,1.90 crore) pursuant to Government of India directions.

* Includes the following

a) Investments in 162 (162) shares (class B) of Master card Inc valued at '' 1 (Rs, 1)

b) Investments in 8 (8) shares of SWIFT valued at '' 1 (Rs, 1)

c) Investment in 82,50,000 (82,50,000) shares of Malaysian Ringgit 10 each amounting toRs,143.28 crore (Rs,143.28 crore) in India International Bank (Malaysia) BHD.

Shares of Master Card Inc. are allotted in kind, free of cost, as an incentive in view of the past business relation with these entities. Shares of SWIFT include shares allotted in initial membership and shares accrued on re-allocation. The reallocation of share is based on bank''s utilization of SWIFT''s network based financial services.

Securities amounting to Rs,14,853.50 crore (Rs,11636.89 crore) are kept as margin with the Clearing Corporation of India Ltd., ICCL, BSE, NSE, RBI, MSEI towards securities settlement.

a) During the year, the Bank has shifted Central/State Government securities aggregatingRs,2466.30 crore (Rs,0.00 crore) from .Available for Sale Category (AFS) /Held for Trading (HFT) Category to Held to Maturity (HTM) Category at lower of acquisition cost/book value / market value and booked a shifting loss ofRs,17.33 crore (Rs, 0.00 Crore) to P&L Account. Bank also shifted Central/State Government Securities aggregating toRs,4362.84 crore ('' 6602.73 crore) from Held to

Maturity (HTM) category to Available for Sale (AFS) category and booked a shifting loss ofRs,0.00 crore ('' 0.00 crore). Bank also shifted investment ofRs,34.91 crore ('' 55.02 crore) in Venture Capital funds from Held to Maturity (HTM) category to Available for Sale (AFS) category and provided a depreciation ofRs,0.33 Crore ('' 3.84 Crore).

b) The Bank has earned gross amount ofRs,263.22 crore ('' 74.59 crore) as profit on sale of securities in HTM category out of which an amount ofRs,129.09 crore ('' 36.58 crore), net of tax and amount required to be transferred to Statutory Reserve, has been appropriated to capital reserve account as per RBI guidelines.

c) During the year ended March 31, 2017, the aggregate book

value of investment sold from, and transferred to/from HTM category was in excess of 5% of the book value of investments held in HTM category at the beginning of the year. The excess of Book value of the investments held in HTM category as on March 31, 2017 over the Market value is Nil. In accordance with the RBI guidelines, sale from, and transfer to/from, HTM category excludes:

i) One-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year with approval of the Board of Directors and

ii) Sale to the RBI under pre-announced open market operation auctions.

1.3.3 Disclosures on risk exposure in derivatives :

A) Qualitative Disclosures:

a) Structure and Organization for Management of risk in derivatives trading:

i) In terms of Reserve Bank of India guidelines on Interest Rate Swaps (IRS) and Forward Rate Agreements (FRA) the Bank has approved policies and procedures, counter party exposure limits, delegation of powers, accounting policy, policy for valuation, ISDA documentation, cut loss, reporting etc., for Interest Rate Swaps and fixed a cap of ''1500 crore for interest rate swaps (sub-limit of ''500 crore for Trading Book).Bank has conducted the derivative operations within the overall framework of these guidelines.

ii) The Bank has approved policies and procedures, counter party exposure limits, delegation of powers, accounting policy, ISDA documentation, reporting etc., for undertaking forex derivatives in various forms of currency swaps & various types of interest rates swaps not specifically prohibited by Reserve Bank of India with the corporate borrower customers, other banks and nonborrower customers to be covered on back to back basis. Bank''s policy also permits entering into Plain Vanilla European Style Option to Bank''s customers for hedging / pricing their forward exposures on back to back basis, or for hedging foreign currency exposures.

(iii) Derivative contracts undertaken on back-to-back basis or for hedging own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till the expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

b) Scope and nature of risk measurement, risk reporting and risk monitoring systems:

The position of all outstanding swaps, new swaps entered, swaps exited, mark to market value of swaps etc., is being reviewed by the bank''s investment committee and Board at monthly intervals. Details of transactions undertaken in IRS are also reported to Reserve Bank of India on a fortnightly basis.

c) Policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants: Depending on the market opportunities a view on interest rate movement is taken and acted upon. Though the settlement of swaps takes place on due date/dates as per the terms of the swaps, the value monitoring is carried out daily to know the impact of market changes on Swap Book. When unfavorable market movements are unidirectional, swaps are exited cutting loss. Cut loss limits, exit powers, reviewing authority etc., are prescribed.

d) Accounting policy for recording the hedge and nonhedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts, provisioning, collateral and credit risk mitigation: Detailed accounting policy and valuation policy are approved by Board. Transactions for hedging purposes are accounted for on accrual basis except the swap designated with an asset / liability that is carried at lower of cost or market value. In that case, the swap is marked to market, with the resultant gain or loss recorded as an adjustment to the market value of designated asset or liability. On termination of swap, gain or loss is recognized when the offsetting gain or loss is recognized on the designated asset or liability. Any gain or loss on the terminated swap was deferred and recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset / liability.

Trading transactions have to be marked to market with charges recorded in the income statement. Income, expenditure, fee, gains or losses on termination of swaps are all recorded as immediate income or expenses.

* Including provision for sacrifice in respect of restructured standard assets amounting toRs,70.47 crores (Rs,114.73 crores).

1.4.8 Floating and additional provisions:

a) Floating Provision of Rs,13.00 crore (Rs,13.00 crore) is held as at 31.03.2017 in respect of gross non performing advances over and above the minimum prescribed as per guidelines issued by Reserve Bank of India with a view to strengthening the financial position of the Bank.

b) The above floating provision is netted off from advances.

The bank has not exceeded the ceiling for Single Borrower or Group Borrower wise exposures in any of the Group accounts.

1.7.5 Unsecured advances: The amount of advances, for which intangible securities, such as charge over the rights, licenses etc., have been taken as security is NIL ( NIL) and the said advances have been classified as unsecured forming part of Unsecured advances in Schedule 9 Item II-C. Such advances constitute NIL% (NIL%) of total unsecured advances.

1.9 Penalties imposed by Reserve Bank of India:

Monetary Penalty to the tune of Rs, NIL Crore (Rs, NIL Crore) has been imposed by Reserve Bank of India under Section 46(4) of the Banking Regulation Act, 1949.

2 Disclosure requirements as per Accounting Standards (AS) issued by the Institute of Chartered Accountants of India where RBI has issued guidelines in respect of disclosure items.

2.2 Accounting Standard 5 -Net profit or loss for the period, prior period items and changes in accounting policies

There is no material prior period item included in Profit and Loss account which is required to be disclosed as per the Accounting Standard issued by the Institute of Chartered Accountants of India read with guidelines issued by Reserve Bank of India.

2.3 Accounting Standard 9 Revenue Recognition

As mentioned in Accounting Policy (2) of Schedule 17 certain items are accounted on cash basis on account of statutory/regulatory requirements and materiality.

2.4 Accounting standard 15 Employee benefits

The Bank has adopted Accounting Standard - 15 (Revised) issued by the Institute of Chartered Accountants of India with effect from 01.04.2007

2.4.1 Gratuity

Bank pays gratuity to employees who retire/resign from Bank''s service as per rules. The Bank makes contributions to the Trust, towards funding this gratuity, payable every year. In accordance with the gratuity funds rules, actuarial valuation of gratuity is done every year. Actuarial valuation of gratuity liability is calculated based on certain assumptions regarding discount rate, salary growth, mortality and staff attrition as per the projected unit credit actuarial method.

The gratuity payable to the employees is worked out by way of two methodologies i.e., as per the Payment of Gratuity Act, 1972 and other as per service rules and the entitlement is based on what is most beneficial to employees.

2.4.2 Pension

Bank pays pension under a defined benefit plan covering the employees who have opted for pension and also to the employees joining the bank''s service on or after 29.09.1995 but before 01.04.2010.The plan provides for a pension on a monthly basis to these employees on their cessation from the bank''s service as provided for in Andhra Bank Employee Pension Regulations, 1995. Pension Fund is managed by Andhra Bank Employees Pension Fund Trust. Employees who joined on or after 01.04.2010 are entitled to Defined Contributory Pension scheme where under the scheme, employee will contribute 10% of pay and eligible allowance with equivalent contribution being made by the Bank and the same will be maintained as per the guidelines issued by the Pension Fund Regulatory and Development Authority from time to time.

2.4.3 Provident Fund

Bank is statutorily required to maintain a provident fund as a part of its retirement benefits to the employees who joined the banks service on or before 31.03.2010. This fund is administered by a trust managed by the bank. Each employee contributes 10% of their basic salary and eligible allowances

Valuation has been carried out by an independent Actuary appointed by the Bank.

The estimate of future salary increase, considered in actuarial valuation, takes into account the inflation, seniority, promotion and other relevant factors, such as supply and demand in employee market.

(g) The financial assumptions considered for the calculations are as under:

Discount Rate: - The discount rate has been chosen by reference to market yield on government bonds as on the date of reporting.

Expected Rate of Return: In case of pension, the expected rate of return is taken on the basis of yield on government bonds / investments. In case of gratuity and leave encashment the actual return has been taken.

Salary increase: On the basis of past data.

(i) Short term Employees''. benefits:

Short term Compensated Absences: Rs, 1.04 crore (Rs,1.04 crore)

(j) Contribution to Provident Fund: Rs,0.48 crore (Rs,0.47 crore)

2.4 Accounting Standard 17 Segment reporting (Compiled by the management and relied upon by the auditors) Note on Segment Results

(i) As per guidelines of RBI on compliance with Accounting Standards AS-17, Bank has adopted “Treasury Operations”, “Corporate/Wholesale Banking”, “Retail Banking” and “Other Banking Operations” as Primary business segments and “Domestic” Segment as secondary / geographic segment.

(ii) Segment revenue represents revenue from external customers.

(iii) Results of various segments are arrived at in the proportion of revenue of respective segments.

Geographic segments:-

The Bank does not have any branches outside India, the only reportable Geographical segment is of domestic operations, and hence no separate disclosure is made.

2.5 Accounting Standard 18 Related party (b) Subsidiary disclosures

Andhra Bank Financial Services Ltd.

Names of the Related Parties and their relationship

with the Bank (c ) Associate

(a) The Bank has identified the following persons to be

the Key Management Personnel as per the Accounting Chaitanya Godavari Grameena Bank

Standard. (d) Joint Ventures

i) Sri Suresh N. Patel, Managing Director & CEO

(From 02-11-2015) i) India First Life Insurance Company Ltd.,

ii) Sri C. VR. Rajendran, Chairman and Managing ii) India International Bank (Malaysia) Bhd. Director (Upto 30-04-2015)

iii) ASREC India (P) Ltd.,

iii) Sri S K Kalra, Executive Director

iv) Sri A.K. Rath, Executive Director

*During the year, Bank has created deferred tax assets of Rs,1286.58 crore (Rs,.597.95 crore) in respect of deduction for bad debts under section 36(1)(viia) of the Income Tax Act and also created deferred tax liability in respect of depreciation on Investment amounting to Rs, 493.21 crore (Rs, 667.65 crore).

2.8 Accounting standard 24 Discontinuing operations :

During the financial year 2016-17, the bank has not discontinued the operations of any of its branches, which resulted in shedding of liability and realization of the assets and no decision to discontinue an operation which will have the above effect has been finalized.

2.9 Accounting Standard 28 Impairment of Assets :

The indications listed in paragraphs 8 to 10 of Accounting Standard 28- Impairment of Assets. (issued by the ICAI) have been examined and on such examination, it has been found that none of the indications are present in the case of the bank. A formal estimate of the recoverable amount has not been made, as there is no indication of a potential impairment loss.

2.10 Accounting Standard 29 Provisions, contingent liabilities and contingent assets

Contingent liabilities mentioned in Schedule 12 are dependent upon the outcome of Court/arbitration/out of Court settlements, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties as the case may be.

3.3 Draw Down from Reserves:

Pursuant to Reserve Bank of India Circular No. RBI/2015-16/376, DBR.No.BP.BC.92/21.04.048/2015-16 dated April 18, 2016, Bank has debited Rs, 21.49 crore (Rs, 60.01 crore) from Revenue Reserve towards unamortized portion of provision on accounts reported as fraud. The drawn amount debited to Revenue Reserve will be reversed and complete the provisioning by debiting Profit & Loss Account, in the subsequent quarters of the next financial year 2017-18.

Note:1 All the pending complaints are since redressed.

The total complaints received during the year include 230136 (ATM), 91 (Credit Card), 3384 (RTGS/NEFT), 107 (Pension), 1609 (SMS upset), 805 (Banking Ombudsman) & 3767 (General).

The number of Good faith charge backs i.e. complaints received after 120 days, raised on other Banks stood at 421 amounting to Rs,19.48 lacs as on 31-03-2017.

3.5 Disclosure of Letter of Comfort (LoC) issued by bank:

During the year ended 31.03.2017, 1207 (1147) Letter of Comfort/Letter of Undertaking have been issued by the bank amounting to Rs, 2004.06 crore (Rs, 2725.27 crore). The Letter of Comfort outstanding as on 31.03.2017 are amounting to Rs, 785.81 crore (Rs, 1118.51 crore).

Letter of Comfort on behalf of Joint Venture:

The Bank has formed a joint venture Bank in Malaysia with joint venture partnership of Bank of Baroda and Indian Overseas Bank on 13.08.2010 in the name of INDIA INTERNATIONAL BANK (MALAYSIA) BHD.

Andhra Bank''s share of joint venture is 25% whereas 40% is held by Bank of Baroda and 35% by Indian Overseas Bank. Reserve Bank of India and Government of India, Ministry of Finance, Department of Financial Services have accorded approvals for the Bank for infusing capital funds equivalent to Malaysian Ringgit 82.50 million (being 25% of total paid up capital of Malaysian Ringgit 330 Mio).

For the purpose of fulfillment of capital requirements of its joint venture India International Bank (Malaysia) BHD,, Andhra Bank has issued a Letter of Undertaking and a Letter of Comfort on 05.08.2010 favoring Bank Negara Malaysia. The financial impact on such LOC/LOU is limited to the extent of Andhra Bank''s share of capital contribution. As on

31.03.2017, Andhra Bank''s contribution to equity capital of India International Bank (Malaysia) BHD is Malaysian Ringgit 82.50 Mio representing 82,50,000 fully paid equity shares of Malaysian Ringgit 10 per share. The rupee equivalent of such capital contribution is included under the head “Investments in Subsidiaries and Joint Ventures” by the Bank.

Thus, the Bank has fully remitted Malaysian Ringgit 82.50 Mio under the Letter of Comfort issued, towards its share in the paid up capital of Malaysian Ringgit 330.00 Mio.

3.7 Bancassurance business

The Bank has received total Rs,37.89 crore (Rs,23.49 crore) as fee from Bancassurance. It includes fees from Bancassurance Life Rs,23.08 crore (Rs,11.57 crore) and Non-Life Rs,14.82 crore (Rs,11.92 crore).

3.8 Concentration of Deposits, Advances, Exposures and NPAs

*Compiled by the management based on individual customer IDs and relied upon by the auditors.

* Advances have been computed as per the definition of credit exposure including derivatives furnished in RBI

* Exposure has been computed based on credit and investment exposure as prescribed in the RBI Master circular on exposure norms.

3.13 Reconciliation of Inter Bank transactions have been done up to 31st March 2017.

3.14 Provision for Income Tax has been made on the basis of the applicable laws and various judicial pronouncements available. In view of judicial pronouncements in similar cases, no additional provision is considered necessary towards disputed tax demands of Rs,2293.90 crore (Rs,1215.59 crore) up to assessment year 2014-15 for which assessments are completed/appealed. Amounts paid by the bank/ adjusted by the department on account of the said disputed tax demands have been included in tax paid in advance/tax deducted at source (item III of Schedule 11 - Other Assets)

3.15 The Bank has been claiming deduction under Section 36(1)(viii) of the Income tax Act, 1961 in respect of the profits derived out of eligible business as specified in the said section and has accordingly transferred a sum of Rs,95 crore (previous year Rs,200 crore) to the corresponding Special Reserve account maintained under the said section and the same is shown under Item V of Schedule -2 “Reserves and Surplus”.

3.16 Credit Default Swaps: The Bank has not entered into Credit Default Swaps during the current Financial Year (previous year NIL).

3.17.2 Total amount of intra-group exposures - Rs,387 crore (Rs, 516 crore)

3.17.3 Total amount of top 20 intra-group exposures Rs,387 crore (Rs, 516 crore)

3.17.4 Percentage of intra-group exposures to total exposure of the bank on borrowers / customers is

0.17% (0.26%).

3.17.5Details of breach of limits on intra-group exposures and regulatory action thereon, if any. NIL

3.18 Transfers to Depositor Education and Awareness Fund (DEAF) : Details of unclaimed liabilities where the amount due has been transferred to DEAF reflected as “Contingent Liability - Other items for which the bank is contingently liable” under Schedule 12 of the Balance Sheet :

3.19 Unhedged Foreign Currency Exposure :

Bank has in place a Board approved policy on “Hedging of Forex Currency Exposures of the Borrowers” prepared in line with RBI guidelines. The policy covers monitoring, reporting, reviewing and pricing mechanism of Unhedged Forex Exposures

of Borrowers.

For computing aggregate forex exposures of the borrowers Foreign currency loans/borrowings, Working capital demand loan/term loan in foreign currency, Foreign Letter of Undertaking (LoU)/Letter of Comfort (LoC) including buyers credit, import letter of credit, Foreign Letter of Guarantees/Foreign Stand by Letter of Credit/Deferred Payment Guarantees issued in Foreign currency are considered.

The incremental provisions/Capital requirement is arrived by considering likely loss & EBID of the borrowers as per RBI guidelines.

In respect of the Unhedged Foreign Currency Exposures, Incremental provisions and capital requirements that are provided by the bank as on 31st March 2017 are given below.


Mar 31, 2015

1. In terms of the Guidelines issued by the Reserve Bank of India (RBI), the following disclosures are made:

# Investment includes Rs. 2.60 (Rs. 2.60) Crore invested in Regional Rural Bank as Share Capital deposit pursuant to a letter by Government of India

* Includes the following

a) Investments in 162 (162) shares (class B) of Master Card Inc valued at Rs. 1(Rs. 1)

b) Investments in 8 (8) shares of SWIFT valued at Rs. 1 (Rs. 1)

c) Investment in 82,50,000 (80,00,000) shares of Malaysian Ringgit 10 each amounting Rs. 143.28 crore (Rs. 138.72 crore) in India International Bank (Malaysia) BHD.

Shares of Master Card Inc are allotted in kind, free of cost, as an incentive in view of the past business relation with these entities.

Shares of SWIFT include shares allotted in initial membership and shares accrued on re-allocation. The reallocation of share is based on bank''s utilization of SWIFT''s network based financial services.

1.2.3 During the year, the Bank has shifted Central/State Government securities aggregating Rs.1437.54 crore (Rs.8164.59 crore) from ''Available for Sale'' (AFS) category/Held for Trading (HFT) category to Held to Maturity (HTM) Category at lower of acquisition cost / book value / market value and booked a shifting loss of Rs.29.63 crore (Rs.69.08 crore) to Profit and Loss Account. Bank also shifted Central/State Government Securities aggregating to Rs.819.67crore (Rs.5189.36 crore) from Held to Maturity (HTM) category to Available for Sale (AFS) category and booked a shifting loss of Rs.4.81 crore (Rs.0.00 crore). Bank also shifted investment of Rs.27.54 crore (Rs.22.78 crore) in Venture Capital funds from Held to Maturity (HTM) category to Available for Sale (AFS) category and provided a depreciation of Rs.1.05 crore (Rs.0.76 crore).

1.2.4 The Bank has earned gross amount of Rs.154.33 crore (Rs.0.35 crore) as Profit on Sale of Securities in HTM category out of which an amount of Rs.76.40 crore (Rs.0.18 crore), net of tax and amount required to be transferred to Statutory Reserve, has been appropriated to Capital Reserve account as per RBI guidelines.

1.3.3 Disclosures on risk exposure in derivatives

A) Qualitative Disclosures:

a) Structure and Organization for Management of risk in derivatives trading:

i) In terms of Reserve Bank of India guidelines on Interest Rate Swaps (IRS) and Forward Rate Agreements (FRA) the Bank has approved policies and procedures, counter party exposure limits, delegation of powers, accounting policy, policy for valuation, ISDA documentation, cut loss, reporting etc., for Interest Rate Swaps and fixed a cap of Rs. 1500 crore for interest rate swaps (sub-limit of Rs. 500 crore for Trading Book).Bank has conducted the derivative operations within the overall framework of these guidelines.

ii) The Bank has approved policies and procedures, counter party exposure limits, delegation of powers, accounting policy, ISDA documentation, reporting etc., for undertaking forex derivatives in various forms of currency swaps and various types of interest rates swaps not specifically prohibited by Reserve Bank of India with the corporate borrower customers, other banks and non-borrower customers to be covered on back to back basis. Bank''s policy also permits entering into Plain Vanilla European Style Option to Bank''s customers for hedging / pricing their forward exposures on back to back basis, or for hedging foreign currency exposures.

iii) Derivative contracts undertaken on back-to-back basis or for hedging own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till the expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

b) Scope and nature of risk measurement, risk reporting and risk monitoring systems:

The position of all outstanding swaps, new swaps entered, swaps exited, mark to market value of swaps etc., is being reviewed by the bank''s investment committee and Board at monthly intervals. Details of transactions undertaken in IRS are also reported to Reserve Bank of India on a fortnightly basis.

c) Policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants:

Depending on the market opportunities a view on interest rate movement is taken and acted upon. Though the settlement of swaps takes place on due date/dates as per the terms of the swaps, the value monitoring is carried out daily to know the impact of market changes on Swap Book. When unfavorable market movements are unidirectional, swaps are exited cutting loss. Cut loss limits, exit powers, reviewing authority etc., are prescribed.

d) Accounting policy for recording the hedge and non- hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts, provisioning, collateral and credit risk mitigation:

Detailed accounting policy and valuation policy are approved by the Board. Transactions for hedging purposes are accounted for on accrual basis except the swap designated with an asset / liability is carried at lower of cost or market value.In that case, the swap is marked to market, with the resultant gain or loss recorded as an adjustment to the market value of the designated asset or liability. On termination of swap, gain or loss is recognized when the offsetting gain or loss is recognized on the designated asset or liability. Any gain or loss on the terminated swap is deferred and recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset / liability.

Trading transactions have to be marked to market with charges recorded in the income statement. Income, expenditure, fee, gains or losses on termination of swaps are all recorded as immediate income or expenses.

In terms of RBI Master Circular no. DBOD. No. BP.BC9/21.04.048/2014-15 dt. 01-07-2014, Bank has decided to amortize Rs.66.72 crore being the shortfall on account of sale of asset to ARC over a period of 8 quarters. Accordingly Rs.8.34 crore per quarter was amortized commencing from Sept. 2014. After providing upto March 2015 aggregating toRs.25.02 crore, the balance outstanding pending for amortization as on 31.03.2015 is Rs.41.70 crore

1.4.6 Floating and additional provisions :

a) Floating Provision of Rs.13.00 crore (Rs.26.00 crore) is helc as at 31.03.2015 in respect of gross non performing advances over and above the minimum prescribed as pe guidelines issued by Reserve Bank of India with a view tc strengthening the financial position ofthe Bank.

Working funds reckoned as average of total assets (excluding accumulated losses, if any) as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the 12 months of the financial year.

#Return on assets is with reference to average working funds (i.e., total of assets excluding accumulated losses, if any, as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the 12 months of the financial year.

*For the purpose of computation of business per employee (deposits plus gross advances), inter-bank deposits are excluded.

# Based on the number of employees as at year end.

1.7.5 Unsecured advances: The amount of advances, for which intangible securities, such as charge over the rights, licenses etc., have been taken as security is NIL ( NIL) and the said advances have been classified as unsecured forming part of Unsecured advances in Schedule 9 Item ll-C. Such advances constitute NIL% (NIL%) of total unsecured advances.

1.9 Penalties imposed by Reserve Bank of India

Monetary Penalty to the tune of Rs.0.10 crore (Rs.2.50 crore) has been imposed by Reserve Bank of India under Section 46(4) of the Banking Regulation Act, 1949, for not obtaining necessary information and declaration from M/s Deccan Chronicle Holdings Ltd. about the credit facilities enjoyed by it from other banks (fordeviation in implementation of KYC-AMLguidelines in the bank).


Mar 31, 2014

1. GENERAL:

The financial statements are prepared on historical cost convention and on accrual basis of accounting, unless otherwise stated, by following going concern assumption and conform to the statutory provisions, regulatory guidelines, Accounting Standards, Guidance Notes issued by Institute of Chartered Accountants of India ( ICAI) and practices prevailing in the banking industry in India.

2. REVENUE RECOGNITION:

Income and Expenditure are accounted on accrual basis, except the following;

a. Interest on non-performing advances and non performing investments is recognized as per norms laid down by Reserve Bank of India.

b. Interest on overdue bills, commission, exchange, brokerage and rent on lockers are accounted on realization.

c. Dividend is accounted when the right to receive the same is established.

d. In case of suit fi led accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

3. FOREIGN EXCHANGE TRANSACTIONS:

a. Income and Expenditure items are recorded at the exchange rates prevailing on the date of transaction.

b. Monetary Assets and Liabilities are revalued at the Exchange Rates notified by FEDAI at the close of the year and the resultant gain/loss is recognized in the Profit and Loss Account. Forward exchange contracts are initially recorded at exchange rate prevailing at the time of booking of the contract. These are translated at the year end rates notified by FEDAI and the resultant gain/loss is taken to Profit & Loss Account.

c. Foreign Letters of Credit/Letters of Comfort and Letters of Guarantee are recorded at the rates prevailing on the date of entering into such commitment. Outstanding items are restated at the rates notified by FEDAI as at the close of the financial year.

d. Derivative contracts undertaken on back-to-back basis or for hedging Bank''s own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

4. INVESTMENTS:

a. Investments are classified and shown in Balance Sheet under the following six heads:

i. Government Securities

ii. Other Approved Securities

iii. Shares

iv. Debentures and Bonds

v. Subsidiaries / Joint Ventures/ Associates and

vi. Others.

b. Investments are further classified into the following three categories:

i. Held to Maturity (HTM)

ii. Available for Sale (AFS)

iii. Held for Trading (HFT)

"Held to Maturity" category comprises of securities acquired with the intention to hold them up to maturity. "Held for Trading" category comprises of securities acquired with the intention of trading. "Available for Sale" securities are those which are not covered under either of the above two categories. Investments in Subsidiaries/ Joint ventures/Associates are classified as Held to Maturity.

c. Valuation:

The Investments are valued in accordance with Reserve Bank of India guidelines on the following basis:-

i) Held to Maturity:

a. Investments classified under this category are stated at acquisition cost net of amortization. The excess of acquisition cost over the face value, if any, is amortized over the remaining period of maturity.

b. Any diminution, other than temporary in nature, in the value of investments is determined and provided for on each such investment individually.

ii) Available for Sale:

a. Investments classified under this category are marked to market on quarterly basis and valued as per Reserve Bank of India guidelines at the market rates available on the last day of each quarter (Balance Sheet date) from trades/ quotes on the Stock Exchanges, prices/yields declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Unquoted securities are also valued as per the Reserve Bank of India guidelines.

b. The net depreciation under each of the six heads is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

iii) Held for Trading:

a. Investments classified under this category are valued at market price based on market quotations, prices/yields declared by FIMMDA at the end of every month.

b. The net depreciation under each of the six heads is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

d. Prudential Norms:

The identification of non performing investments and provision made thereon is as per Reserve Bank of India guidelines.

e. Profit / Loss on Sale of Investments:

i. Profit or loss on sale of investments is recognized on the value dates on the basis of weighted average cost. Premium on redemption of Debentures/ Bonds is recognized on the date of redemption.

ii. Profit on sale of investments held in "Available for Sale" and "Held for Trading" categories is recognized in the Profit and Loss Account.

iii. Profit on sale of investments in "Held to Maturity" category is first taken to the Profit and Loss Account and an equivalent amount of Profit is appropriated to the Capital Reserve (net of taxes and amount required to be transferred to Statutory Reserve).

iv. Loss on sale of investments in all the three categories is recognized in Profit and Loss Account.

f. General

i. Purchase and sale transactions in Government Securities are recorded on the date of settlement.

ii. a) Transfer of scrips from AFS/HFT category to HTM category: Transfer is made at the lower of book value or market value. In cases where the market value is higher than the book value at the time of transfer, the appreciation is ignored and the security is transferred at book value. In cases where the market value is less than the book value, the provision against depreciation already held against that security and the additional provision, if any, required based on valuation done on the date of transfer is recognized and adjusted to reduce the book value to the market value and the security is transferred at the market value.

b) In case of transfer of securities from HTM to AFS/HFT category:

If the security originally placed under HTM category;

- is at a discount, it is transferred to AFS/HFT category at the acquisition price/ book value.

- is at a premium, it is transferred to AFS/HFT category at the amortized cost.

After transfer in both the above cases, these securities are immediately re-valued and resultant depreciation, if any, is provided.

c) In case of transfer of securities from AFS to HFT category or vice-versa, the securities are not re-valued on the date of transfer and depreciation already held if any, is transferred to the provision for depreciation against the HFT securities and vice-versa.

iii. Upfront fee / Incentives on subscription of securities in HTM / AFS / HFT categories are reduced from the cost of securities. The incentives received after sale of securities is credited to Profit and Loss account.

iv. Brokerage, Commission, Security Transaction tax and Stamp Duty paid in connection with the acquisition of securities are treated as revenue expenditure.

5. a. INTEREST RATE SWAPS: (Hedging)

i. Income on continuing swap transactions is recognized on accrual basis except the swap designated with an asset or liability that is carried at lower of cost or market value in the financial statements. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value or designated asset or liability.

ii. Gains/ losses on terminated swap transactions are recognized when the offsetting gain or loss is recognized on the designated asset or liability. Thus, the gain or loss on the terminated swap is deferred and recognized over the shorter of the remaining contractual life of the swap or the remaining life of the designated asset/liability.

b. INTEREST RATE SWAPS (Trading)

i. Trading swaps are marked to market with changes recorded in the Profit and Loss Account;

ii. Income and Expenses relating to these swaps are recognized on the settlement date;

iii. Fee is recognized as income or expense as the case may be;

iv. Gains or losses on the termination of the swaps are recorded immediately as income or expenses on such termination.

6. ADVANCES

a. Advances are classified in accordance with the Prudential Norms issued by Reserve Bank of India.

i. Advances are classified into Standard, Sub-standard, Doubtful and Loss assets borrower-wise.

ii. Provisions are made for non performing assets in accordance with the RBI Guidelines, and additional provisions as assessed

iii. General provision is made for standard assets.

b. Advances stated in the Balance Sheet are net of provisions made for Non Performing Assets

c. Partial recoveries in Non Performing Assets are apportioned first towards charges and interest, thereafter towards principal with the exception of non performing advances involving compromise settlements in which case the recoveries are first adjusted towards principal.

7. FIXED ASSETS

a) Premises and other Fixed Assets are stated at historical cost net of depreciation.

b) DEPRECIATION

i. Depreciation on Premises and on other Fixed Assets except Computers and ATMs is provided on written down value method at the rates specified in Schedule XIV of the Companies Act 1956.

ii. The depreciation on Computers and other Peripherals is provided @ 33.33 % on straight line method.

iii. Depreciation on ATMs is provided on straight line method based on the estimated useful life of seven years.

c) AMORTIZATION

i. Premium wherever is paid for acquisition of leasehold land, such premium along with cost of the buildings constructed thereon is amortized over the period of lease.

ii. Acquisition cost of software is treated as intangible assets.

a. Software acquired under core banking solution (CBS) is amortised over its estimated useful life of five years.

b. Other software acquired is charged off in the year of acquisition.

8. EMPLOYEES BENEFITS

a) Short Term Benefits

Short-term compensated absences are recognized as an expense on an undiscounted basis in the Profit & Loss Account of the year in which the related service is rendered.

b) Long Term Benefits:

Long Term Benefits such as Leave Encashment, Sick Leave, LFC/LTC a ailment/encashment, Ex-gratia to retirees and Relocation expenses on exit are recognized on the basis of actuarial valuation made as at the end of the year.

c) Post Employment Benefits

i. Defined Contribution Plans: Defined Contribution Plans such as Provident / Pension fund are recognized as an expense and charged to the Profit & Loss Account.

ii. Defined Benefit Plans

(a) Gratuity:

The employees Gratuity Fund Scheme is funded by the Bank and managed by a separate trust who in turn manage their funds through approved schemes of Life Insurance Companies. The present value of the Bank''s obligations under Gratuity is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

(b) Pension:

The employees Pension Fund is funded by the Bank and is managed by a separate trust. The present value of the Bank''s obligations under Pension is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

(c) Amortization

The additional liability/expenditure arising consequent upon the reopening of Pension Option to the employees of the bank and enhancement in gratuity limit pursuant to amendment to Payment of Gratuity Act, 1972 is being amortized equally over a period of five years beginning with the financial year 2010-11.

9. PROVISION FOR TAXATION:

a. Provision for tax is made for both Current and Deferred Taxes.

b. Deferred tax assets and liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and laws that have been enacted or substantively enacted as of the balance sheet date.

c. Deferred tax assets are not recognized unless there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realized.

d. Special Reserve:

Revenue and other Reserves include Special Reserve created under Section 36 (1) (viii) of the Income Tax Act, 1961.The Board of Directors of the Bank has passed a resolution approving creation of the reserve and confirming that there is no intention to make withdrawal from the Special Reserve.

10. IMPAIRMENT OF ASSETS

An assessment is made at each balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for.

11. Provisions, Contingent Liabilities and Contingent Assets

a. In conformity with AS.29 "Provisions, Contingent Liabilities and contingent Assets" issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only when :

i. it has a present obligation as a result of a past event.

ii. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and

iii. when a reliable estimate of the amount of the obligation can be made.

b. No provision is recognized for :

i. any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank; or

ii. any present obligation that arises from past events but is not recognized because

a) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or

b) A reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that Part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

c) Contingent Assets are not recognized in the financial statements.

12. NET PROFIT

The Net Profit disclosed in the Profit and Loss Account is after:-

a. Provision for depreciation on Investments.

b. Provision for Taxation.

c. Provision on loan losses

d. Provision on Standard Assets.

e. Provision for non-performing investments

f. Other usual and necessary provisions.

Schedule 18 - Notes on Accounts 1. In terms of the Guidelines issued by the Reserve Bank of India (RBI), the following disclosures are made:


Mar 31, 2013

1.1. Accounting Standard 5 - Statement of profit or loss for the period, prior period items

There is no material prior period item included in Profit and Loss account which is required to be disclosed as per the Accounting Standard issued by the Institute of Chartered Accountants of India read with guidelines issued by Reserve Bank of India.

1.2 Accounting Standard 9: Revenue Recognition

As mentioned in accounting policy (2) of schedule 17 certain items are accounted on cash basis on account of statutory/regulatory requirements and materiality

1.3 ACCOUNTING STANDARD -15 EMPLOYEE BENEFITS

Bank has adopted Accounting Standard - 15 (Revised) issued by the Institute of Chartered Accountants of India with effect from 01.4.2007

1.3.1 Gratuity

Bank pays gratuity to employees who retire/resign from Bank''s service as per rules. The Bank makes contributions to the Trust, towards funding this gratuity, payable every year. In accordance with the gratuity fund''s rules, actuarial valuation of gratuity is done every year. Actuarial valuation of gratuity liability is calculated based on certain assumptions regarding discount rate, salary growth, mortality and staff attrition as per the projected unit credit actuarial method.

The gratuity payable to the employees is worked out by way of two methodologies i.e., as per the Payment of Gratuity Act, 1972 and other as per service rules and the employee will be entitled to get most beneficial amount.

1.3.2 Pension

Bank pays pension under a defined benefit plan covering the employees who have opted for pension and also to the employees joining the bank''s service on or after 29.09.1995 but before 01.04.2010.The plan provides for a pension on a monthly basis to these employees o(n their cessation from the bank''s service as provided f<5r in Andhra Bank Employee Pension Regulations. Pension Fund is managed by Andhra Bank Employees Pension Fund Trust.

Employees who joined on after 01.04.2010 are entitled to Defined Contributory pension scheme where under the employee will contribute 10% of pay and eligible allowance with equivalent contribution being made by the Bank and the same will be maintained as per the guidelines issued by the Pension Fund Regulatory and DevelopmentAuthority.

1.3.3 Provident Fund

Bank is statutorily required to maintain a provident fund as a part of its retirement benefits to the employees.

The fund is administered by a trust. Each employee contributes 10% of their basic salary and eligible , allowances and Bank contributes equally amount to the fund in respect of non-pension optees. The investment of the fund is made according to the investment pattern prescribed by Government of India.

1.3.4 Leave Encashment

An employee is entitled to encash privilege leave standing to his/her credit subject to a maximum of 240 days on the date of superannuation/Voluntary Retirement/death and on resignation encashment of privilege leave will be restricted to the tune of 50% of privilege leave standing to the credit of the employee subject to a maximum of 120 days.

Actuarial valuation of leave encashment liability is done every year and accordingly, Bank is contributing to the trust fund.

1.3.5 The summarized position of post-employment benefits and long term employee benefits recognized in the Profit & Loss Account and Balance Sheet as required in accordance with Accounting Standard - 15 (Revised) issued by the Institute of Chartered Accountants of India eare as under :

1.3.6 : Prudential Regulatory treatment (reopening of Pension option and enhancement of gratuity)

During the year 2010-11, the Bank opted for amortization of additional liability arising on account of exercise of second pension option by the employees and revision of gratuity limit from Rs.3.50 lacs to Rs.10 lacs as per the Payment of Gratuity Act over a period of five years pursuant to permission given by Reserve Bank of India vide its circular no. DBOD.BP.BC.80/21.04.018/2010-11 dated 09th of February, 2011. Out of the amount of Rs.379.99 cr., carried forward as on 31st March, 2012 an amount of Rs. 93.66 cr., being 1/5th of the additional pension liability and Rs.33 cr., being 1/5th of additional liability on account of gratuity has been charged off to the Profit and Loss Account for the current year and balance amount of Rs.253.%3cr has been carried forward.

1.3.7 Provision of Rs. 50 crore has been made towards wage revision arrears effective from 1st November, 2012 pending wage negotiation

No Provision for Deferred Tax Liability (DTL) on deduction claimed under Section 36(1 )(viii) of the Income Tax Act, 1961 has been made as the same is considered as a Permanent Difference consequent to the decision taken by the Bank, not to withdraw the Reserves created under the provisions of the Income Tax Act, 1961.


Mar 31, 2012

1. GENERAL:

The financial statements are prepared on historical cost convention and on accrual basis of accounting , unless otherwise stated, by following going concern assumption and conform to the statutory provisions, Regulatory guidelines , practices prevailing in the banking industry in India and Accounting Standards, Guidance Notes issued by the Institute of Chartered Accountants of India ( ICAI).

2. REVENUE RECOGNITION:

Income and Expenditure are accounted on accrual basis, except that;

a. Interest on non-performing advances and non performing investments is recognized as per norms laid down by Reserve Bank of India.

b. Interest on overdue bills, commission, exchange, brokerage and rent on lockers are accounted on realization.

c. Dividend is accounted when the right to receive the same is established.

d. In case of suit filed accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

3. FOREIGN EXCHANGE TRANSACTIONS:

a. Income and Expenditure items are recorded at the exchange rates prevailing on the date of transaction.

b. Monetary Assets and Liabilities are revalued at the Exchange rate notified by FEDAI at the close of the year and the resultant gain/loss is recognized in the Profit and Loss Account.

Forward exchange contracts are initially recorded at exchange rate prevailing at the time of booking of the contract. These are translated at the year end rates notified by FEDAI and the resultant gain/loss is taken to revenue.

c. Foreign Letters of Credit/Letters of Comfort and Letters of Guarantee are recorded at the rates prevailing on the date of entering into such commitment. Outstanding items are restated at the rates notified by FEDAI as at the close of the financial year.

d. Derivative contracts undertaken on back-to-back basis or for hedging Bank's own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

4. INVESTMENTS:

a. Investments are classified and shown in Balance Sheet under the following six heads:

i. Government Securities

ii. Other Approved Securities

iii. Shares

iv. Debentures and Bonds

v. Subsidiaries / Joint Ventures and

vi. Others.

b. Investments are further classified into the following three categories:

i. Held to Maturity (HTM)

ii. Available for Sale (AFS)

iii. Held for Trading (HFT)

"Held to Maturity" category comprises of securities acquired with the intention to hold them up to maturity. "Held for Trading" category comprises of securities acquired with the intention of trading. "Available for Sale" securities are those which are not classified in either of the above two categories. Investments in Subsidiaries/ Joint ventures/Associates are classified as Held to Maturity.

c. Valuation:

The Investments are valued in accordance with Reserve Bank of India guidelines on the following basis:-

i) Held to Maturity:

a. Investments classified under this category are stated at acquisition cost net of amortization. The excess of acquisition cost over the face value, if any, is amortized over the remaining period of maturity.

b. Any diminution, other than temporary in nature, in the value of investments is determined and provided for each investment individually.

ii) Available for Sale:

a. Investments classified under this category are marked to market on quarterly basis and valued as per Reserve Bank of India guidelines at the market rates available on the Balance Sheet date from trades/ quotes on the Stock Exchanges, prices/yields declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Unquoted securities are also valued as per the Reserve Bank of India guidelines.

b. The net depreciation under each of the six heads is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

iii) Held for Trading:

a. Investments classified under this category are valued at market price based on market quotations, prices/ yields declared by FIMMDA at the end of every month.

b. The net depreciation under each of the six heads is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

d. Prudential Norms:

The identification of non performing investments and provision made thereon is as per Reserve Bank of India guidelines.

e. Profit / Loss on Sale of Investments:

i. Profit or loss on sale of investments is recognized on the value dates on the basis of weighted average cost. Premium on redemption of Debentures/ Bonds is recognized on the date of redemption.

ii. Profit on sale of investments held in "Available for Sale" and "Held for Trading" categories is recognized in the Profit and Loss Account.

iii. Profit on sale of investments in "Held to Maturity" category is first taken to the Profit and Loss Account and an equivalent amount of profit is appropriated to the Capital Reserve (net of taxes and amount required to be transferred to Statutory Reserve).

iv. Loss on sale of investments in all the three categories is recognized in Profit and Loss Account.

f. General

i. Bank is following 'Settlement Date' accounting for recording purchase and sale of transactions in Government Securities.

ii. a) Transfer of scrips from AFS/HFT category to HTM category: Transfer is made at the lower of book value or market value. In cases where the market value is higher than the book value at the time of transfer, the appreciation is ignored and the security is transferred at book value. In cases where the market value is less than the book value, the provision against depreciation held against this security (including the additional provision, if any, required based on valuation done on the date of transfer) is adjusted to reduce the book value to the market value and the security is transferred at the market value.

b) In case of transfer of securities from HTM to AFS/HFT category:

If the security originally placed under HTM category;

- is at a discount, it is transferred to AFS/HFT category at the acquisition price/ book value.

- is at a premium, it is transferred to AFS/HFT category at the amortized cost.

After transfer in both the above cases, these securities are immediately re-valued and resultant depreciation, if any, is provided.

c) In case of transfer of securities from AFS to HFT category or vice-versa, the securities are not re-valued on the date of transfer and the provision for the accumulated depreciation, if any, is transferred to the provision for depreciation against the HFT securities and vice-versa.

iii. Upfront fee / Incentives on subscription of securities in HTM / AFS / HFT categories are reduced from the cost of securities. The incentives received after sale of securities is credited to Profit and Loss account.

iv. Brokerage, Commission, Security Transaction tax and Stamp Duty paid in connection with the acquisition of securities are treated as revenue expenditure.

5. a. INTEREST RATE SWAPS: (Hedging)

i. Income on continuing swap transactions is recognized on accrual basis except the swap designated with an asset or liability that is carried at lower of cost or market value in the financial statements. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value or designated asset or liability.

ii Gains/ losses on terminated swap transactions are recognized when the offsetting gain or loss is recognized on the designated asset or liability. Thus, the gain or loss on the terminated swap is deferred and recognized over the shorter of the remaining contractual life of the swap or the remaining life of the designated asset/ liability.

b. INTEREST RATE SWAPS (Trading)

i. Trading swaps are marked to market with changes recorded in the Profit and Loss account;

ii. Income and expenses relating to these swaps are recognized on the settlement date;

iii. Fee is recognized as income or expenses as the case may be;

iv. Gains or losses on the termination of the swaps are recorded immediately as income or expenses on such termination.

6. ADVANCES

a) Advances are classified in accordance with the Prudential Norms issued by Reserve Bank of India.

i. Advances are classified into standard, sub-standard, doubtful and loss assets borrower-wise.

ii. Provisions are made for non performing assets in accordance with the RBI Guidelines, and additional provisions as assessed

iii. General provision is made for standard assets.

b) Advances stated in the Balance Sheet are net of provisions made for Non Performing Assets

c) Partial recoveries in Non Performing Assets are apportioned first towards charges and interest, thereafter towards principal with the exception of non performing advances involving compromise settlements in which case the recoveries are first adjusted towards principal.

7. FIXED ASSETS

a) Premises and other Fixed Assets are stated at historical cost net of depreciation.

b) DEPRECIATION

i. Depreciation on Premises and on other Fixed Assets except Computers and ATMs is provided on written down value method at the rates specified in Schedule XIV of the Companies Act, 1956.

ii. The depreciation on Computers and other Peripherals is provided @ 33.33 % on straight line method.

iii. Depreciation on ATMs is provided on straight line method based on the estimated useful life of seven years.

c) AMORTIZATION

i. Premium paid for acquisition of leasehold land for a period less than 60 years and cost of the buildings constructed thereon is amortized over the period of lease.

ii. The cost of Software is treated as intangible asset and the same is amortized over its estimated useful life.

8. EMPLOYEES BENEFITS

a) Short Term Benefits

Short-term compensated absences are recognized as an expense on an undiscounted basis in the Profit & Loss Account of the year in which the related service is rendered.

b) Long Term Benefits:

Other Long Term Benefits such as Leave Encashment, Sick Leave, LFC/LTC availment/encashment, Employee Incentive Scheme, Ex-gratia to retirees and Relocation of expenses on exit are recognized on the basis of actuarial valuation made as at the end of the year.

c) Post Employment Benefits

i) Defined Contribution Plans: Defined Contribution Plans such as Provident / Pension fund are recognized as an expense and charged to the Profit &Loss Account.

ii) Defined Benefit Plans

(a) Gratuity:

The employees Gratuity Fund Scheme is funded by the Bank and managed by LIC /Bank through a separate scheme. The present value of the Bank's obligations under Gratuity is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

(b) Pension:

The employees Pension Fund is funded by the Bank and is managed by a separate trust. The present value of the Bank's obligations under Pension is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

(c) Amortization

The additional liability/expenditure arising consequent upon the reopening of Pension Option to the employees of the bank and enhancement in gratuity limit pursuant to amendment to Payment of Gratuity Act, 1972 is being amortized equally over a period of five years beginning with the financial year 2010-11.

9. PROVISION FOR TAXATION:

a) Provision for tax is made for both Current and Deferred Taxes.

b) Deferred tax asset and liability arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and laws that have been enacted or substantively enacted as of balance sheet date.

c) Deferred tax asset is not recognized unless there is virtual certainty that sufficient future taxable income will be available against which such deferred tax asset will be realized.

10. IMPAIRMENT OF ASSETS

An assessment is made at each balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for.

11. CONTINGENT LIABILITIES AND PROVISIONS

Past events leading to possible or present obligation is treated as contingent liabilities. Provision is recognized in the case of present obligation where the reliable estimate can be made and where there are probable out flow of resources embodying forgoing of economic benefits to settle the obligation.

12.NET PROFIT

The Net Profit disclosed in the Profit and Loss Account is after:-

(a) Provision for depreciation on Investments

(b) Provision for Taxation

(c) Provision on loan losses

(d) Provision on standard Assets

(e) Provision for non-performing investments

(f) Other usual and necessary provisions


Mar 31, 2011

1. GENERAL:

The financial statements are prepared on historical cost convention and accrual basis, unless otherwise stated, by following going concern concept and conform to the statutory provisions, accounting standards/guidance notes issued by Institute of Chartered Accountants of India and practices prevailing in the banking industry in India.

2. REVENUE RECOGNITION:

a. Interest on non-performing advances and investments is recognized as per the norms laid down by Reserve Bank of India.

b. Interest on overdue bills, commission, exchange, brokerage and rent on lockers are accounted on realization.

c. In case of suit filed accounts, legal and other expenses incurred are charged to Profit and Loss Account and at the time of recovery of such expenses the same is accounted as income.

3. FOREIGN EXCHANGE TRANSACTIONS:

a. Income and Expenditure items are recorded at the exchange rates prevailing on the date of transaction.

b. Monetary items are reported at weekly average rate. Such monetary items are reported at closing rates as at balance sheet date. Exchange differences arising on the reporting of such monetary items at rates prevailing at the year end or on the settlement of monetary items at rates different from those at which they were initially recorded, are recognized as income or expense, as the case may be.

c. Forward exchange contracts are initially recorded at exchange rate prevailing at the time of booking of the contract and reported on the Balance Sheet date also at original booked rate only. Such forward contracts are revalued on the basis of FEDAI revaluation rate at the end of each month and profit or loss on such revaluation is recognized as income or expense as the case may be. Any profit or loss arising on cancellation of a forward exchange contract is recognized as income or expenditure as the case may be.

d. Foreign Letters of Credit and Letters of Guarantee are recorded at the rates prevailing on the date of entering into such commitment. Outstanding items are restated at the rate prevailing at the Balance Sheet date.

e. Derivative contracts undertaken on back-to-back basis or for hedging our own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

f. The exchange rates used for this purpose are those notified by FEDAI. 4. INVESTMENTS:

a. The Investment portfolio of the Bank is classified into the following three categories:

i. Held to Maturity (HTM) ii. Available for Sale (AFS) iii. Held for Trading (HFT)

"Held to Maturity" category comprises of securities acquired with the intention to hold them up to maturity. "Held for Trading" category comprises securities acquired with the intention of trading. "Available for Sale- securities are those which are not classified in either of the above two categories.

b. Investments are classified and shown in Balance Sheet under the following six heads:

i. Government Securities ii. Other Approved Securities iii. Shares

iv Debentures and Bonds v. Subsidiaries /Joint Ventures and vi. Others. c. Valuation:

The securities in each classification are valued in accordance with Reserve Bank of India guidelines on the following basis:- i) Held to Maturity:

a. Investments classified underthis category are stated at acquisition cost net of amortization. The excess of acquisition cost over the face value, if any, is amortized over the remaining period of maturity.

b. Any diminution, other than temporary in nature, in the value of investments is determined and provided for each investment individually.

ii) Available for Sale:

a. Investments classified under this category are marked to market on quarterly basis and valued as per Reserve Bank of India guidelines at the market rates available on the Balance Sheet date from trades/quotes on the Stock Exchanges, prices/yields declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Unquoted securities are also valued as per the Reserve Bank of India guidelines.

b. The net depreciation under each of the six heads (Para 4b above) is fully provided for whereas the net appreciation, if any, under any of the aforesaid heads is ignored. The bookvalue of the individual securities does not undergo any change after marking to market.

iii) Held for Trading:

a. Investments classified under this category are valued at market price based on market quotations, prices/yields declared by FIMMDA at the end of every month.

b. Depreciation is recognized classification wise (see para 4b above) and appreciation, if any, is ignored.

c. The book value of the individual securities does not undergo any change after marking to market.

d) Prudential Norms:

The identification of non performing investments and provision made thereon is as per Reserve Bank of India guidelines. Provision requirement in respect of non- performing investments is not set off against the appreciation of other performing investments.

e) Profit / Loss on Sale of Investments:

i. Profit or loss on sale of investments is recognized on the value dates on the basis of weighted average cost. Premium on redemption of Debentures/ Bonds is recognized on the date of redemption. ii. Profit on sale of investments held in "Available for Sale" and "Held for Trading" categories is recognized in the Profit and Loss Account.

iii. Profit on sale of investments in "Held to Maturity- category is first taken to the Profit and Loss Account and an equivalent amount of profit is appropriated to the Capital Reserve (net of taxes and amount required to be transferred to Statutory Reserve). iv Loss on sale of investments in any of the three categories is recognized in Profit and Loss Account.

f) General

i. Bank is following Settlement Date accounting for recording purchase and sale of transactions in Government Securities from January 1, 2011. ii. a)Transferof scrips from AFS/HFT category to HTM category : Transfer is made at the lower of book value or market value. In case where the market value is higher than the book value at the time of transfer, the appreciation is ignored and the security is transferred at book value. In case where the market value is less than the book value, the provision against depreciation held against this security (including the additional provision, if any, required based on valuation done on the date of transfer) is adjusted to reduce the book value to the market value and the security is transferred at the market value.

b) In case of transfer of securities from HTM to AFS/ HFT category:

If the security was originally placed under HTM category

- at a discount, it is transferred to AFS/HFT category at the acquisition price/book value.

- at a premium, it is transferred to AFS/HFT category at the amortized cost.

Aftertransfer in both of the above cases, these securities are immediately re-valued and resultant depreciation, if any, is provided.

c) In case of transfer of securities from AFS to HFT category or vice-versa, the securities are not re-valued on the date of transfer and the provisions for the accumulated depreciation, if any, is transferred to the provisions for depreciation against the HFT securities and vice-versa.

iii. Upfront fee/Incentives on subscription of securities in HTM /AFS / HFT categories are reduced from the cost of securities. The incentives received after sale of securities is credited to Profit and Loss account.

iv. Brokerage, Commission and Stamp Duty paid in connection with the acquisition of securities are treated as revenue expenditure.

5. a). INTEREST RATE SWAPS: (Hedging)

i. Income on continuing swap transactions is recognized on accrual basis except the swap designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value or designated asset or liability. ii. Gains/ losses on terminated swap transactions are recognized when the offsetting gain or loss is recognized on the designated asset or liability. Thus, the gain or loss on the terminated swap is deferred and recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset/liability b). INTEREST RATE SWAPS (Trading) i. Trading swaps are marked to market with changes recorded in the Profit and Loss account; ii. Income and expenses relating to these swaps are recognized on the settlement date; iii. Fee is recognized as income or expenses as the case may be;

iv. Gains or losses on the termination of the swaps are recorded immediately as income or expenses on such termination.

6. ADVANCES

a) Advances are stated in accordance with the Prudential Norms issued by Reserve Bank of India.

i. Advances are classified into standard, sub-standard, doubtful and loss assets borrower-wise.

ii. Provisions are made for non performing assets and

iii. General provision is made for standard assets.

b) Advances stated in the Balance Sheet are net of provisions made for:

I. Non performing assets

II. Additional Provision made for Non-performing Assets

c) Partial recoveries in Non Performing Assets are apportioned first towards charges and interest, thereafter towards principal.

7. FIXED ASSETS

a) Premises and other Fixed Assets are stated at historical cost net of depreciation.

b) DEPRECIATION

i. Depreciation on Premises and on other Fixed Assets except Computers and ATMs is provided on written down value method at the rates specified in Schedule XIV of the Companies Act 1956.

ii. The depreciation on Computers and other Peripherals is provided @ of 33.33 % on straight line method.

iii. Depreciation on ATMs is provided on straight line method based on the estimated useful life of seven years.

c) AMORTIZATION

i. Premium paid for acquisition of leasehold land for a period less than 60 years and cost of the buildings constructed thereon is amortized over the period of lease.

ii. The cost of Software is treated as intangible asset and the same is amortized over its estimated useful life. 8. EMPLOYEES BENEFITS

a) Short Term Employee Benefits

Short Term Employee Benefits such as short-term compensated absences are recognized as an expense on an undiscounted basis in the Profit &Loss Account of the year in which the related service is rendered.

b) Post Employment Benefits

i) Defined Contribution Plans: Defined Contribution Plans such as Provident / Pension fund are recognized as an expense and charged to the Profit &Loss Account. ii) Defined Benefit Plans

(a) Gratuity:

The employees Gratuity Fund Scheme is funded by the Bank and managed by LIC /Bank through a separate scheme. The present value of the Banks obligations under Gratuity is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis.

(b) Pension:

The employees Pension Fund is funded by the Bank and is managed by a separate trust. The present value of the Banks obligations under Pension is recognized on the basis of an actuarial valuation as at the year end and the fair value of the Plan assets is reduced from the gross obligations to recognize the obligation on a net basis

Amortization

The additional liability/expenditure arising consequent upon the reopening of Pension Option to the employees of the bank during the year and enhancement in gratuity limit during the year pursuant to amendment to Payment of Gratuity Act, 1972 is being amortized over a period of five years beginning with the current financial year 2010-11, with 1/5th of total amount being charged offto the Profit and Loss Account every year.

(a) Other Long Term Benefits:

Other Long Term Benefits such as Leave Encashment, Sick Leave, LFC/LTCavailment/encashment, Employee Incentive Scheme, Ex-gratia to retirees and Relocation of expenses on exit are recognized on the basis of actuarial valuation made as at the end of the year.

9. PROVISION FOR TAXATION:

a) Provision for taxes is made on the basis of estimated tax liability.

b) In compliance with AS-22 Accounting for Taxes on Income, issued by the Institute of Chartered Accountants of India, accounting for deferred income tax is made after considering tax rates and laws that have been enacted or substantively enacted as of balance sheet date.

10. IMPAIRMENT OF ASSETS

An assessment is made at each balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any is provided for.

11. CONTINGENT LIABILITIES AND PROVISIONS Past events leading to possible or present obligation is treated as contingent liabilities. Provision is recognized in the case of present obligation where the reliable estimate can be made and where there are probable out flow of resources embodying forgoing of economic benefits to settle the obligation.

12. NET PROFIT

The Net Profit disclosed in the Profit and Loss Account is after- fa) Provision for depreciation on Investments.

(b) Provision for Taxation.

(c) Provision on loan losses as per prudential guidelines issued by Reserve Bank of India

(d) Provision for non-performing investments as per prudential guidelines issued by Reserve Bank of India.

(e) Other usual and necessary provisions.


Mar 31, 2010

1. GENERAL:

The financial statements are prepared on historical cost convention and accrual basis, unless otherwise stated, by following going concern concept and conform to the statutory provisions, accounting standards/guidance notes issued by Institute of Chartered Accountants of India and practices prevailing in the banking industry in India.

2. REVENUE RECOGNITION:

a. Interest on non-performing advances and investments is recognised as per the norms laid down by Reserve Bank of India.

b. Interest on overdue bills, commission, exchange, brokerage and rent on lockers are accounted on realization.

c. In case of suit filed accounts legal and other expenses incurred are charged to Profit and Loss account and at the time of recovery of such expenses the same is accounted as income.

3. FOREIGN EXCHANGE TRANSACTIONS:

a. Income and Expenditure items are recorded at the exchange rates prevailing on the date of transaction.

b. Monetary items are reported at weekly average rate. Such monetary items are reported at closing rates as at balance sheet date. Exchange differences arising on the reporting of such monetary items at rates prevailing at the year end or on the settlement of monetary items at rates different from those at which they were initially recorded, are recognized as income or expense, as the case may be.

c. Forward exchange contracts are initially recorded at exchange rate prevailing at the time of booking of the contract and reported on the Balance Sheet date also at original booked rate only. Such forward contracts are revalued on the basis of FEDAI revaluation rate at the end of each month and profit or loss on such revaluation is recognized as income or expenses as the case may be. Any profit and loss arising on cancellation of a forward exchange contract is recognized as income or expenditure as the case may be.

d. Foreign Letters of Credit and Letters of Guarantee are recorded at the rates prevailing on the date of entering into such commitment. Outstanding items are restated at the rate prevailing at the Balance Sheet date.

e. Derivative contracts undertaken on back-to-back basis or for hedging our own foreign currency exposure are recorded at the rate prevailing on the date of the contract and are reported at the closing rates at the Balance Sheet date. The revenue in respect of these transactions is recognized for the proportionate period till expiry of the contract. In respect of contracts done on back to back basis, the revenue on early termination of the contract is recognized on termination.

f. The exchange rates used for this purpose are those notified by FEDAI.

4. INVESTMENTS:

a) The Investment portfolio of the Bank is classified into the following three categories:

i) Held to Maturity (HTM)

ii) Available for Sale (AFS)

iii) Held for Trading (HFT)

"Held to Maturity" category comprises of securities acquired with the intention to hold them up to maturity. "Held for Trading" category comprises securities acquired with the intention of trading. "Available for Sale" securities are those which are not classified in either of the above two categories.

b) Investments are classified and shown in Balance Sheet under the following six heads:

i) Government Securities

ii) Other Approved Securities

iii) Shares

iv) Debentures and Bonds

v) Subsidiaries and Joint Ventures

vi) Others.

c). Valuation:

The securities in each classification are valued in accordance with Reserve Bank of India guidelines on the following basis:-

i) Held to Maturity:

a. Investments classified under this category are stated at acquisition cost net of amortisation. The excess of acquisition cost over the face value, if any, is amortised over the remaining period of maturity.

b. Any diminution, other than temporary in nature, in the value of investments is determined and provided for, each investment individually.

ii) Available for Sale:

a. Investments classified under this category are marked to market on quarterly basis and valued as per Reserve Bank of India guidelines at the market rates available on the Balance Sheet date from trades/quotes on the Stock Exchanges, prices/yields declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Unquoted securities are also valued as per the Reserve Bank of India guidelines.

b. The net depreciation under each of the six heads (Para 4b above) is fully provided for, whereas the net appreciation, if any, under any of the aforesaid heads is ignored. The book value of the individual securities does not undergo any change after marking to market.

iii) Held for Trading:

a) Investments classified under this category are valued at market price based on market quotations, prices/yields declared by FIMMDA at the end of every month.

b) Depreciation is recognized classification wise (see para 4b above) and appreciation, if any is ignored.

c) The book value of the individual securities does not undergo any change after marking to market.

d) Prudential Norms:

The identification of non performing investments and provision made thereon is as per Reserve Bank of India guidelines. Provision requirement in respect of non-performing investments is not set off against the appreciation of other performing investments.

e) Profit / Loss on sale of Investments:

i) Profit or Loss on sale of investments is recognised on the value dates on the basis of weighted average cost. Premium on redemption of Debentures/ Bonds is recognised on the date of redemption.

ii) Profit on sale of investments held in "Available for Sale" and "Held for Trading" categories is recognised in the Profit and Loss Account.

iii) Profit on sale of investments in "Held to Maturity" category is first taken to the Profit and Loss Account and an equivalent amount of profit is appropriated to the Capital Reserve(net of taxes).

iv) Loss on sale of investments in any of the three categories is recognized in Profit and Loss Account.

f) General

i) Transfer of securities from one category to another is done at lower of acquisition cost/book value/market value on the date of transfer. Depreciation, if any, on such transfer is provided for and the book value of the security is changed accordingly.

ii) Upfront fee / Incentives on subscription of securities in HTM / AFS / HFT categories are reduced from the cost of securities. The incentives received after sale of securities is credited to Profit and Loss account.

iii) Brokerage, Commission and Stamp Duty paid in connection with the acquisition of securities are treated as revenue expenditure.

5. a). INTEREST RATE SWAPS: (Hedging)

i) Income on continuing swap transactions is recognised on accrual basis except the swap designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value or designated asset or liability.

ii) Gains/ losses on terminated swap transactions are recognised when the offsetting gain or loss is recognised on the designated asset or liability. Thus, the gain or loss on the terminated swap is deferred and recognised over the shorter of the remaining contractual life of the swap or the remaining life of the asset/liability.

b). INTEREST RATE SWAPS (Trading)

i) Trading swaps are marked to market with changes recorded in the Profit and Loss account;

ii) Income and expenses relating to these swaps are recognized on the settlement date;

iii) Fee is recognized as income or expense as the case may be;

iv) Gains or losses on the termination of the swaps are recorded immediately as income or expenses on such termination.

6. ADVANCES

a) Advances are stated in accordance with the Prudential Norms issued by Reserve Bank of India:

i. Advances are classified into standard, sub-standard, doubtful and loss assets borrower-wise.

ii. Provisions are made for non performing assets and

iii. General provision is made for standard assets.

b) Advances stated in the Balance Sheet are net of provisions made for:

(i) Non performing assets

(ii) Additional Provision made for Non-performing Assets

c) Partial recoveries in Non Performing Assets are apportioned first towards charges and interest, thereafter towards principal.

7. FIXED ASSETS

a) Premises and other Fixed Assets are stated at historical cost net of depreciation.

b) DEPRECIATION

(i) Depreciation on Premises and on other Fixed Assets except Computers and ATMs is provided on written down value method at the rates specified in Schedule XIV of the Companies Act 1956.

(ii) The depreciation on Computers and other Peripherals is provided @ of 33.33 % on straight line method.

(iii) Depreciation on ATM s is provided on straight line method based on the estimated useful life of seven years.

c) AMORTIZATION

i) Premium paid for acquisition of leasehold land for a period less than 60 years and cost of the buildings constructed thereon is amortized over the period of lease.

ii) The cost of Software is treated as intangible asset and the same is amortized over its estimated useful life.

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