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Accounting Policies of Andhra Bank Company

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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