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Notes to Accounts of Andhra Bank

Mar 31, 2015

1 Disclosures 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.

2.1 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.

2.2 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.

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

2.3.1 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.

2.3.2 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 on their cessation from the bank''s service as provided for 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 Development Authority from time to time.

2.3.3 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 an equal 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.

2.3.4 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 fund.

2.3.5 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 are as under:

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. In case of gratuity and leave encashment the actual return has been taken.

(i) Short term employees benefits:

Short term Compensated Absences : Rs. 1.04 crore

(1.04 crore)

(j) Contribution to Provident Fund : Rs. 0.62 crore

(0.62 crore)

2.3.6 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 aggregate carried forward amount of Rs.126.67 crore on 31st March 2014, an amount of Rs.93.67 crore being 1/5th of the additional pension liability and Rs.33 crore, being 1/5th of additional liability on account of gratuity has been charged off to the Profit and Loss Account for the current year.

2.3.7Provision of Rs.140.54 crore (previous yearRs.99.75 crore) has been made towards wage revision arrears effective from 1st November, 2012 pending wage settlement.

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 disclosures

Names of the Related Parties and their relationship with the Bank

(a) The Bank has identified the following persons to be the Key Management Personnel as per the Accounting Standard

i) Shri C.VR. Rajendran, Chairman and Managing Director (From 11.12.2013)

ii) Shri K.K. Misra, Executive Director (upto 30.04. 2014)

iii) Shri S K Kalra, Executive Director

iv) Shri A.K. Rath, Executive Director (from 13.03.2015)

(b) Subsidiary

Andhra Bank Financial Services Ltd.

(c ) Associate

Chaitanya Godavari Grameena Bank (d) Joint Ventures

i) India First Life Insurance Company Ltd.,

ii) India International Bank (Malaysia) Bhd. iii) ASREC India (P) Ltd.,

The transactions with the Subsidiary and Associate Banks have not been disclosed in view of para 9 of the AS-18 on Related Party Disclosures, which exempts State Controlled enterprises from making any disclosure pertaining to their transactions with other related parties which are also state controlled. e)Capital invested in Joint Ventures -

a) India International Bank (Malaysia) Bhd Rs.143.28crore (Rs.138.72crore)

b) ASREC India (P) Ltd. Rs.28.40 crore (Rs.28.40 crore)

2.8 Accounting standard 24 Discontinuing operations:

During the financial year 2014-15, 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.

Movement of provisions for liabilities (excluding provision for others)

There is no drawdown from the reserves during the year. 3.3 Disclosure of complaints and unimplemented awards of Banking Ombudsman

The total complaints received during the year include 79534 number of complaints for ATM, 31 for Credit Card, 3153 for RTGS/NEFT, 85 for Pension, 1570 for SMS upset, 458 for Banking Ombudsman and 1338 General complaints.

The number of good faith charge backs, i.e., complaints received after 120 days, raised on other Banks stood at 360 as on 31-03-2015 amounting to Rs. 0.17crore out of which Rs. 0.16 crore is more than one year and Rs. 0.01 crore is less than one year.

* All the pending complaints are since redressed.

** The complainant was not satisfied with Banking

Ombudsman''s award and preferred an appeal with the Deputy Governor, Reserve Bank of India, Mumbai, against the award issued by the Banking Ombudsman, Hyderabad. The appellate authority, Deputy Governor of RBI upheld the decision of the Banking Ombudsman, Hyderabad, but the complainant has not given his consent. Hence, the complaint is treated as closed.

3.4 Disclosure of Letters of Comfort (LoC) issued by bank: During the year ended 31.03.2015, 990 (1040) Letters of Comfort/Letter of Undertaking have been issued by the bank amounting to Rs. 2876.22 crore (Rs.4140.78 crore). The Letters of Comfort outstanding as on 31.03.2015 are amounting to Rs.1367.63 crore (Rs. 1968.22 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%, other participating banks'' share , 40% by Bank of Baroda and 35% from 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 Million).

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 31.03.2015, Andhra Bank''s contribution to equity capital of India International Bank (Malaysia) BHD is Malaysian Ringgit 82.50 Million 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 Million under the Letter of Comfort issued, towards its share in the paid up capital of Malaysian Ringgit 330.00 Million.

* Technical or prudential write off is the amount of nonperforming loans which are written off at branch level and loans which are outstanding in the books of the branches but have been written off (fully or partially) at Head Office level.

@ Specific Provisions held including provisions for diminution in fair value of the restructured accounts classified as NPAs plus technical/prudential write off.

# Total provisions held on NPAs Floating provision DICGC/ECGC claim amount considered for calculating NPA amount technically written off / Gross NPA amount technically written off.

3.6 Bancassurance business

The Bank has received total Rs.19.61 crore (Rs.12.83 crore) as fee from Bancassurance. It includes fees from Bancassurance Life Rs. 9.16 crore (Rs.5.61 crore) and Non-Life Rs.10.45 crore (Rs.7.22 crore).

3.7 Concentration of Deposits, Advances, Exposures and NPAs

3.12 Reconciliation of Inter Bank transactions have been done up to 31st March 2015.

3.13Provision for Income Tax has been made on the basis of the applicable laws and various judicial pronouncements available. In view ofjudicial pronouncements in similar cases, no additional provision is considered necessary towards disputed tax demands of Rs.737.21 crore (Rs. 522.13crore ) upto assessment year 2012-13 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).

3.14 The Bank has been claiming deduction under Section 36(1) (viii)ofthe Income taxAct, 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. 190crore (previous year Rs.195 crore) to the corresponding Special Reserve account maintained under the said section and the same is shown under Item IV B of Schedule -2 "Reserves and Surplus".

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

3.16 Intra-Group Exposures:

3.16.2 Total amount of intra-group exposures - Rs. 600crore (Rs. 400 crore)

3.16.3 Total amount of top-20 intra-group exposures Rs. 600 crore (Rs. 400 crore)

3.16.4 Percentage of intra-group exposures to total exposure of the bank on borrowers / customers is 0.41% (0.26%).

3.16.5 Details of breach of limits on intra-group exposures and regulatoryaction thereon, if any. NIL

3.17 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 - Others items for which the bank is contingently liable" under Schedule 12 of the annual financial statements

3.18 Unhedged Foreign Currency Exposure :

Bank has in place 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, External Commercial Borrowings, Foreign Letter of Undertaking (LoU)/Letter Comfort (LoC) including buyers'' credit, import letters 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.

3.19.2 Qualitative disclosure around LCR :

a. The Liquidity Coverage Ratio (LCR) is calculated as a ratio of High Quality Liquid Assets (HQLA) to Net Cash outflows under stress conditions over the next 30 calendar days.

b. High Quality Liquidity Assets (HQLA) comprise of:

- Cash on hand;

- Excess CRR balance;

- Government Securities in excess of minimum SLR requirement;

- Government securities within the mandatory SLR requirement to the extent allowed by RBI under MSF (@2% of NDTL) & FALLCR (@5% of NDTL);

- Marketable securities representing claims on or guaranteed by Public Sector Entities, Corporate Bonds, Commercial Papers, Equity shares (Assets classified as Level 2A and 2B Assets are subject to hair-cuts / adjustments as per RBI guidelines)

c. Liquidity Coverage Ratio (Ratio) as on 31.01.2015,

28.02.2015 and 31.03.2015 stood at 67.94%, 78.47% and 77.35% respectively against regulatory requirement of minimum of 60% w.e.f. 01.01.2015. The Average LCR for the quarter ending 31st March, 2015 (for the months of January, Februaryand March, 2015) is 74.46%.

3.20 During the year, Bank has revalued 74 premises owned by it having original cost of Rs. 115.35 crore. The revaluation has been done on the basis of the value determined by the approved valuer in the months of Feb & March 2015 and resultant net appreciation of Rs. 712.88 crore (with increase in original cost of the assets by Rs. 1587.90crore and accumulated depreciation by Rs. 875.02 crore) has been credited to Revaluation Reserve. As assets have been revalued at year end only, accordingly no depreciation has been provided on the revalued amount.

Revaluation reserve included in Tier II capital of the Bank has increased the regulatory capital to the extent of Rs. 320.79 crore

3.21 Previous year figures have regrouped / reclassified / rearranged wherever necessary to conform to current year''s figures. Figures in the brackets indicate figures of previous year.


Mar 31, 2013

1.1.1 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 71500 crores for interest rate swaps (sub-limit of Rs. 500 crores 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 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 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 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 orthe 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.

1.1.2. The amount of advances, for which intangible securities, such as charge over the rights, licenses etc., have been taken as security is NIL (Rs.153.41 cr) and the said advances have been classified as unsecured forming part of Unsecured advances in Schedule Item ll-C Such advances constitute - (1.48%) of total unsecured advances.

1.2 Penalties imposed by Reserve Bank of India

During the year ended 31st March, 2013, no penalty has been levied by RBI.

2. Discontinuing operations (AS-24)

During the financial year 2012-13 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.

3. Impairment of Assets (AS 28)

The indications listed in paragraphs 8 to 10 of Accounting Standard 28-''lmpairment 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.

4. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (AS 29)

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.

Movement of provisions for liabilities (excluding provision for others)

The total complaints received during the year include 70898 number of complaints for ATM, 74 for Credit Card,7110 for RTGS/NEFT, 63 for Pension 4420 (SMS upset), 464 (Banking Ombudsman) and 1778 (General).

5.1. Disclosure of Letters of Comfort (LoC) issued by bank:

During the year ended 31.03.2013,1089 (838) Letters of Comfort/Letter of Undertaking have been issued by the bank amounting to Rs. $804.17 crore (7 4994.26 crore) The Letters of Comfort outstanding as on 31.03.2013 are amounting toRs. 2358.57 crore (7 2827.32 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% and 40% by Bank of Baroda and 35% from 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 77.50 million (being 25% of total paid up capital of Malaysian Ringgit 310 Mio) for the establishment of proposed J V Bank.

For the purpose of fulfillment of capital requirements of its joint venture Indian International Bank (Malaysia) Bhd, Bank has issued a Letter of Undertaking and a Letter of Comfort on 05.08.2010 favoring Bank Negara Malaysia and the financial impact on such LOC/LOU is limited to the extent of Andhra Bank''s share of capital contribution. As on 31.03.2013, Andhra bank''s contribution to equity capital of India International Bank (Malaysia) BHD is Malaysian Ringgit 77.50 Mio representing 77,50,000 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 77.50 Mio under the Letter of Comfort issued, towards its share in the paid up capital of Malaysian Ringgit 310 Mio.

@ Specific provisions held including provisions for diminution in fair value of the restructured accounts classified as NPAs plus technical/prudential write off.

5.2 Bancassurance business

The Bank has received Rs. 6.43 crore (Rs. 4.60 crore) as fee from Bancassurance - Life and Rs. 5.46 crore (Rs.5.35 crore) as fee from Bancassurance - Non Life.

5.3 Reconciliation of Inter Branch and Inter Bank transactions have been done up to 31 st March 2013.

5.4. 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. 656.65 crane (Rs. 573.56 crore) upto assessment year 2010-11 for which assessments are completed/appealed. Amounts paid by the bank/adjusted by the department on account of the said disputed tax demands has been included in tax paid in advance/tax deducted at '' source (item III of Schedule 11 - Other Assets)

5.6 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 a transferred a sum of Rs.310 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".

5.7 1437 individual housing loan accounts securitized during the year 2003-04 amounting to Rs.50.36 crore and were transferred to a Special Purpose Vehicle (SPV) Trust pursuant to the Deed of Assignment executed with National Housing Bank (NHB).The NHB has issued Pass Through Certificates (PTCs) of said amount, out of which part was subscribed by various Banks/Financial Institutions as PTC Class- A investments and the balance was subscribed by the bank as PTC Class-B. The value of PTC-A series was fully relinquished on 01.12.2012 and hence stood NIL as on 31.03.2013 (Rs.1.15 crores as on 31.03.2012). Further, PTC Class-B investment with a book value of - Rs.0.99 crores has been shown as a part of investments by the bank as on 31.03.2013 (Rs.2-02 crores as on 31.03.2012).

The present outstanding balance of the pool as on 31.03.2013 is Rs.3.92 crore - 225 accounts (Rs.5.24 crore - 332 accounts as on 31.03.2012).

The Bank is acting as Service Provider to the SPV Trust. An amount of Rs.0.68 crore (Rs.0.68 crore as on 31.03.2012) has been provided by the bank as cash collateral in addition to Investment in PTC- B as credit enhancement, was withdrawn, since the PTC A series was fully relinquished.An amount of Rs.1.28 crores is held as special provision to meet any loss due to non recovery of securitized housing loans.

5.8 Credit Default Swaps:

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

5.9 Previous year figures have been regrouped / reclassified /rearranged wherever necessary to conform to current year''s figures. Figu res in the brackets indicate figures of previous year.


Mar 31, 2012

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

* Investments include Rs 8.26 crore (Rs 8.26crore) invested in Regional Rural Banks 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 Re. 1(Re. 1)

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

c) Investment in 585025 shares of Malaysian Ringgit 10 each amounting to Rs 9.29 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 the entity.

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.

During the year 10571 Visa shares of face value were sold (Book value Re. 1) for a consideration of Rs 4.19 crore.

SALE AND TRANSFERS TO/FROM HTM CATEGORY

(a) During the year, the Bank has shifted Central/State Govt. securities aggregating Rs 1545.94 crores (Rs 748.32 crores) from 'Available for Sale' (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 of Rs 24.05 crores(NIL) to Profit and Loss Account. Bank also shifted investment of Rs 25.73 crore (Rs 9.04 crores) in Venture Capital funds from Held to Maturity (HTM) Category to Available for Sale (AFS) category and provided a depreciation of Rs 1.59 crore (0.18 cr)

(b) The Bank earned gross amount of Rs8.79 crores (Rs8.77 crores) as profit on sale of securities in HTM category out of which an amount of Rs4.45 crores (Rs4.40 crores),net of tax and amount required to be transferred to Statutory Reserve has been appropriated to Capital Reserve Account as per guidelines issued by Reserve Bank of India.

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 crores for interest rate swaps (sub-limit of Rs 500 crores 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 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 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 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.

Bank is having Mark to Market Position of Rs 114.71 crores (Rs 111.64 crores) for a derivative deal entered for hedging its foreign currency exposure.Net mark to market effect for this transcation is NIL for the bank.

The above disclosures including sacrifice/provisions is as per the guidelines issued by Reserve Bank of India and is compiled & certified by the management.

1.4.6 FLOATING AND ADDITIONAL PROVISIONS

a) Floating Provision of Rs 38.06 crore (Rs 38.06 crore), is held as at 31.03.2012 in respect of gross non performing advances over and above the minimum prescribed as per RBI guidelines with a view to strengthening the financial position of the Bank.

b) During the year, the provision on nonperforming advances with balances below Rs1 lac has been made as per IRAC norms prescribed by Reserve Bank of India as against earlier practice of full provision on such accounts. Additional provisions are made wherever, in the opinoin of the Bank, the value of security has deteriorated or likely to deteriorate. Such additional provision aggregated to Rs 421.40 crore (Rs 272.88 crore) is held on 31st March 2012.

The net funded exposure of the bank in respect of foreign exchange transactions with each country is within 1% of the total assets of the Bank, hence no provision is required to be made as per RBI guidelines.

1.7.5. Unsecured advances in schedule 9 includes advances Rs 153.41 cr (151.59 cr) advance for which intangible securities/assets have been taken as collaterals.

1.9 Penalties imposed by RBI

During the year ended 31st March, 2012, no penalty has been levied by RBI.

2. Disclosures in terms of Accounting Standards (AS) issued by the Institute of Chartered Accountants of India

2.1. 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.

2.2 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

2.3 ACCOUNTING STANDARD -15 EMPLOYEE BENEFITS

2.3.1 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.

2.3.2 Pension

Bank pays pension, 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 and joined 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. Pension Fund is managed by Andhra Bank Employees Pension Fund Trust

Employees who joined on or after 01/4/2010 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 Development Authority

2.3.3 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 pattern prescribed by Government of India.

2.3.4 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.

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

2.3.5 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 are as under:

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. 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

(1.04 crore)

(j) Contribution to Provident Fund: Rs 0.62 crore

(11.67 crore)

2.3.6 : 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 Rs10 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 506.65 cr., carried forward as on 31st March, 2011 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 379.99 cr has been carried forward.

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.

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.

3 RELATED PARTY DISCLOSURES (AS 18)

Names of the Related Parties and their relationship with the Bank

(a) The Bank has identified the following persons to be the Key Management Personnel As per the Accounting Standard

i) Shri B.A. Prabhakar, Chairman and Managing Director (From 02/01/2012)

ii) Shri A.A. Taj, Executive Director

iii) Shri K.K. Misra, Executive Director (From 26/12/2011)

iv) Shri R.Ramachandran, Chairman and Managing Director (Upto 31.12.2011)

v) Shri Anil Girotra, Executive Director (Upto 30.9.2011)

(b) Subsidiary

Andhra Bank Financial Services Ltd.,

(c) Associates

(i) Chaitanya Godavari Grameena Bank

(ii) Rushikulya Gramya Bank

(d) Joint Ventures

i) India First Life Insurance Company Ltd.,

ii) India International Bank (Malaysia) Bhd.

No Provision for Deferred Tax Liability (DTL) on deduction claimed under Section 36(i)(viii) of the Income Tax Act, 1961 has been made as the same is considered as Permanent difference consequent to the decision of the Bank not to withdraw the Reserves created under the provisions of the Income Tax Act. DTA on transitional provision as per AS-15(R) has also been derecognized during the year.

4. Discontinuing operations (AS-24)

During the financial year 2011-12 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.

5. Impairment of Assets (AS 28)

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.

6. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (AS 29)

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.

The total complaints received during the year include 87444 number of complaints for ATM, 87 for Credit Card, 2454 for RTGS/NEFT, 5819 for Pension and 1520 complaints of general nature.

7.1. Disclosure of Letters of Comfort (LoC) issued by bank:

During the year ended 31.03.2012, 838 (726) Letters of Comfort/Letter of Undertaking have been issued by the bank amounting to Rs 4994.26 (Rs 1,874.40) crores. The Letters of Comfort outstanding as on 31.03.2012 are amounting to Rs 2827.32 (Rs 1528.93) crores.

Letter of Comfort on behalf of Joint Venture

For the purpose of fulfillment of capital requirements of its joint venture Indian International Bank (Malaysia) Bhd, Bank has issued a Letter of Undertaking and a Letter of Comfort on 05.08.2010 favoring Bank Negara Malaysia and the financial impact on Such LOC/LOU is limited to the extent of Andhra Bank's share of capital contribution. As on 31.03.2012, Andhra bank has been called upon to contribute capital to the extent Malaysian Ringgit 58,50,250 only (representing 585025 fully paid shares) and the same has been remitted by the Bank. The rupee equivalent of such capital contribution is included under the head "Investments in Subsidiaries and Joint Ventures Balance commitment under Letter of Undertaking is RM 69,149,750 equivalent to Rs 115.20 cr.,

7.2 Bancassurance business

The Bank has received Rs 4.60 crores C 13.03 crores) as fee from Bancassurance D Life and Rs 5.35 crores C 13.23 crores) as fee from Bancassurance D Non Life.

7.3 Bank has completed the process of implementation of Core Banking Solution during the year 2008-09. The related cost of software aggregating to Rs. 89.04 crores is being amortized over the estimated useful life of 5 years out of which an amount of Rs 17.81 cr.C 35.62 crores) is outstanding as on 31.03.2012.

7.4 Reconciliation of Inter Branch and Inter Bank transactions have been done up to 31st March 2012.

7.5. 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 573.56 crore ( Rs 346.32 cr ) including service tax of Rs 2.76 cr . upto assessment year 2009-10 for which assessments are completed/appealed.

7.6 1437 individual housing loan accounts securitized during the year 2003-04 amounting to Rs 50.36 crores and were transferred to a Special Purpose Vehicle (SPV) Trust pursuant to the Deed of Assignment executed with National Housing Bank (NHB).The NHB has issued Pass Through Certificates (PTCs) of said amount, out of which part was subscribed by various Banks/Financial Institutions as PTC Class-A investments and the balance was subscribed by the bank as PTC Class-B. The value of PTC-A series stood at Rs 1.15 crores as on 31.03.2012 C 3.44 crores as on 31.03.2011). Further, PTC class-B investment with a book value of Rs 2.02 crores has been shown as a part of investments by the bank as on 31.03.2012 (Rs 2.70 crores as on 31.03.2011).

The present outstanding balance of the pool as on 31.03.2012 is Rs 5.24 crores (332 accounts)C7.45 crore-472 accounts ).The bank is acting as service provider to the SPV Trust. An amount of Rs 0.68 crores (Rs 0.68 crores) has been provided by the bank as cash collateral in addition to Investment in PTC- B as credit enhancement. An amount of Rs 1.17 crores is held as special provision to meet any loss due to non recovery of securitized housing loans.

7.7 In terms of Agriculture Debt Waiver & Relief Scheme, 2008 with regard to the amount of relief to other farmers an amount of Rs 157.68 crore was initially identified as claim receivable from Government of India. However, an amount of Rs 151.80 crore has been certified by the Central Statutory Auditors as final claim out of which Rs 130.59 crore has been received during 2010-11 and balance claim amount of Rs 21.21 crore receivable as on 31st March 2011 has been fully received during 2011-12.

7.8 Previous year figures have been regrouped / reclassified /rearranged wherever necessary to conform to current yearDs figures. Figures in the brackets indicate figures of previous year.


Mar 31, 2011

1. The statements of financial results forthe year have been prepared on historical cost convention and following the same set of accounting policies and practices as forthe year ended 31st March 2010 except treatment of depreciation on securities transferred from AFS to HFT category and vice versa in term of policy as per 4 f (ii) c in Schedule-17.

2. Legal formalities with regard to the registration of property in favour of Bank which are yet to be completed in respect of one property valued at Rs. 0.06 crore.

3. During the financial year ended 31 st March 2011, the bank has made a preferential allotment of 7, 45, 80,364 Equity Shares of the face value of Rs. 10.00 each to Government of India at a premium of Rs. 147.28 per share for an aggregate amount of Rs. 1173.00 crore.

4. During the year, the Bank has reopened the pension option for its employees who had not opted forthe scheme earlier. As a result of exercise of the given option by existing and retired/separated employees, the bank has incurred an additional liability of Rs. 521.51 crore including Rs. 468.31 crore on account of exercise by 6072 existing employees.

Further, with regard to gratuity, the bank has incurred an additional liability of Rs. 165.00 crore during the year consequent to the amendment in the Payment of Gratuity Act-1972 increasing the ceiling limit from Rs. 3.50 lacs to Rs. 10.00 lacs.

In terms of the requirements of the Accounting Standard (AS) 15, Employee Benefits, the entire amount of Rs. 686.51 crore is required to be charged to the Profit and Loss Account. However, the Reserve Bank of India vide circular no. DBOD.BPBC.80/21.04.018/2010-11 dated 09th of February, 2011, has allowed the banks to amortize the additional liabilities on account of second pension option in respect of existing employees and gratuity payable over a period of five years.

The bank, as allowed by RBI, has amortized Rs. 93.66 crore being 1/5th of the total amount of the additional pension liability of the existing employees and Rs. 33.00 crore, being the 1/5th of the additional liability on account of gratuity.

The additional pension liability of the retired/separated employees amounting to Rs. 53.20 crore has been fully charged to the profit and loss account.

Had such deferment not been there, the profit of the Bank would have been lower by Rs. 506.65 crore (being the net liability relating to serving employees carried forward) pursuant to application of the requirements of AS-15.

5. (a) (i) In terms of Agriculture Debt Waiver & Debt Relief Scheme 2008, hereinafter referred as the Scheme, framed by the Government of India, with regard to the amount eligible for waiver in respect of small and marginal farmers, the Bank identified a sum of Rs. 746.96 crore, as certified by Central Statutory Auditors, out of which Rs. 262.88 crore was receivable as on 31st March 2010 has fully been received during the current financial year.

(ii) In terms of the above scheme with regard to the amount of relief to other farmers an amount of Rs. 157.68 crore was initially identified as claim receivable from Government of India. However an amount of Rs. 151.80 crore has been certified by the Central Statutory Auditors as final claim, out of which an amount of Rs. 130.59 crore has been received.

(b) In terms of RBI circular no. DBOD no. BPBC 78/ 21.04.048/2008-09 dated 11th November 2008; interest amounting to Rs. 8.77 crore for the year is recognized in respect of claims receivable from Government of India under the scheme.

6. a) 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. 278.76 crore inclusive of service tax of Rs. 2.48 crore (Rs. 312.65 crore) upto assessment year 2008-09 for which assessments are completed/appealed.

7. Investments include Rs. 8.26 crore (Rs. 8.26crore) invested in Regional Rural Banks as Share Capital Deposit pursuant to a letter by Government of India.

8. a) Floating Provision of Rs. 38.06 crore (Rs. 38.06 crore), is held as at 31.03.2011 in respect of gross non performing advances over and above the minimum prescribed as per RBI guidelines with a viewto strengthen the financial position of the Bank.

b) Consequent to RBI Circular DBOD.No.BP.BC 118 / 21.04.048/2008-09 dated March 25, 2009, the bank has modified the policy of prudential treatment of different types of provisions in respect of loan portfolio. Additional provisions are made wherever, in the opinion of the Bank, the value of security has deteriorated or likely to deteriorate. Such additional provision aggregating to Rs. 272.88 crore (Rs. 238.88 crore) is held as on 31st March, 2011.

c) The above floating and additional provisions are netted off from advances.

9. 1437 individual housing loan accounts securitized during the year 2003-04 amounting to Rs. 50.36 crore and were transferred to a Special Purpose Vehicle (SPV) Trust pursuant to the Deed of Assignment executed with National Housing Bank (NHB). The NHB has issued Pass Through Certificates (PTCs) of said amount, out of which part was subscribed by various Banks/Financial Institutions as PTC Class-A investments and the balance was subscribed by the bank as PTC Class-B. The value of PTC-A series stood at Rs. 3.44 crore as on 31.03.2011 (Rs. 6.53 crore). Further, PTC class-B investment with a book value of Rs. 2.70 crore has been shown as a part of investments by the bank as on 31.03.2011(Rs. 3.20 crore).

The present outstanding balance of the pool as on 31.03.2011 is Rs. 7.46 crore (M1.08 crore). The bank is

12.2 Investments acting as service provider to the SPV Trust. An amount of Rs. 0.68 crore (Rs. 0.68 crore) has been provided by the bank as cash collateral in addition to Investment in PTC-B as credit enhancement. An amount ofRs. 1.17 crore is held as special provision to meet any loss due to non recovery of securitized housing loans.

10. The Bank has received Rs. 13.03 crore (Rs. 12.55 crore) as fee from Bancassurance - Life and Rs. 13.23 crore (Rs. 12.42 crore) as fee from Bancassurance - Non Life.

11. Bank has completed the process of implementation of Core Banking Solution during the year 2008-09. The related cost of software aggregating to Rs. 89.04 crore is being amortized over the estimated useful life of 5 years out of which an amount of Rs. 35.62 (Rs. 53.43 crore) is outstanding as on 31.03.2011.

12.2.3 a) During the year, the Bank has shifted securities aggregating Rs. 748.32 crore (Rs. 1251.48 crore) from Available for Sale (AFS) category to Held to Maturity (HTM) Category and Rs. 9.04 crore (Nil) (Investment in Venture Capital funds) from Held to Maturity (HTM) category to Available for Sale (AFS) category at lower of acquisition cost/book value / market value. The available depreciation ofRs. 19.37 crore fortransfer of securities from Available for Sale (AFS) Category to Held to Maturity (HTM) category was utilised. A loss of Rs. 0.18 crore was booked on transfer of Investment in Venture Capital funds from Held to Maturity (HTM) category to Available for Sale (AFS) category. There is no shifting of securities from HFT to HTM category during the year (Rs. 136.85 crore).

(b) Loss incurred during the year on account of sale of security under HTM category is Nil (Nil)

(c) Due to change in accounting policy regarding depreciation on transfer of securities from HFT to AFS category (please refer to point no.4 (f) (ii) c of schedule- 17), the charge to Profit & Loss account is lower to the extent of Rs. 0.06 crore. There is no consequent impact on valuation of investments at the year end.

12.2.4 The Bank has earned gross amount of Rs. 8.77 crore (Rs. 141.42 crore) as profit on sale of securities in HTM category out of which an amount of Rs. 4.40 crore (Rs.93.35 crore), net of tax and amount required to be transferred to Statutory Reserve, has been appropriated to capital reserve account as per RBI guidelines.

12.3.3 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 exposures limits delegation of powers, accounting policy, ISDAdocumentation, reporting etc., for undertaking forex derivatives in various forms of currency swaps & various types of interest rates swaps not specifically prohibited by RBI with the corporate borrower customers, other banks and non-borrower customers to be covered on back to back basis. Banks policy also permits entering into Plain Vanilla European Style Option to Banks customers for hedging / pricing their forward exposures on back to back basis, or for hedging foreign currency exposures.

iii) Mark to Market valuation is sent to customers on monthly basis and capital charge is provided as per current exposure method.

iv) 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: Bank availed the services of a consultant in respect of the derivative transactions undertaken. The consultant firm was providing daily mark to market position of all the outstanding swaps and the bank reviewed the same at periodical intervals. The position of all outstanding swaps, new swaps entered, swaps existed, Mark to Market value of swaps etc., is being reviewed by the Banks Investments Committee and the Board at monthly intervals. Details of transactions undertaken in IRS are also reported to RBI on a fortnightly basis.

c) Policies for hedging and / or mitigating and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants: Depending on the market opportunities and as per the advice of the Consultant, 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 knowthe 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 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.

12.8. Penalties imposed by RBI

During the year ended 31st March, 2011, no penalty has been levied by RBI.

19. IMPAIRMENT OF ASSETS (AS 28)

The indications listed in paragraphs 8 to 10 of Accounting Standard 28-lmpairment 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. Aformal estimate of the recoverable amount has not been made, as there is no indication of a potential impairment loss.

20. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (AS 29)

As per the guidelines of AS-29 issued by ICAI, details of movement in significant provisions have been disclosed at the appropriate places in the notes forming part of the accounts.

21 There is no material prior period item included in Profit and Loss account which is required to be disclosed as per AS-5 issued by the Institute of Chartered Accountants of India read with RBI guidelines.

22. Pursuant to RBI guidelines, the bank has made a provision of Rs. 0.45 crore (Rs. 31.48 crore) during the year in respect of interest on matured deposits. The total amount of provision kept for such matured deposits stands at Rs. 31.93 crore (Rs. 31.48 crore) as on 31 st March 2011.

23. Reconciliation of Inter Branch and Inter Bank transactions have been done up to 31st March 2011.

25. Hitherto the Bank is classifying the following regulatory capital instruments under Schedule 5-Other Liabilities:

1. Innovative Perpetual Debt Instruments (IPDI)

2. Subordinated Debt.

However, pursuant to RBI guidelines vide RBI/2009-10/368 DBOD.BPBC.No.81/21.01.002/2009-10 dated 30.03.2010, now the same are being classified under Schedule 4 - Borrowings.

26. Disclosure of complaints and unimplemented awards of Banking Ombudsman

a) Customer complaints (in numbers)

a) Pending at the beginning of the year: 237

b) Received during the year: 93943

c) Redressed during the year: 93244

d) pending at the end of the year: 936

b) Awards passed by the Banking Ombudsman (in numbers)

a) Unimplemented at the beginning of the year: o

b) Passed by the Banking Ombudsman during the year: lO

c) Implemented during the year: o9

d) Unimplemented at the end of the year: 1

The total complaints received during the year include 78199 number of complaints for ATM, 153 for Credit Card, 1853 for RTGS/NEFT, 8299 for Pension and 5439 of general nature.

27. Previous year figures have been regrouped / reclassified /rearranged wherever necessary to conform to current years figures. Figures in the brackets indicate figures of previous year.


Mar 31, 2010

1. The financial results have been prepared following the prevailing accounting policies and practices in the annual financial statements for the year ended 31st March 2010.

2. Legal formalities with regard to the registration of property in favour of Bank which are yet to be completed in respect of one property valued at Rs. 0.06 crores.

3. (a) (i) In terms of Agriculture Debt Waiver & Debt Relief Scheme 2008, hereinafter referred as the Scheme, framed by the Government of India, with regard to the amount eligible for waiver in respect of small and marginal farmers, the Bank has identified and transferred a sum of Rs.746.19 Crores, as certified by Central Statutory Auditors, under the head advances as "Amount receivable from Government of India under Agriculture Debt Waiver and Relief Scheme 2008" out of which Rs. 484.08 Crores has been received.

(ii) In terms of the above scheme with regard to the amount of relief to other farmers an amount of Rs. 157.68 Crores is identified as claim receivable, subject to certification by the Central Statutory Auditors.

(b) Provision held in respect of NPA accounts for which the waiver/ relief has been granted amounting to Rs. 3.18 Crores have been retained as NPA provision.

(c) Out of the floating provision of Rs.49.85 Crores outstanding as on 31-03-2009 the bank, in accordance with the RBI circular No DBOD.NO.BP.BC.48/21.04.048 /2008/09 dated 22nd September, 2008 has utilized a sum of Rs 11.79 crores during the quarter ended 30.06.2009 towards interest from 01.04.09 to 30.06.09. Interest has been charged on eligible amount for the period from 01.07.2009 to 31.03.2010 and recognized as income in terms of RBI Circular No. DBOD No: BP:BC 35/21.04.048/ 2009-10 dated 31.08.2009.

(d) Pursuant to the RBI circular No DBOD.NO.BP.BC.26/ 21.04.048 /2008/09 dated 30th July 2008, the bank has offered further concessions and made adequate provision of Rs.20.00 Crores inclusive of loss in present value (PV) terms for staggered repayment by "other farmer" under the scheme. The scheme has been extended up to 30.06.2010.

(e) In terms of RBI circular no. DBOD no. BP.BC 78/ 21.04.048 /2008-09 dated 11th November 2008, interest amounting to Rs. 13.48 crores for the period from 01.04.2009 to 31.03.2010 is recognized in respect of claims receivable from Government of India under the scheme.

(f) Consequent to the implementation of Agricultural Debt Reschedulement Scheme 2004, the un-recovered interest on Non Performing Assets (NPA) amounting to Rs. 3.64 Crores was kept under the head Interest Suspense Account to be adjusted from the recoveries from the borrowers.

4. a) Provision for Income Tax has been made on the basis of the applicable laws and various judicial pronouncements in this regard. In view of judicial pronouncements, no provision is considered necessary towards disputed tax demand of Rs. 451.20 crores (Rs. 461.23 crores) in similar cases.

5. Investments include Rs. 8.26 crores (Rs.8.26crores) invested in Regional Rural Banks as Share Capital Deposit pursuant to a letter by Government of India.

6. A) Floating Provision of Rs. 38.06 crores (Rs.49.85 crores), is held as at 31.03.2010 in respect of gross non performing advances over and above the minimum prescribed as per RBI guidelines with a view to strengthen the financial position of the Bank.

B) Consequent to RBI Circular No. 2008-09/418 dt. March 25, 2009, the bank has modified the policy of prudential treatment of different types of provisions in respect of loan portfolio. Additional provisions are made wherever, in the opinion of the Bank, the value of security has deteriorated or likely to deteriorate. Such additional provision aggregating to Rs.238.88 crores (Rs.61.07 crores) has been made during the year 2009-10.

C) The above floating and additional provision is netted off from advances.

7. In respect of 1437 individual housing loan accounts securitized during the year 2003-04 amounting to Rs.50.36 crores and transferred to a Special Purpose Vehicle (SPV) Trust pursuant to the Deed of Assignment executed with National Housing Bank (NHB).The NHB has issued Pass Through Certificates (PTCs) of said amount, out of which part was subscribed by various Banks/Financial Institutions as PTC Class-A investments and the balance was subscribed by the bank as PTC Class B. Such PTC class B investment with a book value of Rs.3.20 crores (Rs.3.95 crores) has been shown as a part of investments by the bank at the year end.

The present outstanding balance of the pool as on 31.03.2010 is Rs.11.08 crores (Rs.15.03 crores). The bank is acting as service provider to the SPV Trust. An amount of Rs.0.68 (0.68) crore has been provided by the bank as cash collateral in addition to Investment in PTC- B as Credit enhancement.

8. The Bank has received Rs. 12.55 cores as fee from Bancassurance - Life and Rs. 12.42 crores as fee from Bancassurance - Non Life.

9. Bank has completed the process of implementation of Core Banking Solution during the year 2008-09. The related cost of software aggregating to Rs. 89.04 crores is being amortized over the estimated useful life of 5 years out of which an amount of Rs. 53.43 crores is outstanding as on 31.03.2010.

10.2.3. a) During the year, the Bank has shifted securities aggregating to Rs. 1251.48 (1116.12) crores from "Available for Sale" (AFS) category and RS. 136.85(0) crores to "Held to Maturity" (HTM) category at lower of acquisition cost/book value /market value and the resultant depreciation of Rs. 77.54 (8.58) crores has been provided.

b) Loss incurred during the year on account of sale of security under HTM category is Nil (Nil).

10.2.4 Gross amount of Rs. 141.42 (163.89) crores, being profit on sale of securities in HTM category is appropriated, net of tax Rs.93.35 crores (Rs. 108.20 crores), to capital reserve account as per RBI guidelines.

10.3.3 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 crores for interest rate swaps (sub-limit of Rs 500 crores 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 exposures 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 RBI with the corporate borrower customers, other banks and non-borrower customers to be covered on back to back basis. Banks policy also permits entering into Plain Vanilla European Style Option to Banks customers for hedging / pricing their forward exposures on back to back basis, or for hedging foreign currency exposures.

iii) Mark to Market valuation is sent to customers on monthly basis and capital charge is provided as per current exposure method.

iv) 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:

Bank is availing the services of a consultant in respect of the derivative transactions undertaken. The consultant firm is providing daily mark to market position of all the outstanding swaps and the Bank is reviewing the same at periodical intervals. The position of all outstanding swaps, new swaps entered, swaps exited, Mark to Market value of swaps etc., is being reviewed by the Banks Investment Committee and the Board at monthly intervals. Details of transactions undertaken in IRS are also reported to RBI on a fortnightly basis.

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

Depending on the market opportunities and as per the advice of the Consultant, 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 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.

17. Pending finalization of wage revision, in addition to Rs. 60.00 crores provision made during the Year 2008-09, an adhoc provision of Rs.101.25 crore has been made during the current year.

18. IMPAIRMENT OF ASSETS (AS 28)

The indications listed in paragraph 8 to 10 of Accounting Standard 28-lmpairment 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.

11. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (AS 29)

As per the guidelines of AS-29 issued by ICAI, details of movement in significant provisions have been disclosed at the appropriate places in the notes forming part of accounts.

12. There is no material prior period item included in Profit and Loss account which is required to be disclosed as per AS- 5 issued by the Institute of Chartered Accountants of India read with RBI guidelines.

13. Pursuant to RBI guidelines, the bank has made a provision of Rs.31.47 crores in respect of interest on matured deposit on estimated basis.

14. Pursuant to RBI guidelines on Reconciliation of Nostro account and treatment of outstanding entries vide DBOD.BP.BC.No.133/21.04.018/2008-09 dated 11th May 2009, the Bank has initially credited an amount of Rs.81.19 lacs to the Profit and Loss Account and subsequently appropriated the same to the credit of General Reserve.

15. The Bank has raised Tier-ll Bonds of Rs. 1120 cores during the year comprising Upper Tier-ll Bonds of Rs.800 crores and Subordinated Debt Bonds of Rs.320 crores. The Bank has also redeemed Rs.140 Crores Tier-ll Subordinated Debt Bonds during the year ended 31s1 March 2010.

16. Hitherto the Bank is classifying the following regulatory capital instruments under Schedule 5- Other Liabilities:

1. Innovative Perpetual Debt Instruments (IPDI)

2. Subordinated Debt.

However, pursuantto RBI guidelines vide RBI/2009-10/368 DBOD.BP.BC.No.81/21.01.002/2009-10 dated 30.03.2010, now the same are being classified under Schedule 4 - Borrowings.

17. Reconciliation of Inter Branch and Inter Bank transactions have been done up to 31s1 March 2010.

18. Previous years figures have been regrouped / reclassified /rearranged wherever necessary to confirm to current years figures. Figures in the brackets indicate figures of previous year.



 
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