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Notes to Accounts of Axis Bank Ltd.

Mar 31, 2015

1. The shareholders of the Bank at the 20th Annual General Meeting held on 27 June, 2014, approved the sub-division (split) of one equity share of the Bank from nominal value of `10/- each into ? ve equity shares of nominal value of `2/- each. The record date for the sub-division was 30 July, 2014. All shares, stock options and per share information in the ?nancial statements re? ect the effect of sub-division (split) retrospectively for the earlier reporting periods.

2. The Bank has not raised any hybrid capital during the years ended 31 March, 2015 and 31 March, 2014.

3. The provisioning coverage ratio of the Bank computed in terms of the RBI guidelines as on 31 March, 2015 was 77.73% (previous year 78.10%).

4. During the years ended 31 March, 2015 and 31 March, 2014; none of the exposures to Indian corporates at overseas branches of the Bank have been classi? ed as NPA by any host banking regulator for reasons other than record of recovery.

5. During the years ended 31 March, 2015 and 31 March, 2014 there are no unsecured advances for which intangible securities such as charge over the rights, licenses, authority etc. has been taken as collateral by the Bank.

7. During the years ended 31 March, 2015 and 31 March, 2014 there were no Non-Performing Financial Assets purchased/sold by the Bank from/to other banks/FIs/NBFCs (excluding securitisation/reconstruction companies). 8. Disclosure on risk exposure in Derivatives

Qualitative disclosures:

(a) Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants:

Derivatives are financial instruments whose characteristics are derived from an underlying asset, or from interest and exchange rates or indices. The Bank undertakes over the counter and Exchange Traded derivative transactions for Balance Sheet management and also for proprietary trading/market making whereby the Bank offers derivative products to the customers to enable them to hedge their interest rate and currency risks within the prevalent regulatory guidelines.

Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK), and Currency Options for USD/INR pair (both OTC and exchange traded). The Bank also undertakes transactions in Cross Currency Swaps, Principal Only Swaps, Coupon Only Swaps and Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks, primarily credit, market, legal, reputation and operational risk. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.

There is a functional separation between the Treasury Front Office, Risk and Treasury Back Office to undertake derivative transactions. The derivative transactions are originated by Treasury Front Office, which ensures compliance with the trade origination requirements as per the Bank''s policy and the RBI guidelines. The Market Risk Group within the Bank''s Risk Department independently identifies measures and monitors the market risks associated with derivative transactions and apprises the Asset Liability Management Committee (ALCO) and the Risk Management Committee of the Board (RMC) on the compliance with the risk limits. The Treasury Back Office undertakes activities such as trade confirmation, settlement, ISDA documentation, accounting and other MIS reporting.

The derivative transactions are governed by the derivative policy, market risk management policy, hedging policy and the suitability and appropriateness policy of the Bank as well as by the extant RBI guidelines. The Bank has also put in place a detailed process flow for customer derivative transactions for effective management of operational risk/reputation risk.

Various risk limits are set up and actual exposures are monitored vis-a-vis the limits allocated. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, VaR, Stop Loss, Delta, Gamma and Vega. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically. The Bank ensures that the Gross PV01 (Price value of a basis point) position arising out of all non-option rupee derivative contracts are within 0.25% of net worth of the Bank as on Balance Sheet date.

Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item. These deals are accounted on an accrual basis except the swap designated with an asset/liability that is carried at market value or lower of cost or market value. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. These transactions are tested for hedge effectiveness and in case any transaction fails the test, the same is re-designated as a trading deal with the approval of the competent authority and appropriate accounting treatment is followed.

(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts

The Hedging Policy approved by the RMC governs the use of derivatives for hedging purpose. Subject to the prevailing RBI guidelines, the Bank deals in derivatives for hedging fixed rate and floating rate coupon or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge derivative transactions are accounted for in accordance with the hedge accounting principles. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the Profit and Loss Account. The premium on option contracts is accounted for as per FEDAI guidelines. Derivative transactions are covered under International Swaps and Derivatives Association (ISDA) master agreements with respective counterparties. The exposure on account of derivative transactions is computed as per the RBI guidelines and is marked against the credit limits approved for the respective counterparties.

(c) Provisioning, collateral and credit risk mitigation

Derivative transactions comprise of swaps and options which are disclosed as contingent liabilities. The swaps are categorised as trading or hedging and all the options are categorised as the trading book. Trading swaps/options are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets or other liabilities respectively. Hedged swaps are accounted for as per the RBI guidelines. Pursuant to the RBI guidelines, any receivables (crystallised receivables and positive MTM) under derivatives contracts, which remain overdue for more than 90 days, are reversed through the Profit and Loss Account and are held in a separate Suspense account.

Collateral requirements for derivative transactions are laid down as part of credit sanction terms on a case by case basis. Such collateral requirements are determined, based on usual credit appraisal process. The Bank retains the right to terminate transactions as a risk mitigation measure in certain cases.

The credit risk in respect of customer derivative transactions is sought to be mitigated through a laid down policy on sanction of Loan Equivalent Risk (LER) limits, monitoring mechanism for LER limits and trigger events for escalation/margin calls/termination.

9. Draw Down from Reserves

The Bank has not undertaken any drawdown from reserves during the year.

10. Letter of Comfort

The Bank has not issued any Letter of Comfort (LoC) on behalf of its subsidiaries.

11. Disclosure on Remuneration Qualitative disclosures

a) Information relating to the composition and mandate of the Remuneration Committee

The Nomination and Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank on behalf of the Board. The Committee works in close coordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks.

During the year, the Nomination Committee and the HR and Remuneration Committee of the Board were merged to form the Nomination and Remuneration Committee.

As on 31 March, 2015, the Nomination and Remuneration Committee comprises of the following Non- Executive Directors:

1. Shri Prasad R. Menon - Chairman

2. Shri K. N. Prithviraj

3. Shri V R. Kaundinya

4. Prof. Samir K. Barua

In respect of Remuneration/HR matters, the Nomination and Remuneration Committee of the Board, functions with the following main objectives -

a. Review and recommend to the Board for approval, the overall remuneration framework and associated policy of the Bank (including remuneration policy for Directors and key managerial personnel) including the level and structure of fixed pay, variable pay, perquisites, bonus pool, stock-based compensation and any other form of compensation as may be included from time to time to all the employees of the Bank including the Managing Director & CEO (MD & CEO), other Whole-Time Directors (WTD) and senior managers one level below the Board.

b. Review and recommend to the Board for approval, the total increase in manpower cost budget of the Bank as a whole, at an aggregate level, for the next year.

c. Recommend to the Board the compensation payable to the Chairman of the Bank.

d. Review the Code of Conduct and HR strategy, policy and performance appraisal process within the Bank, as well as any fundamental changes in organization structure which could have wide ranging or high risk implications.

e. Review and recommend to the Board for approval, the talent management and succession policy and process in the Bank for ensuring business continuity, especially at the level of MD & CEO, the other WTDs, senior managers one level below the Board and other key roles and their progression to the Board.

f. Review and recommend to the Board for approval:

* the creation of new positions one level below MD & CEO

* appointments, promotions and exits of senior managers one level below the MD & CEO

g. Set the goals, objectives and performance benchmarks for the Bank and for MD & CEO, the other WTDs for the financial year and over the medium to long term.

h. Review the performance of the MD & CEO and other WTDs at the end of each year.

i. Review organization health through feedback from employee surveys conducted on a regular basis.

j. Perform such other duties as may be required to be done under any law, statute, rules, regulations etc. enacted by Government of India, Reserve Bank of India or by any other regulatory or statutory body.

b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy

Objectives of the Remuneration Policy

The compensation philosophy of the Bank aims to attract, retain and motivate professionals in order to enable the Bank to attain its strategic objectives and develop a strong performance culture in the competitive environment in which it operates. To achieve this, the following principles are adopted:

* Competitiveness in talent market

* Pay for job through fixed pay

* Pay for performance to drive meritocracy through variable pay

* Employee Stock Options for long-term value creation

* Benefits and perquisites are offered to employees to remain aligned with market practices and provide flexibility

* Affordability: Pay to reflect productivity improvements to retain cost-income competitiveness

Apart from the above, the compensation structure for MD & CEO and WTDs is aligned to RBI''s guidelines for sound compensation practices (effective FY 2012-13) and addresses the general principles of:

* Effective and independent governance and monitoring of compensation.

* Alignment of compensation with prudent risk-taking through well designed and consistent compensation structures.

* Clear and timely disclosure to facilitate supervisory oversight by all stakeholders.

Accordingly, the Compensation Policy for MD & CEO and WTDs seeks to:

a) Ensure that the compensation, in terms of structure and total amount, is in line with the best practices, as well as competitive vis-a-vis that of peer banks.

b) Establish the linkage of compensation with individual performance as well as achievement of the corporate objectives of the Bank.

c) Include a significant variable pay component tied to the achievement of pre-established objectives in line with Bank''s scorecard while ensuring that the compensation is aligned with prudent risk taking.

d) Encourage attainment of long term shareholder returns through inclusion of equity linked long-term incentives as part of compensation.

Design & Structure of Remuneration process

Compensation is structured in terms of fixed pay, variable pay and employee stock options (for selective employees), with the last two being highly contingent on employee performance. The compensation policy of the Bank is approved by the Nomination and Remuneration Committee. Additional approval from Shareholders and RBI is obtained specifically for compensation of MD & CEO and WTDs.

c) Description of the ways in which current and future risks are taken into account in the remuneration process Employees are categorized into following three categories for the purpose of remuneration

Category 1

MD & CEO and WTDs.

Category 2

All the employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance.

Category 3

Other Staff

''Other staff'' has been defined as a "group of employees who pose a material risk". This category will include all the employees of the Bank in the grade of Executive Vice President (EVP) and above and also few other key business roles in case they are below the grade of Executive Vice President.

Performance Parameters aligned to relevant risk measures

The following relevant risk measures are included in the scorecards of MD & CEO and WTDs

* NPA - net slippages

* Ratio of Risk Weighted Assets to Total Assets

* Liquidity Coverage Ratio

Inclusion of the above measures ensure that performance parameters are aligned to risk measures at the time of performance evaluation.

d) Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration

The Bank''s performance management and compensation philosophies are structured to support the achievement of the Bank''s on-going business objectives by rewarding achievement of objectives linked directly to its strategic business priorities. These strategic priorities are cascaded through annualised objectives to the employees.

The Bank follows the balanced scorecard approach in designing its performance management system. Adequate attention is given to robust goal setting process to ensure alignment of individual objectives to support the achievement of business strategy, financial and non-financial goals across and through the organization. The non-financial goals for employees includes customer service, process improvement, adherence to risk and compliance norms, self-capability development and behaviours such as integrity and team management.

Appraisals are conducted annually and initiated by the self-appraisal of an employee. The immediate supervisor reviews the appraisal ratings in a joint consultation meeting with the employee and assigns the performance rating. The final rating is discussed by a Moderation Committee comprising of senior officials of the Bank. Both relative and absolute individual performance is considered in the moderation process. Individual fixed pay increases, variable pay and ESOPs are linked to the final performance ratings. In addition, the fixed pay increase is also influenced by an employee''s position in the salary range.

e) Bank''s policy on deferral and vesting of variable remuneration and Bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting

Deferral of Variable Pay

The deferral of the Variable Pay for the three categories of employees as stated earlier is given below -

Category 1 : MD & CEO and WTDs

Variable Pay will not exceed 70% of the Fixed Pay

* To ensure that risk measures do not focus only on achieving short term goals; variable payout is deferred. If the variable pay exceeds 40% of fixed pay, 45% of the variable pay to be deferred proportionately over a period of three years.

Category 2 : All the employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance.

* Variable Pay will be paid on the basis of laid down risk control, compliance and process improvement parameters in the balance score card / key deliverables of staff in this function.

* The parameters will be independent of performance of the business area they oversee and will commensurate with their key role in the Bank.

* The ratio of fixed and variable compensation will be weighed towards fixed compensation.

* Percentage of variable pay to be capped at 70% of fixed pay.

* Appropriate deferral structure as approved by the Nomination and Remuneration Committee will be applicable to this category of employees.

Category 3 : Other Staff

* Variable Pay will be paid on the basis of performance against key deliverables and overall business performance for the financial year.

* Percentage of variable pay to be capped at 70% of fixed pay.

* Appropriate deferral structure as approved by the Nomination and Remuneration Committee will be applicable to this category of employees.

f) Description of the different forms of variable remuneration (i.e. Cash, Shares, ESOPs and other forms) that the Bank utilises and the rationale for using these different forms

Different forms of variable remuneration are as mentioned below:

* Variable Pay: Variable Pay is linked to corporate performance, business performance and individual performance and ensures differential pay based on the performance levels of employees.

* ESOPs: ESOPs are given to selective set of employees at senior levels based on their level of performance and role. ESOP scheme has an inbuilt deferral vesting design which helps in retention of employees along with providing an opportunity of long term wealth creation for the employees.

10. Unhedged Foreign Currency Exposure

The Bank''s Corporate Credit Policy lays down the framework to manage credit risk arising out of unhedged foreign currency exposures of the borrowers. Both at the time of initial approval as well as subsequent reviews, the assessment of credit risk arising out of foreign currency exposure of the borrowers include details of imports, exports, repayments of foreign currency borrowings, as well as hedges done by the borrowers or naturally enjoyed by them vis-a-vis their intrinsic financial strength, history of hedging and losses arising out of foreign currency volatility. The extent of hedge/cover required on the total foreign currency exposure including natural hedge and hedged positions, is guided through a matrix of internal ratings. The hedging policy is applicable for existing as well as new clients with foreign currency exposures above a predefined threshold. The details of un-hedged foreign currency exposure of customers for transactions undertaken through the Bank are monitored periodically. The Bank also maintains additional provision and capital, in line with RBI guidelines.

During the year ended 31 March, 2015, the Bank has made incremental provision of Rs.133.66 crores and held incremental capital of Rs.3,624.97 crores towards borrowers having unhedged foreign currency exposures.

11. Disclosure on Liquidity Coverage Ratio Qualitative disclosure

The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI and has put in place requisite systems and processes to enable periodical computation and reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Risk Appetite Statement of the Bank thus subjecting LCR maintenance to Board oversight and periodical review. The Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO) every month for review as well as to the Risk Management Committee of the Board. The Bank has been submitting LCR reports to RBI commencing from January 2015.

The Bank follows the criteria laid down by RBI for month-end calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30-day period. HQLA predominantly comprises Government securities in excess of minimum SLR requirement viz. Treasury Bills, Central and State Government securities. A relatively smaller part of HQLA is accounted for by the corporate bonds rated AA- and above with mandated haircuts applied thereto.

The Bank monitors the concentration of funding sources from significant counterparties, significant instruments/ products as part of the asset liability management framework. The Bank adheres to the regulatory and internal limits on Inter-bank liability and call money borrowings which form part of the ALM policy. The Bank''s funding sources are fairly dispersed across sources and maturities.

Expected derivative cash outflows and inflows are calculated for outstanding contracts in accordance with laid down valuation methodologies. Cash flows, if any, from collaterals posted against derivatives are not considered.

The Bank monitors the LCR in US Dollar currency which qualifies as a significant currency for monitoring LCR as per RBI guidelines.

The liquidity risk management of the Bank is undertaken by the Asset Liability Management group in the Treasury in accordance with the Board approved policies and ALCO approved funding plans. The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits, for both domestic as well as overseas operations, on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. Periodical reports are placed before the Bank''s ALCO for perusal and review.

All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation template.

12. Other disclosures

13. During the year, the Bank has appropriated Rs.63.14 crores (previous year Rs.38.87 crores), net of taxes and transfer to statutory reserve to the Capital Reserve, being the gain on sale of HTM investments in accordance with RBI guidelines.

14. During the year, the Bank has appropriated an amount of Rs.0.96 crores (previous year Rs.0.89 crores) to Reserve Fund account towards statutory reserve in accordance with guidelines issued by Central Bank of Sri Lanka in respect of Colombo branch operations. Additionally, an amount of Rs.2.22 crores appropriated to the Reserve Fund towards investment reserve in earlier years has been transferred to the profit and loss account in accordance with guidelines issued by Central Bank of Sri Lanka (previous year appropriation of Rs.0.16 crores).

15. Dividend paid on shares issued on exercise of stock options

The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March, 2015, if approved at the ensuing Annual General Meeting. Dividend relating to these shares has not been recorded in the current year.

Appropriation to proposed dividend during the year ended 31 March, 2015 includes dividend of Rs.3.41 crores (previous year Rs.2.05 crores) paid pursuant to exercise of employee stock options after the previous year end but before the record date for declaration of dividend for the year ended 31 March, 2014.

16. Segmental reporting

The business of the Bank is divided into four segments: Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business. These segments have been identified based on the RBI''s revised guidelines on Segment Reporting issued on 18 April, 2007 vide Circular No. DBOD.No.BPBC.81/21.04.018/2006-07. The principal activities of these segments are as under.

17. Related party disclosure

The related parties of the Bank are broadly classified as:

a) Promoters

The Bank has identified the following entities as its Promoters.

* Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI)

* Life Insurance Corporation of India (LIC)

* General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Limited, National Insurance Co. Limited, United India Insurance Co. Limited and The Oriental Insurance Co. Limited.

b) Key Management Personnel

* Mrs. Shikha Sharma (Managing Director & Chief Executive Officer)

* Mr. Somnath Sengupta [Executive Director & Head (Corporate Centre)] upto 31 August, 2014

* Mr. V Srinivasan [Executive Director & Head (Corporate Banking)]

* Mr. Sanjeev K. Gupta [Executive Director (Corporate Centre) & Chief Financial Officer] with effect from 4 September, 2014

c) Relatives of Key Management Personnel

Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Chaitaly Sengupta, Mrs. Renukona Sengupta, Mr. Niloy Sengupta, Mrs. Gayathri Srinivasan, Mrs. Vanjulam Varadarajan, Mr. V Satish, Mrs. Camy Satish, Ms. Ananya Srinivasan, Ms. Anagha Srinivasan, Ms. Geetha N., Ms. Chitra R., Ms. Sumathi N., Mr. S. Ranganathan, Mr. R. Narayan, Mrs. Poonam Gupta, Mr. Somya Gupta, Mr. Shubham Gupta, Mr. Rajeev Agarwal and Mr. Deepak Kumar Gupta

d) Subsidiary Companies

* Axis Capital Limited

* Axis Private Equity Limited

* Axis Trustee Services Limited

* Axis Asset Management Company Limited

* Axis Mutual Fund Trustee Limited

* Axis Bank UK Limited

* Axis Finance Limited

* Axis Securities Limited

e) Step down Subsidiary Companies

* Enam International Limited (voluntarily dissolved on 24 August, 2014)

* Axis Securities Europe Limited

f) Associate

* Bussan Auto Finance India Private Limited (upto 30 March, 2015)

The above investment does not fall within the definition of a Joint Venture as per AS-27, Financial Reporting of Interest in Joint Ventures , notified under Section 2(2) and Section 133 of the Companies Act, 2013 and the said accounting standard is thus not applicable. However, pursuant to RBI guidelines, the Bank classified the same as investment in joint ventures in the Balance Sheet. On 30 March, 2015, the Bank has sold its stake in Bussan Auto Finance India Private Limited. Such investment has been accounted as an Associate in Consolidated Financial Statements as per AS-23, Accounting for Investments in Associates in Consolidated Financial Statements, notified under Section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014 till the date of sale. Based on RBI guidelines, details of transactions with Associates are not disclosed since there is only one entity/party in this category.

The significant transactions between the Bank and related parties during the years ended 31 March, 2015 and 31 March, 2014 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of the aggregate value of all related party transactions in that category:

* Dividend paid: Administrator of The Specified Undertaking of the Unit Trust of India Rs.109.94 crores (previous year Rs.175.00 crores), Life Insurance Corporation of India Rs.127.35 crores (previous year Rs.78.77 crores)

* Dividend received: Axis Securities Ltd. Rs.18.06 crores (previous year Nil), Axis Trustee Services Ltd. Rs.10.50 crores (previous year Rs.1.88 crores) and Axis Private Equity Ltd. Rs.5.25 crores (previous year Nil)

* Interest paid: Life Insurance Corporation of India Rs.744.04 crores (previous year Rs.928.77 crores)

* Interest received: Axis Bank UK Ltd. Rs.6.85 crores (previous year Rs.6.52 crores) and Axis Finance Ltd. Rs.1.59 crores (previous year Rs.1.27 crores)

* Investment of the Bank: Axis Asset Management Company Ltd. Rs.48.75 crores (previous year Nil), Axis Finance Ltd. Rs.100 crores (previous year Rs.250 crores) and Axis Bank UK Ltd. Nil (previous year Rs.299.57 crores)

* Investment of related party in bonds of the Bank: Life Insurance Corporation of India Rs.500.00 crores (previous year Nil)

* Investment of related party in the Bank: Mrs. Shikha Sharma Rs.22.65 crores (previous year Rs.7.35 rores), Mr. V. Srinivasan Rs.6.81 crores (previous year Rs.2.43 crores), Mr. Somnath Sengupta Rs.7.04 crores (previous year Rs.0.89 crores)

* Redemption of subordinated debt: Life Insurance Corporation of India Nil (previous year Rs.25.00 crores) and General Insurance Corporation of India Nil (previous year Rs.15 crores)

* Sale of Investments: Life Insurance Corporation of India Nil (previous year Rs.221.71 crores), General Insurance Corporation of India Rs.211.06 crores (previous year Rs.181.37 crores), New India Assurance Company Ltd. Rs.50 crores (previous year Rs.147.51 crores), National Insurance Company Ltd. Rs.222.34 crores (previous year Rs.109.97 crores), United India Insurance Company Ltd. Rs.120.02 crores (previous year Rs.79.12 crores)

* Management Contracts: Axis Securities Limited Rs.4.41 crores (previous year Rs.4.76 crores), Axis Trustee Services Ltd. Rs.2.62 crores (previous year Rs.2.63 crores) and Axis Finance Ltd. Rs.2.70 crores (previous year Rs.2.52 crores), Mrs. Shikha Sharma Rs.4.18 crores (previous year Rs.4.07 crores), Mr. Somnath Sengupta Rs.4.51 crores (previous year Rs.2.30 crores) and Mr. V. Srinivasan Rs.2.46 crores (previous year Rs.2.18 crores)

* Contribution to employee benefit fund: Life Insurance Corporation of India Rs.16.04 crores (previous year Rs.15.49 crores)

* Placement of Deposit by the Bank: Life Insurance Corporation of India Rs.0.14 crores (previous year Nil)

* Non-funded commitments (net): Axis Securities Ltd. Rs.69.00 crores (previous year Nil), Life Insurance Corporation of India Rs.0.01 crores (previous year Rs.0.02 crores), Oriental Insurance Company Ltd. Rs.0.01 crores (previous year Rs.0.04 crores)

* Call/Term borrowing from related party: Axis Bank UK Ltd. Nil (previous year Rs.143.99 crores)

* Call/Term lending to related party: Axis Bank UK Ltd. Nil (previous year Rs.12.65 crores)

* Swap/forward contracts: Axis Bank UK Ltd. Rs.158.85 crores (previous year Rs.413.52 crores)

* Advance granted (net): Axis Asset Management Company Ltd. Rs.44.69 crores (previous year Nil), Axis Bank UK Ltd. Nil (previous year Rs.148.48 crores) and Axis Finance Ltd. Nil (previous year Rs.62.12 crores)

* Advance repaid: Life Insurance Corporation of India Nil (previous year Rs.27.91 crores), Axis Finance Ltd. Rs.30.05 crores (previous year Nil)

* Purchase of loans: Axis Bank UK Ltd. Rs.8.92 crores (previous year Nil)

* Sell down of loans (including undisbursed loan commitments): Axis Bank UK Ltd. Rs.321.44 crores (previous year Rs.694.79 crores)

* Advance to related party against rendering of services: Axis Securities Ltd. Rs.21.00 crores (previous year Rs.25.00 crores)

* Receiving of services: Oriental Insurance Company Ltd. Rs.61.47 crores (previous year ''51.20 crores), Axis Securities Limited Rs.318.10 crores (previous year Rs.241.95 crores)

* Rendering of services: Axis Asset Management Company Ltd. Rs.194.15 crores (previous year Rs.15.97 crores), Axis Bank UK Ltd. Rs.0.94 crores (previous year Rs.4.15 crores) and Axis Capital Ltd. Rs.5.90 crores (previous year Rs.7.66 crores)

* Purchase of equity shares from related party: Axis Capital Ltd. Nil (previous year Rs.38.25 crores)

* Other reimbursement from related party: Axis Securities Ltd. Rs.0.93 crores (previous year Rs.1.01 crores), Axis Asset Management Company Ltd. Rs.1.70 crores (previous year Rs.1.73 crores), Axis Bank UK Ltd. Rs.0.16 crores (previous year Rs.2.17 crores) and Axis Capital Ltd. Rs.4.67 crores (previous year Rs.3.56 crores)

* Other reimbursement to related party: Life Insurance Corporation of India Rs.0.37 crores (previous year Rs.0.39 crores), Axis Asset Management Company Ltd. Rs.3.36 crores (previous year Rs.0.01 crores), Axis Capital Ltd. Rs.0.50 crores (previous year Nil) and Axis Securities Ltd. Nil (previous year Rs.0.40 crores)

18. Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

19. Description of contingent liabilities:

a) Claims against the Bank not acknowledged as debts

These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax authorities and disputed by the Bank. Apart from claims assessed as possible, the Bank holds provision of Rs.25.63 crores as on 31 March 2015 (previous year Rs.27.96 crores) towards claims assessed as probable.

b) Liability on account of forward exchange and derivative contracts

The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time. An Exchange Traded Currency Option contract is a standardised foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date on the date of expiry. Currency Futures contract is a standardised, exchange-traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specified price.

c) Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

e) Other items

Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account, notional principal on account of outstanding Tom/Spot foreign exchange contracts (with effect from current year), commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end, demands raised by statutory authorities (other than income tax) and disputed by the Bank and amount transferred to Depositor Education and Awareness Fund (DEAF).

The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law/accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements, where applicable.

16. Previous year figures have been regrouped and reclassified, where necessary to conform to current year''s presentation.


Mar 31, 2014

1. As at As at 31-03-2014 31-03-2013 (Rs. in Thousands) (Rs. in Thousands)

I. Claims against the Bank not acknowledged as debts 2,370,182 1,667,558

II. Liability for partly paid investments - -

III. Liability on account of outstanding forward exchange and derivative contracts :

(a) Forward Contracts 2,312,741,992 2,320,162,574

(b) Interest Rate Swaps, Currency Swaps, Forward Rate Agreement & Interest Rate Futures 2,299,486,452 2,210,541,350

(c) Foreign Currency Options 202,687,973 80,228,625

TOTAL (a b c) 4,814,916,417 4,610,932,549

IV. Guarantees given on behalf of constituents

In India 529,708,072 517,036,841

Outside India 133,640,480 111,222,144

V. Acceptances, endorsements and other obligations 238,821,561 228,015,939

VI. Other items for which the Bank is contingently liable 28,991,188 12,283,920

GRAND TOTAL (I II III IV V VI) [Refer Schedule 18 (1.2.16)] 5,748,447,900 5,481,158,951

2. The provisioning coverage ratio of the Bank computed in terms of the RBI guidelines as on 31 March, 2014 was 78.10% (previous year 79.15%).

3. During the year ended 31 March, 2014; none of the exposures to Indian corporates at overseas branches of the Bank have been classifed as NPA by any host banking regulator for reasons other than record of recovery.

4. During the year ended 31 March, 2014 & 31 March, 2013 there are no unsecured advances for which intangible securities such as charge over the rights, licenses, authority etc. has been taken as collateral by the Bank.

5. During the years ended 31 March, 2014 and 31 March, 2013 there were no Non-Performing Financial Assets purchased/ sold by the Bank from/to other banks/FIs/NBFCs (excluding securitisation/reconstruction companies).

6. During the year ended 31 March, 2014 and 31 March, 2013, the Bank''s credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by RBI.

7. Disclosure on risk exposure in Derivatives

Qualitative disclosures:

(a) Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants:

Derivatives are fnancial instruments whose characteristics are derived from an underlying asset, or from interest and exchange rates or indices. The Bank undertakes over the counter and Exchange Traded derivative transactions for Balance Sheet management and also for proprietary trading/market making whereby the Bank offers derivative products to the customers to enable them to hedge their interest rate and currency risks within the prevalent regulatory guidelines.

Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK), and Currency Options for USD/INR pair (both OTC and exchange traded). The Bank also undertakes transactions in Cross Currency Swaps, Principal Only Swaps, Coupon Only Swaps and Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks, primarily credit, market and operational risk. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.

There is a functional separation between the Treasury Front Offce, Risk and Treasury Back Offce to undertake derivative transactions. The derivative transactions are originated by Treasury Front Offce, which ensures compliance with the trade origination requirements as per the Bank''s policy and the RBI guidelines. The Market Risk Group within the Bank''s Risk Department independently identifes measures and monitors the market risks associated with derivative transactions and apprises the Asset Liability Management Committee (ALCO) and the Risk Management Committee of the Board (RMC) on the compliance with the risk limits. The Treasury Back Offce undertakes activities such as trade confrmation, settlement, ISDA documentation, accounting and other MIS reporting.

The derivative transactions are governed by the derivative policy, market risk management policy, hedging policy and the suitability and appropriateness policy of the Bank as well as by the extant RBI guidelines. The Bank has also put in place a detailed process fow for customer derivative transactions for effective management of operational risk/reputation risk.

Various risk limits are set up and actual exposures are monitored vis-à-vis the limits allocated. These limits are set up taking into account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. Modifed Duration Limits, PV01, VaR, Stop Loss, Delta, Gamma and Vega. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically. The Bank ensures that the Gross PV01 (Price value of a basis point) position arising out of all non-option rupee derivative contracts are within 0.25% of net worth of the Bank as on Balance Sheet date.

Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash fow of the underlying Balance Sheet item. These deals are accounted on an accrual basis except the swap designated with an asset/liability that is carried at market value or lower of cost or market value. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. These transactions are tested for hedge effectiveness and in case any transaction fails the test, the same is re-designated as a trading deal with the approval of the competent authority and appropriate accounting treatment is followed.

(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts

The Hedging Policy approved by the RMC governs the use of derivatives for hedging purpose. Subject to the prevailing RBI guidelines, the Bank deals in derivatives for hedging fxed rate and foating rate coupon or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifes the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge derivative transactions are accounted for in accordance with the hedge accounting principles. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the Proft and Loss Account. The premium on option contracts is accounted for as per FEDAI guidelines. Derivative transactions are covered under International Swaps and Derivatives Association (ISDA) master agreements with respective counterparties. The exposure on account of derivative transactions is computed as per the RBI guidelines and is marked against the credit limits approved for the respective counterparties.

(c) Provisioning, collateral and credit risk mitigation

Derivative transactions comprise of swaps and options which are disclosed as contingent liabilities. The swaps are categorised as trading or hedging and all the options are categorised as the trading book. Trading swaps/ options are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Proft and Loss Account and correspondingly in other assets or other liabilities respectively. Hedged swaps are accounted for as per the RBI guidelines. Pursuant to the RBI guidelines, any receivables (crystallised receivables and positive MTM) under derivatives contracts, which remain overdue for more than 90 days, are reversed through the Proft and Loss Account and are held in a separate Suspense account.

Collateral requirements for derivative transactions are laid down as part of credit sanction terms on a case by case basis. Such collateral requirements are determined, based on usual credit appraisal process. The Bank retains the right to terminate transactions as a risk mitigation measure in certain cases.

The credit risk in respect of customer derivative transactions is sought to be mitigated through a laid down policy on sanction of Loan Equivalent Risk (LER) limits, monitoring mechanism for LER limits and trigger events for escalation/margin calls/termination.

The above information is as certifed by the Management and relied upon by the auditors.

8. Draw Down from Reserves

The Bank has not undertaken any drawdown from reserves during the year.

9. Letter of Comfort

The Bank has not issued any Letter of Comfort (LoC) on behalf of its subsidiaries.

10. Disclosure on Remuneration

Qualitative disclosures

a) Information relating to the composition and mandate of the Remuneration Committee

The HR and Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank on behalf of the Board. The Committee works in close coordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks.

As on 31 March, 2014 and 31 March, 2013, the HR and Remuneration Committee comprises of the following non-executive independent directors.

1. Shri Prasad R. Menon - Chairman

2. Shri K. N. Prithviraj

3. Shri V. R. Kaundinya

4. Prof. Samir K. Barua

The HR and Remuneration Committee of the Board, functions with the following main objectives:

a. To review and recommend to the Board for approval, the overall remuneration philosophy and policy of the Bank, including the level and structure of fxed pay, variable pay, perquisites, bonus pool, stock-based compensation to employees of the Bank, and any other form of compensation as may be included from time to time, keeping in mind the strategic objectives, market environment and the regulatory framework as may exist.

b. To review and recommend to the Board for approval, the total increase in manpower cost budget of the Bank as a whole, at an aggregate level, for the next year.

c. To review and recommend to the Board for approval, the talent management and succession policy and process in the Bank for ensuring business continuity, especially at the level of Managing Director and Chief Executive Offcer (MD & CEO), the other Whole-time Directors (WTDs), senior managers one level below the Board position and other key roles.

d. To review organisation health through feedback from employee surveys conducted on a regular basis.

e. To review the Code of Conduct and HR strategy, policy and performance appraisal process within the Bank, as well as any fundamental changes in organisation structure which could have wide ranging or high risk implications.

f. To review and recommend to the Board for approval, of the creation of new positions, one level below the MD & CEO.

g. To review appointments, promotions and exits of senior managers, one level below the MD & CEO.

h. To set the goals, objectives and performance benchmarks for the Bank and for MD & CEO, the other WTDs for the fnancial year and over the medium to long term.

i. To review the performance of the MD & CEO, other WTDs at the end of each year.

j. To recommend to the Board the remuneration package for the MD & CEO, the other WTDs and senior managers one level below the Board - including the level and structure of fxed pay, variable pay, stock- based compensation and perquisites;

k. To recommend to the Board the compensation payable to the Chairman of the Bank, including fxed and variable pay and perquisites.

b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy

Objectives of the Remuneration Policy

The compensation philosophy of the Bank aims to attract, retain and motivate professionals in order to enable the Bank to attain its strategic objectives and develop a strong performance culture in the competitive environment in which it operates. To achieve this, the following principles are adopted.

Competitiveness in talent market

Pay for job through fxed pay

Pay for performance to drive meritocracy through variable pay

Employee Stock Options for long-term value creation

Benefts and perquisites are offered to employees to remain aligned with market practices and provide fexibility

Affordability: Pay to refect productivity improvements to retain cost-income competitiveness

Apart from the above, the compensation structure for MD & CEO & WTDs is aligned to RBI''s guidelines for sound compensation practices (effective FY 2012-13) and addresses the general principles of:

Effective and independent governance and monitoring of compensation.

Alignment of compensation with prudent risk-taking through well designed and consistent compensation structures.

Clear and timely disclosure to facilitate supervisory oversight by all stakeholders.

Accordingly, the Compensation Policy for MD & CEO and WTDs seeks to:

a) Ensure that the compensation, in terms of structure and total amount, is in line with the best practices, as well as competitive vis-à-vis that of peer banks.

b) Establish the linkage of compensation with individual performance as well as achievement of the corporate objectives of the Bank.

c) Include a signifcant variable pay component tied to the achievement of pre-established objectives in line with Bank''s scorecard while ensuring that the compensation is aligned with prudent risk taking.

d) Encourage attainment of long term shareholder returns through inclusion of equity linked long-term incentives as part of compensation.

Design & Structure of Remuneration process

Compensation is structured in terms of fxed pay, variable pay and employee stock options (for selective employees), with the last two being strongly contingent on employee performance. The compensation policy of the Bank is approved by the HR and Remuneration Committee. Additional approval from Shareholders and RBI is obtained specifcally for compensation of MD & CEO and WTD''s.

c) Description of the ways in which current and future risks are taken into account in the remuneration process

Categorization of employees under Risk alignment of compensation framework

The MD & CEO, WTD''s and employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance are included in the policy of risk alignment of compensation.

Performance Parameters aligned to relevant risk measures

The following relevant risk measures are included in the scorecards of MD & CEO and WTDs

- NPA - net slippages

- Ratio of Risk Weighted Assets to Total Assets

- Liquidity Coverage Ratio

Inclusion of the above measures ensure that performance parameters are aligned to risk measures at the time of performance evaluation

Deferral of Variable Pay

To ensure that risk measures do not focus only on achieving short term goals; variable payout is deferred, if it exceeds 40% of the fxed pay.

Other Risk Takers

For other staff (including risk takers) a policy on similar lines is proposed to be put in place in future.

d) Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration

The Bank''s performance management and compensation philosophies are structured to support the achievement of the Bank''s on-going business objectives by rewarding achievement of objectives linked directly to its strategic business priorities. These strategic priorities are cascaded through annualised objectives to the employees.

The Bank follows the balanced scorecard approach in designing its performance management system. Adequate attention is given to robust goal setting process to ensure alignment of individual objectives to support the achievement of business strategy, fnancial and non-fnancial goals across and through the organization. The non-fnancial goals for employees includes customer service, process improvement, adherence to risk and compliance norms, self-capability development and behaviours such as integrity and team management.

Appraisals are conducted annually and initiated by the self-appraisal of an employee. The immediate supervisor reviews the appraisal ratings in a joint consultation meeting with the employee and assigns the performance rating. The fnal rating is discussed by a Moderation Committee comprising of senior offcials of the Bank. Both relative and absolute individual performance is considered in the moderation process. Individual fxed pay increases, variable pay and ESOPs are linked to the fnal performance ratings. In addition, the fxed pay increase is also infuenced by an employee''s position in the salary range.

e) Bank''s policy on deferral and vesting of variable remuneration and Bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting

The policy for risk alignment of compensation effective from fnancial year 2012-13 provides for the deferral of variable pay for MD & CEO and WTD''s.

The following clauses with regard to deferral are included in the policy.

- If the variable pay exceeds 40% of the fxed pay, 45% of the variable pay is deferred proportionately over a period of three years.

- The deferred variable pay amount of reference year is held back in case of any misrepresentation or gross inaccuracy resulting in a wrong risk assessment.

- Also, a sharp fall in proft, say to the extent of 30% of the reference year triggers further examination of the causes and the HR and Remuneration Committee thereafter takes decision on holding back or release of deferred variable pay.

f) Description of the different forms of variable remuneration (i.e. Cash, Shares, ESOPs and other forms) that the Bank utilises and the rationale for using these different forms

Different forms of variable remuneration are as mentioned below:

- Variable Pay: Variable Pay is linked to corporate performance, business performance and individual performance and ensures differential pay based on the performance levels of employees.

- ESOPs: ESOPs are given to selective set of employees at senior levels based on their level of performance and role. ESOP scheme has an inbuilt deferral vesting design which helps in retention of employees along with providing an opportunity of long term wealth creation for the employees.

11. Dividend paid on shares issued on exercise of stock options

The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March, 2014, if approved at the ensuing Annual General Meeting. Dividend relating to these shares has not been recorded in the current year.

Appropriation to proposed dividend during the year ended 31 March, 2014 includes dividend of Rs.2.05 crores (previous year Rs.2.02 crores) paid pursuant to exercise of 975,266 employee stock options after the previous year end but before the record date for declaration of dividend for the year ended 31 March, 2013.

Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses.

Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classifed under this segment, fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses.

Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and internal benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment.

12. Related party disclosure

The related parties of the Bank are broadly classifed as:

a) Promoters

The Bank has identifed the following entities as its Promoters.

- Administrator of the Specifed Undertaking of the Unit Trust of India (SUUTI)

- Life Insurance Corporation of India (LIC)

- General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Limited, National Insurance Co. Limited, United India Insurance Co. Limited and The Oriental Insurance Co. Limited.

b) Key Management Personnel

- Mrs. Shikha Sharma (Managing Director & Chief Executive Offcer)

- Mr. Somnath Sengupta [Executive Director & Head (Corporate Centre)]

- Mr. V. Srinivasan [Executive Director & Head (Corporate Banking)]

c) Relatives of Key Management Personnel

Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Chaitaly Sengupta, Mrs. Renukona Sengupta, Mr. Niloy Sengupta, Mrs. Gayathri Srinivasan, Mrs. Vanjulam Varadarajan, Mr. V. Satish, Mrs. Camy Satish, Ms. Ananya Srinivasan, Ms. Anagha Srinivasan, Ms. Geetha N., Ms. Chitra R., Ms. Sumathi N., Mr. S. Ranganathan and Mr. R. Narayan.

d) Subsidiary Companies

- Axis Capital Limited

- Axis Private Equity Limited

- Axis Trustee Services Limited

- Axis Asset Management Company Limited

- Axis Mutual Fund Trustee Limited

- Axis Bank UK Limited (formerly Axis U.K. Limited)

- Axis Finance Limited (formerly Axis Finance Private Limited)

- Axis Securities Limited*

- On 28 October, 2013, the Bank purchased 15.92% stake in Axis Securities Limited from Axis Capital Limited at a consideration of Rs.38.25 crores thus making it a wholly owned subsidiary of the Bank.

e) Step down Subsidiary Companies

- Enam International Limited

- Axis Securities Europe Limited (formerly Enam Securities Europe Limited)

f) Associate

- Bussan Auto Finance India Private Limited

The above investment does not fall within the defnition of a Joint Venture as per AS-27, Financial Reporting of Interest in Joint Ventures, notifed under Section 211 (3C) of the Companies Act, 1956 and the said accounting standard is thus not applicable. However, pursuant to RBI guidelines, the Bank has classifed the same as investment in joint ventures in the Balance Sheet. Such investment has been accounted as an Associate in Consolidated Financial Statements as per AS-23, Accounting for Investments in Associates in Consolidated Financial Statements, notifed under Section 211 (3C) of the Companies Act, 1956. Based on RBI guidelines, details of transactions with Associates are not disclosed since there is only one entity/ party in this category.

The signifcant transactions between the Bank and related parties during the year ended 31 March, 2014 are given below. A specifc related party transaction is disclosed as a signifcant related party transaction wherever it exceeds 10% of the aggregate value of all related party transactions in that category:

- Dividend paid: Administrator of The Specifed Undertaking of the Unit Trust of India Rs.175.00 crores (previous year Rs.155.56 crores), Life Insurance Corporation of India Rs.78.77 crores (previous year Rs.64.06 crores)

- Dividend received: Axis Trustee Services Ltd. Rs.1.88 crores (previous year Rs.1.50 crores)

- Interest paid: Life Insurance Corporation of India Rs.928.77 crores (previous year Rs.731.58 crores)

- Interest received: Axis Bank UK Ltd. Rs.6.52 crores (previous year Nil) and Axis Finance Ltd. Rs.1.27 crores (previous year Nil)

- Investment of the Bank: Axis Bank UK Ltd. Rs.299.57 crores (previous year Nil) and Axis Finance Ltd. Rs.250 crores (previous year Nil)

- Investment of related party in the Bank: Mrs. Shikha Sharma Rs.7.35 crores (previous year Rs.1.48 crores) and Mr. V. Srinivasan Rs.2.43 crores (previous year Rs.2.04 crores)

- Redemption of subordinated debt: Life Insurance Corporation of India Rs.25.00 crores (previous year Rs.80 crores) and General Insurance Corporation of India Rs.15 crores (previous year Nil)

- Sale of Investments: Life Insurance Corporation of India Rs.221.71 crores (previous year Rs.1,030.60 crores), General Insurance Corporation of India Rs.181.37 crores (previous year Rs.85.00 crores), New India Assurance Company Ltd. Rs.147.51 crores (previous year Nil), National Insurance Company Ltd. Rs.109.97 crores (previous year Rs.191.79 crores), United India Insurance Company Ltd. Rs.79.12 crores (previous year Rs.115.03 crores)

- Management Contracts: Axis Securities Limited Rs.4.76 crores (previous year Rs.6.41 crores), Axis Trustee Services Ltd. Rs.2.63 crores (previous year Rs.2.46 crores) and Axis Finance Ltd. Rs.2.52 crores (previous year Nil), Mrs. Shikha Sharma Rs.4.07 crores (previous year Rs.2.83 crores), Mr. Somnath Sengupta Rs.2.30 crores (previous year Rs.0.70 crores) and Mr. V. Srinivasan Rs.2.18 crores (previous year Rs.0.72 crores)

- Contribution to employee beneft fund: Life Insurance Corporation of India Rs.15.49 crores (previous year Rs.14.58 crores)

- Non-funded commitments: Life Insurance Corporation of India Rs.0.02 crores (previous year Nil), Oriental Insurance Company Ltd. Rs.0.04 crores (previous year Nil)

- Call/Term borrowing from related party: Axis Bank UK Ltd. Rs.143.99 crores (previous year Nil)

- Call/Term lending to related party: Axis Bank UK Ltd. Rs.12.65 crores (previous year Nil)

- Swap/forward contracts: Axis Bank UK Ltd. Rs.413.52 crores (previous year Nil)

- Advance granted (net): Axis Bank UK Ltd. Rs.148.48 crores (previous year Nil) and Axis Finance Ltd. Rs.62.12 crores (previous year Nil)

- Advance repaid: Life Insurance Corporation of India Rs.27.91 crores (previous year Rs.15.51 crores)

- Sell down of loans and advances: Axis Bank UK Ltd. Rs.694.79 crores (previous year Nil)

- Advance to related party against rendering of services: Axis Securities Ltd. Rs.25.00 crores (previous year Nil)

- Receiving of services: Oriental Insurance Company Ltd. Rs.51.20 crores (previous year Rs.2,924), Axis Securities Limited Rs.241.95 crores (previous year Rs.198.65 crores)

- Rendering of services: Axis Asset Management Company Ltd. Rs.15.97 crores (previous year Rs.14.83 crores), Axis Bank UK Ltd. Rs.4.15 crores (previous year Nil) and Axis Capital Ltd. Rs.7.66 crores (previous year Rs.6.75 crores)

- Purchase of equity shares from related party: Axis Capital Ltd. Rs.38.25 crores (previous year Nil)

- Other reimbursement from related party: Axis Securities Ltd. Rs.1.01 crores (previous year Nil), Axis Asset Management Company Ltd. Rs.1.73 crores (previous year Rs.1.05 crores), Axis Bank UK Ltd. Rs.2.17 crores (previous year Nil) and Axis Capital Ltd. Rs.3.56 crores (previous year Rs.8.68 crores)

- Other reimbursement to related party: Life Insurance Corporation of India Rs.0.39 crores (previous year Rs.0.76 crores) and Axis Securities Ltd. Rs.0.40 crores (previous year Rs.0.62 crores)

The transactions with Promoters and Key Management Personnel excluding those under management contracts are in nature of the banker-customer relationship.

Details of transactions with Axis Mutual Fund and Axis Infrastructure Fund-I, the funds foated by Axis Asset Management Company Ltd. and Axis Private Equity Ltd., the Bank''s subsidiaries have not been disclosed since these entities do not qualify as Related Parties as defned under the Accounting Standard 18, Related Party Disclosure, as notifed under Section 211 (3C) of the Companies Act, 1956 and as per RBI guidelines.

* The Bank has entered into an arrangement with Axis Asset Management Company Ltd. (Axis AMC), the Bank''s subsidiary, in terms of which payment of brokerage in respect of distribution of certain schemes is scheduled over the period of the schemes. This arrangement, however, has no effect on the accounting policy of the Bank, as such brokerage income is recognised by the Bank as and when the same is due. Other receivables include such brokerage recoverable from Axis AMC as on the reporting date.

13. Leases

Disclosure in respect of assets taken on operating lease

This comprise of offce premises/ATMs, cash deposit machines, staff quarters, electronic data capturing machines and IT equipment.

14. Employee Benefts

Provident Fund

The contribution to the employee''s provident fund amounted to Rs.95.40 crores (previous year Rs.80.78 crores) for the yea r.

Superannuation

The Bank contributed Rs.15.22 crores (previous year Rs.14.35 crores) to the employees'' superannuation plan for the year.

Gratuity

The following tables summarise the components of net beneft expenses recognised in the Proft and Loss Account and funded status and amounts recognised in the Balance Sheet for the Gratuity beneft plan.

15. Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

16. Description of contingent liabilities:

a) Claims against the Bank not acknowledged as debts

These represent claims fled against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax authorities and disputed by the Bank.

b) Liability on account of forward exchange and derivative contracts

The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash fows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fxed and foating interest rate cash fows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specifed price, on a specifed future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specifed amount of currency at a specifc price within a specifed time period or at a specifed future time. An Exchange Traded Currency Option contract is a standardised foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specifed date on the date of expiry. Currency Futures contract is a standardised, exchange- traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specifed price.

c) Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfll its fnancial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

e) Other items

Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account, commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end and demands raised by statutory authorities (other than income tax) and disputed by the Bank.

17. Previous year fgures have been regrouped and reclassifed, where necessary to conform to current year''s presentation.


Mar 31, 2013

1 Background

Axis Bank Limited (''the Bank'') was incorporated in 1993 and provides a complete suite of corporate and retail banking products.

2 Basis of preparation

The financial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting, and comply with the generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, the circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time and the Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006, to the extent applicable and current practices prevailing within the banking industry in India.

3 Use of estimates

The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.

1 a) On 17 November, 2010, the Board of Directors of the Bank had approved the acquisition of certain financial services businesses undertaken by Enam Securities Private Limited (ESPL) directly and through its wholly owned subsidiaries, by Axis Securities and Sales Limited (ASSL), a wholly owned subsidiary of the Bank by way of a demerger. However, pursuant to conditions prescribed by the Reserve Bank of India, certain modifications were carried out to the demerger structure in terms of a revised Scheme of Arrangement under Sections 391-394 and other relevant provisions of the Companies Act, 1956. Accordingly, the acquisition now comprises of (a) a demerger of the financial services businesses ("the business") from ESPL to the Bank, in consideration of which the Bank will issue shares to the shareholders of ESPL, and (b) immediately upon completion of the demerger under the Scheme, a simultaneous sale of the financial services businesses will be undertaken from the Bank to ASSL for a cash consideration, with both the aforesaid steps occurring simultaneously.

The Reserve Bank of India has on 30 March, 2012, conveyed it''s no objection to the Scheme. Further, on 27 April, 2012, the Board of Directors of the Bank approved the reassessment of the valuation of the ESPL business at Rs.1,396 crores and consequently, in consideration for the demerger of the financial services business of ESPL, the Bank was required to issue shares in the ratio of 5 equity shares of the Bank of the face value of Rs.10 each for every 1 equity share of Rs.10 each held by the shareholders of ESPL. The sale of the financial services businesses was to be simultaneously undertaken from the Bank to ASSL for a cash consideration of Rs.274.15 crores only.

On 18 October, 2012, the Bank received the necessary approvals under applicable law from various regulatory authorities to the revised Scheme of Arrangement in respect of the demerger of the financial services businesses from ESPL to the Bank and simultaneous sale of such businesses to ASSL (now known as Axis Capital Limited ("ACL")), a wholly owned subsidiary of the Bank, with effect from 1 April, 2010 and consequently, the Bank has issued 12,090,000 equity shares of the face value of Rs.10 each to the shareholders of ESPL amounting to Rs.12.09 crores and accounted for the net assets of ESPL of Rs.274.15 crores at book value. Further, as advised by RBI, an amount of Rs.262.06 crores being the difference between the value of the net assets acquired from ESPL and the shares issued has been transferred to the capital reserve.

There was a simultaneous transfer of the business by the Bank to ACL and a consideration of Rs.274.15 crores was received against the transfer of the net assets of equivalent value. The appointed date under the Scheme is 1 April, 2010.

b) During the year, the Bank raised additional equity capital through a Qualified Institutional Placement (QIP) of 34,000,000 shares and a preferential allotment of 5,837,945 shares at a price of Rs.1,390.00 per share. As a consequence, the paid-up share capital of the Bank has increased by Rs.39.84 crores and the reserves of the Bank have increased by Rs.5,457.76 crores after charging of issue related expenses. The funds mobilised from the equity raising (through QIP and Preferential issue) were utilised for enhancing the capital adequacy ratio and for general corporate purposes.

4.1.1 The provisioning coverage ratio of the Bank computed in terms of the RBI guidelines as on 31 March, 2013 was 79.15% (previous year 80.91 %).

4.1.2 During the year ended 31 March, 2013 & 31 March, 2012 there are no unsecured advances for which intangible securities such as charge over the rights, licenses, authority, etc. has been taken as collateral by the Bank.

4.1.3 Details of securities sold/purchased (in face value terms) during the years ended 31 March, 2013 and 31 March, 2012 under repos/reverse repos (excluding LAF transactions):

4.1.4 During the years ended 31 March, 2013 and 31 March, 2012 there were no Non-Performing Financial Assets Purchased or Sold (excluding accounts previously written off) by the Bank.

4.1.5 During the year ended 31 March, 2013 and 31 March, 2012, the Bank''s credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by RBI.

4.1.6 Disclosure on risk exposure in Derivatives Qualitative disclosures:

(a) Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants:

Derivatives are financial instruments whose characteristics are derived from an underlying asset, or from interest and exchange rates or indices. The Bank undertakes Over The Counter (OTC)and Exchange Traded derivative transactions for Balance Sheet management and also for proprietary trading/market making whereby the Bank offers derivative products to the customers to enable them to hedge their earnings risks within the prevalent regulatory guidelines.

Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK), and Currency Options for USD/INR pair (both OTC and exchange traded). The Bank also undertakes transactions in Cross Currency Swaps, Principal Only Swaps, Coupon Only Swaps and Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks, primarily credit, market and operational risk. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.

There is a functional separation between the Treasury Front Office, Risk and Treasury Back Office to undertake derivative transactions. The derivative transactions are originated by Treasury Front Office, which ensures compliance with the trade origination requirements as per the Bank''s policy and the RBI guidelines. The Market Risk Group within the Bank''s Risk Department independently identifies, measures and monitors the market risks associated with derivative transactions and apprises the Asset Liability Management Committee (ALCO) and the Risk Management Committee of the Board (RMC) on the compliance with the risk limits. The Treasury Back Office undertakes activities such as trade confirmation, settlement, ISDA documentation, accounting and other MIS reporting.

The derivative transactions are governed by the derivative policy, market risk management policy, hedging policy and the suitability and appropriateness policy of the Bank as well as by the extant RBI guidelines. The Bank has also put in place a detailed process flow for customer derivative transactions for effective management of operational risk/reputation risk.

Various risk limits are set up and actual exposures are monitored vis-a-vis the limits. These limits are set up taking into account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, VaR, Stop Loss, Delta, Gamma and Vega. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically. The Bank ensures that the Gross PV01 (Price value of a basis point) position arising out of all non- option rupee derivative contracts are within 0.25% of net worth of the Bank as on Balance Sheet date.

Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item. These deals are accounted on an accrual basis except the swap designated with an asset/liability that is carried at market value or lower of cost or market value. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. These transactions are tested for hedge effectiveness and in case any transaction fails the test, the same is re-designated as a trading deal with the approval of the competent authority and appropriate accounting treatment is followed.

(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts

The Hedging Policy approved by the RMC governs the use of derivatives for hedging purpose. Subject to the prevailing RBI guidelines, the Bank deals in derivatives for hedging fixed rate and floating rate coupon or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge derivative transactions are accounted for in accordance with the hedge accounting principles. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the Profit and Loss Account. The premium on option contracts is accounted for as per FEDAI guidelines. Derivative transactions are covered under International Swaps and Derivatives Association (ISDA) master agreements with respective counterparties. The exposure on account of derivative transactions is computed as per the RBI guidelines and is marked against the credit limits approved for the respective counterparties.

(c) Provisioning, collateral and credit risk mitigation

Derivative transactions comprise of swaps and options which are disclosed as contingent liabilities. The swaps are categorised as trading or hedging and all the options are categorised as the trading book. Trading swaps/ options are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets or other liabilities respectively. Hedged swaps are accounted for as per the RBI guidelines. Pursuant to the RBI guidelines, any receivables (crystallised receivables and positive MTM) under derivatives contracts, which remain overdue for more than 90 days, are reversed through the Profit and Loss Account and are held in a separate Suspense account.

Collateral requirements for derivative transactions are laid down as part of credit sanction terms on a case by case basis. Such collateral requirements are determined, based on usual credit appraisal process. The Bank retains the right to terminate transactions as a risk mitigation measure in certain cases.

The credit risk in respect of customer derivative transactions is sought to be mitigated through a laid down policy on sanction of Loan Equivalent Risk (LER) limits, monitoring mechanism for LER limits and trigger events for escalation/margin calls/termination.

4.1.7 No penalty/strictures have been imposed on the Bank during the year ended 31 March, 2013.

During the previous year ended 31 March, 2012, RBI levied a penalty of Rs.0.15 crores on the Bank for non-compliance of certain instructions relating to derivative transactions. The Bank has paid the penalty of Rs.0.15 crores on 5 May, 2011.

4.1.8 Draw Down from Reserves

The Bank has not undertaken any drawdown from reserves during the year, except towards issue expenses incurred for the equity raising through the QIP and Preferential issue, which have been adjusted against the share premium account.

4.1.9 Letter of Comfort

The Bank has not issued any Letter of Comfort (LoC) on behalf of its subsidiaries.

4.1.10 Disclosure on Remuneration

Qualitative disclosures

a) Information relating to the composition and mandate of the Remuneration Committee

The HR and Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank on behalf of the Board. The Committee works in close coordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks.

As on 31 March, 2013, the HR and Remuneration Committee comprises of the following non-executive independent directors.

1. Shri Prasad R. Menon - Chairman (with effect from 17 January 2013)

2. Shri K. N. Prithiviraj

3. Shri V. R. Kaundinya

4. Prof. Samir K. Barua

The HR and Remuneration Committee of the Board, functions with the following main objectives:

a. To review and recommend to the Board for approval, the overall remuneration philosophy and policy of the Bank, including the level and structure of fixed pay, variable pay, perquisites, bonus pool, stock-based compensation to employees of the Bank, and any other form of compensation as may be included from time to time.

b. To review and recommend to the Board for approval, an increase in manpower cost budget of the Bank as a whole, at an aggregate level, for the next year.

c. To review and recommend to the Board for approval, the talent management and succession policy and process in the Bank for ensuring business continuity, especially at the level of Managing Director and Chief Executive Officer (MD & CEO), the other Whole-time Directors, senior managers one level below the Board position and other key roles.

d. To review organisation health through feedback from employee surveys conducted on a regular basis.

e. To review the Code of Conduct and HR strategy, policy and performance appraisal process within the Bank, as well as any fundamental changes in organisation structure which could have wide ranging or high risk implications.

f. To review and recommend to the Board for approval, the creation of new positions at the level of Executive Director and above.

g. To review appointments, promotions and exits of senior managers, one level below the Board position.

h. To set the goals, objectives and performance benchmarks for the Bank and for MD & CEO, the other Whole-time Directors and Executive Directors for the financial year and for the medium to long term.

i. To review the performance of the MD & CEO, other Whole-time Directors and Executive Directors at the end of each year.

j. To recommend to the Board the remuneration package for the MD & CEO, the other Whole-time Directors and the senior managers one level below the Board.

k. To recommend to the Board the compensation payable to the Chairman of the Bank.

b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy

Objectives of the Remuneration Policy

The compensation philosophy of the Bank aims to attract, retain and motivate professionals in order to enable the Bank to attain its strategic objectives and develop a strong performance culture in the competitive environment in which it operates. To achieve this, the following principles are adopted.

- Competitiveness in talent market: Benchmarking with peer group for relevant talent pools.

- Pay for job through fixed pay: To position the median level fixed pay in the Bank to the median of the market of respective businesses.

- Pay for performance to drive meritocracy through variable pay: By positioning median total pay to median of the market and high performers to the top quartile of the market by using variable pay with appropriate risk-adjusted metrics.

- Employee Stock Options for long-term value creation: In order to align executive decision making with long-term value creation, a significant part of executive compensation is delivered through long-term incentives in the form of ESOPs, which vests over a period of 3 years.

- Benefits and perquisites are offered to employees to remain aligned with market practices and provide flexibility.

- Affordability: Pay to reflect productivity improvements to retain cost-income competitiveness.

Apart from the above, the compensation structure for MD & CEO & Whole-time Directors (WTDs) is aligned to RBI''s guidelines for sound compensation practices (effective FY 2012-13) and addresses the general principles of:

- Effective and independent governance and monitoring of compensation.

- Alignment of compensation with prudent risk-taking through well designed and consistent compensation structures.

- Clear and timely disclosure to facilitate supervisory oversight by all stakeholders.

Accordingly, the Compensation Policy for MD & CEO and WTDs seeks to:

a) Ensure that the compensation, in terms of structure and total amount, is in line with the best practices, as well as competitive vis-a-vis that of peer banks.

b) Establish the linkage of compensation with individual performance as well as achievement of the corporate objectives of the Bank.

c) Include a significant variable pay component tied to the achievement of pre-established objectives in line with Bank''s scorecard while ensuring that the compensation is aligned with prudent risk taking.

d) Encourage attainment of long term shareholder returns through inclusion of equity linked long-term incentives as part of compensation.

Design & Structure of Remuneration process

Compensation is structured in terms of fixed pay, variable pay and employee stock options (for selective employees), with the last two being strongly contingent on employee performance. The compensation policy of the Bank is approved by the HR and Remuneration Committee. Additional approval from Shareholders and RBI is obtained specifically for compensation of MD & CEO and WTD''s.

c) Description of the ways in which current and future risks are taken into account in the remuneration process

Categorization of employees under Risk alignment of compensation framework

The MD & CEO, WTD''s and employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance are included in the policy of risk alignment of compensation.

Performance Parameters aligned to relevant risk measures

The following relevant risk measures are included in the scorecards of MD & CEO and WTDs

- NPA - net slippages

- Ratio of Risk Weighted Assets to Total Assets

- Liquidity Coverage Ratio

Inclusion of the above measures ensure that performance parameters are aligned to risk measures at the time of performance evaluation

Deferral of Variable Pay

To ensure that risk measures do not focus only on achieving short term goals; variable payout is deferred, if it exceeds 40% of the fixed pay.

Other Risk Takers

For other staff (including risk takers) a policy on similar lines is proposed to be put in place in future.

d) Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration

The Bank''s performance management and compensation philosophies are structured to support the achievement of the Bank''s on-going business objectives by rewarding achievement of objectives linked directly to its strategic business priorities. These strategic priorities are cascaded through annualised objectives to the employees.

The Bank follows the balanced scorecard approach in designing its performance management system. Adequate attention is given to robust goal setting process to ensure alignment of individual objectives to support the achievement of business strategy, financial and non-financial goals across and through the organization. The non-financial goals for employees includes customer service, process improvement, adherence to risk and compliance norms, self-capability development and behaviours such as integrity and team management.

Appraisals are conducted annually and initiated by the self-appraisal of an employee. The immediate supervisor reviews the appraisal ratings in a joint consultation meeting with the employee and assigns the performance rating. The final rating is discussed by a Moderation Committee comprising of senior officials of the Bank. Both relative and absolute individual performance is considered in the moderation process. Individual fixed pay increases, variable pay and ESOPs are linked to the final performance ratings. In addition, the fixed pay increase is also influenced by an employee''s position in the salary range.

e) Bank''s policy on deferral and vesting of variable remuneration and Bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting

The policy for risk alignment of compensation effective from financial year 2012-13 provides for the deferral of variable pay for MD & CEO and WTD''s.

The following clauses with regard to deferral are included in the policy:

- If the variable pay exceeds 40% of the fixed pay, 45% of the variable pay is deferred proportionately over a period of three years.

- The deferred variable pay amount of reference year is held back in case of any misrepresentation or gross inaccuracy resulting in a wrong risk assessment.

- Also, a sharp fall in profit, say to the extent of 30% of the reference year triggers further examination of the causes and the HR and Remuneration Committee thereafter takes decision on holding back or release of deferred variable pay.

f) Description of the different forms of variable remuneration (i.e. Cash, Shares, ESOPs and other forms)

that the Bank utilises and the rationale for using these different forms

Different forms of variable remuneration are as mentioned below:

- Variable Pay: Variable Pay is linked to corporate performance, business performance and individual performance and ensures differential pay based on the performance levels of employees.

- ESOPs: ESOPs are given to selective set of employees at senior levels based on their level of performance. ESOP scheme has an inbuilt deferral vesting design which helps in retention of employees along with providing an opportunity of long term wealth creation for the employees.

4.1.11 The Bank has not sponsored any special purpose vehicle which is required to be consolidated in the consolidated financial statements as per accounting norms.

4.1.12 During the year ended 31 March, 2013 and 31 March, 2012, the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of investments held in HTM category at the beginning of the year.

4.2 Other disclosures

4.2.1 During the year, the Bank has appropriated Rs.141.46 crores (previous year Rs.38.22 crores), net of taxes and transfer to statutory reserve to the Capital Reserve, being the gain on sale of HTM investments in accordance with RBI guidelines. During the previous year ended 31 March, 2012, as advised by the RBI, the Bank appropriated Rs.13.68 crores, net of taxes and transfer to statutory reserve, being the profit earned on sale of premises to the Capital Reserve.

4.2.2 During the year, the Bank has appropriated an amount of Rs.2.61 crores to Reserve Fund account in accordance with guidelines issued by Central Bank of Sri Lanka in respect of Sri Lanka branch operations.

4.2.3 Employee Stock Options Scheme (''the Scheme'')

In February 2001, pursuant to the approval of the shareholders at the Extraordinary General Meeting, the Bank approved an Employee Stock Option Scheme. Under the Scheme, the Bank is authorised to issue upto 13,000,000 equity shares to eligible employees. Eligible employees are granted an option to purchase shares subject to vesting conditions. The options vest in a graded manner over 3 years. The options can be exercised within 3 years from the date of the vesting. Further, over the period June 2004 to June 2010, pursuant to the approval of the shareholders at Annual General Meetings, the Bank approved an ESOP scheme for additional options aggregating 27,517,400. Within the overall ceiling of 40,517,400 stock options approved for grant by the shareholders as stated earlier, the Bank is also authorised to issue options to employees and directors of the subsidiary companies.

39,891,590 options have been granted under the Scheme till the previous year ended 31 March, 2012.

On 27 April, 2012, the Bank granted 2,343,500 stock options (each option representing entitlement to one equity share of the Bank) to its employees including the MD & CEO and 172,500 stock options to employees of Axis Asset Management Company Limited, a subsidiary of the Bank. These options can be exercised at a price of Rs.1,086.65 per option.

Volatility is the measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black-Scholes options pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volatility of the stock prices on the National Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options has been considered.

The weighted average fair value of options granted during the year ended 31 March, 2013 is Rs.387.24 (previous year Rs.559.31).

4.2.4 Dividend paid on shares issued on exercise of stock options

The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March, 2013, if approved at the ensuing Annual General Meeting. Dividend relating to these shares has not been recorded in the current year.

Appropriation to proposed dividend during the year ended 31 March, 2013 includes dividend of Rs.2.02 crores (previous year Rs.1.88 crores) paid pursuant to exercise of 1,086,994 employee stock options after the previous year end but before the record date for declaration of dividend for the year ended 31 March, 2012.

Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses.

Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classified under this segment and fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses.

Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and internal benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment.

4.2.5 Related party disclosure

The related parties of the Bank are broadly classified as:

a) Promoters

The Bank has identified the following entities as its Promoters:

- Administrator of the Specified Undertaking of the Unit Trust of India (UTI-1)

- Life Insurance Corporation of India (LIC)

- General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Limited, National Insurance Co. Limited, United India Insurance Co. Limited and The Oriental Insurance Co. Limited.

b) Key Management Personnel

- Mrs. Shikha Sharma (Managing Director & Chief Executive Officer)

- Mr. Somnath Sengupta [Executive Director & Head (Corporate Centre)] with effect from 15 October, 2012

- Mr. V. Srinivasan [Executive Director & Head (Corporate Banking)] with effect from 15 October, 2012

c) Relatives of Key Management Personnel

Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Chaitaly Sengupta, Ms. Renukona Sengupta, Mr. Niloy Sengupta, Mrs. Gayathri Srinivasan, Mrs. Vanjulam Varadarajan, Mr. V. Satish, Mrs. Camy Satish, Ms. Ananya Srinivasan, Ms. Anagha Srinivasan, Mr. Kuppusamy, Mrs. Komalavalli, Mrs. Ranganayagi, Mr. Srinivasa Raghavan, Ms. Geetha N., Ms. Chitra R., Ms. Sumathi N., Mr. S. Narayanan, Mr. S. Ranganathan and Mr. R. Narayan.

d) Subsidiary Companies

- Axis Capital Limited (formerly Axis Securities & Sales Limited)

- Axis Private Equity Limited

- Axis Trustee Services Limited

- Axis Asset Management Company Limited

- Axis Mutual Fund Trustee Limited

- Axis U.K. Limited

- Axis Finance Private Limited (formerly Enam Finance Private Limited) (with effect from 8 February, 2013)

e) Step down Subsidiary Companies (with effect from 1 April 2012)

- Axis Finance Private Limited (formerly Enam Finance Private Limited) (upto 7 February, 2013)

- Axis Securities Limited (formerly Enam Securities Direct Private Limited)

- Enam International Limited

- Enam Securities Europe Limited

f) Associate

- Bussan Auto Finance India Private Limited

The above investment does not fall within the definition of a Joint Venture as per AS-27, Financial Reporting of Interest in Joint Ventures, notified under the Companies (Accounting Standards) Rules, 2006, and the said accounting standard is thus not applicable. However, pursuant to RBI guidelines, the Bank has classified the same as investment in joint ventures in the Balance Sheet. Such investment has been accounted as an Associate in Consolidated Financial Statements as per AS-23, Accounting for Investments in Associates in Consolidated Financial Statements, notified under the Companies (Accounting Standards) Rules, 2006. Based on RBI guidelines, details of transactions with Associates are not disclosed since there is only one entity/party in this category.

Details of transactions with Axis Mutual Fund and Axis Infrastructure Fund-I, the funds floated by Axis Asset Management Company Ltd. and Axis Private Equity Ltd., the Bank''s subsidiaries have not been disclosed since these entities do not qualify as Related Parties as defined under the Accounting Standard 18, Related Party Disclosure, as notified under the Companies (Accounting Standards) Rules, 2006 and as per RBI guidelines.

* During the year ended 31 March, 2012, the Bank entered into an arrangement with Axis Asset Management Company Ltd. (Axis AMC), the Bank''s subsidiary, in terms of which payment of brokerage in respect of distribution of certain schemes is scheduled over a period of 3 years. This change, however, has no effect on the accounting policy of the Bank, as such brokerage income is recognised by the Bank as and when the same is due. Other receivables include such brokerage recoverable from Axis AMC as on the reporting date.

4.2.6 Leases

Disclosure in respect of assets given on operating lease The Bank has not given any assets on operating lease.

Disclosure in respect of assets taken on operating lease

The Bank has sub-leased certain of its properties taken on lease.

There are no provisions relating to contingent rent.

The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

4.2.7 Employee Benefits Provident Fund

The contribution to the employee''s provident fund amounted to Rs.80.78 crores (previous year Rs.67.88 crores) for the year.

The rules of the Bank''s Provident Fund administered by a Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees'' Provident Fund by the Government under para 60 of the Employees'' Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Bank. Based on an actuarial valuation conducted by an independent actuary, there is no deficiency as at the Balance Sheet date. The principal assumptions used by the actuary are as under.

Superannuation

The Bank contributed Rs.14.35 crores (previous year Rs.13.89 crores) to the employees'' superannuation plan for the year.

The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors.

The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

As the contribution expected to be paid to the plan during the annual period beginning after the balance sheet date is based on various internal/external factors, a best estimate of the contribution is not determinable.

The above information is as certified by the actuary and relied upon by the auditors.

4.2.8 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

4.2.9 Description of contingent liabilities

a) Claims against the Bank not acknowledged as debts

These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.

b) Liability on account of forward exchange and derivative contracts

The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time. An Exchange Traded Currency Option contract is a standardised foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date on the date of expiry. Currency Futures contract is a standardised, exchange- traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specified price.

c) Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

e) Other items

Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account and commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end.

4.2.10 Previous year figures have been regrouped and reclassified, where necessary to conform to current year''s presentation.


Mar 31, 2012

1 a) On 17 November, 2010, the Board of Directors of the Bank had approved the acquisition of certain financial services businesses undertaken by Enam Securities Private Limited (ESPL) directly and through its wholly owned subsidiaries, by Axis Securities and Sales Limited (ASSL), a wholly owned subsidiary of the Bank by way of a demerger. However, pursuant to conditions prescribed by the Reserve Bank of India, certain modifications have been carried out to the demerger structure in terms of a revised Scheme of Arrangement under Sections 391- 394 and other relevant provisions of the Companies Act, 1956. Accordingly, the acquisition will now comprise of (a) a demerger of the financial services businesses from ESPL to the Bank, in consideration of which the Bank will issue shares to the shareholders of ESPL, and (b) immediately upon completion of the demerger under the Scheme, a simultaneous sale of the financial services businesses will be undertaken from the Bank to ASSL for a cash consideration, with both the aforesaid steps occurring simultaneously. The Reserve Bank of India has on 30 March, 2012, conveyed its no objection to the Scheme. Further, on 27 April, 2012, the Board of Directors of the Bank have approved the reassessment of the valuation of the ESPL business at Rs1,396 crores and consequently, in consideration for the demerger of the financial services business of ESPL, the Bank will issue shares in the ratio of 5 equity shares of the Bank (aggregating 12,090,000 equity shares) of the face value of Rs10 each for every 1 equity share (aggregating 2,418,000 equity shares) of Rs10 each held by the shareholders of ESPL. The sale of the financial services businesses will be simultaneously undertaken from the Bank to ASSL for a cash consideration of Rs274 crores only. The appointed date under the Scheme is 1 April, 2010, and the parties shall proceed with filing the Revised Scheme and other necessary documents with the relevant High Courts and other regulatory authorities for their approvals.

b) The Board of Directors of the Bank have, on 27 April, 2012, approved a proposal to induct Schroder Singapore Holdings Private Limited, a wholly owned subsidiary of Schroders plc, as a 25% shareholder in Axis Asset Management Company Ltd., a wholly owned subsidiary of the Bank. The transaction is subject to regulatory approvals.

2.1.1 The Bank has not raised any hybrid capital during the years ended 31 March, 2012 and 31 March, 2011.

# Working funds represent average of total assets as reported to RBI in Form X under Section 27 of the Banking Regulation Act, 1949 during the year

* Net Customer assets include advances and credit substitutes

** Productivity ratios are based on average employee numbers for the year

2.1.2 The provisioning coverage ratio of the Bank computed in terms of the RBI guidelines as on 31 March, 2012 was 80.91% (previous year 80.90%).

** Asset classification as on the date of reference to CDR/date of application for Non-CDR cases

# Amount subjected to restructuring determined as on the date of approval of restructuring proposal

** Asset classification as on the date of reference to CDR/date of application for Non-CDR cases

# Amount subjected to restructuring determined as on the date of approval of restructuring proposal

2.1.3 There are no advances as on 31 March, 2012 (previous year: Nil) for which intangible securities have been taken as collateral by the Bank.

* Excludes 71 accounts already written-off from books amounting to Rs277.73 crores (Previous year 50 accounts amounting to Rs244.31 crores)

2.1.4 During the years ended 31 March, 2012 and 31 March, 2011 there were no Non-Performing Financial Assets Purchased or Sold (excluding accounts previously written off) by the Bank.

* Exposure includes credit exposure (funded and non-funded), derivative exposure and investment exposure (including underwriting and similar commitments)

2.1.5 During the year, the Bank's credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by RBI.

During the year ended 31 March, 2011, the Bank's credit exposure to single borrower was within the prudential exposure limits prescribed by RBI except in 2 cases, where the single borrower limit was exceeded upto an additional exposure of 5%, the details of which are set out below:

# the excess of the limit of Rs4,227.72 crores over the original exposure ceiling was approved by the Committee of Directors. However, the excess of the exposure as on 31 March, 2011 over the limit approved by the Committee is subject to ratification of the Committee.

@ the excess of the limit of Rs3,563.85 crores over the original exposure ceiling is subject to ratification by the Committee of Directors.

During the year ended 31 March, 2011, the Bank's credit exposure to group borrowers was within the prudential exposure limits prescribed by RBI.

2.1.6 Disclosure on risk exposure in Derivatives Qualitative disclosures:

(a) Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants:

Derivatives are financial instruments whose characteristics are derived from an underlying asset, or from interest and exchange rates or indices. The Bank undertakes over the counter and Exchange Traded derivative transactions for Balance Sheet management and also for proprietary trading/market making whereby the Bank offers derivative products to the customers to enable them to hedge their earnings risks within the prevalent regulatory guidelines.

Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK), and Currency Options for USD/INR pair (both OTC and exchange traded). The Bank also undertakes transactions in Cross Currency Swaps, Principal Only Swaps, Coupon Only Swaps, and Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks, primarily credit, market and operational risk. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.

There is a functional separation between the Treasury Front Office, Risk and Treasury Back Office to undertake derivative transactions. The derivative transactions are originated by Treasury Front Office, which ensures compliance with the trade origination requirements as per the Bank's policy and the RBI guidelines. The Market Risk Group within the Bank's Risk Department independently identifies, measures and monitors the market risks associated with derivative transactions and appraises the Asset Liability Management Committee (ALCO) and the Risk Management Committee of the Board (RMC) on the compliance with the risk limits. The Treasury Back Office undertakes activities such as confirmation, settlement, ISDA documentation, accounting and other MIS reporting.

The derivative transactions are governed by the derivative policy, market risk management policy, hedging policy and the suitability and appropriateness policy of the Bank as well as by the extant RBI guidelines. The Bank has also put in place a detailed process flow for customer derivative transactions for effective management of operational risk/reputation risk.

Various risk limits are set up and actual exposures are monitored vis-a-vis the limits. These limits are set up taking into account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, VaR, stop loss, Delta, Gamma and Vega. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically. The Bank ensures that the Gross PV01 (Price value of a basis point) position arising out of all non- option rupee derivative contracts are within 0.25% of net worth of the Bank as on Balance Sheet date.

Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item. These deals are accounted on an accrual basis except the swap designated with an asset/liability that is carried at market value or lower of cost or market value. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. These transactions are tested for hedge effectiveness and in case any transaction fails the test, the same is re-designated as a trading deal with the approval of the competent authority and appropriate accounting treatment is followed.

(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts

The Hedging Policy approved by the RMC governs the use of derivatives for hedging purpose. Subject to the prevailing RBI guidelines, the Bank deals in derivatives for hedging fixed rate and floating rate coupon or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge derivative transactions are accounted for in accordance with the hedge accounting principles. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the Profit and Loss Account. The premium on option contracts is accounted for as per FEDAI guidelines. Derivative transactions are covered under International Swaps and Derivatives Association (ISDA) master agreements with respective counterparties. The exposure on account of derivative transactions is computed as per the RBI guidelines and is marked against the credit limits approved for the respective counterparties.

(c) Provisioning, collateral and credit risk mitigation

Derivative transactions comprise of swaps and options which are disclosed as contingent liabilities. The swaps are categorised as trading or hedging and all the options are categorised as the trading book. Trading swaps/options are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets or other liabilities respectively. Hedged swaps are accounted for as per the RBI guidelines. Pursuant to the RBI guidelines, any receivables (crystallised receivables as well as positive MTM) under derivatives contracts, which remain overdue for more than 90 days, are reversed through the Profit and Loss Account and are held in a separate suspense account.

Collateral requirements for derivative transactions are laid down as part of credit sanction terms on a case by case basis. Such collateral requirements are determined, based on usual credit appraisal process. The Bank retains the right to terminate transactions as a risk mitigation measure in certain cases.

The credit risk in respect of customer derivative transactions is sought to be mitigated through a laid down policy on sanction of Loan Equivalent Risk (LER) limits, monitoring mechanism for LER limits and trigger events for escalation/margin calls/termination.

Pursuant to RBI guidelines, the Bank has started dealing in Exchange Traded Currency Options. The outstanding notional principal amount of these derivatives as at 31 March, 2012 was Rs542.91 crores (previous year Rs995.42 crores) and the mark-to-market value was Rs5.67 crores (previous year Rs5.44 crores)

2.1.7 During the year ended 31 March, 2012, RBI levied a penalty of Rs0.15 crores on the Bank for non-compliance of certain instructions relating to derivative transactions. The Bank has paid the penalty of Rs0.15 crores on 5 May, 2011.

No penalty/strictures have been imposed on the Bank in the previous year by the RBI.

2.1.8 Draw Down from Reserves

The Bank has not undertaken any draw down from reserves during the year. During the year ended 31 March, 2011, the Bank made a draw down out of the investment reserves account towards depreciation in investments in AFS and HFT categories in terms of RBI guidelines.

2.1.9 a) During the year ended 31 March, 2011, an amount of Rs338.85 crores being 10% of the net profit for that year was transferred to the general reserve in terms of the provisions of the Transfer of Profits to Reserve Rules under the Companies Act, 1956. During the current year, the Bank has been advised by RBI that in respect of transfer of profits to reserve fund, the Bank should be guided by the provisions of Section 17(1) of the Banking Regulation Act, 1949 relating to transfer to Statutory Reserve. Accordingly, no appropriation is proposed to be made to the general reserve for the current year.

b) During the current year, pursuant to receipt of final installment from the Government of India under the Agricultural Debt Waiver and Debt Relief Scheme, 2008, an amount of Rs0.85 crores being the provision held for loss in present value terms on the claim amount, has been transferred to the General Reserve in accordance with RBI guidelines.

2.1.10 Letter of Comfort

The Bank has not issued any Letter of Comfort (LoC) on behalf of its subsidiaries.

2.1.11 The Bank has not sponsored any special purpose vehicle which is required to be consolidated in the consolidated financial statements as per accounting norms.

2.1.12 During the current year, the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of investments held in HTM category at the beginning of the year.

2.2 Other disclosures

2.2.1 During the year, the Bank has appropriated Rs38.22 crores (previous year Rs4.76 crores), net of taxes and transfer to statutory reserve to the Capital Reserve, being the gain on sale of HTM investments in accordance with RBI guidelines. As advised by the RBI during the year, the Bank has also appropriated Rs13.68 crores, net of taxes and transfer to statutory reserve, being the profit earned on sale of premises to the Capital Reserve.

2.2.2 Employee Stock Options Scheme ('the Scheme')

In February 2001, pursuant to the approval of the shareholders at the Extraordinary General Meeting, the Bank approved an Employee Stock Option Scheme. Under the Scheme, the Bank is authorised to issue upto 13,000,000 equity shares to eligible employees. Eligible employees are granted an option to purchase shares subject to vesting conditions. The options vest in a graded manner over 3 years. The options can be exercised within 3 years from the date of the vesting. Further, over the period June 2004 to June 2010, pursuant to the approval of the shareholders at Annual General Meetings, the Bank approved an ESOP scheme for additional options aggregating 27,517,400. Within the overall ceiling of 40,517,400 stock options approved for grant by the shareholders as stated earlier, the Bank is also authorised to issue options to employees and directors of the subsidiary companies. 36,622,890 options have been granted under the Scheme till the previous year ended 31 March, 2011.

On 22 April, 2011, the Bank granted 3,096,500 stock options (each option representing entitlement to one equity share of the Bank) to its employees including the MD & CEO and 172,200 stock options to employees of Axis Asset Management Company Limited, a subsidiary of the Bank. These options can be exercised at a price of Rs1,447.55 per option.

Volatility is the measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black-Scholes options pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volatility of the stock prices on the National Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options has been considered.

The weighted average fair value of options granted during the year ended 31 March, 2012 is Rs559.31 (previous year Rs485.98).

2.2.3 Dividend paid on shares issued on exercise of stock options

The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March, 2012, if approved at the ensuing Annual General Meeting. Dividend relating to these shares has not been recorded in the current year.

Appropriation to proposed dividend during the year ended 31 March, 2012 includes dividend of Rs1.88 crores (previous year Rs2.47 crores) paid pursuant to exercise of 1,153,890 employee stock options after the previous year end but before the record date for declaration of dividend for the year ended 31 March, 2011.

2.2.4 Segmental reporting

The business of the Bank is divided into four segments: Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business. These segments have been identified based on the RBI's revised guidelines on Segment Reporting issued on 18 April, 2007 vide Circular No. DBOD.No.BP.BC.81/21.04.018/2006-07. The principal activities of these segments are as under.

Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses.

Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classified under this segment and fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses.

Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and market-linked benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment.

2.2.5 Related party disclosure

The related parties of the Bank are broadly classified as:

a) Promoters

The Bank has identified the following entities as its Promoters.

- Administrator of the Specified Undertaking of the Unit Trust of India (UTI-1)

- Life Insurance Corporation of India (LIC)

- General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Ltd., National Insurance Co. Ltd., United India Insurance Co. Ltd. and The Oriental Insurance Co. Ltd.

b) Key Management Personnel

- Mrs. Shikha Sharma (Managing Director & Chief Executive Officer)

- Mr. Sisir Kumar Chakrabarti (Deputy Managing Director) upto 30 September, 2011.

c) Relatives of Key Management Personnel

Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Swapna Chakraborty, Mr. Hirendra Nath Chakraborty, Mr. Rajat Chakraborty, Mrs. Devikalpa Chakraborty (Kundu), Master Ahan Chakraborty, Mr. Nabakumar Chakraborty, Mr. Prabir Chakraborty, Mrs. Minati Chakraborty, Mrs. Krishna Chakraborty, Mrs. Sipra Chakraborty, Mrs. Shikha Bhattacharya, Ms. Shila Chakraborty, Mr. Asim Kumar Chakraborty, Mr. Arunabha Bhattacharya.

d) Subsidiary Companies

- Axis Securities and Sales Limited

- Axis Private Equity Limited

- Axis Trustee Services Limited

- Axis Asset Management Company Limited

- Axis Mutual Fund Trustee Limited

- Axis U.K. Limited

e) Associate

- Bussan Auto Finance India Private Limited

The above investment does not fall within the definition of a Joint Venture as per AS-27, Financial Reporting of Interest in Joint Ventures, notified under the Companies (Accounting Standards) Rules, 2006, and the said accounting standard is thus not applicable. However, pursuant to RBI guidelines, the Bank has classified the same as investment in joint ventures in the Balance Sheet. Such investment has been accounted as an Associate in Consolidated Financial Statements notified under the Companies (Accounting Standards) Rules, 2006. Based on RBI guidelines, details of transactions with Associates are not disclosed since there is only one entity/party in this category.

Details of transactions with Axis Mutual Fund and Axis Infrastructure Fund-I, the funds floated by Axis Asset Management Company Ltd. and Axis Private Equity Ltd., the Bank's wholly owned subsidiaries have not been disclosed since these entities do not qualify as Related Parties as defined under the Accounting Standard 18, Related Party Disclosure, as notified under the Companies (Accounting Standards) Rules, 2006 and as per RBI guidelines.

2.2.6 Leases

Disclosure in respect of assets given on operating lease The Bank has not given any assets on operating lease.

Disclosure in respect of assets taken on operating lease

Operating lease comprises leasing of office premises/ATMs, staff quarters, electronic data capturing machines and IT equipment.

The Bank has sub-leased certain of its properties taken on lease.

There are no provisions relating to contingent rent.

The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

2.2.7 Employee Benefits Provident Fund

The contribution to the employee's provident fund amounted to Rs67.88 crores (previous year Rs41.83 crores) for the year.

The rules of the Bank's Provident Fund administered by a Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees' Provident Fund by the Government under para 60 of the Employees' Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deficiency shall be made good by the Bank. Based on an actuarial valuation conducted by an independent actuary, there is no deficiency as at the Balance Sheet date. The principal assumptions used by the actuary are as under.

Superannuation

The Bank contributed Rs13.89 crores (previous year Rs10.17 crores) to the employees' superannuation plan for the year.

Gratuity

The following tables summarise the components of net benefit expenses recognised in the Profit and Loss Account and funded status and amounts recognised in the Balance Sheet for the Gratuity benefit plan.

The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors.

The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

As the contribution expected to be paid to the plan during the annual period beginning after the balance sheet date is based on various internal/external factors, a best estimate of the contribution is not determinable.

The above information is as certified by the actuary and relied upon by the auditors.

2.2.8 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

2.2.9 Description of contingent liabilities:

a) Claims against the Bank not acknowledged as debts

These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.

b) Liability on account of forward exchange and derivative contracts

The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time. An Exchange Traded Currency Option contract is a standardized foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date on the date of expiry. Currency Futures contract is a standardized, exchange-traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specified price.

c) Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank's customers that are accepted or endorsed by the Bank.

e) Other items

Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account and commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end.

2.2.10 Previous year figures have been regrouped and reclassified, where necessary to conform to current year's presentation.


Mar 31, 2011

(Rs. in crores)

31 March, 2011 31 March, 2010

Opening balance at the beginning of the year 0.21 4.51

Additions during the year 4.78 0.04

Reductions on account of payments during the year - (0.27)

Reductions on account of reversals during the year - (4.07)

Closing balance at the end of the year 4.99 0.21

2.2.13 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

2.2.14 Description of contingent liabilities:

a) Claims against the Bank not acknowledged as debts

These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.

b) Liability on account of forward exchange and derivative contracts

The Bank enters into foreign exchange contracts, currency options/swaps, interest rate futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time.

c) Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Banks customers that are accepted or endorsed by the Bank.

e) Other items

Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account and commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end.

2.2.15 Previous year figures have been regrouped and reclassified, where necessary to conform to current years presentation.


Mar 31, 2010

As on As on 31-03-2010 31-03-2009 (Rs. in Thousands) (Rs. in Thousands)

CONTINGENT LIABILITIES

I. Claims against the bank not acknowledged as debts 1,953,218 1,649,897

II. Liability for partly paid investments

III. Liability on account of outstanding forward exchange and derivative contracts :

(a) Forward Contracts 1,265,355,295 829,419,114

(b) Interest Rate Swaps, Currency Swaps, Forward Rate Agreement & Interest Rate Futures 1,317,574,459 804,211,129

(c) Foreign Currency Options 56,162,649 84,620,825

TOTAL 2,639,092,403 1,718,251,068

IV. Guarantees given on behalf of constituents:

In India 332,315,553 180,725,134

Outside India 41,767,220 20,085,413

V. Acceptances, endorsements and other obligations 164,634,485 159,487,271

VI. Other items for which the bank is contingently liable 2,290,037 12,404,343

TOTAL 3,182,052,916 2,092,603,126

1 Background

Axis Bank Limited (the Bank) was incorporated in 1993 and provides a complete suite of corporate and retail banking products.

2.2.1 Segmental reporting

The business of the Bank is divided into four segments: Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business. These segments have been identified and based on RBIs revised guidelines on Segment Reporting issued on 18 April 2007 vide Circular No. DBOD.No. BP.BC. 81 /21.04.018/2006-07. The principal activities of these segments are as under.

Segment Principal Activities

Treasury Treasury operations include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the proprietary account and for customers and central funding.

Retail Banking Constitutes lending to individuals/small businesses subject to the orientation, product and granularity criterion and also includes low value individual exposures not exceeding the threshold limit of Rs. 5 crores as defined by RBI. Retail Banking activities also include liability products, card services, internet banking, ATM services, depository, financial advisory services and NRI services.

Corporate/Whole sale Banking Includes corporate relationships not included under Retail Banking, corporate advisory services, placements and syndication, management of public issue, project appraisals, capital market related services and cash management services.

Other Banking Business All banking transactions not covered under any of the above three segments.

Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses.

Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classified under this segment and fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses.

Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and market-linked benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment.

Geographical segment disclosure is not required to be made since the operations from foreign branches are less than the prescribed norms.

2.2.2 Related party disclosure

The related parties of the Bank are broadly classified as:

a) Promoters

The Bank has identified the following entities as its Promoters.

- Administrator of the Specified Undertaking of the Unit Trust of India (UTI-1)

- Life Insurance Corporation of India (LIC)

- General Insurance Corporation and four PSUs - New India Assurance Co. Ltd., National Insurance Co. Ltd., United India Insurance Co. Ltd. and The Oriental Insurance Co. Ltd.

b) Key Management Personnel

- Dr. P. J. Nayak (erstwhile Chairman & CEO) upto 20 April 2009

- Mrs. ShikhaSharma (Managing Director & Chief Executive Officer) with effect from 1 June 2009

- Mr. M.M.Agrawal (Deputy Managing Director) with effect from 10 February 2010

c) Relatives of Key Management Personnel

Mrs. Sunanda Nayak, Mrs. Sheela Nayak, Mr. Madhav Nayak, Mrs. Nikita Nayak, Mrs. Radhika Shenoi, Mr. Pramod Shenoi, Mr. Bharat Nayak, Mrs. Smitha Nayak, Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Bharti Agrawal, Mr. Vedprakash Agrawal, Mrs. Gayatri Devi Agrawal, Mr. Amit M Agrawal, Mrs. Rinki Agrawal, Master Kaustubh Agrawal, Ms. Prashasti Agrawal, Mr. Anand Agrawal, Mr. Praveen Agrawal, Mrs. Rekha Agrawal, Mrs. Renu Agrawal, Mrs. Meenu Agrawal

d) Subsidiary Companies

- Axis Securities and Sales Limited (formerly Axis Sales Limited)

- Axis Private Equity Limited

- Axis Trustee Services Limited

- Axis Asset Management Company Limited

- Axis Mutual Fund Trustee Limited

e) Joint Venture

- Bussan Auto Finance India Private Limited

Based on RBI guidelines, details of transactions with Joint Venture Companies are not disclosed since there is only one entity / party in this category.

2.2.3 Employee Benefits

Provident Fund

The contribution to the employees provident fund a mounted to Rs. 37.10 crores for the year ended 31 March 2010 (previousyear Rs. 29.70 crores).

Superannuation

The Bank contributed Rs. 9.67 crores to the employees superannuation plan for the year ended 31 March 2010 (previousyear Rs. 8.77 crores).

Leave Encashment

The Bank charged an amount of Rs. 35.31 crores as liability for leave encashment for the year ended 31 March 2010 (previousyear Rs. 45.12 crores).

Gratuity

The following tables summarize the components of net benefit expenses recognized in the profit and loss account and funded status and amounts recognized in the balance sheet for the Gratuity benefit plan.

2.2.4 Description of contingent liabilities:

a) Claims againstthe Bank not acknowledged as debts

These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.

b) Liability on account of forward exchange and derivative contracts

The Bank enters into foreign exchange contracts, currency options/swaps, interest rate futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. Interest rate futures are standardized, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time.

c) Guaranteesgiven on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Banks customers that are accepted or endorsed by the Bank.

e) Other items

Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account and commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end.

2.2.5 Previous year figures have been regrouped and reclassified, where necessary to conform to current years presentation.

 
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