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Accounting Policies of Bank of Baroda Company

Mar 31, 2014

I. CORPORATE GOVERNANCE RATING

Bank of Baroda is the first Public Sector Bank having been assigned a rating to its Corporate Governance Practices by ICRA Limited. The ICRA had assigned the rating of ''CGR2'' (pronounced as CGR 2) on a rating scale of CGR 1 to CGR 6 where CGR 1 denotes the highest rating, in July 2004, which has been reaffirmed in February 2006, September 2007, April 2010, March 2011, April 2013 and March 2014 respectively. The CGR 2 rating implies that in ICRA''s current opinion, the Bank has adopted and follows such practices, convention and codes as would provide its financial stakeholders including the depositors, a high level of assurance on the quality of Corporate Governance. The rating reflects Bank''s transparent ownership structure, well-defined executive management structure, satisfactory risk management practices, transparency in appointment and functioning of the Board and Senior Management and an elaborate audit function, carried out both by its Inspection Division and independent audit firms.

II. FINANCIAL CALENDAR

Financial Year 1st April, 2013 to 31st March, 2014

1 BASIS OF PREPARATION

The financial statements have been prepared under the historical cost convention unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprises statutory provisions, regulatory/ Reserve Bank of India (RBI) guidelines, Accounting Standards/ guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with.

2 USE OF ESTIMATES

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

3 INVESTMENTS

3.1 Classification

The Investment portfolio of the Bank is classified, in accordance with the Reserve Bank of India guidelines, into:

a "Held to Maturity" (HTM) comprising Investments acquired with the intention to hold them till maturity.

b "Held for Trading" (HFT) comprising Investments acquired with the intention to trade.

c "Available for Sale" (AFS) comprising Investments not covered by (a) and (b) above i.e. those which are acquired neither for trading purposes nor for being held till maturity.

3.2 Acquisition Cost

Cost of acquisition of Investments is net of incentives, front-end fees and commission.

3.3 Basis of Valuation

Investments classified as HTM are carried at weighted average acquisition cost unless it is more than the face value, in which case the premium is amortized over the period remaining to maturity. Investments classified as HTM includes debentures / bonds which are deemed to be in the nature of /treated as advances (for which provision is made by applying the RBI prudential norms of assets classification and provisioning applicable to Advances).

Investments in Regional Rural Banks, Treasury Bills, Commercial Papers and Certificates of Deposit have been valued at carrying cost. Investments in subsidiaries and joint ventures (both in India and abroad) are valued at acquisition cost less diminution, other than temporary in nature. Bank''s investments in units of VCFs made after 23.08.2006 are classified under HTM category for initial period of three years and are valued at cost. After period of three years from date of disbursement, it will be shifted to AFS and marked-to-market as per RBI guidelines.

Investments classified as H FT and AFS are marked to market scrip-wise and the resultant net depreciation if any, in each category disclosed in the Balance Sheet is recognized in the Profit and Loss Account, while the net appreciation, if any, is ignored. Investments made by the Bank as Primary Dealer in Treasury Bills under HFT category have been valued at carrying cost.

For the purpose of valuation of quoted investments in "Held for Trading" and "Available for Sale" categories, the market rates /quotes on the Stock Exchanges, the rates declared by Primary Dealers Association of India (PDAI) / Fixed Income Money Market and Derivatives Association (FIMMDA) / Foreign Exchange Dealers Association of India (FEDAI) are used. Investments for which such rates / quotes are not available are valued as per norms laid down by RBI, which are as under:

a Government / - on Yield to Maturity basis.

Approved securities b Equity Shares, - at breakup value as per the latest PSU and Trustee Balance Sheet (not more than 12 shares months old), otherwise Re.1 per company, c Preference Shares - on Yield to Maturity basis with appropriate credit spread mark- up d PSU Bonds - on Yield to Maturity basis with appropriate credit spread mark- up.

e Units of Mutual - at the latest repurchase price Funds / NAV declared by the Fund in respect of each scheme.

f Venture Capital - Declared NAV or break up NAV as per audited balance sheet which is not more than 18 months old. If NAV/ audited financials are not available for more than 18 months continuously then at Re. 1/-per VCF.

g Security Receipts Declared NAV by the Asset Reconstruction Company as per RBI/SEBI guidelines.

3.4 Disposal of Investments

Profit/ loss on sale of Investments classified as HTM is recognized in the Profit and Loss Account based on the weighted average cost / book value of the related Investments and an amount equivalent of profit on sale of Investments in HTM classification is appropriated to Capital Reserve Account.

Profit/ loss on sale of Investment in AFS/ HFT category is recognized in Profit and Loss Account.

3.5 The Bank is following uniform methodology of accounting for investments on settlement date basis.

3.6 In respect of investments at overseas branches, RBI guidelines or those of the host countries, whichever are more stringent are followed. In case of those branches situated in countries where no guidelines are specified, the guidelines of the RBI are followed.

3.7 The transfer of a security between these categories is accounted for at the acquisition cost / book value / market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer is fully provided for.

3.8 In respect of non-performing securities, income is not recognised, and provision is made for depreciation in the value of such securities as per RBI guidelines.

3.9 REPO / Reverse REPO

The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of market Repo and Reverse Repo transactions [other than the Liquidity Adjustment Facility (LAF) with the RBI]. Repo and Reverse Repo Transactions are treated as Collaterised Borrowing / Lending Operations with an agreement to Repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investments and Securities purchased under Reverse Repo are not included in investments. Costs and revenues are accounted for as interest expenditure / income, as the case may be. Securities purchased / sold under LAF with RBI are debited/credited to investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

3.10 Derivatives

The Bank presently deals in interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency Interest Rate Swaps and forward rate agreements. Currency Derivatives dealt with by the Bank are Options and Currency swaps.

Based on RBI guidelines, Derivatives are valued as under:

The hedge/ non-hedge(market making) transactions are recorded separately. Derivative contracts designated as hedges are not marked to market unless their underlying asset is marked to market. Trading derivative positions are marked-to-market (MTM) and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is ignored. Income and Expenditure relating to interest rate swaps are recognized on the settlement date. Gains/ losses on termination of the trading swaps are recorded on the termination date as income/ expenditure. For the purpose of valuation, the fair value of the total swap is computed on the basis of the amount that would be receivable or payable on termination of the transactions of the swap agreements as on the Balance Sheet date. Losses arising there from, if any, are fully provided for while the profits, if any, are ignored. Contingent Liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI at the Balance Sheet date.

4 ADVANCES

4.1 Advances in India are classified as Standard, Sub- standard, Doubtful or Loss assets and provision for advances are made as per the Prudential Norms of the RBI. In respect of Advances made in overseas branches, Advances are classified in accordance with Prudential Norms prescribed by the RBI or local laws of the host country in which advances are made, whichever is more stringent.

4.2 Advances are net of specific loan loss provisions, interest suspense, amount received and held in suit- filed Sundry Deposits and Claims Received.

4.3 In respect of Rescheduled / Restructured accounts, Provision for diminution in fair value of restructured advances is measured in net present value terms as per RBI guidelines.

4.4 In case of financial assets sold to Asset Reconstruction Company (ARC)/ Securitization Company (SC), the bank is following the guidelines issued by Reserve Bank of India. At present, the guideline followed by the Bank is that if the sale is at a price below the net book value (NBV), (i.e. Book value less provisions held) the shortfall is debited to the profit and loss account spread over a period of two years. If the sale value is higher than the NBV, excess provision is reversed to profit & loss account in the year the amounts are received.

5 FIXED ASSETS

5.1 Premises and other Fixed Assets are stated at historical cost except revalued premises which are stated at revalued amount. The appreciation on revaluation is credited to Capital Reserve and the depreciation provided thereon is deducted there from.

5.2 Premises include land and building under construction.

6 RESERVES AND SURPLUS

Revenue and other Reserves include Statutory Reserves created by foreign branches as per applicable local laws of the respective countries.

7 REVENUE RECOGNITION

7.1 Income (other than item referred in Paragraph 7.2)/ expenditure is generally recognised on accrual basis. In case of foreign offices, income/ expenditure is recognised as per the local laws of the country in which the respective foreign office is located.

7.2 Income by way of Fees, Commission other than on Government business, Commission on Guarantees, Letter of Credits, Exchange, Brokerage and Interest on Advance Bills are accounted for on realisation basis. Dividend on shares in Subsidiaries, joint ventures and associates is accounted on realisation basis.

7.3 In view of uncertainty of collection of income in cases of Non-performing Assets/Investments, such income is accounted for only on realisation in terms of the RBI guidelines.

7.4 Lease payments including cost escalation for assets taken on operating lease are recognised in the Profit and Loss Account over the lease term in accordance with the AS 19 (Leases) issued by ICAI.

8 EMPLOYEE BENEFITS

8.1 PROVIDENT FUND

Provident fund is a statutory obligation as per Bank of Baroda PF Rules as the Bank pays fixed contribution at pre-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit and Loss Account. The fund is managed by Bank of Baroda Provident Fund Trust.

8.2 GRATUITY

Gratuity liability is a statutory obligation as per Bank of Baroda Gratuity Fund Rules and Regulations and is provided for on the basis of an actuarial valuation made at the end of the financial year. The gratuity liability is funded by the bank and is managed by Bank of Baroda Gratuity Fund Trust.

8.3 PENSION

8.3.1 Pension liability is a defined benefit obligation under Bank of Baroda Employees Pension Regulations 1995 and is provided for on the basis of actuarial valuation made at the end of the financial year, for the employees who have joined Bank up to 31.03.2010 and opted for pension. The pension liability is funded by Bank of Baroda (Employees) Pension Fund Trust.

8.3.2 New Pension Scheme which is applicable to employees who joined bank on or after 01.04.2010 is a defined contribution scheme, Bank pays fixed contribution at pre determined rate and the obligation of the Bank is limited to such fixed contribution. The contribution is charged to Profit and Loss Account.

8.4 COMPENSATED ABSENCES Accumulating compensated absences such as Privilege Leave and Sick Leave are provided for based on actuarial valuation.

8.5 OTHER EMPLOYEE BENEFITS

Other Employee benefits such as Leave Encashment, Leave Fare Concession and Additional Retirement Benefit on Retirement are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are valued and accounted for as per laws prevailing in the respective territories.

9 DEPRECIATION

9.1 Depreciation on Fixed Assets in India [other than those referred in Paragraph 9.3 and 9.4] is provided on the written down value method in accordance with Schedule XIV to the Companies Act, 1956, except in case of revalued assets, in respect of which higher depreciation is provided on the basis of estimated useful life of these revalued assets.

9.2 Depreciation on Fixed Assets outside India [other than those referred to in Para 9.3 below] is provided as per local laws or prevailing practices of the respective territories.

9.3 Depreciation on Computers and Software forming an integral part of Computer Hardware, in and outside India is provided on Straight Line Method at the rate of 33.33% p.a., as per the guidelines of RBI. Computer software not forming part of an integral part of hardware is charged directly to Profit and Loss Account.

9.4 Depreciation on ATMs is provided on Straight Line Method at the rate of 20% p.a.

9.5 Depreciation on additions is provided for full year and no depreciation is provided in the year of sale / disposal.

9.6 Cost of leasehold land and leasehold improvements are amortised over the period of lease.

10 IMPAIRMENT OF ASSETS

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognised in accordance with AS 28 (Impairment of Assets) issued by the ICAI and charged off to Profit and Loss Account.

11 FOREIGN CURRENCY TRANSACTIONS:

11.1 Accounting for transactions involving foreign exchange is done in accordance with AS 11, (The Effects of Changes in Foreign Exchange Rates), issued by the ICAI.

11.2As stipulated in AS 11, the foreign currency operations of the Bank are classified as a) Integral Operations and b) Non Integral Operations. All Overseas Branches, Offshore Banking Units, Overseas Subsidiaries are treated as Non Integral Operations and domestic operations in foreign exchange and Representative Offices are treated as Integral Operations.

11.3 Translation in respect of Integral Operations

a The transactions are initially recorded on weekly average rate as advised by FEDAI.

b Foreign Currency Assets and Liabilities (including contingent liabilities) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

c The resulting exchange differences are recognized as income or expenses and are accounted through Profit and Loss Account. Any reversals / payment of foreign currency assets and liabilities is done at the weekly average closing rate of the preceding week and the difference between the outstanding figure and the amount for which reversal / payment is made, is reflected in Profit and Loss Account.

d Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

11.4 Translation in respect of Non Integral Operations

a Assets and Liabilities are translated at the closing spot rates notified by FEDAI at the end of each quarter.

b Foreign Exchange Spot and Forwards contingent liabilities outstanding as at the balance sheet date are translated at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities.

c Income and Expense are translated at quarterly average rate notified by FEDAI at the end of each quarter.

d The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account "Foreign Currency Translation Reserve" till the disposal of the net investment.

11.5 Forward Exchange Contracts

In accordance with the guidelines of FEDAI and the provisions of AS 11, Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

12 TAXES ON INCOME

This comprise of provision for Income tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) as determined in accordance with AS 22 (Accounting for taxes on Income) issued by ICAI. Deferred tax is recognised subject to consideration of prudence in respect of items of income and expenses those arise at one point of time and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the timing differences are expected to be reversed. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement in the period of enactment of the change

13 EARNINGS PER SHARE

The bank reports basic and diluted earnings per equity share in accordance with the AS 20 (Earnings Per Share) issued by the ICAI. Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.

14 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

As per AS 29 (Provisions, Contingent Liabilities and Contingent Assets) issued by the ICAI, the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

Contingent liability is disclosed unless the possibility of an outflow of resouces embodying economic benefit is remote.

Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.


Mar 31, 2013

1. BASIS OF PREPARATION

The financial statements have been prepared under the historical cost convention unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprises statutory provisions, regulatory/ Reserve Bank of India (RBI) guidelines, Accounting Standards/ guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with.

2 USE OF ESTIMATES

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

3 INVESTMENTS

3.1 Classification

The Investment portfolio of the Bank is classified, in accordance with the Reserve Bank of India guidelines, into:

a "Held to Maturity" (HTM) comprising Investments acquired with the intention to hold them till maturity.

b "Held for Trading" (HFT) comprising Investments acquired with the intention to trade.

c "Available for Sale" (AFS) comprising Investments not covered by (a) and (b) above i.e. those which are acquired neither for trading purposes nor for being held till maturity.

3.2 Acquisition Cost

Cost of acquisition of Investments is net of incentives, front-end fees and commission.

3.3 Basis of Valuation

Investments classified as HTM are carried at weighted average acquisition cost unless it is more than the face value, in which case the premium is amortized over the period remaining to maturity.

Investments classified as HTM includes debentures / bonds which are deemed to be in the nature of / treated as advances (for which provision is made by applying the RBI prudential norms of assets classification and provisioning applicable to Advances).

Investments in Regional Rural Banks, Treasury Bills,

Commercial Papers and Certificates of Deposit which have been valued at carrying cost.

Investments in subsidiaries and joint ventures (both in India and abroad) are valued at acquisition cost less diminution, other than temporary in nature.

Bank''s investments in units of VCFs made after 23.08.2006 are classified under HTM category for initial period of three years and are valued at cost. After period of three years from date of disbursement, it will be shifted to AFS and marked-to-market as per RBI guidelines.

Investments classified as HFT and AFS are marked to market scrip-wise and the resultant net depreciation if any, in each category disclosed in the Balance Sheet is recognized in the Profit and Loss Account, while the net appreciation, if any, is ignored.

Investments made by the Bank as Primary Dealer in Treasury Bills under HFT category have been valued at carrying cost.

For the purpose of valuation of quoted investments in "Held for Trading" and "Available for Sale" categories, the market rates / quotes on the Stock Exchanges, the rates declared by Primary Dealers Association of India (PDAI) / Fixed Income Money Market and Derivatives Association (FIMMDA) / Foreign Exchange Dealers Association of India (FEDAI) are used.

Investments for which such rates / quotes are not available are valued as per norms laid down by RBI, which are as under:

3.4 Disposal of Investments

Profit/ loss on sale of Investments classified as HTM is recognized in the Profit and Loss Account based on the weighted average cost / book value of the related

Investments and an amount equivalent of profit on sale of Investments in HTM classification is appropriated to Capital Reserve Account.

Profit/ loss on sale of Investment in AFS/ HFT category is recognized in Profit and Loss Account.

3.5 The Bank is following uniform methodology of accounting for investments on settlement date basis.

3.6 In respect of investments at overseas branches, RBI guidelines or those of the host countries, whichever are more stringent are followed. In case of those branches situated in countries where no guidelines are specified, the guidelines of the RBI are followed.

3.7 The transfer of a security between these categories is accounted for at the acquisition cost / book value / market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer is fully provided for.

3.8 In respect of non-performing securities, income is not recognised, and provision is made for depreciation in the value of such securities as per RBI guidelines.

3.9 REPO / Reverse REPO

The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of market Repo and Reverse Repo transactions [other than the Liquidity Adjustment Facility (LAF) with the RBI]. Repo and Reverse Repo Transactions are treated as Collaterised Borrowing / Lending Operations with an agreement to Repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investments and Securities purchased under Reverse Repo are not included in investments. Costs and revenues are accounted for as interest expenditure / income, as the case may be.

Securities purchased / sold under LAF with RBI are debited / credited to investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

3.10 Derivatives

The Bank presently deals in interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency Interest Rate Swaps and forward rate agreements. Currency Derivatives dealt with by the Bank are Options and Currency swaps.

Based on RBI guidelines, Derivatives are valued as under:

The hedge/ non-hedge(market making) transactions are recorded separately. Derivative contracts designated as hedges are not marked to market unless their underlying asset is marked to market. Trading derivative positions are marked-to-market (MTM) and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is ignored. Income and Expenditure relating to interest rate swaps are recognized on the settlement date. Gains/ losses on termination of the trading swaps are recorded on the termination date as income/ expenditure.

For the purpose of valuation, the fair value of the total swap is computed on the basis of the amount that would be receivable or payable on termination of the transactions of the swap agreements as on the Balance Sheet date. Losses arising there from, if any, are fully provided for while the profits, if any, are ignored.

Contingent Liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI at the Balance Sheet date.

4 ADVANCES

4.1 Advances in India are classified as Standard, Sub- standard, Doubtful or Loss assets and provision for advances are made as per the Prudential Norms of the RBI. In respect of Advances made in overseas branches, Advances are classified in accordance with Prudential Norms prescribed by the RBI or local laws of the host country in which advances are made, whichever is more stringent.

4.2 Advances are net of specific loan loss provisions, interest suspense, amount received and held in suit- filed Sundry Deposits and Claims Received.

4.3 In respect of Rescheduled / Restructured accounts, Provision for dimunition in fair value of restructured advances is measured in net present value terms as per RBI guidelines.

4.4 In case of financial assets sold to Asset Reconstruction Company (ARC)/ Securitization Company (SC), if the sale is at a price below the net book value (NBV), (i.e. Book value less provisions held) the shortfall is debited to the profit and loss account. If the sale value is higher than the NBV, surplus is carried forward and utilised to meet the shortfall/ loss on account of subsequent sale of non-performing financial assets.

5 FIXED ASSETS

5.1 Premises and other Fixed Assets are stated at historical cost except revalued premises which are stated at revalued amount. The appreciation on revaluation is credited to Capital Reserve and the depreciation provided thereon is deducted therefrom.

5.2 Premises include land and building under construction.

6 RESERVES AND SURPLUS

Revenue and other Reserves include Statutory Reserves created by foreign branches as per applicable local laws of the respective countries.

7 REVENUE RECOGNITION

7.1 Income (other than item referred in Paragraph 7.2)/ expenditure is generally recognised on accrual basis. In case of foreign offices, income/ expenditure is recognised as per the local laws of the country in which the respective foreign office is located.

7.2 Income by way of Fees, Commission other than on Government business, Commission on Guarantees, Letter of Credits, Exchange, Brokerage and Interest on Advance Bills are accounted for on realisation basis. Dividend on shares in Subsidiaries, joint ventures and associates is accounted on realisation basis.

7.3 In view of uncertainty of collection of income in cases of Non-performing Assets/Investments, such income is accounted for only on realisation in terms of the RBI guidelines.

7.4 Lease payments including cost escalation for assets taken on operating lease are recognised in the Profit and Loss Account over the lease term in accordance with the AS 19 (Leases) issued by ICAI.

8 EMPLOYEE BENEFITS

8.1 PROVIDENT FUND

Provident fund is a statutory obligation as per Bank of Baroda PF Rules as the Bank pays fixed contribution at pre-determined rates.The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit and Loss Account. The fund is managed by Bank of Baroda Provident Fund Trust.

8.2 GRATUITY

Gratuity liability is a statutory obligation as per Bank of Baroda Gratuity Fund Rules and Regulations and is provided for on the basis of an actuarial valuation made at the end of the financial year. The gratuity liability is funded by the bank and is managed by Bank of Baroda Gratuity Fund Trust.

8.3 PENSION

8.3.1 Pension liability is a defined benefit obligation under Bank of Baroda Employees Pension Regulations 1995 and is provided for on the basis of actuarial valuation made at the end of the financial year, for the employees who have joined Bank up to 31.03.2010 and opted for pension. The pension liability is funded by Bank of Baroda (Employees) Pension Fund Trust.

8.3.2 New Pension Scheme which is applicable to employees who joined bank on or after 01.04.2010 is a defined contribution scheme, Bank pays fixed contribution at predetermined rate and the obligation of the Bank is limited to such fixed contribution. The contribution is charged to Profit and Loss Account.

8.4 COMPENSATED ABSENCES

Accumulating compensated absences such as Privilege Leave and Sick Leave are provided for based on actuarial valuation.

8.5 OTHER EMPLOYEE BENEFITS

Other Employee benefits such as Leave Encashment, Leave Fare Concession and Additional Retirement Benefit on Retirement are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are valued and accounted for as per laws prevailing in the respective territories.

9 DEPRECIATION

9.1 Depreciation on Fixed Assets in India [other than those referred in Paragraph 9.3 and 9.4] is provided on the written down value method in accordance with Schedule XIV to the Companies Act, 1956, except in case of revalued assets, in respect of which higher depreciation is provided on the basis of estimated useful life of these revalued assets.

9.2 Depreciation on Fixed Assets outside India [other than those referred to in Para 9.3 below] is provided as per local laws or prevailing practices of the respective territories.

9.3 Depreciation on Computers and Software forming an integral part of Computer Hardware, in and oustside India is provided on Straight Line Method at the rate of 33.33% p.a., as per the guidelines of RBI. Computer software not forming part of an intergral part of hardware is charged directly to Profit and Loss Account.

9.4 Depreciation on ATMs is provided on Straight Line Method at the rate of 20% p.a.

9.5 Depreciation on additions is provided for full year and no depreciation is provided in the year of sale / disposal.

9.6 Cost of leasehold land and leasehold improvements are amortised over the period of lease.

10 IMPAIRMENT OF ASSETS

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognised in accordance with AS 28 (Impairment of Assets) issued by the ICAI and charged off to Profit and Loss Account.

11 FOREIGN CURRENCY TRANSACTIONS:

11.1Accounting for transactions involving foreign exchange is done in accordance with AS 11, (The Effects of Changes in Foreign Exchange Rates), issued by the ICAI.

11.2As stipulated in AS 11, the foreign currency operations of the Bank are classified as a) Integral Operations and b) Non Integral Operations. All Overseas Branches, Offshore Banking Units, Overseas Subsidiaries are treated as Non Integral Operations and domestic operations in foreign exchange and Representative Offices are treated as Integral Operations.

11.3Translation in respect of Integral Operations

a The transactions are initially recorded on weekly average rate as advised by FEDAI.

b Foreign Currency Assets and Liabilities (including contingent liabilities) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

c The resulting exchange differences are recognized as income or expenses and are accounted through Profit and Loss Account. Any reversals / payment of foreign currency assets and liabilities is done at the weekly average closing rate of the preceding week and the difference between the outstanding figure and the amount for which reversal / payment is made, is reflected in Profit and Loss Account.

d Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

11.4 Translation in respect of Non Integral Operations

a Assets and Liabilities are translated at the closing spot rates notified by FEDAI at the end of each quarter.

b Foreign Exchange Spot and Forwards contingent liabilities outstanding as at the balance sheet date are translated at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities.

c Income and Expense are translated at quarterly average rate notified by FEDAI at the end of each quarter.

d The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account "Foreign Currency Translation Reserve" till the disposal of the net investment.

11.5 Forward Exchange Contracts

In accordance with the guidelines of FEDAI and the provisions of AS 11, Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

12 TAXES ON INCOME

This comprise of provision for Income tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) as determined in accordance with AS 22 (Accounting for taxes on Income) issued by ICAI. Deferred tax is recognised subject to consideration of prudence in respect of items of income and expenses those arise at one point of time and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the timing differences are expected to be reversed. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement in the period of enactment of the change

13 earnings per share

The bank reports basic and diluted earnings per equity share in accordance with the AS 20 (Earnings Per Share) issued by the ICAI. Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.

14 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

As per AS 29 (Provisions, Contingent Liabilities and Contingent Assets) issued by the ICAI, the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

Contingent liability is disclosed unless the possibility of an outflow of resouces embodying economic benefit is remote.

Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.


Mar 31, 2012

1. BASIS OF PREPARATION

The financial statements have been prepared under the historical cost convention unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprises statutory provisions, regulatory/ Reserve Bank of India (RBI) guidelines, Accounting Standards/ guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with.

2 USE OF ESTIMATES

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

3 INVESTMENTS

3.1 Classification

The Investment portfolio of the Bank is classified, in accordance with the RBI guidelines, into:

a "Held to Maturity" (HTM) comprising Investments acquired with the intention to hold them till maturity.

b "Held for Trading" (HFT) comprising Investments acquired with the intention to trade.

c "Available for Sale" (AFS) comprising Investments not covered by (a) and (b) above i.e. those which are acquired neither for trading purposes nor for being held till maturity.

3.2 Acquisition Cost

Cost of acquisition of Investments is net of incentives, front-end fees and commission.

3.3 Basis of Valuation

Investments classified as HTM are carried at weighted average acquisition cost unless it is more than the face value, in which case the premium is amortized over the period remaining to maturity.

Investments classified as HTM includes debentures / bonds which are deemed to be in the nature of / treated as advances (for which provision is made by applying the RBI prudential norms of assets classification and provisioning applicable to Advances).

Investments in Regional Rural Banks, Treasury Bills, Commercial Papers and Certificates of Deposit which have been valued at carrying cost.

Investments in subsidiaries and joint ventures (both in India and abroad) are valued at acquisition cost less diminution, other than temporary in nature.

Bank's investments in units of VCFs made after 23.08.2006 are classified under HTM category for initial period of three years and are valued at cost. After period of three years from date of disbursement, it will be shifted to AFS and marked-to-market as per RBI guidelines.

Investments classified as HFT and AFS are marked to market scrip-wise and the resultant net depreciation if any, in each category disclosed in the Balance Sheet is recognized in the Profit and Loss Account, while the net appreciation, if any, is ignored.

Investments made by the Bank as Primary Dealer in Treasury Bills under HFT category have been valued at carrying cost.

For the purpose of valuation of quoted investments in "Held for Trading" and "Available for Sale" categories, the market rates / quotes on the Stock Exchanges, the rates declared by Primary Dealers Association of India (PDAI) / Fixed Income Money Market and Derivatives Association (FIMMDA) / Foreign Exchange Dealers Association of India (FEDAI) are used.

Investments for which such rates / quotes are not available are valued as per norms laid down by RBI, which are as under:

a Government / - Approved securities on Yield to Maturity basis.

b Equity Shares, pSu and Trustee shares

at book value as per the latest Balance Sheet (not more than 12 months old), otherwise Re.1 per company.

c Preference Shares

- on Yield to Maturity basis with appropriate credit spread mark- up

d PSU Bonds

- on Yield to Maturity basis with appropriate credit spread mark-up.

e Units of Mutual Funds

- at the latest repurchase price / NAV declared by the Fund in respect of each scheme.

f Venture Capital

- Declared NAV or break up NAV as per audited balance sheet which is not more than 18 months old. If NAV/ audited financials are not available for more than 18 months continuously then at Re. 1/- per VCF.

3.4 Disposal of Investments

Profit/ loss on sale of Investments classified as HTM is recognized in the Profit and Loss Account based on the weighted average cost / book value of the related Investments and an amount equivalent of profit on sale of Investments in HTM classification is appropriated to Capital Reserve Account.

Profit/ loss on sale of Investment in AFS/ HFT category is recognized in Profit and Loss Account.

3.5 The Bank is following uniform methodology of accounting for investments on settlement date basis.

3.6 In respect of investments at overseas branches, RBI guidelines or those of the host countries, whichever are more stringent are followed. In case of those branches situated in countries where no guidelines are specified, the guidelines of the RBI are followed.

3.7 The transfer of a security between these categories is accounted for at the acquisition cost / book value / market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer is fully provided for.

3.8 In respect of non-performing securities, income is not recognised, and provision is made for depreciation in the value of such securities as per RBI guidelines.

3.9 REPO / Reverse REPO

The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of market Repo and Reverse Repo transactions [other than the Liquidity Adjustment Facility (LAF) with the RBI]. Repo and Reverse Repo Transactions are treated as Collaterised Borrowing / Lending Operations with an agreement to Repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investments and Securities purchased under Reverse Repo are not included in investments. Costs and revenues are accounted for as interest expenditure / income, as the case may be.

Securities purchased / sold under LAF with RBI are debited / credited to investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

3.10 Derivatives

The Bank presently deals in interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency Interest Rate Swaps and forward rate agreements. Currency Derivatives dealt with by the Bank are Options and Currency swaps.

Based on RBI guidelines, Derivatives are valued as under:

The hedge/ non-hedge(market making) transactions are recorded separately. Derivative contracts designated as hedges are not marked to market unless their underlying is marked to market. Trading derivative positions are marked-to-market (MTM) and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is ignored. Income and Expenditure relating to interest rate swaps are recognized on the settlement date. Gains/ losses on termination of the trading swaps are recorded on the termination date as income/ expenditure.

For the purpose of valuation, the fair value of the total swap is computed on the basis of the amount that would be receivable or payable on termination of the transactions of the swap agreements as on the Balance Sheet date. Losses arising there from, if any, are fully provided for while the profits, if any, are ignored.

Contingent Liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI at the Balance Sheet date.

4 ADVANCES

4.1 Advances in India are classified as Standard, Sub- standard, Doubtful or Loss assets and provision for advances are made as per the Prudential Norms of the RBI. In respect of Advances made in overseas branches, Advances are classified in accordance with Prudential Norms prescribed by the RBI or local laws of the host country in which advances are made, whichever is more stringent.

4.2 Advances are net of specific loan loss provisions, interest suspense, amount received and held in suit- filed Sundry Deposits and Claims Received.

4.3 In respect of Rescheduled / Restructured accounts, Provision for dimunition in fair value of restructured advances is measured in net present value terms as per RBI guidelines.

4.4 In case of financial assets sold to Asset Reconstruction Company (ARC)/ Securitization Company (SC), if the sale is at a price below the net book value (NBV), (i.e. Book value less provisions held) the shortfall is debited to the profit and loss account. If the sale value is higher than the NBV, surplus is carried forward and utilised to meet the shortfall/ loss on account of subsequent sale of non-performing financial assets.

5 FIXED ASSETS

5.1 Premises and other Fixed Assets are stated at historical cost except revalued premises which are stated at revalued amount. The appreciation on revaluation is credited to Capital Reserve and the depreciation provided thereon is deducted there from.

5.2 Premises include land and building under construction.

6 RESERVES AND SURPLUS

Revenue and other Reserves include Statutory Reserves created by foreign branches as per applicable local laws of the respective countries.

7 REVENUE RECOGNITION

7.1 Income (other than item referred in Paragraph 7.2)/ expenditure is generally recognised on accrual basis. In case of foreign offices, income/ expenditure is recognised as per the local laws of the country in which the respective foreign office is located.

7.2 Income by way of Fees, Commission other than on Government business, Commission on Guarantees, Letter of Credits, Exchange, Brokerage and Interest on Advance Bills are accounted for on Realization basis. Dividend on shares in Subsidiaries, joint ventures And associates is accounted on realisation basis.

7.3 In view of uncertainty of collection of income in cases of Non-performing Assets/Investments, such income is accounted for only on realisation in terms of the RBI guidelines.

7.4 Lease payments including cost escalation for assets taken on operating lease are recognised in the Profit and Loss Account over the lease term in accordance with the AS 19 (Leases) issued by ICAI.

8 EMPLOYEE BENEFITS

8.1 PROVIDENT FUND

Provident fund is a defined contribution as the Bank pays fixed contribution at pre-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit and Loss Account.

8.2 GRATUITY

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The gratuity liability is funded by the bank and is managed by a separate trust.

8.3 PENSION

8.3.1 Pension liability is a defined benefit obligation and is provided for on the basis of actuarial valuation made at the end of the financial year, for the employees who have joined Bank up to 31.03.2010 and opted for pension. The pension liability is funded by the bank and is managed by a separate trust.

8.3.2 New Pension Scheme which is applicable to employees who joined bank on or after 01.04.2010 is a defined contribution scheme, Bank pays fixed contribution at pre determined rate, the obligation of the Bank is limited to such fixed contribution. The contribution is charged to Profit and Loss Account.

8.4 COMPENSATED ABSENCES

Accumulating compensated absences such as Privilege Leave and Sick Leave are provided for based on actuarial valuation.

8.5 OTHER EMPLOYEE BENEFITS

Other Employee benefits such as Leave Encashment, Leave Fare Concession and Additional Retirement Benefit on Retirement are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are valued and accounted for as per laws prevailing in the respective territories.

9. DEPRECIATION

9.1 Depreciation on Fixed Assets in India [other than those referred in Paragraph 9.3 and 9.4] is provided on the written down value method in accordance with Schedule XIV to the Companies Act, 1956, except in case of revalued assets, in respect of which higher depreciation is provided on the basis of estimated useful life of these revalued assets.

9.2 Depreciation on Fixed Assets outside India [other than those referred to in Para 9.3 below] is provided as per local laws or prevailing practices of the respective territories.

9.3 Depreciation on Computers and Software forming an integral part of Computer Hardware, in and out side India is provided on Straight Line Method at the rate of 33.33% p.a., as per the guidelines of RBI. Computer software not forming part of an intergral part of hardware is charged directly to Profit and Loss Account.

9.4 Depreciation on ATMs is provided on Straight Line Method at the rate of 20% p.a.

9.5 Depreciation on additions is provided for full year and no depreciation is provided in the year of sale / disposal.

9.6 Cost of leasehold land and leasehold improvements are amortised over the period of lease.

10. IMPAIRMENT OF ASSETS

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognised in accordance with AS 28 (Impairment of Assets) issued by the ICAI and charged off to Profit and Loss Account.

11. FOREIGN CURRENCY TRANSACTIONS

11.1 Accounting for transactions involving foreign exchange is done in accordance with AS 11, (The Effects of Changes in Foreign Exchange Rates), issued by the ICAI.

11.2 As stipulated in AS 11, the foreign currency operations of the Bank are classified as

a) Integral Operations and

b) Non Integral Operations. All Overseas Branches, Offshore Banking Units, Overseas Subsidiaries are treated as Non Integral Operations and domestic operations in foreign exchange and Representative Offices are treated as Integral Operations.

11.3 Translation in respect of Integral Operations

a. The transactions are initially recorded on weekly average rate as advised by FEDAI.

b. Foreign Currency Assets and Liabilities (including contingent liabilities) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

c. The resulting exchange differences are recognized as income or expenses and are accounted through Profit and Loss Account. Any reversals / payment of foreign currency assets and liabilities is done at the weekly average closing rate of the preceding week and the difference between the outstanding figure and the amount for which reversal / payment is made, is reflected in Profit and Loss Account.

d. Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

11.4 Translation in respect of Non Integral Operations

a. Assets and Liabilities are translated at the closing spot rates notified by FEDAI at the end of each quarter.

b. Foreign Exchange Spot and Forward contingent liabilities outstanding as at the balance sheet date are translated at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities.

c. Income and Expense are translated at quarterly average rate notified by FEDAI at the end of each quarter.

d. The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account "Foreign Currency Translation Reserve" till the disposal of the net investment.

11.5 Forward Exchange Contracts

In accordance with the guidelines of FEDAI and the provisions of AS 11, Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

12. TAXES ON INCOME

This comprise of provision for Income tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) as determined in accordance with AS 22 (Accounting for taxes on Income) issued by ICAI. Deferred tax is recognised subject to consideration of prudence in respect of items of income and expenses those arise at one point of time and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the timing differences are expected to be reversed. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement in the period of enactment of the change

13. EARNINGS PER SHARE

The bank reports basic and diluted earnings per equity share in accordance with the AS 20 (Earnings Per Share) issued by the ICAI. Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.

14. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

As per AS 29 (Provisions, Contingent Liabilities and Contingent Assets) issued by the ICAI, the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

Contingent liability is disclosed unless the possibility of an outflow of resouces embodying economic benefit is remote.

Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.


Mar 31, 2011

1. BASIS OF PREPARATION

The financial statements have been prepared under the historical cost convention unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprises statutory provisions, regulatory / Reserve Bank of India (RBI) guidelines, Accounting Standards / guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with.

2. USE OF ESTIMATES

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

3. INVESTMENTS

3.1 Classification

The Investment portfolio of the Bank is classified, in accordance with the RBI guidelines, into:

a. “Held to Maturity” comprising Investments acquired with the intention to hold them till maturity.

b. “Held for Trading” comprising Investments acquired with the intention to trade.

c. “Available for Sale” comprising Investments not covered by (a) and (b) above i.e. those which are acquired neither for trading purposes nor for being held till maturity.

3.2 Basis of Classification

Investments classified as “Held to Maturity” are carried at weighted average acquisition cost unless it is more than the face value, in which case the premium is amortized over the period remaining to maturity.

Investments classified as “Held to Maturity” includes debentures / bonds which are deemed to be in the nature of / treated as advances (for which provision is made by applying the RBI prudential norms of assets classification and provisioning applicable to Advances).

Investments in Regional Rural Banks, Treasury Bills, Commercial Papers, Indira Vikas Patras, Kisan Vikas Patras and Certificates of Deposit which have been valued at carrying cost.

Investments in subsidiaries and joint ventures (both in India and abroad) are valued at acquisition cost less diminution, other than temporary in nature.

Bank’s investments in units of VCFs made after 23.08.2006 are classified under HTM category for initial period of three years and are valued at cost.

After period of three years from date of disbursement, it will be shifted to AFS and marked-to-market as per RBI guidelines.

3.3 Acquisition Cost

Cost of acquisition of Investments is net of incentives, front-end fees and commission.

3.4 Disposal of Investments

Profit / Loss on sale of Investments classified as “Held to Maturity” is recognized in the Profit & Loss Account based on the weighted average cost / book value of the related Investments and an amount equivalent of profit on sale of Investments in “Held to Maturity” classification is appropriated to Capital Reserve Account.

Profit/loss on sale of Investment in AFS/HFT category is recognized in profit and loss account.

3.5 Valuation

Investments classified as “Held for Trading” and “Available for Sale” are marked to market scrip- wise and the resultant net depreciation if any, in each category disclosed in the Balance Sheet is recognized in the Profit and Loss Account, while the net appreciation, if any, is ignored.

Investments made by the Bank as Primary Dealer in Treasury Bills under HFT category are marked-to- market on quarterly basis based on the FIMMDA prices declared and the resultant net depreciation if any, is recognized in the Profit and Loss Account, while the net appreciation, if any, is ignored.

For the purpose of valuation of quoted investments in ”Held for Trading” and “Available for Sale” categories, the market rates / quotes on the Stock Exchanges, the rates declared by Primary Dealers Association of India (PDAI) / Fixed Income Money Market and Derivatives Association (FIMMDA) are used.

Investments for which such rates / quotes are not available are valued as per norms laid down by RBI, which are as under :

a. Government / - on Yield to Maturity basis. Approved securities

b. Equity Shares, - at book value as per the PSU and Trustee latest Balance Sheet (not shares more than 12 months old), otherwise Re.1 per company.

c. Preference Shares - on Yield to Maturity basis. with appropriate credit spread mark-up.

d. PSU Bonds - on Yield to Maturity basis with appropriate credit spread mark-up.

e. Units of Mutual - at the latest repurchase price / NAV Funds declared by the Fund in respect of each scheme.

f. Venture Capital - Declared NAV or break up NAV as per audited balance sheet which is not more than 18 months old. If NAV/ audited financials are not available for more than 18 months continuously then at Re. 1/- per VCF.

3.6 The Bank is following uniform methodology of accounting for investments on settlement date basis.

3.7 In respect of Investments at Overseas Branches, RBI guidelines or those of the host countries, whichever are more stringent are followed. In case of those branches situated in countries where no guidelines are specified, the guidelines of the RBI are followed.

3.8 The transfer of a security between these categories is accounted for at the acquisition cost / book value / market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer is fully provided for.

3.9 In respect of non-performing securities, income is not recognised, and provision is made for depreciation in the value of such securities as per RBI guidelines.

3.10 REPO / Reverse REPO

The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of market Repo and Reverse Repo transactions [other than the Liquidity Adjustment Facility (LAF) with the RBI]. Repo and Reverse Repo Transactions are treated as Collaterised Borrowing / Lending Operations with an agreement to Repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investments and Securities purchased under Reverse Repo are not included in investments. Costs and revenues are accounted for as interest expenditure / income, as the case may be.

Securities purchased / sold under LAF with RBI are debited / credited to investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

3.11 Derivatives

The Bank presently deals in interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency Interest Rate Swaps and forward rate agreements. Currency Derivatives dealt with by the Bank are Options and Currency swaps.

Based on RBI guidelines, Derivatives are valued as under:

The hedge / non-hedge (market making) transactions are recorded separately. Hedging derivative are accounted on an accrual basis. Trading derivative positions are marked-to-market (MTM) and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is ignored. Income and Expenditure relating to interest rate swaps are recognized on the settlement date. Gains / losses on termination of the trading swaps are recorded on the termination date as income / expenditure.

For the purpose of valuation, the fair value of the total swap is computed on the basis of the amount that would be receivable or payable on termination of the transactions of the swap agreements as on the Balance Sheet date. Losses arising there from, if any, are fully provided for while the profits, if any, are ignored.

Contingent Liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI at the Balance Sheet date.

4. ADVANCES

4.1 Advances in India are classified as Standard, Sub- standard, Doubtful or Loss assets and Provision for losses are made on these assets as per the Prudential Norms of the RBI. In respect of Advances made in overseas branches, Advances are classified in accordance with stringent of the Prudential Norms prescribed by the RBI or local laws of the host country in which advances are made.

4.2 Advances are net of specific loan loss provisions, interest suspense, amount received and held in suit- filed Sundry Deposits and Claims Received.

4.3 In respect of Rescheduled / Restructured accounts, Provision for dimunition in fair value of restructured advances is measured in present value terms as per RBI guidelines.

4.4 In case of financial assets sold to Asset Reconstruction Company (ARC) / Securitization Company (SC), if the sale is at a price below the net book value (NBV), (i.e. Book value less provisions held) the shortfall is debited to the profit and loss account. If the sale value is higher than the NBV, the surplus provision is not reversed but is utilised to meet the shortfall /loss on account of Sale of other non-performing financial assets.

5. FIXED ASSETS

5.1 Premises and other Fixed Assets are stated at historical cost except revalued premises. The appreciation on such revaluation is credited to Capital Reserve and the depreciation provided thereon is deducted therefrom.

5.2 Premises includes land & building under construction.

6. RESERVES AND SURPLUS

Revenue and other Reserves include Statutory Reserves created by foreign branches as per applicable local laws of the respective countries.

7. REVENUE RECOGNITION

7.1 Income / expenditure is recognised on accrual basis, unless otherwise stated. In case of foreign offices, income/ expenditure is recognised as per the local laws of the country in which the respective foreign office is located.

7.2 In view of uncertainty of collection of income in cases of Non-performing Assets/Investments, such income is accounted for only on realisation in terms of the RBI guidelines.

7.3 Income by way of Fees, Commission other than on Government business, Commission on Guarantees, LCs, Exchange, Brokerage and Interest on Advance Bills are accounted for on realisation basis. Dividend on

shares in Subsidiaries, joint ventures and associates is accounted on actual realisation basis.

7.4 Lease payments including cost escalation for assets taken on operating lease are recognised in the Profit & Loss Account over the lease term in accordance with the AS 19 (Leases) issued by ICAI.

8. EMPLOYEE BENEFITS

8.1 PROVIDENT FUND

Provident fund is a defined contribution scheme as the Bank pays fixed contribution at pre-determined rates.The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit & Loss A/c.

8.2 GRATUITY

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The scheme is funded by the bank and is managed by a separate trust.

8.3 PENSION

Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The scheme is funded by the bank and is managed by a separate trust.

8.4 COMPENSATED ABSENCES

Accumulating compensated absences such as Privilege Leave (PL) and Sick Leave (including un- availed casual leave) is provided for based on actuarial valuation.

8.5 OTHER EMPLOYEE BENEFITS

Other Employee benefits such as Leave Fare Concession (LFC), Medical Benefits etc. are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are accounted for as per laws prevailing in the respective territories.

9. DEPRECIATION

9.1 Depreciation on Fixed Assets in India [other than those referred to in Para 9.3 & 9.4 below] is provided on the written down value method in accordance with Schedule XIV to the Companies Act, 1956, except in case of revalued assets, in respect of which higher depriciation is provided on the basis of estimated useful life of these revalued assets.

9.2 Depreciation on Fixed Assets outside India except [other than those referred to in Para 9.3 below] is provided as per local laws or prevailing practices of the respective territories.

9.3 Depreciation on Computers in and oustside India is provided on Straight Line Method at the rate of 33.33%, as per the guidelines of RBI. Computer software not forming an integral part of hardware is depreciated fully during the year of purchase.

9.4 Depreciation on ATMs is provided on Straight Line Method at the rate of 20%.

9.5 Depreciation on additions is provided for full year and no depreciation is provided in the year of sale / disposal.

9.6 Cost of leasehold land & leasehold improvements are amortised over the period of lease.

10. IMPAIRMENT OF ASSETS

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognised in accordance with the AS 28 (Impairment of Assets) issued by the ICAI and charged off to Profit and Loss Account.

11. FOREIGN CURRENCY TRANSACTIONS:

11.1 Accounting for transactions involving foreign exchange is done in accordance with AS 11 (The Effects of Changes in Foreign Exchange Rates), issued by ICAI.

11.2 As stipulated in AS 11, the foreign currency operations of the Bank are classified as

a) Integral Operations and

b) Non Integral Operations. All Overseas Branches, Offshore Banking Units, Overseas Subsidiaries are treated as Non Integral Operations and domestic operations in foreign exchange and Representative Offices are treated as Integral Operations.

11.3 Translation in respect of Integral Operations:

a. The transactions are initially recorded on weekly average rate as advised by FEDAI.

b. Foreign Currency Assets and Liabilities (including contingent liabilities) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

c. The resulting exchange differences are recognized as income or expenses and are accounted through Profit & Loss Account. Any reversals / payment of foreign currency assets & liabilities is done at the weekly average closing rate of the preceding week and the difference between the outstanding figure and the amount for which reversal / payment is made, is reflected in profit and loss account.

d. Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

11.4 Translation in respect of Non Integral Operations:

a. Assets and Liabilities are translated at the closing spot rates notified by FEDAI at the end of each quarter.

b. Foreign Exchange Spot and Forward contingent liabilities outstanding as at the balance sheet date are translated at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities.

c. Income and Expense are translated at quarterly average rate notified by FEDAI at the end of each quarter.

d. The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account ”Foreign Currency Translation Reserve” till the disposal of the net investment in the respective foreign branches.

11.5 Forward Exchange Contracts

In accordance with the guidelines of FEDAI and the provisions of AS 11, Foreign exchange spot and forward contracts outstanding as at the balance sheet date and held for trading, are revalued at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities. The resulting forward valuation profit or loss is included in the Profit and Loss Account.

12. TAXES ON INCOME

This comprise of provision for Income tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) as determined in accordance with AS 22 (Accounting for taxes on Income) issued by ICAI. Deferred tax is recognised subject to consideration of prudence in respect of items of income and expenses those arise at one point of time and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the timing differences are expected to be reversed. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement in the period of enactment of the change

13. EARNINGS PER SHARE

The bank reports basic and diluted earnings per equity share in accordance with the AS 20 (Earnings Per Share) issued in this regard by the ICAI. Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.

14. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

As per AS 29 (Provisions, Contingent Liabilities and Contingent Assets) issued in this regard by the ICAI, the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.


Mar 31, 2010

1. BASIS OF PREPARATION:

The financial statements have been prepared under the historical cost convention unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprises statutory provisions, regulatory / Reserve Bank of India (RBI) guidelines, Accounting Standards / guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with.

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilites (including contingent liabilites) as of date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable.

2. FOREIGN CURRENCY TRANSACTIONS:

2.1 Accounting for transactions involving foreign exchange is done in accordance with Accounting Standard (AS) 11, ”The Effects of Changes in Foreign Exchange Rates”, issued by The Institute of Chartered Accountants of India.

2.2 As stipulated in AS-11, the foreign currency operations of the Bank are classified as a) Integral Operations and b) Non Integral Operations. All Overseas Branches, Offshore Banking Units, Overseas Subsidiaries are treated as Non Integral Operations and domestic operations in foreign exchange and Representative Offices are treated as Integral Operations.

2.3 Translation in respect of Integral Operations:

a) The transactions are initially recorded on weekly average rate as advised by FEDAI.

b) Foreign Currency Assets and Liabilities (including contingent liabilites) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

c) The resulting exchange differences are recognized as income or expenses and are accounted through Profit & Loss Account. Any reversals / payment of foreign currency assets & liabilities is done at the weekly average closing rate of the preceding week and the difference between the outstanding figure and the amount for which reversal / payment is made, is reflected in profit and loss account.

2.4 Translation in respect of Non Integral Operations:

a) Assets and Liabilities (including contingent liabilites) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

b) Income and Expense are translated at quarterly average rate notified by FEDAI at the end of each quarter.

c) The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account ”Foreign Currency Translation Reserve” till the disposal of the net investment.

2.5 Forward Exchange Contracts

In accordance with the guidelines of FEDAI and the provisions of AS-11, outstanding forward exchange contracts in each currency are revalued at the Balance Sheet date at the corresponding forward rates for the residual maturity of the contract. The difference between revalued amount and the contracted amount is recognised as profit or loss, as the case may be.

3. INVESTMENTS:

3.1 The Investment portfolio of the Bank is classified, in accordance with the Reserve Bank of India guidelines, into:

a. “Held to Maturity” comprising Investments acquired with the intention to hold them till maturity.

b. “Held for Trading” comprising Investments acquired with the intention to trade.

c. “Available for Sale” comprising Investments not covered by (a) and (b) above i.e. those which are acquired neither for trading purposes nor for being held till maturity.

3.2 Investments classified as “Held to Maturity” are carried at weighted average acquisition cost unless it is more than the face value, in which case the premium is amortized over the period remaining to maturity.

Investments classified as “Held to Maturity” includes debentures / bonds which are deemed to be in the nature of / treated as advances (for which provision is made by applying the Reserve Bank of India prudential norms of assets classification and provisioning applicable to Advances), Investments in Regional Rural Banks, Treasury Bills, Commercial Papers, Indira Vikas Patras, Kisan Vikas Patras and Certificates of Deposit which have been valued at carrying cost.

Investments in subsidiaries and joint ventures (both in India and abroad) are valued at acquisition cost less diminution, other than temporary in nature

3.3 Profit / Loss on sale of Investments classified as “Held to Maturity” is recognized in the Profit & Loss Account based on the weighted average cost / book value of the related Investments and an amount equivalent of profit on sale of Investments in “Held to Maturity” classification is appropriated to Capital Reserve Account.

3.4 Investments classified as ”Held for Trading” and “Available for Sale” are marked to market scrip- wise and the resultant net depreciation if any, in each category disclosed in the Balance Sheet is recognized in the Profit and Loss Account, while the net appreciation, if any, is ignored.

3.5 In respect of non-performing securities, income is not recognised, and provision is made for depreciation in the value of such securities as per Reserve Bank of India guidelines.

3.6 Cost of acquisition of Investments is net of incentives, front-end fees and commission.

3.7 For the purpose of valuation of quoted investments in ”Held for Trading” and “Available for Sale” categories, the market rates / quotes on the Stock Exchanges, the rates declared by Primary Dealers Association of India (PDAI) / Fixed Income Money Market and Derivatives Association (FIMMDA) are used.

Investments for which such rates / quotes are not available are valued as per norms laid down by Reserve Bank of India, which are as under:

a Government / on Yield to Maturity basis. Approved securities

b Equity Shares, at book value as per the latest PSU and Trustee Balance Sheet (not more than shares 12 months old), otherwise Re.1 per company.

c Preference Shares on Yield to Maturity basis.

d PSU Bonds on Yield to Maturity basis with appropriate credit spread mark-up.

e Units of Mutual at the latest repurchase price Funds / NAV declared by the Fund in respect of each scheme.

f Venture Capital Declared NAV or break up NAV as per audited balance sheet which is not more than 18 months old. If NAV/ audited financials are not available for more than 18 months continuously then at Re. 1/- per VCF

3.8 Investments are net of securities lent and include securities borrowed under Repo arrangements.

3.9 In respect of Investments at Overseas Branches, Reserve Bank of India guidelines or those of the host countries, whichever are more stringent are followed. In case of those branches situated in countries where no guidelines are specified, the guidelines of the Reserve Bank of India are followed.

3.10 The transfer of a security between these categories is accounted for at the acquisition cost / book value / market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer is fully provided for.

3.11 REPO / REVERSE REPO

The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions [other than transactions under the Liquidity Adjustment Facility (LAF) with the RBI]. Accordingly, the securities sold / purchased under Repo / Reverse Repo are treated as outright sales / purchases and accounted for in the Repo / Reverse Repo Accounts and the entries are reversed on the date of maturity. Costs and revenues are accounted for as interest expenditure / income, as the case may be. Balance in Repo/ Reverse Repo Account is adjusted against the balance in the Investment Account.

Securities purchased/ sold under LAF with RBI are debited/ credited to Investment Account and reversed on maturity of the transaction. Interest expended/ earned thereon is accounted for as expenditure/ revenue.

3.12 DERIVATIVES

The Bank presently deals in interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency interest rate swaps and forward rate agreements. Currency Derivatives dealt with by the Bank are Options and Currency swaps.

Based on RBI guidelines, Derivatives are valued as under:

The hedge / non-hedge (market making) transactions are recorded separately. Hedging derivative are accounted on an accrual basis. Trading derivative positions are marked-to-market (MTM) and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is ignored. Income and Expenditure relating to interest rate swaps are recognized on the settlement date. Gains / losses on termination of the trading swaps are recorded on the termination date as income / expenditure.

4. INTEREST RATE SWAPS:

4.1 The interest rate swap transactions for hedging are accounted for on accrual basis and transactions for trading are marked to market in line with the Reserve Bank of India guidelines.

4.2 For the purpose of valuation, the fair value of the total swap is computed on the basis of the amount that would be receivable or payable on termination of the transactions of the swap agreements as on the Balance Sheet date. Losses arising therefrom, if any, are fully provided for, while the profits, if any, are ignored.

5. ADVANCES:

5.1 Advances in India are classified as Standard, Sub- standard, Doubtful or Loss assets and Provision for losses are made on these assets as per the Prudential Norms of the Reserve Bank of India. In respect of Advances made in overseas branches, Advances are classified in accordance with stringent of the Prudential Norms prescribed by the Reserve Bank of India or local laws of the host country in which advances are made.

5.2 Advances are net of specific loan loss provisions, interest suspense, amount received and held in suit- filed Sundry Deposits and Claims Received.

5.3 In respect of Rescheduled / Restructured accounts, Provision for demunition in fair value of restructured advances is measured in present value terms as per Reserve Bank of India guidelines.

5.4 In case of financial assets sold to Asset Reconstruction Company (ARC) / Securitization Company (SC), if the sale is at a price below the net book value (NBV), (i.e. Book value less provisions held) the shortfall is debited to the profit and loss account. If the sale value is higher than the NBV, the surplus provision is not reversed but is utilised to meet the shortfall /loss on account of Sale of other non-performing financial assets.

6. FIXED ASSETS:

6.1 Premises and other Fixed Assets are stated at historical cost except those premises, which have been revalued. The appreciation on such revaluation is credited to Capital Reserve and the depreciation provided thereon is deducted therefrom.

6.2 Premises include building under construction and land.

7. RESERVES AND SURPLUS:

Revenue and other Reserves include Statutory Reserves created by foreign branches as per applicable local laws of the respective countries.

8. REVENUE RECOGNITION:

8.1 Income / expenditure is recognised on accrual basis, unless otherwise stated. In case of foreign offices, income/ expenditure is recognised as per the local laws of the country in which the respective foreign office is located.

8.2 In view of uncertainty of collection of income in cases of Non-performing Assets / Investments, such income is accounted for only on realisation in terms of the RBI guidelines.

8.3 Income by way of Fees, Commission other than on Government business, Commission on Guarantees, LCs, Exchange, Brokerage, Interest on Overdue Bills, Advance Bills and Interest earned on Tax refunds are accounted for on realisation basis.

8.4 Dividend on shares in Subsidiaries, joint ventures and associates is accounted on actual realisation basis.

9. EMPLOYEES BENEFITS:

9.1 Contribution to the Provident Fund is charged to Profit and Loss account.

9.2 Provision for gratuity and pension liability is made on actuarial basis and contributed to approved Gratuity and Pension Fund. Provision for encashment of accumulated leave payable on retirement or otherwise is made on actuarial valuation at the year end, in compliance with Accounting Standard 15.

10. DEPRECIATION:

10.1 Depreciation on Fixed Assets in India except Computers and ATMs, is provided on the written down value basis at the rates prescribed in Schedule XIV to the Companies Act, 1956.

10.2 Depreciation on Fixed Assets outside India except Computers is provided as per local laws or prevailing practices of the respective countries.

10.3 Depreciation on Computers is provided on Straight Line Method at the rate of 33.33%, as per the guidelines of Reserve Bank of India. Computer software not forming an integral part of hardware is depreciated fully during the year of purchase.

10.4 Depreciation on ATMs is provided on Straight Line Method at the rate of 20%.

10.5 Depreciation on additions is provided for full year and no depreciation is provided in the year of sale / disposal.

10.6 Cost of leasehold land is amortised over the period of lease.

11. IMPAIRMENT OF ASSETS:

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognised in accordance with the Accounting Standard-28 (”Impairment of Assets”) issued by the Institute of Chartered Accountants of India and charged off to Profit and Loss Account.

12. TAXES ON INCOME:

This comprise of provision for Income tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) as determined in accordance with Accounting Standard 22 of ICAI, Accounting for taxes on Income. Deferred tax is recognised subject to consideration of prudence in respect of items of income and expenses those arise at one point of time and are capable of reversal in one or more subsequent periods. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the timing differences are expected to be reversed. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the income statement in the period of enactment of the change.

13. EARNINGS PER SHARE:

The bank reports basic and diluted earnings per equity share in accordance with the Accounting Standard 20 (”Earnings Per Share”) issued in this regard by the Institute of Chartered Accountants of India. Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.

14. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS:

As per Accounting Standard 29 (”Provisions, Contingent Liabilities and Contingent Assets”) issued in this regard by the Institute of Chartered Accountants of India, the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.

2.3.3 Disclosures on risk exposure in derivatives-

Qualitative Disclosure

The Treasury Policy of the bank lays down the types of financial derivative instruments, scope of usages, approval procedures and the limits like open position limits, stop loss limits and counter party exposure limits for undertaking derivative transactions.

The Bank uses financial derivative transactions for hedging its on or off balance sheet exposures as well as for market making. Basically, these products are used for hedging risk, reducing cost and increasing the yield in such transactions and for proprietary trading.

The types of risk to which the bank is exposed to are credit risk, market risk, country risk and operational risk. The Bank has risk management policies (approved by Board of Directors of the Bank), which is designed to measure the financial risks for transactions in the trading book on a regular basis, by way of MTM, VaR and PV01, and to set appropriate risk limits. These are monitored by means of reliable and up to date Management Information Systems by the Risk Management Department of the Bank from time to time who, in turn, apprises the risk profile to the Risk Management Committee of Directors, which is presided over by the Bank’s Chairman and Managing Director.

The counter parties to the transactions are banks and corporate entities. The deals are done under approved exposure limits. The bank has adopted the current exposure method prescribed by Reserve Bank of India for measuring Credit Exposure on Derivative products as per which the bank sums the total replacement cost (obtained by mark to market of all its contracts with positive value i.e. when the bank has to receive money from the counter party) and an amount for potential future changes in credit exposure calculated on the basis of the total notional principal amount of the contract multiplied by the relevant credit conversion factors according to the residual maturity as detailed herein under:-

2.4.4 Details of non-performing financial assets purchased/sold

A. Details of non-performing financial assets purchased:

During The financial year bank has not purchased any non-performing assets.

2.7.5 Unsecured Advances

The amount of advances for which intangible securities such as charge over the rights, licences, authority etc. have been taken as security is Rs.3731.01 crores and the same has been classified as unsecured, forming part of unsecured advances as reflected in schedule 9 of the balance sheet. Such advances to total unsecured advances is 8.74%.

2.8.2 Disclosure of penalties imposed by RBI

During the financial year 2009-10, the Bank has not been subjected to any penalty for contravention or non-compliance with any requirement of the Banking Regulation Act, 1949, or any rules or conditions specified by the Reserve Bank of India in accordance with the said Act.

6. Status of Letters of Comfort

A. Letters of Comfort (LOC’s) issued during the Current Financial Year.

During the current financial year Bank has not issued any Letter of Comfort to meet the requirements of the overseas / domestic regulators while seeking their approval for establishing subsidiaries / opening of branches.

B. Cumulative position of LOC’s outstanding on 31.03.2010.

During the financial year 2008-09, Bank has issued only one Letter of Comfort to meet the requirements of the overseas / domestic regulators while seeking their approval for establishing subsidiaries / opening of branches. The Letter of Comfort was issued to Reserve Bank of New Zealand for the Bank’s subsidiary in that country.

The subsidiary Bank of Baroda (New Zealand) Ltd. has been registered as a Bank in New Zealand on 01.09.2009 but is not yet operationalised. Therefore no amount is quantified as on 31st March 2010.

B. Disclosure in terms of Accounting Standards (AS) issued by the Institute of Chartered Accountants of India:

1. Net Profit or Loss for the Period, prior period items and changes in accounting policies (AS-5)

The depreciation on revalued assets has been provided during the year on the basis of remaining useful life of the assets as ascertained by the valuers as against the earlier practice of charging depreciation on original useful life of the assets. This has resulted into additional depreciation of Rs. 67.22 crores during the year. Resultantly the depreciation on original block charged to Profit & Loss account has increased by Rs. 6.58 crores and the Revaluation Reserve has reduced additionally by Rs. 60.64 crores.

2. Employee Benefits (AS-15)

Bank has adopted the Accounting Standard (AS-15) issued by ICAI and effective from 07.12.2006. The standard has been revised and notified on 17.12.2007. The provisions contained in AS-15 gives option to the bank, to charge the transitional liability as an expense in its Profit and Loss Account spread over a period of 5 years. Bank has exercised this option and accordingly made an incremental provision for employee benefits such as pension, gratuity leave encashment and other retirement benefits to the extent of 1/5th of the total transitional liability commencing from financial year 2007-08, which is crystallized on Actuarial valuation at Rs. 901.00 Crores. GRATUITY:

The Bank pays gratuity to employees who retire or resign from Bank’s service. The Bank makes contributions to an in-house trust, towards funding this gratuity, payable every year. In accordance with the gratuity fund’s rules, actuarial valuation of gratuity liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit actuarial method.

The investment of the funds is made according to investment pattern prescribed by the Government of India.

The gratuity payable is worked out by way of 3 different schemes and the entitlement is based on what is most beneficial to employees. PENSION

Bank of Baroda pays pension, a defined benefit plan covering the employees who have opted for pension and also to the employees joining the bank’s service on or after 29.9.1995. The plan provides for a pension on a monthly basis to these employees on their cessation from Bank’s service based on the respective employee’s salary and years of qualifying service with the Bank. Employees covered under Bank of Baroda (Employees’) Pension Regulations, 1995 are not eligible for Bank’s contribution to Provident Fund.

Pension fund is managed by in-house trustees.

PROVIDENT FUND

Bank of Baroda is statutorily required to maintain a

provident fund as a part of its retirement benefits to its employees. This fund is managed by in-house trustees. Each employee contributes 10% of his or her basic salary and eligible allowances and Bank of Baroda contributes an equal amount to the fund. The investment of the fund is made according to investment pattern prescribed by the Government of India.

LEAVE ENCASHMENT

An employee is entitled to encash privilege leave standing to his/her credit subject to a maximum of 240 days on the date of superannuation/Voluntary Retirement/death.

However, on resignation, an employee is entitled to get encashment 50% of the privilege leave standing to the credit subject to a maximum of 120 days.

ADDITIONAL RETIREMENT BENEFIT

The scheme for additional retirement benefit provides that an officer on his Retirement/ Voluntary retirement/ death shall be eligible for payment of 6 months emoluments as additional retirement benefit, provided he had completed 25 years of service in the Bank.

In the same manner, award staff member on Retirement / Voluntary Retirement / Death shall be eligible for additional retirement benefit, provided he had completed -30- years of service in Bank.

However, in case of dismissal, discharge, termination, compulsory retirement and resignation additional retirement benefit shall not be payable, irrespective of any number of years of service.

4. Related Party disclosures (AS - 18)

Names of the Related Parties and their relationship with the Bank:

(a) Subsidiaries:

i) BOB Capital Markets Limited

ii) BOB Cards Limited

iii) The Nainital Bank Limited

iv) Bank of Baroda (Botswana) Limited

v) Bank of Baroda (Kenya) Limited

vi) Bank of Baroda (Uganda) Limited

vii) Bank of Baroda (Guyana) Inc.

viii) Bank of Baroda (UK) Limited

ix) Bank of Baroda (Tanzania) Limited

x) Baroda Capital Markets (Uganda) Limited. (Subsidiary of Bank of Baroda Uganda Ltd.)

xi) BOB Trinidad & Tobago Ltd.

xii) Bank of Baroda (Ghana) Ltd.

xiii) Bank of Baroda (New Zealand) Ltd.

(b) Associates:

i) Baroda Uttar Pradesh Gramin Bank

ii) Nainital-Almora Kshetriya Gramin Bank

iii) Baroda Rajasthan Gramin Bank

iv) Baroda Gujarat Gramin Bank

v) Jhabua-Dhar Kshetriya Gramin Bank

vi) Indo Zambia Bank Limited

vii) Baroda Pioneer Asset Management Co. Ltd. (C) Joint Ventures:

i) IndiaFirst Life Insurance Company Ltd

7. Discontinuing operations (AS24)

j During the financial year 2009-10 the bank has not

5 discontinued the operations of any of its branches, which if resulted in shedding of liability and realization of the assets and no decision has been finalized to discontinue an operation in its entirety, which will have the above effect.

8. Impairment of Assets (AS-28)

In view of the absence of indication of material impairment f within the meaning of clause 5 to clause 13 of Accounting Standard-28 “Impairment of Assets”, no impairment of * fixed assets is required in respect of current financial year.

9. Provisions, Contingent Liabilities and Contingent Assets (AS-29)

9.1 Movement of provisions for Liabilities (excluding provisions for others)

Rs. in Crores)

Particulars

Legal Cases / contingencies Current Year Previous Year

Balance as on 1st April 2009 13.43 13.43

Provided during the year -8.68 --

Balance as on 31st March 2010 4.75 13.43

Timing of outflow / uncertainties Outflow on settlement/ crystallization Outflow on settlement/ crystallization

The Bank has provided for claims against the bank which have not been acknowledged as debt as per the policy framed by it.

9.2 Contingent Liabilities:

Such liabilities as mentioned at Serial No (I) to (VI) of Schedule 12 of Balance Sheet are dependent upon, the outcome of court, arbitration, out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties respectively. No reimbursement is expected in such cases.