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Notes to Accounts of Canara Bank

Mar 31, 2015

1 Investments:

i) The percentage of investments under "Held to Maturity" category - SLR as on 31.03.2015 was 22.23% of Demand and Time Liability of the Bank (Previous year 21.66%), which is within the permissible limit as per RBI guidelines

ii) Investment in Subsidiaries/Joint Ventures/ Associates in India in Schedule-8 includes Rs.29.40 Crore (Previous year Rs.29.40 Crore) being advance towards share capital in Regional Rural Banks pending allotment of shares.

2 Inter-Branch Transactions:

The initial matching of entries received at Head Office for the purpose of reconciliation under Inter- Branch transactions upto 31.03.2015 has been done. However, Bank is continuing its efforts to reconcile and reduce the remaining outstanding entries.

3 Premises:

Premises include certain properties having original cost of RS. 211.35 Crore (Previous year RS. 211.35 Crore) in respect of which conveyance deeds are pending executions.

4.3.3 Disclosure on risk exposure in derivatives:

I Qualitative Disclosure

The Treasury Risk Management Policy for using Derivative Instruments to hedge bank''s Assets/Liabilities has been approved by the Board of Directors.

A) The Investment Portfolio of the Bank consists of assets with characteristics such as fixed interest rate, zero coupon and floating interest rates and is subject to interest rate risk. The Bank also has Tier II bonds hedged for interest rate swaps which do not have exit options. The policy permits hedging the interest rate risk on this liability as well.

Bank is permitted to use FRA and IRS (only plain vanilla transactions are permitted). These instruments are used not only for hedging the interest rate risk in the investment portfolio but also for market making.

Bank has been undertaking derivatives trades like IRS, FRAs, etc for the purpose of hedging Foreign Currency liabilities. Options and Swaps are also undertaken on behalf of clients on back to back basis. The Bank is yet to start Option book running.

During the year Bank has not undertaken derivative trades in Interest Rate Swaps (IRS) of the Investment Portfolio and Trading Swaps / Currency Derivative / Forward Rate Agreements (FRA) were also not undertaken.

B) The risk management policies and major control limits like stop loss limits, counterparty exposure limits, PV01, etc. approved by the Board of Directors are in place. These risk limits are monitored and reviewed regularly. MIS/Reports are submitted periodically to Risk Management Committee. The hedge effectiveness of the outstanding derivative deals are monitored in relation to the underlying asset/liability on an ongoing basis.

C) Hedge Positions

* Accrual on account of interest expenses/ income on the IRS are accounted and recognized as expense/ income.

* Hedge effectiveness of the outstanding derivative deals are monitored in relation to the fair value of the swap and underlying asset/liability. Bank has used the FIMMDA pricing method i.e. relevant G SEC yield corporate bonds spread for arriving at the fair value of the underlying Asset/Liability. If the hedge is not effective, hedge swaps is accounted as trading swaps. If swap is terminated before maturity, the MTM loss / gain and accruals till such date are accounted as expense/income under Interest Paid / received on IRS.

Trading Positions

* Trading swaps are marked to market at frequent intervals and changes are recorded in the income statements.

* Accrual on account of interest expenses/ income on the IRS are accounted and recognized as expense / income.

* Gains or losses on termination of swaps are recorded as immediate income or expense under the above head.

4.7.4 Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the Bank:

The Bank has not exceeded the prudential credit exposure limits prescribed for group accounts and single borrower engaged in infrastructure projects or for Oil Companies.

4.8.2 Disclosure of Penalties imposed by RBI:

During the financial year 2014-15, the Bank has been subjected to an aggregate penalty of Rs 0.10 Crore in terms of Section 47A(1) of the Banking Regulation Act, 1949 for non - compliance of the Reserve Bank of India instructions. Bank has paid penalty amount of Rs.0.10 Crore to Reserve Bank of India on 04.08.2014.

5. Accounting Standards:

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards issued by Institute of Chartered Accountants of India (ICAI), the following information is disclosed:

5.1 Accounting Standard 5 - Net Profit/Loss for the period, prior period items and changes in accounting policies:

There are no material prior period items

5.2 Accounting Standard 15 - Employee Benefits

The actuarial assumptions in respect of gratuity, pension and privilege leave, for determining the present value of obligations and contributions of the bank, have been made by fixing various parameters for

* Salary escalation by taking into account inflation, seniority, promotion and other factors mentioned in Accounting Standard 15(Revised) issued by ICAI.

* Attrition rate by reference to past experience and expected future experience and includes all types of withdrawals other than death but including those due to disability.

* Provision towards sick leave has not been made in the books of account due to the reason that the same is not encashable, no additional staff being provided when an employee avails sick leave and there will not be any pay out on account of sick leave.

5.4 Accounting Standard-18 - Related Party Disclosures: Names of Related parties and their relationship with the Bank - Parent - Canara Bank

5.4.1 Key Management Personnel -

i) Shri. V S Krishnakumar, Executive Director

ii) Shri. Pradyuman Singh Rawat, Executive Director

iii) Shri. Harideesh Kumar B, Executive Director (from 11.03.2015)

iv) Shri. R K Dubey, Chairman & Managing Director (till 30.09.2014)

v) Shri. Ashok Kumar Gupta, Executive Director (till 31.10.2014)

5.4.2 Parent

i) Canara Bank

5.4.3 Subsidiaries

i) Canbank Financial Services Ltd.

ii) Canbank Venture Capital Fund Ltd.

iii) Canbank Factors Ltd.

iv) Canara Robecco Asset Management Company Ltd.

v) Canbank Computer Services Ltd.

vi) Canara Bank Securities Ltd. (formerly GILT Securities Trading Corpn.Ltd)

vii) Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd

5.4.4 Joint Ventures

i) Commercial Indo Bank LLC., Moscow (formerly Commercial Bank of India LLC., Moscow )

5.4.5 Associates

i) Canfin Homes Ltd.

ii) Commonwealth Trust (India) Ltd.

iii) Regional Rural Banks sponsored by the Bank

a) Pragati Krishna Gramm Bank (Erstwhile Pragati Gramm Bank)

b) Kerala Gramin Bank (Erstwhile South Malabar Gramin Bank)

5.4.6 Disclosure about transactions with Key Management Personnel is as under:

(i) Remuneration to Key Management Personnel RS. 0.88 Crore (Previous Year: RS. 0.72 Crore)

(ii) Staff Housing Loan to Shri P S Rawat (Executive Director) RS. 0.05 Crore (Previous Year RS. 0.07 Crore)

In terms of paragraph 5 of AS 18, transactions in the nature of Banker-Customer relationship including those with Key Management Personnel and relatives of Key Management Personnel have not been disclosed.

5.5 Accounting Standard-20 - Earnings Per Share:

Basic and diluted earnings per equity share are computed in accordance with Accounting Standard 20, "Earnings per Share".

5.6 Accounting Standard-22 - Accounting for Taxes on Income:

The Bank has recognized Deferred Tax Assets / Liabilities (DTA / DTL) and has accounted for the Net Deferred Tax as on 31.03.2015 as under:

Major components of Deferred Tax Assets and Deferred Tax Liabilities are as under::

5.7 Accounting Standard - 27 - Financial Reporting of Interests in Joint Ventures

Investments include Rs.73.22 Crore (at the exchange rate of the transaction date) in the Commercial Indo Bank LLC (Incorporated in Russia) wherein the Bank owns 40% of the equity.

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses (Bank''s interest @ 40% in jointly controlled entity) is disclosed as under:

5.8 Accounting Standard 28 - Impairment of Assets:

In the opinion of the Management, there is no indication of impairment of any of its Fixed Asset as at 31.03.2015 requiring recognition in terms of Accounting Standard 28 issued by the Institute of Chartered Accountants of India.

5.9 Accounting Standard 29 - Provisions, Contingent Liabilities and Contingent Assets:

(RS. in Crore)

Particulars Opening Provision Provisionn closing as on made reversed / as on 01.04.2014 during the adjUsted 31.03.2015 year

Movement of Provision for 10.09 46.15 -- 56.24

Contingent Liabilities Complaints on ATM Failed Transactions:

i. ATM Failed Transactions complaints of 19746 pertaining to our customers made transactions in other Banks ATMs, out of which 8818 complaints were redressed in favour of Bank and 10928 complaints were in favour of customers.

ii. ATM failed transactions complaints of 28628 pertaining to other Bank customers who used our ATMs, out of which 10980 complaints were redressed in favour of Bank whereas 17648 complaints were redressed in favour of customers.

iii. Remaining 49840 complaints were redressed on account of failed ATM transactions within Canara Bank through ATM, 50 cases without raising any chargeback. Out of 49840 complaints, 36037 complaints are redressed in favour of customers.

6.4 Issuance of Letters of Comfort:

Bank has issued 2989 no. of Letters of Comfort to the tune of RS. 34004.06 Crore during the financial year. The cumulative outstanding position of 1358 no. of LOC as on 31.03.2015 is RS. 8481.31 Crore. Apart from this, Bank has also issued Letter of Comfort to the following regulators:

LOC issued during the year 2014-2015:

* Nil.

LOC issued in the past:

* China Banking Regulatory Commission, China (on behalf of our Shanghai Branch) - vide order dated 29.03.2008

* Central Bank of the UAE (on behalf of our Representative office, Sharjah) - Vide order dated 04.06.2009

* Central Bank of Bahrain ( on behalf of our Manama branch, Behrain) - Vide order dated 15.01.2010 and

* South African Reserve Bank (on behalf of our Johannesburg branch, South Africa) - Vide order dated 19.11.2011

Financial Impact:

The financial impact on issue of LOC/undertaking by the Bank exists in case of LOCs issued on behalf of the subsidiaries or Joint Ventures (JVs) of the Bank. Bank has so far not established any overseas subsidiaries nor issued any LOC on behalf of subsidiaries or JV. With regard to branches the assets and liabilities of overseas branches are merged with the domestic operation and a consolidated Balance Sheet is drawn for the Bank as a whole. The total liability of overseas branches forms part of the liabilities of the Banks annual balance sheet.

Hence, there is no additional financial impact of LOCs issued on behalf of branches. In respect of representative Office, there are no commercial operations undertaken and hence no financial impacts of LOC issued to host country regulators.

As at 31st march 2015, there is no financial impact of LOCs issued favoring the overseas Regulators for our Bank since the same are issued on behalf of branches and Representative offices. In terms of RBI guidelines, we propose to disclose the details of LOCs issued by the Bank so far and "NIL" financial impact on account of such LOCs, under "Notes to Accounts" in the Balance Sheet as at March 2015.

6.4.1 Provision Coverage Ratio is 57.29% as on 31.03.2015 (Previous Year 60.11%)

6.14 Reserve Bank of India vide its communication Number DBOD.No.BP.BC. 85 /21.06.200/2013- 14 dated January 15, 2014 advised the Bank to provide incremental provision and capital with regard to bank''s exposure to entities with unhedged foreign currency exposures. Accordingly for the financial year 2014-15, bank has made a incremental provision of Rs 84.56 Crore towards unhedged foreign currency exposure. Further, Bank is also holding a capital of Rs 250.98 Crore as on 31.03.2015 towards the risk on unhedged foreign currency exposure.

Policies to manage currency induced credit risk with regard to Unhedged Foreign Currency Exposure:

In respect of borrower entities having foreign currency exposure, Bank is computing Unhedged Foreign Currency Exposure (UFCE); Annual Earnings before interest and Depreciation (EBID); expected loss in case of movement in USD-INR exchange rate using annualized volatilities. Expected loss on account of exchange rate movements is expressed as a percentage of EBID i.e likely loss/ EBID percentage. As a prudential measure, Bank is holding incremental capital and made incremental provisioning (over and above the extant standard assets provisioning) on the total credit exposure to such entities at the specified rates.

Qualitative disclosure around LCR

The liquidity coverage ratio (LCR) is to promote the short term resilience of the liquidity risk profile of the banks. It is effective from 1st January 2015 with minimum LCR requirement of 60% to be stepped up by 10% annually to reach 100% by 1st January 2019.

LCR basically ensures that the Bank maintains an adequate stock of unencumbered high quality liquid assets (HQLA) that can be converted easily and immediately into cash to meet liquidity needs for a 30 calendar day liquidity stress scenario.

The Bank has maintained monthly average LCR of 64.95% for the quarter ended March 2015. The main drivers of LCR are the level of HQLA and the net cash outflows in the next 30 days. The prime variables which determines the HQLA of the Bank includes cash, excess CRR surplus SLR securities, 2% of the mandatory SLR under MSF, 5% of the mandatory SLR under FALLCR as level 1 assets and forms 93.72% of the total HQLA. Level 2A and 2B assets are considered to be less liquid than level 1 asset forms 6.28% of the total HQLA.

Net cash outflow in the next 30 days which is the denominator in LCR is the cash outflow minus cash inflow and is 23.92% of the NDTL. Cash outflows are more than the cash inflows mainly on account of followings:

1. Major percentage of Bank''s deposits is callable within the LCR horizon of 30 days.

2. Cash outflows expected on account of contractual and contingent funding obligations extended by the Bank to the counterparties are also relatively high.

3. Inflows are mainly from performing assets which are contractually due up-to 30 days.

6.16 During the year Bank had issued and allotted 1,39,38,134 Equity shares of face value of RS. 10 each for cash at an issue price of Rs 408.95 including premium of RS. 398.95 to the Government of India (GOI) on preferential basis on 31.03.2015 with the consent of the Shareholders of the Bank by way of Special Resolution passed in the Extraordinary General Meeting of the Bank held on 27.03.2015.

6.17 (a) In accordance with the guidelines issued by the Reserve Bank of India vide their circular no: DBOD. BP.BC.80/21.04.018/2010-11 dated 09.02.2011, the bank has debited Profit & Loss Account during the year a sum of RS. 370.72 crore being the remaining proportionate amount of the total liability of RS. 1853.57 crore (to be amortised over a period of 5 years beginning from 31st March 2011 on account of reopening of Pension options during 2010-11 for existing employees who had not opted for pension earlier).

(b) The Bank has debited Profit & Loss account a sum of RS. 135.91 crore being the remaining proportionate amount of the total liability of RS. 679.52 crore, to be amortised over a period of five years beginning from 31st March 2011 on account of enhancement of gratuity limit.

6.18 Provision of RS. 350.00 Crore (Previous year RS. 240.00 crore and RS. 325.00 crore up to 31.03.2014) has been made during the year towards arrears for wage revision, which will be effective from 1st November 2012 pending negotiation by IBA.

6.19 The Funded Interest Term Loan in respect of restructured Advances was recognized as Income and dealt accordingly in the accounts till 31.03.2013. However, Reserve Bank of India vide their communication DBOD no:BP.12415/ 21.04.132/2013-14 dated January 03 2014 directed the bank to reverse the income by charging to the Profit & Loss account. Reserve Bank of India as a onetime measure has permitted the Bank to create the provision required for FITL as on 31/03/2013 to be spread over four quarter starting from December 2013 to September 2014. Out of the total provision for RS. 528.63 crore RS. 264.32 crore has been charged to Profit & Loss Account during 2013-14. Balance amount of RS. 264.31 crore has been transferred from revenue reserve during the year 2014-15 as per RBI communication no: DBOD.No.BP.20791/21.04.132/2013-14 dated: June 27 2014

6.20 In terms of the letter no DBS.CO.SSM.(Canara Bank)/13747/13.39.001/2014-15 dated05.05.2015 and DBS.CO.SSM (Canara Bank)/14323/13.39.001/2014- 15 dated 15.05.2015, Reserve Bank of India (RBI) has permitted that one of the advances though categorized as Standard Assets by the bank, yet a provision to the extent of RS. 127.26 crore be made and staggered, so that one third of the said amount (RS. 42.42 crore) is provided in the year ended 31st March 2015 and balance amount of RS. 84.84 crore is to be provided in two installments in quarter ending 30th June 2015 and 30th September 2015. RBI has also permitted vide the aforesaid letter to spread the provision amounting to RS. 716.23 crore in respect of certain non performing advances in three quarters commencing 30th June 2015.

6.21 Pending clarification from Ministry of Corporate Affairs (MCA), a sum of RS. 1.65 Crore being Unpaid/ Unclaimed dividend is yet to be transferred to Investor Education and Protection Fund (IEPF) as per Sec 10B of Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

7. Figures of the previous year have been regrouped / rearranged / reclassified wherever necessary.


Mar 31, 2013

1 Investments:

i) The percentage of investments under "Held to Maturity" category - SLR as on 31.03.2013 was 21.29% of Demand and Time Liability of the Bank (Previous year 22.67%), which is within the permissible limit as per RBI guidelines.

ii) Investment in Subsidiaries and/or Joint Ventures India in Schedule-8 includes Rs.29.40 Crore (Previous year Rs.29.40 Crore) being advance towards share capital in Regional Rural Banks pending allotment of shares.

2 Inter-Branch Transactions:

The initial matching of entries received at Head Office for the purpose of reconciliation under Inter- Branch transactions up to 31.03.2013 has been done. However, Bank is continuing its efforts to reconcile and reduce the remaining outstanding entries.

3 Premises:

Premises include certain properties having original cost of Rs.223.27 Crore (Previous year Rs.215.70 Crore) in respect of which conveyance deeds are pending execution.

Certain properties of the bank are stated at revalued amounts. The gross amount of revaluation is Rs. 2310.91 Crore (Previous year Rs.2310.91 Crore) and net of depreciation is Rs.2033.25 Crore (Previous year Rs. 2065.14 Crore).

4.1.1 Sale and transfers to/from HTM Category:

The value of sale and transfers of securities to/from HTM category during the year does not exceed five percent of the book value of the investment held in HTM category as on 01.04.2012.

4.1.2 Disclosure on risk exposure in derivatives:

I Qualitative Disclosure

The Treasury Risk Management Policy for using Derivative Instruments to hedge bank''s Assets/Liabilities has been approved by the Board of Directors.

A. The Investment Portfolio of the Bank consists of assets with characteristics such as fixed interest rate, zero coupon and floating interest rates and is subject to interest rate risk. The Bank also has Tier II bonds hedged for interest rate swaps which do not have exit options. The policy permits hedging the interest rate risk on this liability as well.

Bank is permitted to use FRA and IRS (only plain vanilla transactions are permitted). These instruments are used not only for hedging the interest rate risk in the investment portfolio but also for market making.

Bank has been undertaking derivatives trades like IRS, FRAs, etc for the purpose of hedging Foreign Currency liabilities. Options and Swaps are also undertaken on behalf of clients on back to back basis. The Bank is yet to start Option book running.

During the year Bank has not undertaken derivative trades in Interest Rate Swaps (IRS) of the Investment Portfolio and Trading Swaps / Currency Derivative / Forward Rate Agreements (FRA) were also not undertaken.

B. The risk management policies and major control limits like stop loss limits, counterparty exposure limits, PV01, etc. approved by the Board of Directors are in place. These risk limits are monitored and reviewed regularly. MIS/Reports are submitted periodically to Risk Management Committee. The hedge effectiveness of the outstanding derivative deals are monitored in relation to the underlying asset/liability on an ongoing basis.

C. Accounting Policy Hedge Positions

- Accrual on account of interest expenses/ income on the IRS are accounted and recognized as expense/ income.

- Hedge effectiveness of the outstanding derivative deals are monitored in relation to the fair value of the swap and underlying asset/liability. Bank has used the FIMMDA pricing method i.e. relevant G SEC yield corporate bonds spread for arriving at the fair value of the underlying Asset/ Liability. If the hedge is not effective, hedge swaps is accounted as trading swaps. If swap is terminated before maturity, the MTM loss / gain and accruals till such date are accounted as expense/income under Interest Paid / received on IRS.

Trading Positions

- Trading swaps are marked to market at frequent intervals and changes are recorded in the income statements.

- Accrual on account of interest expenses/ income on the IRS are accounted and recognized as expense / income.

- Gains or losses on termination of swaps are recorded as immediate income or expense under the above head.

4.1.3 Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the Bank:

The Bank has not exceeded the prudential credit exposure limits prescribed for group accounts and single borrower engaged in infrastructure projects or for Oil Companies. The exposure ceiling of 15% of Capital Funds has not been exceeded in respect of any borrowers.

4.1.4 Disclosure of Penalties imposed by RBI:

During the financial year 2012-13, 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.

5. Accounting Standards:

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards issued by ICAI, the following information is disclosed:

5.1 Accounting Standard 5 - Net Profit / Loss for the period, prior period items and changes in accounting policies:

There are no material prior period items

5.2 Accounting Standard 9 - Revenue Recognition

Revenue is recognised as per accounting policy No.9 of Schedule 17 to the Financial Statement. Certain items of income are recognised on the basis other than accrual. However, the said income is not considered to be material.

5.3 Accounting Standard 15 - Employee Benefits:

The actuarial assumptions in respect of gratuity, pension and privilege leave, for determining the present value of obligations and contributions of the bank, have been made by fixing various parameters for

- Salary escalation by taking into account inflation, seniority, promotion and other factors mentioned in Accounting Standard 15 (Revised) issued by ICAI.

- Attrition rate by reference to past experience and expected future experience and includes all types of withdrawals other than death but including those due to disability

5.4 Accounting Standard-18 - Related Party

Disclosures: Names of Related parties and their relationship with the Bank- Parent - Canara Bank

5.4.1 Key Management Personnel -

i) Shri R K Dubey Chairman & Managing Director (from 11.01.2013)

ii) Shri S Raman, Chairman & Managing Director (till 30.09.2012)

iii) Smt. Archana S Bhargava, Executive Director

iv) Shri. Ashok Kumar Gupta, Executive Director

5.4.2 Parent-

i) Canara Bank

5.4.3 Subsidiaries -

i) Canbank Financial Services Ltd.

ii) Canbank Venture Capital Fund Ltd.

iii) Canbank Factors Ltd.

iv) Canara Robecco Asset Management Company Ltd.

v) Canbank Computer Services Ltd.

vi) Canara Bank Securities Ltd. (formerly GILT Securities Trading Corpn.Ltd)

vii) Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd

5.4.4 Joint Ventures

i) Commercial Bank of India LLC., Moscow

5.4.5 Associates -

i) Canfin Homes Ltd.

ii) Commonwealth Trust (India) Ltd.

iii) Regional Rural Banks sponsored by the Bank

a) Pragati Gramin Bank

b) South Malabar Gramin Bank

c) Shreyas Gramin Bank*

(*Shreyas Gramin Bank sponsored by Canara bank and Arya vartha kshethriya Gramina Bank sponsored by Bank of India were amalgamated as Gramina Bank of Arya Vartha with new sponsored bank, Bank Of India, with effect from 01.04.2013 as per Government of India notification No. F.No.7/9/2011-RRB (UP-1) dated 01.04.2013)

5.4.6 Disclosure about transactions with Key Management Personnel is as under:

Remuneration to Key Management Personnel Rs.47,48,665/-

(Previous Year: Rs.58,92,007/-)

5.5 Accounting Standard-20 - Earnings Per Share:

Basic and diluted earnings per equity share are computed in accordance with Accounting Standard 20, "Earnings per Share".

5.6 Accounting Standard-22 - Accounting for Taxes on Income:

The Bank has recognized Deferred Tax Assets / Liabilities (DTA / DTL) and has accounted for the Net Deferred Tax as on 31.03.2013 as under:

5.7 Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures

Investments include Rs.36.57 Crore (at the exchange rate of the transaction date) in the Commercial Bank of India LLC (Incorporated in Russia) wherein the Bank owns 40% of the equity.

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses (Bank''s interest @ 40% injointly controlled entity) is disclosed as under:

5.8 Accounting Standard 28 - Impairment of Assets:

In the opinion of the Management, there is no impairment of its Fixed Asset as at 31.03.2013 requiring recognition in terms of Accounting Standard 28 issued by the Institute of Chartered Accountants of India.

6.1 Issuance of Letters of Comfort:

Bank has issued 2066 no. of Letters of Comfort to the tune of Rs.17562.93 Crore during the financial year. The cumulative outstanding position of 694 no. of LOC as on 31.03.2013 is Rs.4379.13 Crore. Apart from this, Bank has also issued Letter of Comfort to the following regulators:

LOC issued during the year 2012-2013:

- Nil.

LOC issued in the past:

- China Banking Regulatory Commission, China (During 2008-09, for Shanghai Branch).

- Central Bank of the UAE (During 2009-10, for Representative Office, Sharjah)

- Central Bank of Bahrain (During 2009-10 for Manama Branch, Bahrain).

- South African Reserve Bank ( During 2011-12 for the proposed branch at Johannesburg, South Africa)

Financial Impact:

Presently, there is no such financial impact on LOCs issued favoring Central Bank of UAE (for Sharjah Representative Office) & South African Reserve Bank (as branch is yet to open).

- The impact of issue of letter of guarantee/comfort by the Bank exists only in case of Shanghai and Manama branches.

- The total outside liabilities of Shanghai branch is USD 55.54 Mn (Rs.301.49 crores) and Manama branch, Bahrain is USD 412.10 Mn (Rs. 2237.09 crores).

- The total impact of the LOCs issued by the bank to overseas regulators comes to USD 467.64 Mn (approx Rs.2538.58 crore).

6.2 Provision Coverage Ratio is 61.35% as on 31.3.2013 (Previous year 67.57%).

6.3 In accordance with the guidelines issued by Reserve Bank of India vide their Circular No.DBOD. BP.BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs.370.71 Crore during the year ended 31.03.2013 on proportionate basis towards unamortized liability of Rs.1482.86 Crore (being amortized over 5 years beginning from 31st March 2011) on account of reopening of pension option during 2010-11 for existing employees who had not opted for pension earlier. The balance amount of Rs.741.44 Crore will be dealt as per guidelines of RBI.

The Bank has debited Profit & Loss Account a sum of Rs.135.90 Crore during the year ended 31.03.2013 on proportionate basis towards unamortized liability of Rs.543.62 Crore (being amortized over 5 years beginning from 31st March 2011) on account of enhancement of gratuity limit. The balance amount of Rs.271.82 Crore will be dealt as per guidelines of RBI.

6.4. Credit Default Swaps (CDS): NIL

7. Figures of the previous year have been regrouped/ rearranged / reclassified wherever necessary.


Mar 31, 2012

1 Investments:

The percentage of investments under "Held to Maturity" category - SLR as on 31.03.2012 was 22.67% of Demand and Time Liability of the Bank (Previous year 22.78%), which is within the permissible limit as per RBI guidelines.

2 Inter-Branch Transactions:

The initial matching of entries received at Head Office for the purpose of reconciliation under Inter- Branch transactions upto 31.03.2012 has been done. However, Bank is continuing its efforts to reconcile and reduce the remaining out standing entries.

3 Premises:

Premises include certain properties having original cost of Rs=215.70 Crore (Previous year Rs=193.02 Crore) in respect of which conveyance deeds are pending execution.

Certain properties of the bank are stated at revalued amounts. The gross amount of revaluation is Rs 2310.91 Crore (Previous year Rs=2310.91 Crore) and net of depreciation is Rs 2065.14 Crore (Previous year Rs 2098.36Crore).

(*) Provision for Depreciation - Rs 510.39 Crore (Previous Year Rs=255.48 Crore), Provision for NPI- Rs 111.81 Crore (Previous year Rs 127.25 Crore) and Exchange fluctuation -=Rs=7.70 Crore (Previous year Rs=0.85 Crore)

(*)Provision for Depreciation of Rs300.49Crore (Previous Year-Rs=89.52 Crore), Provision for NPI of Rs=_6.88 Crore (Previous Year - Rs=11.93 Crore), Exchange Fluctuation of Rs=P.70 Crore (Previous Year-Rs=0.85 Crore)

(**)Write back of excess provision for Depreciation of Rs=44.70 Crore (Previous Year - Rs=4.53 Crore), Provision for NPI of Rs 34.05 Crore (Previous Year-Rs=8.21 Crore).

4.1 Sale and transfers to/from HTM Category:

The value of sale and transfers of securities to/from HTM category during the year does not exceed five percent of the book value of the investment held in HTM category as on 01.04.2011.

4.2 Disclosure on risk exposure in derivatives:

I Qualitative Disclosure

The Treasury Risk Management Policy for using Derivative Instruments to hedge bank's Assets/Liabilities has been approved by the Board of Directors.

A. The Investment Portfolio of the Bank consists of assets with characteristics such as fixed interest rate, zero coupon and floating interest rates and is subject to interest rate risk. The Bank also has Tier II bonds hedged for interest rate swaps which do not have exit options. The policy permits hedging the interest rate risk on this liability as well.

Bank is permitted to use FRA and IRS (only plain vanilla transactions are permitted). These instruments are used not only for hedging the interest rate risk in the investment portfolio but also for market making.

Bank has been undertaking derivatives trades like IRS, FRAs, etc for the purpose of hedging Foreign Currency liabilities. Options and Swaps are also undertaken on behalf of clients on back to back basis. The Bank is yet to start Option book running.

During the year Bank has not undertaken derivative trades in Interest Rate Swaps (IRS) of the Investment Portfolio and Trading Swaps / Currency Derivative / Forward Rate Agreements (FRA) were also not undertaken.

B. The risk management policies and major control limits like stop loss limits, counterparty exposure limits, PV01,etc. approved by the Board of Directors are in place. These risk limits are monitored and reviewed regularly. MIS/Reports are submitted periodically to Risk Management Committee. The hedge effectiveness of the outstanding derivative deals are monitored in relation to the underlying asset/liability on an ongoing basis.

C. Accounting Policy

Hedge Positions

- Accrual on account of interest expenses/ income on the IRS are accounted and recognized as expense/income.

- Hedge effectiveness of the outstanding derivative deals are monitored in relation to the fair value of the swap and underlying asset/liability. Bank has used the FIMMDA pricing method i.e. relevant G SEC yield corporate bonds spread for arriving at the fair value of the underlying Asset/ Liability. If the hedge is not effective, hedge swaps is accounted as trading swaps. If swap is terminated before maturity, the MTM loss / gain and accruals till such date are accounted as expense/income under Interest Paid / received on IRS.

Trading Positions

- Trading swaps are marked to market at frequent intervals and changes are recorded in the income statements.

- Accrual on account of interest expenses/income on the IRS are accounted and recognized as expense/income.

- Gains or losses on termination of swaps are recorded as immediate income or expense under the above head.

4.3 Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the Bank:

The Bank has not exceeded the prudential credit exposure limits prescribed for group accounts and single borrower engaged in infrastructure projects or for Oil Companies. In respect of the following single borrower accounts, the exposure ceiling of 15% of Capital Funds has been exceeded:

4.4 Disclosure of Penalties imposed by RBI

Duringthefinancialyear2011-12,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.

5. Accounting Standards:

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards issued by ICAI, the following information is disclosed:

5.1 Accounting Standard 5 - Net Profit/Loss for the period, prior period items and changes in accounting policies:

There are no material prior period items

5.2 Accounting Standard 9- Revenue Recognition

Revenue is recognised as per accounting policy No.9 of Schedule 17 to the Financial Statement. Certain items of income are recognised on the basis other than accrual. However, the said income is not considered to be material.

5.3 Accounting Standard 15-EmployeeBenefits:

The actuarial assumptions in respect of gratuity, pension and privilege leave, for determining the present value of obligations and contributions of the bank, have been made by fixing various parameters for

- Salary escalation by taking into account inflation, seniority, promotion and other factors mentioned in Accounting Standard 15(Revised) issued by ICAI.

- Attrition rate by reference to past experience and expected future experience and includes all types of withdrawals other than death but including those due to disability.

5.4 Accounting Standard-18 - Related Party Disclosures:

Names of Related parties and their relationship with the Bank- Parent-Canara Bank

5.5. Key Management Personnel -

i) Shri S Raman, Chairman & Managing Director

ii) Shri Jagdish Pai. K.L, Executive Director (till 30.06.2011)

iii) Smt. Archana S Bhargava, Executive Director (from 01.04.2011)

iv) Shri. Ashok Kumar Gupta, Executive Director (from 28.07.2011)

5.6 Parent-

i) Canara Bank

5.7 Subsidiaries-

i) Canbank Financial Services Ltd.

ii) Canbank Venture Capital Fund Ltd.

iii) Canbank Factors Ltd.

iv) Canara Robecco Asset Management Company Ltd.

v) Canbank Computer Services Ltd.

vi) Canara Bank Securities Ltd. (formerly GILT Securities Trading Corpn.Ltd)

vii) Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd

5.8 Joint Ventures

i) Commercial Bank of lndia LLC., Moscow

5.9 Associates

i) Canfin Homes Ltd.

ii) Common wealth Trust(India)Ltd.

iii) CARE Ltd

iv) Regional Rural Banks sponsored by the Bank

a) Pragati Gramin Bank

b) South Malabar Gramin Bank

c) Shreyas Gramin Bank

5.10 Disclosure about transactions with Key Management Personnel is as under:

Remuneration to Key Management Personnel Rs 58, 92,007*

(Previous Year: Rs=64, 92,995/-)

(*) including incentives paid to Ex-key Management Personnel of Rs=7, 83,973/-

5.11 Accounting Standard-22-Accounting for Taxes on Income:

The Bank has recognized Deferred Tax Assets / Liabilities (DTA / DTL) and has accounted for the Net Deferred Tax as on 31.03.2012as under:

Major components of Deferred Tax Assets and Deferred Tax Liabilities areas under:

5.12 Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures

Investments include Rs=§1.53 Crore (at the exchange rate of the transaction date) in the Commercial Bank of India LLC (Incorporated in Russia) wherein the Bank owns 40% of the equity.

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses (Bank's interest at 40% in jointly controlled entity) is disclosed as under:

The above figures have been translated at:

Assets and liabilities: @ spot rate: 31/03/2012 USD 1= = 50.8750 and 31/03/2011=JSD 1= Rs 44.595

Income & Expenditure: @ Average rate: 31/03/2012 USD 1= Rs 47.9138 and 31/03/2011 USD 1= Rs 45.5706

The above figures are as per audited accounts of the joint Venture for the year ended 31/03/2012

5.13 Accounting Standard 28 - Impairment of Assets:

In the opinion of the Management, there is no impairment of its Fixed Asset to any material extent as at 31.03.2012 requiring recognition in terms of Accounting Standard 28 issued by the Institute of Chartered Accountants of India.

6.1 Draw Down from Reserves:

A sum of Rs 92.79 Crore has been withdrawn from Investment Reserve Account net off of Statutory Reserve & tax and adjusted against depreciation on Investments as per RBI guidelines.

6.2 Issuance of Letters of Comfort:

Bank has issued 1196 no. of Letters of Comfort to the tune of Rs 14711.59 Crore during the financial year. The cumulative outstanding position of 675 no. of LOC as on 31.03.2012 is Rs 5563.93 Crore. Apart from this, Bank has also issued Letter of Comfort to the following regulators:

LOC issued during the year 2011-2012:

- LOC issued by the bank was in favour of South African Reserve Bank for the proposed branch at Johannesburg, South Africa.

LOC issued in the past:

- China Banking Regulatory Commission, China (During 2008-09,for Shanghai Branch).

- Central Bank of the UAE (During 2009-10, for Representative Office, Sharjah)

- Central Bank of Bahrain (During 2009-10 for Manama Branch, Bahrain).

Financial Impact:

Presently, there is no such financial impact on LOCs issued favoring Centra lBank of UAE (for Sharjah Representative Office) & South African Reserve Bank (yet toopen).

- The impact of issue of letter of guarantee/ comfort by the Bank exists only in case of Shanghai, China and Manama, Bahrain branches.

- The total outside liabilities of Shanghai branch is USD 27.06 Mn (=Rs=137.67 crore) and Manama branch, Bahrain is USD 75.025 Mn ( Rs 381.69 crore).

- The total impact ofthe LOCs issued by the bank to overseas regulators comes to USD 102.085 Mn (approx Rs=519.36 crore).

6.3 Provision Coverage Ratio is 67.57% as on 31.3.2012 (Previous year 72.99%).

6.4 In accordance with the guidelines issued by Reserve Bank of India vide their Circular No.DBOD.BP.BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs 370.71 Crore during the year ended 31.03.2012 on proportionate basis towards unamortized liability of Rs=1482.86 Crore (being amortized over 5 years beginning from 31st March 2011) on account of reopening of pension option during 2010-11 for existing employees who had not opted for pension earlier. The balance amount of =Rs 1112.15 Crore will be dealt as per guidelines of RBI.

The Bank has debited Profit & Loss Account a sum of Rs 135.90Croreduring The year ended 31.03.2012on proportionate basis towards unamortized liability of Rs=543.62 Crore (being amortized over 5 years beginning from 31st March 2011) on account of enhancement of gratuity limit. The balance amount of Rs=407.72 Crore will be dealt as per guidelines of RBI.

7. Figures of the previous year have been regrouped / rearranged / reclassified wherever necessary.


Mar 31, 2011

1 Investments:

The percentage of investments under "Held to Maturity" category - SLR as on 31.03.2011 was 22.78% of Demand and Time Liability of the Bank (Previous year 24.14%), which is within the permissible limit as per RBI guidelines.

2 Inter-Branch Transactions:

The initial matching of entries received at Head Office for the purpose of reconciliation under Inter Branchtransactions upto 31.03.2011 has been done. However, Bank is continuing its efforts to reconcile and reduce the remaining outstanding entries.

3 Premises:

Premises include certain properties ofRs. 193.02 Crore (Previous year Rs. 193.32 Crore) in respect of which conveyance deeds a re pending execution.

Certain properties of the bank are stated at revalued amounts. The gross amount of revaluation is Rs. 2310.91 Crore (Previousyear Rs. 2310.91 Crore) and net of depreciation is Rs. 2098.36 Crore (Previous year Rs. 2132.68 Crore).

During the year, the Bank has issued following instruments in orderto strengthen the Capital Adequacy:

- 3,30,00,000 Equity Shares at face value ofRs. 10/- each at a premium of Rs. 594/- per share aggregating to Rs. 1993.20 crores through Qualified Institutiona Placement (01P).

- Innovative Perpetual Debt Instruments (IPDI) of Rs. 749.30 Crores (PreviousYearRs. 600.00 Crores) byway of private placement.

- Upper Tier 2- Series III Bonds of Rs. 1000.00 Crores (PreviousYearRs.Nil)

4.3.4 Risk exposure in derivatives:

INTEGRATEDTREASURY-Qualitative Disclosures

The Treasury Risk Management Policy, approved by the Board of Directors, on the use of derivative instruments to hedge/tradeisin place.

a) The Investment Portfolio of the Bank consists of assets with characteristics such as fixed interest rate, zero coupon and floating interest rates and is subject to interest rate risk.The Bank a IsohasTier 11 bonds hedged for interest rate swaps which do not have exit option. The policy permits hedgingthe interest rate risk on this liability as well.

Bank is permitted to use FRA and IRS and only plain vanilla transactions are permitted. These instruments are used not only for hedging the interest rate risk in the investment portfolio but also for market making.

Bank has been undertaking derivatives trades like IRS, FRAs, etc for the purpose of hedging Foreign Currency iabilities also. Options and swaps are also undertaken on behalf of clients on backto back basis. Bank isyetto start Option book running.

b) The risk management policies and majorcontrol limits like stop loss limits, counterparty exposure limits, PV01, etc approved by the Board of Directors are in place. These risk limits are monitored and reviewed regularly. MIS/Reports are submitted periodically to Risk Management Committee. The hedge effectiveness of the outstanding derivative deals are monitored in relation to the underlying asset/liability onanongoingbasis.

c) Accounting Policy: Hedge Positions:

- Accrual on account of interest expenses / income on the IRS are accounted and recognized as income/expense.

- Hedge effectiveness of the outstanding derivative deals are monitored in relation to the fair value of the swap and underlying asset/liability. Bank has used the FIMMDA pricing method i.e. relevant G SEC yield + corporate bonds spread for arriving at the fair value of the underlying Assets/Liability. If the hedge is not effective, hedge swaps is accounted as trading swaps. If swap is terminated before maturity, the MTM loss/gain and accruals til such date are accounted as expense/income under Interest Paid/Received on IRS.

Trading Positions:

- Trading swaps are marked to market at frequent intervals and changes are recorded in the income statements.

- Accrual on account of interestexpenses/incomeon the IRS are accounted and recognized as expense/income.

- Gains or losses on termination of swaps are recorded as immediate income or expenses under theabovehead.

4.4.8 Advances include a sum of Rs.1600 Crore (Previous year Rs.1000 Crore) of Inter Bank Participation Certificate (IBPC) purchased from sponsored Regional Rural Banksas per RBI guidelines.

4.9 Unsecured Advances:

Advances amountingtoRs. 2469.84 Crores (Previous Year Rs. 7797.05 Crores) for which charge has been taken over intangible securities such as rights, icenses, authorization etc have been considered as Unsecured. The estimated value of such intangible securities is not ascertained.

5. Accounting Standards:

In compliance with the guidelines issued by the Reserve Bank of India regarding disclosure requirements of the various Accounting Standards issued by the Institute of Chartered Accountants of India, the following information is disclosed:

5.1 Accounting Standard 5 - Net Profit/Loss for the period, prior period items and changes in accounting policies:

There are no material prior period items.

5.2 Accounting Standard 15-Employee Benefits:

The actuarial assumptions in respect of gratuity pension and privilege leave,fordeterminingthe present value of obligationsandcontributionsofthe bank, have been made byfixing various parameters for

- Salary escalation by taking into account inflation, seniority promotion and otherfactors mentioned in Accounting Standard 15(Revised) issued by the Institute of Chartered Accountants of India.

- Attrition rate by reference to past experience and expected future experience and includes all types of withdrawals other than death but including those due to disability

5.3 In terms of the requirements of the Accounting Standard - 15 (Revised) - Employee Benefits, the entire amount of Rs.3054.27 Crore (towards Pension Rs.2373.12 Crore and towards gratuity Rs.681.15 Crore) on account of re-openingof pension option and enhancement in Gratuity limit, is required to be charged to Profit & Loss Account. However, in accordance with the guidelines issued by Reserve Bank of India vide their Circular N o. D BO D.B P. BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs.890.26 Crore, including entire liability toward retired employees on account of pension and Rs.137.53 Crore on account of gratuity liability. The balance unamortized amount of Rs.1482.86 Crore towards Pension and Rs.543.62 Crore towards Gratuity will be dealt with as per guidelines of Reserve Bank of India.

5.4 The bank had provided for Rs.167.47 crore towards Sick Leave up to the previous year. The Sick leave being non-encashable, the bank has written back Rs.101.42 crore after adjusting Rs.66.05 crore towards provision for privilege leave for the current year as no longer required.

5.6 Related Party Disclosures-Accounting Standard-18:

Names of Related parties and their relationship with the Bank-Pa rent-Canara Bank

5.6.1 Key Management Personnel -

i) Sri A C Mahajan, Chairman & Managing

Director (till 31.07.2010) ii) Shri 5 Raman, Chairman & Managing Director

(from 01.09.2010) iii) Shri Jagdish Pai. Kl, Executive Director iv) Shri H S Upendra Kamath, Executive Director

5.6.2 Parent-

i) CanaraBank

5.6.3 Subsidiaries-

i) Canbank Financial Services Ltd.

ii) CanbankVentureCapital Fund Ltd.

iii) Canbank Factors Ltd.

iv) Canara Robecco Asset Management Company Ltd.

v) Canbank Computer Services Ltd.

vi) Canara Bank Securities Ltd. (formerly GILT Securities Trading Corpn.Ltd)

vii) Canara HSBC Oriental Bank of Commerce Life nsuranee Company Ltd

5.6.4 Joint Ventures

i) Commercial Bank of India LLC, Moscow

5.6.5 Associates

i) Canfin Homes Ltd.

ii) Commonwealth Trust (India) Ltd.

iii) CARE Ltd

iv) Regional Rural Bankssponsored bytheBank

a) PragatiGramin Bank

b) South MalabarGramin Bank

c) ShreyasGramin Bank

5.6.6 Disclosure about transactions with Key Management Personnel is as under:

Remuneration to Key Management Personnel

Rs.64, 92,995 /-

(Previous Year: Rs.71, 98,727/-)

5.8Deferred Tax Assets and Liabilities - Accounting Standard-22:

The Bank has recognized Deferred Tax Assets / Liabilities (DTA / DTL) and has accounted for the Net Deferred Tax as on 31.03.2011 as under:

5.9Financial Reporting of Interests in Joint Ventures - Accounting Standard 27 Investments includeRs.31.53Crore(attheexchange rate of the transaction date) in the Commercial Bank of ndia LLC (Incorporated in Russia) wherein the Bank owns 40% of the eq u ity.

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses (Banks interest @ 40% in jointly controlled entity) is disclosed as under:

5.10 Impairment of Assets-Accounting Standard 28

In the opinion oftheManagement,there is no impairment of its Fixed Asset to any material extent as at 31.03.2011 requiring recognition in terms of Accounting Standard 28 issued bythe Institute of Chartered Accountants of India.

6. Issuanceof Letters of Comfort:

Bank has issued Letters of Comfort to the tune of Rs.3100.04 Crores during the financial year. The cumulative Positions of LOCs outstanding as on 31.03.2011 is Rs.1281.13 Crores. Apart from these, Bank has also issued Letter of Comfort tothefollowing regulators:

i) China Banking Regulatory Commission, China (during 2008-09 for Shanghai Branch)

ii) Central Bank of the UAE (during 2009-10 for Representative Office, Sharjah)

iii) Central Bank of Bahrain (during 2009-10 for the proposed Branch at Bahrain)

The above have been issued in respect of our Branch/ Offices opened/proposed.

There is no financial impact on LOCs issued favouring Central Bank of UAE and Central Bank of Bahrain, as branch/office at these proposed centres are yet to be opened.

The liability position of Shanghai Branch, China is USD 65.34 Mn (Rs. 291.38 Crores) consisting of -

Capital : USD 28.86 Mn

(Rs.128.70 Crore)

Borrowings from our

Treasury : USD 35.46 Mn

(Rs.158.13 Crore)

Other Liabilities : USD 1.02 Mn

(Rs.4.55 Crore)

Out of the borrowings of USD 35.46 Mn (Rs. 158.13 Crores), an amount of USD 15 Mn (Rs. 66.89 crores) has been borrowed from Standard Chartered Bank and the balance is borrowings from Treasury, Mumbai.

The other liabilities includes customers deposits of USD0.44Mn.

Hence, the total debt obligation of the branch is USD 1544Mn.

The branch has made a provision of USD 74,146 towards discharge of tax liabilities.

Hence, the total likely financial impact is to the extent of USD 15.44 Mn (Rs. 68.85 crores)

7. Provision Coverage Ratio is 72.99% as on 31.3.2011.

8. Draw down from Reserves:

A sum of Rs.53 Crore has been withdrawn from Investment Reserve Account net off of Statutory Reserve & tax and adjusted against depreciation on Investments as per Reserve Bankof India guidelines.

9.Figures of the previous year have been regrouped / rearranged/reclassi -fied wherever necessary

 
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