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Notes to Accounts of Canara Bank

Mar 31, 2017

III. Contingent assets are not recognized in the financial Statements.

1. Net Profit

The Net Profit in the Profit & Loss account is after:-

a) Provision for depreciation on investments.

b) Provision for Taxation.

c) Provision on loan losses.

d) Provision on Standard Assets.

e) Provision for Non-Performing investments.

f) Provision for other usual & necessary items.

[2] Earning Per Share

The Bank reports basic and diluted Earnings Per Share in accordance with AS 20. Basic Earnings Per Share is computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the Year.

SCHEDULE 18 - NOTES ON ACCOUNTS 1. Investments:

The percentage of investments under “Held to Maturity” category - SLR as on 31.03.2017 was 20.41% of Demand and Time Liability of the Bank (Previous year 20.60%), which is within the permissible limit as per RBI guidelines.

3 Inter-Branch Transactions:

The matching and setting of entries under Interbank/office transactions are carried out by the system itself based on Core Banking Solutions (CBS) for the whole of the Bank through Inter Office Adjustment account.

4 Premises:

Premises include certain properties capitalized at original cost of Rs,56.62 Crore (Previous year Rs,55.46 Crore) as they have been put to use though conveyance of title deeds is still to be completed.

5 Disclosure on risk exposure in derivatives:

I Qualitative Disclosure

The Credit Risk Management Policy approved by the Board of Directors, on the use of Derivative Instruments to hedge / trade is in place.

A. The Investment Portfolio of the Bank consists of assets with interest streams such as fixed interest rate, zero coupon and floating interest rates and is subject to interest rate risk.

Capital of the Bank:

The Bank has issued Tier I and Tier II bonds hedged for interest rate swap which do not have exit option. The policy permits hedging the interest rate risk on this liability as well.

Bank has been permitted to undertake derivative trades like IRS and FRAs for the purpose of hedging the interest rate risk in the investment portfolio (only plain vanilla transactions permitted) and also for market making. Such derivative trades like IRS and FRAs are undertaken by bank for hedging foreign currency liabilities also. Options and Swaps are also undertaken on behalf of clients on back to back basis.

However during the year the bank has neither undertaken derivative trades in IRS under investment portfolio nor any trading swaps / FRAs.

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 effectiveness of hedging by way of outstanding derivative deals are monitored in relation to the underlying asset / liability on fortnightly basis.

C. Accounting Policy:

Hedge Positions:

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

- Hedge effectiveness of the outstanding derivatives deals are monitored in relation to the fair value of the Swap and underlying asset / liability. Bank has used the FIMMDA pricing method ie relevant G sec yield plus 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 till such dates 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 expenses / income.

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

6. 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.

(As Compiled and Certified by Management and relied upon by Auditors)

7. Miscellaneous:

8. Amount of Provisions made for Income Tax during the year:

9. Disclosure of Penalties imposed by RBI:

During the financial year 2016-17, there is penalty of Rs,2.00 Crore in terms of Section 47 (A) (1) (c) read with section 46 (4) (i) of the Banking Regulation Act, 1949 on non - compliance of certain guidelines of the Reserve Bank of India instructions.

Financial Intelligence Unit, India (FIU-IND) has imposed a penalty of Rs,3.00 lakh under Section 12 (Rule 2, 3, 5 & 7) & 13 (2) of PML Act, 2002 for failure of internal mechanism of the bank in detecting and reporting attempted suspicious transactions.

10. 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:

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

12. There are no material prior period items

13. 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 been made in the books of account on the basis of Actuarial valuation.

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

15. Key Management Personnel -

i) Shri. Rakesh Sharma, Managing Director & Chief Executive Officer

ii) Shri. Harideesh Kumar B, Executive Director

iii) Shri. Dinabandhu Mohapatra, Executive Director

iv) Smt P V Bharathi, Executive Director (From 15.09.2016)

v) Sri Pradyuman Singh Rawat (Till 31.05.2016)

16. Parent -

i) Canara Bank

16. 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

viii) Canara Bank (Tanzania) Ltd.

17. Joint Ventures -

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

18. Associates -

i) Canfin Homes Ltd.

ii) Commonwealth Trust (India) Ltd.

iii) Regional Rural Banks sponsored by the Bank

a) Pragati Krishna Gramin Bank (Erstwhile Pragati Gramin Bank)

b) Kerala Gramin Bank

(Erstwhile South Malabar Gramin Bank)

19. Disclosure about transactions with Key Management Personnel is as under -

i) Remuneration to Key Management Personnel Rs, 0.99 Crore (Previous Year: Rs,0.68 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.

(As compiled and certified by the management and relied upon by the auditors.)

20. Accounting Standard-20 - Earnings Per Share:

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

21.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 31.03.2017 as under:

All customer complaints pertaining to Automated Teller Machine (ATM) cards are included. All the ATM complaints pertain to Acquiry issues.

22. Issuance of Letter of Comfort:

Bank has issued 3571 No. of Letters of Comfort to the tune of Rs, 34677.55 Crore during the financial year. The cumulative outstanding position of 1506 No. of LOC as on 31.03.2017 is Rs, 8787.41 Crore. Apart from this, Bank has also issued Letter of Comfort to the following regulators during previous years:

Overseas:

The Bank has not issued any LOC favoring host country regulators during the financial year 2016-17.

LOCs / Undertaking / Guarantee 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, Bahrain) - 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:

Bank has so far not issued any LOC / undertaking on behalf of the subsidiaries or Joint Ventures (JVs), hence, the financial impact on issue of LOC / undertaking by the Bank does not exist.

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 regulator.

As at 31st March 2017, 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 2017.

23 Provision Coverage Ratio is 55.62% as on 31.03.2017 (Previous Year 50.11%):

24. 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 2016-17 bank is holding a provision of Rs,32.92 Crore (Rs,37.69 Crore) towards unhedged foreign currency exposure. Further Bank is also holding a capital of Rs,143.85 Crore (Rs,118.21 Crore) as on 31.03.2017 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

Liquidity Coverage Ratio (LCR) standard is introduced to tests the liquidity resilience of the Bank, for a minimum stress period of 30 days. The standard ensures, the Bank maintains adequate stock of unencumbered high-quality liquid assets (HOLA) that can be converted into cash to meet liquidity needs (net cash-out flows). The LCR is defined as:

Stock of high quality liquid assets (HOLAs)

LCR =------------------------------------------------------------------

Total net cash outflows over the next 30 calendar days

The minimum LCR requirement for the calendar year 2016 was 70 per cent and is stepped up to 80 per cent for the calendar year 2017. LCR requirement will be further, stepped up 10 per cent annually to reach 100 per cent by 1st January 2019.

HOLA comprises Level 1(0% hair-cut), Level 2A (15% hair-cut) and Level 2B assets (50% hair-cut). Level 1 assets comprising of cash, excess CRR, excess SLR securities, government securities to the extent allowed by RBI under Marginal Standing Facility (MSF) [presently 2 per cent of the Bank''s NDTL] and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 9 per cent of the Bank''s NDTL].

Level 2A assets comprises of sovereign guaranteed marketable securities, corporate bonds or commercial papers which are rated AA and more are issued other than by financial institutions. Level 2B assets include investments in common equity shares included in NSE CNX Nifty and/or S&P BSE Sensex indices.

Expected net cash outflows under stress are the weighted sum of outflows minus inflows in the next 30 days. Funding from retail and small business customers carries lower run-off factor as compared to wholesale funding.

The prime drivers of the LCR are the level of surplus SLR held by the Bank and the proportion of retail and wholesale funding source.

Weighted Level 1 assets of the Bank constitutes around 95 per cent of the total HOLA, and the remaining 5 per cent comprises of Level 2A and Level 2B assets. Excess SLR securities (part of level 1 assets) forms around 30 per cent of the total HOLA.

Over the period the Bank reduced dependency on the wholesale deposits including certificate of deposits by increasing the share of retail (individual) deposits including CASA. The share of retail deposits to total domestic deposits increased from 48 per cent (March 2016) to 56 per cent (March 2017). The increased share of retail deposits marks the stability in the funding profile of the Bank, reducing the liquidity outflows under stress.

Under wholesale category, the Bank has separate deposits product with no premature withdrawal option (non-callable) to limit any funds outflows over the next 30 days.

During the FY 2016-17, the LCR of the Bank remained above the minimum requirement on all observed counts. The LCR moved up year on year from average of 84.92% (FY2015-16) to 110.02% (FY 2016-17). This was contributed on account of increased share of retail deposits (reducing the cash outflows), more realizable inflows within 30 days and higher HOLA.

Ouarter on quarter, the LCR (3 months average) of the Bank increased from 91.33% (June''16) to 99.74% (September''16) and to 115.42% (December''16).

For the quarter ending March 2017, the Bank has commenced the computation of the LCR on a daily basis. The LCR at 134.25% for quarter ending March 2017 is based on the daily average, covering 70 data points.

The LCR shows marked increase in December 2016 and March 2017 quarter, mainly on account of increase in retail deposits with withdrawal of Specified Bank Notes (SBNs) by the Government of India w.e.f., 9th November 2016.

The impact of derivative exposure, potential collateral calls and currency mismatch on the LCR of the Bank remained insignificant.

Bank''s wholly owned banking subsidiary “Canara Bank Tanzania Ltd.” started its operation in May 2016, and is consolidated for disclosure of consolidated LCR.

25. Fresh Issue of Equity Share Capital:

During the year Bank had issued and allotted Equity Shares to the following parties:

During the financial year 2016-17, pursuant to exercise of Rights Issue option, the Bank has allotted 1,83,00,000 equity shares to the Shareholders and 3,59,99,105 equity shares to Government of India of face value of Rs,10/- each at a premium of Rs,197 per equity share for a total consideration of Rs,1123.99 crores. With this the equity share capital of the bank has gone up to Rs,597.29 Crore (as on 31.03.2017) from Rs,542.99 Crore (as on 31.03.2016)

26. During the year the Bank has made certain modifications in the additional provisioning for non-performing advances by dispensing with additional provisioning for category II of doubtful advances. Consequently the Bank is holding such additional provision of Rs, 500 Crore (previous year Rs, 1486 Crore) for non-performing advances over and above the minimum provision prescribed under IRAC norms of RBI.

27. Our Bank has sold 47,200 units under Priority Sector Lending Certificates (PSLCs) to the tune of Rs,11,800 Crore under Agriculture and Small and Marginal Farmers category as at March 2017.

28 During Financial Year 2017, the Bank has offloaded 13.45% of shares held in M/s Canfin Homes Ltd., one of our Associates and realised a profit of Rs,703.91 Crore.

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

TABLE DF - 30.: CAPITAL ADEQUACY

(i) Qualitative Disclosures In Capital Planning process the Bank reviews:

- Current capital requirement of the Bank

- The targeted and sustainable capital in terms of business strategy and risk appetite.

Capital need and capital optimization are monitored periodically by the Capital Planning Committee comprising Top Executives. Further the committee is being monitored at Board level, with members of the Board in the committee comprising of Managing Director & CEO, Executive Directors and two independent Directors. Capital requirement is projected quarterly considering the expected growth in advances, investments and investments in Subsidiaries / Joint Ventures, etc. Committee takes into consideration various options available for capital augmentation in tune with business growth and realignment of Capital structure, duly undertaking the scenario analysis for capital optimization in tune with its long term goals enumerated in ICAAP and Vision documents of the Bank.

Though the bank has implemented the Standardized Approach of credit risk, Bank has sent Letter of Intent (LOI) dated 30.09.2012 to RBI for adoption of Internal Rating Based (IRB) Approach for computation of capital charge for Credit Risk.

Major Initiatives taken for implementation of IRB approach are as under:

- Bank has put in place a methodology for computation of PD and LGD for Corporate Assets and Retail Assets.

- Mapping of internal grades with that of external rating agencies grades: Bank has mapped its internal rating grades with that of external rating agencies grades. This exercise will help to know the status of rating quality.

TABLE DF - 31: CREDIT RISK: GENERAL DISCLOSURES

(i) Qualitative Disclosures

Bank''s policy governs all credit risk related aspects. CRM Policy outlines the principles, standards and approach for credit risk management at the Bank. It establishes systems, procedures, controls and measures to actively manage the credit risks, optimize resources and protect the bank against adverse credit situations. The Delegation of Power for approval of credit limits is approved by Board of Directors.

The Bank''s policies assume moderate risk appetite and healthy balance between risk and return. The primary risk management goals are to maximize value for shareholders within acceptable parameters and adequately addressing the requirements of regulatory authorities, depositors and other stakeholders. The guiding principles in risk management of the Bank comprise of Compliance with regulatory and legal requirements, achieving a balance between risk and return, ensuring independence of risk functions, and aligning risk management and business objectives. The Credit Risk Management process of the Bank is driven by a strong organizational culture and sound operating procedures, involving corporate values, attitudes, competencies, employment of business intelligence tools, internal control culture, effective internal reporting and contingency planning.

The overall objectives of Bank''s Credit Risk Management are to:

- Ensure credit growth, both qualitatively and quantitatively that would be sect orally balanced, diversified with optimum dispersal of risk and also strive towards credit growth with usage of capital efficiently.

- Ensure adherence to regulatory prudential norms on exposures and portfolios.

- Adequately pricing various risks in the credit exposure.

- Form part of an integrated system of risk management encompassing identification, measurement, monitoring and control.

Strategies and processes:

In order to realize the above objectives of Credit Risk Management, the Bank prescribes various methods for Credit Risk identification, measurement, grading and aggregation techniques, monitoring and reporting, risk control / mitigation techniques and management of problem loans / credits. The Bank has also defined target markets, risk acceptance criteria, credit approval authorities, and guidelines on credit origination/ maintenance procedures.

The strategies are framed keeping in view various measures for Credit Risk Mitigation, which includes identification of thrust areas and target markets, fixing of exposure ceiling based on regulatory guidelines and risk appetite of the Bank, Minimizing Concentration Risk, and pricing based on rating.

Bank from time to time would identify the potential and productive sectors for lending, based on the performance of the segments and demands of the economy. The Bank restricts its exposures in sectors which do not have growth potentials, based on the Bank''s evaluation of industries / sectors based on the prevailing economic scenario prospects, etc.

The operational processes and systems of the Bank relating to credit are framed on sound Credit Risk Management Principles and are subjected to periodical review.

The Bank has comprehensive credit risk identification processes as part of due diligence on credit proposals.

The structure and organization of the Credit Risk Management Function: Credit Risk Management Structure in the Bank is as under:-

i. Board of Directors

ii. Risk Management Committee of the Board (RMCB)

iii. Credit Risk Management Committee (CRMC)

iv. Model Review Technical Working Group (MRTWG)

v. General Manager-Risk Management Wing, H.O (Group Chief Risk Officer)

vi. Deputy General Manager (I&II), Risk Management Wing

vii. Credit Risk Management Department comprising of Credit Policy Section, Credit Analysis Cell and Credit Risk Management Section. The Credit Risk Management Section has three functional powers) are withdrawn and the committee approach for credit approval has been put in place. The Bank has in place specialized branches viz. Centralized Processing Units (CPUs), Retail Asset Hubs (RAHs) and SME Sulabhs at select cities to ease credit dispensation turnaround time and ensure specialized attention.

To enhance the control measures, a separate Credit Administration and Monitoring Wing is in place to undertake exclusive loan review, monitoring problem accounts, credit audit, etc. This ensures greater thrust on post sanction monitoring of loans and strengthen administering the various tools available under the Banks'' policies on loan review mechanism.

For effective loan review, the Bank has the following in place:

- Pre-release Audit System for compliance to sanction terms and conditions, abstention of stipulated collateral securities ensuring perfection of securities before disbursement etc.

- Credit Audit System to identify, analyze instances of non-compliance and rectification for all types of credit facilities sanctioned with credit limit of Rs,5 crore.

- Review of loan sanctioned by each sanctioning authority by the next higher authority.

- Mid Term Review of borrowable accounts beyond a certain level of exposure.

- Monitoring of Special Mention Accounts (SMA) at various levels. Formation of a Joint Lenders'' Forum (JLF) and formulation of Corrective Action Plan (CAP) in the case of consortium/JLA accounts, for early rectification or restructuring

- Monitoring tools like Credit Monitoring Format (web-based), Quarterly Information Systems, Half Yearly Operation Systems, Stock Audits etc.

- Credit Monitoring Officers at branches in charge of monitoring functions.

- A framework has been developed outlining a corrective action plan that will incentivize early identification of problem account, timely restructuring of accounts which are considered to be viable and taking prompt steps by lenders for recovery or sale thereby revitalizing the distressed accounts in the Bank.

- Bank has also put in place the scheme for Strategic Debt Restructuring (SDR) and Scheme for Sustainable Structuring of Stressed Asset (S4A) facilitate the resolution of eligible accounts. The Framework for Strategic Debt Restructuring (SDR) has put in place to address the issue of higher stake of promoters in reviving stressed accounts and enhance the bank''s capabilities to initiate change of ownership, where necessary, in case agreed critical conditions and viability milestones are achieved by the promoter. The S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity / quasi-equity instruments which are expected to provide upside to the bank when the borrower turns around. The scheme is implemented in transparent manner, as per the guidelines of the RBI & IBA.

Definition and classification of Non-Performing Assets (NPAs):

The Bank classifies its advances (loans and credit substitutes in the nature of an advance) into performing and non-performing loans in accordance with the extant RBI guidelines. A non-performing asset (NPA) is a loan or an advance where:

- Interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan.

- The account remains ''out of order'' in respect of an Overdraft/Cash Credit (OD/CC). An account should be treated as ''out of order'' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period.

- The bill remains overdue for a period of more than 90 days in the case of Bills Purchased and Discounted.

- The installment of principal or interest thereon remains overdue for two crop seasons for short duration crops, and for one crop season for long duration crops.

- The amount of liquidity facility remains outstanding for more than 90 days, in respect of securitization transaction undertaken in terms of guidelines on securitization dated February 1, 2006.

- In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contracts, if these remain unpaid for a period of 90 days from the specified due date for payment.

Any amount due to Bank under any credit facility is ''overdue'' if it is not paid on the due date fixed by the Bank. Assets classification has been made borrower-wise and not facility-wise. In other words, when a particular facility of a borrower has become non-performing, all the facilities granted by the Bank to the borrower will be classified as NPA.

Irrespective of record of recovery, the bank identifies a borrower account as a NPA even if it does not meet any of the above mention criteria, where:

- Loan availed by a borrower are repeatedly restructured unless otherwise permitted by regulations;

- Loans availed by a borrowers are classified as fraud;

- Project does not commence commercial operations within the timelines permitted under the RBI guidelines in respect of loans extended to a borrower for the purpose of implementing a project; and

- Any security in nature of debenture/bonds/equity shares issued by a borrower and held by the Bank is classified as non-performing investment.

For loans held at the overseas branches, identification of NPA is based on the home country regulations (RBI Guidelines) or the host country regulations (overseas branch regulator''s guidelines), whichever is more stringent.

Further, NPA are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. A sub-standard asset is one, which has remained a NPA for a period less than or equal to twelve month. An asset is classified as doubtful if it has remained in the sub-standard category for more than 12 months. A loss asset is one where loss has been identified by the Bank or internal or external auditors or during RBI inspection but the amount has not been written off fully.

TABLE DF - 32: CREDIT RISK: DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE STANDARDIZED APPROACH

(i) Qualitative Disclosures (a) FOR PORTFOLIOS UNDER THE STANDARDIZED APPROACH:

- The Bank has recognized following credit rating agencies for the purpose of rating of an exposure & assigning risk weights for computation of capital charge under standardized approach.

Domestic Credit Rating Agencies:

- Brickwork Ratings India Private Limited (Brickwork)

- Credit Analysis & Research Limited (CARE)

- CRISIL Limited

- ICRA Limited,

- India Ratings and Research Private Limited (Formerly FITCH India)

- SMERA Ratings Limited

International Credit Rating Agencies:

- Standard & Poor

- Moody''s

- FITCH

Types of exposure for which each agency is used:

All the above agencies are recognized for rating all types of exposures.

A description of the process used to transfer public issue ratings onto comparable assets in the banking books:

- The Bank uses only publicly available solicited ratings that are valid and reviewed by the recognized External Credit Rating Agencies, referred as External Credit Assessment Institutions (ECAI).

- Bank uses Bank Loan Rating for risk weighting the borrower''s exposures. Where Issuer Rating is available, the Bank uses such ratings unless the bank loan is specifically rated.

- The Bank does not simultaneously use the rating of one ECAI for one exposure and that of another ECAI for another exposure of the same borrower, unless the respective exposures are rated by only one of the chosen ECAIs. Further, the Bank does not use rating assigned to a particular entity within a corporate group to risk weight other entities within the same group.

- Running limits such as Cash Credit are treated as long term exposures and accordingly, long term ratings are used for assigning risk weights for such exposures.

- While mapping / applying the ratings assigned by the ECAIs, the Bank is guided by regulatory guidelines/ Bank''s Board approved Policy.

- Where exposures / borrowers have multiple ratings from the chosen ECAIs, the Bank has adopted the following procedure for risk weight calculations:

o If there are two ratings accorded by chosen ECAIs, which map into different risk weights, the higher risk weight is applied.

o If there are three or more ratings accorded by the chosen ECAIs which map into different risk weights, the ratings corresponding to the lowest

2 ratings are referred to and higher of those two risk weights is applied.

TABLE DF - 33: CREDIT RISK MITIGATION - DISCLOSURES FOR STANDARDIZED APPROACHES

(i) Qualitative disclosures

Policies and processes for collateral valuation and management: The Bank is having a Board approved collateral management policy which lays down the process, objectives, accepted types of collaterals and the framework including suitable management information system for effective collateral management. The Collaterals and guarantees properly taken and managed that would serve to:

- mitigate the risk by providing secondary source of repayment in the event of borrower''s default on a credit facility due to inadequacy in expected cash flow or not;

- gain control on the source of repayment in the event of default;

- provide early warning of a borrower''s deteriorating repayment ability; and

- Optimize risk weighted assets and to address Residual Risks adequately.

Bank uses a number of techniques to mitigate the credit risks to which they are exposed. The revised approach allows banks in India to adopt the Comprehensive Approach (under both the Standardized and IRB approaches) which allows fuller offset of collateral against exposures by effectively reducing the exposure amount by the value ascribed to the collateral. Under this approach, banks, which take eligible financial collateral, are allowed to reduce their credit exposure to the counterparty when calculating their capital requirements by taking into account the risk mitigating effect of the collateral.

Collateral Management process and practices of the Bank cover the entire activities comprising security and protection of collateral value, validity of collaterals and guarantees, and valuation / periodical inspection.

Valuation: Both the Fixed and the Current Assets obtained to secure the loans granted by the Bank are subjected to valuation by valuers empanelled by the Bank. Monetary limits of the accounts, asset classification of the borrower, which is to be subjected to valuation, periodicity of valuation, are prescribed in the Bank''s policy guidelines. Bank reviews the guidelines on valuation periodically.

Description of the main types of collateral taken by the Bank: The collateral commonly used by the Bank as risk mitigates comprises of Financial Collaterals (i.e. Cash, Bank deposits, Life Insurance policies, NSC, KVP, Government securities issued directly / by postal departments, equity shares of limited companies other than the Bank and approved by the Bank, debentures, units of mutual funds, debt securities etc.), different categories of moveable assets and immoveable assets / properties etc. However, for the purpose of computation of capital required under Standardized Approach, certain specific financial collaterals have been recognized as eligible collateral.

Main types of Guarantor counterparty and their creditworthiness: Bank obtains / accepts guarantees of sovereign, sovereign entities (including BIS, IMF, European Central Bank and European community as well as Multilateral Development Banks, ECGC and CGTMSE). Besides this, Bank also obtains Personal or Corporate guarantee having adequate net worth, as an additional comfort for mitigation of credit risk which can be translated into a direct claim on the guarantor, and are unconditional and irrevocable. The Creditworthiness of the guarantor is normally not linked to or affected by the borrower''s financial position. The Bank also accepts guarantee given by State / Central Government as a security comfort. Such Guarantees remain continually effective until the facility covered is fully repaid or settled or released.

Credit Risk Mitigation recognized by the Bank for the purpose of reducing capital requirement under New Capital Adequacy Framework (Basel II Norms): The Bank has recognized Cash, Bank''s own Deposits, Gold & Gold Jewellery as Credit Risk Mitigations for the purpose of reducing capital requirement under the New Capital Adequacy Framework (Basel III Norms).

Information about risk concentration within the mitigation taken: The Bank has already initiated steps for putting in place a data warehouse for a robust Management Information System (MIS) to facilitate management of Credit Risk and evaluation of effectiveness of collateral management including risk concentrations of collaterals.

The guidelines to banks on securitization of standard assets contain:

- The provisions relating to securitization of assets.

- Stipulations regarding transfer of standard assets through direct assignment of cash flows.

The bank''s existing policy guidelines deals with purchase of pools from an originator (Bank/NBFC/FI). Purchase of assets through Direct Assignment of cash flows from originating NBFCs/Banks/FIs shall be only from those rated ''AA'' and above. The Bank shall purchase a portfolio or a part of portfolio of standard assets under Housing Loan; Loans Against Property and MSME sanctioned at floating rates only.

Policy sets out requirements like restrictions on purchase of loans; constitution of eligible borrowers in the pool; standards for due diligence - KYC compliance, requirements to be complied with prior to disbursement in respect of borrowers in the purchased pool of assets; due diligence of the originator, Stress testing; credit monitoring.

Bank can purchase loans from other banks/FIs/NBFCs in India only if the seller has explicitly disclosed to the bank that it will adhere to the Minimum Retention Requirement on an ongoing basis and disclosed the adherence to the Minimum holding period criteria as prescribed in the policy.

The bank monitors the purchase transactions on an ongoing basis at certain intervals and takes appropriate action wherever required. The general prescription laid down in the Master policy on Credit Risk Management with regard to loan review mechanism and monitoring is applicable to securitization transactions.

The exposure to the originator shall be within the prudential exposure ceilings stipulated by the Bank.

TABLE DF - 34: MARKET RISK IN TRADING BOOK

(i) Qualitative disclosures

Strategies and processes: The overall objective of market risk management is to create shareholder value by improving the Bank''s competitive advantage and reducing loss from all types of market risk loss events.

- While overall leadership and control of the Risk Management framework is provided by Risk Management Wing, the business units are empowered to set strategy for taking risks and manage the risks.

- All issues or limit violations of a pre-determined severity (materiality, frequency, nature) are escalated to the Risk Management Wing where the actions to address them are determined by the appropriate authorities. The business units are responsible for implementing the decision taken.

The process aims to:

- Establish a pro-active market risk management culture to cover market risk activities.

- Comply with all relevant legislation and regulatory requirements relating to Market Risk.

- Develop consistent qualities in evolving policies & procedures relating to identification, measurement, management, monitoring, controlling and reviewing of Market Risk.

- Establish limit structure and triggers for various kinds of market risk factors.

- Establish efficient monitoring mechanism by setting up a strong reporting system.

- Adopt independent and regular evaluation of the market risk measures.

The structure and organization of the relevant Risk Management function: Market Risk Management structure of the Bank is as under-

- Board of Directors

- Risk Management Committee of the Board

- Market Risk Management Committee (MRMC)

- General Manager - RM Wing (Group Chief Risk Officer) - Head Office

- Market Risk Management Department, Risk Management Wing, HO

o Integrated Mid Office

o Mid Office - Integrated Treasury

The scope and nature of risk reporting and / or measurement systems:

- The Bank has put in place various exposure limits for market risk management such as Overnight limit, Intraday limit, Aggregate Gap limit, Stop Loss limit, VaR limit, Broker Turnover limit, Capital Market Exposure limit, Product-wise Exposure limit, Issuer-wise Exposure limit, etc.

- A risk reporting system is in place for monitoring the risk limits across different levels of the Bank from trading desk to the Board level.

- The rates used for marking to market for risk management or accounting purposes are independently verified.

- The reports are used to monitor performance and risk, manage business activities in accordance with the Bank''s strategy.

- The reporting system ensures timelines, reasonable accuracy with automation, highlight portfolio risk concentrations, and include written commentary.

- The detailed risk reports enhance the decision-making process.

- Dealing room activities are centralized, and system is in place to monitor the various risk limits.

- The reporting formats & the frequency are periodically reviewed to ensure that they suffice for risk monitoring, measuring and mitigation requirements of the Bank.

Policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigates: Various Board approved policies viz., Policy for Market Risk (Including Country risk management and Counterparty Bank risk management), Investment Policy and Policy for Forex dealing & Trading Operations are put in place for Market risk management. Policy for Market Risk provides the framework for risk assessment, identification and measurement and mitigation, risk limits & triggers, risk monitoring and reporting.

The Bank has developed an internal model for country risk rating based on various parameters like GDP growth, inflation, trade balance etc for risk categorization of the countries to allocate limit for taking exposure to various countries.

The Bank has in place a scoring model for categorization of foreign banks. The various exposure limits are set based on the points secured by the counterparty banks as per the scoring matrix.

TABLE DF - 35: OPERATIONAL RISK

(i) Qualitative Disclosures

Strategies and processes: The Operational Risk Management process of the Bank is driven by a strong organizational culture and sound operating procedures, involving corporate values, attitudes, competencies, internal control culture, effective internal reporting and contingency planning. Policies are put in place for effective management of Operational Risk in the Bank.

The structure and organization of the relevant risk management function: The Operational Risk Management Structure in the Bank is as under:

- Board of Directors

- Risk Management Committee of the Board (RMCB)

- Operational Risk Management Committee (ORMC)

- Head / General Manager - Risk Management / Group Chief Risk Officer

- Operational Risk Management Department (ORMD), HO

- Executives at Circles overseeing Risk Management Section.

- Risk Management Sections at Circles.

The scope and nature of risk reporting and/or measurement systems: The Risk reporting consists of operational risk loss incidents/events occurred in branches/offices relating to people, process, technology and external events. The data collected from different sources are used for analyzing the root cause/gaps in the system and thereby improve/strengthen the laid down system and procedures. The loss incidents are also incorporated in loss data base which shall be used for computing Operational Risk Capital Charge on migrating to Advanced Measurement Approach (AMA).

Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigates: Bank has put in place policies for management of Operational Risk management. The policy framework contains various aspects of Operational risk management such as identification, management, monitoring & mitigation of Operational risk areas.

In order to address risks involved in Outsourcing of activities, bank has put in place policies for management of Outsourcing Risk.

Operational Risk capital assessment: The Bank has adopted Basic Indicator Approach for calculating capital charge for Operational Risk.

Bank intends to migrate to the Advanced Measurement Approach (“AMA”).

Quantitative Disclosure:

The capital requirement for Operational Risk under Basic Indicator Approach is '' 25,798.51 Millions.

TABLE DF - 36: INTEREST RATE RISK IN THE BANKING BOOK (IRRBB)

(i) Qualitative Disclosures

Interest Rate Risk in Banking Book (IRRBB)

Interest Rate Risk in Banking Book (IRRBB) refers to the current or prospective risk to the bank''s capital and earnings arising from adverse movements in interest rates. With change in interest rates the underlying value of Bank''s assets, liabilities and off-balance sheet items also gets altered and so its economic value.

Changes in interest rates also affect a bank''s earnings or net interest income (NII) in the short term - on account of re-pricing gaps between its rate sensitive assets and rate sensitive liabilities. Three main types of interest rate risk include:

(a) Gap risk arises from the term structure of banking book instrument and the extent of re-pricing gap between rate sensitive assets (RSA) and rate sensitive liabilities (RSL).

(b) Basis risk - the impact of relative changes in interest rates for RSA and RSL that have similar re-pricing but are linked to different interest rate curve.

(c) Option risk in the Bank mainly arises from explicit or embedded options in a bank''s assets, liabilities and/or off-balance sheet items, where the bank or its customer can alter the level and timing of their cash flows.

Organizational Framework

The Board of Directors approves the broad business strategy and overall policies governing the IRRBB. It is responsible for setting appropriate limits, adequate systems and standards for measuring.

Monitoring and management of IRRBB is delegated to the Asset Liability Management Committee (ALCO) and is responsible for adherence to the policies and business strategy as per the risk limit articulated in terms of both earnings and economic value by the Board of Directors. Basing on the likely interest rate movement, the ALCO decides on the business mix, strategy to manage and control the risk by taking early remedial actions.

Strategies and Processes

The Bank strives to match the re-pricing gap between its rate sensitive assets and rate sensitive liabilities including off-balance sheet items across significant currencies. Interest rate risk in banking book is measured and monitored using Traditional Gap Analysis (TGA) and the Duration Gap Analysis (DGA) to Bank''s global position on a monthly basis.

Using TGA approach, the re-pricing gaps between RSA and RSL are measured and monitored across different time bands. The re-pricing gap may impact Bank''s earning for adverse rate movement in the short term up to one year. It is assessed by giving parallel rate shocks and is monitored against the set tolerance limit termed Earning at Risk.

Under DGA approach, the change in the value of Bank''s assets less liability for a given interest rate shock is assessed using modified duration approach. The extent of the gap between modified duration of RSA and RSL gives the prospective change in the value of assets less liability to the net-worth of the Bank termed as change in Market Value of Equity (MVE). MVE under IRRBB is measured and monitored against the set limit.

(ii) Quantitative Disclosures

EARNINGS AT RISK

The following table presents the impact on net interest income of the Bank for an assumed parallel shift of 100 bps in interest rate up to one year across currencies as at 31.03.2017:

ECONOMIC VALUE OF EQUITY

The table reveals the impact on Economic Value of Equity for an assumed rate shock of 200 bps on the Banking Book as at 31.03.2017

TABLE DF - 37: GENERAL DISCLOSURE FOR EXPOSURES RELATED TO COUNTERPARTY CREDIT RISK

(i) Qualitative Disclosures

Bank''s policy on Counterparty Credit Risk Management sets out the standards and guidelines for Counterparty Credit Risk Management at the Bank. Through this policy the bank shall establish its standards and guidelines for identification of CCR in market traded instruments covering various components and relevant sources of risks. This addresses Pre-settlement Risk, Settlement Risk and Wrong Way Risk.


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


Mar 31, 2010

1 Investments:

The percentage of investments under "Held to Maturity" category - SLR as on 31.03.2010 was 24.14% of Demand and Time Liability of the Bank (Previous year 20.43%), which is within the permissible limit as per RBI guidelines.

2 Inter-Branch Transactions:

The initial matching of entries received at Head Office tor the purpose of teconciliation under Inter-Branch transactions upto 31.03.2010 has been done, bs nk is continuing its efforts to reconcile and red ucethe remaining outstandingentries.

3 Premises:

Premises include certain properties of Rs.193.32 Crore (Previous year Rs.196.31 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.2132.68 Crore (Previous year Rs. 2168.16 Crore).

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/trade is in 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 Bankalso hasTier II bonds hedged for interest rate swaps which do not have exit option. The policy permits hedging the 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 liabilities 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 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:

- Accrualon 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 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 expenses under the above head.

4.4.8 Advances include an amount of Rs.547.18 Crore (PreviousyearRs.741.73 Crore) being balance claim outstanding with Reserve Bank of India as per Agriculture Debt Waiver and Debt Relief Scheme, 2008 and Rs.1000.00 Crore (Previous year Rs.500 Crore) of Inter Bank Participation Certificate (IBPC) purchased from sponsored Regional Rural Banks as per RBI guidelines.

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 materia I prior period items.

5.2 Accounting Standard 15 - Employee Benefits:

The actuarial a-ssumptions in respect of gratuity, pension, sick leave and privilege leave, for determining the present value of obligations and contributions of the bank, have been made by fixingvarious parameters for

- Salary escalation by taking into account inflation, seniority promotion and other factors 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 includingthose due to disability.

5.4 Related Party Disclosures- Accounting Standard-18:

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

5.4.1 Key Management Personnel -

i) Shri A. C. Mahajan, Chairman & Managing Director ,

ii) Shri Jagdish Pai. K. L, Executive Director

iii) Shri H. S. Upendra Kamath, Executive Director

5.4.2 Parent-

i) CanaraBank

5.4.3 Subsidiaries -

i) Canbank Financial Services Ltd.

ii) Canbank Venture Capital Fund Ltd.

iii) Canbank Factors Ltd.

iv)Canara Robeco Asset Management Company Ltd.

v) CanbankComputerServicesLtd.

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 JointVentures

i) Commercial Bankof India LLC, Moscow

5.4.5 Associates

i) Canfin Homes Ltd.

ii) Commonwealth Trust (India) Ltd.

iii) CARE Ltd.

iv) Regional Rural Banks sponsored by the Bank

a) PragatiGraminBank

b) South MalabarGramin Bank

c) ShreyasGraminBank

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

Remuneration to Key Management Personnel Rs.71,98,727* (Previous Year-. Rs. 34,74,885) "including Arrears paid to Present and Ex Key Management Personnel

5.5 Earnings Per Share- Accounting Standard-20:

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

5.6Deferred 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 31.03.2010.

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

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

Investments include Rs. 31.53 Crore (at the exchange rate of the transaction date) inthe Commercial Bankof India LLC (Incorporated in Russia) wherein the Bank owns 40% of the eq uity.

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:

Assets and liabilities: @ spot rate: 31.03.2010 USD 1= Rs.44.90and 31.03.2009 USD 1= Rs. 50.72

Income & Expenditure: @ Average rate: 31.03.2010 USD 1= Rs.47.4725 and 31.03.2009 USD 1= Rs.44.7833

The above figures are as per unaudited accounts of the joint venture for the year ended 31.03.2010 & 31.03.2009.

5.8 Impairment of Assets-Accounting Standard 28

In the opinion of the Management, there is no impairment of its Fixed Asset to any material extent as at 31.03.2010 requiring recognition in terms of Accounting Standard 28 issued bythe Institute of Chartered Accountants of India.

6 Issuance of Letters of Comfort:

Bank has issued Letters of Comfort to the tune of Rs.2261.91 Crore during the financial year. The cumulative Positions of LOCs outstanding as on 31.03.2010 is Rs.1093.36 Crore. Apart from these, Bank has also issued Letter of Comfort to the following regulators:

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

ii) CentralBankoftheUAE(during2009-10)

iii) Central Bankof Bahrain (during2009-10)

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 43.19 Mn (Rs.193.92 Crore) consistingof-

Out of the other liabilities an amount of USD 5,30,000 (Rs.2.38 Crores), an amount of USD 88,798 (Rs.39.87 lakhs) is the "outside liability" payable by Shanghai branch (Customer Deposits).

Hence, the total likely financial impact is to the extent of USD 88,798 (Rs.39.87 lakhs).

7. Disclosures as per Basel II norms enclosed herewith will form part of the Notes on accounts.

8. Provision Coverage Ratio is 77.71% as on 31.3.2010.

9.As per Reserve Bank of India guidelines, a sum of Rs.145.79 Crore has been transferred to Investment Reserve Account after netting off of taxation and transfer to Statutory Reserve as the Bank has written back surplus provision for depreciation on investments amounting to Rs.294.48 Crore.

10 Reconciliation of Nostra Accounts and Treatment of outstanding entries.

A sum of Rs.77,64,662.00 being outstanding credit entries of individual values less than USD 2500 or its equivalent which are originated on or before 31st March 2002 in blocked accounts has been credited to Profit & Loss Account in terms of RBI Circular DBOD BP BC No.133/21.04.018/2008-09 dated 11.5.2009 and the same is appropriated to General Reserve. TrTis amount shall not be available for declaration of Dividend.

11. Fees/Remuneration received by the Bank from Bancassurance Business is Rs.67.80 Crore during the year.

Pillar 3 (BASEL II) Disclosures March 2010 TABLE DF1 - SCOPE OF APPLICATION

QUALITATIVE DISCLOSURES:

a. The name of the Bank to which the framework applies :CANARA BANK

b. An outline of differences in the basis of consolidation for accounting and regulatory purposes, with a brief description of the entities with in the group

(i) That are fully consolidated (viz. subsidiaries as in consolidated accounting, e.g. AS 21)

1. Canbank Venture Capital Fund Ltd. (Holding 100%-Financial Entity)

2. Canbank Financial Services Ltd. - (Holding 100%-Financial Entity)

3. Canara Bank Securities Ltd [formerly known as Gilt Securities Trading Ltd.] (Holding 100% -Stock BrokingCompany)

4. Canbank Factors Ltd. (70% Holding - Financial Entity)

5. Canara Bank Computer Services Ltd (69.14% Holding -Others)

6. Canara Robeco Asset Management Co. Ltd. (Holding51%-AMCof Mutual Fund)

7. Canara HSBC OBC Life Insurance Co. Ltd. (Holding51%-Financial Entity)

(ii) That are pro-rata consolidated (viz. Joint ventures in consolidated accounting, e.g. AS 27)

1. Commercial Bankoflndia —(Holding 40%- Joint Venture with SBI)

(iii) That are given a deduction treatment; (Associates-Holding above 30%)

1. Canfin Homes Ltd. (Holding42.31%)

2. Pragathi Gramin Bank (RRB-Hoiding35%)

3. South Malabar Gramin Bank (RRB-Holding 35%)

4. Shreyas Gramin Bank (RRB-Holding35%)

(iv) That are neither consolidated nor deducted (e.g. wherethe investment is risk weighted)

NIL

QUANTITATIVE DISCLOSURES:

(c) The aggregate amount of capital deficiencies in all subsidiaries not included in the consolidation i.e. that aredeductedandthename(s) of such subsidiaries.

NIL

(d) The aggregate amounts (e.g. current book value) of the banks total interests in insurance entities, which are risk-weighted as well as their name, their country of incorporation or residence, the proportion of ownership interest and, if different, the proportion of voting power in these entities.

NIL

The main features of IPDI are as follows:

The Bank has issued Innovative Perpetual Debt Instruments (IPDI) - Series II during the current financial year. The important features of these debt instruments are:

The debt instruments are perpetual in nature without any specific maturity period.

The instruments are Unsecured Non Convertible Subordinated Perpetual Bonds in the nature of promissory Notes (Bonds).

The debt instruments are rated AAA (Stable) from CRISILand BWRAAA+from Brickwork Ratings.

Fixed rate of interest is payable on the debt instruments annually.

The interest shall not be cumulative.

The Bank has the call option after 10 years from the date of issue with the prior approval of Reserve Bank of India.

The Bank has step up option (shall be exercised only once during the whole life of the instrument) at the end of 10 years which shall not be more than 50 basis points.

The debt instruments shall be subjected to a lock-in clause, in terms of which, the Bank shall not be liable to pay interest, if (a) the Banks CRAR is below the minimum regulatory requirement prescribed by RBI or (b) the impact of such payment results in Banks capital to risk assets ratios (CRAR) falling below or remaining below the minimum regulatory requirement prescribed bythe RBI.

The claim of investors in these instruments shall be superior to the claims of investors in the equity in the equity shares and subordinated to the claims of all other creditors.

These debt instruments are not subjected to a progressive discount for capital adequacy purposes since these are perpetual in nature.

The instrument is listed on National Stock Exchange of India Limited (NSE).

The main features of Upper Tier II bonds are as follows:

The Bank has Call Option after 10 years from the date of issue with the RBIs approval.

The Bank has step up option at the end of 10 years that shall not be more than 50 basis points.

The instruments are subjected to a progressive discount @ 20% per year during the last 5 years of their tenor. Such discounted amounts are not included in Tier II capital for capital adequacy purpose.

The face value of the Bond is redeemable at par, on expiry of the tenor or after 10 years from issue if the Bank exercises Call Option. The Bond will not carry any obligation, for interest or otherwise, after the date of redemption. The instruments are free of restrictive clauses and not redeemable at the initiative of the holder or without the consent of the Reserve Bank of India.

The claims of the investors in these instruments shall rank superior to the claims of investors in instruments eligible for inclusion in Tier I capital and subordinatetothe claims of all other creditors.

The main features of Lower Tier II bonds are as follows:

The Bonds have a tenor ranging from 5tol0years.

The instruments are fully paid up, unsecured and subordinated to the claims of other creditors, free of restrictive clauses and not redeemable at the initiative of the holder or without the consent of the Reserve Bankof India.

The instruments are subjected to progressive discounting @ 20% per year over the last 5 years of their tenor. Such discounted amounts are not included in Tier II capital for capital adequacy purposes.

The claims of the investors in these instruments shall rank superior to the claims of investors in instruments eligible for inclusion in Tier I capital and subordinatetothe claims of all other creditors.

Capital need and capital optimization are monitored periodically by the Capital Planning Committee comprising Top Executives. Sensitivity analysis is conducted quarterly on the movement of Capital Adequacy Ratio, considering the projected growth in advances, investments in Subsidiaries/Joint Ventures and the impact of Basel II framework etc.The Committee takes into consideration various options available for capital augmentation in tune with business growth and realignment of Capital structure duly undertaking the scenario analysisforcapital optimization.

CRAR of the Bank is projected to be well above the 12% in the medium term horizon of 3 years, as prescribed in the ICAPP Policy.

TABLE DF 4 - CREDIT RISK: GENERAL DISCLOSURES

QUALITATIVE DISCLOSURES:

The Banks policies maintain moderation in risk appetite and a healthy balance between risk and return in a prudent manner. The primary risk management goals are to maximize value for share holders within acceptable parameters and to the requirements of regulatory authorities, depositors and other stakeholders. The guiding principles in risk management of the Bank comprise of Compliance with regulatory and legal requirements, achieving a balance between risk and return, ensuring independence of risk functions, and aligning risk management and business objectives. The Credit Risk Management process of the Bank is driven by a strong organizational culture and sound operating procedures, involving corporate values, attitudes, competencies, employment of business intelligence tools, internal control culture, effective internal reporting and contingency planning.

The overall objectives of the Banks Credit Risk

Management are to:

Ensure credit growth, both qualitatively and quantitatively that would be sectorally balanced, diversified with optimum dispersal of risk.

Ensure adherence to the regulatory prudential norms on exposures and portfolios.

Adequately enable to price various risks in the credit exposure.

Form part of an integrated system of risk management encompassing identification, measurement, monitoringand control.

Strategies and processes:

In order to realize the above objectives of Credit Risk Management, the Bank prescribes various methods for Credit Risk identification, measurement, grading and aggregation techniques, monitoring and reporting, risk control / mitigation techniques and management of problem loans / credits. The Bank has also defined target markets, risk acceptance criteria, credit approval authorities, and guidelines on credit origination / maintenance procedures.

The strategies are framed keeping in view various measures for Credit Risk Mitigation, which includes identification of thrust areas and target markets, fixing of exposure ceiling based on regulatory guidelines and risk - appetite of the Bank, Concentration Risk, and the acceptable level of pricing based on rating.

The Bank from time to time would identify the potential and productive sectors for lending, based on the performance of the segments and demands of the economy. The Bank restricts its exposures in sectors which do not have growth potentials, based on the Banks evaluation of industries / sectors taking into account the prevailing economic scenario prospects etc.

The operational processes and systems of the Bank relating to credit are framed on sound Credit Risk Management Principles and are subjected to periodical review.

The Bank has comprehensive credit risk identification processes as part of due diligence on credit proposals.

To have focused attention to large Corporates, specialized branches viz. Prime Corporate Branches have been set up in major centres. Further, Retail Hubs have been set up for focused attention to Retail Lending Portfolio. SME Sulabhs are the category of specialized centres for promoting and monitoring SME lending business. These specialized centres are also intended to effectively manage and monitor their respective portfolios.

In orderto improve the quality of appraisals and to ensure accelerated response to customers, particularly in respect of high value credits, relationship and appraisal functions are segregated between the concerned branch and the Core Credit Groups at Circle Offices. Large value corporate exposures are largely monitored through specified branches.

The structure and organization of the Credit Risk Management Function:

Credit Risk Management Structure in the Bank is as under-

Board of Directors

Risk Management Committee of the Board (RMC)

Credit Risk Management Committee (CRMC)

General Manager-Risk Management Wing, H.O (Chief Risk Management Officer)

Credit Risk Management Department, Risk Management Wing

Credit Statistics Section, Risk Management Wing

Exclusive Credit Monitoring Wing for focused attention on monitoring the quality of loan portfolio, identifying the problems and suggesting corrective measures

Risk Management & Credit Review Section at Circle Offices

Credit Monitoring Officers at Branches for monitoring the Fund Based limits of Rs.lcrore& above.

The scope and nature of risk reporting and / or measurement systems:

The Bank has an appropriate credit risk measurement and monitoring processes. The measurement of risk is through a pre sanction exercise of credit risk rating and scoring models put in place by the Bank. The Bank has well laid down guidelines for identifying the parameters under each of these risks as also assigning weighted scores thereto and ratingthem on a scale of 8.

The Bank also has a Policy in place on usage/mapping of ratings assigned by the recognized ECAIs (External Credit Assessment Institutions) for assigning risk weights for the eligible credit exposures as per the guidelines of the RBI on Standardized Approach for capital computation.

The Bank has adopted Standardized Approachfor credit portfolio for credit risk measurement.

The Bank has embarked upon a software solution viz. CDCRM (Comprehensive Data and System Architecture on Credit Risk Management) for establishing a robust credit data warehouse for all MIS requirements, computation of Risk Weighted Assets (RWA), generate various credit related reports for review of exposure and monitoring, and conducting analysis of credit portfolio from various angles.

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

The Bank primarily relies on the borrowers financial strength and debt servicing capacity while approving credits. The Bank does not excessively rely on collaterals or guarantees as a source of repayment or as a substitute for evaluating borrowers creditworthiness. The Bank does not deny credit facilities to those assessed as credit worthy for mere want of adequate collaterals.

In order to manage the Banks credit risk exposure, the Bank has adopted credit appraisal and approval policies and procedures that are reviewed and updated by the Risk Management Wing at Head office in consultation with other functional/Wings. The credit appraisal and approval process is broadly divided into credit origination, appraisal, assessment and approval, and dispensation.

Corporate finance and project finance loans are typically secured by a first lien on fixed assets, normally consisting of property, plant and equipment. The Bank also takes security of pledge of financial assets like marketable securities and obtains corporate guarantees and personal guarantees wherever appropriate. Working Capital loans are typically secured by a first lien on current assets, which normally consist of inventory and receivables.

The Bank has laid down detailed guidelines on documentation to ensure legal certainty of Banks charge on collaterals.

The Banks policy is to ensure portfolio diversification and evaluate overall financing exposure in a particular industry / sector in the light of forecasts of growth and profitability for that industry, and the risk appetite of the Bank. The Bank monitors exposures to major sectors of the economy and specifically exposure to various industries and sensitive sectors. Exposure to industrial activities is subjected to the credit exposure ceilings fixed by the Bank based on the analysis on performance of the industry. The Banks exposures to single and group borrowers as also substantial exposure is monitored and restricted within the prudential ceiling norms advised by Reserve Bank of India from time to time.

The credit origination is through the grass root level ably assisted by the branch net work and the Circle Offices. The process of identification, application is carried out before commencing an in depth appraisal, due diligence and assessment.

The credit approval process is a critical factor and commences with the mandatory credit risk rating of the borrower as a pre sanction exercise. The measurement of Credit Risk associated with the borrower evaluates indicative factors like, borrowers financial position, cash flows, activity, current market trends, past trends, management capabilities, experience with associated business entities, nature of facilities etc. The Bank has now in place centralized processing centres for Housing and personal loans at select cities to ease credit dispensation, reduce turnaround time and ensure specialized attention.

The Bank has anexclusive set up for credit monitoring functions now, after hiving off the same from Risk Management Wing. This is to have greater thrust on post sanction monitoring of loans and strengthen administeringthe various tools available underthe Banks policies on loan review mechanism.

For effective loan review, the Bank has the following in place:

Credit Audit System to identify, analyze instances of non-compliance arid rectification.

Review of loan sanctioned by each sanctioning authority by the next higher authority.

MidTerm Review of borrowal accounts.

Monitoring tools like Credit Monitoring Format, Quarterly Information Systems, Half Yearly Operation Systems, Stock Audits, Special Watch List Accounts, etc.

Credit Monitoring Officers in charge of monitoring functions.

Loans Past due and Impaired: As per the prudential norms applied for income recognition, asset classification and provisioning, the Bank considers following categories of loans and advances as Non-performing Assets, wherein:

Interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan.

The account remains out of order in respect of an Overdraft/Cash Credit (OD/CC). The bill remains overdue for a period of more than 90 days in the case of Bills Purchased and Discounted.

In case of agricultural advances, interest and/or installment of principal remains overdue for 2 crop seasons (in respect of short duration crops) & 1 crop season (in respect of longduration crops).

Any amount receivable that remains overdue for a period of more than 90 days in respect of other accounts.

Interest charged during any quarter is not serviced fully within 90 days from the end of the quarter.

TABLE DF 5 - DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE STANDARDIZED APPROACH

QUALITATIVE DISCLOSURES

(A) FOR PORTFOLIOS UNDER THE STANDARDIZED APPROACH:

Name of the credit rating agencies used: The Bank has approved following Credit Rating Agencies. Domestic Credit Rating Agencies-. CRISIL, CARE, FITCH India & ICRA. International Credit Rating Agencies: Standard & Poor, Moodys, FITCH. The Bank has also entered into Memorandum of Understanding (MOU) with the approved Domestic Credit Rating Agencies viz. CRISIL, CARE, ICRA and FITCH India for rating all types of exposures.

Types of exposure for which each agency is used: All the above agencies are approved for rating all types of exposures.

A description of the process used to transfer public issue ratings onto comparable assets in the banking books:

The Bank uses only publicly available solicited ratings that are valid and reviewed by the recognized External Credit Rating Agencies, referred as External Credit Assessment Institutions (ECAI).

Wherever available, the Bank uses Facility Rating or Bank Loan Rating for risk weighting the borrowers exposures. Where Issuer Rating is available, the Bank uses such ratings unless the bank loan is specifically rated.

The Bank does not simultaneously use the rating of one ECAI for one exposure and that of another ECAI for another exposure of the same borrower, unless the respective exposures are rated by only one of the chosen ECAIs. Further, the Bank does not use rating assigned to a particular entity within a corporate group to risk weight other entities within the same group.

Running limits such as Cash Credit are treated as long term exposures 5nd accordingly, long term ratings are used for assigning risk weights for such exposures.

While mapping/applying the ratings assigned by the ECAIs, the Bank is guided by the regulatory guidelines/Banks Board approved Policy.

Where exposures/ borrowers have multiple ratings from the chosen ECAIs, the Bank has adopted the following procedure for risk weight calculations:

- If there are two ratings accorded by chosen ECAIs, which map into different risk weights, the higher risk weight is applied.

- If there are three or more ratings accorded by the chosen ECAIs which map into different risk weights, the ratings corresponding to the lowest 2 ratings are referred to and higher of those two risk weights is applied.

TABLE DF 6 - CREDIT RISK MITIGATION - STANDARDIZED APPROACH

QUALITATIVE DISCLOSURES:

Policies and processes for collateral valuation and management: Collaterals and guarantees properly taken and managed would serve to:

Mitigate the risk by providing secondary source of repayment in the event of borrowers default on a credit facility dueto inadequacy in expected cash flowor not

Gain control on the source of repayment in the event ofdefault;

Provide early warning of a borrowers deteriorating repayment ability; and Optimize riskweighted assets andtoaddress Residual Risks adequately.

Collateral Management process and practices of the Bank cover the entire activities comprising security and protection of collateral value, validity of collaterals and guarantees, and valuation/periodical inspection.

Valuation: Both the Fixed and the Current Assets obtained to secure the loans granted by the Bank are subjected to valuation by valuers empanelled by the Bank. Monetary limits of the accounts, asset classification of the borrower, which is to be subjected to valuation, periodicity of valuation, are prescribed in the Bankspolicy guidelines.

Description of the main types of collateral taken by the Bank: The main types of collateral commonly used by the Bank as risk mitigants comprises of Inventories, Book debts, Plant & Machineries, Land & Building, Gold Jewellery, Financial Collaterals (i.e. Bank Deposits, Government Securities issued directly/ by postal departments, equity shares of limited companies approved by the Bank, Life Insurance Policies, Units of Mutual Funds etc.), different categories of moveable & immoveable assets/properties etc.

Main types of Guarantor counterparty and their creditworthiness: The Bank obtains/accepts guarantees of sovereign, sovereign entities (including BIS, IMF, European Central Banks, ECGC and CGTMSE). Besides, the Bank also obtains Personal or Corporate guarantee having adequate net worth, as an additional comfort for mitigation of Credit Risk which can be translated into a direct claim on the guarantor, and are unconditional and irrevocable. The Creditworthiness of the guarantor is normally not linked to or affected by the borrowers financial position. The Bank also accepts guarantee given by State/Centra I Government as a security comfort. Such Guarantees remain continually effective until the facility covered isfully repaid or settled or released.

Credit Risk Mitigation recognized by the Bank for the purpose of reducing capital requirement under New Capital Adequacy Framework (Basel II Norms): The Bank has recognized Cash, Banks own Deposits, Gold & Gold Jewellery as Credit Risk Mitigations for the purpose of reducing capital requirement under the New Capital Adequacy Framework (Basel II Norms).

Information about risk concentration within the mitigation taken: The Bank is in the process of putting in place a data warehouse for a robust Management Information System to facilitate management of Credit Risk and evaluation of effectiveness of collateral management including risk concentrations of collaterals.

TABLE DF 7- SECURITISATION -STANDARDIZED APPROACH

QUALITATIVE DISCLOSURES

The Bank has not securitised any exposure during the financialyear2009-2010.

QUANTITATIVE DISCLOSURES

During the year 2004-05, the Bank had sold 6 NPA accounts amounting to Rs.14.31 crore to Asset Reconstruction Company India Limited (ARCIL) and had received SR for Rs.14.31 crore. As on 31.03.2010, the Bank holds Security Receipts at a Book Value of Rs.7.30 crore, which is f ully provided for.

TABLE DF 8 - MARKET RISK IN TRADING BOOK- STANDARDIZED MODIFIED DURATION APPROACH

QUALITATIVE DISCLOSURES:

Strategies and processes: The overall objective of market risk management is to create shareholder value by improving the Banks competitive advantage and reducing loss from all types of market risk loss events.

While overall leadership and control of the risk management framework is provided by Risk Management Wing, the business units are empowered to set strategy for taking risks and manage the risks.

All issues or limit violations of a pre-determined severity (materiality, frequency nature) are escalated to the Risk Management Wing where the actions to address them are determined by the appropriate authorities. The business units are responsible for implementing the decision taken.

The process aims to

Establish a pro-active market risk management culture to cover market risks.

Comply with all relevant legislation and regulatory requirements relatingto Market Risk

Develop consistent qualities in evolving policies & procedures relating to identification, measurement, management, monitoring, controlling and reviewing of Market Risk.

Establish limit structure and triggers for various kinds of market riskfactors

Establish efficient monitoring mechanism by setting up a strong reporting system.

- Adopt independent and regular evaluation of the market risk measures.

The structure and organization of the relevant risk management function: Market Risk Management structure of the Bank is as under-

Board of Directors

Risk Management Committee of the Board

Asset Liability Management Committee (ALCO)

Market Risk Management Committee

General Manager-R M Wing (Chief Risk Management officer)

Market Risk Management Department, Risk Management Wing HO

- Integrated Mid Office

- Asset Liability Management Section

The scope and nature of risk reporting and/or measurement systems:

The Bank has put in place various exposure limits for market risk management such as Overnight limit, Intraday limit, Aggregate Gap limit, Stop Loss Iimit.VaR limit, Broker Turnover limit, Capital Market Exposure limit, Product-wise Exposure limit, Issuer-wise Exposure limit etc.

A risk reporting system is in place for monitoring the risk limits across different levels of the Bank.

The rates used for marking to market for risk management or accounting purposes are independently verified.

The reports are used to monitor performance and risk, manage business activities in accordance with the Banks strategy.

The reporting system ensures timelines, reasonable accuracy with automation, highlight portfolio risk concentrations, and include written commentary.

The reports are flexible and enhance decision-making process.

Dealing room activities are centralized, and system is in place to monitorthe intra day exposure on realtime basis.

The reporting formats & the frequency are periodically reviewed to ensure their adequacy for risk monitoring, measuring and mitigation.

Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants: Various Board approved policies viz., Market Risk Management Policy, Country Risk Management Policy, Counterparty Bank Risk Management Policy, Investment Policy, Liquidity Risk Management Policy and ALM Policy are put in place for market risk management. Market Risk Management Policy provides the framework for risk identification, assessment and measurement and mitigation, risk limits & triggers, risk monitoring and reporting.

The Bank has developed an internal model for country risk rating based on various parameters like GDP growth, inflation, trade balance etc for risk categorization of the countries to allocate limit for taking exposure to various countries.

The Bank has in place a scoring model for categorization of foreign banks under Counterparty Risk Management Policy. The various exposure limits are set based on the points secured by the counterparties as per the scoring matrix.

Liquidity Risk Management Policy lays down various guidelines to ensure that the liquidity position is comfortable attimes of stress by formulating contingency funding plan. Tolerance levels are incorporated under each time frame and any breach of it would signal a forthcoming liquidity constraint.

TABLE DF 9 - OPERATIONAL RISK

QUALITATIVE DISCLOSURES:

Strategies and processes: The Operational Risk Management process of the Bank is driven by a strong organizational culture and sound operating procedures, involving corporate values, attitudes, competencies, internal control culture, effective internal reporting and contingency planning. Policies are put in place for effective management of Operational Risk in the Bank.

The structure and organization of the relevant risk management function:

The Operational Risk Management Structure in the Bank is as under:

- Board of Directors

- Risk Management Committee of the Board

- Operational Risk Management Committee (ORMC)

- CM of Risk Management Wing, HO (Chief Risk

Management Officer)

- ORM Specialists in functional Wings, HO

- Operational Risk Management Department (ORMD), HO

- Risk Officers - The nominated Executive at Circles/Treasury Wing

- Risk Management and Credit Review Sections at Circles

- Risk Management Officers (R.M.O) at Branches/ Offices.

The scope and nature of risk reporting and/or measurement systems: The Risk reporting consists of operational risk loss incidents/events occurred in branches/offices relating to people, process, technology and external events. The data collected from different sources are used for preparation of Risk Matrix consisting of 7 loss event types and 8 business lines recognized by the RBI.

Policies for hedging"and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants: The Bank has put in place the following polices pertaining to Operational Risk Management.

- Operational Risk Management Policy: The Policy covers the terms of Operational Risk, risk management structure, identification, assessment, measurement and monitoring of Operational Risk.

- Outsourcing Policy: The Policy covers all types of outsourcing arrangements including financial services entered into by the Bank with a service provider located in India or elsewhere. The Policy also covers the activities, which are part of core function of the management and are not permitted to be outsourced.

- Policy on Insurance Cover for Operational Risks: The

Policy covers role of insurance in operational risk management as a mitigation measure, objectives and advantages of insurance policy, evaluation while taking insurance policies etc.

- Business line Policy: Based on RBI guidelines, Business line Policy is put in place, which is being reviewed annually.

- Legal Risk Management Policy: The Bank has put in place Legal Risk Management Policy, which covers objectives, assessment, nature, mitigation of Legal Risk etc.

- Policy on Business Continuity Plan for Overseas Branches: The Bank has put in place policies for Business Continuity Plan which covers London, Hong Kong, Shanghai Branches.

- Compliance Policy: The Bank has in place a Comprehensive Compliance Policy. As per the Poll j adopted by the Bank, suitable organizatic structure has been laid down defining the roles and responsibilities for Compliance Officers of various Wings, Departments, Subsidiaries, Circle Offices, other operating units, branches both in India and abroad as also Exchange Houses abroad, so as to address group wide and multi jurisdictional Compliance Risk. Suitable reporting system is also put in place to ensure effective implementation of Compliance Policy Bank wide.

Operational Risk capital assessment: The Bank has adopted Basic Indicator Approach for calculating capital charge for Operational Risk, as stipulated by the Reserve Bankof India.

TABLE DF10 - INTEREST RATE RISK IN THE BANKING BOOK (IRRBB)

QUALITATIVE DISCLOSURES:

With the deregulation of interest rates, liberalization of exchange rate system, development of secondary markets for bonds and deepening and widening of financial system, Banks are exposed to Interest Rates Risk, Liquidity Risk, Exchange Rate Risk etc., Asset Liability Management outlays a comprehensive and dynamic framework for measuring, monitoring and managing various risks. Primary objective of ALM is maximizing the Net Interest Income within the overall risk bearing capacity of the Bank.

Various Stress Tests are conducted by varyingthe liquidity and interest rate structure to estimate the resilience and ortheimpact.lt evaluates the Earnings at Risk by means of parallel shift in the interest rates across assets and liabilities as also basis risk. The Market Value of Equity is determined by means of Duration Gap Analysis and Modified Duration by varying interest rates and its correspondingcorrelation to equity.

The StressTests on liquidity are carried out by assuming stress conditions wherein Embedded Options are exercised like prepayment of loans and premature closure of deposits much above the revelations of the Behavioral Studies to test the stress levels. Behavioral Studies are also being conducted on various parameters to study the secular and seasonal trends to arrive at more accu rateflows.

The ALCO decides on the fixation of interest rates on both assets and liabilities after considering the macro economic outlook - both global and domestic, as also the micro aspects like cost-benefit, spin offs, financial inclusion and a host of otherfactors.

Strategies and processes: The strategy adopted for mitigating the risk is by conducting Stress Tests before hand by simulating various scenarios so as to be in preparedness for the plausible event and if possible in mitigating it. The process for mitigating the risk is initiated by altering the mix of asset and liability composition; bringing the duration gap closer to unity, change in interest rates etc.

The structure and organization of the relevant risk management function: The ALM section reports to the General Manager of RM Wing and ALM reports on various subjects/ topics along with the Structural Liquidity and Interest Rate Sensitivity Statement and short term

dynamic liquidity statement is presented to the ALCO on fortnightly basis, and to the Risk Management Committee of the Board and the Board of Directors on a quarterly basis. The statement of Structural Liquidity is prepared on a daily basis. The structural liquidity statements as on the first and third Wednesday of every month is submitted to the Reserve Bank of India and also placed to the ALCO. The ALCO is chaired by the Chairman & Managing Director of the Bank/Executive Directors and has GMs of functional Wings as its members.

The scope and nature of risk reporting and /or measurement systems: The liquidity and interest rate sensitivity statements reveal the liquidity position and the Interest Rate Risk of the Bank. With the approval of the Board, tolerance level is stipulated, within which the Bank is to operate. Any breach in the limits is reported to the ALCO, which in turn directs remedial measures to be initiated.

Policies for hedging and or/mitigating risk and strategies and process for monitoring the continuing effectiveness of hedges/mitigants: Mitigating measures are initiated in the ALCO on how to contain the Liquidity Risk and Interest Rate Risk. The fortnightly statements presented to the ALCO reveal the liquidity and interest rate structure based on residual maturity. The gap position under various time buckets denotes the Liquidity Risk and Interest Rate Risk. The ALCO on studying the gap position in detail evolves the strategies to reduce the mismatches in order to reducethe Liquidity and Interest Rate Risks.

Prudential Floor limit for minimum capital requirement:

The guidelines for implementation of the New Capital Adequacy framework issued by RBI, stipulates higher of the following amounts as minimum capital required to be maintained bytheBankason 31.03.2010.

a. Minimum capital as per Basel II norms for Credit, Market and Operational risks.

b. 80% of Minimum capital as per Basel I norms for Credit and Market risks.

The minimum capital required to be maintained by the Bank as on 31-03-2010 is 80% of the capital requirement under Basel I Norms i.e. Rs.12756.93 Crore or capital requirement as per Basel II Norms i.e. Rs.13556.10 crore, whichever is higher.

However, the actual capital (Tier I and Tier II) maintained by the Bank as on 31-03-2010 is Rs. 20232.58 which is above the prudential floor limit.

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