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Notes to Accounts of DCB Bank Ltd.

Mar 31, 2015

1 CAPITAL

1.1 During the financial year 2014-15, the Bank issued 30,432,136 equity shares to Qualified Institutional Investors at Rs. 82.15 per share. Net of issue costs of Rs. 5.39 crore, this resulted in an increase of Rs. 30.43 crore in Share Capital and Rs. 214.18 crore in Securities Premium Account.

1.1 Sale and Transfers to / from HTM Category

Other than one-time transfer of securities to / from HTM category permitted by the RBI at the beginning of the accounting year and sale to the RBI under pre-announced Open Market Operations (''OMO'') auctions, the Bank has not carried out any sale and transfer of securities to / from HTM category during the financial year 2014-15.

1.2 Disclosures on risk exposure in derivatives:

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bank''s Treasury Back Office and Mid Office. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back-to-back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

5.7 Details of financial assets (including written off accounts) sold to Securitization / Reconstruction Company for Asset Reconstruction

The Bank has sold certain assets to an asset reconstruction company (ARC) in terms of the guidelines issued by the RBI. For the purpose of the valuation of the underlying security receipts issued by the underlying trusts managed by ARC, the security receipts are valued at their respective NAVs as advised by the ARC. The details of the assets sold are given in the table below:

2 BUSINESS RATIOS

1. Working funds have been considered as average of total monthly assets (excluding accumulated losses, if any) as reported to the Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the financial year.

2. Assets have been considered as average of total monthly assets (excluding accumulated losses, if any) as reported to the Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949.

3. For the purpose of this ratio, employees have been considered as the average of the total employees at the end of each month of the year.

4. For the purpose of this ratio, business per employee has been recorded as deposits plus advances (excluding interbank deposits).

(B) Qualitative Disclosures

Effective January 1, 2015, the Bank maintains Liquidity Coverage Ratio (LCR) which is a ratio of High Quality Liquid Assets (HQLA) to expected net cash outflow over the next 30 calendar days, as per RBI guidelines. The requirements start with minimum LCR of 60% with effect from January 1, 2015 and reach the minimum required level of 100% by January 1, 2019.

The objective of the LCR is to ensure that the Bank maintains an adequate level of unencumbered HQLAs that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario specified by supervisors. Further at a minimum, the stock of liquid assets should enable the Bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken.

The numerator, High Quality Liquid Assets comprises mainly of excess SLR securities, cash, excess CRR balances and government securities up to another 5 per cent of Net Demand and Time Liabilities (NDTL'') while the denominator i.e cash outflow over next 30 days comprises mainly of the deposit maturities in next 30 day period and other cash outflows net of the cash inflows in next 30 day period. As a part of its strategy to manage the liquidity requirements, the Bank has been consistently investing in SLR securities of about 2% to 4% of its NDTL, over and above the regulatory SLR requirement.

In compliance with the above guidelines, the Bank has started computing LCR from January 2015 onwards. The aforementioned table provides the LCR computation for the three months period i.e January 2015 to March 2015.

HQLA of the Bank comprises of mainly level 1 assets as per RBI guidelines i.e. government securities apart from cash and excess CRR.

The major source of funding for the Bank is the deposits from customers. The Bank does not rely significantly on interbank borrowings. However, refinance from NABARD and NHB is occasionally availed against the eligible assets. Further, the Bank has committed lines of credit from a few public sector banks.

The Bank does not have any derivative exposures other than the forward contracts entered by the Bank which does not affect LCR of the Bank significantly.

Apart from computing the LCR in the domestic currency, the Bank is also required to compute LCR in the currency in which aggregate liabilities denominated in that currency amount to 5 per cent or more of the Bank''s total liabilities. To comply with the said requirement, the Bank computes the LCR in USD as the dollar denominated liabilities are more than 5% of the Bank''s total liabilities. During the three months of reporting, the cash inflows in next 30 days denominated in the USD were usually higher than the cash outflows in next 30 days denominated in USD.

The liquidity management of the Bank is centralised at Treasury. Treasury Front Office shall, depending upon the expected outflows and inflows for the day, decide to borrow or lend to maintain optimal liquidity. Treasury Back Office monitors the expected inflows and outflows by way of maintaining a register which records the expected outflows and inflows that are informed in advance by the branches as well as by Treasury Front Office before making any investment. For this purpose, branches are required to inform the Treasury Back Office in advance of any expected large flows above Rs. 5 crore. Also, Treasury Back Office takes into account the deposits that are scheduled to mature in order to arrive at the expected cash outflows for that particular day. As a part of effective liquidity management, Bank always maintains excess SLR securities which can be pledged to meet the shortfall in the intraday liquidity, if any.

10.4 Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2015 and March 31, 2014, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

11 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH THE RBI GUIDELINES 11.1 Employee Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund included under Employee cost amounted to Rs. 5.87 crore for the year ended March 31, 2015 (Previous year Rs. 4.83 crore).

The Bank has a gratuity trust approved by Income Tax Department namely "DCB Bank Limited Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of Rs. 10.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below:

Experience adjustment

All the plan assets are invested by the gratuity trust namely DCB Bank Limited Staff Gratuity Fund in Government securities (CY about 30%, PY about 30%), high rated corporate bonds (CY about 48%, PY about 48%), units of mutual funds/ insurance companies (CY about 16%, PY about 13%) and others (CY about 6%, PY about 9%) set up as dedicated funds for management of gratuity funds.

The estimates of future salary increases, considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

The contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs. 2.33 crore.

11.2 Earnings Per Share (''EPS'')

The Bank reports basic and diluted earnings per equity share in accordance with AS-20, "Earnings per Share". The dilutive impact is due to stock options granted to employees by the Bank.

11.3 Employees'' Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments, including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held on September 11, 2006 had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of shareholders was obtained at the Extraordinary General Meeting held on December 15, 2006 in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank granted the following options.

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

Activity in options outstanding under Employees Stock Option Plan

Fair value Methodology

The fair value of options used to compute proforma net income and earnings per equity share have been estimated using the binomial option-pricing model. The Bank estimated the volatility based on the historical share prices.

The various assumptions considered in the pricing model for ESOPs granted during the year ended March 31, 2015 were:

11.4 Segment Information

Part A: Business Segments

1. Revenue i.e. Total Revenue includes inter segment revenue of Rs. 649.04 crore (Previous year Rs. 564.43 crore). Inter Segment revenue represent the transfer price received from and paid to the treasury unit respectively. Excluding this, the revenue for the Bank is Rs. 1,588.14 crore (Previous year: Rs. 1,266.92 crore).

2. Excluding depreciation and provision for taxes

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

11.5 Related Party Transactions

Related Party Transactions in terms of AS-18 on "Related Party Disclosures" are disclosed below.

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

Financial Year 2014-15

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 6.01 crore*

* The above includes perquisite value of stock options exercised of Rs. 1.24 crore. This perquisite value of stock options includes Rs. 0.40 crore, for options exercised and pending for allotment.

Financial Year 2013-14

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 3.77 crore*

* The above includes increment arrears of Rs. 0.32 crore and bonus for FY 2012-13 of Rs. 0.60 crore which is paid in the FY 2014-15.

11.6 Deferred Tax

a. At each Balance Sheet date, the Bank re-assesses unrecognised Deferred Tax Assets. The Bank recognises previously unrecognised deferred tax assets to the extent that it has become reasonably certain that sufficient future taxable income will be available against which such deferred tax assets can be realised.

11.7 Contingent Liabilities

Description of Contingent Liabilities:

Sr. No. Contingent Liability (*) Brief Description

1. Claim against the Bank not An amount of Rs. 44.85 crore is outstanding as at March 31, 2015 (Previous year: Rs. 44.46 crore), acknowledged as Debts as claims against the Bank not acknowledged as Debts, including Rs. 30.00 crore being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. (Also refer para 17 on pending litigation cases)

2. Liability on account of An amount Rs. 1,172.27 crore is outstanding as at March 31, 2015 (Previous year: outstanding forward Rs. 1,281.64 crore). The Bank enters into foreign exchange contracts on its own account and for exchange and derivative customers and currency options/swaps on a pure hedge basis. Forward exchange contracts contracts are commitments to buy or sell foreign currency at a future date at the contracted rate.

3. Guarantees given on An amount Rs. 1,204.16 crore is outstanding as at March 31, 2015 (Previous year: behalf of constituents, Rs. 1,179.34 crore). As a part of its commercial banking activity, the Bank issues Letters of Acceptances, Credit and Guarantees on behalf of its customers. Endorsements and Others

4. Other items for which the An amount Rs. 35.28 crore is outstanding as at March 31, 2015 (Previous year: Rs. 15.60 crore). Bank is contingently liable These include liability on account of credit enhancement relating to the sale of mortgage loan portfolio undertaken by the Bank and the unclaimed liabilities where amount due has been transferred to Depositor Education and Awareness Fund (DEAF) with RBI.

*Also refer Schedule — 12.

12.3 Provisioning Coverage Ratio

In accordance with the RBI guidelines, the Bank''s Provision Coverage Ratio at March 31, 2015 is 74.66% (March 31, 2014: 80.54%).

12.4 Depositor Education and Awareness Fund (DEAF)

In accordance with the guidelines issued by the RBI, the Bank transfers the amount to the credit of any account which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years to the DEAF.

12.5 Unhedged Foreign Currency Exposure (UFCE)

In accordance with the RBI guidelines on banks'' exposures to entities with Unhedged Foreign Currency Exposure (''UFCE''), the Bank has put in place a mechanism to seek information from its borrowers and to evaluate the currency induced credit risk. In the case of listed entities, the Bank obtains information relating to unhedged positions based on the latest available audited / reviewed financial statements; whilst in the case of unlisted / private companies, the Bank obtains the aforesaid information based on the latest available audited financial statements (not exceeding a financial year) so as to estimate the extent of likely loss and to provide for incremental capital or to recognise incremental provision in accordance with the aforesaid guidelines. Further, as per the above-mentioned guidelines, the Bank obtains audited and certified UFCE information from the statutory auditors of the borrowers on an annual basis. In the case of smaller entities i.e. entities with exposure to banking industry of less than Rs. 25 crore and as identified by the Bank as having any foreign exchange exposure, the Bank recognises an incremental provision at 10 basis points on all such exposures.

12.8 Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2015 aggregate Rs. 83.26 crore (previous year: Rs. 187.88 crore). In the Bank''s assessment, no financial impact is likely to arise.

12.9 Small and Micro Industries

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

13 OTHER MATTERS

13.1 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2015 (Previous year Rs. 1 crore).

13.2 Changes in accounting estimates

Effective April 1, 2014, Bank has changed the estimated useful life of certain group of assets such as office equipment, electrical fittings and furniture and fixtures in accordance with the recommended useful life as per Part C of Schedule II to the Companies Act, 2013. Pursuant to the transitional provisions under the aforesaid guidelines, the carrying amount of fixed assets amounting to Rs. 6.12 crore where, the remaining estimated useful life as on the effective date is "nil" has been adjusted through retained earnings on approval from the Reserve Bank of India. Further, pursuant to the aforesaid change in the estimated useful life of fixed assets, an additional charge on depreciation amounting to Rs.2.79 crore has been debited through the Profit and Loss Account.

13.3 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 31, 2009 which resulted in a revaluation gain of Rs. 52.02 crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 1.19 crore has been accounted as depreciation and reduced from the Revaluation Reserve. (Previous year: Rs. 1.19 crore).

13.5 Remuneration a) Qualitative disclosures

Remuneration Committee

The Nomination & Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bank''s compensation practices.

The Bank''s objective is to maintain a Compensation Policy that:-

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination & Remuneration Committee.

The Nomination & Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration and risks.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision Report on Range of Methodologies for Risk and Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

Performance linked variable compensation

The variable compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance. Variable compensation of all Whole Time Directors (WTD'') / Chief Executive Officer (''CEO'') will not be more than 70% of the fixed compensation. Any variable compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred variable compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilises performance payout / bonus as the form of variable remuneration. The Bank shall give performance payouts to promote a healthy financial performance by its staff.

15 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2015 and in the previous year except the following:

Effective April 1, 2014 the Bank has changed the estimated useful life of a certain group of assets in line with the recommended useful life as per Part C of Schedule II to the Companies Act, 2013. As per para 7 (b) of Notes to Part C, where the remaining useful life of an asset as on the effective date is nil, the carrying amount of the asset should be recognised in the retained earnings. Such carrying amount as on April 1, 2014 for the Bank was Rs. 6.12 crore. The Bank has adjusted this carrying amount from retaining earnings on approval from the Reserve Bank of India (''RBI'').

16 Net overnight open position outstanding as on March 31, 2015 was Rs. 15.44 crore (March 31, 2014: Rs. 11.04 crore).

17 The Bank''s pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. Refer para 11.7 for details on contingent liabilities.

18 The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account.

19 In view of the Bank''s past losses as computed under section 198 of the Companies Act, 2013 the requirements of Section 135 (5) relating to CSR spends as per the Bank''s CSR policy were not applicable for the year ended 31 March 2015.

20 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

21 These are the notes appended to and forming part of the financial statements for the year ended March 31, 2015.


Mar 31, 2014

1. As on 31.03.2014 As on 31.03.2013 (Rs. in 000''s) (Rs. in 000''s)

I. Claims against the bank not acknowledged as debts 444,614 451,346

II. Liability for partly paid investments - -

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

(a) Forward Contracts 12,816,430 31,504,363

(b) Interest Rate Swaps and Currency Swaps - -

(c) Foreign Currency Options - -

IV. Guarantees given on behalf of constituents

(a) In India 6,810,379 6,206,499

(b) Outside India 2,484,134 4,645,814

V. Acceptances, Endorsements and other obligations 2,498,837 1,801,463

VI. Other items for which

1 CAPITAL

2. Sale and Transfers to / from HTM Category

Other than one–time transfer of securities to / from HTM category permitted by the RBI at the beginning of the accounting year, one–time transfer permitted in terms of the RBI circular DBOD.BP.BC.No.41/21.04.141/2013–14 dated August 23, 2013 on "Investment portfolio of banks – Classification, Valuation and Provisioning" and sale to the RBI under pre–announced Open Market Operations (''OMO'') auctions, the Bank has not carried out any sale and transfer of securities to / from HTM category during the financial year 2013–14.

3. Disclosures on risk exposure in derivatives: a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods.

The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bank''s Treasury Back Office and Mid Office. Exposure reports are submitted to the

Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back-to-back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

4. Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2014 and March 31, 2013, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

5. COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES

5.1 Staff Retirement Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund amounted to Rs.4.83 crore for the year ended March 31, 2014 (Previous year Rs.4.28 crore).

The Bank has a gratuity trust approved by Income Tax Department namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of Rs.10.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely "Development Credit Bank Ltd. Staff Gratuity Fund" in Government securities (CY about 35%, PY about 35%), high rated corporate bonds (CY about 55%, PY about 55%), Money Market Instruments (CY about 1%, PY about 1%) and units of mutual funds/ insurance companies (CY about 9%, PY about 9%) set up as dedicated funds for management of gratuity funds.

The estimates of future salary increases, considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average long–term rate of return expected on investments of the Fund during the estimated term of the obligations.

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

5.2 Employees'' Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments, including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held on September 11, 2006 had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of shareholders was obtained at the Extraordinary General Meeting held on December 15, 2006 in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank did not grant any options.

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

Activity in options outstanding under Employees Stock Option Plan

Fair value Methodology

The fair value of options used to compute preformed net income and earnings per equity share have been estimated using the binomial option- pricing model. The Bank estimated the volatility based on the historical share prices. There was no option granted during the year ended March 31, 2014.

5.3 Segment Reporting

Part A: Business Segments

As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate Banking, Retail Banking and Other Banking Operations.

Treasury Operations includes all financial markets activities undertaken on behalf of the Bank''s customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions.

Corporate Banking includes lending, deposit taking and other services offered to corporate customers.

Retail Banking includes lending, deposit taking and other services offered to retail customers.

Other Banking Operations includes para banking activities like third party product distribution, merchant banking, etc.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

5.4 Related Party Transactions

Related Party Transactions in terms of AS-18 on "Related Party Disclosures" are disclosed below.

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

Financial Year 2013-14

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs.3.77 crore*

* The above includes increment arrears of Rs.0.32 crore and bonus for FY 2012-13 of Rs.0.60 crore which will be paid in the FY 2014-15.

Financial Year 2012-13

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs.3.12 crore

5.5 Deferred Tax

a. In accordance with AS-22 on "Accounting for Taxes on Income", the Bank has recognised Deferred Tax Assets on such timing differences where there is a virtual certainty based on contracts and arrangements in place that such deferred tax assets can be reversed. Deferred Tax Assets have been recognised on unabsorbed depreciation and restricted to the extent of deferred tax liability arising on account of timing difference arising between book depreciation and tax depreciation and Special Reserve created and maintained u/s 36(1)(viii) of the Income Tax Act, 1961.

5.6 Provisions, Contingent Liabilities and Contingent Assets Description of Contingent Liabilities

Sr. No. Contingent Liability (*) Brief Description

1. Claim against the Bank not acknowledged An amount of Rs.44.46 crore is outstanding as at March 31, 2014, as claims as Debts against the Bank not acknowledged as Debts, including Rs.30.00 crore being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

2. Liability on account of outstanding The Bank enters into foreign exchange contracts on its own account and forward exchange and derivative contracts for customers and currency options/ swaps on a pure hedge basis. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate.

3. Guarantees given on behalf of As a part of its commercial banking activity, the Bank issues Letters of Credit constituents, Acceptances, Endorsements and Guarantees on behalf of its customers. and Others

4. Other items for which the Bank is These include liability on account of credit enhancement relating to the sale of contingently liable. mortgage loan portfolio undertaken by the Bank.

* Also refer Schedule – 12.

6. Provisioning Coverage Ratio

In accordance with the RBI circular, the Bank''s Provision Coverage Ratio at March 31, 2014 is 80.54% (previous year: 85.71%).

7. Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2014 aggregate Rs.187.88 crore (previous year: Rs.418.28 crore). In the Bank''s assessment, no financial impact is likely to arise.

8. Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments.

9 OTHER MATTERS

9.1 Disclosure of penalties imposed by RBI

RBI, vide its Speaking Order dated July 12, 2013 had directed the Bank to pay a penalty of Rs.1 crore in terms of Section 47 A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, for non compliance of RBI instructions. The Bank paid the penalty on July 17, 2013.

No penalties were imposed by the RBI on the Bank during the year ended March 31, 2013.

9.2 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 31, 2009 which resulted in a revaluation gain of Rs.52.02 crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs.1.19 crore has been accounted as depreciation and reduced from the Revaluation Reserve for the year ended March 31, 2014 (Previous year: Rs.1.19 crore).

9.3 Remuneration

a) Qualitative disclosures Remuneration Committee

The Nomination & Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bank''s compensation practices.

The Bank''s objective is to maintain a Compensation Policy that:-

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination & Remuneration Committee.

The Nomination & Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration and risks.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision Report on Range of Methodologies for Risk and Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

Performance linked variable compensation

The Variable Compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance.

Variable Compensation of all Whole Time Directors (''WTD'') / Chief Executive Officer (''CEO'') will not be more than 70% of the Fixed Compensation. Any Variable Compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred variable compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilises performance payout / bonus as the form of variable remuneration. The Bank shall give performance payouts to promote a healthy financial performance by its staff.

9.5 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2014. (Previous year: Nil)

9.6 Net overnight open position outstanding as on March 31, 2014 was Rs. (11.04) crore (Previous year Rs.11.16 crore).

10 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

10 These are the Notes appended to and forming part of the Financial Statements for the year ended March 31, 2014. the bank is contingently liable 156,004 156,004

TOTAL 25,210,398 44,765,489


Mar 31, 2013

1 CAPITAL

1.1 During the financial year 2012—13, the Bank issued 9,300,000 equity shares on preferential basis at Rs. 43.68 per share. Net of issue costs, this resulted in an increase of Rs. 9.30 crore in Share Capital and Rs. 30.93 crore in Share Premium Account.

In connection with this issue, the Bank has incurred share issue expenses aggregating to Rs. 0.39 crore. The Bank has utilized the share premium account for meeting the said share issue expenses.

2.1 Sale and transfers to / from HTM Category

Other than one-time transfer of securities to / from HTM category permitted by the RBI at the beginning of the accounting year and sales to the RBI under pre-announced OMO auctions, the Bank had not carried out any sales and transfers of securities to / from HTM category during the financial year 2012-13.

2.2 Disclosures on risk exposure in derivatives:

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in sanctioning of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principle value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bank''s Treasury and Settlements Department. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back to back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the net MTM if any is accounted in the Profit and Loss Account on monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

Coupon payments on IRS are settled on a net basis for individual trades on settlement date. Interest income is recognized on settlement date. The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

Note:

1 Currency derivative includes currency options and cross currency swaps.

2 The above does not include MTM on transaction done to hedge interest bearing asset or liability as these are not marked to market but accounted on accrual basis.

3 Credit exposure is calculated as per the Current Exposure method.

4 Since the portfolio of currency derivatives is a completely hedged book (including transaction done to hedge interest bearing asset or liability), the Bank has not computed the PV01 for these derivatives.

5 The Bank has computed maximum and minimum of PV01 for the year based on balances at the end of every month.

6 Foreign exchange forward contracts have not been included in the above disclosure.

7 The amount of notional principal shown above is converted as per the closing rate of FEDAI for outstanding foreign currency items.

1. Includes interest capitalisation of Rs. 1.23 crore (Previous year: Rs. 1.50 crore).

2. Includes addition to NPAs net off provisions on such NPAs and additional provision on existing NPAs.

3. Includes interest capitalisation of Rs. NIL (Previous year: Rs. 0.05 crore).

4. Includes floating provision of Rs. 1.08 crore (Previous year: NIL).

1. Working funds have been considered as average of total assets (excluding accumulated losses, if any) as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the 12 months of the financial year.

2. Assets have been considered as average of total assets (excluding accumulated losses, if any) as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949.

3. For the purpose of this ratio, employees have been considered as the average of the total employees at the end of each month of the year.

4. For the purpose of this ratio, business per employee has been recorded as deposits plus advances (inter bank deposits have been excluded).

Note: Advances reported above include both funded and non—funded loan exposure with limits or outstanding whichever is higher, for other than term loans and NPAs. In case of term loans and NPAs, the outstanding amount has been considered for this purpose. The Advances figure above also includes non—inter bank credit exposure on derivatives including forward exchange contracts.

Note: Exposures reported above include both funded and non—funded exposures [including advances and investments (other than SLR Investments and deposits placed with NABARD, SIDBI & NHB)] with limits or outstanding whichever is higher, for other than term loans and NPAs. In case of term loan and NPAs, the outstanding amount has been considered for this purpose. The exposure figure above also includes non—inter bank credit exposure on derivatives.

3.1 Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2013 and March 31, 2012, the Bank had not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL).

During the years ended March 31, 2013 and March 31, 2012, the Bank had not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Group Borrower Limit (GBL).

4 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES

4.1 Staff Retirement Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund amounted to Rs. 4.28 crore for the year ended March 31, 2013 (Previous year Rs. 4.22 crore).

The Bank has a gratuity trust approved by Income Tax Department namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of Rs. 10.00 lakh for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely "Development Credit Bank Ltd. Staff Gratuity Fund" in Government securities (CY about 35%, PY about 34%), high rated corporate bonds (CY about 55%, PY about 58%), Money Market Instruments (CY about 1%, PY about 0%) and units of mutual funds/ insurance companies (CY about 9%, PY about 8%) set up as dedicated funds for management of gratuity funds. The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

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

With respect to defined benefit plans, the Bank is yet to determine the contributions expected to be paid to the plans during the annual period beginning April 1, 2013.

4.2 Earnings Per Share (''EPS'')

The Bank reports basic and diluted earnings per equity share in accordance with AS—20, "Earnings per Share". The dilutive impact is due to stock options granted to employees by the Bank.

4.3 Employees'' Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held in September 2006, had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of Shareholders was obtained at the Extra—Ordinary General Meeting held on 15th December, 2006, in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank granted the following options:

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

4.4 Segment Reporting

Part A: Business Segments

As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate Banking, Retail Banking and Other Banking Operations.

Treasury Operations includes all financial markets activities undertaken on behalf of the Bank''s customers, proprietary trading, maintenance of reserve requirements and resource mobilization from other banks and financial institutions.

Corporate Banking includes lending, deposit taking and other services offered to corporate customers.

Retail Banking includes lending, deposit taking and other services offered to retail customers.

Other Banking Operations includes para banking activities like third party product distribution, merchant banking, etc.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

4.5 Related Party Transactions

Related Party Transactions in terms of AS—18 on "Related Party Disclosures" are disclosed below:

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

Financial Year 2012-13

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 3.12 crore

Financial Year 2011-12

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 2.86 crore

4.6 Deferred Tax

a. In accordance with AS—22 on "Accounting for Taxes on Income", the Bank has recognized Deferred Tax Assets on such timing differences where there is a virtual certainty based on contracts and arrangements in place that such deferred tax assets can be reversed. Deferred Tax Assets have been recognized on unabsorbed depreciation and restricted to the extent of deferred tax liability arising on account of timing difference arising between book depreciation and tax depreciation.

5.1 Provisioning Coverage Ratio

In accordance with RBI circular, the Bank''s Provision Coverage Ratio at March 31, 2013 is 85.71% (previous year: 91.17 %).

5.2 Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2013 aggregate to Rs. 418.28 crore (previous year: Rs. 189.31 crore). In the Bank''s assessment, no financial impact is likely to arise.

5.3 Small and Micro Industries

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

5.4 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2013.

During the year ended March 31, 2012, RBI vide its letter dated April 26, 2011 had directed the Bank to pay a penalty of Rs. 10 lakh. The penalty had been imposed in terms of provisions under section 47 A(1)(b) read with sec 46(4)(i) of the Banking Regulations Act, 1949 for contravention of statutory and regulatory guidelines in few derivative contracts entered into by the Bank during FY 06-07 & 07-08. The Bank has since paid the penalty vide pay order dated May 05, 2011.

6.1 Changes in accounting policies

a) Consequent to migration of treasury software to new integrated solution, the Bank changed the accounting policy to compute profit or loss on sale of investment without utilizing depreciation. Consequently, profit/(loss) on sale of investments under Schedule-14 and provision for investments under provision & contingencies for the year was lower by Rs. 0.28 crore. There is no impact on overall profit after tax during the year.

b) Consequent to migration of treasury software to new integrated solution, the Bank changed the methodology for calculating premium amount on HTM security from each transaction level on FIFO basis to overall security level on a weighted average cost basis. This Premium is amortized over the remaining maturity period of the security on a straight-line basis. Consequently, profit after tax for the year was higher by Rs. 0.19 crore.

6.2 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 2009 which resulted in a revaluation gain of Rs. 52.02 crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 1.19 crore has been accounted as depreciation and reduced from the Revaluation Reserve for the year ended March 31, 2013 (Previous Year: Rs. 1.19 crore).

6.3 Unamortized Pension and Gratuity Liabilities

Consequent on the re-opening of pension option to employees of Public Sector Banks and enhancement in gratuity limits following the amendment to Payment of Gratuity Act, 1972, the RBI vide its circular DBOD.No.BP.BC.80/21.04.018/2010-11 dated February 9, 2011 permitted banks to amortize over a period of five years beginning with the financial year ending March 31, 2011 the expenditure incurred by them on re-opening of pension option as well as enhancement in gratuity limits as aforesaid, subject to certain conditions.

The Bank does not have any unamortized Pension and Gratuity Liabilities in its books as on March 31, 2013.

6.4 Remuneration

a) Qualitative disclosures Remuneration Committee

The Nomination & Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bank''s compensation practices.

The Bank''s objective is to maintain a Compensation Policy that:—

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination & Remuneration Committee.

The Nomination & Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration & risks.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision Report on Range of Methodologies for Risk & Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

Performance linked variable compensation

The Variable Compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance.

Variable Compensation of all WTD / CEO will not be more than 70% of the Fixed Compensation. Any Variable Compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred Variable Compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilizes Performance Payout / Bonus as the form of variable remuneration. The Bank shall give Performance Payouts to promote a healthy financial performance by its staff.

7 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2013. (Previous year: Nil)

8 Net overnight open position outstanding as on March 31, 2013 was Rs. 11.16 crore (Previous year Rs. 12.73 crore).

9 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

10 These are the Notes appended to and forming part of the Financial Statements for the year ended March 31, 2013.


Mar 31, 2010

I. BACKGROUND

Development Credit Bank Limited ("DCB" or "the Bank"), incorporated in fviumbai, India is a publiciy held banking company engaged in providing banking and financial services. DCB is a banking company governed by the Banking Regulation Act, 1949.

1. SHARE CAPITAL ft RESERVES

1.1 During the financial year 2009-10 the Bank issued 23,725,835 shares to Qualified Institutional Investors® Rs. 34.14 per share. Net of issue costs, this resulted in an increase of Rs. 23.73 Cr. in Share Capital and Rs. 54.61 Cr. in Share Premium Account.

2. SUBORDINATED DEBT THROUGH PRIVATE PLACEMENT OF BONDS

During the year the Bank raised Rs, 65 Cr. of subordinated debt. The subordinated debts raised through private placement of bonds are Unsecured Redeemable Non-Convertible Subordinated Tier II bonds in the nature of Promissory Notes to augment capital adequacy.

3. Disclosures on risk exposure in derivatives

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Banks market risk unit plays a key role in sanctioning of the limits, and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principle value of product specific gaps, maximum tenor, overall outstanding and also the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Banks Treasury and Settlements Department. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back to back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the Notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit & Loss account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the net MTM if any is accounted in the Profit & Loss account on monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

Coupon payments on IRS are settled on a net basis for individual trades on settlement date. Interest income is recognized on settlement date.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

4 Details of Single Borrower Limit (SBL)/Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its net-worth to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board. During the year ended March 31, 2010 the Bank had extended an exposure of Rs. 120.00 Cr. to Simplex Infrastructure Ltd. with the specific approval of its Board of Directors, which is within the overall limits prescribed above, though exceeding the basic limit of 15% and the additional limit of 5% for infrastructure projects. There was no exposure exceeding the GBL in FY 2009-10 and no exposure exceeding the SBL and GBL during the previous financial year ended March 31,2009.

5 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES

5,1 Staff Retirement Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund amounted to Rs. 3.37 Cr. for the year ended March 31, 2010 (Previous year Rs. 4.37 Cr.),

The Company has a gratuity trust approved by Income Tax Department namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half months last drawn salary for each completed year of service, subject to a cap of Rs. 3.50 lakhs for employees who joined after 01.04.2006 and without any such limit for other employees.

5.2 Employees Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and/or the Nomination Committee to grant such number of equity shares and/or equity linked instruments including options of the Bank not exceeding 4% of the Issued Capital or 6,000,000 Equity Shares of the Bank, The Shareholders, at the Annual General Meeting held in September 2006, had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of Shareholders was obtained at the Extra-Ordinary General Meeting held on 15th December, 2006, in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank granted 1,700,000 options under Sub Plan 1 at a price of Rs. 23.60 per option on June 19, 2009, 592,000 options under Sub Plan 2 at a price of Rs. 41.50 per option on October 12, 2009 and 649,500 options under Sub Plan 2 at a price of Rs. 38.90 per option on January 14,2010.

Under the stock option scheme, options vest in a graded manner over a 5 year period, with 40% at the end of the 3rd year from the date of the grant, 30% at the end of the 4th year from the date of the grant and 30% at the end of the 5th year from the date of the grant for Sub Plan 1 & 30% at the end of the 2nd year from the date of grant, 30% at the end of the 3rd year from the date of the grant, 20% at the end of the 4th year from the date of the grant and 20% at the end of the 5th year from the date of the grant for Sub Plan 2.

Mr. Murali M. Natrajan, MD & CEO has been granted 17,00,000 options. Per terms of his appointment duly approved by the Board of Directors - 50% of these options shall vest in him and shall be exercisable after completing one year from the date of grant. Balance 50% shall vest in accordance with vesting schedule of Sub Plan 1 as mentioned above.

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

5.3 Segment Reporting

Part A: Business Segments

As per the RBI guidelines on Segment reporting the Bank has classified its activity into Treasury operations. Corporate Banking. Retail Banking, and other

Banking operations.

Treasury operations includes all financial markets activities undertaken on behalf of the Banks customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions.

Corporate Banking includes lending, deposit taking and other services offered to corporate customers. Retail Banking includes lending, deposit taking and other services offered to retail customers.

5.4 Related Party Transactions

Related Party Transactions in terms of AS-18 on "Related Party Disclosures" are disclosed below, List of Related Parties and details of transactions entered into with them during the year Associate

Platinum Jubilee Investments Ltd.

As per para 4.5 of the Master circular on "Disclosure in Financial Statements - Notes to Accounts" dated 1 st July, 2009, where there is only one entity in any category of related party, banks need not disclose any details pertaining to that related party other than the relationship with that related party.

Since Platinum Jubilee Investments Ltd. is the only entity in the category of associates, details pertaining to the same are not disclosed.

The details of transactions entered into with the Key Management Personnel of the Bank are as under: Financial Year 2009-10

Mr. Murali M. Natrajan Managing Director (from 29 April 2009)

Managerial Remuneration : Rs. 1.69 Cr.

Financial Year 2008-09

Mr. GautamVir Managing Director (till January 15, 2009)

Managerial Remuneration Rs. 1.03 Cr.

5.5 Deferred Tax

a. In accordance with AS-22 on "Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India, the Bank-has recognized Deferred Tax Assets on such timing differences where there Is a virtual certainty based on contracts and arrangements in place that such deferred tax assets can be reversed. Deferred Tax Assets have been recognized on unabsorbed depreciation to the extent of deferred tax liability arising on account of timing difference arising between book depreciation and tax depreciation,

5.6 Provisions, Contingent Liabilities and Contingent Assets

Description of Contingent Liabilities

Sr. No. Contingent Liability (*) Brief Description 1. Claim against the Bank not An amount of Rs. 114.39 Cr. is outstanding as at 31/03/2010, as claims against the Bank not acknowledged as Debts. acknowledged as Debts, including Rs. 92,83 Cr. being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. Of this, claims dmounting to Rs. 29.04 Cr., for which relief was granted to the Bank, has been appealed against by the Income Tax Department. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

2. Liability on account of outstanding The Bank enters into foreign exchange contracts on its own account and for customers and currency forward exchange and derivative options/swaps on a pure hedge basis. The Bank also enters into Interest rates Swaps on its own contracts account. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time.

3.Guarantees given on behalf As a part of its commercial banking activities, the Bank issues Letters of Credit and Guarantees on of constituents, Acceptances, behalf of its customers. Endorsements and Others

4.Other items for which the Bank is These include purchase and sale of securities on trade date basis where the settlement is guaranteed contingently liable. by the Clearing corporation of India Limited/Stock Holding Corporation of India Limited.

* Also refer Schedule- 12.

6 Floating Provisions

There are no floating provisions during the year ended March 31, 2010 or in the previous financial year.

7 Provisioning Coverage Ratio

In accordance with RBI circular dated December 1, 2009, the Banks Provision Coverage Ratio at March 31, 2010 is 70.04% (previous year: 56.21%)

8 LettersOf Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2010 aggregate to Rs. 23.02 Cr. (previous year: Rs. 162.35 Cr.). In the Banks assessment no financial impact is likely to arise.

9 OTHER MATTERS

9.1 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2010 as well as in the previous financial year.

9.2 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 2009 which resulted in a revaluation gain of Rs. 52.02 Cr. which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 1.22 Cr. has been accounted as depreciation and reduced from the Revaluation Reserve in the year ended March 31, 2010.

10 INCOME FROM BANCASSURANCE BUSINESS

Fees/remuneration received in respect of bancassurance business undertaken during the year was Rs. 11.99 Cr. (previous year: Rs. 15.58 Cr.)

11 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2010.

12 Net overnight open position outstanding as on March 31, 2010 is Rs. 0.40 Cr. (Previous year Rs. 1.20 Cr.).

13 Previous years figures have been regrouped/reclassified, wherever considered necessary, in order to make, them comparable with figures for the current year.

14 These are the Notes appended to and forming part of the Financial Statements for the period ended March 31, 2010.

 
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