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Accounting Policies of Dena Bank Company

Mar 31, 2012

1 BASIS OF ACCOUNTING

The Bank's financial statements are prepared under the historical cost convention, on accrual basis of accounting, unless otherwise stated and conform in all material aspects to Generally Accepted Accounting Principles (GAAP) in India, which comprise applicable statutory provisions, regulatory norms/guidelines prescribed by Reserve Bank of India (RBI), Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI), to the extent applicable and generally the practices prevailing in the banking industry in India.

2 USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable.

3 INVESTMENTS

A Basis of Classification Investments have been categorized as per guidelines of Reserve Bank of India (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading and are disclosed in the accounts under six classifications at the value net of depreciation provision thereon.

B Valuation

Investments are valued as per Reserve Bank of India guidelines in the following manner:

Basis:

- Held to Maturity' Investments held under this category are carried in books at their acquisition cost. Premium, if any, paid on acquisition is amortized using straight line method.

- Available for Sale' and 'Held for Trading' These Investments are marked to market scrip wise. Depreciation/ Appreciation for each of six classifications is aggregated; net depreciation, if any, for each classification is provided for, but net appreciation is ignored.

C Methodology

All investments of bank are valued consistently on Average Cost Method. Market value of quoted securities in case of Investments included in the 'Available for Sale' and 'Held for Trading' categories is taken based on market quotations of recognized stock exchange/s or price list of Reserve Bank of India.

The value in case of unquoted securities and securities where market quotes are not available, is determined based on Prices / Yield to Maturity declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association of India and Net Asset Value in case of units of Mutual Funds / SRs of ARCs / SCs and Net Book Value in case of Shares of Companies.

Treasury Bills, Commercial Papers, Rural Infrastructure Development Funds and Investments including Share Capital Deposits in Regional Rural Banks are valued at carrying cost.

D INCOME RECOGNITION AND PRUDENTIAL NORMS Bank follows the prudential norms formulated by Reserve Bank of India, from time to time, as to Asset Classification of all Investments, Income Recognition and Provisioning on such Investments.

Commission, brokerage, broken period interest on investment transactions are debited and /or credited to Profit and Loss Account in the year of transaction. Profit on sale of investments under the category "Held to Maturity" is taken to Profit and Loss Account and thereafter appropriated to

"Capital Reserve Account" whereas loss on sale of Investments is recognized in the Profit & Loss Account.

4 ADVANCES

A) Bank follows the prudential norms formulated by Reserve Bank of India, from time to time, as to Asset Classification, Income Recognition and Provisioning thereon. Accordingly, all advances are being classified into Standard, Sub-standard, Doubtful and Loss Assets.

B) Advances are stated net of provisions for Non Performing Assets, provision in lieu of diminution in the fair value of Restructured Accounts, Balance in Sundries Account in respect of NPA accounts, DICGC/ECGC Claims received and held pending adjustment, part payment received and kept in Suspense Account.

C) A general provision for Standard Assets is made in conformity with the prudential norms. Provision on Standard Assets and excess Provision on Sale of NPA accounts are included in 'Other Liabilities and Provisions' in Schedule 5 to the Balance Sheet.

D) Recoveries in Non Performing Advances are first appropriated towards principal outstanding and surplus, if any, is recognized as income.

E) In case of sale of financial assets to the Asset Reconstruction Company (ARC) / Securitisation Company (SC)/ Banks/ FIs / NBFCs at a price below the Net Book Value (NBV), i.e. Book Value Less Provision held, the shortfall is debited to the Profit and Loss Account and in case of sale at a value higher than the NBV, the excess provision is not being reversed but is kept for utilization to meet the shortfall/loss on account of sale of other financial assets to ARC/SC/Banks/FIs/NBFCs.

5 FIXED ASSETS & DEPRECIATION

A) Fixed assets are stated at historical cost except certain premises, which have been stated at revalued amount.

B) Premises also include cost of land in some of the properties where the same could not be segregated.

C) Depreciation is charged on Written Down Value (W.D.V.) Method at the rates prescribed under the Income Tax Rules, 1962 except that the Computer Hardware purchased before 01.04.2000 are depreciated @ 25% p.a. on W.D.V. Method and those purchased on or after 01.04.2000 are depreciated @ 33.33% on Straight Line Method.

D) Depreciation on additions to fixed assets made up to 30th September of the year is provided at full rate and on additions made thereafter, at half the rate.

E) Cost of leasehold land is amortized over the period of lease.

F) Depreciation attributable to revalued portion is charged to the Revaluation Reserve Account.

G Computer Software Expenses are considered as Intangible Assets and are amortized over a period of five years, which is considered as useful economic life of such assets.

H Fixed Assets include Capital Work-in-Progress.

6 IMPAIRMENT OF ASSETS Impairment loss, if any, on Fixed Assets is recognised in accordance with the AS 28 - Impairment of Assets, issued by ICAI and charged to Profit and Loss Account.

7 LEASE ACCOUNTING

Lease payments for assets taken on operating lease are recognized in the Profit & Loss Account over the lease term in accordance with AS 19 - Leases, issued by ICAI.

8 NON BANKING ASSETS

Non Banking Assets are stated at cost.

9 REVENUE RECOGNITION

i Commission on Letters of Credit/ Bank Guarantees / Government Business / Distribution of Insurance Policies/ Mutual Fund Products; Locker Rent, Interest on Refund of Taxes, Dividend, Income on Units of Mutual Funds, Rental Income, and Service Charges on various Deposit Accounts are recognized on realization basis.

ii Interest/Discount on Non-Performing Loans & Advances/ Investments is recognized to the extent realized as per the prudential guidelines of RBI.

iii Recoveries in Written Off Advances / Investments are being accounted for as 'Miscellaneous Income'.

iv Unclaimed credit balances lying in Suspense Receipts Account for more than five years are being considered as 'Miscellaneous Income'. Subsequent claims, if any paid to the customers are charged to expenses in the year of payment.

10 RECOGNITION OF EXPENSES

i Pursuant to RBI Circular dated 22nd August, 2008, interest payable on matured and unpaid Term Deposits is provided on accrual basis on Saving Bank Rate on deposits matured on or after 22.08.2008.

ii Expenses on the issue of shares, bonds etc. are recognized in the year of incurrence

iii Legal Expenses in case of Suit Filed Accounts are charged to Profit and Loss Account.

iv Expenditure on Voluntary Retirement Scheme [VRS] is recognized in the year of payment.

11 EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

A) Foreign Currency monetary items including outstanding forward exchange contracts in foreign currency are valued at the year-end on the rates issued by Foreign Exchange Dealers' Association of India (FEDAI) and the resultant profit/loss arising out of such revaluation is accounted for in the Profit & Loss Account.

B) Foreign Currency non-monetary items which are carried in terms of historical cost, are reported at the exchange rate on the date of transaction.

C) Guarantees, letters of credit, acceptances, endorsements and other obligations in foreign currency are also revalued at the year- end on the rates issued by FEDAI for the purpose of Balance Sheet exposure.

D Income and Expenditure items are recognized at the exchange rates prevailing on the date of transaction.

12 EMPLOYEE BENEFITS

Gratuity, Pension and Leave Encashment payable on retirement; and other employee benefits are charged to Profit & Loss Account as per actuarial valuation as required by AS 15 [R] issued by ICAI. The liability on account of exercise of second pension option by the existing employees, and enhancement in gratuity limit from Rs. 3.50 lacs to Rs. 10 lacs, is amortized in five years starting from the FY 2010-11 in terms of RBI circular no: DBOD.No. BPBC.80/ 21.04.018/2010-11 dated 09th February, 2011.

13 TAXES ON INCOME

Current Tax is provided using applicable tax rates on the amount worked out on the basis of applicable tax laws, judicial pronouncements / legal opinions and the past assessments.

Deferred Tax is recognised subject to consideration of prudence on timing difference, representing the difference between the taxable incomes and accounting income that originated in one period and are capable of reversal in one or more subsequent periods. Deferred Tax Assets and Liabilities are measured using tax rates and the tax laws that have been enacted or substantively enacted by the Balance Sheet date.

14 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

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

B Contingent Liabilities are disclosed in a case when there is a present or possible obligation and it is not probable that an outflow of resources will be required to settle it.

C Contingent Assets are neither recognised nor disclosed.


Mar 31, 2011

1.1 BASIS OF ACCOUNTING

The accounts have been prepared by following the going concern concept on historical cost basis, consistently, and are in conformity with the applicable statutory provisions for the time being in force including the RBI guidelines and generally accepted accounting principles, save as otherwise stated.

1.2 INVESTMENTS

a) CLASSIFICATION:

Investments have been categorized as per guidelines of Reserve Bank of India (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading and are disclosed in the accounts under six classifications at the value net of depreciation provision thereon.

b) VALUATION:

Investments are valued as per Reserve Bank of India guidelines in the following manner:

I. BASIS:

Held to Maturity

Investments held under this category are carried in books at their acquisition cost. Premium, if any, paid on acquisition is amortized using straight line method.

Available for Sale and Held for Trading

These Investments are marked to market scrip wise. Depreciation/ Appreciation for each of six classifications is aggregated; net depreciation, if any, for each classification is provided for, but net appreciation is ignored.

ii METHODOLOGY:

All investments of bank are valued consistently on Average Cost Method. Market value of quoted securities in case of Investments included in the Available for Sale and "Held for Trading categories is taken based on market quotations of recognized stock exchange/s or price list of Reserve Bank of India.

The value in case of unquoted securities and securities where market quotes are not available, is determined based on Prices / Yield to Maturity declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association of India and Net Asset Value in case of units of Mutual Funds / SRs of ARCs / SCs and Net Book Value in case of Shares of Companies.

Treasury Bills, Commercial Papers, Rural Infrastructure Development Funds and Investments including Share Capital Deposits in Regional Rural Banks are valued at carrying cost.

INCOME RECOGNITION AND PRUDENTIAL NORMS:

Bank follows the prudential norms formulated by Reserve Bank of India, from time to time, as to Asset Classification of all Investments, Income Recognition and Provisioning on such Investments.

Commission, brokerage, broken period interest on investment transactions are debited and /or credited to Profit and Loss Account in the year of transaction.

Profit on sale of investments under the category "Held to Maturity" is taken to Profit and Loss Account and thereafter appropriated to "Capital Reserve Account" whereas loss on sale of Investments is recognized in the Profit & Loss Account.

17.1 ADVANCES

a) Bank follows the prudential norms formulated by Reserve Bank of India, from time to time, as to Asset Classification of Advances, Income Recognition and provisioning thereon. Accordingly all advances are being classified into Standard, Sub-standard, Doubtful and Loss Assets.

b) Advances are net of Provision for Non Performing Assets. Provision in lieu of diminution in the fair value of restructured accounts, balance in Sundries Account [interest capitalization - restructured accounts] in respect of NPA accounts, DICGC Claims/ ECGC claims received and held pending adjustment; part payment received and kept in Suspense Account.

c) Prudential provision on Standard Assets and excess provision on sale of NPA accounts are included in Other Liabilities and Provisions-Others in Schedule 5 to the Balance Sheet.

d) Recoveries in Non Performing Advances are first appropriated towards principal outstanding and surplus, if any, is recognized as income.

e) In case of sale of financial assets to the Asset Reconstruction Company (ARC) / Securitisation Company (SC) at a price below the net book value (NBV), i.e. Book Value Less Provision held, the shortfall is debited to the profit and loss account and in case of sale at a value higher than the NBV, the excess provision is not being reversed but is kept for utilization to meet the shortfall/loss on account of sale of other financial assets to ARC/SC.

f) The shortfall, in case of financial assets sold to the Banks, FIs and/ or, NBFCs, where the sale is at a price below the net book value (NBV), is debited to the profit and loss account, but in the case where the sale value is higher than the NBV, the excess provision is not reversed but being retained to meet the shortfall/loss on account of sale of other non-performing financial asset.

17.4 FIXED ASSETS & DEPRECIATION

a) Premises (except certain premises which have been stated at revalued amount) and other fixed assets are stated at historical cost.

b) Premises also include cost of land in some of the properties where the same could not be segregated.

c) Depreciation is charged on Written Down Value (W.D.V.) method at the rates prescribed under the Income Tax Rules, 1962 except that the computer hardware purchased before 01.04.2000 are

depreciated @ 25% p.a. on W.D.V. method and those purchased on or after 01.04.2000 are depreciated @ 33.33% on Straight Line Method.

d) Cost of leasehold land is amortized over the period of lease.

e) Depreciation attributable to revalued portion is charged to the Revaluation Reserve Account.

f) Fixed Assets include Capital Work-in-Progress.

g) Computer software expenses are considered as intangible assets and are amortized over a period of five years, which is considered as useful economic life of such assets.

17.5 NON BANKING ASSETS

Non Banking Assets are stated at cost.

17.6 REVENUE RECOGNITION

a) The Bank generally follows mercantile system of accounting.

b) Commission on letters of credit/ bank guarantees/ Government Business / distribution of third party products, locker rent, interest on refund of taxes, dividend, income on units of mutual funds, rental income and service charges on various deposit accounts are recognized on realization basis.

c) Interest/discount on non-performing loans advances/investments is recognized to the extent realized as per the prudential guidelines of RBI.

d) Recoveries in written off advances / investments are being accounted for as Miscellaneous Income.

e) Interest on term deposits matured on or after 22th August 2008 but remained unpaid has been provided /accounted for at saving bank rate.

f) Expenses on the issue of shares, bonds etc. are recognized in the year of incurrence.

g) Unclaimed credit balances lying in Suspense Receipts for more than five years are being considered as Miscellaneous Income. Subsequent claims, if any paid to the parties are charged to expenses in the year of payment.

h) Legal expenses in case of suit filed accounts are charged to Profit and Loss account.

17.7 TREATMENT OF VRS EXPENDITURE

Expenditure on VRS is recognized in the year of payment.

17.8 FOREIGN EXCHANGE

a) All foreign currency assets and liabilities including outstanding forward exchange contracts in foreign currency are valued at the year-end on the rates issued by FEDAI and the resultant profit/loss arising out of such revaluation is accounted for in the Profit & Loss Account.

b) Guarantees, letters of credit, acceptances, endorsements and other obligations in foreign currency are also revalued at the year- end on the rates issued by FEDAI for the purpose of Balance Sheet exposure.

c) Income and Expenditure items are recognized at the exchange rates prevailing on the date of transaction.

17.9 STAFF BENEFITS

Gratuity, Pension and Leave Encashment payable on retirement; and other employee benefits are charged to Profit & Loss Account as per actuarial valuation as required by AS 15 [R] issued by ICAI. The liability on account of exercise of second pension option by the existing employees, and enhancement in gratuity limit from ?.3.50 lacs to Rs.10 lacs, will be amortized in five years starting from the FY 2010-11 in terms of RBI circular no: DBOD.No. BP.BC.80/ 21.04.018/2010-11 dated 09th February 2011.

17.10 TAXES ON INCOME

a) Current tax is provided using applicable tax rates on the amount worked out on the basis of applicable tax laws, judicial pronouncements / legal opinions and the past assessments.

b) Deferred tax, comprising of tax effect due to time difference between taxable and as per accounts income for the period, is recognized keeping in view the consideration of prudence in respect of deferred tax assets read with Accounting Standard 22 issued by ICAI.

 
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