Accounting Policies of Dhanlaxmi Bank Ltd. Company
Mar 31, 2023
1.1 Corporate Information and Background
Dhanlaxmi Bank Limited (''DBL'' or the ''Bank'') is a private sector Bank incorporated in the year 1927. Dhanlaxmi Bank Limited is a publicly held bank engaged in providing a wide range of banking and financial services. Dhanlaxmi Bank Limited is a banking company governed by the Banking Regulation Act, 1949 and the Companies Act, 2013. 58% of the branches of the Bank are in Kerala.
The Standalone financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform in all material aspects to Generally Accepted Accounting Principles in India (âIndian GAAPâ), the circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013, (as amended) and the relevant provisions of the Companies Act, 2013 (âthe Actâ), and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except where otherwise stated. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.
1.4 Significant Accounting Policies
I. Revenue Recognition
⢠Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and revenue can be reliably measured under AS-9 âRevenue Recognitionâ as prescribed under Section 133 of the Companies Act, 2013 and as specified by RBI guidelines.
⢠Interest/discount/other charges income from loans and advances, investments (including deposits placed with banks and other institutions) are recognized over the period of the loans and advances, Investments, Deposits etc. on accrual basis. However, interest accrued and other dues in the nature of non-interest income relating to Advances/Investments, classified as Non-performing Advances/Investments under RBI guidelines, are recognized only on realization.
⢠The recoveries made from NPAs is usually apportioned in the order of suspended outgoings, penal interest, normal interest and principal. But in the case of recoveries out of OTS, the apportionment is first made to principal amount and there after to charges and interest.
⢠Overdue Interest on Investments and Bills discounted are accounted on realization.
⢠Profit or Loss on sale of Investment is recognized in the Profit and Loss Account. However, an amount equal to the profit on sale of investments in the Held to Maturity (HTM) category is appropriated to Capital Reserve Account, net of applicable taxes.
⢠Profit or loss on revaluation of investments as well as provision for depreciation (or reversal of excess depreciation) is recognized in the Profit and Loss Account.
⢠Income (other than interest) on investments in the âHeld to Maturity (HTM)â category acquired at a Discount to Face Value, is recognized as follows;
i) On interest bearing securities, it is recognized only at the time of sale/redemption.
ii) On Zero coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.
⢠Commission on ATM interchange fees are recognized as they accrue.
⢠Upfront fees on restructured accounts are apportioned over the restructured period.
⢠Profit earned from the sale of gold/silver bullion, if any, (i.e. the difference between the sale price and the purchase price) is included under âOther Incomeâ.
⢠Dividend on investments in shares and units of mutual funds are accounted on accrual basis when the bank''s right to receive the dividend is established.
⢠Insurance claims, Interest on Income Tax refund, Commission from Distribution of Mutual Fund products and Commission from Depository services are accounted on receipt basis.
⢠Locker Rent is accounted on receipt basis without spreading it over the remaining lease period.
⢠Commission income on issuance of Bank Guarantee/Letter of Credit and Discount on Bill Discounted is collected upfront and is recognized over the period of the underlying liability,
⢠Commission on distribution of Insurance products is accounted on accrual basis.
⢠Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/facility is recognized in the year of receipt without spreading it over the period of loan/facility,
⢠All other amounts collected from customers as non-interest income or recovery of expenses towards provision of various services/facilities are accounted/recognized on receipt basis.
⢠In compromise settlement cases, sacrifice on settlement is accounted upfront.
A) Interest Expenses
All interest expenses relating to deposits accepted and borrowings are recognized on accrual basis. Interest on unclaimed matured deposits is provided for as per RBI directives.
a) Provident Fund:
The contribution made by the bank to Dhanlaxmi Bank Ltd. Employees Provident Fund, administered by the trustees is charged to Profit & Loss account. Provident Fund is a Defined Contribution Plan in which both the employee and the Bank contribute monthly at a pre-determined rate. Contribution to provident fund is recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.
b) Pension Fund
The contribution towards Dhanlaxmi Bank Ltd Employees'' Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognized in the accounts. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account.
c) Expenditure on account of enhancement in family pension of employees
The expenditure on account of enhancement of family pension, is not fully charged to profit and loss account and amortized over a period of 5 years, subject to a minimum of 1/5th of the total amount involved being expensed every year. This is as per the RBI Circular DOR.ACC.REC.57/21.04.018/2021-22 dtd. October 4, 2021 and will be applicable up to March 31,2026.
d) New Pension Scheme (NPS)
Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes 14% of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account.
e) Gratuity:
The Bank makes annual contribution to Dhanlaxmi Bank Ltd. Employees'' Gratuity Trust Fund administered and managed by the trustees. The cost of providing such benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in the Profit and Loss Account in the year in which they occur. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes.
f) Compensation for absence on Privilege/Sick/Casual Leave
The employees of the Bank are entitled to compensated absence on account of privilege/sick/casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognized in the accounts.
g) Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service.
h) Employee Stock Compensation Cost
Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e., the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. If the exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.
i) Compensation of Whole time Directors/Chief Executive officers
As per the guidelines of RBI, the joining/sign-on bonus should be in the form of share-linked instruments only, Such bonus will neither be considered part of fixed pay nor part of variable pay, Subject to regulatory compliance, bank can allot shares at face value with a lock in period of 1 year from the date of grant as guaranteed bonus.
The variable pay can be in the form of share-linked instruments, or a mix of cash and share-linked instruments, Variable compensation is fixed based on organizational performance, Organization''s performance is charted based on performance score card which takes into account various indicators such as business growth, Asset quality. Return on Assets, Reduction in Cost to Income Ratio, Return on Investment and Divergence in provisioning & asset classification, Share-linked instruments should be fair valued on the date of grant by the bank using Black-Scholes model, The fair value thus arrived at should be recognized as an expense beginning with the accounting period for which approval has been granted,
C) Other Operating Expenses:
Other operating expenses are generally accounted on accrual basis, In the case of Rent, where rent agreement is expired, rent is accounted on the basis of expired agreement till new rent agreement is signed,
Net Profit is arrived at after provisions for contingencies, which include Provision for:
i) Standard Assets, Restructured Advances and Non-Performing Advances and Investments,
ii) Fraud and unhedged foreign currency exposure,
iii) Taxation in accordance with statutory requirements,
A) Valuation/Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (''NPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealized interest on NPAs, Interest on Non-Performing Advances is transferred to an unrealized interest account and not recognized in profit and loss account until received, Further, NPAs are classified into substandard, doubtful and loss assets based on the criteria stipulated by the RBI, Provisions for NPAs are made at the minimum required level as per the guidelines of the RBI on matters relating to prudential norms,
b) Amounts recovered against debts written off are recognized in the profit and loss account and included under âOther Incomeâ,
c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring, In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i,e, a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period,
d) For entities with Un-hedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of un-hedged position, The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet,
e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time - direct advances to Sectors agricultural, Individual housing loans and SME at 0,25%, Commercial Real Estate at 1%, restructured advances at 5%, teaser rate housing loans at 2%, commercial real estate residential housing at 0,75% and for other sectors at 0,40%,
f) Loss on sale of assets to Asset Reconstruction Companies: The RBI issued Master Direction- Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021, In accordance with these guidelines, when the stressed loan is transferred to ARC at a price below the Net Book Value (NBV) at the time of transfer, lenders shall debit the shortfall to the profit and loss account for the year in which the transfer has taken place, When the stressed loan is transferred to an ARC for a value higher than the NBV at the time of transfer, lenders shall reverse the excess provision on transfer to the profit and loss account in the year the amounts are received and only when the sum of cash received by way of initial consideration and/or redemption or transfer of Security Receipts (SR)/Pass Through Certificates (PTCs)/ other securities issued by ARCs is higher than the NBV of the loan at the time of transfer, Further, such reversal shall be limited to the extent to which cash received exceeds the NBV of the loan at the time of transfer,
g) In respect of non-performing assets acquired from other banks/FIs and NBFCs, collections in excess of the consideration paid at each asset level or portfolio level is treated as income in accordance with RBI guidelines and clarifications,
B) Recording/Presentation
Provisions created against individual accounts as per RBI guidelines are not netted in the individual account, For presentation in financial statements, provision created for NPA is netted against gross amount of advance without adjusting the same at individual account level, Provision held against an individual account is adjusted against individual account''s balance only at the time of write off of the account,
The Bank has a policy for creation and utilization of floating provisions separately for advances, investments and general purposes, The quantum of floating provisions to be created is assessed at the end of the financial year, The floating provisions are utilized only for contingencies under extraordinary circumstances specified in the policy after obtaining the approval of Board of Directors of the Bank and with prior permission of Reserve Bank of India,
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGCâ) guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country, The provision is reflected in Schedule - 5 of the Balance Sheet under "Other liabilities and Provisions - Othersâ.
i. Classification
(a) In accordance with the RBI guidelines, investments are categorized in to "Held for Tradingâ (HFT), "Available for Saleâ (AFS) and "Held to Maturityâ (HTM) and are further classified under six groups;
i. Government Securities,
ii. Other Approved Securities,
iii. Shares,
iv. Debentures and Bonds,
v. Subsidiaries/Joint Ventures and
vi. Other investments for the purposes of disclosure in the Balance Sheet.
(b) Investments which are Held for sale within 90 days from the date of purchase are classified as "Held for Tradingâ (HFT). As per RBI guidelines, HFT Securities which remain unsold for a period of 90 days are classified as AFS Securities on that date.
(c) Investments which the bank intends to hold till maturity are classified as "Held to Maturityâ.
(d) Investments which are not classified in either of the above two categories are classified as "Available for Saleâ.
The valuation of investments is made in accordance with the RBI Guidelines:
i) Held for Trading/Available for Sale (HFT/AFS): Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/quotes on the stock exchanges, SGL account transactions, pricelist of RBI or prices declared by Primary Dealers Association of India (''PDAI'') jointly with Fixed Income Money Market and Derivative Associations of India (''FIMMDA''), periodically, Net depreciation, if any, within each category of investment classification is recognized in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
ii) Held to Maturity (HTM): These are carried at their acquisition cost. Any premium on acquisition of debt instruments is amortized over the remaining maturity of the security, Any diminution, other than temporary, in the value of such securities is provided for each investment individually,
iii) Treasury Bills, Commercial Papers and Certificate of Deposits being discounted instruments are valued at carrying cost.
iv) Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
v) Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
⢠in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e., not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by FIMMDA/PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose;
⢠in case of bonds and debentures (including Pass Through Certificates or PTCs) where interest is not received regularly (i.e., overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
⢠equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at breakup value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at ?1/- per company;
⢠investment in security receipts is valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company/Securitization Company;
⢠non-Performing Investments are identified and valued based on RBI guidelines.
iii. Repurchase (REPO) and Reverse Repurchase (Reverse REPO) transactions
The securities sold and purchased under Repo/Reverse Repo (including transactions conducted under Liquidity Adjustment
Facility (LAF) and Marginal Standing Facility (MSF) with RBI) are accounted as Collateralized lending and borrowing transactions, However, securities are transferred as in the case of normal outright sale/purchase transactions and such movement of securities is reflected using the Repo/Reverse Repo Accounts and Contra entries, The above entries are reversed on the date of maturity, Costs and revenues are accounted as interest expenditure/income, as the case may be, Balance in Repo Account is classified under Schedule 4 (Borrowings),
All type of reverse repos with the Reserve Bank including those under Liquidity Adjustment Facility shall be presented under sub-item (ii) ''In Other Accounts'' of item (II) ''Balances with Reserve Bank of India'' under Schedule 6 ''Cash and balances with Reserve Bank of India'', Reverse repos with banks and other institutions having original tenors up to and inclusive of 14 days shall be classified under item (ii) ''Money at call and short notice'' under Schedule 7 ''Balances with banks and money at call and short notice'', Reverse Repo of original tenors more than 14 days shall be classified under Schedule 9 - Advances,
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines, The short position is reflected as the amount received on sale and is classified under ''Other Liabilities'', The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments,
v. Non-Performing Investments
In respect of securities included in any of the three categories of investments where interest/principal is in arrears, for more than 90 days, income is not recognized and appropriate provision for the depreciation in the value of the investments is made, as per prudential norms applicable to non-performing advances, Debentures/Bonds in the nature of advances are subjected to usual prudential norms applicable to advances,
vi. Transfer Between Categories
Classification of investments under Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS) is done at the time of purchase and subsequent shifting amongst categories is done in conformity with the regulatory guidelines, Transfer between categories is done at the lower of the acquisition cost/book value/market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for, Transfer of securities from/to Held to Maturity category is done as per guidelines issued by RBI from time to time,
vii. Acquisition Cost
In determining the acquisition cost of the Investment:
⢠Transaction costs including brokerage and commission pertaining to acquisition of Investments are charged to the Profit and Loss Account,
⢠Broken period interest is charged to the Profit and Loss Account,
⢠Cost of investments is computed based on the weighted average cost method,
viii. Disposal of Investments
⢠Held for Trading and Available for Sale - Profit or loss on sale/redemption is recognized in the Profit and Loss account,
⢠Held to Maturity - Profit or Loss on Sale/Redemption of Investments is recognized in the Profit and Loss account, In case of Profits, the same is appropriated to Capital Reserve, after adjustments for tax and transfer to statutory reserve,
VIII. Fixed Assets (Land, Premises, Property, Plant & Equipment and intangibles) and depreciation/amortization
⢠An item of fixed asset that qualify for recognition as an asset are initially recognized and measured at cost,
⢠After initial recognition, the Bank chooses ''Cost Model'' or ''Revaluation Model'' for subsequent measurement as its accounting policy and applies that policy to entire class of fixed asset,
⢠Property, Plant and Equipment (other than land and premises) following ''Cost Model'' are carried at Cost less any accumulated depreciation/amortization and any accumulated impairment losses,
⢠''Revaluation Model'' is followed for land and premises and are carried at Revalued Amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation/amortization and any accumulated impairment losses,
⢠Revaluations are done with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value,
⢠An increase in the carrying amount of an asset arising on revaluation is credited to owners'' interest under âRevaluation Reserveâ, However, the increase is recognized in the statement of profit and loss to the extent that it reverses a decrease in the revaluation of same asset previously recognized in the profit and loss account, A decrease in the carrying amount of an item of an asset arising on revaluation is charged to the statement of profit and loss, However, the decrease is debited directly to owners'' interest under the heading âRevaluation Surplusâ to the extent of any credit balance existing in the Revaluation Reserve in respect of that asset,
⢠Revaluation Surplus included in owners'' interest in respect of an asset is transferred to âRevenue Reservesâ when the asset is retired or disposed off, The difference between the depreciation based on the revalued carrying amount and the depreciation based on original cost is also transferred to âRevenue Reservesâ from âRevaluation Reserveâ, However, such transfers from âRevaluation Reserveâ to âRevenue Reserveâ are not made through the statement of profit or loss,
⢠Cost of an item of fixed asset includes a) purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management viz. cost of employee benefits (as defined in AS-15 ''Employee Benefits'') arising directly from the construction or acquisition of the item of property, plant and equipment, cost of site preparation, initial delivery and handling costs, installation and assembly costs, professional fees, cost of testing whether the asset is functioning properly; (c) the initial estimate of the cost of dismantling, removing the item and restoring the site on which it is located, referred to as ''decommissioning, restoration and similar liabilities''.
⢠Depreciation on fixed assets is charged based on the estimated useful life of the asset on straight-line basis in compliance with the Schedule II of the Companies Act, 2013. Depreciable amount of an asset is allocated on a systematic basis over the useful life of the asset.
⢠Residual value and useful life of the asset is reviewed at least at each financial year end, and if expectations differ from previous estimates, such changes are accounted for as a change in accounting estimate in accordance with âAS-5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ.
⢠Method of depreciation used is assessed and reviewed at each financial year end and if there is a significant change in the pattern of consumption of the future economic benefits embodied in the asset, the method of depreciation is changed to reflect the changed pattern and such a change is accounted for and disclosed as a change in Accounting Estimate in accordance with âAS-5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ.
⢠Impairment of an item of property, plant and equipment is determined by applying the Accounting Standard 28. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in the statement of profit and loss when the compensation becomes receivable.
⢠Amount expended towards acquisition of Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 5 years on straight-line basis.
⢠Grant related to Specific Fixed Assets - Grant received from the Government/other agencies related to depreciable assets are treated as deferred income which is recognized in the profit and loss statement on a systematic and rational basis over the useful life of the asset.
⢠Capital Work-in-progress includes cost of fixed assets that are not ready for their intended use and includes advances paid to acquire fixed assets.
Non-Banking Assets acquired in settlement of debts/dues are accounted at the lower of their cost or net realizable value.
X. Cash and Cash Equivalents
Cash and Cash Equivalents include cash in hand, balances with RBI and Balances with other banks/institutions and money at call and short notice (including effects of changes in exchange rates on cash and cash equivalents in foreign currency).
XI. Transactions involving foreign exchange
1. Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of the transaction.
2. Foreign Currency Monetary items at balance sheet date are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing (spot/forward) rates.
3. Foreign Currency Non-Monetary items, which are carried at historical cost, are reported using the exchange rate on the date of the transaction.
4. Contingent Liabilities denominated in foreign currency are revalued using the exchange rate notified by FEDAI at the balance sheet date.
5. Outstanding foreign exchange spot and forward contracts held for trading at balance sheet date are revalued at the exchange rate notified by FEDAI for specified maturities and the resulting profit or loss is recognized in the statement of profit and loss.
6. Foreign Exchange forward contracts which are not intended for trading and are outstanding on the Balance Sheet date, are revalued at the closing spot rate. The premium or discount arising at the inception of such contracts is amortized as expense or income over the life of the contract.
7. Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognized as income or as expense in the period in which they arise.
8. Gains/Losses on account of changes in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognized in the statement of profit and loss.
The Bank recognizes all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are measured at fair value as at the Balance Sheet or reporting dates. Derivatives are classified as assets when the fair value is positive (Positive marked-to-market) or as liabilities when the fair value is negative (negative marked-to-market). Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account.
The disclosure relating to segment information is in accordance with the guidelines issued by RBI.
The Bank reports basic and diluted earnings per share in accordance with AS 20, Earnings per Share, as prescribed under Section 133 of the Companies Act, 2013. 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. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognized as an expense in the Profit and Loss Account as per the lease terms.
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, impairment is recognized for such excess amount. The impairment loss is recognized as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset. When there is indication that an impairment loss recognized for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognized in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account, In case of revalued assets such reversal is not recognized.
The income tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences, being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax asset is recognized subject to prudence and judgment that realization is more likely than not. Deferred tax assets and liabilities are measured using tax rates under tax laws that have been enacted before the balance sheet date. Changes in deferred tax assets/liabilities on account of changes in enacted tax rates are given effect to in the profit and loss account in the period of the change.
XVIII. Provisions, Contingent Liabilities and Contingent Assets
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably, The Bank does not recognize a contingent liability but discloses its existence in the financial statements.
The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
XIX. Share Issue Expenses
Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.
XX. Corporate Social Responsibility
Spends towards corporate social responsibility, in accordance with Companies Act, 2013 are recognized in the Profit and Loss Account.
Cash flow statement has been prepared under the indirect method.
Mar 31, 2022
1.1 Corporate Information and Background
Dhanlaxmi Bank Limited (âDBL'' or the âBank'') is a private sector Bank incorporated in the year 1927. Dhanlaxmi Bank Limited is a publicly held bank engaged in providing a wide range of banking and financial services. Dhanlaxmi Bank Limited is a banking company governed by the Banking Regulation Act, 1949 and the Companies Act, 2013. 58% of the branches of the Bank are in Kerala.
Financial Transactions are recorded, prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and comply with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act 1949, circulars and guidelines issued by the Reserve Bank of India (âRBI'') from time to time, Accounting Standards (âAS'') issued by the Institute of Chartered Accountants of India (âICAI'') and notified by the Companies Accounting Standard Rules, 2006 amended by the Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and current practices prevailing within the banking industry in India.
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.
1.4 Significant Accounting Policies
I. Revenue Recognition
⢠Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and revenue can be reliably measured under AS-9 âRevenue Recognition as prescribed under section 133 of the Companies Act, 2013 and as specified by Reserve Bank of India (RBI) guidelines.
⢠In terms of RBI circular, FIDD.CO.Plan.BC.23/04.09.01/2015-16 dated April 7, 2016 trades, in priority sector portfolio by purchasing/selling Priority Sector Lending Certificates (PSLCs) is allowed by RBI. Fees paid/received for purchase/ sale of PSLC is treated as expense/income respectively.
⢠Interest income from loans and advances, investments (including deposits placed with banks and other institutions) are recognized over the period of the loans and advances, Investments, Deposits etc on accrual basis. However interest accrued and other dues in the nature of non-interest income relating to Advances/ Investments, classified as Non-performing Advances/ Investments under RBI guidelines, are recognized only on realization.
⢠Overdue Interest on Investments and Bills discounted are accounted on realization.
⢠Profit or Loss on sale of Investment is recognized in the Profit and Loss Account. However, an amount equal to the profit on sale of investments in the Held to Maturity (HTM) category is appropriated to Capital Reserve Account, net of applicable taxes.
⢠Profit or loss on revaluation of investments as well as provision for depreciation (or reversal of excess depreciation) is recognized in the Profit and Loss Account.
⢠Income (other than interest) on investments in the âHeld to Maturity (HTM)â category acquired at a Discount to Face Value, is recognized as follows;
i) On interest bearing securities, it is recognized only at the time of sale/redemption.
ii) On Zero coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.
⢠Commission on ATM interchange fees are recognized as they accrue.
⢠Upfront fees on restructured accounts are apportioned over the restructured period.
⢠Profit earned from the sale of gold/silver bullion (i.e the difference between the sale price and the purchase price) is included under âOther Incomeâ.
⢠Dividend on investments in shares and units of mutual funds are accounted on accrual basis when the bank''s right to receive the dividend is established.
⢠Insurance claims, Interest on Income Tax refund, Commission from Distribution of Mutual Fund products and Commission from Depository services are accounted on receipt basis.
⢠Locker Rent is accounted on receipt basis without spreading it over the remaining lease period.
⢠Commission income on issuance of Bank Guarantee/ Letter of Credit and Discount on Bill Discounted is collected upfront and is recognized over the period of the underlying liability.
⢠Commission on distribution of Insurance products is accounted on accrual basis.
⢠Processing fee/ upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/ facility is recognized in the year of receipt without spreading it over the period of loan/ facility.
⢠All other amounts collected from customers as Non-interest income or recovery of expenses towards provision of various services/ facilities are accounted/ recognized on receipt basis.
A) Interest Expenses
All interest expenses relating to deposits accepted and borrowings are recognized on accrual basis. Interest on unclaimed
matured deposits is provided as per RBI directives.
a Provident Fund
The contribution made by the bank to Dhanlaxmi Bank Ltd Employees Provident Fund, administered by the trustees is charged to Profit & Loss account. Provident Fund is a Defined Contribution Plan in which both the employee and the Bank contribute monthly at a pre-determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered The Bank has no liability for future provident fund benefits other than its annual contribution.
b Pension Fund
The contribution towards Dhanlaxmi Bank Ltd Employees'' Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognized in the accounts. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account.
c Expenditure on account of enhancement in family pension of employees
The expenditure on account of enhancement of family pension, if not fully charged to profit and loss account, be amortized over a period of 5 years, subject to a minimum of 1/5th of the total amount involved being expensed every year. This is as per the RBI Circular DOR.ACC.REC.57/21.04.018/2021-22 dtd October 4, 2021 and will be applicable up to March 31,2026.
d New Pension Scheme (NPS)
Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes 14% of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account.
e Gratuity:
The Bank makes annual contribution to Dhanlaxmi Bank Ltd Employees'' Gratuity Trust Fund administered and managed by the trustees. The cost of providing such benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in the Profit and Loss Account in the period in which they occur. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes.
f Compensation for absence on Privilege/ Sick/ Casual Leave
The employees of the bank are entitled to compensated absence on account of privilege/ sick/ casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the
unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognized in the accounts. g Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. h Employee Stock Compensation Cost
Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.
i Compensation of Whole time Directors/ Chief Executive officers
As per the guidelines of RBI, the joining/sign-on bonus should be in the form of share-linked instruments only. Such bonus will neither be considered part of fixed pay nor part of variable pay. Subject to regulatory compliance, bank can allot shares at face value with a lock in period of 1 year from the date of grant as guaranteed bonus.
The variable pay can be in the form of share-linked instruments, or a mix of cash and share-linked instruments. Variable compensation is fixed based on organizational performance. Organization''s performance is charted based on performance score card which takes into account various indicators such as business growth, Asset quality, Return on Assets, Reduction in Cost to Income Ratio, Return on Investment and Divergence in provisioning & asset classification.
Share-linked instruments should be fair valued on the date of grant by the bank using Black-Scholes model. The fair value thus arrived at should be recognized as an expense beginning with the accounting period for which approval has been granted.
C) Other Operating Expenses: - Other operating expenses are generally accounted on accrual basis. In the case of Rent, where rent agreement is expired, rent is accounted on the basis of expired agreement till new rent agreement is signed.III Net profit
Net Profit is arrived at after provisions for contingencies, which include Provision for:
i) Standard Assets, Restructured Advances and Non-Performing Advances and Investments;
ii) Fraud and unhedged foreign currency exposure.
iii) Taxation in accordance with statutory requirements.
A) Valuation/ Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (âNPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealized interest on NPAs. Interest on Non Performing advances is transferred to an unrealized interest account and not recognized in profit and loss account until received. Further, NPAs are classified into substandard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made at the minimum required level as per the guidelines of the RBI on matters relating to prudential norms.
b) Amounts recovered against debts written off are recognized in the profit and loss account and included under âOther Incomeâ.
c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
d) For entities with Un-hedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of un-hedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time - direct advances to Sectors agricultural, Individual housing loans and SME at 0.25%, Commercial Real Estate at 1%, restructured advances at 5%, teaser rate housing loans at 2%, commercial real estate residential housing at 0.75% and for other sectors at 0.40%. Additional provision for standard asset at higher rates in respect of advances to stressed assets of the economy in accordance with the Board policy for making provision for standard assets at rates higher than regulatory minimum based on revaluation of risk and stress in various sectors.
f) Loss on sale of assets to Asset Reconstruction Companies: - The RBI issued Master Direction- Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 on September 24, 2021. In accordance with these guidelines, when the stressed loan is transferred to ARC at a price below the Net Book Value (NBV) at the time of transfer, lenders shall debit the shortfall to the profit and loss account for the year in which the transfer has taken place. when the stressed loan is transferred to an ARC for a value higher than the NBV at the time of transfer, lenders shall reverse the excess provision on transfer to the profit and loss account in the year the amounts are received and only when the sum of cash received by way of initial consideration and / or redemption or transfer of Security Receipts (SR) / Pass Through Certificates (PTCs)/ other securities issued by ARCs is higher than the NBV of the loan at the time of transfer. Further, such reversal shall be limited to the extent to which cash received exceeds the NBV of the loan at the time of transfer.
B) Recording/ Presentation
Provisions created against individual accounts as per RBI guidelines are not netted in the individual account. For presentation in financial statements, provision created for NPA is netted against gross amount of advance without adjusting the same at individual account level. Provision held against an individual account is adjusted against individual account''s balance only at the time of write off of the account.
The Bank has a policy for creation and utilization of floating provisions separately for advances, investments and general purposes. The quantum of floating provisions to be created is assessed at the end of the financial year. The floating provisions are utilized only for contingencies under extraordinary circumstances specified in the policy after obtaining the approval of Board of Directors of the Bank and with prior permission of Reserve Bank of India.
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited (âECGCâ) guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country. The provision is reflected in Schedule -5 of the Balance Sheet under âOther liabilities and Provisions- Othersâ.
i. Classification
(a) In accordance with the RBI guidelines, investments are categorized in to âHeld for Tradingâ (HFT), âAvailable for Saleâ (AFS) and âHeld to Maturityâ (HTM) and are further classified under six groups;
i. Government Securities,
ii. Other Approved Securi ties,
iii. Shares,
iv. Debentures and Bonds,
v. Subsidiaries/ Joint Ventures and
vi. Other investments for the purposes of disclosure in the Balance Sheet.
(b) Investments which are Held for sale within 90 days from the date of purchase are classified as âHeld for Tradingâ(HFT) . As per RBI guidelines, HFT Securities which remain unsold for a period of 90 days are classified as AFS Securities on that date.
(c) Investments which the bank intends to hold till maturity are classified as âHeld to Maturityâ.
(d) Investments which are not classified in either of the above two categories are classified as âAvailable for Saleâ.
The valuation of investments is made in accordance with the RBI Guidelines:
i) Held for Trading/ Available for Sale (HFT/AFS):-Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the âAFS'' and âHFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/ quotes on the stock exchanges, SGL account transactions, pricelist of RBI or prices declared by Primary Dealers Association of India (âPDAI'') jointly with Fixed Income Money Market and Derivative Associations of India (âFIMMDAâ), periodically. Net depreciation, if any, within each category of investment classification is recognized in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
ii) Held to Maturity (HTM); - These are carried at their acquisition cost. Any premium on acquisition of debt instruments is amortized over the remaining maturity of the security. Any diminution, other than temporary, in the value of such securities is provided for each investment individually.
iii) Treasury Bills, Commercial Papers and Certificate of Deposits being discounted instruments are valued at carrying cost.
iv) Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
v) Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
⢠in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by FIMMDA/ PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose;
⢠in case of bonds and debentures (including Pass Through Certificates or PTCs) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
⢠equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at breakup value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Rs.1/- per company
⢠Investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company / Securitization Company.
⢠Non-Performing Investments are identified and valued based on RBI guidelines.
iii. Repurchase (REPO) and Reverse Repurchase (Reverse REPO) transactions
The securities sold and purchased under Repo/ Reverse Repo (including transactions conducted under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) with Reserve Bank of India (RBI)) are accounted as Collateralized lending and borrowing transactions. However, securities are transferred as in the case of normal outright sale/ purchase transactions and such movement of securities is reflected using the Repo/Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo Account is classified under Schedule 4 (Borrowings) and
balance in Reverse Repo Account is classified under Schedule 7 (Balance with Banks and Money at Call & Short Notice). Reverse Repo of original tenors more than 14 days shall be classified under Schedule 9 - Advances.
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under âOther Liabilities''. The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
In respect of securities included in any of the three categories of investments where interest / principal is in arrears, for more than 90 days, income is not recognized and appropriate provision for the depreciation in the value of the investments is made, as per prudential norms applicable to non-performing advances. Debentures / Bonds in the nature of advances are subjected to usual prudential norms applicable to advances.
vi. Transfer Between Categories
Classification of investments under Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS) is done at the time of purchase and subsequent shifting amongst categories is done in conformity with the regulatory guidelines. Transfer between categories is done at the lower of the acquisition cost/ book value/ market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for. Transfer of securities from/ to Held to Maturity category is done as per guidelines issued by RBI from time to time.
In determining the acquisition cost of the Investment:
⢠Transaction costs including brokerage and commission pertaining to acquisition of Investments are charged to the Profit and Loss Account.
⢠Broken period interest is charged to the Profit and Loss Account.
⢠Cost of investments is computed based on the weighted average cost method.
⢠Held for Trading and Available for Sale - Profit or loss on sale/ redemption is recognized in the Profit and Loss account.
⢠Held to Maturity - Profit or Loss on Sale/ Redemption of Investments is recognized in the Profit and Loss account. In case of Profits, the same is appropriated to Capital Reserve, after adjustments for tax and transfer to statutory reserve.
VIII Property, Plant and Equipment
⢠An item of property, plant and equipment that qualify for recognition as an asset are initially recognized and measured at cost.
⢠After initial recognition, the Bank chooses âCost Model'' or âRevaluation Model'' for subsequent measurement as its accounting policy and applies that policy to entire class of property, plant and equipment.
⢠Property, Plant and Equipment following âCost Model'' are carried at Cost less any accumulated depreciation/ amortization and any accumulated impairment losses.
⢠Property, Plant and Equipment following âRevaluation Model'' are carried at Revalued Amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation/amortization and any accumulated impairment losses.
⢠Revaluations are done with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value.
⢠An increase in the carrying amount of an asset arising on revaluation is credited to owners'' interest under âRevaluation Reserveâ. However, the increase is recognized in the statement of profit and loss to the extent that it reverses a decrease in the revaluation of same asset previously recognized in the profit and loss account. A decrease in the
carrying amount of an item of an asset arising on revaluation is charged to the statement of profit and loss. However, the decrease is debited directly to owners'' interest under the heading âRevaluation Surplusâ to the extent of any credit balance existing in the Revaluation Reserve in respect of that asset.
⢠Revaluation Surplus included in owners'' interest in respect of an item of property, plant and equipment is transferred to âRevenue Reservesâ when the asset is retired or disposed off. The difference between the depreciation based on the revalued carrying amount and the depreciation based on original cost is also transferred to âRevenue Reservesâ from âRevaluation Reserveâ. However, such transfers from âRevaluation Reserveâ to âRevenue Reserveâ are not made through the statement of profit or loss.
⢠Cost of an item of property, Plant and Equipment includes a)purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates,; (b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management viz. cost of employee benefits (as defined in AS-15 â Employee Benefits'') arising directly from the construction or acquisition of the item of property, plant and equipment, cost of site preparation, initial delivery and handling costs, installation and assembly costs, professional fees, cost of testing whether the asset is functioning properly; (c) the initial estimate of the cost of dismantling, removing the item and restoring the site on which it is located, referred to as ''decommissioning, restoration and similar liabilities''
⢠Depreciation on fixed assets is charged based on the estimated useful life of the asset in compliance with the Schedule II of the Companies Act, 2013. Depreciable amount of an asset is allocated on a systematic basis over the useful life of the asset.
⢠Residual value and useful life of the asset is reviewed at least at each financial year end, and if expectations differ from previous estimates, such changes are accounted for as a change in accounting estimate in accordance with âAS-5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ.
⢠Method of depreciation used is assessed and reviewed at each financial year end and if there is a significant change in the pattern of consumption of the future economic benefits embodied in the asset, the method of depreciation is changed to reflect the changed pattern and such a change is accounted for and disclosed as a change in Accounting Estimate in accordance with âAS-5â Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ.
⢠Impairment of an item of property, plant and equipment is determined by applying the Accounting Standard 28. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in the statement of profit and loss when the compensation becomes receivable.
⢠Amount expended towards acquisition of Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 5 years on straight-line basis.
⢠Land and premises owned by the Bank are valued under âRevaluation Model'' and other Fixed Assets are valued under âCost Model''.
⢠Grant related to Specific Fixed Assets - Grant received from the Government/ other agencies related to depreciable assets are treated as deferred income which is recognized in the profit and loss statement on a systematic and rational basis over the useful life of the asset.
Non-Banking Assets acquired in settlement of debts/dues are accounted at the lower of their cost or net realizable value.
Cash and Cash Equivalents include cash in hand, balances with Reserve Bank of India (RBI) and Balances with other
banks/institutions and money at call and short notice (including effects of changes in exchange rates on cash and cash
equivalents in foreign currency).
XI Transactions involving foreign exchange
1 Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of the transaction.
2 Foreign Currency Monetary items at balance sheet date are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing (spot/forward) rates.
3 Foreign Currency Non-Monetary items, which are carried at historical cost, are reported using the exchange rate on the date of the transaction.
4 Contingent Liabilities denominated in foreign currency are revalued using the exchange rate notified by FEDAI at the balance sheet date.
5 Outstanding foreign exchange spot and forward contracts held for trading at balance sheet date are revalued at the exchange rate notified by FEDAI for specified maturities and the resulting profit or loss is recognized in the statement of profit and loss.
6 Foreign Exchange forward contracts which are not intended for trading and are outstanding on the Balance sheet date, are revalued at the closing spot rate. The premium or discount arising at the inception of such contracts is amortized as expense or income over the life of the contract.
7 Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognized as income or as expense in the period in which they arise.
8 Gains/Losses on account of changes in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognized in the statement of profit and loss.
The Bank recognizes all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are measured at fair value as at the Balance sheet or reporting dates. Derivatives are classified as assets when the fair value is positive (Positive marked-to-market) or as liabilities when the fair value is negative (negative marked-to-market).Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account.
The disclosure relating to segment information is in accordance with the guidelines issued by RBI.
The Bank reports basic and diluted earnings per share in accordance with AS 20, Earnings per Share, as prescribed under Section 133 of the Companies Act, 2013. Basic earnings per share are computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognized as an expense in the Profit and Loss Account as per the lease terms.
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, impairment is recognized for such excess amount. The impairment loss is recognized as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset. When there is indication that an impairment loss recognized for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognized in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognized.
The income tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences, being the difference between the taxable income
and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax asset is recognized subject to prudence and judgment that realization is more likely than not. Deferred tax assets and liabilities are measured using tax rates under tax laws that have been enacted before the balance sheet date. Changes in deferred tax assets/ liabilities on account of changes in enacted tax rates are given effect to in the profit and loss account in the period of the change.
XVIII Provisions, Contingent Liabilities and Contingent Assets
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Bank does not recognize a contingent liability but discloses its existence in the financial statements
The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
Share issue expenses are charged to the Share Premium Account.
XX Corporate Social Responsibility
Spends towards corporate social responsibility, in accordance with Companies Act, 2013 are recognized in the Profit and Loss Account.
Mar 31, 2018
A. Significant Accounting Policies
1. Revenue Recognition
- Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and revenue can be reliably measured under AS-9 âRevenue Recognition as prescribed under Section 133 of the Companies Act, 2013 and as specified by Reserve Bank of India (RBI) guidelines.
- In terms of RBI Circular, FIDD.C0.Plan.BC.23/04.09.01/2015-16 dated April 7, 2016 trades, in priority sector portfolio by purchasing/selling Priority Sector Lending Certificates (PSLCs) is allowed by RBI. Fees paid/received for purchase/sale of PSLC is treated as expense/income respectively.
- Interest income from loans and advances, investments (including deposits placed with banks and other institutions) are recognized over the period of the Loans and Advances, Investments, Deposits etc., on accrual basis. However interest accrued and other dues in the nature of non-interest income relating to Advances/Investments, classified as Non-performing Advances/Investments under RBI guidelines, are recognised only on realisation.
- Overdue Interest on Investments and Bills discounted are accounted on realization,
- Profit or Loss on sale of Investment is recognized in the Profit and Loss Account, However, an amount equal to the profit on sale of investments in the Held to Maturity (HTM) category is appropriated to Capital Reserve Account, net of applicable taxes.
- Income (other than interest) on investments in the âHeld to Maturity (HTM)â category acquired at a Discount to Face Value, is recognized as follows;
i. On interest bearing securities, it is recognized only at the time of sale/redemption.
ii. On Zero coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis,
- Commission on ATM interchange fees are recognized as they accrue,
- Upfront fees on restructured accounts are apportioned over the restructured period,
- Profit earned from the sale of gold/silver bullion (i,e,, the difference between the sale price and the purchase price) is included under âOther Incomeâ.
- Dividend on investments in shares and units of mutual funds are accounted on accrual basis when the bankâs right to receive the dividend is established.
- Insurance claims, Locker Rent, Interest on Income Tax Refund, Commission from Distribution of Mutual Fund products and Commission from Depository Services are accounted on receipt basis,
- Commission income on issuance of Bank Guarantee/Letter of Credit and Discount on Bill Discounted is collected upfront and is recognised over the period of the underlying liability,
- Commission on distribution of Insurance products is accounted on accrual basis,
- Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/facility is recognised in the year of receipt without spreading it over the period of loan/facility,
- All other amounts collected from customers as Non-interest income or recovery of expenses towards provision of various services/facilities are accounted/recognised on receipt basis,
2. EXPENSES RECOGNITION
A) Interest Expenses
All interest expenses relating to deposits accepted and borrowings are recognised on accrual basis. Interest on unclaimed matured deposits is provided as per RBI directives,
B) Employee Benefits
a) Provident Fund
The contribution made by the bank to Dhanlaxmi Bank Ltd. Employees Provident Fund, administered by the trustees is charged to Profit & Loss account Provident Fund is a Defined Contribution Plan in which both the employee and the Bank contribute monthly at a predetermined rate. Contribution to provident fund are recognized as expense as and when the services are rendered The Bank has no liability for future provident fund benefits other than its annual contribution.
b) Pension Fund
The contribution towards Dhanlaxmi Bank Ltd. Employeesâ Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognized in the accounts. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account.
c) New Pension Scheme (NPS)
Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes 10% of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account.
d) Gratuity
The Bank makes annual contribution to Dhanlaxmi Bank Ltd. Employeesâ Gratuity Trust Fund administered and managed by the trustees. The cost of providing such benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in the Profit and Loss Account in the period in which they occur. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes,
e) Compensation for absence on Privilege/Sick/Casual Leave
The employees of the Bank are entitled to compensated absence on account of privilege/sick/casual leave as per the leave rules. The Bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the accounts.
f) Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the employee renders the service.
C) Employee Stock Compensation Cost
Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e., the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bankâs stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.
3. Net Profit
Net Profit is arrived at after provisions for contingencies, which include Provision for:
i) Depreciation on Investments;
ii) Standard Assets, Restructured Advances and Non-Performing Advances and Investments;
iii) Taxation in accordance with statutory requirements.
4. Advances
A) Valuation/Measurement
- Advances are classified into Performing Assets (Standard) and Non-Performing Assets (âNPAsâ) as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealized interest on NPAs. Interest on Non-Performing advances is transferred to an unrealized interest account and not recognized in profit and loss account until received. Further, NPAs are classified into substandard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made at the minimum required level as per the guidelines of the RBI on matters relating to prudential norms.
- Amounts recovered against debts written off are recognised in the profit and loss account and included under âOther Incomeâ.
- For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e., a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period. The Bank also maintains provision on loans under scheme for sustainable structuring of stressed assets S4A and SDR scheme as per RBI guidelines,
- For entities with un-hedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of un-hedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet,
- The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time - direct advances to Sectors agricultural and SME at 0.25%, Commercial Real Estate at 1%, restructured advances at 5%, teaser rate housing loans at 2%, commercial real estate residential housing at 0.75% and for other sectors at 0.40%. Additional provision for standard asset at higher rates in respect of advances to stressed assets of the economy in accordance with the Board approved policy for making provision for standard assets at rates higher than the regulatory minimum based on evaluation of risk and stress in various sectors,
- Loss on sale of assets to Asset Reconstruction Companies The RBI issued guidelines on sale of non-performing advances on February 26, 2014. In accordance with these guidelines, if the sale of non-performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account spread over a period of two years. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
B) Recording/Presentation
Provisions created against individual accounts as per RBI guidelines are not netted in the individual account. For presentation in financial statements, provision created for NPA is netted against gross amount of advance without adjusting the same at individual account level. Provision held against an individual account is adjusted against individual accountâs balance only at the time of write off of the account,
5. Floating Provisions
The Bank has a policy for creation and utilization of floating provisions separately for advances, investments and general purposes. The quantum of floating provisions to be created is assessed at the end of the financial year. The floating provisions are utilized only for contingencies under extraordinary circumstances specified in the policy with prior permission of Reserve Bank of India.
6. Country Risk
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited (âECGCâ) guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country. The provision is reflected in Schedule -5 of the Balance Sheet under âOther liabilities and Provisions - Othersâ.
5. Investments
A) Classification
(a) In accordance with the RBI guidelines, investments are categorised in to âHeld for Tradingâ (HFT), âAvailable for Saleâ (AFS) and âHeld to Maturityâ (HTM) and are further classified under six groups;
i. Government Securities,
ii. Other Approved Securities,
iii. Shares,
iv. Debentures and Bonds,
v. Subsidiaries/Joint Ventures and
vi. Other investments for the purposes of disclosure in the Balance Sheet.
(b) Investments which are Held for sale within 90 days from the date of purchase are classified as âHeld for Tradingâ (HFT), As per RBI guidelines, HFT Securities which remain unsold for a period of 90 days are classified as AFS Securities on that date.
(c) Investments which the Bank intends to hold till maturity are classified as âHeld to Maturityâ.
(d) Investments which are not classified in either of the above two categories are classified as âAvailable for Saleâ.
B) Valuation
The valuation of investments is made in accordance with the RBI Guidelines:
i) Held for Trading/Available for Sale (HFT/AFS): Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the âAFSâ and âHFTâ categories is measured with respect to the Market Price of the Scrip as available from the trades/quotes on the stock exchanges, SGL account transactions, pricelist of RBI or prices declared by Primary Dealers Association of India (âPDAIâ) jointly with Fixed Income Money Market and Derivative Associations of India (âFIMMDAâ), periodically, Net depreciation, if any, within each category of investment classification is recognized in Profit and Loss Account, The net appreciation, if any, under each category of Investment is ignored, Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
ii) Held to Maturity (HTM): These are carried at their acquisition cost. Any premium on acquisition of debt instruments is amortized over the remaining maturity of the security, Any diminution, other than temporary, in the value of such securities is provided for each investment individuals,
iii) Treasury Bills, Commercial Papers and Certificate of Deposits being discounted instruments are valued at carrying cost.
iv) Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
v) Securities sold under both Market Repo and RBI Repo (LAF) will be revalued as per the norms prescribed by the RBI.
vi) Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
- in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e., not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by FIMMDA/PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose;
- in case of bonds and debentures (including Pass Through Certificates or PTCs) where interest is not received regularly (i.e., overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
- equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at breakup value (without considering revaluation reserves, if any) which is ascertained from the companyâs latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Rs.1/- per company;
- investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company / Securitization Company;
- non-Performing Investments are identified and valued based on RBI guidelines.
C) Repurchase (REPO) and Reverse Repurchase (Reverse REPO) Transactions
The securities sold and purchased under Repo/Reverse Repo (including transactions conducted under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) with Reserve Bank of India (RBI)) are accounted as Collateralized lending and borrowing transactions. However, securities are transferred as in the case of normal outright sale/purchase transactions and such movement of securities is reflected using the Repo/Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity, Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo Account is classified under Schedule 4 (Borrowings) and balance in Reverse Repo Account is classified under Schedule 7 (Balance with Banks and Money at Call & Short Notice).
D) Short Sales
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines, The short position is reflected as the amount received on sale and is classified under âOther Liabilitiesâ, The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
E) Non-Performing Investments
In respect of securities included in any of the three categories of investments where interest/principal is in arrears, for more than 90 days, income is not recognised and appropriate provision for the depreciation in the value of the investments is made, as per prudential norms applicable to non-performing advances. Debentures/Bonds in the nature of advances are subjected to usual prudential norms applicable to advances,
F) Transfer Between Categories
Classification of investments under Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS) is done at the time of purchase and subsequent shifting amongst categories is done in conformity with the regulatory guidelines. Transfer between categories is done at the lower of the acquisition cost/book value/market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for. Transfer of securities from/to Held to Maturity category is done as per guidelines issued by RBI from time to time,
G) Acquisition Cost
In determining the acquisition cost of the Investment:
- Transaction costs including brokerage and commission pertaining to acquisition of Investments are charged to the Profit and Loss Account,
- Broken period interest is charged to the Profit and Loss Account.
- Cost of investments is computed based on the weighted average cost method,
H) Disposal of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale/redemption is recognized in the Profit and Loss account,
b. Held to Maturity - Profit or Loss on Sale/Redemption of Investments is recognised in the Profit and Loss account. In case of Profits, the same is appropriated to Capital Reserve, after adjustments for tax and transfer to statutory reserve.
8. Property, Plant and Equipment
- An item of property, plant and equipment that qualify for recognition as an asset are initially recognized and measured at cost,
- After initial recognition, the Bank chooses âCost Modelâ or âRevaluation Modelâ for subsequent measurement as its accounting policy and applies that policy to entire class of property, plant and equipment.
- Property, Plant and Equipment following âCost Modelâ are carried at Cost less any accumulated depreciation/amortization and any accumulated impairment losses.
- Property, Plant and Equipment following âRevaluation Modelâ are carried at Revalued Amount, being the fair value at the date of revaluation less any subsequent accumulated depreciation/amortization and any accumulated impairment losses.
- Revaluations are done with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value.
- An increase in the carrying amount of an asset arising on revaluation is credited to ownersâ interest under âRevaluation Reserveâ, However, the increase is recognized in the statement of profit and loss to the extent that it reverses a decrease in the revaluation of same asset previously recognized in the profit and loss account. A decrease in the carrying amount of an item of an asset arising on revaluation is charged to the statement of profit and loss. However, the decrease is debited directly to ownersâ interest under the heading âRevaluation Surplusâ to the extent of any credit balance existing in the Revaluation Reserve in respect of that asset,
- Revaluation Surplus included in ownersâ interest in respect of an item of property, plant and equipment is transferred to âRevenue Reservesâ when the asset is retired or disposed off. The difference between the depreciation based on the revalued carrying amount and the depreciation based on original cost is also transferred to âRevenue Reservesâ from âRevaluation Reserveâ, However, such transfers from âRevaluation Reserveâ to âRevenue Reserveâ are not made through the statement of profit or loss,
- Cost of an item of property. Plant and Equipment includes a) purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management viz., cost of employee benefits (as defined in AS-15 âEmployee Benefitsâ) arising directly from the construction or acquisition of the item of property, plant and equipment, cost of site preparation, initial delivery and handling costs, installation and assembly costs, professional fees, cost of testing whether the asset is functioning properly; (c) the initial estimate of the cost of dismantling, removing the item and restoring the site on which it is located, referred to as âdecommissioning, restoration and similar liabilities.â
- Depreciation on fixed assets is charged based on the estimated useful life of the asset in compliance with the Schedule II of the Companies Act, 2013. Depreciable amount of an asset is allocated on a systematic basis over the useful life of the asset,
- Residual value and useful life of the asset is reviewed at least at each financial year end, and if expectations differ from previous estimates, such changes are accounted for as a change in accounting estimate in accordance with AS-5 âNet Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ,
- Method of depreciation used is assessed and reviewed at each financial year end and if there is a significant change in the pattern of consumption of the future economic benefits embodied in the asset, the method of depreciation is changed
to reflect the changed pattern and such a change is accounted for and disclosed as a change in Accounting Estimate in accordance with AS-5. AS-5 âNet Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policiesâ,
- Impairment of an item of property, plant and equipment is determined by applying the Accounting Standard 28. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in the statement of profit and loss when the compensation becomes receivable,
- Amount expended towards acquisition of Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 5 years on straight-line basis,
- Land and premises owned by the Bank are valued under âRevaluation Modelâ and other Fixed Assets are valued under âCost Modelâ,
9. Non-Banking Assets
Non-Banking Assets acquired in settlement of debts/dues are accounted at the lower of their cost or net realizable value,
10. Cash and Cash Equivalents
Cash and Cash Equivalents include cash in hand, balances with Reserve Bank of India (RBI) and Balances with other banks/ institutions and money at call and short notice (including effects of changes in exchange rates on cash and cash equivalents in foreign currency)
11. Transactions Involving Foreign Exchange
i) Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of the transaction,
ii) Foreign Currency Monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing (spot/ forward) rates
iii) Foreign Currency Non-Monetary items, which are carried at historical cost, are reported using the exchange rate on the date of the transaction,
iv) Contingent Liabilities denominated in foreign currency are revalued using the exchange rate notified by FEDAI at the end of each quarter,
v) Outstanding foreign exchange spot and forward contracts held for trading are revalued at the exchange rate notified by FEDAI for specified maturities and the resulting profit or loss is recognized in the statement of profit and loss,
vi) Foreign Exchange forward contracts which are not intended for trading and are outstanding on the Balance Sheet date, are revalued at the closing spot rate, The premium or discount arising at the inception of such contracts is amortized as expense or income over the life of the contract,
vii) Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognized as income or as expense in the period in which they arise,
viii) Gains/Losses on account of changes in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognized in the statement of profit and loss,
12. Derivative Transactions
The Bank recognises all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are measured at fair value as at the Balance Sheet or reporting dates, Derivatives are classified as assets when the fair value is positive (Positive marked-to-market) or as liabilities when the fair value is negative (negative marked-to-market), Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account,
13. Segment Information
The disclosure relating to segment information is in accordance with the guidelines issued by RBI,
14. Earnings per Share
The Bank reports basic and diluted earnings per share in accordance with AS 20, Earnings per Share, as prescribed under Section 133 of the Companies Act, 2013, A 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, Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year, Diluted earnings per share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end,
15. Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms,
16. Impairment of Assets
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, impairment is recognised for such excess amount, The impairment loss is recognized as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset. When there is indication that an impairment loss recognized for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognized in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognised.
17. Taxes on Income
The income tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences, being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax asset is recognized subject to prudence and judgment that realization is more likely than not. Deferred tax assets and liabilities are measured using tax rates under tax laws that have been enacted before the balance sheet date. Changes in deferred tax assets/ liabilities on account of changes in enacted tax rates are given effect to in the profit and loss account in the period of the change.
18. Provisions, Contingent Liabilities and Contingent Assets
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably, The Bank does not recognize a contingent liability but discloses its existence in the financial statements
The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
19. Share Issue Expenses
Share issue expenses are charged to the Share Premium Account,
20. Corporate Social Responsibility
Spends towards corporate social responsibility, in accordance with Companies Act, 2013 are recognised in the Profit and Loss Account.
Mar 31, 2016
SCHEDULE 17 - PRINCIPAL ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH, 2016 CORPORATE INFORMATION
Dhanlaxmi Bank Limited (''DBL'' or the ''Bank'') is a private sector bank incorporated in the year 1927. Dhanlaxmi Bank Limited is a publicly held bank engaged in providing a wide range of banking and financial services. Dhanlaxmi Bank Limited is a banking company governed by the Banking Regulations Act, 1949. 55% of the branches of the Bank is in Kerala. The Bank has branches in other states of India also.
BASIS OF PREPARATION
The Financial Statements have been prepared in accordance with the requirements prescribed under the âThird Scheduleâ (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform in all material aspects to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by Reserve Bank of India (RBI) from time to time, the Accounting Standards (AS) notified under Sec. 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules 2014 to the extent applicable and practices generally prevalent in the banking industry in India. The bank follows the accrual method of accounting and the historical cost convention except where otherwise stated. The Accounting Policies adopted by the bank are consistent with the previous year except as disclosed otherwise.
USE OF ESTIMATES
The preparation of Financial Statements requires the management to make estimates and assumptions 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 and assumptions used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.
SIGNIFICANT ACCOUNTING POLICIES 1. REVENUE RECOGNITION
a) Interest income from loans and advances, investments (including deposits placed with banks and other institutions) are recognized over the period of the loans and advances, Investments, Deposits etc. on accrual basis except in the case of non-performing assets. Interest on non-performing assets is recognized upon realization as per the prudential norms of the RBI.
b) Dividend on investments in shares and units of mutual funds are accounted on accrual basis when the bank''s right to receive the dividend is established.
c) Insurance claims, Locker Rent, Interest on Income Tax refund, Commission on Distribution of Mutual Fund products and Commission from Depository services are accounted on receipt basis.
d) Commission income on issuance of Bank Guarantee/Letter of Credit and Discount on Bill Discounted is collected upfront and is recognized over the period of the underlying liability,
e) Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/facility is recognized in the year of receipt without spreading it over the period of loan/facility,
f) Corporate agency commission from Insurance Company for solicitation and distribution of the Insurance products is recognized on accrual basis.
g) All other amounts collected from customers as Non interest income or recovery of expenses towards provision of various services/facilities are accounted/recognized on receipt basis.
2. EXPENSES RECOGNITION
A) Interest Expenses
All interest expenses relating to deposits accepted and borrowings are recognized on accrual basis. Interest on unclaimed matured deposits is provided as per RBI directives.
B) Employee benefits
The liability on employee benefits are recognized in accordance with Accounting Standard 15 (revised) specified under Sec.133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules 2014.
a) Provident Fund
The contribution made by the bank to Dhanlaxmi Bank Ltd. Employees Provident Fund, administered by the trustees is charged to Profit & Loss account.
b) Pension Fund
The contribution towards Dhanlaxmi Bank Ltd. Employees'' Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognized in the accounts.
c) Gratuity
The Bank makes annual contribution to Dhanlaxmi Bank Ltd. Employees'' Gratuity Trust Fund administered and managed by the trustees. The cost of providing such benefits is determined using the Projects Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognized in the Profit and Loss Account in the period in which they occur. The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost, as reduced by the fair value of scheme assets.
d) Compensation for absence on Privilege / Sick / Casual Leave
The employees of the bank are entitled to compensated absence on account of privilege/sick/casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognized in the accounts.
e) Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999. The Scheme provides for grant of options to Employees of the Bank to acquire Equity Shares of the Bank that vest in a graded manner and are to be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. In accordance with the SEBI Guidelines Regulations, 2014 and the guidance note on âAccounting for Employee Share based paymentsâ issued by the ICAI, the excess of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortized on a straight line basis over the vesting period.
C) Other Operating Expenses are generally accounted on accrual basis. In the case of Rent where rent agreement has expired, rent is accounted on the basis of expired agreement till new rent agreement is signed.
3. NET PROFIT
Net Profit is arrived at after provisions for contingencies, which include Provision for:
i) Depreciation on Investments;
ii) Standard Assets, Restructured Advances and Non-Performing Advances and Investments;
iii) Taxation in accordance with statutory requirements.
4. ADVANCES
A) Valuation / Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and Loss assets in accordance with the Reserve Bank of India guidelines and are stated net of provisions made towards non performing advances.
b) Provision for non performing advances comprising Sub-standard, Doubtful and Loss assets is made in accordance with the Reserve Bank of India guidelines.
c) General provisions in respect of Standard Assets is created as per the Reserve Bank of India guidelines from time to time.
d) In respect of restructured (Standard and Non Performing) advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.
e) Amounts recovered against debts written off in earlier years and provisions no longer considered necessary based on the current status of the borrower are recognized in the profit and loss account.
B) Recording / Presentation
Provisions created against individual accounts as per RBI guidelines are not netted in the individual account. For presentation in financial statements, provision created for NPA is netted against gross amount of advance without adjusting the same at individual account level. Provision held against an individual account is adjusted against individual account''s balance only at the time of write off of the account.
5. INVESTMENTS
A) Classification
(a) In accordance with the RBI guidelines, investments are categorized in to âHeld for Tradingâ, âAvailable for Saleâ and
âHeld to Maturityâ and further classified under six groups, viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries/Joint Ventures and Other investments for the purposes of disclosure in the Balance Sheet.
(b) Investments which are Held for sale within 90 days from the date of purchase are classified as âHeld for Tradingâ.
(c) Investments which the bank intends to hold till maturity are classified as âHeld to Maturityâ.
(d) Investments which are not classified in either of the above two categories are classified as âAvailable for Saleâ.
B) Valuation
The cost of investments is determined on the weighted average basis. Broken period interest paid on debt instruments is treated as a revenue item. The transaction cost, including brokerage, commission etc. paid at the time of acquisition of investments are charged to revenue.
The valuation of investments is made in accordance with the RBI Guidelines:
a) Held for Trading/ Available for Sale - Each security in this category is valued at the market price or fair value and the net depreciation of each group is recognized in the Profit and Loss account. Net appreciation, if any, is ignored.
The market value of investments where current quotations are not available is determined as per the norms prescribed by RBI.
b) Held to Maturity - These are carried at their acquisition cost. Any premium on acquisition of debt instruments is amortized over the remaining maturity of the security using constant yield method. Any diminution, other than temporary, in the value of such securities is provided for.
c) Repurchase and Reverse Repurchase transactions - These are accounted as collateralized borrowing and lending transactions respectively, The difference between the clean price of the first leg and the clean price of the second leg is recognized as interest income / interest expense over the period of the transaction.
In respect of Repo transactions under Liquidity Adjustment Facility (LAF) with RBI, monies borrowed from RBI are credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse Repo transactions under LAF, monies paid to RBI are debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income.
d) In respect of securities included in any of the three categories of investments where interest/principal is in arrears, for more than 90 days, income is not recognized and appropriate provision for the depreciation in the value of the investments is made, as per prudential norms applicable to non-performing investments. Debentures / Bonds in the nature of advances are subjected to usual prudential norms applicable to advances.
In case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government securities as published by Fixed Income Money Market and Derivatives Association of India (FIMMDA)/Primary Dealers Association of India (PDAI) and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA is adopted for this purpose.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition cost/ book value/market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for. Transfer of securities from/to Held to Maturity category is done as per guidelines issued by RBI from time to time.
D. Profit or Loss on Sale/Redemption of Investments
a) Held for Trading and Available for Sale - Profit or loss on sale/ redemption is recognized in the Profit and Loss account.
b) Held to Maturity - Profit or Loss on Sale/Redemption of Investments is recognized in the Profit and Loss account. In case of Profits, the same is appropriated to Capital Reserve, after adjustments for tax and transfer to statutory reserve.
6. FIXED ASSETS AND DEPRECIATION
a) The Fixed Assets (other than those, which are revalued) are stated at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less depreciation. The appreciation in value consequent to revaluation is credited to Asset Revaluation Reserve. Depreciation on assets revalued is charged on the historical cost or the amount substituted for the historical cost. The bank transfers difference between depreciation based on the revalued carrying amount of the asset and depreciation based on its original cost to the Revaluation Reserves.
c) Amount expended towards acquisition of Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 5 years on straight-line basis.
d) Depreciation on Fixed Assets is provided based on the useful life of the asset as prescribed under Part C of Schedule II to the Companies Act, 2013. Depreciation for fixed assets except ''premises'' are based on ''Straight Line Method'' whereas premises are depreciated using Written Down Value method based on the technical evaluation of useful life. For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.
e) Capital work-in-progress includes cost of fixed assets that are not ready for their intended use.
7. IMPAIRMENT OF ASSETS
Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An assets recoverable amount is the higher of an assets net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets.
8. TRANSACTIONS INVOLVING FOREIGN EXCHANGE
i) Monetary assets and liabilities are translated to Indian Rupee equivalent at the exchange rates notified by FEDAI as on the Balance Sheet date.
ii) Forward Exchange contracts are translated to Indian Rupee equivalent at the exchange rate prevailing on the date of commitments. Gain/ Losses on outstanding forward exchange contracts are taken to revenue as per the FEDAI guidelines.
iii) Income and Expenditure in foreign currency are accounted for at the exchange rate prevailing on the date of transaction.
9. TAXES ON INCOME
The income tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences, being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax asset is recognized subject to prudence and judgment that realization is more likely than not. Deferred tax assets and liabilities are measured using tax rates under tax laws that have been enacted before the balance sheet date. Changes in deferred tax assets/ liabilities on account of changes in enacted tax rates are given effect to in the profit and loss account in the period of the change.
Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.
10. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably, The bank does not recognize a contingent liability but discloses its existence in the financial statements.
The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
11. ACCOUNTING CONTROLS AND PROCEDURES
The above policies are in the nature of general principles adopted by the bank for recognizing, recording, and summarizing the financial transactions of the bank.
Banking services are extended from various offices of the bank spread across India. For proper accounting, accounting aspects of such events/services are first recorded at such offices from where these transactions/services/events become measurable in monetary terms. Transactions thus generated are further compiled at Head Office to prepare the financial statements of the bank.
Detailed rules covering procedural aspects of accounting, including accounting controls, of various products/services at branches and Head Office are included in the policies, Manuals and circulars issued from time to time.
12. CASH AND CASH EQUIVALENT
Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.
13. LEASES
Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term.
14. EARNINGS PER SHARE
The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, âEarnings per Shareâ notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules
2014. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.
Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.
15. NON-BANKING ASSETS
Non-banking assets acquired in settlement of debts/dues are accounted at the lower of their cost of acquisition or net realizable value.
16. SEGMENT REPORTING
Business Segments have been identified and reported taking into account, the target customer profile, the nature of product and services, the differing risks and returns, the organization structure, the internal business reporting system and guidelines issued by the RBI vide notification dated April 18, 2007. The Bank operates in the following business segments
Mar 31, 2015
1. Revenue recognition
a) Interest income from loans and advances, investments (including
deposits placed with banks and other institutions) are recognized over
the period of the loans and advances, Investments, Deposits etc. on
accrual basis. However interest accrued and other dues in the nature of
non interest income relating to Advances/ Investments, classified as
Non-performing Advances/ Investments under RBI guidelines, are
recognised only on realisation.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the bank's right to receive the
dividend is established.
c) Insurance claims, Locker Rent, Interest on Income Tax refund,
Commission from Distribution of Insurance/ Mutual Fund products and
Commission from Depository services are accounted on receipt basis.
d) Commission income on issuance of Bank Guarantee/Letter of Credit and
Discount on Bill Discounted is collected upfront and is recognised over
the period of the underlying liability.
e) Processing fee/ upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/
facility is recognised in the year of receipt without spreading it over
the period of loan/ facility.
f) All other amounts collected from customers as Non interest income or
recovery of expenses towards provision of various services/ facilities
are accounted/ recognised on receipt basis.
2. EXPENSES RECOGNITION
A) Interest Expenses:
All interest expenses relating to deposits accepted and borrowings are
recognised on accrual basis. Interest on unclaimed matured deposits is
provided as per RBI directives.
B) Employee benefits
The liability on employee benefits are recognized in accordance with
Accounting Standard 15 (revised) specified in under Sec. 133 of the
Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules
2014.
a) Provident Fund
The contribution made by the bank to Dhanlaxmi Bank Ltd. Employees
Provident Fund, administered by the trustees is charged to Profit &
Loss account.
b) Pension Fund
The contribution towards Dhanlaxmi Bank Ltd. Employees' Pension Fund,
managed by trustees, is determined on actuarial basis on projected unit
credit method as on the Balance Sheet date and is recognized in the
accounts.
c) Gratuity:
The Bank makes annual contribution to Dhanlaxmi Bank Ltd. Employees'
Gratuity Trust Fund administered and managed by the trustees. The net
present value of the Bank's obligation towards the same is actuarially
determined based on the projected unit credit method as at the balance
sheet date.
d) Compensation for absence on Privilege / Sick / Casual Leave
The employees of the bank are entitled to compensated absence on
account of privilege/ sick/ casual leave as per the leave rules. The
bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognised
in the accounts.
C) Other operating Expenses are generally accounted on accrual basis.
In the case of Rent where rent agreement is expired, rent is accounted
on the basis of expired agreement till new rent agreement is signed.
3. NET PROFIT
Net Profit is arrived at after provisions for contingencies, which
include Provision for:
i) Depreciation on Investments;
ii) Standard Assets, Restructured Advances and Non-Performing Advances
and Investments;
iii) Taxation in accordance with statutory requirements.
4. ADVANCES
A) Valuation / Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non performing advances.
b) Provision for non performing advances comprising Sub-standard,
Doubtful and Loss assets is made in accordance with the Reserve Bank of
India guidelines.
c) In addition, general provision in respect of standard assets/
restructured assets is created as per Reserve Bank of India guidelines
from time to time.
B) Recording / Presentation
Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created for NPA is netted against gross amount of
advance without adjusting the same at individual account level.
Provision held against an individual account is adjusted against
individual account's balance only at the time of write off of the
account.
5. INVESTMENTS
A) Classification
(a) In accordance with the RBI guidelines, investments are categorised
in to "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under six groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures and Bonds,
Subsidiaries/Joint Ventures and Other investments for the purposes of
disclosure in the Balance Sheet.
(b) Investments which are Held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
(c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
(d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B. Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest paid on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc. paid
at the time of acquisition of investments are charged to revenue.
The valuation of investments is made in accordance with the RBI
Guidelines:
a. Held for Trading/ Available for Sale  Each security in this
category is valued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss
account. Net appreciation, if any, is ignored.
The market value of investments where current quotations are not
available is determined as per the norms prescribed by RBI.
b. Held to Maturity  These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortized over the
remaining maturity of the security. Any diminution, other than
temporary, in the value of such securities is provided for.
c. Repurchase and Reverse Repurchase transactions  These are
accounted as outright sale and outright purchase respectively. The
difference between the clean price of the first leg and the clean price
of the second leg is recognised as interest income / interest expense
over the period of the transaction. However, depreciation in their
value, if any, compared to their original cost, is provided for.
d. In respect of securities included in any of the three categories of
investments where interest / principal is in arrears, for more than 90
days, income is not recognised and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non-performing advances. Debentures / Bonds in the
nature of advances are subjected to usual prudential norms applicable
to advances.
C. Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost/ book value/ market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for. Transfer
of securities from/ to Held to Maturity category is done as per
guidelines issued by RBI from time to time.
D. Profit or Loss on Sale / Redemption of Investments
a. Held for Trading and Available for Sale  Profit or loss on sale/
redemption is recognised in the Profit and Loss account.
b. Held to Maturity - Profit or Loss on Sale/ Redemption of
Investments is recognised in the Profit and Loss account. In case of
Profits, the same is appropriated to Capital Reserve, after adjustments
for tax and transfer to statutory reserve.
6. FIXED ASSETS
a) The Fixed Assets are stated at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Revaluation Reserve. Depreciation on assets revalued is
charged based on remaining useful life of the asset including the
additions made on revaluation, and an equivalent amount towards the
additional depreciation provided on revaluation, is transferred from
Revaluation Reserve to profit and loss account.
c) Depreciation on Fixed Assets is provided based on the useful life of
the asset as prescribed under Part C of Schedule II to the Companies
Act, 2013.
d) Amount expended towards acquisition of Software is capitalized where
it is reasonably estimated that the software has an enduring useful
life. Software is amortized over an estimated useful life of 5 years on
straight-line basis.
7. TRANSACTIONS INVOLVING FOREIGN EXCHANGE
i) Monetary assets and liabilities, guarantees, acceptances,
endorsements and other obligations are translated to Indian Rupee
equivalent at the exchange rates notified by FEDAI as on the Balance
Sheet date.
ii) Forward Exchange contracts are translated to Indian Rupee
equivalent at the exchange rate prevailing on the date of commitments.
Gain/ Losses on outstanding forward exchange contracts are taken to
revenue as per the FEDAI guidelines.
iii) Income and Expenditure in foreign currency are accounted for at
the exchange rate prevailing on the date of transaction.
8. IMPAIRMENT OF ASSETS
The Bank assesses at each Balance Sheet date, whether there is any
indication that an asset is impaired or not. Impairment loss, if any,
is provided in the Profit and Loss Account to the extent the carrying
amount of assets exceeds their estimated realisable amount.
9. TAXES ON INCOME
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred tax
assets and liabilities are recognised for the future tax consequences
of timing differences, being the difference between the taxable income
and the accounting income that originate in one period and are capable
of reversal in one or more subsequent periods. Deferred tax asset is
recognised subject to prudence and judgment that realisation is more
likely than not. Deferred tax assets and liabilities are measured using
tax rates under tax laws that have been enacted before the balance
sheet date. Changes in deferred tax assets/ liabilities on account of
changes in enacted tax rates are given effect to in the profit and loss
account in the period of the change.
10. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified under Sec. 133 of the
Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules
2014, the bank recognizes provisions when it has a present obligation
as a result of a past event and it is possible that an outflow of
resources embodying economic benefits will be required to settle the
obligation in respect of which a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent assets, if any, are not recognised or disclosed in the
financial statements.
ACCOUNTING CONTROLS AND PROCEDURES
The above policies are in the nature of general principles adopted by
the bank for recognising, recording, and summarising the financial
transactions of the bank.
Banking services are extended from various offices of the bank spread
across India. For proper accounting, accounting aspects of such events/
services are first recorded at such offices from where these
transactions/services/events become measurable in monetary terms.
Transactions thus generated are further compiled at Head Office to
prepare the financial statements of the bank.
Detailed rules covering procedural aspects of accounting, including
accounting controls, of various products/services at branches and Head
Office are included in the policies, Manuals and circulars issued from
time to time.
Mar 31, 2014
1. BASIS OF PREPARATION
Financial Transactions are recorded, prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and comply with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act 1949, circulars and guidelines issued by the Reserve
Bank of India (''RBI'') from time to time, Accounting Standards (''AS'')
issued by the Institute of Chartered Accountants of India (''ICAI'') and
notifed by the Companies Accounting Standard Rules, 2006 to the extent
applicable and current practices prevailing within the banking industry
in India.
2. REVENUE RECOGNITION
a) Interest income from loans and advances, investments (including
deposits placed with banks and other institutions) are recognized over
the period of the loans and advances, Investments, Deposits etc on
accrual basis. However interest accrued and other dues in the nature of
non interest income (example inspection/ valuation charges) relating to
Advances/ Investments, classified as Non performing Advances/
Investments under RBI guidelines, are recognised only on realisation.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the bank''s right to receive the
dividend is established.
c) Insurance claims and locker rent are accounted on receipt basis.
d) Commission income on issuance of Bank Guarantee / Letter of Credit
is recognised over the period of the underlying liability.
e) Processing fee/ upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/
facility is recognised in the year of receipt without spreading it over
the period of loan/ facility.
f) All other amounts collected from customers as Non interest income or
recovery of expenses towards provision of various services / facilities
are accounted / recognised on receipt basis.
3. EXPENSES RECOGNITION
A) Interest Expenses:
All interest expenses relating to deposits accepted and borrowings are
recognised on accrual basis. Interest on unclaimed matured deposits is
provided as per RBI directives.
B) Employee benefits
The liability on employee benefits are recognized in accordance with
Accounting Standard 15 (revised) specified in Companies (Accounting
Standards) Rules, 2006.
a) Provident Fund:
The contribution made by the bank to Dhanlaxmi Bank Ltd Employees
Provident Fund, administered by the trustees is charged to Profit & Loss
account.
b) Pension Fund
The contribution towards Dhanlaxmi Bank Ltd Employees'' Pension Fund,
managed by trustees, is determined on actuarial basis on projected unit
credit method as on the Balance Sheet date and is recognized in the
accounts.
c) Gratuity:
The bank makes annual contribution to Dhanlaxmi Bank Ltd Employees''
Gratuity Trust Fund administered and managed by the trustees. The net
present value of the bank''s obligation towards the same is actuarially
determined based on the projected unit credit method as at the balance
sheet date.
d) Compensation for absence on Privilege / Sick / Casual Leave
The employees of the bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognised
in the accounts.
C) Other operating Expenses are generally accounted on accrual basis.
In the case of Rent where rent agreement is expired, rent is accounted
on the basis of expired agreement till new rent agreement is signed.
4. NET PROFIT
Net Profit is arrived at after provisions for contingencies, which
include Provision for:
i) Depreciation on Investments;
ii) Standard Assets and Non-Performing Advances and investments;
iii) Taxation in accordance with statutory requirements.
5. ADVANCES
A) Valuation / Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non performing advances.
b) Provision for non performing advances comprising Sub-standard,
Doubtful and Loss assets is made in accordance with the Reserve Bank of
India guidelines.
c) In addition, general provision in respect of standard
assets/restructured assets are created as per Reserve Bank of India
guidelines from time to time.
B) Recording / presentation
a) Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created is netted against gross amount of advance
without adjusting the same at individual account level. Provision held
against an individual account is adjusted against individual account''s
balance only at the time of write off of the account.
6. INVESTMENTS
A) Classifcation
(a) In accordance with the RBI guidelines, investments are categorised
in to "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and other
investments for the purposes of disclosure in the Balance Sheet.
(b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
(c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
(d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc paid at
the time of acquisition of investments are charged to revenue.
The valuation of investments is made in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale - Each security in this
category is valued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss account.
Net appreciation, if any, is ignored.
The market value of investments where current quotations are not
available is determined as per the norms prescribed by RBI.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortised over the
remaining maturity of the security. Any diminution, other than
temporary, in the value of such securities is provided for.
c. Repurchase and reverse repurchase transactions - These are
accounted as outright sale and outright purchase respectively. The
difference between the clean price of the frst leg and the clean price
of the second leg is recognised as interest income / interest expense
over the period of the transaction. However, depreciation in their
value, if any, compared to their original cost, is provided for.
d. In respect of securities included in any of the three categories of
investments where interest / principal is in arrears, for more than 90
days, income is not reckoned and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non-performing advances. Debentures / Bonds in the
nature of advances are subjected to usual prudential norms applicable
to advances.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost / book value / market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for. Transfer
of securities from/to Held to Maturity category should be done only
once in a year, normally at the beginning of the year.
D) Profit or Loss on sale / Redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale /
redemption is included in the Profit and Loss account.
b. Held to Maturity - Profit or loss on sale / redemption of
investments is included in the Profit and Loss account. In case of
Profits, the same is appropriated to Capital Reserve after adjustments
for tax and transfer to statutory reserve.
E) Repo and Reverse Repo Transactions
The balances under Repo account are classified under Schedule 4 and the
balances in Reverse Repo are classified under Schedule 7. The balances
in Repo interest expenditure A/c and Reverse Repo interest income A/c
are classified under Schedule 15 and under Schedule 13 respectively.
7. FIXED ASSETS
a) The Fixed Assets are stated at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on written down values including the additions made on
revaluation, and an equivalent amount towards the additional
depreciation provided on revaluation, is transferred from the Asset
Revaluation Reserve to Profit and loss account.
c) Depreciation on fixed assets other than computers is provided on
written down value method, at the rates specified in Schedule XIV of the
Companies Act, 1956. Computer hardware is depreciated at 33.33% on
straight-line method as per RBI Guidelines.
d) Amount expended towards acquisition of Software is capitalized where
it is reasonably estimated that the software has an enduring useful
life. Software is amortized over an estimated useful life of 5 years on
straight-line basis.
8. Transactions involving foreign exchange
i) Monetary assets and liabilities, guarantees, acceptances,
endorsements and other obligations are translated to Indian Rupee
equivalent at the exchange rates notifed by FEDAI as on the Balance
Sheet date.
ii) Forward Exchange contracts are translated to Indian Rupee
equivalent at the exchange rate prevailing on the date of commitments.
Gain/Losses on outstanding forward exchange contracts are taken to
revenue as per the FEDAI guidelines.
iii) Income and Expenditure in foreign currency are accounted for at
the exchange rate prevailing on the date of transaction.
9. IMPAIRMENT OF ASSETS
The bank assesses at each Balance Sheet date whether there is any
indication that an asset may be impaired. Impairment loss, if any, is
provided in the Profit and Loss Account to the extent the carrying
amount of assets exceeds their estimated realisable amount.
10. TAXES ON INCOME
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred tax
assets and liabilities are recognised for the future tax consequences
of timing differences, being the difference between the taxable income
and the accounting income that originate in one period and are capable
of reversal in one or more subsequent periods. Deferred tax asset is
recognised subject to prudence and judgment that realisation is more
likely than not. Deferred tax assets and liabilities are measured using
tax rates under tax laws that have been enacted before the balance
sheet date. Changes in deferred tax assets / liabilities on account of
changes in enacted tax rates are given effect to in the Profit and loss
account in the period of the change.
11. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified in Companies (Accounting
Standards) Rules, 2006, the Bank recognises provisions when it has a
present obligation as a result of a past event.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to refect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss can not be
reasonably estimated, a disclosure is made in the financial statements.
Contingent assets, if any, are not recognised in the financial
statements since this may result in the recognition of Income that may
never be realised.
(b) FRA: There is no FRA contract outstanding as on 31 March 2014
Disclosures on risk exposure in derivatives
Qualitative Disclosure
Bank discusses its risk management policies pertaining to derivatives
with particular reference to the extent to which derivatives are used,
the associated risks and business purposes served. The discussion
includes:
a) the structure and organization for management of risk in derivatives
trading ;
b) the scope and nature of risk measurement, risk reporting and risk
monitoring systems;
c) policies for hedging and/ or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants; and
d) accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation.
vi. Unsecured advances against intangible assets:
As at March 31, 2014, the amount of unsecured advances against
intangible assets was Nil and the estimated value of the intangible
collaterals was Nil.
a. DETAILS OF SINGLE BORROWER LIMIT, GROUP BORROWER LIMIT EXCEEDED BY
THE BANK The bank has not exceeded the single borrower as well as group
borrower limit during the year.
14. Based on thematic study conducted in May 2013 by RBI offcials and
subsequent correspondence and explanations, RBI has imposed penalty of
Rs. 2 crores which was paid on 24.06.2013
Note:
a) The compensation Committee has granted a total of 3,999,225 options
convertible into 3,999,225 Equity shares which represent 6.24% of the
paid up share capital of the Bank. The fair market value one day before
the date of grant is Rs. 118.35 which is also the exercise price of the
option.
b) The Bank accounts for ''Employee Share Based Payments'' using the fair
value method.
The Remuneration Committee of Board at its meeting held on 28th
February, 2012 deliberated the need to replace the said ESOP 2009 with
a new Employees Stock Option Scheme 2013 (ESOS, 2013) with a view to
overhaul the entire process and terms governing the ESOS 2009. With the
price of the shares of the Bank halving when compared to the price in
the year 2009, the price at which the options were granted under ESOP
2009 became unattractive and hence Remuneration Committee felt the need
for replacing the ESOP 2009 with a new ESOS 2013. Further, the new ESOS
2013 will enable the grantees of the options under ESOP 2009, who are
yet to exercise their options granted and vested under ESOP 2009 within
the exercise period specified there under, either to swap their options
with the Stock Options granted under ESOS, 2013 which shall vest on
them immediately on swap and be subject to the new exercise price and
exercise period under the ESOS 2013 or to exercise the options as per
the new exercise price within the exercise period as specified under the
ESOP, 2009.
Accordingly Board of the Bank had given approval to implement the
Employees Stock Option Scheme 2013 (ESOS 2013) at its meeting dated
17/07/2013 subject to approval of shareholders and passed the
resolution that ESOS 2013 shall replace ESOP 2009 and become effective
which is 15th day from the date of approval of the scheme by
shareholders or date of in principle approval by the stock exchanges
whichever is later.
We have received in Principle approval from stock exchanges on
26/03/2014 and hence the effective date for the implementation of ESOS
2013 will be 11/04/2014.
20. SEGMENT REPORTING (AS 17)
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
a) Treasury Operations
b) Corporate / Wholesale Banking
c) Retail banking
d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
26. DRAW DOWN OF RESERVES
Pursuant to RBI Circular No. DBOD. No. BP.BC.77/21.04.018/2013-14 dated
20.12.2013, the Bank has created Deferred Tax Liability (DTL) of Rs.
203.45 lakhs for the period up to 31.03.2013 on special reserve under
section 36(1)(viii) of Income Tax Act, 1961, by way of draw down from
general reserves.
Mar 31, 2013
1. REVENUE RECOGNITION
- Items of income and expenditure are accounted for on accrual basis,
except as stated hereunder:
- Interest / Discount on loans & advances / Bills is recognized on
accrual basis other than on those stipulated in RBI''s prudential norms
on income recognition, asset classification and provisioning relating
to NPAs where the income is recognized on realization.
- Rent on safe deposit lockers, dividends, depository participant
business etc. are accounted for on cash basis.
- Loan processing fee on retail assets is accounted for upfront when
it becomes due. Loan processing fees for buyout/other loans would be
recognized over the period of tenor of the loan on constant yield
basis. Service charges to be paid on buyout loans would be recognized
as and when due.
- Commission received on guarantees issued is amortised on a
straight-line basis over the period of the guarantee.
- Interest on income tax refunds is accounted in the year in which
the same is received/adjusted by the income tax department.
- The Bank imports Bullion on consignment basis and sells it to the
customers. The Profit & Loss on sale is arrived after reducing all the
direct and indirect costs.
- In respect of accounts covered under one time settlement, the
recoveries are adjusted against book balance and the net balance is
written off.
- Income accounted for in the preceding year and remaining unrealized
is de-recognized in respect of advances classified as NPA during the
year. Interest on NPA is transferred to interest suspense account and
recognised in Profit and Loss Account when realized.
- In respect of sale of Assets under securitization the Bank has
followed RBI guidelines as under:
- Sale price received shall be duly accounted for and shall be
apportioned to each asset on the basis of respective valuations given
to the asset.
- If the sale price is below Net Book Value (i.e. Outstanding book
balance less interest suspense and provisions held) {Net NPA}, then
short fall should be debited to profit and loss account.
- If sale value is higher than the Net NPA balance, then excess
provisions shall not be reversed but should be utilized to meet the
short fall / loss on account of sale of other non-performing Assets.
- At the end of each reporting year, security receipts issued by the
asset reconstruction company are valued in accordance with the
guidelines applicable to such instruments, prescribed by RBI from time
to time. Accordingly, in cases where the cash flows from security
receipts are limited to the actuarial realization of the financial
assets assigned to the instruments in the concerned scheme, the bank
reckons the net asset value obtained from the asset reconstruction
company from time to time, for valuation of such investments at each
reporting year end. The cash consideration received in respect of
accounts written off shall be credited to Profit and Loss Account and
the value of Security Receipts shall be classified under investments
and the corresponding provision shall be retained.
- All income other than the transactions specified above are
accounted on proportionate basis over the period of the contract.
2. INVESTMENTS
Investments are accounted for in accordance with the extant RBI
guidelines on investment classification and valuation as mentioned
below:
a) Classification
Investments in Government, other approved securities, shares,
debentures, bonds and other securities are categorized into (a) Held to
Maturity (b) Held for Trading and (c) Available for Sale in terms of
RBI guidelines.
b) Basis of Classification
Investments that are held principally for resale within 90 days from
the date of purchase are classified under "Held for Trading"
category.
Investments which the Bank intends to hold till maturity are classified
as HTM securities.
Investments which are not classified in the above categories are
classified under "Available for Sale" category.
c) Acquisition Cost
In determining acquisition cost of an investment:
- Brokerage, Commission, etc. paid at the time of acquisition, are
charged to revenue at the time of settlement.
- Broken period interest (the amount of interest from the previous
interest payment date till the date of purchase/sale of instruments) on
debt instruments is treated as a revenue item.
- Cost of investments is based on the following basis:
- Held to Maturity - Weighted Average
- Held for Trading - Weighted Average o Available for sale - Weighted
Average
d) Valuation of Investments is done as under
- Held to Maturity: ''Held to Maturity'' securities are carried at
their acquisition cost or at amortised cost, if acquired at a premium
over the face value. Any premium over the face value of fixed rate and
floating rate securities acquired is amortised over the remaining
period to maturity on a constant yield basis.
- ''Available for Sale'' and ''Held for Trading'' securities are valued
periodically as per RBI guidelines. Quoted investments are valued based
on the trades/quotes on the recognized stock exchanges, subsidiary
general ledger account transactions, price list of RBI or prices
declared by Primary Dealers Association of India jointly with Fixed
Income Money Market and Derivatives Association (FIMMDA), periodically.
The market/fair value of unquoted government securities which are in
the nature of Statutory Liquidity Ratio (SLR) securities included in
the ''Available for Sale'' and ''Held for Trading'' categories is as per
the rates published by FIMMDA. The valuation of other unquoted fixed
income securities wherever linked to the Yield-to-Maturity (YTM) rates,
is computed with a mark-up (reflecting associated credit risk) over the
YTM rates for government securities published by FIMMDA.
Unquoted equity shares are valued as per the RBI guidelines which is
presently at the break-up value, if the latest balance sheet is
available, or at Rs.1, per company.
Securities are valued scrip-wise and depreciation/appreciation is
aggregated for each category. Net appreciation in each category, if
any, being unrealised, is ignored, while net depreciation is provided
for.
Non-performing investments are identified and depreciation/provision is
made thereon based on the RBI guidelines. The depreciation/ provision
is not set off against the appreciation in respect of other performing
securities. Interest on non-performing investments is not recognised in
the Profit or Loss Account until received.
e) Sale of Investments
Profit on sale of investments in the ''Held to Maturity'' category is
credited to the profit and loss account and is thereafter appropriated
(net of applicable taxes and statutory reserve requirements) to Capital
Reserve. Profit on sale of investments in ''Available for Sale'' and
''Held for Trading'' categories is credited to profit and loss account.
The shifting of securities from one category to another is done with
the approval of the Board as per RBI guidelines. The shifting is
effected at acquisition cost/book /market value on the date of
transfer, whichever is the least and the depreciation if any at the
time of shifting is fully provided for.
Repo and Reverse Repo Transactions
In a repo transaction, the bank borrows monies against pledge of
securities. The book value of the securities pledged is credited to the
investment account. Borrowing costs on repo transactions are accounted
for as interest expense. In respect of repo transactions outstanding at
the balance sheet date, the difference between the sale price and book
value, if the former is lower than the latter, is provided as a loss in
the income statement.
In a reverse repo transaction, the bank lends monies against incoming
pledge of securities. The securities purchased are debited to the
investment account at the market price on the date of the transaction.
Revenues thereon are accounted as interest income.
In respect of repo transactions under Liquidity Adjustment Facility
(LAF) with RBI, monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
3. ADVANCES
Advances are classified as performing and non-performing based on the
Reserve Bank of India guidelines and further into Standard, Sub-
Standard, Doubtful and Loss Assets and are stated net of bills
rediscounted, specific provisions, floating provisions, interest in
suspense for non-performing advances and claims received from Export
Credit Guarantee Corporation.
Specific loan loss provisions in respect of Non-Performing Advances
(NPAs) are made based on management''s assessment of the degree of
impairment of wholesale and retail advances, subject to the minimum
provisioning level prescribed in the RBI guidelines.
The Bank maintains general provision for standard assets at levels
stipulated by RBI from time to time. Provision for standard assets is
included under Other Liabilities. Provisions made in excess of these
regulatory levels or provisions which are not made with respect to
specific non- performing assets or assets which are restructured /
securitized are categorized as floating provisions.
The Bank considers a restructured account as one where the Bank, for
economic or legal reasons relating to the borrower''s financial
difficulty, grants to the borrower concessions that the Bank would not
otherwise consider. Restructuring would normally involve modification
of terms of the advance/securities, which would generally include,
among others, alteration of repayment period/repayable amount/the
amount of installments/rate of interest (due to reasons other than
competitive reasons). Restructured accounts are reported as such by the
Bank only upon approval and implementation of the restructuring
package. Necessary provision for diminution in the fair value of a
restructured account is made.
The Bank buys loans through the direct assignment route. In respect of
direct assignment, where the purchase consideration is higher than the
principal amount of the portfolio, the resultant additional upfront
amount is classified as ''Other Assets'' which will amortise during the
life of the advances on constant yield basis. In other cases, these are
accounted at the deal value.
4. FIXED ASSETS AND DEPRECIATION
Fixed assets, except those revalued, are stated at cost less
accumulated depreciation. Cost includes cost of purchase and all
expenditure like site preparation, installation costs, professional
fees and other expenses incurred on the asset before it is ready to
use. Subsequent expenditure incurred on assets put to use is
capitalized only when it increases the futures benefit/functioning
capability from/of such assets.
Software is capitalized where it is reasonably estimated that the
software has an enduring useful life. Software is amortized over an
estimated useful life of 5 year.
For assets purchased and sold during the year, depreciation is provided
on pro rata basis by the Bank.
5. IMPAIRMENT OF ASSETS
The Bank assesses at each balance sheet date whether there is any
indication that an asset may be impaired. Impairment of loss, if any,
is provided in the Profit and Loss Account to the extent the carrying
amount of assets exceeds their estimated recoverable amount.
6. TRANSACTIONS INVOLVING FOREIGN EXCHANGE
- Monetary assets and liabilities are translated at the exchange
rates prevailing at the close of the year as advised by FEDAI and the
resulting net gain/loss is recognized in the revenue account.
- Profit or loss on outstanding forward foreign currency contracts
are accounted for at the exchange rates prevailing at the close of the
year as per FEDAI/ RBI guidelines.
- Income and expenditure items are accounted at the exchange rates
ruling on the date of transaction.
- Contingent liabilities in respect of outstanding forward foreign
currency exchange contracts, guarantees and letters of credit are
stated at the exchange rates prevailing at the close of the year.
- Premium/discount on hedge swaps are recognized as interest
income/expenses and are recognized/ amortized over the period of the
transactions.
7. EMPLOYEE STOCK OPTION SCHEME ("ESOS")
Dhanlaxmi Bank Limited Employees Stock Option Scheme, 2009 ("ESOP
Scheme") provides for the grant of equity shares of the Bank to its
eligible employees and Directors in the whole time employment of the
Bank / Managing Director. The Scheme provides that employees are
granted an option to acquire equity shares of the Bank that vests in a
graded manner. The options may be exercised within a specified period.
The Bank follows the intrinsic value method to account for its
stock-based employee''s compensation plans. Compensation cost is
measured as the excess, if any, of the fair market price of the
underlying stock over the exercise price on the grant date. The fair
market price is the latest closing price, immediately prior to the date
of the Board of Directors meeting in which the options are granted, on
the stock exchange on which the shares of the Bank are listed. In this
regard the Bank has complied with the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
8. EMPLOYEE BENEFIT
The defined employee benefit schemes are as under:-
- Provident Fund
The contribution as required by the statute is made to the Staff PF
Trust of the Bank is debited to the Profit and Loss Account. The
obligation of the Bank is limited to such contribution.
- Gratuity
The Bank has a defined benefit gratuity plan for Officers and Workmen.
Every Officer / workman who has rendered continuous services of five
years or more is eligible for Gratuity on superannuation, resignation,
termination, disablement or on death. The scheme is funded by the bank
and is managed by a separate staff trust. The liability for the same is
recognized on the basis of actuarial valuation and certificate issued
by independent actuary.
- Pension
The bank has a defined benefit pension Plan. The plan includes those
employees who had joined under IBA pattern of the Bank upto and
including 31st March, 2012 and had opted for the pension scheme. The
scheme is managed by a separate trust and the liability for the same is
recognized on the basis of actuarial valuation and certificate issued
by independent actuary.
9. LEASE ACCOUNTING
Lease payments for assets taken on operating lease are recognized in
the Profit and Loss Account over the lease term in accordance with the
AS - 19, Leases.
10. INCOME TAX
Income tax expense comprises current tax provision, the net change in
the deferred tax asset or liability in the year. Deferred tax assets
and liabilities are recognized for the future tax consequences of
timing differences between the carrying values of assets and
liabilities and their respective tax bases, and operating loss carry
forwards. Deferred tax assets and liabilities are measured using the
enacted or substantially enacted tax rates at the balance sheet date.
Deferred tax assets are recognized only to the extent there is
reasonable certainty that the assets can be realized in future. In case
of unabsorbed depreciation or carried forward loss under taxation laws,
deferred tax assets are recognized only if there is virtual certainty
of realization of such assets. Deferred tax assets are reviewed at each
balance sheet date and appropriately adjusted to reflect the amount
that is reasonably/virtually certain to be realized.
11. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
In accordance with AS - 29, Provisions, Contingent Liabilities and
Contingent Assets, issued by the Institute of Chartered Accountants of
India, the Bank recognizes provisions when it has a present obligation
as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and when a reliable estimate of the amount of the obligation
can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent Assets, if any, are not recognized in the financial
statements since this may result in the recognition of income that may
never be realized.
12. EARNINGS PER SHARE
The Bank reports basic and diluted earnings per equity share in
accordance with AS - 20, Earnings per Share, issued by the Institute of
Chartered Accountants of India. Basic earnings per equity share have
been computed by dividing net profit for the year by the weighted
average number of equity shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue equity shares were exercised or
converted during the year. Diluted earnings per equity share have been
computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding during the period except
where the results are anti dilutive.
13. SEGMENT REPORTING
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17, Segment Reporting
issued by ICAI.
Primary Segments: Business segments
a. Treasury Operations: Includes the entire investment portfolio of
the bank.
b. Corporate/Wholesale Banking: Includes all advances to trusts,
partnership firms, companies and statutory bodies which are not
included under "Retail Banking".
c. Retail Banking: The exposure upto Rs.5.00 crores to individual,
HUF, Partnership firm, Trust, Private Ltd. Companies, Public Ltd.
Companies, Co-operative Societies etc. or to a small business is
covered under retail banking. Small business is one where average of
last three years annual turnover (actual for existing & projected for
new entities) is less than Rs.50 crores.
d. Unallocated segment includes all other operations not covered under
Treasury, Wholesale Banking and Retail Banking segments.
Secondary Segments: Geographical segments
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
Mar 31, 2012
1. Revenue recognition
- Items of income and expenditure are accounted for on accrual basis,
except as stated hereunder:
- Interest / Discount on loans & advances / Bills is recognized on
accrual basis other than on those stipulated in RBI's prudential norms
on income recognition, asset classification and provisioning relating
to NPAs where the income is recognized on realization.
- Rent on safe deposit lockers, dividends, depository participant
business etc. are accounted for on cash basis.
- Loan processing fee on retail assets is accounted for upfront when
it becomes due. Loan processing fees for buyout/other loans would be
recognized over the period of tenor of the loan on constant yield
basis. Service charges to be paid on buyout loans would be recognized
as and when due.
- Commission received on guarantees issued is amortised on a
straight-line basis over the period of the guarantee.
- Interest on income tax refunds is accounted in the year in which
the same is received / adjusted by the income tax department.
- In respect of accounts covered under one time settlement, the
recoveries are adjusted against book balance and the net balance is
written off.
- Income accounted for in the preceding year and remaining unrealized
is de-recognized in respect of advances classified as NPA during the
year. Interest on NPA is transferred to interest suspense account and
recognised in Profit and Loss Account when realized.
- In respect of sale of Assets under securitization the Bank has
followed RBI guidelines as under:
- Sale price received shall be duly accounted for and shall be
apportioned to each asset on the basis of respective valuations given
to the asset.
- If the sale price is below Net Book Value (i.e. Outstanding book
balance less interest suspense and provisions held) {Net NPA}, then
short fall should be debited to profit and loss account.
- If sale value is higher than the Net NPA balance, then excess
provisions shall not be reversed but should be utilized to meet the
short fall / loss on account of sale of other non-performing Assets.
- At the end of each reporting year, security receipts issued by the
asset reconstruction company are valued in accordance with the
guidelines applicable to such instruments, prescribed by RBI from time
to time. Accordingly, in cases where the cash flows from security
receipts are limited to the actuarial realization of the financial
assets assigned to the instruments in the concerned scheme, the bank
reckons the net asset value obtained from the asset reconstruction
company from time to time, for valuation of such investments at each
reporting year end. The cash consideration received in respect of
accounts written off shall be credited to Profit and Loss Account and
the value of Security Receipts shall be classified under investments
and the corresponding provision shall be retained.
- All income other than the transactions specified above are
accounted on proportionate basis over the period of the contract.
2. Investments
Investments are accounted for in accordance with the extant RBI
guidelines on investment classification and valuation as mentioned
below:
a) Classification
Investments in Government, other approved securities, shares,
debentures, bonds and other securities are
categorized into (a) Held to Maturity (b) Held for Trading and (c)
Available for Sale in terms of RBI guidelines.
b) Basis of Classification
Investments that are held principally for resale within 90 days from
the date of purchase are classified under
"Held for Trading" category.
Investments which the Bank intends to hold till maturity are classified
as HTM securities.
Investments which are not classified in the above categories are
classified under "Available for Sale" category.
c) Acquisition Cost
In determining acquisition cost of an investment:
- Brokerage, Commission, etc. paid at the time of acquisition, are
charged to revenue at the time of settlement.
- Broken period interest (the amount of interest from the previous
interest payment date till the date of purchase/sale of instruments) on
debt instruments is treated as a revenue item.
- Cost of investments is based on the following basis:
- Held to Maturity - Weighted Average
- Held for Trading - Weighted Average
- Available for sale - Weighted Average
d) Valuation of Investments is done as under
- Held to Maturity: 'Held to Maturity' securities are carried at
their acquisition cost or at amortised cost, if acquired at a premium
over the face value. Any premium over the face value of fixed rate and
floating rate securities acquired is amortised over the remaining
period to maturity on a constant yield basis.
- 'Available for Sale' and 'Held for Trading' securities are valued
periodically as per RBI guidelines. Quoted investments are valued based
on the trades/quotes on the recognized stock exchanges, subsidiary
general ledger account transactions, price list of RBI or prices
declared by Primary Dealers Association of India jointly with Fixed
Income Money Market and Derivatives Association (FIMMDA), periodically.
The market/fair value of unquoted government securities which are in
the nature of Statutory Liquidity Ratio (SLR) securities included in
the 'Available for Sale' and 'Held for Trading' categories is as per
the rates published by FIMMDA.
The valuation of other unquoted fixed income securities wherever linked
to the Yield-to-Maturity (YTM) rates, is computed with a mark-up
(reflecting associated credit risk) over the YTM rates for government
securities published by FIMMDA.
Unquoted equity shares are valued as per the RBI guidelines which is
presently at the break-up value, if the latest balance sheet is
available, or at Rs.1, per company.
Securities are valued scrip-wise and depreciation/appreciation is
aggregated for each category. Net appreciation in each category, if
any, being unrealised, is ignored, while net depreciation is provided
for.
Non-performing investments are identified and depreciation/provision is
made thereon based on the RBI guidelines. The depreciation / provision
is not set off against the appreciation in respect of other performing
securities. Intereston non-performing investments is not recognised in
the Profit or Loss Account until received.
e) Sale of Investments
Profit on sale of investments in the 'Held to Maturity' category is
credited to the profit and loss account and is thereafter appropriated
(net of applicable taxes and statutory reserve requirements) to Capital
Reserve. Profit on sale of investments in 'Available for Sale' and
'Held for Trading' categories is credited to profit and loss account.
The shifting of securities from one category to another is done with
the approval of the Board as per RBI guidelines. The shifting is
effected at acquisition cost/book /market value on the date of
transfer, whichever is the least and the depreciation if any at the
time of shifting is fully provided for.
Repo and Reverse Repo Transactions
In a repo transaction, the bank borrows monies against pledge of
securities. The book value of the securities pledged is credited to the
investment account. Borrowing costs on repo transactions are accounted
for as interest expense. In respect of repo transactions outstanding at
the balance sheet date, the difference between the sale price and book
value, if the former is lower than the latter, is provided as a loss in
the income statement.
In a reverse repo transaction, the bank lends monies against incoming
pledge of securities. The securities purchased are debited to the
investment account at the market price on the date of the transaction.
Revenues thereon are accounted as interest income.
In respect of repo transactions under Liquidity Adjustment Facility
with RBI (LAF), monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
3. Advances
Advances are classified as performing and non-performing based on the
Reserve Bank of India guidelines and further into Standard,
Sub-Standard, Doubtful and Loss Assets and are stated net of bills
rediscounted, specific provisions, floating provisions, interest in
suspense for non-performing advances and claims received from Export
Credit Guarantee Corporation.
Specific loan loss provisions in respect of non-performing advances
(NPAs) are made based on management's assessment of the degree of
impairment of wholesale and retail advances, subject to the minimum
provisioning level prescribed in the RBI guidelines.
The Bank maintains general provision for standard assets at levels
stipulated by RBI from time to time. Provision for standard assets is
included under Other Liabilities. Provisions made in excess of these
regulatory levels or provisions which are not made with respect to
specific non-performing assets or assets which are restructured /
securitised are categorised as floating provisions.
The Bank considers a restructured account as one where the Bank, for
economic or legal reasons relating to the borrower's financial
difficulty, grants to the borrower concessions that the Bank would not
otherwise consider. Restructuring would normally involve modification
of terms of the advance/securities, which would generally include,
among others, alteration of repayment period/repayable amount/the
amount of installments/rate of interest (due to reasons other than
competitive reasons). Restructured accounts are reported as such by the
Bank only upon approval and implementation of the restructuring
package. Necessary provision for diminution in the fair value of a
restructured account is made.
The Bank buys loans through the direct assignment route. In respect of
direct assignment, where the purchase consideration is higher than the
principal amount of the portfolio, the resultant additional upfront
amount is classified as 'Other assets' which will amortise during the
life of the advances on constant yield basis. In other cases, these are
accounted at the deal value.
4. Fixed assets and depreciation
Fixed assets, except those revalued, are stated at cost less
accumulated depreciation. Cost includes cost of purchase and all
expenditure like site preparation, installation costs, professional
fees and other expenses incurred on the asset before it is ready to
use. Subsequent expenditure incurred on assets put to use is
capitalized only when it increases the futures benefit/functioning
capability from/of such assets.
Software is capitalized where it is reasonably estimated that the
software has an enduring useful life. Software is amortized over an
estimated useful life of 5 year.
For assets purchased and sold during the year, depreciation is provided
on pro rata basis by the Bank.
5. Impairment of Assets
The Bank assesses at each balance sheet date whether there is any
indication that an asset may be impaired. Impairment of loss, if any,
is provided in the Profit and Loss Account to the extent the carrying
amount of assets exceeds their estimated recoverable amount.
6. Transactions involving foreign exchange
- Monetary assets and liabilities are translated at the exchange
rates prevailing at the close of the year as advised by FEDAI and the
resulting net gain/loss is recognized in the revenue account.
- Profit or loss on outstanding forward foreign currency contracts
are accounted for at the exchange rates prevailing at the close of the
year as per FEDAI/ RBI guidelines.
- Income and expenditure items are accounted at the exchange rates
ruling on the date of transaction.
- Contingent liabilities in respect of outstanding forward foreign
currency exchange contracts, guarantees and letters of credit are
stated at the exchange rates prevailing at the close of the year.
- Premium/discount on hedge swaps are recognized as interest
income/expenses and are recognized/ amortised over the period of the
transactions.
7. Employee Stock Option Scheme ("ESOS")
Dhanlaxmi Bank Limited Employees Stock Option Scheme, 2009 ("ESOP
Scheme") provides for the grant of equity shares of the Bank to its
eligible employees and Directors in the whole time employment of the
Bank / Managing Director. The Scheme provides that employees are
granted an option to acquire equity shares of the Bank that vests in a
graded manner. The options may be exercised within a specified period.
The Bank follows the intrinsic value method to account for its
stock-based employee's compensation plans. Compensation cost is
measured as the excess, if any, of the fair market price of the
underlying stock over the exercise price on the grant date. The fair
market price is the latest closing price, immediately prior to the date
of the Board of Directors meeting in which the options are granted, on
the stock exchange on which the shares of the Bank are listed. In this
regard the Bank has complied with the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
8. Employee Benefit
The defined employee benefit schemes are as under:-
- Provident Fund
The contribution as required by the Statute is made to the staff PF
Trust of the bank is debited to the Profit and Loss Account. The
obligation of the Bank is limited to such contribution.
- Gratuity
The Bank has a defined benefit gratuity plan for Officers and Workmen.
Every Officer / workman who has rendered continuous services of five
years or more is eligible for Gratuity on superannuation, resignation,
termination, disablement or on death. The scheme is funded by the bank
and is managed by a separate staff trust. The liability for the same is
recognized on the basis of actuarial valuation and certificate issued
by independent actuary.
- Pension
The bank has a defined benefit Pension Plan. The plan applies to those
employees of the bank who were on the Bank payroll as on September 29,
1995, having opted for the pension scheme and to all workmen joining,
thereafter. The scheme is managed by a simple separate trust and the
liability for the same is recognized on the basis of actuarial
valuation and certificate issued by independent actuary.
9. Lease Accounting
Lease payments for assets taken on operating lease are recognized in
the Profit and Loss Account over the lease term in accordance with the
AS - 19, Leases.
10. Income tax
Income tax expense comprises current tax provision, the net change in
the deferred tax asset or liability in the year. Deferred tax assets
and liabilities are recognised for the future tax consequences of
timing differences between the carrying values of assets and
liabilities and their respective tax bases, and operating loss carry
forwards. Deferred tax assets and liabilities are measured using the
enacted or substantially enacted tax rates at the balance sheet date.
Deferred tax assets are recognized only to the extent there is
reasonable certainty that the assets can be realized in future. In case
of unabsorbed depreciation or carried forward loss under taxation laws,
deferred tax assets are recognized only if there is virtual certainty
of realization of such assets. Deferred tax assets are reviewed at each
balance sheet date and appropriately adjusted to reflect the amount
that is reasonably/virtually certain to be realized.
11. Accounting for provisions, contingent liabilities and contingent
assets
In accordance with AS - 29, Provisions, Contingent Liabilities and
Contingent Assets, issued by the Institute of Chartered Accountants of
India, the Bank recognises provisions when it has a present obligation
as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and when a reliable estimate of the amount of the obligation
can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent Assets, if any, are not recognised in the financial
statements since this may result in the recognition of income that may
never be realized.
12. Earnings per share
The Bank reports basic and diluted earnings per equity share in
accordance with AS - 20, Earnings per Share, issued by the Institute of
Chartered Accountants of India. Basic earnings per equity share have
been computed by dividing net profit for the year by the weighted
average number of equity shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue equity shares were exercised or
converted during the year. Diluted earnings per equity share have been
computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding during the period except
where the results are anti dilutive.
13. Segment reporting
The Bank has recognized Business segments as primary reporting segment
and geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17, Segment Reporting
issued by the Institute of Chartered Accountants of India.
Primary Segments: Business segments
a. Treasury Operations: Includes the entire investment portfolio of
the bank.
b. Corporate/Wholesale Banking: Includes all advances to trusts,
partnership firms, companies and statutory bodies which are not
included under "Retail Banking".
c. Retail Banking: The exposure upto Rs.5.00 Crores to individual, HUF,
Partnership firm, Trust, Private Ltd. Companies, Public Ltd. Companies,
Co-operative Societies etc. or to a small business is covered under
retail banking. Small business is one where average of last three years
annual turnover (actual for existing & projected for new entities) is
less than Rs.50 crores.
d. Unallocated segment includes all other operations not covered under
Treasury, Wholesale Banking and Retail banking Segments.
Secondary Segments: Geographical segments
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
Mar 31, 2011
Background
Dhanlaxmi Bank Limited was incorporated in November 1927 atThrissur, in
Kerala by a group of ambitious entrepreneurs. Dhanlaxmi bank is a
publicly held banking company engaged in providing a wide range of
banking and financial services including commercial banking and
treasury operations. Dhanlaxmi bank is a banking company governed by
The Banking Regulation Act, 1949. It became a scheduled commercial bank
in 1977.
Basis of preparation of financial statements
The financial statements have been prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and in compliance with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (RBI) from time to time, Accounting Standards issued by
the Institute of Chartered Accountants of India and notified by the
Companies Accounting Standard Rules, 2006, to the extent applicable and
in compliance of the current practices prevailing within the banking
industry in India.
The preparation of financial statements 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 expense for the
reporting period. Management believes that the estimates used in the
preparation of the financial statements are prudent and reasonable.
Future results may differ from these estimates. Any revision in the
accounting estimates is recognized prospectively in the current and
future periods.
PRINCIPAL ACCOUNTING POLICIES
1. Revenue recognition
- Items of income and expenditure are accounted for on accrual basis,
except as stated hereunder :
- Interest on loans and advances is recognized on accrual basis other
than on those stipulated in RBIs prudential norms on income
recognition, asset classification and provisioning relating to NPAs
where the income is recognized on realization.
- Rent on safe deposit lockers, dividends, depository participant
business etc are accounted for on cash basis. Discount on bills is
recognized upfront except where the tenure exceeds one year.
- Loan processing fee is accounted for upfront when it becomes due.
- Commission received on guarantees issued is amortised on a
straight-line basis over the period of the guarantee.
- Interest on Income tax refunds is accounted in the year in which the
same is determined.
- In respect of accounts covered under one time settlement, the
recoveries are adjusted against book balance and the net balance is
written off.
- Income accounted for in the preceding year and remaining unrealized
is de-recognised in respect of advances classified as NPA during the
year. Interest on NPA is transferred to interest suspense account and
recognised in Profit and Loss Account when realized
- In respect of sale of Assets under securitization, the Bank has
followed RBI guidelines as under:
- Sale price received shall be duly accounted for and shall be
apportioned to each asset on the basis of respective valuations given
to the asset.
- If the sale price is below Net Book Value (i.e. Outstanding book
balance less interest suspense and provisions held) {Net NPA}, then
short fall should be debited to profit and loss account.
- If sale value is higher than the Net NPA balance, then excess
provisions shall not be reversed would be utilized to meet the
shortfall/loss on account of sale of other non performing Assets.
- At the end of each reporting year, security receipts issued by the
asset reconstruction company are valued in accordance with the
guidelines applicable to such instruments, prescribed by RBI from time
to time. Accordingly, in cases where the cash flows from security
receipts are limited to the actual realization of the financial assets
assigned to the instruments in the concerned scheme, the Bank reckons
the net asset value obtained from the asset reconstruction company from
time to time, for valuation of such investments at each reporting year
end. The cash consideration received in respect of accounts written off
shall be credited to Profit and Loss Account and the value of Security
Receipts shall be classified under investments and the corresponding
provision shall be retained.
2. Investments
Investments are accounted for in accordance with the extant RBI
guidelines on investment classification and valuation as mentioned
below :
a) Classification:
Investments in Government, other approved securities, shares,
debentures, bonds and other securities are categorized into (a) Held to
Maturity (b) Held for Trading and (c) Available for Sale in terms of
RBI guidelines.
b) Basis of Classification :
Investments that are held principally for resale within 90 days from
the date of purchase are classified under "Held for Trading" category.
Investments which the Bank intends to hold till maturity are classified
as Held to Maturity securities.
Investments which are not classified in the above categories are
classified under "Available for Sale" category.
c) Acquisition Cost:
In determining acquisition cost of an investment:
- Brokerage, Commission, etc. paid at the time of acquisition, are
charged to revenue.
- Broken period interest (the amount of interest from the previous
interest payment date till the date of purchase/sale of instruments) on
debt instruments is treated as a revenue item.
- Cost of investments is based on the weighted average cost method
d) Valuation of Investments is done as under:
- Held to Maturity: "Held to Maturity securities are carried at their
acquisition cost or at amortised cost, if acquired at a premium over
the face value. Any premium over the face value of fixed rate and
floating rate securities acquired is amortised over the remaining
period to maturity on a constant yield basis.
- Available for Sale and Held for Trading securities are valued
periodically as per RBI guidelines. Quoted investments are valued
based on the trades/quotes on the recognized stock exchanges,
subsidiary general ledger account transactions, price list of RBI or
prices declared by Primary Dealers Association of India jointly with
Fixed Income Money Market and Derivatives Association (FIMMDA),
periodically.
The market/fair value of unquoted government securities which are in
the nature of Statutory Liquidity Ratio (SLR) securities included in
the Available for Sale and Held for Trading categories is as per
the rates published by FIMMDA. The valuation of other unquoted fixed
income securities wherever linked to the Yield-to-Maturity (YTM) rates,
is computed with a mark-up (reflecting associated credit risk) over the
YTM rates for government securities published by FIMMDA.
Unquoted equity shares are valued at the break-up value, if the latest
balance sheet is available, or at Rs. 1, as per RBI guidelines.
Securities are valued scrip-wise and depreciation/appreciation is
aggregated for each category. Net appreciation in each category, if
any, being unrealised, is ignored, while net depreciation is provided
for.
Investment valuation norms for various categories are as given in table
below :
Particulars Valuation Norms
Central Government
Securities Prices published by PDAI/FIMMDA
State Government
Securities At YTM published by PPAI/FIMMDA
Other Approved
Securities YTM published by PDAI/FIMMDA duly adjusted as
per RBI guidelines
Bonds, Debentures
and Preference
Shares As per rates/methodologies
prescribed by FIMMDA
Equity Shares Valued at book value as per the
latest Balance Sheet. Where Balance Sheets
are not available, at Rs. 1 /- per Company
Units of Mutual
Fund Re-purchase price / NAV declared by the Mutual
Fund as at the close of the year
Other securities As per guidelines prescribed by RBI
Non-performing investments are identified and depreciation/provision is
made thereon based on the RBI guidelines. The depreciation/provision is
not set off against the appreciation in respect of other performing
securities. Interest on non-performing investments is not recognised in
the Profit or Loss Account until received.
e) Sale of Investments:
Profit on sale of investments in the "Held to Maturity category is
credited to the profit and loss account and is thereafter appropriated
(ne of applicable taxes and statutory reserve requirements) to Capital
Reserve. Profit on sale of investments in Available for Sale and
Held for Trading categories is credited to profit and loss account.
The shifting of securities from one category to another is done with
the approval of the Board as per RBI guidelines. The shifting is
effected at acquisition cost/ book/market value on the date of
transfer, whichever is the least and the depreciation if any at the
time of shifting is fully provided for.
f) Repo and Reverse Repo Transactions:
In a repo transaction, the bank borrows monies against pledge of
securities. The book value of the securities pledged is credited to the
investment account. Borrowing costs on repo transactions are accounted
for as interest expense. In respect of repo transactions outstanding at
the balance sheet date, the difference between the sale price and book
value, if the former is lower than the latter, is provided as a loss in
the income statement.
In a reverse repo transaction, the bank lends monies against incoming
pledge of securities. The securities purchased are debited to the
investment account at the market price on the date of the transaction.
Revenues thereon are accounted as interest income.
In respect of repo transactions under Liquidity Adjustment Facility
with RBI (LAF), monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
3. Advances
Advances are classified as performing and non-performing based on the
Reserve Bank of India guidelines and further into Standard,
Sub-Standard, Doubtful and Loss Assets and are stated net of bills
rediscounted, specific provisions, floating provisions, interest in
suspense for non-performing advances and claims received from Export
Credit Guarantee Corporation.
Specific loan loss provisions in respect of non-performing advances
(NPAs) are made based on managements assessment of the degree of
impairment of wholesale and retail advances, subject to the minimum
provisioning level prescribed in the RBI guidelines.
The Bank maintains general provision for standard assets at levels
stipulated by RBI from time to time. Provision for standard assets is
included under Other Liabilities. Provisions made in excess of these
regulatory levels or provisions which are not made with respect to
specific non-performing assets are categorised as floating provisions.
The Bank considers a restructured account as one where the Bank, for
economic or legal reasons relating to the borrowers financial
difficulty, grants to the borrower concessions that the Bank would not
otherwise consider. Restructuring would normally involve modification
of terms of the advance/securities, which would generally include,
among others, alteration of repayment period/ repayable amount/ the
amount of installments/ rate of interest (due to reasons other than
competitive reasons). Restructured accounts are reported as such by the
Bank only upon approval and Implementation of the restructuring
package. Necessary provision for diminution In the fair value of a
restructured account Is made.
The Bank buys loans through the direct assignment route. In respect of
direct assignment, where the purchase consideration is higher than the
principal amount of the portfolio, the resultant additional upfront
amount Is classified under Other assets which will be amortised
during the life of such loans. Other assets are accounted at the deal
value.
4. Fixed assets and depreciation
Fixed assets, except those revalued, are stated at cost less
accumulated depreciation. Cost includes cost of purchase and all
expenditure like site preparation, installation costs, professional
fees and other expenses incurred on the asset before it is ready to
use. Subsequent expenditure incurred on assets put to use is
capitalized only when it increases the futures benefit/ functioning
capability from/ of such assets.
Software is capitalized where it is reasonably estimated that the
software has an enduring useful life. Software is amortized over its
estimated useful life, which is generally five years
For assets purchased and sold during the year, depreciation is provided
on a pro rata basis by the Bank.
5. Impairment of Assets
The Bank assesses at each balance sheet date whether there is any
indication that an asset may be impaired, Impairment of loss, if any,
is provided in the Profit and Loss Account to the extent the carrying
amount of assets exceeds their estimated recoverable amount.
6. Transactions involving foreign exchange
- Monetary assets and liabilities are translated at the exchange rates
prevailing at the close of the year as advised by Foreign Exchange
Dealers Association of India (FEDAI) and the resulting net gain/loss
is recognized in the revenue account.
- Profit or loss on outstanding forward foreign currency contracts are
accounted for at the exchange rates prevailing at the close of the year
as per FEDAI/RBI guidelines. The resulting profit or loss is included
in the Profit and Loss Account.
- Income and expenditure items are accounted at the exchange rates
ruling on the date of transaction.
- Contingent liabilities in respect of outstanding forward foreign
currency exchange contracts, guarantees and letters of credit are
stated at the exchange rates prevailing at the close of the year.
- Premium/discount on hedge swaps are recognized as interest
income/expenses and are recognized/ amortised over the period of the
transactions.
7. Employee Stock Option Scheme
Dhanlaxmi Bank Limited Employees Stock Option Scheme 2009 ("ESOP
Scheme") provides for the grant of equity shares of the Bank to its
eligible employees and Directors in the whole time employment of the
Bank. The Scheme provides that employees are granted an option to
acquire equity shares of the Bank that vests in a graded manner. The
options may be exercised within a specified period. The Bank follows
the intrinsic value method to account for its stock-based employees
compensation plans. Compensation cost is measured as the excess, if
any, of the fair market price of the underlying stock over the exercise
price on the grant date. The fair market price is the latest closing
price, immediately prior to the date of the Board of Directors meeting
in which the options are granted, on the stock exchange on which the
shares of the Bank are listed. In this regard the Bank has complied
with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase
Scheme) guidelines, 1999.
8. Employee Benefit
The defined employee benefit schemes are as under :-
- Provident Fund
The contribution as required by the statute is made to the Staff
Provident Fund Trust of the bank and is debited to the Profit and Loss
Account. The obligation of the Bank is limited to such contribution.
- Gratuity
The Bank has a defined benefit gratuity plan for Officers and Workmen.
Every Officer/workman who has rendered continuous services of five
years or more is eligible for Gratuity on superannuation, resignation,
termination, disablement or on death. The scheme is funded by the bank
and is managed by a separate staff trust. The liability for the same is
recognized on the basis of actuarial valuation.
- Pension
The bank has a defined benefit pension Plan. The plan applies to those
employees of the bank who were on the Bank payroll as on September 29,
1995, having opted for the pension scheme and to all workmen joining,
thereafter. The scheme is managed by a simple separate trust and the
liability for the same is recognized on the basis of actuarial
valuation.
9. Lease Accounting
Lease payments for assets taken on operating lease are recognized in
the Profit and Loss Account over the lease term in accordance with the
Accounting Standard - 19, Leases, issued by the Institute of Chartered
Accountants of India.
10. Income tax
Income tax expense comprises current tax provision, the net change in
the deferred tax asset or liability in the year. Deferred tax assets
and liabilities are recognised for the future tax consequences of
timing differences between the carrying values of assets and
liabilities and their respective tax bases, and operating loss carry
forwards. Deferred tax assets and liabilities are measured using the
enacted or substantially enacted tax rates at the balance sheet date.
Deferred tax assets are recognized only to the extent there is
reasonable certainty that the assets can be realized in future. In case
of unabsorbed depreciation or carried forward loss under taxation laws,
deferred tax assets are recognized only if there is virtual certainty
of realization of such assets. Deferred tax assets are reviewed at each
balance sheet date and appropriately adjusted to reflect the amount
that is reasonably/virtually certain to be realized.
11. Accounting for provisions, contingent liabilities and contingent
assets
In accordance with Accounting Standard - 29, Provisions, Contingent
Liabilities and Contingent Assets, issued by the Institute of Chartered
Accountants of India, the Bank recognises provisions when it has a
present obligation as a result of a past event it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent Assets, if any, are not recognised in the financial
statements since this may result in the recognition of income that may
never be realized.
12. Earnings per share
The Bank reports basic and diluted earnings per equity share in
accordance with AS-20, Earnings per Share, issued by the Institute of
Chartered Accountants of India. Basic earnings per equity share have
been computed by dividing net profit for the year by the weighted
average number of equity shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue equity shares were exercised or
converted during the year. Diluted earnings per equity share have been
computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding during the period except
where the results are anti dilutive.
13. Segment reporting
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard-17, Segment Reporting
issued by the Institute of Chartered Accountants of India.
Primary Segments : Business segments
a) Treasury Operations : Includes the entire investment portfolio of
the bank.
b) Corporate/Wholesale Banking : Includes all advances to trusts,
partnership firms, companies and statutory bodies which are not
included under "Retail Banking"
c) Retail Banking : The exposure upto Rs. 5 Crores to individual, HUB
Partnership firm. Trust, Private Ltd. Companies, Public Ltd.
Companies, Co-operative Societies etc. or to a small business is
covered under retail banking. Small business is one where average of
last three years annual turnover (actual for existing and projected for
new entities) is less than Rs. 50 crores.
d) Other banking business operations: Includes all other Banking
operations not covered under Treasury, Wholesale Banking and Retail
banking Segments. Other banking business is the residual category.
Secondary Segments: Geographical segments
Since the Bank is having domestic operations only, no reporting arises
under this segment.
Mar 31, 2010
1. Basis of preparation of financial statements
The financial statements have been prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and in compliance with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (ÃRBIÃ) from time to time, Accounting Standards (ASÃ)
issued by the Institute of Chartered Accountants of India (ÃICAIÃ) and
notified by the Companies Accounting Stan- dard Rules 2006 to the
extent applicable and in compliance of the current practices prevailing
within the banking industry in India.
The preparation of financial statements requires the management to make
estimates and assumptions considering the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expense for the
reporting period. Management believes that the estimates used in the
preparation of the financial statements are prudent and reasonable.
Future results may differ from these estimates. Any revision in the
accounting estimates is recognized prospectively in the current and
future period.
2. Revenue recognition
- Items of income and expenditure are accounted for on accrual basis,
except as stated hereunder:
Interest on loans and advances is recognized on accrual basis other
than on those stipulated in RBIs prudential norms on in- come
recognition, asset classification and provisioning relating to NPAs
where the income is recognized on realization.
- In respect of accounts covered under one time settlement, the
recoveries are adjusted against book balance and the net bal- ance is
written off
- Income accounted for in the preceding year and remaining unrealized
is de-recognised in respect of advances classified as NPA during the
year Interest on NPA is transferred to interest suspense account and
recognised in Profit and Loss Account when realised
- Rent on safe deposit lockers dividends, depository participant
business etc are accounted for on cash basis. Discount on bills are
recognized upfront except where the tenor exceeds one year.
- Interest on income tax refunds is accounted in the year in which the
same is determined.
- In respect of sale of Assets under securitization the Bank has
followed RBI guidelines as under:
- Sale price received shall be duly accounted for and shall be
apportioned to each asset on the basis of respective valua- tions given
to the asset.
- If the sale price is below Net Book Value (i.e. Outstanding book
balance less interest suspense and provisions held) {Net NPA}, then
short fall should be debited to profit and loss account.
- If sale value is higher than the Net NPA balance, then excess
provisions shall not be reversed but should be utilized to meet the
shortfall/loss on account of sale of other non performing Assets.
- The cash consideration received in respect of written off accounts
shall be taken to Profit and Account and the value of Security Receipts
shall be shown under investment and the corresponding provision shall
be held.
3. Investments
Investments in Government, other approved securities shares,
debentures, bonds and other securities are categorized into (a) Held to
Maturity (b) Held for Trading and (c) Available for Sale in terms of
RBI guidelines.
In determining acquisition cost of an investment:
- Brokerage, Commission, etc. paid at the time of acquisition, are
charged to revenue
- Broken period interest on debt instruments is treated as a revenue
item.
- Cost of invertments is based on the following basis.
-Held to Maturity- Individual Cost
-Held for trading- Weighted Average
-Available for sale- Weighted Average
Particulars Valuation Norms
Central Government
Securities Prices published by PDAI/FIMMDA
State Government
Securities At YTM published by PDAI/FIMMDA
Other Approved
SecuritiesYTM published by PDAI/FIMMDA duly adjusted as
per RBI guidelines
Bonds, Debentures
and Preference
Shares As per rates / methodologies prescribed by FIMMDA.
Equity Shares Valued at book value as per the latest Balance
Sheet. Where Balance Sheets are not
available, at Re 1/- per Company
Units of Mutual
Fund
Re-purchase price / NAV declared by the Mutual
Fund as at the close of the year
Other securities As per guidelines prescribed by RBI
The premium (acquisition cost over the face value), if any, is
amortised over the remaining period of maturity in respect of
securities held under Held to Maturity category based on ÃConstant
Yield MethodÃ. Profit on redemption / sale of securities in Held to
Maturity category is transferred to Capital Reserve.
The shifting of securities from one category to another is done with
the approval of the Board as per RBI guidelines. The shifting is ef-
fected at acquisition cost/book /market value on the date of transfer
whichever is the least and the depreciation if any at the time of
shifting is fully provided for
Repo and Reverse Repo Transactions:
In a repo transaction, the bank borrows monies against pledge of
securities. The book value of the securities pledged is credited to the
investment account. Borrowing costs on repo transactions are accounted
for as interest expense. In respect of repo transactions outstanding at
the balance sheet date, the difference between the sale price and book
value, if the former is lower than the latter is provided as a loss in
the income statement.
In a reverse repo transaction, the bank lends monies against incoming
pledge of securities. The securities purchased are debited to the
investment account at the market price on the date of the transaction.
Revenues thereon are accounted as interest income.
In respect of repo transactions under Liquidity Adjustment Facility
with RBI (LAF), monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse repo
transactions under LAF monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
4. Advances
Advances are classified as performing and non-performing based on the
Reserve Bank of India guidelines and further into Standard,
Sub-Standard , Doubtful and Loss Assets and are stated net of bills
rediscounted, specific provisions, floating provisions, interest in
sus- pense for non-performing advances and claims received from Export
Credit Guarantee Corporation.
Specific loan loss provisions in respect of non-performing advances
(NPAs) are made based on managements assessment of the degree of
impairment of wholesale and retail advances subject to the minimum
provisioning level prescribed in the RBI guidelines.
The Bank maintains general provision for standard assets at levels
stipulated by RBI from time to time. Provision for standard assets is
included under Other Liabilities. Provisions made in excess of these
regulatory levels or provisions which are not made with respect to
specific non-performing assets or assets which are restructured /
securitised are categorised as floating provisions.
The Bank considers a restructured account as one where the Bank, for
economic or legal reasons relating to the borrowers financial
difficulty grants to the borrower concessions that the Bank would not
otherwise consider Restructuring would normally involve modi- fication
of terms of the advance/securities, which would generally include,
among others, alteration of repayment period/repayable amount/the
amount of installments/rate of interest (due to reasons other than
competitive reasons). Restructured accounts are re- ported as such by
the Bank only upon approval and implementation of the restructuring
package. Necessary provision for diminution in the fair value of a
restructured account is made.
5. Fixed assets and depreciation
Fixed assets, except those revalued, are stated at cost less
accumulated depreciation. Cost includes cost of purchase and all ex-
penditure like site preparation, installation costs, professional fees
and other expenses incurred on the asset before it is ready to use
Subsequent expenditure incurred on assets put to use is capitalized
only when it increases the futures benefit/functioning capability
from/of such assets.
Depreciation is charged over the estimated useful life of the fixed
asset on a written down value basis except on computers. The rates of
depreciation are given below:
- Owned Premises at 5.00% per annum
- Office equipment at 18.10% per annum
- Motor cars at 25.89% per annum
- Items (excluding staff assets) costing less than Rs. 5,000/- are
fully depreciated in the year of purchase ÃAll other assets are
depreciaited as per the rates specified in schedule of the comparies
Act 1956
- Computers including softwware and system depolopment expenditure at
33.33% pre annum on starght Companies Act, 1956 lire Software is
capitalized where it is reasonably estimated that the software has an
enduring useful life. Software is amortized over an estimated useful
life of 3 to 5 year.
For assets purchased and sold during the year, depreciation is provided
on pro rata basis by the Bank.
6. Impairment of assets
The Bank assesses at each balance sheet date whether there is any
indication that an asset may be impaired. Impairment of loss, if any,
is provided in the Profit and Loss Account to the extent the carrying
amount of assets exceeds their estimated recoverable amount.
7. Transactions involving foreign exchange
- Monetary assets and liabilities are translated at the exchange rates
prevailing at the close of the year as advised by FEDAI and the
resulting net gain/loss is recognized in the revenue account.
- Profit or loss on outstanding forward foreign currency contracts are
accounted for at the exchange rates prevailing at the close of the year
as per FEDAI/ RBI guidelines.
- Income and expenditure items are accounted at the exchange rates
ruling on the date of transaction.
- Contingent liabilities in respect of outstanding forward foreign
currency exchange contracts, guarantees and letters of credit are
stated at the exchange rates prevailing at the close of the year
- Premium/discount on hedge swaps are recognized as interest
income/expenses and are recognized/ amortised over the period of the
transactions.
8. Employee benefits
- Employee Stock Option Scheme (ÃESOSÃ)
The Dhanalakshmi Bank Limited Employees Stock Option Scheme 2009 (ÃESOP
SchemeÃ) provides for the grant of equity shares of the Bank to its
eligible employees and Directors in the whole time employment of the
Bank / Managing Director. The Scheme provides that employees are
granted an option to acquire equity shares of the Bank that vests in a
graded manner. The options may be exercised within a specified period.
The Bank follows the intrinsic value method to account for its
stock-based employ- ees compensation plans. In this regard the Bank has
complied with the SEBI (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) guidelines, 1999.
The defined employee benefit schemes are as under:-
- Provident Fund
The contribution as required by the statute is made to the Staff PF
Trust of the Bank is debited to the Profit and Loss Account. The
obligation of the Bank is limited to such contribution.
- Gratuity
The Bank has a defined benefit gratuity plan for Officers and Workmen.
Every Officer / workman who has rendered con- tinuous services of five
years or more is eligible for Gratuity on superannuation, resignation,
termination, disablement or on death. The scheme is funded by the bank
and is managed by a separate staff trust. The liability for the same is
recognized on the basis of actuarial valuation.
- Pension
The bank has a defined benefit pension Plan. The plan applies to those
employees of the bank who were on the Bank pay- roll as on September
29, 1995, having opted for the pension scheme and to all workmen
joining, thereafter The scheme is managed by a simple separate trust
and the liability for the same is recognized on the basis of actuarial
valuation.
9. Lease Accounting
Lease payments for assets taken on operating lease are recognized in
the Profit and Loss Account over the lease term in accordance with the
AS - 19, Leases.
10. Income tax
Income tax expense comprises current tax provision, the net change in
the deferred tax asset or liability in the year Deferred tax as- sets
and liabilities are recognised for the future tax consequences of
timing differences between the carrying values of assets and
liabilities and their respective tax bases, and operating loss carry
forwards. Deferred tax assets and liabilities are measured using the
enacted or substantially enacted tax rates at the balance sheet date.
Deferred tax assets are recognized only to the extent there is
reasonable certainty that the assets can be realized in future. In case
of unabsorbed depreciation or carried forward loss under taxation laws,
deferred tax assets are recognized only if there is virtual certainty
of realization of such assets. Deferred tax assets are reviewed at each
balance sheet date and appropriately adjusted to reflect the amount
that is reasonably/virtually certain to be realized.
Accounting for provisions, contingent liabillites and contingent assets
accounting for provisions, contingent Contingent Liabilities and
Contingent Assets, issued by the Institute of Chartered Accountants
resources accpordan Bank recognises provisions when it has a present
obligation as a result of a past event, it is probable that an outflow
of obligation ources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supple- mented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent Assets, if any, are not recognised in the financial
statements since this may result in the recognition of income that may
never be realized.
12. Earnings per share
The Bank reports basic and diluted earnings per equity share in
accordance with AS - 20, Earnings per Share, issued by the Institute of
Chartered Accountants of India. Basic earnings per equity share have
been computed by dividing net profit for the year by the weighted
average number of equity shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue equity shares were exercised or
converted during the year. Diluted earnings per equity share have been
computed using the weighted average number of equity shares and
dilutive potential equity shares out- standing during the period except
where the results are anti dilutive.
13. Segment reporting
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
Primary Segments: Business segments.
a. Treasury Operations: Includes the entire investment portfolio of
the bank
b. Corporate/Wholesale Banking : Includes all advances to trusts,
partnership firms, companies and statutory bodies which are not
included under "Retail Banking"
c. Retail Banking: The exposure upto Rs. 5.00 Crores to individual,
HUF, Partnership firm, Trust, Private Ltd. Companies, Public Ltd.
Companies, Co-operative Societies etc. or to a small business is
covered under retail banking. Small business is one where average of
last three years annual turnover (actual for existing & projected for
new entities) is less than Rs.50 crores.
d. Other banking business operations: Includes all other Banking
operations not covered under Treasury Wholesale Banking and Retail
banking Segments. Other banking business is the residual category
Secondary Segments: Geographical segments
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
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