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Accounting Policies of Dhanlaxmi Bank Ltd. Company

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.

 
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