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Accounting Policies of Federal Bank Ltd. Company

Mar 31, 2015

4.1 Advances

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, floating provisions 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 sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made over and above the minimum required as per the guidelines of the RBI on matters relating to prudential norms.

Advances shown in the Balance Sheet are net of (a) bills redis- counted and (b) provisions made for non performing advances.

Loss assets and unsecured portion of doubtful assets are provided/ written off as per the RBI guidelines.

Amounts recovered against debts written off are recognised in the profit and loss account and included under "Other Income".

For restructured/rescheduled assets, provision is made in accord- ance 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.

A general provision for standard advances is made @ 0.25% in case of direct advances to agricultural and SME sectors, 1% in respect of advances classified as commercial real estate, 3.50 to 5% in respect of certain class of restructured assets and 0.40% for all other advances as prescribed by the RBI.

4.2 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 categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGC") guide- lines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 1 00%. 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 exposure.

4.3 Investments

Classification

In accordance with the RBI guidelines, investments are categorised at the time of purchase as:

* Held for Trading (HFT);

* Available for Sale (AFS); and

* Held to Maturity (HTM)

Investments which are primarily held for sale within 90 days from the date of purchase are classified as "Held for Trading". As per RBI guidelines, HFT Securities which remain unsold for a period of 90 days are classified as AFS Securities on that date. Investments which the bank intends to hold till maturity are classified as "Held to Maturity".

Investments which are not classified in either of the above two categories are classified as "Available for Sale".

However for the purpose of disclosure in Balance Sheet, invest- ments in India are classified under six categories, viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries /Joint Ventures and others.

Transfer of securities between Categories

Transfer of securities 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, as per RBI guidelines.

Acquisition Cost

* Transaction costs including brokerage and commission pertain- ing 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.

Valuation

The valuation of investments is made in accordance with the RBI Guidelines:

a. Held for Trading/Available for Sale - 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 the Market Price of the Scrip as avail- able from the traded/ quotes on the stock exchanges 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 each investment classification is recognised in Profit and Loss Account. The net appreciation, if any, under each category of each Investment is ignored. The Book value of individual securities is not changed consequent to the periodic valuation of Investments.

b. Held to Maturity - These are carried at their acquisition cost. Any premium on acquisition of government securities are am- ortised over the remaining maturity period of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided for.

c. Repurchase and reverse repurchase transactions - These are ac- counted 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 thereon 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 investments. Debentures / Bonds in the nature of advances are subjected to usual prudential norms applicable to advances.

e. Treasury Bills and Certificate of Deposits being discounted in- struments, are valued at carrying cost.

f. Units of Mutual Funds are valued at the latest repurchase price/

net asset value declared by Mutual Fund.

g. 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 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 are adopted for this purpose;

* In case of bonds and debentures (including Pass Through Cer- tificates 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 break-up value (without considering revalua- tion 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;

* Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs.1/- per VCF. In- vestment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines;

* Investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company / Securitisation Company.

Investments in subsidiaries/associates are categorised as HTM and assessed for impairment to determine permanent diminution, if any, in accordance with the RBI guidelines.

All investments are accounted for on settlement dates except in- vestments in equity shares which are accounted for on trade date as the corporate actions are effected in equity on the trade date.

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 in- vestments 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 in accord- ance with RBI guidelines.

Repo and Reverse Repo Transactions

In respect of Repo transactions under Liquidity Adjustment Facility (LAF) with RBI, monies borrowed from RBI are credited to in- vestment 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.

Short Sales

In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The Short Sales positions are reflected in ''Securities Short Sold (''SSS'') A/C'', specifically created for this purpose. Such short positions are categorized under HFT category. These positions are marked -to- market along with the other securities under HFT Portfolio and resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of Investments discussed earlier.

4.4 Foreign currency transactions

Transactions denominated in foreign currencies are accounted for at the rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities are translated at the Balance Sheet date at rates notified by Foreign Exchange Dealers Associa- tion of India (''FEDAI''). All profits/losses resulting from year end revaluations are recognised in the Profit and Loss Account.

Outstanding foreign exchange contracts excluding currency swaps undertaken to hedge foreign currency assets/ liabilities, funding swaps and spot exchange contracts are revalued at quarter end exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of interim maturities. The resulting gains or losses on revaluation are included in the Profit and Loss Account in accordance with RBI/FEDAI guidelines. The forward exchange contracts of longer maturities where exchange rates are not notified by FEDAI are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the Profit and Loss Account.

Premium/discount on forward exchange contracts and currency swaps undertaken to hedge foreign currency assets and liabilities and funding swaps is recognised as interest income/ expense and is amortised on a pro-rata basis over the underlying swap period.

Contingent liabilities on account of foreign exchange contracts, guarantees, acceptances, endorsements and other obligations de- nominated in foreign currencies are disclosed at closing rates of exchange notified by FEDAI.

4.5 Derivative transactions

Derivative transactions comprise of forward contracts and swaps which are disclosed as contingent liabilities. The Bank recognises all derivative contracts at the fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting dates. In respect of derivative contracts that are marked to market, negative market value is recognised in the Profit and Loss Account in the relevant period. Contingent liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI at the Balance Sheet date.

Currency futures contracts are marked to market using daily set- tlement price on a trading day, which is the closing price of the respective futures contracts on that day. While the daily settle- ment price is computed based on the last half an hour weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the futures contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit/loss is daily settled with the exchange.

4.6 Fixed assets and depreciation

Fixed assets are carried at cost of acquisition less accumulated de- preciation and impairment, if any. Cost includes cost of purchase and all expenditure like freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset.

Capital work-in-progress includes cost of fixed assets that are not ready for their intended use and also includes advances paid to acquire fixed assets.

The Bank has adopted the revised useful of assets as per Schedule II of the Companies Act, 201 3. The method of charging deprecia- tion of certain assets has been changed to straight line method from the previous written down value method.

Premises are depreciated under the written down value method, using the same useful life as in Schedule II of the Companies Act, 2013. Improvement to leased Premises are depreciated over 5 years based on technical evaluation.

Depreciation on premises revalued has been charged on their written-down value including the addition made on revaluation.

Depreciation on assets sold during the year is recognised on a pro-rata basis till the date of sale.

Profit on sale of premises is appropriated to Capital Reserve account in accordance with RBI instructions.

4.7 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 exceed the estimated recovera- ble amount, an impairment is recognised for such excess amount. The impairment loss is recognised 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 revaluation decrease to the extent a revaluation reserve is avail- able for that asset.

The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash flows to their present value based on an appropriate discount factor.

When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impair- ment loss is recognised 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.

4.8 Non-Banking Assets

Non-Banking assets acquired in settlement of debts /dues are ac- counted at the lower of their cost of acquisition or net realisable value.

4.9 Cash and Cash Equivalents

Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks /institu- tions and money at call and short notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency)

4.10 Revenue Recognition

Interest income is recognised on an accrual basis except interest income on non-performing assets, which is recognised on receipt in accordance with AS-9, Revenue Recognition as specified under Section 1 33 of the Companies Act, 201 3 and as specified in the RBI guidelines.

Processing fees collected on loans disbursed, along with related loan acquisition costs are recognised at inception of the loan.

Income on discounted instruments is recognised over the tenure of the instrument on a straight line basis.

Guarantee commission, commission on letter of credit and annual locker rent fees are recognised on a straight line basis over the period of contract. Other fees and commission income are recog- nised when due, except in cases where the bank is uncertain of ultimate collection.

Dividend is accounted on an accrual basis when the right to receive the dividend is established.

Gain/Loss on sell down of loans is recognised in line with the extant RBI Guidelines.

Loan Syndication fee is accounted for on completion of the agreed service and when right to receive is established.

Unpaid funded interest on term loans are accounted on realisation as per the guidelines of RBI.

The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income.

4.11 Lease transactions Operating Lease

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as op- erating 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.

Finance Lease

Accounting Standard on Leases (AS19) issued by the Institute of Chartered Accountants of India (ICAI) is applicable to leases entered into on or after 1 st April 2001. Since all the Bank''s out- standing finance lease transactions were entered into prior to that date, the Bank has followed the earlier ICAI guidelines in respect of these leases.

4.12 Retirement and other employee benefits

a) Provident Fund

The contribution made by the bank to The Federal Bank Employ- ees Provident Fund, administered by the trustees is charged to the Profit and Loss account.

b) Pension Fund

The contribution towards The Federal Bank Employees'' Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the accounts. However, the liability arising on account of re-opening of pension option to existing employees who had joined prior to 29th September, 1995 and not exercised the option earlier, is amortised over a period of five years com- mencing from the financial year 2010-11 as permitted by the Reserve Bank of India.

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 the Profit and Loss account.

c) Gratuity

The bank makes annual contribution to The Federal Bank Em- ployees'' 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 recognised 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.

d) Compensation for absence on Privilege / Sick / Casual Leave and Leave Travel Concession (LTC)

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 accumu- lated at the balance sheet date based on actuarial valuation and such costs are recognised in the accounts.

The employees are also eligible for LTC as per the rules. The esti- mated cost of unused entitlement as on the Balance Sheet date based on actuarial valuation is provided for.

4.13 Debit card reward points

The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary.

4.14 Employee Stock Option Scheme

The Bank has formulated Employee Stock Option Scheme (ESOS) 2010 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 that are to be exer- cised within a specified period. In accordance with the SEBI Guidelines and the guidance note on "Accounting for Employee Share based payments" issued by the ICAI, the excess, if any, 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 amortised on a straight line basis over the vesting period.

4.15 Taxation

Income tax expense is the aggregate amount of current tax and deferred tax charge.

Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.

Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is con- vincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Company.

Deferred tax is recognised on timing differences, being the differences 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 is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unab- sorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their readability.

Current and deferred tax relating to items directly recognised in reserves are adjusted in reserves and not in Profit and Loss Account.

4.16 Earnings per Share

The Bank reports basic and diluted earnings per share in accordance with AS 20, Earnings per Share, as specified 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 ex- ercised 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.

4.17 Provisions, contingent liabilities and contingent assets

A provision is recognised when the Bank has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

A disclosure of contingent liability is made when there is:

* a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the Bank; or

* a present obligation arising from a past event which is not rec- ognised as it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

Contingent assets are not recognised 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 recognised in the period in which the change occurs.


Mar 31, 2013

1.1 Advances

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 and floating provisions. Further, NPAs are classified into sub- standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made over and above the minimum required as per the guidelines of the RBI on matters relating to prudential norms.

Advances shown in the Balance Sheet are net of (a) bills rediscounted and (b) provisions made for non performing advances. Loss assets and unsecured portion of doubtful assets are provided / written off as per the RBI guidelines.

Amounts recovered against debts written off are recognised in the profit and loss account.

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.

A general provision for standard advances is made @ 0.25% in case of direct advances to agricultural and SME sectors, 1 % in respect of advances classified as commercial real estate, 2.75 % in respect of certain class of restructured assets and 0.40% for all other advances as prescribed by the RBI.

1.2 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 categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit 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 exposure.

1.3 Investments Classification

In accordance with the RBI guidelines, investments are categorised into "Held for Trading" (HFT), "Available for Sale" (AFS) and "Held to Maturity" (HTM) 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.

a) Investments which are held for sale within 90 days from the date of purchase are classified as "Held for Trading".

b) Investments which the bank intends to hold till maturity are classified as "Held to Maturity".

c) Investments which are not classified in either of the above two categories are classified as "Available for Sale".

Acquisition Cost

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.

Valuation

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 government securities are amortised over the remaining maturity period 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 thereon 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 investments. Debentures / Bonds in the nature of advances are subjected to usual prudential norms applicable to advances.

e) 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 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,

- in case of bonds and debentures (including Pass Through Certificates) 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 break-up 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,

- Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs. 1 per VCF. Investment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines,

- Investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company /Securitisation Company.

Investments in subsidiaries/associates are categorised as HTM and assessed for impairment to determine permanent diminution, if any, in accordance with the RBI guidelines.

All investments are accounted for on settlement dates except investments in equity shares which are accounted for on trade date as the corporate actions are effected in equity on the trade date.

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.

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 in accordance with RBI guidelines.

Repo and Reverse Repo Transactions

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.

1.4 Foreign currency transactions

Transactions denominated in foreign currencies are accounted for at the rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities are translated at the Balance Sheet date at rates notified by Foreign Exchange Dealers Association of India (''FEDAI''). All profits/losses resulting from year end revaluations are recognised in the Profit and Loss Account.

Outstanding forward exchange contracts including currency swaps undertaken to hedge foreign currency assets/ liabilities, funding swaps and spot exchange contracts are revalued at quarter end exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of interim maturities The resulting gains or losses on revaluation are included in the Profit and Loss Account in accordance with RBI/FEDAI guidelines. The forward exchange contracts of longer maturities where exchange rates are not notified by FEDAI are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the Profit and Loss Account.

Currency futures contracts are marked to market using daily settlement price on a trading day, which is the closing price of the respective futures contracts on that day. While the daily settlement price is computed based on the last half an hour weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the futures contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit/loss is daily settled with the exchange.

Contingent liabilities on account of foreign exchange contracts, guarantees, acceptances, endorsements and other obligations denominated in foreign currencies are disclosed at closing rates of exchange notified by FEDAI.

1.5 Derivative transactions

The Bank recognises all derivative contracts at the fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting dates. Derivatives are classified as contingent Assets/ Liabilities. In respect of derivative contracts that are marked to market, negative market value is recognised in the Statement of Profit and Loss in the relevant period. Contingent liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI at the Balance Sheet date.

1.6 Fixed assets and depreciation

Fixed assets are carried at cost of acquisition less accumulated depreciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset.

Capital work-in-progress includes cost of fixed assets that are not ready for their intended use and also includes advances paid to acquire fixed assets.

Premises which were revalued are stated at such values on revaluation and the appreciation credited to the Revaluation Reserve.

Depreciation is provided on the written down value from the date of addition at the rates prescribed in Schedule XIV to the Companies Act, 1956 except in the following cases where higher rate of depreciation has been provided on a straight - line basis.

Depreciation on assets revalued has been charged on their written-down value including the addition made on revaluation, and an equivalent amount towards the additional depreciation provided consequent upon revaluation has been transferred from the Revaluation Reserve to the Profit and Loss Account.

All fixed assets individually costing less than Rs. 5,000 are fully depreciated in the year of installation.

Depreciation on assets sold during the year is recognised on a pro-rata basis till the date of sale.

1.7 Impairment of Assets

The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

1.8 Non-Banking Assets

Non-Banking assets acquired in settlement of debts /dues are accounted at the lower of their cost of acquisition or net realisable value.

1.9 Cash and Cash Equivalents

Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at call and short notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).

1.10 Revenue Recognition

Interest income is recognised on an accrual basis except interest income on non-performing assets, which is recognised on receipt in accordance with AS-9, Revenue Recognition as notified under the Companies (Accounting Standards) Rules, 2006 and the RBI guidelines.

Guarantee commission, commission on letter of credit and annual locker rent fees are recognised on a straight line basis over the period of contract. Other fees and commission income are recognised when due, except in cases where the bank is uncertain of ultimate collection.

Dividend is accounted on an accrual basis when the right to receive the dividend is established.

Gain or loss arising on sale of NPAs is accounted as per the guidelines prescribed by the RBI, which require provisions to be made for any deficit (where sale price is lower than the net book value), while surplus (where sale price is higher than the net book value) is ignored.

Loan Syndication fee is accounted for on completion of the agreed service and when right to receive is established.

Unpaid funded interest on term loans are accounted on realisation as per the guidelines of RBI.

The bank imports gold coins on a consignment basis for selling to its customers. The difference between the sale price to customers and cost of purchase is included in other income.

1.11 Finance Lease

Accounting Standard on Leases (AS19) issued by the Institute of Chartered Accountants of India (ICAI) is applicable to leases entered into on or after 1st April 2001. Since all the Bank''s outstanding finance lease transactions were entered into prior to that date, the Bank has followed the earlier ICAI guidelines in respect of these leases.

Depreciation on non-performing leased assets (NPAs) is provided on written-down value as per the Companies Act 1956, by directly charging to Profit & Loss Account without any corresponding adjustment in the Lease Adjustment Account. In addition to depreciation, provision is also made for non-performing leased assets as per RBI guidelines.

1.12 Retirement and other employee benefits

a) Provident Fund

The contribution made by the bank to The Federal Bank Employees Provident Fund, administered by the trustees is charged to Profit and Loss account.

b) Pension Fund

The contribution towards The Federal Bank Employees'' Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the accounts. However, the liability arising on account of re-opening of pension option to existing employees who had joined prior to 29th September 1995 and not exercised the option earlier, is amortised over a period of five years commencing from the financial year 2010-11 as permitted by the Reserve Bank of India.

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.

c) Gratuity

The bank makes annual contribution to The Federal Bank 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 recognised in the Statement of Profit and Loss in the period in which they occur. The retirement benefit obligation recognised 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.

d) Compensation for absence on Privilege / Sick / Casual Leave and Leave Travel Concession (LTC)

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.

The employees are also eligible for LTC as per the rules. The estimated cost of unused entitlement as on the Balance Sheet date based on actuarial valuation is provided for.

1.13 Debit card reward points

Provision for probable redemption of debit card reward points is made on an estimated basis.

1.14 Employee Stock Option Scheme

The Bank has formulated Employee Stock Option Scheme (ESOS) 2010 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 that are to be exercised within a specified period. In accordance with the SEBI Guidelines and the guidance note on "Accounting for Employee Share based payments" issued by the ICAI, the excess, if any, 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 amortised on a straight line basis over the vesting period.

1.15 Taxation

Income tax expense is the aggregate amount of current tax and deferred tax charge. Current year taxes are determined in accordance with the Income tax Act, 1961. Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The impact of changes in the deferred tax assets and liabilities is recognised in the Profit and Loss Account.

Deferred tax assets are recognised and reassessed at each reporting date, based upon the Management''s judgement as to whether realisation is considered as reasonably certain. Deferred tax assets are recognised on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty that such deferred tax asset can be realised against future profits.

1.16 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 RBI vide notification dated April 18, 2007. The Bank operates in the following business segments,

a) Treasury

The treasury services segment primarily consists of interest earnings on investments portfolio of the bank, gains or losses on investment operations and earnings from foreign exchange business. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses.

b) Corporate / Whole Sale Banking

The Corporate / Whole sale Banking segment provides loans and other banking services to segment identified on the basis of RBI guidelines. Revenues of this segment consist of interest earned on exposure exceeding Rs. 5 Crore per customer and the charges / fees earned from other banking services to these customers. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses.

c) Retail Banking

The Retail Banking segment provides loans and other banking services to customers other than Corporate / Whole Sale Banking customers, identified on the basis of RBI guidelines. Revenues of this segment consist of interest earned on Loans made to such customers and the charges / fees earned from other banking services from them. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses.

d) Other Banking Operations

This segment includes income from para banking activities such as debit cards, third party product distribution and associated costs.

Geographic Segment

The Bank operates only in India.

1.17 Earnings per Share

The Bank reports basic and diluted earnings per share in accordance with AS 20, Earnings per Share, as notified by the Companies (Accounting Standards) Rules, 2006. 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 converted or exercised 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.

1.18 Provisions, contingent liabilities and contingent assets

A provision is recognised when the Bank has a present obligation as a result of past event where it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

A disclosure of contingent liability is made when there is:

- a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the Bank; or

- a present obligation arising from a past event which is not recognised as it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Contingent assets are not recognised 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 recognised in the period in which the change occurs.

1.19 Service tax input credit

Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing / utilising the credits.

1.20 Net Profit

The net profit disclosed in the Profit and Loss Account is after considering the following:

(a) provision/ Write off of Non - Performing Assets as per the norms prescribed by RBI;

(b) Provision for Taxes,

(c) Depreciation/ Write off of Investments; and

(d) Other usual, necessary and mandatory provisions, if any


Mar 31, 2012

1. General

The financial statements have been drawn up on historical cost convention and on accrual basis of accounting (unless otherwise stated) and conform to Generally Accepted Accounting Principles in India which comprises the statutory provisions and practices followed in the banking industry in India.

2. Advances

a) Advances are classified as Performing Assets (Standard) and Non Performing assets, (Sub-standard, Doubtful, or Loss assets) and provisions required for possible losses on non performing advances are made over and above the minimum required as per the guidelines of the Reserve Bank of India (RBI) on matters relating to prudential norms.

b) Advances shown in the Balance Sheet are net of:

(i) bills rediscounted,

(ii) provisions made for non performing advances.

(c) Provisions are made in respect of the following as per the guideline of RBI and included under the head "Other liabilities and provisions- others" in the Balance Sheet.

(i) Provisions towards interest sacrifice/fair value diminution on restructured /rescheduled advances.

(ii) Provision for standard asset.

3. Investments

(a) Investments are classified under three categories, viz 'Held for Trading' (HFT), 'Available for Sale' (AFS), and 'Held to Maturity' (HTM) as per RBI guidelines and disclosed in the Balance Sheet under six classifications viz.

i) Government Securities

ii) Other Approved Securities

iii) Shares

iv) Debentures and Bonds

v) Subsidiaries & Joint Ventures

vi) Others

Investments are also classified into performing & non performing as per the guidelines of RBI & provisions are made for possible losses as non performing investments as per the guidelines of RBI.

b) In respect of Profit on sale of investments under 'Held to Maturity' category, an equivalent amount, net of taxes and transfer to statutory reserve, is apportioned to the Capital Reserve account.

c) REPO & Reverse REPO transactions are accounted in accordance with the extant RBI Guidelines.

d) Valuation

i) Investments classified as HFT have been marked to market and valued scrip-wise under each classification at monthly intervals, excluding equity shares which are done on a weekly basis. Within a classification net appreciation is ignored and net depreciation is provided for.

ii) Investments classified as AFS have also been marked to market, and valued quarterly excluding equities, which are done on a weekly basis. Within a classification net appreciation is ignored and net depreciation is provided for.

iii) Investments classified as HTM are stated at acquisition cost except in cases where the acquisition cost is higher than the face value, in which case the excess, i.e. premium on acquisition, is amortised over the period remaining to maturity on equated basis. Any diminution in value other than temporary, in investments in subsidiaries/joint venture/associates included under HTM is provided for.

iv) Closing stock of gold is valued at cost or market price whichever is lower.

4. Derivatives

Interest rate swaps/currency swaps in respect of trading position and which are outstanding as on Balance Sheet date are marked to market and net appreciation is ignored and net depreciation is recognised in the Profit and Loss Account.

Derivative contracts which are entered for hedging purposes, the net amount receivable/payable is recognized on accrual basis. Gains or losses on termination on such contracts are deferred and recognized over the remaining contractual life of the derivatives or the remaining life of the assets/ liabilities, whichever is earlier. Such derivative contracts are marked to market and the resultant gain or loss is not recognized, except where the contract is designated with an asset/ liability which is also marked to market, in which case, the resulting gain or loss is recorded as an adjustment to the market value of the underlying asset/ liability.

5. Transactions Involving Foreign Exchange

a) All monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at the close of the year as advised by the Foreign Exchange Dealers' Association of India (fEDAI).

b) Income and expenditure denominated in foreign currencies have been accounted at the exchange rates prevailing on the dates of the transactions.

c) Outstanding foreign exchange forward contracts are revalued at the rates applicable on the closing date as advised by FEDAI. The resultant profit/loss is taken into Profit and Loss account.

d) Contingent liabilities on guarantees, letters of credit, acceptances and endorsements are reported at the rates prevailing on the Balance Sheet date.

6. Fixed Assets

a) Fixed Assets are stated at historical/revalued cost less accumulated depreciation & impairment of assets, if any. Premises which were revalued are stated at such values on revaluation and the appreciation credited to the Capital Reserve.

b) Depreciation on assets has been provided for on the diminishing balances at the rates as per Schedule XIV to the Companies Act, 1956, except on Computers, Mobile phones & EPABX, which are depreciated under the straight line method at 33.33% per annum as per RBI guidelines.

Depreciation on assets sold/disposed off during the year is provided for the period upto the date of sale. Assets costing less than Rs 5,000 each are fully depreciated.

c) Depreciation on assets revalued has been charged on their written-down value including the addition made on revaluation, and an equivalent amount towards the additional depreciation provided consequent upon revaluation has been transferred from the Capital Reserve to the Profit & Loss Account.

(d) Licence fee and implementation expenditure for Core Banking Solution are amortised on the straight line basis over a period of three years, on a pro rata basis.

7. Finance Leasing

Accounting Standard on Leases (AS19) issued by the Institute of Chartered Accountants of India (ICAI) is applicable to leases entered into on or after 1st April 2001. Since all the Bank's outstanding finance lease transactions were entered into prior to that date, the Bank has followed the earlier ICAI guidelines in respect of these leases.

Depreciation on non-performing leased assets (NPAs) is provided on written-down value as per the Companies Act 1956, by directly charging to Profit & Loss Account without any corresponding adjustment in the Lease Adjustment Account. In addition to depreciation, provision is also made for non-performing leased assets as per RBI guidelines.

8. Employee Benefits

(a) Post -Employment benefit Plans

Payments to defined contribution retirement benefit schemes (other than Second option for pension) are charged as an expense as they fall due.

For defined benefit schemes, the cost of providing 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 full in the Profit and Loss account for the period in which they occur. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined obligation as adjusted for unrecognized past service cost, and as reduced by the fair value of scheme assets.

The net liability arising out of exercise of the second option for pension is fully reckoned, to be amortised in five years commencing from 2010-11 with 1/5th thereof being absorbed in the Profit and Loss Account of the year as per approval of RBI (vide letter DBOD. No.BP.BC.15896/21.04.018/2010-11 dated 08.04.2011.)

(b) Short-term employee benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service.

(c) The provision towards sick leave benefit to staff is made based on actuarial valuation.

9. Recognition of Income and Expenditure

Items of income and expenditure are accounted for on accrual basis, except as stated hereunder:

a) Income from non performing investments/advances are recognised on realisation as per the guidelines of RBI.

b) Commission other than guarantee commission is accounted on cash basis. Guarantee commission is recognised over the period of the guarantees. Dividends are recognised as and when declared by the investee companies.

c) Unpaid funded interest on term loans are accounted on realisation as per the guidelines of RBI.

d) Income from consignment sale of gold is accounted as other income.

10. Provision for Income Tax

Provision for income tax is made for the current tax, and adjustment is made for deferred tax for the year representing the net change in the deferred tax asset or deferred tax liability, in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India (ICAI). Deferred tax assets are recognised on the basis of the management's judgment of reasonable certainty of future profits.

11. Earnings per Share

Basic Earnings per share (EPS) reported is computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

12. Segment Information

In terms of the guidelines of the RBI on enhanced disclosure of segment information, the Bank's operations are classified into four reportable business segments, viz. Treasury Operations (investment and trading in securities, shares, debentures, etc.), Wholesale Banking, Retail Banking and Other Banking Operations and segment information is reported accordingly. For this purpose, aggregate exposure to a single entity exceeding Rs5 crore is treated as wholesale banking segment and other exposures are treated as retail banking segment as per the RBI guidelines. For presentation of segment information, directly attributable income and assets are allocated as such and the other income, expenses, other assets and liabilities are apportioned on appropriate basis.

13. Net Profit

The net profit disclosed in the Profit and Loss Account is after:

(a) provision for taxes;

(b) provision for possible losses on Standard Assets, NPAs, and other contingencies;

(c) depreciation on investments; and

(d) other usual and necessary provisions.

14. Use of estimates

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 expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively in the current and future periods.

15. Impairment of assets

Impairment losses, if any, on Fixed Assets (including revalued assets) are recognised in accordance with the Accounting Standard 28 "Impairment of Assets" issued by Institute of Chartered Accountants of India (ICAI) and charged to Profit and Loss Account.

16. Accounting for provisions, Contingent Liabilities & Contingent Assets

As per the Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets", issued by the Institute of Chartered Accountants of India (ICAI), the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made. Contingent assets are not recognised in the financial statements.

17. ESOS

The Bank follows the intrinsic value method to account for its stock-based employee compensation plans, as per the Guidance Note for "Accounting for Employees Share Based Payments" issued by ICAI


Mar 31, 2010

1. General

The financial statements have been drawn up on historical cost convention and on accrual basis of accounting (unless otherwise stated) and conform to Generally Accepted Accounting Principles in India which comprises the statutory provisions and practices followed in the banking industry in India.

2. Advances

a) Advances are classified as Performing Assets (Standard) and Non Performing assets,( Sub-standard, Doubtful, or Loss assets) and provisions required for possible losses on non performing advances are made over and above the minimum required as per the guidelines of the Reserve Bank of India (RBI) on matters relating to prudential norms.

b) Advances shown in the Balance Sheet are net of:

(i) bills rediscounted,

(ii) provisions made for non performing advances.

c) Provisions are made in respect of the following as per the guideline of RBI and included under the head "Other liabilities - others" in the Balance Sheet.

(i) Provisions towards interest sacrifice/fair value diminution on restructured /rescheduled advances.

(ii) Provision for standard asset.

3. Investments

a) Investments are classified under three categories, viz Held for Trading (HFT), Available for Sale (AFS), and Held to Maturity (HTM) as per RBI guidelines and disclosed in the Balance Sheet under six classifications viz.

(i) Government Securities

(ii) Other Approved Securities

(iii) Shares

(iv) Debentures and Bonds

(v) Subsidiaries & Joint Ventures

(vi) Others

Investments are also classified into performing & non performing as per the guidelines of RBI & provisions are made for possible losses as non performing investments as per the guidelines of the RBI.

b) In respect of Profit on sale of investments under Held to Maturity category, an equivalent amount, net of taxes and transfer to statutory reserve, is apportioned to the Capital reserve account.

c) REPO & Reverse REPO transactions are accounted in accordance with the extant RBI Guidelines.

d) Valuation

(i) Investments classified as HFT have been marked to market and valued scrip-wise under each classification at monthly intervals, excluding equity shares which are done on a weekly basis. Within a classification net appreciation is ignored and net depreciation is provided for.

(ii) Investments classified as AFS have also been marked to market, and valued quarterly excluding equities, which are done on a weekly basis. Within a.classification net appreciation is ignored and net depreciation is provided for.

(iii) Investments classified as HTM are stated at acquisition cost except in cases where the acquisition cost is higher than the face value, in which case the excess, i.e. premium on acquisition, is amortised over the period remaining to maturity on equated basis. Any diminution in value other than temporary, in investments in subsidiaries/joint venture/ associates included under HTM is provided for.

(iv) Closing stock of gold is valued at cost or market price whichever is lower.

4. Derivatives

Interest rate swaps/currency swaps pertain to trading position and which are outstanding as on Balance Sheet date are marked to market and net appreciation is ignored and net depreciation is recognised in the Profit and Loss Account.

5. Transactions Involving Foreign Exchange

a) All monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing at the close of the year as advised by the Foreign Exchange Dealers Association of India (FEDAI).

b) Income and expenditure denominated in foreign currencies have been accounted at the exchange rates prevailing on the dates of the transactions.

c) Outstanding foreign exchange forward contracts are revalued at the rates applicable on the closing date as advised by FEDAI. The resultant profit/loss is taken into Profit and Loss account.

d) Contingent liabilities on guarantees, letters of credit, acceptances and endorsements are reported at the rates prevailing on the Balance Sheet date.

6. Fixed Assets

(a) Fixed Assets are stated at historical/revalued cost less accumulated depreciation & impairment of assets, if any. Premises which were revalued are stated at such values on revaluation and the appreciation credited to the Capital Reserve.

(b) Depreciation has been provided for on the diminishing balances at the rates as per Schedule XIV to the Companies Act, 1956, except on Computers, Mobile phones & EPABX, which are depreciated under the straight line method at 33.33% per annum as per RBI guidelines.

Depreciation is not provided for on assets sold/disposed off during the year except for vehicles. Depreciation on assets costing less than Rs.5000 each has been fully written off.

(c) Depreciation on assets revalued has been charged on their written-down value including the addition made on revaluation, and an equivalent amount towards the additional depreciation provided consequent upon revaluation has been transferred from the Capital Reserve to the Profit & Loss Account.

(d) Licence fee and implementation expenditure for Core Banking Solution are amortised on the straight line basis over a period of three years, on a pro rata basis.

7. Finance Leasing

Accounting Standard on Leases (AS19) issued by the Institute of Chartered Accountants of India (ICAI) is applicable to leases entered into on or after 1 April 2001. Since all the Banks outstanding finance lease transactions were entered into prior to that date, the Bank has followed the earlier ICAI guidelines in respect of these leases.

Depreciation on non-performing leased assets (NPAs) is provided on written-down value as per the Companies Act 1956, by directly charging to Profit & Loss Account without any corresponding adjustment in the Lease Adjustment Account. In addition to depreciation, provision is also made for non-performing leased assets as per RBI guidelines.

8. Employee Benefits

(a) Post-Employment benefit Plans

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

For defined benefit schemes, the cost of providing 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 full in the Profit and Loss account for the period in which they occur. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognized in the Balance Sheet represents the present value of the defined obligation as adjusted for unrecognized past service cost, and 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 scheme.

(b) Short-term employee benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service.

(c) The provision towards sick leave benefit to staff is made based on actuarial valuation.

9. Recognition of Income and Expenditure

Items of income and expenditure are accounted for on accrual basis, except as stated hereunder:

(a) Income from non performing investments/advances are recognised on realisation as per the guidelines of RBI.

(b) Commission other than guarantee commission is accounted on cash basis. Guarantee commission is recognised over the period of the guarantees. Dividends are recognised as and when declared by the investee companies.

(c) Unpaid funded interest on term loans are accounted on realisation as per the guidelines of RBI.

(d) Income from consignment sale of gold is accounted as other income.

10. Provision for Income Tax

Provision for income tax is made for the current tax, and adjustment is made for deferred tax for the year representing the net change in the deferred tax asset or deferred tax liability, in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India (ICAI) Deferred tax assets are recognised on the basis of the managements judgment of reasonable certainty of future profits.

11. Earnings per Share

Basic Earnings per share (EPS) reported is computed by dividing net profit after tax by the weighted average number of equity shares outstanding for the year.

12. Segment Information

In terms of the guidelines of the RBI on enhanced disclosure of segment information, the Banks operations are classified into four reportable business segments, viz. Treasury Operations (investment and trading in securities, shares, debentures, etc.), Wholesale Banking, Retail Banking and Other Banking Operations and segment information is reported accordingly. For this purpose, aggregate exposure to a single entity exceeding Rs.5 crore is treated as wholesale banking segment and other exposures are treated as retail banking segment as per the RBI guidelines. For presentation of segment information, directly attributable income and assets are allocated as such and the other income, expenses, other assets and liabilities are apportioned on appropriate basis.

13. Net Profit

The net profit disclosed in the Profit and Loss Account is after:

(a) provision for taxes;

(b) provision for possible losses on Standard Assets, NPAs, and other contingencies;

(c) depreciation on investments; and

(d) other usual and necessary provisions.

14. Use of estimates

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 expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively in the current and future periods.

15. Impairment of assets

Impairment losses, if any, on Fixed Assets (including revalued assets) are recognised in accordance with the Accounting Standard 28 "Impairment of Assets" issued by Institute of Chartered Accountants of India (ICAI) and charged to Profit and Loss Account.

16. Accounting for provisions, Contingent Liabilities & Contingent Assets

As per the Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets", issued by the Institute of Chartered Accountants of India (ICAI), the Bank recognises provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made. Contingent assets are not recognised in the financial statements.



 
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