Home  »  Company  »  Karur Vysya Bank  »  Quotes  »  Notes to Account
Enter the first few characters of Company and click 'Go'

Notes to Accounts of Karur Vysya Bank Ltd.

Mar 31, 2015

1. INTER BRANCH TRANSACTIONS:

Inter Branch/Office accounts reconciliation has been completed upto 31.03.2015 and all the Inter branch entries have been reconciled upto 31.03.2015.

Contingent Assets are not recognized since this may result in the recognition of income that may never be realized.

2. Net Profit

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

Provision for Taxes,

Provision for Standard Assets and Non Performing Assets,

Provision for Depreciation on investments, employee benefits and

Other usual and necessary provisions 2. BALANCING OF BOOKS:

The books of accounts have been balanced and tallied in all branches of the bank as on 31.03.2015.

2.1.1 Sale and transfers to / from HTM Category

During the year, the bank has sold government securities from Held to Maturity category exceeding 5% of the book value of investments held in HTM category at the beginning of the year. By sale of securities from HTM category, the Bank had booked a profit of Rs. 24.57 crore. An amount of Rs. 12.16 crore (being net of tax and statutory reserve) is transferred to Capital Reserve. As on 31st March 2015, the book value of SLR investments held under Held to Maturity category was Rs. 10,178.11 crore which shows marked to market appreciation of Rs.26.42 crore as on that date.

2.2.2 SGL Bouncing : Nil

2.2.3 The percentage of SLR investment under Held to Maturity Category as on 31.03.2015 was 21.70 % of Demand and Time Liability of the bank (Previous year 22.94 %), which is within permissible limit as per RBI guidelines .

3.1 Derivatives

3.1.1 Disclosures on risk exposure in derivatives: Qualitative Disclosure:

Structure, Organisation, Scope, Nature of risk management in derivatives:

The organization structure consists of Treasury Department which is segregated into three functional areas i.e., front office, mid office and back office.

Rupee derivative deals are executed for hedging or for trading. The risk in the derivatives portfolio is monitored by assessing the mark to market (MTM) position of the portfolio on a daily basis and the impact on account of probable market movements. The overall portfolio is operated within the risk limit fixed by the Bank.

Forex derivative deals are offered to clients on back-to-back basis. The outstanding deals are marked to market on monthly basis. The MTM values are informed to the clients every month and margin topped up where required.

The Board reviews the risk profile of the outstanding portfolio at regular intervals.

Accounting:

Accounting Policies as per RBI guidelines have been adopted. The hedge swaps are accounted for like a hedge of the asset or liability. The income / expense on hedge swaps are accounted on accrual basis except where swaps transactions whose underlying is subjected to mark to market. Such hedge swaps are marked to market on a monthly basis and the gain / losses are recorded as an adjustment to the designated asset / liability. The Non hedge swaps are marked to market every month and the MTM losses in the basket are accounted in the books while MTM profits are ignored.

Collateral Security:

As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks / PDs etc. For deals with Corporate Clients, appropriate collateral security / margin etc. are stipulated whenever considered necessary.

Credit Risk Mitigation:

Most of the deals are contracted with Banks / Major PDs/highly

Dealing in derivatives is centralized in the treasury of the Bank. Derivative transactions are entered into by the treasury fron! office. Treasury middle office conducts an independent check of the transactions entered into by the front office and ensures compliance with various internal and regulatory guidelines. Back Office undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting.

The market making and the proprietary trading activities in derivatives are governed by the derivatives policy of the Bank, which lays down the position limits, stop loss limits as well as other risk limits. As far as forex derivatives are concerned, they are undertaken on back-to-back basis only.

Risk monitoring on derivatives portfolio is done on a daily basis. The Bank measures and monitors risk using FVBF (Price Value of a Basis Point) approach. Risk reporting on derivatives forms an integral part of the managemen! information system and the marked to market position and the PVBP of the derivatives portfolio reported on a daily basis tc the top management.

Risk monitoring on forex derivatives is done on a monthly basis. It is reported to the top management and related clients on monthly basis.

3.1.2. Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the bank.

The Bank has not exceeded the prudential credit exposure limits in respect of Single Borrower Limit and Group Borrower Limit other than food credit.

3.1.3. Unsecured Advances:

The total of advances for which intangible securities such as charge over the rights, licenses, authorisations, etc have been taken as securities is NIL

3.2 Disclosure of Penalties imposed by RBI :

No penalty was imposed by RBI during the year. ( Previous year- Nil )

4. DISCLOSURE REQUIREMENT AS PER ACCOUNTING STANDARDS (AS):

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards, the following information is disclosed:

4.1 Net Profit or loss for the period, Prior Period Items and Changes in Accounting Policies (AS-5):

There are no material prior period income and expenditure included in the Profit & Loss account, which requires a disclosure as per AS-5.

For the preparation of these financial results, the bank has followed the same accounting policies and generally accepted practices adopted for the preparation of audited financial statements for the year ended March 31,2015, except for accounting of depreciation on fixed assets.

Disclosure regarding Depreciation policy: In the current year, effective from April 1,2014 the Bank has changed the accounting policy of charging depreciation having regard to change in the estimated useful life of the assets, from Written down value method(WDV), to Straight line method (SLM) in respect of all fixed assets other than buildings .The management believes that the aforesaid changes better reflect the actual use of assets acquired and is in conformity with the Companies Act,2013.

On account of this change in accounting policy, the bank has in the current quarter, reversed an amount of Rs. 866.64 lakh representing the excess depreciation charge for the period upto March 31,2014 and disclosed the same as an exceptional item. As a result of this change, the net profit for the current year is higher by Rs. 866.64 lakh and current quarter Rs. 866.64 lakh and the basic and diluted earnings per share is higher by Rs. 0.74 per share.

In accordance with the requirement of schedule II of Companies Act, 2013 the Bank has also reassessed the useful life of the fixed asset and an amount of Rs. 6386 lakh has been charged to the financial results of the current year representing the depreciation on the carrying value of the asset as on April 1,2014 on the remaining useful life.

4.1 Revenue Recognition: (AS-9):

Income / Expenditure items recognized on cash basis are either not material or does not require disclosure under AS-9.

4.2. Employee Benefits : (AS -15) :

The Bank is following AS-15 (Revised 2005) ''Employee Benefits'' as under:

(i) In respect of Contributory Plan, viz., Provident Fund, the Bank pays fixed contribution at pre-determined rates to a separate Trust, which invests in permitted securities. The obligation of the Bank is limited to such fixed contribution.

(ii) In respect of Defined Benefit Plans, viz., Gratuity and Pension, provision has been made based on actuarial valuation as per the guidelines.

(iii) In respect of Leave encashment provisioning requirement has been made based on actuarial valuation.

Part B: Geographic segments

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branch.

Complied by: Dion Global Solutions Limited

SCHEDULES

Annual Report 2014 - 15

4.3 Earnings per Share (AS-20):

Sl. No. Particulars 2014 - 15 2013 - 14 1 Basic EPS after Extraordinary items (Rs.) 39.86 40.08 2 Basic EPS before Extraordinary items (Rs.) 39.12 40.08 3 Diluted EPS after Extraordinary items (Rs.) 39.78 39.78 4 Diluted EPS before Extraordinary items (Rs.) 39.04 39.78

Computation of Basic EPS (after Extraordinary items)

Sl. No. Particulars 2014 - 15 2013 - 14 a Net Profit (Rs. in crore) 464.28 429.60 b Weighted number of shares 116478007 107181106 c Basic EPS (A/B) (Rs.) 39.86 40.08 d Nominal Value per share (Rs.) 10.00 10.00

Computation of Diluted EPS (after Extraordinary items)

Sl. No. Particulars 2014 - 15 2013 - 14 A Net Profit (Rs. in crore) 464.28 429.60 b Weighted number of shares (including Potential Equity Shares) 116712852 107999676 c Diluted EPS (A/B) (Rs.) 39.78 39.78 d Nominal Value per share (Rs.) 10.00 10.00

Computation of Basic EPS (before Extraordinary items)

Sl. No. Particulars 2014 - 15 2013 - 14 A Net Profit (Rs. in crore) 455.61 429.60 b Weighted number of shares 116478007 107181106 c Basic EPS (A/B) (Rs.) 39.12 40.08 d Nominal Value per share (Rs.) 10.00 10.00

Computation of Diluted EPS (before Extraordinary items)

Sl. No. Particulars 2014 - 15 2013 - 14 A Net Profit (Rs. in crore) 455.61 429.60 b Weighted number of shares (including Potential Equity Shares) 116712852 107999676 c Diluted EPS (A/B) (Rs.) 39.04 39.78 d Nominal Value per share (Rs.) 10.00 10.00

4.4. Impairment of Assets (AS - 28)

In the opinion of the Management, there is no impairment of its Fixed Asset to any material extent as at 31.03.2015 requiring recognition in terms of Accounting Standard 28.

General Reserve

The Bank has withdrawn an amount of Rs. 30.00 crore from the General Reserve and appropriated the same to Special Reserve u/s 36(1)(viii) of the Income Tax Act.

5.1 Disclosure of Letter of Comfort (LOCs) :

The amount of Letter of comfort issued during the year 2014-15 was Rs. 2058.46 crore (Previous year Rs. 1648.81 crore)and outstanding as on 31.03.2015 was Rs. 948.61crore(Previous year Rs. 773.12 crore)

5.2 Provision Coverage Ratio (PCR)

The Provision Coverage Ratio as on 31.03.2015 was 75.20 %

5.3 Bancassurance Business:

The bank has received an amount of Rs. 8.68 crore (Life Insurance - Rs. 6.08 crore and Non Life Insurance - Rs. 2.60 crore) towards fee/remuneration in respect of the bancassurance business undertaken during 01.04.2014 to 31.03.2015.

5.4 Overseas Asset, NPAs and Revenue:NIL

5.5 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms) : Nil

5.6 Unamortised Pension and Gratuity Liabilities

In accordance with the guidelines issued by Reserve Bank of India vide their Circular No. DBOD.BP. BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs. 14.44 crore during the year ended 31.03.2015 on proportionate basis towards unamortized liability of Rs. 28.87 crore (being amortized over 5 years beginning from 31.03.2011) on account of reopening of pension option during 2010-11 for existing employees who had not opted for pension earlier. Thus the entire unamortized amount has been debited to P& L account over a period of 5 years and balance is nil as on 31.03.2015.

The Bank has debited Profit & Loss Account a sum of Rs. 2.46 crore during the year ended 31.03.2015 on proportionate basis towards unamortized liability (being amortized over 5 years beginning from 31.03.2011) on account of gratuity liability arising out of wage settlement limit. Thus the entire unamortized amount has been debited to P& L account over a period of 5 years and balance is nil as on 31.03.2015.

5.7 Disclosures on Remuneration:

Qualitative Disclosure:

(a) Information relating to the composition and mandate of the Compensation & Remuneration Committee:

The Compensation & Remuneration Committee (CRC) of the Board consists of six Directors. The Composition complies with both RBI guidelines and the provisions of Companies Act, 2013.

The Mandate of the Remuneration committee includes:

Determining the Bank''s policies on remuneration packages payable to Non-Executive Chairman, MD & CEO/WTD and the President. Positions up to the General Manager level are covered under the salary and other emoluments as per IBA package under Bipartite settlements.

Considering granting of Employees Stock Options and administering and supervising the Employee Stock Option Scheme with particular reference to quantum of options to be granted, grant price, vesting period, exercise period etc.

Prescribing procedures for making fair and reasonable adjustments to the number of options granted in case of any corporate actions such as rights issue, bonus issue, mergers etc., including conditions under which the options shall lapse due to the reasons specified in the ESOS of the Bank.

Complying with the applicable laws regarding compensation / remuneration payable to the persons covered under the compensation policy as also the Regulations governing ESOS in terms of SEBI Regulations and other applicable laws in connection therewith.

(b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy:

The Compensation Policy approved by the Board, is in alignment with the RBI guidelines contained in its circular DBODNo.BC.72/29.67.001/2011-12 dated 13.01.2012.

CRC is entrusted with the responsibility of recommending to the Board an appropriate compensation payable to the Non- Executive Chairman, MD & CEO/WTD and the President and COO in the light of the guidance from the regulator from time to time, bank''s own requirement as also taking into account the prevailing market practices of payment of compensation, the cost to income ratio and the capital adequacy ratios which should support the remuneration packages. CRC shall working close co-ordination with the Risk Management and ALM Committee of the Board in order to achieve effective alignment between remuneration and risks.

(c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks:

The Committee would be taking into account the following factors while reviewing or making recommendation for reviewing the remuneration for the persons covered under the Policy:

For MD & CEO/WTD, the compensation payable is divided into fixed and variable components. The fixed component represented a significant proportion of total remuneration taking into account all relevant factors including the prevalent industry practice. Approval of RBI is obtained for the fixed compensation payable to MD & CEO/WTD.

For the Non-Executive Chairman of the Bank, only fixed pay/honorarium is payable apart from the sitting fees payable for attending the Board or Board Committee Meetings.

For the President, compensation payable is only fixed pay taking into account the industry practices, experience, performance and potential risk taking etc. apart from perquisites and other allowances applicable to the General Manager Cadre or such higher quantum as may be recommended by the CRC. President is also eligible for Employee Stock Options as may be decided by the CRC as per the SEBI guidelines.

(d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration:

Bank would ensure that the compensation is adjusted to all types of risk, symmetrical with risk outcomes as well as sensitive to the time horizon of risk.

The variable pay could be in cash, stock linked instruments or a mix of both. Variable pay shall relate to the performance of the Bank.

Variable pay is considered only for MD & CEO/WTD of the Bank. Variable pay shall not exceed 40% of the fixed pay in any year. This is payable on the basis of achievement of certain business targets such as reaching business figures including net profits and other qualitative factors taking into account the extraordinary items, appropriate risk management and efficient consumption of capital and comparison of results with the industry performance (bench marking).

In the event of negative contributions of the bank and or the relevant line of business in any year, the deferred compensation shall be subjected to malus and clawback arrangements in tune with the RBI guidelines.

(e) A discussion of the bank''s policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting:

Presently no variable remuneration is being paid to the President & COO.

For MD & CEO/WTD: If the variable pay is significant, then the bank would defer the payment over a period of three years.

(f) Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms:

The Bank has paid only fixed remuneration to MD & CEO for the year 2013-14 as per RBI approval. For the year under report CRC has not recommended variable pay.

MD & CEO has been granted 5000 options under KVBESOS 2011 at a price of Rs. 275/- per option. Vesting period was over on 31.03.2014. The options were fully exercised as on 31.03.2015.

Apart from MD & CEO, no other executive or employee is eligible for variable pay.

The Bank shall not grant any severance pay (other than the terminal benefits and gratuity as per the provisions) to the WTD/MD & CEO or any other executive.

Bank shall not provide any facility or funds or permit MD/WTD to insure or hedge his/her compensation structure to offset the risk alignment effects embedded in the compensation package.

Quantitative Disclosures:

(g) Number of meetings held by the Remuneration Committee during the financial year and remuneration paid to its members.

During the fiscal 2014-15, one meeting was held on 28.05.2014. The members were paid sitting fees for having attended the meeting. Amount of sitting fees paid was Rs. 5000/- per member/per sitting. Aggregate amount paid for the fiscal was at Rs. 25000/-.

(h) Number of employees having received a variable remuneration award during the financial year 2014-15: Nil Number and total amount of sign-on awards made during the financial year: Nil

Details of guaranteed bonus, if any, paid as joining / sign on bonus: Nil Details of severance pay, in addition to accrued benefits, if any: Nil

(i) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms: Nil

Total amount of deferred remuneration paid out in the financial year: Nil

(j) Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred and non- deferred: Nil

(k) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments : Nil

Total amount of reductions during the financial year due to ex-post explicit adjustments: Nil Total amount of reductions during the financial year due to ex-post implicit adjustments: Nil

5.8 Disclosures relating to Securitisation

The bank has not sponsored any SPVs for Securitization transactions.

5.9 Credit Default Swaps

Bank has not initiated any trade in Credit Default Swaps.

5.10 Provision for Unhedged forex Exposure :

The Bank has made a provision of Rs. 4.00 crore towards unhedged forex exposure for its clients for the year ended 31.03.2015.

5.11 During the financial year 2014-15, the Bank had allotted 1029775 shares pursuant to the exercise of stock options by certain employees.

5.12 The Bank issued 13412015 shares having face value of Rs. 10/- at a price of Rs. 466 as Qualified Investors placement with necessary approval from SEBI and the expenses of QIP issue of Rs. 7.78 crore was netted off against the share premium.

5.13 Pending final settlement of wage revision of employees, an expenditure of Rs. 20 crore is provided during the year apart from adhoc payment made to employees.

6.1 Qualitative disclosure around LCR

The LCR promotes short term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days.

Objective:

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

Composition of HQLA:

- Cash in hand

- Excess CRR balance as on that particular day

- Excess Government Securities in excess of minimum SLR requirement

- Government Securities within the mandatory SLR requirement to the extent allowed by RBI under MSF (Presently to the extent of 2% of NDTL as allowed for MSF)

- Facility to avail liquidity for liquidity coverage ratio at 5% of NDTL

- From the above deduct the borrowings under REPO transactions

- AAA rated bonds and AA- & above bonds and adding marketable securities representing claims guaranteed by sovereigns having risk weights higher than 20% but not higher than 50%

- Common equity shares not issued by the bank and included in NSE CNX Nifty and / or S & P BSE Sensex indices.

6.2 The Bank has recognized the Income Tax Liability of Rs.. 103.78 crore on its Book Profits in terms of section 115JB of the Income Tax Act and a sum of 77.27 crore being MAT credit entitlement under section 115 JAA of the Income Tax act, 1961 has been recognized and treated as an Asset.

6.3 In accordance with the RBI circular DBOD. No. BPBC.2/21.06.201/2013-14 dated 01.07.2013, banks are required to make half yearly Pillar Ill disclosures under Basel Ill capital requirements with effect from 30th September, 2013.The disclosures have been made available on the banks web site at the following link http://www.kvb.co.in/footer/pillarlll_disclosures.html

6.4 The bank has incurred an amount of Rs. 1,13,65,543.00 towards Corporate Social Responsibility and is in the process of identifying various projects and its appropriateness for spending in future.

7. Figures of the previous year have been regrouped/rearranged/reclassified wherever necessary.


Mar 31, 2014

(000''s omitted)

AS ON AS ON 31.03.2014 31.03.2013 Rs. Rs.

SCHEDULE 12 - CONTINGENT LIABILITIES

I Claims against the Bank not acknowledged as debts 4,77,46 6,61,44

II Liability on account of outstanding

a) Forward Exchange Contracts 7287,77,65 6311,87,83

b) Derivatives NIL NIL

III Guarantees given on behalf of Constituents in India 2359,21,26 2002,91,14

IV Acceptances, Endorsements and other Obligations 1654,66,14 1463,30,54

V Other items for which the Bank is contingently liable NIL NIL

TOTAL 11306,42,51 9784,70,95

1. INTER-BRANCH TRANSACTIONS:

Inter Branch/office accounts reconciliation has been completed upto 31.03.2014 and all the Inter branch entries have been reconciled upto 31.03.2014.

2. BALANCING OF BOOKS:

The books of accounts have been balanced and tallied in all branches of the Bank up to 31.03.2014.

3.2.3 Sale and transfers to / from HTM Category

Sale of securities from HTM category during the year does not exceed 5% of the book value of investments held in HTM category at the beginning of the year.

3.2.4 During the year ended March 31, 2014 there was one instance of SGL bouncing for which RBI has not imposed any penalty.

3.2.5 The percentage of SLR investments under "Held to Maturity" category as on 31.03.2014 was 22.94% of Demand and Time Liability of the Bank (Previous year 20.93%), which is within the permissible limit as per RBI guidelines.

3.3.3 Disclosures on risk exposure in derivatives: Qualitative Disclosure:

Structure, Organisation, Scope, Nature of risk management in derivatives:

The organization structure consists of Treasury Department which is segregated into three functional areas i.e., front office, mid office and back office.

Rupee derivative deals are executed for hedging or for trading. The risk in the derivatives portfolio is monitored by assessing the mark to market (MTM) position of the portfolio on a daily basis and the impact on account of probable market movements. The overall portfolio is operated within the risk limit fixed by the Bank.

Forex derivative deals are offered to clients on back-to- back basis. The outstanding deals are marked to market on monthly basis. The MTM values are informed to the clients every month and margin topped up where required.

The Board reviews the risk profi le of the outstanding portfolio at regular intervals.

Accounting:

Accounting Policies as per RBI guidelines have been adopted. The hedge swaps are accounted for like a hedge of the asset or liability. The income / expense on hedge swaps are accounted on accrual basis except where swaps transactions whose underlying is subjected to mark to market. Such hedge swaps are marked to market on a monthly basis and the gain / losses are recorded as an adjustment to the designated asset / liability. The Non hedge swaps are marked to market every month and the MTM losses in the basket are accounted in the books while MTM profi ts are ignored.

Collateral Security:

As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks / PDs etc. For deals with Corporate Clients, appropriate collateral security / margin etc. are stipulated whenever considered necessary.

Credit Risk Mitigation:

Most of the deals are contracted with Banks / Major PDs/ highly rated clients and no default risk is anticipated on the deals with them.

Dealing in derivatives is centralized in the treasury of the Bank. Derivative transactions are entered into by the treasury front office. Treasury middle office conducts an independent check of the transactions entered into

by the front office and ensures compliance with various internal and regulatory guidelines. Back office undertakes activities such as confi rmation, settlement, accounting, risk monitoring and reporting.

The market making and the proprietary trading activities in derivatives are governed by the derivatives policy of the Bank, which lays down the position limits, stop loss limits as well as other risk limits. As far as forex derivatives are concerned, they are undertaken on back-to-back basis only.

Risk monitoring on derivatives portfolio is done on a daily basis. The Bank measures and monitors risk using PVBP (Price Value of a Basis Point) approach. Risk reporting on derivatives forms an integral part of the management information system and the marked to market position and the PVBP of the derivatives portfolio is reported on a daily basis to the top management.

Risk monitoring on forex derivatives (forex forward contracts) is done on a monthly basis. It is reported to the top management and related clients on monthly basis.

3.4.4 Details of Non-performing financial assets purchased / sold

The Bank has not purchased / sold any Non Performing Assets to banks during the financial year 2013-14 (Previous Year – NIL)

3.7.4. Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the bank:

The Bank has not exceeded the prudential credit exposure limits in respect of Single Borrower Limit and Group Borrower Limit.

3.7.5 Unsecured Advances:

The total of advances for which intangible securities such as charge over the rights, licenses, authorisations etc have been taken as securities is Nil.

3.8 Disclosure of Penalties imposed by RBI:

No penalty was imposed by the RBI during the year. (Previous year - Nil)

4. DISCLOSURE REQUIREMENT AS PER ACCOUNTING STANDARDS (AS):

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards, the following information is disclosed:

4.1 Net Profit or loss for the period, Prior Period Items and Changes in Accounting Policies (AS-5):

There are no material prior period income and expenditure included in the Profit & Loss Account, which requires a disclosure as per AS-5.

4.2 Revenue Recognition: (AS-9):

Income / Expenditure items recognized on cash basis are either not material or does not require disclosure under AS-9.

4.3 Employee Benefi ts: (AS-15):

The Bank is following AS-15 (Revised 2005) ''Employee Benefi ts'' as under:

(i) In respect of Contributory Plan, viz., Provident Fund, the Bank pays fixed contribution at pre-determined rates to a separate Trust, which invests in permitted securities. The obligation of the Bank is limited to such fixed contribution.

(ii) In respect of Defi ned Benefi t Plans, viz., Gratuity and Pension, provision has been made based on actuarial valuation as per the guidelines.

(iii) In respect Leave encashment, provision has been made based on actuarial valuation.

4.8. Impairment of Assets (AS – 28):

In the opinion of the Management, there is no impairment of its Fixed Asset to any material extent as at 31.03.2014 requiring recognition in terms of Accounting Standard 28.

5.3 Draw Down from Reserves:

A. Revenue Reserve

During the year, the Bank, pursuant to RBI''s circular No.DBOD. No. BP BC. 77/21.04.018/2013-14 dated 20th December 2013, has created DTL of Rs.. 49.29 crore on Special Reserve for the period up to March 31, 2013 and has adjusted the same directly from the Revenue Reserve.

B. Investment Reserve

In line with the RBI Guidelines, the bank has transferred a sum of Rs.. 21.00 crore from the Investment Reserve account to General Reserve.

5.5 Disclosure of Letters of Comfort (LOCs):

The amount of Letters of Comfort issued during the year 2013-14 was Rs..1648.81 Crore (Previous year Rs..1075.21 Crore) and outstanding as on 31.03.2014 was Rs..773.12 Crore (Previous year Rs..406.91 Crore).

5.6 Provision Coverage Ratio (PCR):

The Provision Coverage Ratio as on 31.03.2014 was 75.01%

5.7 Bancassurance Business:

The Bank has received an amount of Rs.. 8.37 Crore (life insurance - Rs..6.13 Crore, Non-life insurance - Rs..2.24 Crore) towards Fee/ Remuneration in respect of the bancassurance business undertaken during 01.04.2013 to 31.03.2014.

5.11 Overseas Assets, NPAs and Revenue : NIL

5.12 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms) : NIL

5.13 Unamortised Pension and Gratuity Liabilities:

In accordance with the guidelines issued by Reserve Bank of India vide their Circular No.DBOD.BP.BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs..14.44 Crore during the year ended 31.03.2014 on proportionate basis towards unamortized liability of Rs.. 28.87 Crore (being amortized over 5 years beginning from 31.03.2011) on account of reopening of pension option during 2010-11 for existing employees who had not opted for pension earlier. The balance amount of Rs.. 14.44 Crore will be dealt with as per guidelines of RBI.

The Bank has debited Profit & Loss Account a sum of Rs..2.46 Crore during the year ended 31.03.2014 on proportionate basis towards unamortized liability of Rs..4.93 Crore (being amortized over 5 years beginning from 31.03.2011) on account of gratuity liability arising out of wage settlement limit. The balance amount of Rs..2.46 Crore will be dealt with as per guidelines of RBI.

5.14 Disclosures on Remuneration: Qualitative Disclosure:

(a) Information relating to the composition and mandate of the Compensation & Remuneration Committee:

The Composition & Remuneration Committee (CRC) of the Board consists of fi ve Independent Directors inclusive of a member of Risk Management and Asset Liability Management Committee of the Board.

The Mandate of the Remuneration committee includes:

Determining the Bank''s policies on remuneration packages payable to Non-Executive Chairman, MD & CEO/WTD and the President. Positions up to the General Manager level are covered under the salary and other emoluments as per IBA package under Bipartite settlements.

Considering granting of Employees Stock Options and administering and supervising the Employee Stock Option Scheme with particular reference to quantum of options to be granted, grant price, vesting period, exercise period etc.

Prescribing procedures for making fair and reasonable adjustments to the number of options granted in case of any corporate actions such as rights issue, bonus issue, mergers etc., including conditions under which the options shall lapse due to the reasons specifi ed in the ESOS of the Bank.

Complying with the applicable laws regarding compensation / remuneration payable to the persons covered under the compensation policy as also the Regulations governing ESOS in terms of SEBI Regulations and other applicable laws in connection therewith.

(b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy.

The Compensation Policy approved by the Board, is in alignment with the RBI guidelines contained in its circular DBOD No.BC.72/29.67.001/2011-12 dated 13.01.2012.

CRC is entrusted with the responsibility of recommending to the Board an appropriate compensation payable to the Non- Executive Chairman, MD & CEO/WTD and the President and COO in the light of the guidance from the regulator from time to time, bank''s own requirement as also taking into account the prevailing market practices of payment of compensation, the cost to income ratio and the capital adequacy ratios which should support the remuneration packages. CRC shall work in close co-ordination with the Risk Management and ALM Committee of the Board in order to achieve effective alignment between remuneration and risks.

(c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks.

The Committee would be taking into account the following factors while reviewing or making recommendation for reviewing the remuneration for the persons covered under the Policy:

For MD & CEO/WTD, the compensation payable is divided into fixed and variable components. The fixed component represented a signifi cant proportion of total remuneration taking into account all relevant factors including the prevalent industry practice. Approval of RBI is obtained for the fixed compensation payable to MD & CEO/WTD.

For the Non-Executive Chairman of the Bank, only fixed pay/honorarium is payable apart from the sitting fees payable for attending the Board or Board Committee Meetings.

For the President, compensation payable is only fixed pay taking into account the industry practices, experience, performance and potential risk taking etc. apart from perquisites and other allowances applicable to the General Manager Cadre or such higher quantum as may be recommended by the CRC. President is also eligible for Employee Stock Options as may be decided by the CRC as per the SEBI guidelines.

(d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration.

Bank would ensure that the compensation is adjusted to all types of risk, symmetrical with risk outcomes as well as sensitive to the time horizon of risk.

The variable pay could be in cash, stock linked instruments or a mix of both. Variable pay shall relate to the performance of the Bank.

Variable pay is considered only for MD & CEO/WTD of the Bank. Variable pay shall not exceed 40% of the fixed pay in any year. This is payable on the basis of achievement of certain business targets such as reaching business fi gures including net profits and other qualitative factors taking into account the extraordinary items, appropriate risk management and effi cient consumption of capital and comparison of results with the industry performance (bench marking).

In the event of negative contributions of the bank and or the relevant line of business in any year, the deferred compensation shall be subjected to malus and clawback arrangements in tune with the RBI guidelines.

(e) A discussion of the bank''s policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting.

Presently no variable remuneration is being paid to the President & COO.

For MD & CEO/WTD : If the variable pay is signifi cant, then the bank would defer the payment over a period of three years.

(f) Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms.

The Bank has not paid any variable remuneration to MD & CEO for the year 2012-13. For the year under report the CRC is yet to decide the variable remuneration.

MD & CEO has been granted 5000 options under KVBESOS 2011 at a price of Rs..275/- per option. Vesting period is completed as on 31.03.2014. The options are exercisable from 01.04.2014 to 31.03.2015.

Apart from MD & CEO, no other executive or employee is eligible for variable pay.

The Bank shall not grant any severance pay (other than the terminal benefi ts and gratuity as per the provisions) to the WTD/MD & CEO or any other executive.

Bank shall not provide any facility or funds or permit MD/WTD to insure or hedge his/her compensation structure to offset the risk alignment effects embedded in the compensation package.

Quantitative Disclosures:

(g) Number of meetings held by the Remuneration Committee during the fi nancial year and remuneration paid to its members.

During the fi scal 2013-14, two meetings were held on 04.01.2014 and 29.03.2014. The members were paid sitting fees for having attended the meeting. Amount of sitting fees paid was Rs.. 5000/- per member/per sitting. Aggregate amount paid for the fi scal was at Rs.. 45000/-.

(h) Number of employees having received a variable remuneration award during the financial year 2013-14: NIL. Number and total amount of sign-on awards made during the financial year: NIL Details of guaranteed bonus, if any, paid as joining / sign on bonus: NIL Details of severance pay, in addition to accrued benefi ts, if any: NIL

(i) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms: NIL

Total amount of deferred remuneration paid out in the financial year: NIL

(j) Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred and non-deferred:

NIL

(k) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments : NIL

Total amount of reductions during the financial year due to ex-post explicit adjustments: NIL

Total amount of reductions during the financial year due to ex-post implicit adjustments : NIL

5.15 Disclosures relating to Securitisation

The bank has not sponsored any SPVs for Securitization transactions.

5.16 Credit Default Swaps

Bank has not initiated any trade in Credit Default Swaps.

6.1 Employee Stock Option

The Bank has granted 13,92,015 Stock Options in aggregate to its employees and a sum of Rs. 24.61 Crore has been provided as Employee Compensation Cost being the proportionate accounting value in respect of stock option.

6.2 During the year, the Bank, pursuant to RBI''s circular No. DBOD. No.BP.BC. 77/21.04.018/2013-14 dated 20th December 2013, has created DTL of Rs. 49.29 crore on Special Reserve for the period up to March 31, 2013 and has adjusted the same directly from the Revenue Reserve.

6.3 The Bank has recognized the Income Tax Liability of Rs.95.99 crore on its Book profits in terms of section 115JB of the Income Tax Act and the entire sum, being MAT credit entitlement under section 115 JAA of the Income Tax act, 1961 has been recognized and treated as an asset.

6.4 In terms of RBI circular DBOD. No. BPBC.88/21.06.201/2012-13 dated 28.03.2013 banks have been advised to disclose the capital Adequacy Ratio computed under Basel III regulations from the quarter ended June 2013. Accordingly, corresponding details for the previous year are not furnished.

6.5 In accordance with the RBI circular DBOD. No. BPBC.2/21.06.201/2013-14 dated 01.07.2013, banks are required to make half yearly Pillar III disclosures under Basel III capital requirements with effect from 30th September, 2013.The disclosures have been made available on the banks web site at the following link http://www.kvb.co.in/footer/pillarIII_disclosures.html

7. Figures of the previous year have been regrouped/rearranged/reclassified wherever necessary.


Mar 31, 2013

A. BACKGROUND

The Karur Vysya Bank Limited, incorporated in Karur, India is a publicly held Banking company engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. It is a banking company governed by the Banking Regulation Act, 1949.

B. BASIS OF PREPARATION

The financial statements are prepared following the going concern concept, on historical cost basis and conform to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

Use of Estimates:

The preparation of the financial statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities including contingent liabilities as of the date of the financial statement and the reported income and expenses during the reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

1. INTER-BRANCH TRANSACTIONS:

Inter Branch/Office accounts reconciliation has been completed upto 31.03.2013 and all the Inter branch entries have been reconciled upto 31.03.2013.

2. BALANCING OF BOOKS:

The books of accounts have been balanced and tallied in all branches of the Bank up to 31.03.2013.

3. INVESTMENTS:

The percentage of SLR investments under "Held to Maturity" category as on 31.03.2013 was 20.93% of Demand and Time Liability of the Bank (Previous year 23.24%), which is within the permissible limit as per RBI guidelines.

4.1.1 Sale and transfers to / from HTM Category

The market value of Investments held in the HTM category was Rs.. 8843.98 Crore and the excess of book value over market value was Rs..28.94 Crore as on 31.03.2013.

4.1.2 Disclosures on risk exposure in derivatives: Qualitative Disclosure: Structure, Organisation, Scope, Nature of risk management in derivatives:

The organization structure consists of Treasury Department which is segregated into three functional areas i.e., front office, mid office and back office.

Rupee derivative deals are executed for hedging or for trading. The risk in the derivatives portfolio is monitored by assessing the mark to market (MTM) position of the portfolio on a daily basis and the impact on account of probable market movements. The overall portfolio is operated within the risk limit fixed by the Bank.

Forex derivative deals are offered to clients on back-to-back basis. The outstanding deals are marked to market on monthly basis. The MTM values are informed to the clients every month and margin topped up where required.

The Board reviews the risk profile of the outstanding portfolio at regular intervals.

Accounting:

Accounting Policies as per RBI guidelines have been adopted. The hedge swaps are accounted for like a hedge of the asset or liability. The income / expense on hedge swaps are accounted on accrual basis except where swaps transactions whose underlying is subjected to mark to market. Such hedge swaps are marked to market on a monthly basis and the gain / losses are recorded as an adjustment to the designated asset / liability. The Non hedge swaps are marked to market every month and the MTM losses in the basket are accounted in the books while MTM profits are ignored.

Collateral Security:

As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks / PDs etc. For deals with Corporate Clients, appropriate collateral security / margin etc. are stipulated whenever considered necessary.

Credit Risk Mitigation:

Most of the deals are contracted with Banks / Major PDs/highly rated clients and no default risk is anticipated on the deals with them.

Dealing in derivatives is centralized in the treasury of the Bank. Derivative transactions are entered into by the treasury front office. Treasury middle office conducts an independent check of the transactions entered into by the front office and ensures compliance with various internal and regulatory guidelines. Back Office undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting.

The market making and the proprietary trading activities in derivatives are governed by the derivatives policy of the Bank, which lays down the position limits, stop loss limits as well as other risk limits. As far as forex derivatives are concerned, they are undertaken on back-to-back basis only.

Risk monitoring on derivatives portfolio is done on a daily basis. The Bank measures and monitors risk using PVBP (Price Value of a Basis Point) approach. Risk reporting on derivatives forms an integral part of the management information system and the marked to market position and the PVBP of the derivatives portfolio is reported on a daily basis to the top management.

Risk monitoring on forex derivatives is done on a monthly basis. It is reported to the top management and related clients on monthly basis.

4.1.3. Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the bank:

The Bank has not exceeded the prudential credit exposure limits in respect of Single Borrower Limit and Group Borrower Limit.

4.1.4 Unsecured Advances:

The total of advances for which intangible securities such as charge over the rights, licenses, authorisations etc have been taken as securities is Nil.

4.2 Disclosure of Penalties imposed by RBI:

No penalty was imposed by the RBI during the year.

5. DISCLOSURE REQUIREMENT AS PER ACCOUNTING STANDARDS (AS):

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards, the following information is disclosed:

5.1 Net Profit or loss for the period, Prior Period Items and Changes in Accounting Policies (AS-5):

There are no material prior period income and expenditure included in the Profit & Loss account, which requires a disclosure as per AS-5.

5.2 Revenue Recognition: (AS-9):

Income / Expenditure items recognized on cash basis are either not material or does not require disclosure under AS-9.

5.3 Employee Benefits: (AS-15):

The Bank is following AS-15 (Revised 2005) ''Employee Benefits'' as under:

(i) In respect of Contributory Plan, viz., Provident Fund, the Bank pays fixed contribution at pre-determined rates to a separate Trust, which invests in permitted securities. The obligation of the Bank is limited to such fixed contribution.

(ii) In respect of Defined Benefit Plans, viz., Gratuity and Pension, provision has been made based on actuarial valuation as per the guidelines.

(iii) In respect Leave encashment, provision has been made based on actuarial valuation.

6.1 Disclosure of Letters of Comfort (LOCs):

The amount of Letters of Comfort issued during the year 2012-13 was Rs. 1075.20 Crore (Previous year Rs.1008.65 Crore) and outstanding as on 31.03.2013 was Rs. 406.91 Crore (Previous year Rs. 416.07 Crore).

6.2 Provision Coverage Ratio (PCR):

The Provision Coverage Ratio as on 31.03.2013 was 75.20%

6.3 Banc assurance Business:

The Bank has received an amount of Rs..8.33 Crore (life insurance - Rs..6.37 Crore, Non-life insurance - Rs. 1.96 Crore) towards Fee/ Remuneration in respect of the bancassurance business undertaken during 01.04.2012 to 31.03.2013.

6.4 Overseas Assets, NPAs and Revenue : NIL

6.5 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms) : NIL

6.6 Unamortised Pension and Gratuity Liabilities:

In accordance with the guidelines issued by Reserve Bank of India vide their Circular No.DBOD.BP.BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs..14.44 Crore during the year ended 31.03.2013 on proportionate basis towards unamortized liability of Rs.. 43.31 Crore (being amortized over 5 years beginning from 31.03.2011) on account of reopening of pension option during 2010-11 for existing employees who had not opted for pension earlier. The balance amount of Rs.. 28.87 Crore will be dealt with as per guidelines of RBI.

The Bank has debited Profit & Loss Account a sum of Rs..2.40 Crore during the year ended 31.03.2013 on proportionate basis towards unamortized liability of Rs..7.33 Crore (being amortized over 5 years beginning from 31.03.2011) on account of gratuity liability arising out of wage settlement limit. The balance amount of Rs..4.93 Crore will be dealt with as per guidelines of RBI.

6.7 Disclosures on Remuneration: Qualitative Disclosure: (a) Information relating to the composition and mandate of the Remuneration Committee:

Composition of the Compensation & Remuneration Committee (CRC) of the Board as on 31.03.2013 is as under :

Shri. K P Kumar, Chairman,

Shri. M G S Ramesh Babu,

Shri. S Ganapathi Subramanian,

Shri. G Rajasekaran and Shri. A J Suriyanarayana.

There are three independent directors. Members from the Risk Management Committee of the Board are also included. The Mandate of the Remuneration committee includes:

Determining the Bank''s policies on remuneration packages payable to Non-Executive Chairman, MD & CEO and the President. Positions up to the General Manager level are covered under the salary and other emoluments as per the Bipartite settlements.

Considering granting of Employees Stock Options and administering and supervising the Employee Stock Option Scheme with particular reference to quantum of options to be granted, grant price, vesting period, exercise period etc.

Prescribing procedures for making fair and reasonable adjustments to the number of options granted in case of any corporate actions such as rights issue, bonus issue, mergers etc., including conditions under which the options shall lapse due to the reasons specified in the ESOS of the Bank.

Complying with the applicable laws regarding compensation / remuneration payable to the persons covered under the compensation policy as also the Regulations governing ESOS in terms of SEBI Regulations and other applicable laws in connection therewith.

(b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy.

The Compensation Policy in tune with the RBI guidelines contained in its circular DBOD No.BC.72/29.67.001/2011-12 dated 13.01.2012 has since been approved by the Board.

CRC is entrusted with the responsibility of recommending to the Board an appropriate compensation payable to the Non- Executive Chairman, MD & CEO and the President and COO in the light of the guidance from the regulator from time to time, bank''s own requirement as also taking into account the prevailing market practices of payment of compensation, the cost to income ratio and the capital adequacy ratios which should support the remuneration packages. CRC shall work in close co-ordination with the Risk Management and ALM Committee of the Board in order to achieve effective alignment between remuneration and risks.

(c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks.

The Committee would be taking into account the following factors while reviewing or making recommendation for reviewing the remuneration for the persons covered under the Policy:

In the case of whole time director / MD & CEO, the remuneration shall be aligned to:

(a) Profitability of the Bank

(b) Industry''s current market practices

(c) Adjustment for all types of risks and are symmetric with risk outcomes

(d) Pay-outs are sensitive to time horizon of the risk

(e) Mix of cash, equity and other methods of compensation consistent with risk alignment

For the WTD / MD & CEO, the compensation shall be either fixed or fixed and variable. ESOP is excluded from the compensation policy as the same is governed under SEBI Regulations.

For the Non-Executive Chairman of the Bank, only fixed pay/honorarium is payable apart from the sitting fees payable for attending the Board or Board Committee Meetings.

For the President, compensation payable is only fixed pay taking into account the industry practices, experience, performance and potential risk taking etc. apart from perquisites and other allowances applicable to the General Manager Cadre or such higher quantum as may be recommended by the CRC. President is also eligible for Employee Stock Options as may be decided by the CRC as per the SEBI guidelines.

(d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration.

Bank would ensure that the compensation is adjusted to all types of risk, symmetrical with risk outcomes as well as sensitive to the time horizon of risk.

The Bank shall not provide any facility or funds or permit the persons covered under the policy to insure or hedge their compensation structure to offset the risk alignment effects embedded in the compensation package.

(e) A discussion of the bank''s policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting.

Presently no variable remuneration is being paid to the MD & CEO, Non-Executive Chairman and/or the President.

(f) Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms.

Presently no variable remuneration is being paid to the MD & CEO, Non-Executive Chairman and/or the President.

MD & CEO has been granted, subject to RBI approval, 5000 options under KVBESOS 2011 at a price of Rs..275/- per option. The options are yet to be vested on him.

Quantitative Disclosures:

(g) Number of meetings held by the Remuneration Committee during the financial year and remuneration paid to its members.

One meeting of CRC was held on 28.02.2013. The members were paid sitting fees for having attended the meeting. Amount of sitting fees paid was Rs..5000/- per member, aggregating to Rs..25000/-.

(h) Number of employees having received a variable remuneration award during the financial year 2012-13: NIL.

Number and total amount of sign-on awards made during the financial year: NIL

Details of guaranteed bonus, if any, paid as joining / sign on bonus: NIL Details of severance pay, in addition to accrued benefits, if any: NIL

(i) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms: NIL

Total amount of deferred remuneration paid out in the financial year: NIL

(j) Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred and non-deferred: NIL

(k) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments : NIL

Total amount of reductions during the financial year due to ex-post explicit adjustments: NIL Total amount of reductions during the financial year due to ex-post implicit adjustments : NIL

6.9 Disclosures relating to Securitisation

The bank has not sponsored any SPVs for Securitization transactions.

6.10 Credit Default Swaps

Bank has not initiated any trade in Credit Default Swaps.

7.1 Special Reserve U/s 36 (1) (viii) of I.T. Act :

As per Section 36 (1)(viii) of the Income Tax Act, 1961, the Bank has appropriated an amount of Rs..50.00 crore towards Special Reserve for the year 2012-13, being the eligible amount of deduction available under the said provision.

7.2 Employee Stock Option

The Bank has granted 14,93,202 Stock Options in aggregate to its employees during the year and a sum of Rs. 2.20 Crore has been provided as Employee Compensation Cost being the proportionate accounting value in respect of stock option.

8. Figures of the previous year have been regrouped / rearranged / reclassified wherever necessary.


Mar 31, 2012

A. BACKGROUND

The Karur Vysya Bank Limited, incorporated in Karur, India is a publicly held Banking company engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. It is a banking company governed by the Banking Regulation Act, 1949.

B. BASIS OF PREPARATION

The financial statements are prepared following the going concern concept, on historical cost basis and conform to the Generally Accepted Accounting Principles (GAAP), in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

Use of Estimates:

The preparation of the financial statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities including contingent liabilities as of the date of the financial statement and the reported income and expenses during the reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

1. INTER-BRANCH TRANSACTIONS:

Inter branch/Office accounts reconciliation has been completed upto 31.03.2012 and all the Inter branch entries have been reconciled upto 31.03.2012.

2. BALANCING OF BOOKS:

The books of accounts have been balanced and tallied in all branches of the Bank up to 31.03.2012. Reconciliation of accounts with Banks, in a few branches, is in progress.

3. INVESTMENTS:

The percentage of SLR investments under "Held to Maturity" category as on 31.03.2012 was 23.24% of Demand and Time Liability of the Bank (Previous year 21.72%), which is within the permissible limit as per RBI guidelines.

4.1.1 Sale and transfers to / from HTM Category

The market value of Investments held in the HTM category was Rs. 7859.07 Crore and the excess of book value over market value was Rs.294.76 Crore as on 31.03.2012.

4.1.2 Disclosures on risk exposure in derivatives: Qualitative Disclosure:

Structure, Organisation, Scope, Nature of risk management in derivatives:

The organization structure consists of Treasury Department which is segregated into three functional areas i.e., front office, mid office and back office.

Rupee derivative deals are executed for hedging or for trading. The risk in the derivatives portfolio is monitored by assessing the mark to market (MTM) position of the portfolio on a daily basis and the impact on account of probable market movements. The overall portfolio is operated within the risk limit fixed by the Bank.

Forex derivative deals are offered to clients on back-to-back basis. The outstanding deals are marked to market on monthly basis. The MTM values are informed to the clients every month after getting it from the counterparty banks.

The Board reviews the risk profile of the outstanding portfolio at regular intervals.

Accounting:

Accounting Policies as per RBI guidelines have been adopted. The hedge swaps are accounted for like a hedge of the asset or liability. The income / expense on hedge swaps are accounted on accrual basis except where swaps transactions whose underlying is subjected to mark to market. Such hedge swaps are marked to market on a monthly basis and the gain / losses are recorded as an adjustment to the designated asset / liability. The Non hedge swaps are marked to market every month and the MTM losses in the basket are accounted in the books while MTM profits are ignored.

Collateral Security:

As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks / PDs etc. For deals with Corporate Clients, appropriate collateral security / margin etc. are stipulated whenever considered necessary.

Credit Risk Mitigation:

Most of the deals have been contracted with Banks / Major PDs/highly rated clients and no default risk is anticipated on the deals with them.

Dealing in derivatives is centralized in the treasury of the Bank. Derivative transactions are entered into by the treasury front office. Treasury middle office conducts an independent check of the transactions entered into by the front office and also undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting and ensures compliance with various internal and regulatory guidelines.

The market making and the proprietary trading activities in derivatives are governed by the derivatives policy of the Bank, which lays down the position limits, stop loss limits as well as other risk limits. As far as forex derivatives are concerned, they are undertaken on back-to-back basis only.

Risk monitoring on derivatives portfolio is done on a daily basis. The Bank measures and monitors risk using PVBP (Price Value of a Basis Point) approach. Risk reporting on derivatives forms an integral part of the management information system and the marked to market position and the PVBP of the derivatives portfolio is reported on a daily basis to the top management.

Risk monitoring on forex derivatives is done on a monthly basis after getting the monthly MTM values from the counterparty banks. It is reported to the top management and related clients on monthly basis.

4.2.1. Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the bank.

The Bank has not exceeded the prudential credit exposure limits in respect of Single Borrower Limit and Group Borrower Limit.

4.2.2 Unsecured Advances:

The total of advances for which intangible securities such as charge over the rights, licenses, authorisations etc have been taken as securities is NIL.

4.3.1 Disclosure of Penalties imposed by RBI: No penalty was imposed by the Reserve Bank of India during the year.

5. DISCLOSURE REQUIREMENT AS PER ACCOUNTING STANDARDS (AS):

In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards, the following information is disclosed:

5.1 Net Profit or loss for the period, Prior Period Items and Changes in Accounting Policies (AS-5):

There are no material prior period income and expenditure included in the Profit & Loss account, which requires a disclosure as per AS-5.

5.2 Revenue Recognition: (AS-9):

Income / Expenditure items recognized on cash basis are either not material or does not require disclosure under AS-9.

5.3 Employee Benefits: (AS-15):

The Bank is following AS-15 (Revised 2005)

'Employee Benefits' as under:

(i) In respect of Contributory Plan, viz., Provident Fund, the Bank pays fixed contribution at pre- determined rates to a separate Trust, which invests in permitted securities. The obligation of the Bank is limited to such fixed contribution.

(ii) In respect of Defined Benefit Plans, viz., Gratuity and Pension, provision has been made based on actuarial valuation as per the guidelines.

(iii) In respect Leave encashment provisioning requirement has been made based on actuarial valuation.

5.3.1 The bank had provided for Rs.15.95 Crore towards Medical Leave up to the previous year. The Medical leave being non encashable, the bank has written back Rs.14.80 Crore, being the amount drawn from Reserve in earlier year, to Reserve and the balance amount of Rs.1.15 crore to Profit and Loss Account, as it is no longer required.

Part B: Geographic segments

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branch.

5.4 Accounting for Taxes on Income (AS-22):

The Bank has recognized Deferred Tax Asset / Liability (DTA/DTL) and has accounted for the Net Deferred Tax as on 31.03.2012.

5.5. Impairment of Assets (AS - 28)

In the opinion of the Management, there is no impairment of its Fixed Asset to any material extent as at 31.03.2012 requiring recognition in terms of Accounting Standard 28.

6.1 Disclosure of Letters of Comfort (LOCs)

The amount of Letters of Comfort issued during the year 2011-12 was Rs. 1008.65 Crore and outstanding as on 31.03.2012 was Rs.416.07 Crore.

6.2 Provision Coverage Ratio (PCR)

The Provision Coverage Ratio as on 31.03.2012 is 75.46%

6.3 Bancassurance Business:

The Bank has received an amount of Rs.5.52 Crore (Life Insurance - Rs.4.00 Crore, Non-Life Insurance - Rs.1.52 Crore) towards Fee/ Remuneration in respect of the Bancassurance business undertaken during 01.04.2011 to 31.03.2012.

6.4 Overseas Assets, NPAs and Revenue : NIL

6.5 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms) : NIL

6.6 Unamortised Pension and Gratuity Liabilities

In accordance with the guidelines issued by Reserve Bank of India vide their Circular No.DBOD.BP.BC.80/21.04.018/2010-11 dated 09.02.2011, the Bank has debited Profit & Loss Account a sum of Rs. 14.44 Crore during the year ended 31.03.2012 on proportionate basis towards unamortized liability of Rs. 57.75 Crore (being amortized over 5 years beginning from 31.03.2011) on account of reopening of pension option during 2010-11 for existing employees who had not opted for pension earlier. The balance amount of Rs 43.31 Crore will be dealt with as per guidelines of RBI.

The Bank has debited Profit & Loss Account a sum of Rs. 2.46 Crore during the year ended 31.03.2012 on proportionate basis towards unamortized liability of Rs. 9.86 Crore (being amortized over 5 years beginning from 31.03.2011) on account of gratuity liability arising out of wage settlement limit. The balance amount of Rs. 7.33 Crore will be dealt with as per guidelines of RBI.

7.1 Increase in Paid-up share capital and Share Premium:

The movement in Paid-up Share Capital and Share Premium during the year ended 31.03.2012 is due to receipt of call money on Issue of Rights shares and issue of shares under Employees Stock Option Scheme.

7.2 Special Reserve U/s 36 (1) (viii) of I.T. Act :

As per Section 36 (1)(viii) of the Income Tax Act, 1961, the Bank has appropriated an amount of Rs.35.00 crore towards Special Reserve for the year 2011-12, being the eligible amount of deduction available under the said provision.

7.3 An amount of Rs 2.77 Crore being the amount appropriated for Charities in the earlier years has been transferred to Reserves.

8. Figures of the previous year have been regrouped / rearranged / reclassified wherever necessary.


Mar 31, 2010

1. INTER-BRANCH TRANSACTIONS

Inter branch/Office accounts reconciliation has been completed upto 31.03.2010 and all the Inter branch entries have been reconciled upto 31.03.2010.

2. BALANCING OF BOOKS

The books of accounts have been balanced and tallied in all branches of the Bank up to 31st March 2010. The reconciliation of accounts with other Banks has been completed up to 31st March 2010.

3. INVESTMENTS

In line with the extant guidelines of Reserve Bank of India, the Bank has shifted certain securities from HTM category to AFS category and NIL depreciation has been provided.

4. COMPLIANCE WITH ACCOUNTING STANDARDS

4.1 Net Profit or loss for the period, Prior Period Items and Changes in Accounting Policies (AS-5):

There are no material prior period income and expenditure included in the Profit & Loss account, which requires a disclosure as per AS-5.

4.2 Revenue Recognition: (AS-9):

Income / Expenditure items recognized on cash basis were either not material or did not require disclosure under AS-9 (Revenue Recognition).

4.3 Employee Benefits: (AS-15):

The Bank is following Accounting Standard 15 (Revised 2005) Employee Benefits as under:

(i) In respect of Contributory Plan, viz., Provident Fund, the Bank pays fixed contribution at pre-determined rates to a separate Trust, which invests in permitted securities. The obligation of the Bank is limited to such fixed contribution.

(ii) In respect of Defined Benefit Plans, viz., Gratuity and Pension, provision has been made based on actuarial valuation as per the guidelines.

(iii) In respect of other employee benefits such as Leave encashment and Medical leave, provisioning requirement has been ascertained as per actuarial valuation.

4.7 ACCOUNTING FOR TAXES ON INCOME (AS-22):

4.7.1 Appeals are pending with Income Tax Appellate Tribunal and Commissioner of Income Tax (Appeals) for various years. No provision is considered necessary for the disputed income tax on the basis of favourable decisions.

4.7.2 The Bank has complied with Accounting Standard 22 "Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India.

4.8. INTANGIBLE ASSETS (AS-26)

Depreciation on software is calculated on straight-line method at 33.33% in compliance with Accounting Standard 26.

5.7 Disclosures on risk exposure in derivatives 5.7.1 Qualitative Disclosure:

Structure, Organisation, Scope, Nature of risk management in derivatives

The organization structure consists of Treasury Department which is segregated into three functional areas i.e., front office, mid office and back office.

Rupee derivative deals are executed for hedging or for trading. The risk in the derivatives portfolio is monitored by assessing the mark to market (MTM) position of the portfolio on a daily basis and the impact on account of probable market movements. The overall portfolio is operated within the risk limit fixed by the Bank.

Forex derivative deals are offered to clients on back-to-back basis. The outstanding deals are marked to market on monthly basis. The MTM values are informed to the clients every month after getting it from the counterparty banks.

The Board reviews the risk profile of the outstanding portfolio at regular intervals.

Accounting

Accounting Policies as per RBI guidelines have been adopted. The hedge swaps are accounted for like a hedge of the asset or liability. The income / expense on hedge swaps are accounted on accrual basis except where swaps transactions whose underlying is subjected to mark to market. Such hedge swaps are marked to market on a monthly basis and the gain / losses are recorded as an adjustment to the designated asset / liability. The Non hedge swaps are marked to market every month and the MTM losses in the basket are accounted in the books while MTM profits are ignored.

Collateral Security

As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks / PDs etc. For deals with Corporate Clients, appropriate collateral security / margin etc. are stipulated whenever considered necessary.

Credit Risk Mitigation

Most of the deals have been contracted with Banks / Major PDs/highly rated clients and no default risk is anticipated on the deals with them.

Dealing in derivatives is centralized in the treasury of the Bank. Derivative transactions are entered into by the treasury front office. Treasury middle office conducts an independent check of the transactions entered into by the front office and also undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting and ensures compliance with various internal and regulatory guidelines.

The market making and the proprietary trading activities in derivatives are governed by the derivatives policy of the Bank, which lays down the position limits, stop loss limits as well as other risk limits. As far as forex derivatives are concerned, they are undertaken on back-to-back basis only.

Risk monitoring on derivatives portfolio is done on a daily basis. The Bank measures and monitors risk using PVBP (Price Value of a Basis Point) approach. Risk reporting on derivatives forms an integral part of the management information system and the marked to market position and the PVBP of the derivatives portfolio is reported on a daily basis to the top management.

Risk monitoring on forex derivatives is done on a monthly basis after getting the monthly MTM values from the counterparty banks. It is reported to the top management and related clients on monthly basis.

5.16. Agricultural Debt Waiver and Debt Relief Scheme 2008

The bank has implemented the above scheme announced by the GOI.

A) Under debt waiver to small and marginal farmers, bank has submitted a final claim of Rs.34.74 Crores duly certified by Statutory Auditors out of which Rs.22.57 Crores received from the Government of India and present Balance outstanding is Rs.12.17Crores.

B) As regards to Debt Relief Scheme, the Bank has so far settled an amount of Rs.2.39 Crores to farmers as per the RBI guidelines. As the scheme is extended up to 30/06/2010, final claim will be made thereafter by the Bank. These accounts are classified as Standard Advances.

5.19. Disclosure of Penalties imposed by RBI

No penalty was imposed by the Reserve Bank of India during the year.

5.20. Increase in Paid-up share capital and Share Premium

The increase in Paid-up share capital and Share Premium is due to exercise of Employee Stock Option Scheme (ES0S) during the year ended 31st March 2010,

5.21. Creation of Special Reserve U/s 36 (1) (viii) of I.T. Act

As per Section 36 (1)(viii) of the Income Tax Act, 1961, the Bank has created a Special Reserve of Rs.20.00 crore for the year 2009-

10 and Rs.10.00 crore transferred from General Reserve for the year 2008-09, being the eligible amount of deduction available under the said provision.

5.22 Drawdown from General Reserve

An amount of Rs.10 crore has been transferred to profit & Loss account as "below the line" item in the Profit & Loss Appropriation account after determining the profit for the year to create Special Reserve U/s 36 (1) (viii) of IT. Act for the year 2008-09.

5.23 Impact on Change in Methodology of accounting and valuation of investments

The bank has changed the methodology of accounting & valuation of investments during the year 2009-10 from FIFO method to Weighted Average Method. The impact on above in the profit and loss account is a net gain of Rs.2.91 crore.

6.4 Overseas Assets, NPAs and Revenue : NIL

6.5 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms): NIL

6.6 Bancassurance Business

The Bank has received an amount of Rs.4.93 crore towards Fee/remuneration in respect of the bancassurance business undertaken during 01.04.2009 to 31.03.2010 (expenses reimbursement is not taken into consideration)

 
Subscribe now to get personal finance updates in your inbox!