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Accounting Policies of Punjab National Bank Company

Mar 31, 2015

1. AS 23- Accounting for Investments in Associates in Consolidated financial Statements

Since Investments of the bank in its Associates are participative in nature and the Bank having the power to exercise significant influence on their activities , such Investments are recognized in the Consolidated Financial Statements of the Bank.

2. AS 24 - Discontinuing Operations

During the period from 01.04.2014 to 31.03.2015, the bank has not discontinued operations of any of its branches, which resulted in shedding of liability and realization of the assets and no decision has been finalized to discontinue an operation in its entirety which will have the above effect.

3. AS 25- Interim Financial reporting

The Bank is adopting the format prescribed by the RBI for the purpose of half yearly review of its accounts as per RBI Circular No. DBS.ARS.No.BC 13/08.91.001/2000-01 dated 17th May 2001.

4. AS 28 - Impairment of Assets

A substantial portion of the bank''s assets comprise of ''financial assets'' to which Accounting Standard 28 ''Impairment of Assets'' is not applicable. In the opinion of the bank, there is no impairment of its assets (to which the standard applies) to any material extent as at 31.03.2015 requiring recognition in terms of the said standard.

5. AS-29 Provisions, Contingent Liabilities and Contingent Assets i) Movement of provisions for liabilities*


Mar 31, 2013

1. BASIS OF PREPARATION

The financial statements have been prepared on the historical cost basis and conform, in all material aspects, to Generally Accepted Accounting Principles (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by Reserve Bank of India (RBI), Accounting Standards (AS) and pronouncements issued by The Institute of Chartered Accountants of India (ICAI) and prevailing practices in Banking industry in India.

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 date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable.

2. METHOD OF ACCOUNTING

The Financial Statements have been prepared on the going concern basis with accrual concept and in accordance with the accounting policies and practices consistently followed unless otherwise stated.

3. FIXED ASSETS

3.1 Fixed assets are stated at historical cost except those premises, which have been revalued. The appreciation on revaluation is credited to revaluation reserve and incremental depreciation attributable to the revalued amount is deducted there from.

3.2 a. Depreciation on assets (including land where value is not separable) are provided on straight-line method based on estimated life of the asset.

b. Depreciation on assets has been provided at the rates furnished on next page:-

c. Depreciation on fresh additions to assets other than bank''s own premises is provided from the month in which the assets are put to use and in the case of assets sold/disposed off during the year, up to the month preceding the month in which it is sold/ disposed off.

The depreciation on bank''s own premises existing at the close of the year is charged for full year. The construction cost is depreciated only when the building is complete in all respects.

4. ADVANCES

4.1 Advances are classified as performing and non- performing assets; provisions are made in accordance with prudential norms prescribed by RBI.

4.2 Advances are stated net of provisions in respect of non-performing assets.

4.3 Offices outside India / Offshore Banking Units:

a Advances are classified under categories in line with those of Indian Offices. b Provisions in respect of advances are made as per the local law requirements or as per the norms of RBI, whichever is higher.

4.4. Financial Assets sold are recognized as under:

a. In case the sale is at a price lower than the Net Book Value (NBV) the shortfall is charged to the Profit and Loss Account.

b. In case the sale is at a price higher than the NBV, the surplus provision is retained to meet shortfall/ loss on account of sale of other non-performing financial assets.

4.5 For restructured/rescheduled advances, provisions are made in accordance with guidelines issued by RBI.

5. INVESTMENTS

5.1 Investments are classified into six categories as stipulated in form A of the third schedule to the Banking Regulation Act, 1949.

5.2 Investments have been categorized into "Held to Maturity", "Available for Sale" and "Held for Trading" in terms of RBI guidelines. Securities acquired by the Bank with an intention to hold till maturity is classified under "Held to Maturity".

5.3 The securities acquired by the Bank with an intention to trade by taking advantage of short-term price/ interest rate movements are classified under "Held for Trading".

5.4 The securities, which do not fall within the above two categories, are classified under "Available for Sale".

5.5 Transfer of securities from one category to another is carried out at the lower of acquisition cost/ book value/ market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for.

5.6 In determining acquisition cost of an investment

a. Brokerage / commission received on subscription is deducted from the cost of securities.

b. Brokerage, commission etc. paid in connection with acquisition of securities are treated as revenue expenses.

c. Interest accrued up to the date of acquisition of securities i.e. broken - period interest is excluded from the acquisition cost and the same is accounted in interest accrued but not due account.

5.7 Investments are valued as per RBI/ FIMMDA guidelines, on the following basis:

Held to Maturity

i) Investments under " Held to Maturity " category are carried at acquisition cost. Wherever the book value is higher than the face value/redemption value, the premium is amortized over the remaining period to maturity.

ii) Investments in subsidiaries/joint ventures/ associates are valued at carrying cost less diminution, other than temporary, in nature.

iii) Investments in sponsored regional rural banks are valued at carrying cost.

iv) Investment in venture capital is valued at carrying cost.

The above valuation in category of Available for Sale and Held for Trading are done scrip wise and depreciation / appreciation is aggregated for each classification. Net depreciation for each classification if any is provided for while net appreciation is ignored.

5.8 Investments are subject to appropriate provisioning/ de-recognition of income, in line with the prudential norms of Reserve Bank of India for NPI classification. The depreciation/provision in respect of non- performing securities is not set off against the appreciation in respect of the other performing securities.

5.9 Profit or loss on sale of investments in any category is taken to Profit and Loss account but, in case of profit on sale of investments in "Held to Maturity" category, an equivalent amount is appropriated to "Capital Reserve Account".

5.10 Securities repurchased/resold under buy back arrangement are accounted for at original cost.

5.11 The derivatives transactions are undertaken for trading or hedging purposes. Trading transactions are marked to market. As per RBI guidelines, different category of swaps are valued as under: -

Hedge Swaps

Interest rate swaps which hedges interest bearing asset or liability is accounted for on accrual basis except the swap designated with an asset or liability that is carried at market value or lower of cost in the financial statement.

Gain or losses on the termination of swaps are recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset/ liabilities.

Trading Swaps

Trading swap transactions are marked to market with changes recorded in the financial statements.

5.12 Foreign currency options

Foreign currency options written by the bank with a back- to-back contract with another bank is not marked to market since there is no market risk.

Premium received is held as a liability and transferred to the Profit and Loss Account on maturity/cancellation.

6. TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS & BALANCES:

a) Except advances of erstwhile London branches which are accounted for at the exchange rate prevailing on the date of parking in India, all other monetary assets and liabilities, guarantees, acceptances, endorsements and other obligations are translated in Indian Rupee equivalent at the exchange rates prevailing at the end of the year as per Foreign Exchange Dealers'' Association of India (FEDAI) guidelines.

b) Non-monetary items other than fixed assets are translated at exchange rate prevailing on the date of transaction.

c) Forward exchange contracts are translated at the year end rates notified by FEDAI and the resultant Gain/ loss on evaluation is taken to profit & Loss Account.

d) Income and expenditure items are accounted for at the exchange rate prevailing on the date of transaction.

e) Offices outside India / Offshore Banking Units:

(i) Operations of foreign branches and off shore banking unit are classified as "Non-integral foreign operations" and operations of representative offices abroad are classified as "integral foreign operations".

(ii) Foreign currency transactions of integral foreign operations and non-integral foreign operations are accounted for as prescribed by AS-11.

(iii) Exchange Fluctuation on Profit / loss of non- integral operations are credited /debited to exchange fluctuation reserve.

7. TAXES ON INCOME

Current tax is determined on the amount of tax payable in respect of taxable income for the year and accordingly provision for tax is made.

The deferred tax charge or credit is recognized using the tax rates that have been enacted or substantially enacted by the Balance Sheet date. In terms of Accounting Standard 22 issued by ICAI, provision for deferred tax liability is made on the basis of review at each Balance Sheet date and deferred tax assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred tax assets/ liabilities are reviewed at each Balance Sheet date based on developments during the year.

8. EMPLOYMENT BENEFITS

- PROVIDENT FUND:

Provident fund is a defined contribution scheme as the Bank pays fixed contribution at pre-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit & Loss A/c.

- GRATUITY:

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The scheme is funded by the bank and is managed by a separate trust.

- PENSION:

Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The scheme is funded by the bank and is managed by a separate trust.

- COMPENSATED ABSENCES:

Accumulating compensated absences such as Privilege Leave (PL) and Sick Leave (including un- availed casual leave) is provided for based on actuarial valuation.

- OTHER EMPLOYEE BENEFITS:

Other Employee benefits such as Leave Fare Concession (LFC), Silver jubilee award, Medical Benefits etc. are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are accounted for as per laws prevailing in the respective countries.

9. IMPAIRMENT OF ASSETS

Impairment loss, if any, is recognised in accordance with the accounting standard issued in this regard by ICAI and impairment loss on any revalued asset is treated as a revaluation decrease.

10. REVENUE RECOGNITION

10.1 Income / expenditure (other than items referred to in paragraph 10.4) is generally accounted for on accrual basis.

10.2 Income on non-performing assets is recognized on realisation as per RBI guidelines.

10.3 Recoveries in NPA accounts (irrespective of the mode / status / stage of recovery actions) are appropriated in the following order of priority :-

a) Expenditure/out of pocket Expenses incurred for recovery (earlier recorded in memorandum dues);

b) Principal irregularities i.e. NPA outstanding in the account.

c) Towards the interest irregularities/accrued interest.

10.4 Commission (excluding on Government Business), interest on overdue bills, exchange, locker rent, income from merchant banking transactions and dividend income are accounted for on realization and insurance claims are accounted for on settlement.

10.5 Income from interest on refund of income tax is accounted for in the year the order is passed by the concerned authority.

11. OTHERS

11.1 Interest on unpaid and unclaimed matured term deposits are accounted for at savings bank rate.


Mar 31, 2012

1. BASIS OF PREPARATION:

The financial statements have been prepared on the historical cost basis and conform, in all material aspects, to Generally Accepted Accounting Principles (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by Reserve Bank of India (RBI), Accounting Standards (AS) and pronouncements issued by The Institute of Chartered Accountants of India (ICAI) and prevailing practices in Banking industry in India.

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 date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable.

2. METHOD OF ACCOUNTING:

The Financial Statements have been prepared on the going concern basis with accrual concept and in accordance with the accounting policies and practices consistently followed unless otherwise stated.

3. FIXED ASSETS

3.1 Fixed assets are stated at historical cost except those premises, which have been revalued. The appreciation on revaluation is credited to revaluation reserve and incremental depreciation attributable to the revalued amount is deducted there from.

3.2 a. Depreciation on assets (including land where value is

not separable) are provided on straight-line method based on estimated life of the asset.

c. Assets taken over from erstwhile New Bank of India and Nedungadi Bank Ltd are depreciated based on their estimated life based on broad groups / categories instead of individual assets.

d. Depreciation on additions to assets is provided from the month in which the asset is put to use and in case of assets sold/disposed of during the year, up to the month preceding the month in which it is sold/ disposed of.

4. ADVANCES

4.1 Advances are classified as performing and non-performing assets; provisions are made in accordance with prudential norms prescribed by RBI.

4.2 Advances are stated net of provisions in respect of non- performing assets.

4.3 Offices outside India / Offshore Banking Units:

a Advances are classified under categories in line with those of Indian Offices.

b Provisions in respect of advances are made as per the local law requirements or as per the norms of RBI, whichever is higher.

4.4. Financial Assets sold are recognized as under:

a. In case the sale is at a price lower than the Net Book Value (NBV) the shortfall is charged to the Profit and Loss Account.

b. In case the sale is at a price higher than the NBV, the surplus provision is retained to meet shortfall/loss on account of sale of other non-performing financial assets.

4.5 For restructured/rescheduled advances, provisions are made in accordance with guidelines issued by RBI.

5. INVESTMENTS

5.1 Investments are classified into six categories as stipulated in form A of the third schedule to the Banking Regulation Act, 1949.

5.2 Investments have been categorized into "Held to Maturity", "Available for Sale" and "Held for Trading" in terms of RBI guidelines. Securities acquired by the Bank with an intention to hold till maturity is classified under "Held to Maturity".

5.3 The securities acquired by the Bank with an intention to trade by taking advantage of short-term price/ interest rate movements are classified under "Held for Trading".

5.4 The securities, which do not fall within the above two categories, are classified under "Available for Sale".

5.5 Transfer of securities from one category to another is carried out at the lower of acquisition cost/ book value/ market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for.

5.6 In determining acquisition cost of an investment

a. Brokerage / commission received on subscription is deducted from the cost of securities.

b. Brokerage, commission etc. paid in connection with acquisition of securities are treated as revenue expenses.

c. Interest accrued up to the date of acquisition of securities

i.e. broken-period interest is excluded from the acquisition cost and the same is accounted in interest accrued but not due account.

5.7 Investments are valued as per RBI/ FIMMDA guidelines, on the following basis:

Held to Maturity

i) Investments under "Held to Maturity" category are carried at acquisition cost. Wherever the book value is higher than the face value/redemption value, the premium is amortized over the remaining period to maturity.

ii) Investments in subsidiaries/joint ventures/associates are valued at carrying cost less diminution, other than temporary, in nature.

iii) Investments in sponsored regional rural banks are valued at carrying cost.

iv) Investment in venture capital is valued at carrying cost.

The above valuation in category of Available for Sale and Held for Trading are done scrip wise and depreciation / appreciation is aggregated for each classification. Net depreciation for each classification if any is provided for while net appreciation is ignored.

5.8 Investments are subject to appropriate provisioning/ de- recognition of income, in line with the prudential norms of Reserve Bank of India for NPI classification. The depreciation/provision in respect of non-performing securities is not set off against the appreciation in respect of the other performing securities.

5.9 Profit or loss on sale of investments in any category is taken to Profit and Loss account but, in case of profit on sale of investments in "Held to Maturity" category, an equivalent amount is appropriated to "Capital Reserve Account".

5.10 Securities repurchased/resold under buy back arrangement are accounted for at original cost.

5.11 The derivatives transactions are undertaken for trading or hedging purposes. Trading transactions are marked to market. As per RBI guidelines, different category of swaps are valued as under: -

Hedge Swaps

Interest rate swaps which hedges interest bearing asset or liability is accounted for on accrual basis except the swap designated with an asset or liability that is carried at market value or lower of cost in the financial statement.

Gain or losses on the termination of swaps are recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset/ liabilities.

Trading Swaps

Trading swap transactions are marked to market with changes recorded in the financial statements.

5.12 Foreign currency options

Foreign currency options written by the bank with a back-to- back contract with another bank is not marked to market since there is no market risk.

Premium received is held as a liability and transferred to the Profit and Loss Account on maturity/cancellation.

6. TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS & BALANCES:

a) Except advances of erstwhile London branches which are accounted for at the exchange rate prevailing on the date of parking in India, all other monetary assets and liabilities, guarantees, acceptances, endorsements and other obligations are translated in Indian Rupee equivalent at the exchange rates prevailing at the end of the year as per Foreign Exchange Dealers' Association of India (FEDAI) guidelines.

b) Non-monetary items other than fixed assets are translated at exchange rate prevailing on the date of transaction.

c) Forward exchange contracts are translated at the year end rates notified by FEDAI and the resultant Gain/loss on evaluation is taken to profit & Loss Account.

d) Income and expenditure items are accounted for at the exchange rate prevailing on the date of transaction.

e) Offices outside India / Offshore Banking Units:

(i) Operations of foreign branches and off shore banking unit are classified as "Non-integral foreign operations" and operations of representative offices abroad are classified as "integral foreign operations".

(ii) Foreign currency transactions of integral foreign operations and non-integral foreign operations are accounted for as prescribed by AS-11.

(iii) Exchange Fluctuation on Profit / loss of non-integral operations are credited /debited to exchange fluctuation reserve.

7. TAXES ON INCOME

Current tax is determined on the amount of tax payable in respect of taxable income for the year and accordingly provision for tax is made.

The deferred tax charge or credit is recognized using the tax rates that have been enacted or substantially enacted by the Balance Sheet date. In terms of Accounting Standard 22 issued by ICAI, provision for deferred tax liability is made on the basis of review at each Balance Sheet date and deferred tax

assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred tax assets/ liabilities are reviewed at each Balance Sheet date based on developments during the year.

8. EMPLOYMENT BENEFITS

- PROVIDENT FUND:

Provident fund is a defined contribution scheme as the Bank pays fixed contribution at pre-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit & Loss A/c.

- GRATUITY:

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The scheme is funded by the bank and is managed by a separate trust.

- PENSION:

Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation made at the end of the financial year. The scheme is funded by the bank and is managed by a separate trust.

- COMPENSATED ABSENCES:

Accumulating compensated absences such as Privilege Leave (PL) and Sick Leave (including un-availed casual leave) is provided for based on actuarial valuation.

- OTHER EMPLOYEE BENEFITS:

Other Employee benefits such as Leave Fare Concession (LFC), Silver jubilee award, Medical Benefits etc. are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are accounted for as per laws prevailing in the respective countries.

9. IMPAIRMENT OF ASSETS

Impairment loss, if any, is recognised in accordance with the accounting standard issued in this regard by ICAI and impairment loss on any revalued asset is treated as a revaluation decrease.

10. REVENUE RECOGNITION

10.1 Income/expenditure (other than items referred to in paragraph 10.4) is generally accounted for on accrual basis.

10.2 Income on non-performing assets is recognized on realisation as per RBI guidelines.

10.3 Recovery in non-performing advances is appropriated first towards recorded interest and thereafter towards (i) arrears of instalments in term loans and (ii) principal irregularity in other accounts. However, recovery in suit filed (including accounts where recovery is under SARFEASI Act), decreed accounts and compromise cases is first appropriated towards principal or as per terms of decree/settlement.

10.4 Commission (excluding on Government Business), interest on overdue bills, exchange, locker rent, income from merchant banking transactions, dividend income and insurance claims are accounted for on realization/ settlement.

10.5 Income from interest on refund of income tax is accounted for in the year the order is passed by the concerned authority.

11. OTHERS

Interest on unpaid and unclaimed matured term deposits are accounted for at savings bank rate.

 
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