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Notes to Accounts of Punjab National Bank

Mar 31, 2015

1A. Sale and transfers to / from HTM category

The total value of sales and transfers of securities to / from HTM category during 1st April''14 to 31st March''15 has not exceeded 5% of the book value of investments held in HTM category as on 31.03.2015.

{The 5 percent threshold referred to above will exclude the one- time transfer of securities to/ from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning of the accounting year and sales to the Reserve Bank of India under pre-announced OMO auctions}

As such no disclosure is to be made in terms of extant RBI guidelines.

2A. Disclosure on risk exposure in derivatives

I - Qualitative Disclosure

1. The bank uses derivatives products for hedging its own balance sheets as well as trading purposes. The risk-management of derivative operation is headed by a senior executive, who reports to the top management, independent of the line functions. Trading positions are marked to market on daily basis.

2. The derivative policy is framed by the Risk Management Division, which includes measurement of credit risk and market risk.

3. The hedge transactions are undertaken for balance sheet management. Proper system for reporting and monitoring of risks is in place.

4. Policy for hedging and processes for monitoring the same is in place.

5. Accounting policy for recording hedge and non-hedge transactions are in place, which includes recognition of income, premiums and discounts. Valuation of outstanding contracts, provisioning, collateral and credit risk mitigation are being done.

9c. Risk Category wise Country Exposure

Total Net Funded Exposure as on 31.03.2015 is Rs.35047.52 crore. Total assets of the bank as on 31.12.2014 were Rs.574860.12 crore, 1% of which comes to Rs.5748.60 crore. Total net funded exposure of two countries namely Hong Kong & UAE amounting to Rs.10108.46 crore & Rs.7690.88 crore respectively, is more than 1% of the total assets of the Bank as on 31.12.2014. Total net funded exposure of the bank on Hong Kong & UAE is more than 1% of total assets as on 31.03.2015 also. Hence provision of Rs.14.38 crore for Hong Kong & 9.23 crore for UAE has been made in terms of RBI Master Cir. No.DBOD.No.BP.BC.12/21.04.048/201 1- 12 dated July 1, 2011. As per Export Credit Guarantee Corporation of India(ECGC) classification, Hong Kong is in the Insignificant Risk Category i.e. A1 and UAE is in the Low Risk Category i.e. A2.

9d. Details of Single Borrower Limit and Group Borrower Limit exceeded by the bank.

The Bank has not exceeded prudential exposure ceilings in respect of any Group Accounts and individual borrowers during the period 01.04.2014 to 31.03.2015, except exposure ceiling to State Bank of India.

10. Disclosure of penalties imposed by the RBI:

During the year (01.04.2014 to 31.03.2015), no penalty has been imposed by RBI on the bank under the provision of Section 46(4) of the Banking Regulation Act, for contraventions of any of the provisions of the Act or non-compliance with any other requirements of the Banking Regulation Act, 1949; order, rule or condition specified by Reserve Bank under the said Act.

Other Disclosures required by Accounting Standards

11. AS -5 Prior Period and Change in Accounting Policy

There were no material prior period income/expenditure items requiring disclosure under AS-5. Amendments have been made in the Policy on Sale of Financial Assets, regarding treatment of loss and profit made on sale of accounts. However the change in the Policy has no impact on profit during the year from 01.04.2014 to 31.03.2015.

12. AS- 6 Depreciation accounting

Break up of total depreciation for the year ending March 2015 for each class of assets

13. AS- 9 Revenue Recognition:

Certain items of income are recognized on realization basis as per Accounting Policy No. 10(4). However, the said income is not considered to be material.

15. AS 15 - Employees Benefits:

ADOPTION OF AS - 15(R):

The Bank has adopted Accounting Standard 1 5(R) - Employee Benefits, issued by the Institute of Chartered Accountants of India (ICAI), with effect from 1st April 2007. The Bank recognizes in its books of accounts the liability arising out of Employee Benefits as the sum of the present value of obligation as reduced by fair value of plan assets on the Balance Sheet date.

OPENING OF PENSION OPTION TO EMPLOYEES AND ENHANCEMENT IN GRATUITY LIMITS

During the year 2010-11 the Bank reopened the pension option for such of its employees who had not opted for the pension scheme earlier. As a result of exercise of the option by 33982 employees, the bank has incurred an additional liability of Rs.2757.65 crore. Further during the year 2010- 11 the limit of gratuity payable to the employees of the banks was also enhanced pursuant to the amendment to the Payment of Gratuity Act, 1 972. As a result the gratuity liability of the Bank has increased by Rs.566.00 crore. These additional Liabilities (Rs.2757.65 crore Rs.566.00 crore, total Rs.3323.65 crore) were calculated on the basis of actuarial valuation.

As per the Accounting Standard (AS) 15, Employee Benefits, the entire amount of Rs.3323.65 crore is required to be charged to the Profit and Loss Account. However, the RBI has issued a circular no. DBOD.BP.BC.80/21.04.018/2010-11 dated 9th February, 2011 on the prudential Regulatory Treatment consequent upon the Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits. In accordance with the provisions of the said Circular, the Bank had charged off Rs.664.73 crore (Rs.551.53 crore for pension and Rs.113.20 crore for gratuity) representing one-fifth of Rs.3323.65 Crore to Profit & Loss Account for this year 2014-15 (Rs.2658.92 crore already charged proportionately in previous years i.e. 2010-11 to 2013-14). The transitional liability for pension and Gratuity stands fully charged off as on date.

Further the provision for employee benefits has been calculated by the actuary on basis of pre wage revision salary.

DISCLOSURE IN ACCORDANCE WITH AS-15(R):

In line with the accounting policy and as per the Accounting Standard - 15(R), the summarized position of post-employment benefits are recognized in the Profit & Loss A/c and Balance Sheet as under:

17. Disclosure of Related Parties as per AS -18 issued by ICAI

Names of the related parties and their relationship with the Bank:

Key Management Personnel:

i. Shri K. R. Kamath, Chairman & Managing Director (up to 27.10.2014).

ii. Shri Gauri Shankar , Executive Director ( Additional charge of Managing Director & CEO w.e.f. 09.02.2015).

iii. Shri K.V.Brahmaji Rao, Executive Director.

iv. Dr .Ram S.Sangapure, Executive Director.

Subsidiaries:

i. PNB Gilts Ltd.

ii. PNB Housing Finance Ltd.

iii. Punjab National Bank (International) Ltd., UK

iv. PNB Investment Services Ltd

v. Druk PNB Bank Ltd, Bhutan.

vi. PNB Insurance Broking Pvt Ltd*.

vii. JSC SB PNB Kazakhstan

Associates:

i. Principal PNB Asset Management Company Pvt. Ltd.

ii. Principal Trustee Company Private Limited

iii. PNB Metlife India Insurance Co. Ltd

iv. Madhya Bihar Gramin Bank, Patna.

v. Sarva Haryana Gramin Bank, Rohtak

vi. Himachal Pradesh Gramin Bank, Mandi

vii. Punjab Gramin Bank, Kapurthala

viii. Sarva UP Gramin Bank, Meerut.

* Steps are being taken for winding up of the company as the license has already been surrendered on 14.02.2011.

Note: Assets Care & Reconstructions Enterprise Ltd has ceased to be an Associate of the Bank w.e.f. 09.09.2014, since the share holding of Punjab National Bank has reduced to 15.30% from 30%.

Joint Venture:

i. Everest Bank Limited, Nepal

(Rs.in Crore)

Salary arrears under Legal cases/ Particulars negotiation contingencies

Balance as at 1st April 1020.00 18.21 2014

Provided during the 1.81 630.00

Amounts used during the NIL NIL period

Reversed during the 1.97 period 356.00

Balance as at 31.03.2015 1294.00 18.05

Timing of outflow/ - - uncertainties

* Excluding provisions for others

ii) Refer Schedule-12 on contingent liabilities

Such liabilities at S.No.(I), (II), (III), (IV), (V) & (VI) are dependent upon the outcome of Court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties, respectively. No liability is expected in such cases.

30. The Bank has issued a Letter of Comfort to Prudential Regu- lation Authority (PRA), the regulator in United Kingdom, committing that the bank shall provide financial support to its subsidiary, Punjab National Bank (International) Ltd., UK so that it meets its financial commitments as and when they fall due. However, no financial obligation has arisen out of such arrangement during the financial year ending 31st March 2015.

The detail of Letters of Comfort / Letters of undertaking issued and outstanding as at 31st March, 2015.

V. Off-balance sheet SPVs sponsored by the Bank (which are required to be consolidated as per accounting norms) Bank has not sponsored any SPV (Domestic as well as overseas) during the financial year ended 31.3.2015.

33. Reward Points of Credit Card & Debit Card

i. PNB Global Credit & Debit Cardholders are rewarded as and when they make purchases through usage of Credit & Debit Card. Reward Points are generated at the time of usage of Credit & Debit Card by Cardholder at Merchant Establishment. Card holder can redeem the accumulated reward points. The amount payable on account of reward points is charged to Profit and Loss account and credited to Sundry Provision Account on daily basis because such amount is quantifiable.

B. QUALITATIVE DISCLOSURE ON LIQUIDITY COVERAGE RATIO

1. Main drivers of LCR

As at 31.03.2015, against the regulatory requirement of 60% of LCR, the bank is at a comfortable level of quarterly average of 96.79% at whole bank level (including foreign branches).

The main drivers of LCR of the bank are sufficient high quality liquid assets (HQLAs) to meet liquidity needs of the bank at all times and basic funding from retail and small business

72% of total deposit portfolio of the bank which attracts low run-off factor of 5/10%.

2. Intra period changes as well as changes over time

There has not been any intra period changes in LCR. However, increase in LCR on quarter ended March,2015 was due to shedding of bulk deposits and increase in quarterly inflows from Term loans.

3. Composition of High Quality Liquid Assets (HQLA)

HQLA comprises of high quality unencumbered assets that can be readily converted into cash at little/no loss of value or used as collateral to obtain funds in a range of stress scenarios. HQLAs comprises of Level 1 and Level 2 assets. Level 2 assets is further divided into Level 2A and Level 2B assets, keeping in view their price volatility.

Level-I assets are those assets which are highly liquid. As on 31.03.2015, the Level-I assets of the bank includes Cash in Hand, Excess CRR, Excess SLR, besides MSF & FALLCR totalling Rs. 62829.80 cr.

Level-2A & 2B assets are those assets which are less liquid and their weighted amount comes to Rs. 3460.45 cr.

4. Concentration of Funding Sources

This metric includes those sources of fundings, whose withdrawal could trigger liquidity risks. It aims to address the funding concentration of bank by monitoring its funding requirement from each significant counterparty and each significant product / instrument. As per RBI guidelines, a "significant counterparty/Instrument/product" is defined as a single counterparty/Instrument/product or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the bank''s total liabilities.

The bank has no significant counterparty (deposits/borrowings) as at 31.03.2015.The share of largest depositor in bank''s total liability is 0.45% whereas the contribution of top 20 depositors is 4.10% only. The significant product / instrument includes Saving Fund, Current deposit, Core Term Deposit, Certificate of deposit and Inter-bank term deposit which are 25%, 5%, 41%, 1% and 2% of bank''s total liability respectively, the funding from which are widely spread and cannot create concentration risk for the bank.

5. Derivative exposure

As on 31.03.2015, the back to back swap deals are having negative MTM of Rs. 4.42 cr. while trading swap deals are having negative MTM of Rs. 13.82 cr which is not having significant impact on liquidity management.

6. Currency Mismatch

As per RBI guidelines, a currency is considered as "significant" if the aggregate liabilities denominated in that currency amount to 5 per cent or more of the bank''s total liabilities. In our case, only USD falls in this criteria which has insignificant impact on total outflows in LCR horizon.

7. Degree of centralization of liquidity management and interaction between group''s units

The group entities are managing liquidity on their own, however the bank has put in place a group-wide contingency funding plan to care of liquidity requirement of group as a whole in the time of stress.

37. Credit Default Swaps

Since the Bank is not using any proprietary pricing model for pricing CDS contracts, and it is over the counter contract (OTC), the price is determined by the market dynamics. As such no disclosure is to be made in terms of extant RBI guidelines.

38. Transfers to Depositor Education and Awareness Fund (DEAF):

In compliance to RBI Circular No. DBOD.NO.DEAF.CELL. BC.1 14/30.01.002/2031-14 dated 27.05.2014, the Bank has transferred the following amount to RBI, as per Depositor Education and Awareness Scheme, 2014.

39. Unhedged Foreign Currency Exposure (UFCE):

The Bank has framed a policy to manage currency induced credit risk and has been incorporated in bank''s Credit Management & Risk Policy 2014-15 as follows:

"In terms of RBI guidelines on ''Capital and Provisioning Requirements for Exposures to entities with Un-hedged Foreign Currency Exposure'', Bank shall monitor the currency wise un-hedged foreign currency exposure in the books of borrowers at quarter ends along-with the Annual EBID. The incremental provision (ranging from 0 to 80 bps on total credit exposure, over and above the standard asset provisioning) and capital requirement will depend on likely loss (due to foreign currency fluctuation) that borrowers may face due to their un- hedged forex exposure in their books. Bank shall maintain separate charge and provisioning requirement on account of such exposures which may impact the cost to the borrowers. Appropriate disclosures in the financial statements of the bank shall also be made."

41. Other Notes

a. As per RBI guidelines, the Bank has worked out the amount of inter Branch Credit entries outstanding for more than 5 years, pertaining to the period up to 31.03.2010, to be transferred to a Blocked Account. Accordingly, a sum of Rs.117.98 crores (net of adjustments since carried out) has been included under "Other Liabilities-others" in Schedule-5.

Claims of Rs.0.093 lacs has been received during the period (01.04.2014 to 31.03.2015) against Inter Branch Credit entries, Blocked and transferred to General Reserve. This has been met by transfer from General Reserve Rs.0.069 lacs and Rs.0.024 lacs to debit of Profit & Loss Account.

b. Premises include properties amounting to Rs.2.99 crore (Net of Depreciation) (previous year Rs.4.34 crore) {Cost Rs.7.47crores} (previous year Rs.8.70 crore) are awaiting registration of title deeds. Premises include capital work in progress of Rs.77.24 crore (previous year Rs.26.63 crore)

c. Tax Paid in advance/Tax deducted at Source appearing under "Other Assets includes disputed amount adjusted by the department/paid by the Bank in respect tax demands for various assessment years.

No provision is considered necessary in respect of disputed Income Tax and Fringe Benefit Tax demands of Rs.1056.21 Crore (previous year Rs.800.67 crore) as in the bank''s view, duly supported by expert opinion and/or decision in bank''s own appeals on same issues, additions/disallowances made are not sustainable. Against these disputed demands, Rs.1056.21 crores (previous year Rs.800.67 crore) has been paid.

d. During the year the bank has allotted 4420731 7 equity shares of Rs.2/- each to Government of India at a premium of Rs.194.80 per share as determined by the Board in terms of the Chapter VII of the SEBI (ICDR) Regulations, 2009, as amended from time to time on preferential basis. The total amount received by the bank on this account is Rs.870 crores which includes Rs.8.84 crores as equity capital and Rs.861.16 crores as premium. Consequently the Government holding has increased to 59.86 % as against 58.87% before preferential allotment.

e. As per the information compiled by the Management, the guidelines given in Micro, Small and Medium Enterprises Development Act 2006 have been complied with for purchases made during the Financial Year 2014-15 and payments have been made to the Vendors in time as per Act. Since there had been no delay in payment so no penal interest had been paid during FY 2014-15.

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


Mar 31, 2013

1a. Sale and transfers to/from HTM category

The total value of sales and transfers of securities to/from HTM category during April''12 to March''13 has not exceeded 5% of the book value of investmetns held in HTM category as on 31.03.2013. As such no disclosure is to be made in terms of extant RBI guidelnes.

1b. Disclosure on risk exposure in derivatives

I Qualitative Disclosure

1. The bank uses derivatives products for hedging its own balance sheet items as well as trading purposes. The risk- management of derivative operation is headed by a senior executive, who reports to the top management, independent of the line functions. Trading positions are marked to market on daily basis.

2. The derivative policy is framed by the Risk Management Division, which includes measurement of credit risk and market risk.

3. The hedge transactions are undertaken for balance sheet management. Proper system for reporting and monitoring of risks is in place.

4. Policy for hedging and processes for monitoring the same is in place.

5. Accounting policy for recording hedge and non-hedge transactions are in place, which includes recognition of income, premiums and discounts. Valuation of outstanding contracts, provisioning, collateral and credit risk mitigation are being done.

2a. Details of Single Borrower Limit and Group Borrower Limit exceeded by the bank.

"The Bank has not exceeded prudential exposure ceilings in respect of any Group Accounts and individual borrowers during period 01.04.2012 to 31.03.2013".

3. Disclosure of penalties imposed by the RBI:

During the year no penalty has been imposed by RBI on the bank.

Other Disclosures required by Accounting Standards

4. AS -5 Prior Period and Change in Accounting Policy

There were no material prior period income/expenditure items requiring disclosure under AS-5. However, with effect from 1st January ''2013 the bank has changed its policy in the order of priority in appropriating of recoveries made from Non - Performing accounts, resulting reduction of Rs. 59.44 crore in gross Non- Performing accounts as well as in profit for the financial year.

5. AS- 9 Revenue Recognition:

Certain items of income are recognized on realization basis as per Accounting Policy No. 10(4). However, the said income is not considered to be material.

6. AS 15 - Employees Benefits:

ADOPTION OF AS - 15(R):

The Bank has adopted Accounting Standard 15(R) - Employee Benefits, issued by the Institute of Chartered Accountants of India (ICAI), with effect from 1st April 2007.

The Bank recognizes in its books of accounts the liability arising out of Employee Benefits as the sum of the present value of obligation as reduced by fair value of plan assets on the Balance Sheet date.

OPENING OF PENSION OPTION TO EMPLOYEES AND ENHANCEMENT IN GRATUITY LIMITS

During the year 2010-11 the Bank reopened the pension option for such of its employees who had not opted for the pension scheme earlier. As a result of exercise of which by 33982 employees, the bank has incurred a liability of Rs. 2757.65 crores. Further during the year 2010-11 the limit of gratuity payable to the employees of the banks was also enhanced pursuant to the amendment to the Payment of Gratuity Act, 1972. As a result the gratuity liability of the Bank has increased by Rs. 566.00 crores. These Liabilities were calculated on the basis of actuarial valuation.

In terms of the requirements of the Accounting Standard (AS) 15, Employee Benefits, the entire amount of Rs.3323.65 crores (Rs. 2757.65 cr. Rs. 566.00 cr.) were required to be charged to the Profit and Loss Account. However, the RBI has issued a circular no. DBOD.BP.BC.80/21.04.018/2010-11 dated 9th February 2011, on "Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits-Prudential Regulatory Treatment". In accordance with the provisions of the said Circular,the Bank had charged off Rs. 664.73 crores (Rs. 551.53 crore for pension and Rs. 113.20 crore for gratuity) representing one-fifth of Rs. 3323.65 crores to Profit & Loss Account for this year 2012-13 (Rs.1329.46 crore already charged in previous years i.e. 2010-11 & 2011-12). In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward, i.e. Rs. 1329.46crores. (Rs. 3323.65 cr- Rs. 1994.19 cr.) (Rs. 1103.06 crore for pension and Rs. 226.40 crore for gratuity) does not include any liability relating to separated/retired employees. Such balance amount carried forward has been grouped in Schedule 5 under head "Others" and correspondingly in Schedule 11 under ''Others'' and will be charged off in subsequent years (2013-14 & 2014-15).

7. Disclosure of Related Parties as per AS -18 issued by ICAI Names of the related parties and their relationship with the Bank: Key Management Personnel:

i) Shri K. R. Kamath, Chairman & Managing Director

ii) Shri Rakesh Sethi, Executive Director

iii) Ms. Usha Ananthasubramanian, Executive Director

iv) Shri S.R. Bansal, Executive Director (Since18.06.2012) Subsidiaries

i) PNB Gilts Ltd.

ii) PNB Housing Finance Ltd.

iii) Punjab National Bank (International) Ltd., UK

iv) PNB Investment Services Ltd.

v) Druk PNB Bank Ltd, Bhutan.

vi) PNB Insurance Broking Pvt Ltd.

vii) PNB Life Insurance Company Ltd. ***

viii) JSC SB PNB Kazakhstan Associates:

i) Everest Bank Limited, Nepal.

ii) Principal PNB Asset Management Company Pvt. Ltd.

iii) Principal Trustee Company Private Limited

iv) Assets Care & Reconstructions Enterprise Ltd.

v) India Factoring & Finance Solutions Pvt Ltd

vi) PNB Metlife India Insurance CO Ltd

vii) Madhya Bihar Gramin Bank.

viii) Haryana Gramin Bank

ix) Himachal Gramin Bank, Mandi*

x) Punjab Gramin Bank.

xi) Rajasthan Gramin Bank **

xii) Sarva UP Gramin Bank.

* Himachal Gramin Bank has been amalgamated on 15.02.2013 into a new entity Hiamchal Pradesh Gramin Bank (HPGB), Mandi. Share (Rs. 35.00lacs 97.40 lacs total Rs.132.40 lacs) of SBI in erstwhile Parvatiya Gramin Bank has not been capitulated to SBI. Hence, the stake of PNB is 26.42% in the capital of HPGB, Mandi and that of SBI is 8.58% as on 31.03.2013. **Rajasthan Gramin Bank, Alwar sponsored by our Bank has been amalgamated into new entity Baroda Rajasthan Kshetriya Gramin Bank w.e.f 01.01.2013.

PNB has received back its 35% share in Capital and Share Capital Deposit Account in erstwhile Rajasthan Gramin Bank in the month of March, 2013 amounting to Rs. 1610.27 lacs ***The Company is under liquidation and the balance of assets available with the company has been distributed amongst the shareholders. The company is finally required to be wound up by the Hon''ble High Court.

8. Accounting for Leases - AS 19 Financial Leases:

a. Original value of assets acquired on financial lease and included in other fixed assets (including furniture and fixture): Rs. 41.65 lakhs The amount of depreciation provided upto 31.03.2013 thereon: Rs. 41.65 lakhs.

The written down value as Rs. 1.00 on 31.03.2013

b. Minimum Lease Payment due not NIL later than one year:

c. Minimum Lease Payment due later than one year but not later than five years: NIL

d. Minimum Lease Payment due later than five years: NIL

e. Operating leases : NIL

9. Accounting Standard 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.

10. Accounting Standard 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 1 7th May 2001.

11. 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 31.03.2013 requiring recognition in terms of the said standard.

ii) Refer Schedule-12 on contingent liabilities

Such liabilities at S.No.(I), (II), (III), (IV), (V) & (VI) are dependent upon the outcome of Court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties, respectively. No liability is expected in such cases.

12. The Bank has issued a Letter of Comfort in respect of its subsidiary Punjab National Bank (International) Ltd. in UK, to Financial Services Authority (FSA), the regulator in United Kingdom, committing that the bank shall provide financial support to Punjab National Bank (International) Ltd., UK so that it meets its financial commitments if they fall due. However, no financial obligation has arisen as on 31st March 201 3.

13. Reward Points of Credit Card and Debit Card

i) PNB Global Credit & Debit Cardholders are rewarded as and when they make purchase through usage of Credit & Debit Card. Reward Points are generated at the time of usage of Credit & Debit Card by Cardholder at Merchant

Establishment. Card holder can redeem the accumulated reward points. The amount payable on account of reward points is charged to Profit and Loss account and credited to Sundry Provision Account on daily basis because such amount is quantifiable.

14. No SGLs were bounced during the financial year 2012-13

15. Other Notes

a. As per RBI guidelines, the Bank has worked out the amount of inter Branch Credit entries outstanding for more than 5 years, pertaining to the period up to 31.03.2008, to be transferred to a Blocked Account. Accordingly, a sum of Rs.108.56 crores (net of adjustments since carried out) has been included under "Other Liabilities-others" in schedule-5.

Claims of Rs. 0.287 lac has been received during the year 2012-13 against Inter Branch Credit entries Blocked and transferred to General Reserve.This has been met by transfer from General Reserve Rs. 0.215 lac and Rs. 0.071 to debit of Profit and Loss Account.

b. Premises include properties amounting to Rs. 4.71 crores (Net of Depreciation) (previous year Rs.10.86 crores) {Rs. 7.88 crores} (previous year Rs.16.01 crores) are awaiting registration of title deeds. Premises include capital work in progress of Rs.173.61 crores (previous year Rs.113.76 crores).

c. No provision is considered necessary in respect of disputed Income Tax and Fringe Benefit Tax demands of Rs. 807.27 crores (previous year Rs.1160.87 crore) as in the bank''s view, duly supported by expert opinion and/or decision in bank''s own appeals on same issues, additions / disallowances made are not sustainable. Against these disputed demands, Rs. 772.37 crores (previous year Rs. 1160.87 crores) has been paid.

d. During the year the bank has allotted 14294713 equity shares of Rs.10/- each to Govt of India at a premium of Rs. 863.05 per share as determined by the Board in terms of the Chapter VII of the SEBI Regulations, 2009, as amended from time to time (the "SEBI ICDR Regulations") on preferential basis. The total amount received by the bank on this account is Rs. 1248 crores which includes Rs. 14.29 crores as equity capital and Rs. 1233.71 crores as premium. Consequently the Government holding is now 57.87% as compared to 56.10% before preferential allotment.

e. Financial impact due to change in the policy regarding appropriation of recoveries:

With effect from 1st January 2013 the bank has changed its policy in the order of priority in appropriating of recoveries made from Non -Performing accounts, resulting reduction of Rs. 59.44 crore in gross Non-Performing accounts as well as in profit for the financial year.

f. The Board of Directors has recommended dividend of Rs. 27/- per equity share of Rs. 10 each (270% of the paid up capital of the bank), subject to approval by members.

16. Credit Default Swaps

Since the Bank is not using any proprietary pricing model for pricing CDS contracts, and it is over the counter contract (OTS ) , the price is determined by the market dynamics..As such no disclosure is to be made in terms of extant RBI guidelines.

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


Mar 31, 2012

Hong Kong branch of the bank has taken exposure on Credit Linked Notes, Floating Rate Notes and Fixed Interest bonds etc. These are acquired under Investment portfolio at foreign offices, which are governed under Trading Book Policy for PNB Hong Kong. The bank intends to hold such instruments till its maturity. The aggregate value of such portfolio as on the date of balance sheet 31-03-2012 is Rs 301.10 crores (previous year Rs257.57crores).

(Figures in brackets relate to previous year)

*Others include Special Govt. Securities of Rs. 357.56 crore (net of depreciation) shown under Govt. Securities in Schedule 8.

Nature & Terms of the swaps including information on credit and market risk:

Hedge Swaps: Interest rate swaps for hedging Tier-II Bonds, Deposits, Floating rate loans & back-to-back swaps.

Trading Swaps: Interest rate swaps market risk: Nil

1c. Disclosure on risk exposure in derivatives

I Qualitative Disclosure

1. The bank uses derivatives products for hedging its own balance sheet items as well as trading purposes. The risk- management of derivative operation is headed by a senior executive, who reports to the top management, independent of the line functions. Trading positions are marked to market on daily basis.

2. The derivative policy is framed by the Risk Management Division, which includes measurement of credit risk and market risk.

3. The hedge transactions are undertaken for balance sheet management. Proper system for reporting and monitoring of risks is in place.

4. Policy for hedging and processes for monitoring the same is in place.

5. Accounting policy for recording hedge and non-hedge transactions are in place, which includes recognition of income, premiums and discounts. Valuation of outstanding contracts, provisioning, collateral and credit risk mitigation are being done.

2c. Risk Category wise Country Exposure

Bank's net funded exposure for risk category-wise country exposures for each country is less than 1% of bank's assets as on 31.03.2012 and as such no provision is required in terms of RBI Master Cir. No. DBOD NO. BPBC.12/21.04.048/2011- 12 dated July 1, 2011.

2d. Details of Single Borrower Limit and Group Borrower Limit exceeded by the bank.

"The Bank has not exceeded prudential exposure ceilings in respect of any Group Accounts and individual borrowers during period 01.04.2011 to 31.03.2012".

3. Disclosure of penalties imposed by the RBI:

During the year no penalty has been imposed by RBI on the bank. Other Disclosures required by Accounting Standards

4. AS -5 Prior Period and Change in Accounting Policy

There were no material prior period income/expenditure items requiring disclosure under AS-5.

5. AS- 6 Depreciation accounting

Break up of total depreciation for the year for each class of assets

6. AS- 9 Revenue Recognition:

Certain items of income are recognized on realization basis as per Accounting Policy No. 10(4). However, the said income is not considered to be material.

7. AS 11- Changes in foreign exchange rates:

Movement of foreign currency translation reserve

-included under "Other Assets"-Schedule 11 and provided for.

8. AS 15 - Employees Benefits:

ADOPTION OF AS - 15(R):

The Bank has adopted Accounting Standard 15(R) - Employee Benefits, issued by the Institute of Chartered Accountants of India (ICAI), with effect from 1st April 2007.

The Bank recognizes in its books of accounts the liability arising out of Employee Benefits as the sum of the present value of obligation as reduced by fair value of plan assets on the Balance Sheet date.

In case of Other Long term employee benefits (LFC, Sick leave, Silver Jubilee Award etc.) the transitional liability outstanding for these benefits as on 01.04.2011 was Rs 43.60 crores. The same has been charged to Profit & Loss account during the current year.

OPENING OF PENSION OPTION TO EMPLOYEES AND ENHANCEMENT IN GRATUITY LIMITS

During the year 2010-11 the Bank reopened the pension option for such of its employees who had not opted for the pension scheme earlier. As a result 33982 employees had exercised the option, the bank incurred a liability of Rs.2757.65 crores. Further during the year 2010-11 the limit of gratuity payable to the employees of the banks was also enhanced pursuant to the amendment to the Payment of Gratuity Act, 1972. As a result the gratuity liability of the Bank had increased by Rs.566.00 crores. These Liabilities were calculated on the basis of actuarial valuation.

In terms of the requirements of the Accounting Standard (AS) 15, Employee Benefits, the entire of Rs3323.65 crores. (Rs2757.65 cr. Rs566.00 cr.) were required to be charged to the Profit and Loss Account. However, the RBI has issued a circular no. DBOD.BPBC.80/21.04.018/2010-11 dated 9th February 2011, on "Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits-Prudential Regulatory Treatment". In accordance with the provisions of the said Circular, the Bank had charged off Rs664.73 crores representing one-fifth of Rs 3323.65 crores to Profit & Loss Account for this year (Rs664.73crore already charged in previous year). In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward, i.e. Rs1994.19 crores.(Rs3323.65 cr- Rs1329.46 cr.) does not include any liability relating to separated/retired employees. Such balance amount carried forward has been grouped in Schedule 5 under head "Others" and correspondingly in Schedule 11 under 'Others' and will be charged off in subsequent years

DISCLOSURE IN ACCOERDANCE WITH AS-15(R):

In line with the accounting policy and as per the Accounting Standard - 15(R), the summarized position of post employment benefits are recognized in the Profit & Loss A/c and Balance Sheet as under:

Note:

1. Segment Liabilities are distributed in the ratio of their respective Segment Assets.

2. As the operations outside India are less than the threshold limit of 10%, secondary segment information has not been required to be furnished.

3. Figures of the previous period have been re-grouped / reclassified wherever necessary on change in basis of allocation of expenditure.

9. Disclosure of Related Parties as per AS -18 issued by ICAI

Names of the related parties and their relationship with the Bank:

Key Management Personnel:

i) Shri K. R. Kamath, Chairman & Managing Director

ii) Shri M.V. Tanksale, Executive Director (upto 28.06.2011)

iii) Shri Rakesh Sethi, Executive Director

iv) Ms. Usha Ananthasubramanian (w.e.f. 19.07.2011) Subsidiaries

i) PNB Gilts Ltd.

ii) PNB Housing Finance Ltd.

iii) Punjab National Bank (International) Ltd., UK

iv) PNB Investment Services Ltd

v) Druk PNB Bank Ltd.

vi) PNB Insurance Broking Pvt Ltd.

vii) PNB Life Insurance Company Ltd.

viii) JSC SB PNB Kazakhstan Associates:

i) Everest Bank Limited

ii) Principal PNB Asset Management Company Pvt. Ltd.

iii) Principal Trustee Company Private Limited

iv) Assets Care & Reconstructions Enterprise Ltd.

v) India Factoring & Finance Solutions Pvt Ltd

vi) Madhya Bihar Gramin Bank, Patna

vii) Haryana Gramin Bank, Rohtak

viii) Himachal Gramin Bank, Mandi

ix) Punjab Gramin Bank, Kapurthala

x) Rajasthan Gramin Bank, Alwar

xi) Sarva UP Gramin Bank, Meerut

10. 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 31.03.2012 requiring recognition in terms of the said standard.

ii) Refer Schedule-12 on contingent liabilities

Such liabilities at S.No.(I), (II), (III), (IV), (V) & (VI) are dependent upon the outcome of Court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties, respectively. No reimbursement is expected in such cases.

11. The Bank has issued a Letter of Comfort in respect of its subsidiary Punjab National Bank (International) Ltd. in UK, to Financial Services Authority (FSA), the regulator in United Kingdom, committing that the bank shall provide financial support to Punjab National Bank (International) Ltd., UK so that it meets its financial commitments if they fall due. However, no financial obligation has arisen as on 31st March 2012.

12. Reward Points of Credit Card:

PNB Global Credit Cardholders are rewarded as and when they make purchase through usage of Credit Card. Reward Points are generated at the time of usage of Credit Card by Cardholder at Merchant Establishment. Card holder can redeem the accumulated reward points. The amount payable on account of reward points is charged to Profit and Loss account and credited to Sundry Provision Account on daily basis because such amount is quantifiable.

13. Other Notes

a As per RBI guidelines, the Bank has worked out the amount of inter Branch Credit entries outstanding for more than 5 years, pertaining to the period up to 31.03.2007, to be transferred to a Blocked Account. Accordingly, a sum of Rs.85.92 crores (net of adjustments since carried out) has been included under "Other Liabilities-others" in schedule-5.

Claims of Rs. 0.327 lac has been received during the year 2011-12 against Inter Branch Credit entries Blocked and transferred to General Reserve, has been met by transfer from General Reserve Rs.0.23 lac and to debit of Profit and Loss Account Rs. 0.81 lac.

b. Premises include properties amounting to Rs. 10.86 crores (Net of Depreciation) (previous year Rs.10.98 crores)

{Cost Rs 16.01 crores} (previous year Rs. 15.89 crores) are awaiting registration of title deeds. Premises include capital work in progress of Rs. 113.76 crores (previous year Rs.86.09 crores).

c. No provision is considered necessary in respect of disputed Income Tax and Fringe Benefit Tax demands of Rs.1160.87 crores (previous year Rs. 881.43 crore) as in the bank's view, duly supported by expert opinion and/ or decision in bank's own appeals on same issues, additions / disallowances made are not sustainable. Against these disputed demands, Rs. 1160.87 crores (previous year Rs.881.43 crores) has been paid.

d. During the year the bank has allotted 1,58,40,607 equity shares of Rs. 10/- each to LIC of India and 65,25,919 to Govt of India at a premium of Rs 993.69 per share as determined by the Board in terms of the Chapter VII of the SEBI Regulations, 2009, as amended from time to time (the "SEBI ICDR Regulations") on preferential basis. The total amount received by the bank on this account is Rs.2244.91crores which includes Rs.22.37crores as equity capital and Rs.2222.54 crores as premium. Consequently the Government holding is now 56.10% as compared to 58% before preferential allotment.

e. Other Reserves- Additions during the year:

Additions in other reserves include Rs.60crores pertaining to write back of provision created earlier in the year 2008 on the basis of present value towards agriculture debt waiver relief reversed to General Reserves as per RBI Guidelines.

f. The Board of Directors has recommended dividend of Rs.22 per equity share of Rs. 10 each (of the paid up capital of the bank), subject to approval by members.

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

 
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