Accounting Policies of South Indian Bank Ltd. Company
Mar 31, 2023
Background
The South Indian Bank Limited (''SIB'' or the ''Bank''), incorporated on January 29, 1929 at Thrissur, as a private limited company and was later converted into a public limited company on August 11, 1939. SIB has a network of 940 branches in India and provides retail and corporate banking, para banking activities such as debit card, third party financial product distribution, in addition to Treasury and Foreign Exchange Business. SIB is governed by Banking Regulation Act, 1949, The Companies Act, 2013 and other applicable Acts/Regulations for Banks. Its shares are listed in BSE Limited and National Stock Exchange of India Limited.
Basis of Preparation
The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform in all material aspects to Generally Accepted Accounting Principles in India ("Indian GAAP"), the circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (as amended) and the relevant provisions of the Companies Act, 2013 ("the Act") and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except where otherwise stated. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year.
Use of estimates
The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognized prospectively in the current and future periods.
Significant Accounting Policies
1. Revenue recognition
a) Interest / discount / other charges income from loans, advances and investments and deposits placed with banks and other institutions are recognized on accrual basis, except in respect of income relating to advances/ investments classified as non-performing advances/ investments, additional finance treated as standard asset under approved restructuring package, where the income is recognized only on realization in accordance with RBI guidelines.
b) Interest income on loans bought out through the direct assignment route is recognized at their effective interest rate, except in case of such loans classified as non-performing advances.
c) The recoveries made from NPA accounts are appropriated towards the order of demand applicable to borrowers accounts.
d) Dividend on investments in shares and units of mutual funds are accounted when the bank''s right to receive the dividend is established.
e) Income on discounted instruments is recognised over the tenure of the instrument on a straight-line basis.
f) Insurance claims and locker rent are accounted on receipt basis.
g) Commission income on issuance of bank guarantee / letter of credit is recognised over the period of the guarantee/letter of credit.
h) Processing fee/ upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/ facility is recognised at the inception/renewal of loan.
i) Other fees and commission income (including commission income on third party products) are recognised when due, except in cases where the bank is uncertain of ultimate collection.
j) Unpaid funded interest on term loans are recognised on realisation as per the guidelines of RBI.
k) In accordance with RBI guidelines on sale of non-performing advances, if the sale is at a price below the net book value (i.e. book value less provisions held), the shortfall is charged to the Profit and Loss Account in the year of sale. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
l) Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is expensed as other expenses in accordance with the guidelines issued by the RBI.
m) The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income and is recognised at the time of sale to the customers.
n) Interest on income tax refund is recognised under "Other Income" in the year of passing of Assessment Orders.
o) Legal expenses incurred on suit filed accounts are expensed in profit and loss account as per RBI guidelines. Such amount when recovered is treated as income
p) In case of One Time settlement (OTS) accounts the recoveries are first adjusted to principal balance and sacrifice on settlement is accounted upfront.
q) Penal interest is recognised as income on realisation other than on running accounts where it is recognised when due.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized into "Held for Trading", "Available for Sale" and "Held to Maturity" and further classified under six groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds, Subsidiaries and / or joint ventures and Other (to be specified) Investments for the purposes of disclosure in the Balance Sheet. Shifting amongst the categories is done in accordance with the RBI guidelines.
b) Investments which are held for sale within 90 days from the date of purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are classified as "Held to Maturity".
d) Investments which are not classified in either of the above two categories are classified as "Available for Sale".
B) Acquisition cost
The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments and government securities is treated as a revenue item. The transaction cost including brokerage, commissions etc. paid at the time of acquisition of investments are charged to the Profit and Loss Account.
C) Valuation
The valuation of investments is performed in accordance with the RBI Guidelines:
a. Investments classified as HFT or AFS - Investments
classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/ quotes on the stock exchanges, pricelist of RBI or prices declared by Financial Benchmark India Private Limited periodically. Net depreciation, if any, within each category of investment classification is recognized in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
Net depreciation on each type of investments falling under the residual category of ''Others'' (i.e. mutual funds, PTCs, security receipts etc.) is not offset against gain in another class of investment falling within the ''Others'' category.
The depreciation on securities acquired by way of conversion of outstanding loan is provided in accordance with the RBI guidelines. Provision for depreciation on investments is classified under
Schedule 14 "Other Income". The book value of individual securities is not changed consequent to the periodic valuation of investments.
b. Held to Maturity - These are carried at their acquisition cost unless it is more than the face value, in which case premium on acquisition is amortized over the remaining maturity of the security on straight line basis. Such amortization of premium is adjusted against interest income under the head ''Income from Investments'' under Schedule 13 in Profit and Loss account. As per RBI guidelines, discount on securities held under HTM category is not accrued and such securities are held at the acquisition cost till maturity. Any diminution, other than temporary, in the value of such securities is provided for.
c. Treasury Bills, commercial paper, Cash management bills and Certificate of Deposits being discounted instruments, are valued at carrying cost which includes discount amortized over the period to maturity.
d. Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
e. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
⢠In case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by Financial Benchmark India Pvt Limited (FBIL) and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk markup for each category and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose;
⢠In case of bonds and debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
⢠Preference shares shall be valued on YTM basis. It shall be valued with appropriate
mark-up over the YTM rates for Central Government Securities put out by the FBIL. The preference shares shall not be valued above its redemption value.
⢠Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at '' 1/- per company;
⢠In case of investment by the Bank in SRs issued against loans transferred by it is more than 10 percent of all SRs issued against the transferred asset, then the provision for depreciation in value is made at the higher of - provisioning rate required in terms of net asset value declared by the Reconstruction Company (''RC'')/ Securitization Company (''SC'') or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continued in the books of the bank.
⢠Non- Performing Investments are identified and valued based on RBI guidelines. Interest on non-performing investments is recognised on cash basis.
⢠Investment in subsidiary as per RBI guidelines are categorized as HTM and assessed for impairment to determine permanent diminution, if any
f. The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities. The investments in equity shares are accounted for on settlement date.
D) Repo and Reverse Repo transactions
In accordance with the RBI guidelines repo and reverse repo transactions in government securities including those conducted under the Liquidity Adjustment Facility (''LAF'') and Marginal Standby Facility (''MSF'') with RBI are reflected as collateralized borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as interest
expense and revenue on reverse repo is accounted for as interest income.
E) Short Sales
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under ''Other Liabilities''. The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
F) Transfer of securities between Categories
Transfer of securities between categories is done at the lower of the acquisition cost / book value/ market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for in accordance with RBI guidelines.
G) Disposal of Investments
a. Investments classified as HFT and AFS - Profit or loss on sale / redemption is included in the Profit and Loss account.
b. Investments classified as HTM - Profit on sale of /redemption of investments is included in the Profit and Loss Account and is appropriated to capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale/redemption is charged to the Profit and Loss Account.
H) Investment Fluctuation Reserve (''IFR''):
Investment Fluctuation reserve is accounted in line with the RBI guidelines issued from time to time.
3. Advances
A) Valuation / Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (''NPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances, claims received from guarantee corporations and unrealised interest on NPAs. Interest on Non- Performing advances is not recognised in profit and loss account and transferred to an unrealised interest account until receipt. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated
by the RBI. Provisions for NPAs are made as per the guidelines and circulars of the RBI on matters relating to prudential norms.
b) Non-performing advances are written-off in accordance with the Bank''s policies. Amounts recovered against debts written off are recognised in the profit and loss account and included under "Other Income". The recovery of unrealised interest is accounted under "Interest on Loans & Advances" in the profit and loss account.
c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
Additional provision for restructured accounts as per the relevant restructuring scheme announced by RBI for Micro, Small and Medium (MSME) sector, accounts affected by natural calamities and as per COVID 19 resolution framework are made as per extant RBI guidelines.
d) For entities with Unhedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
f) The bank transfers advances through interbank participation with and without risk. In accordance with the RBI guidelines, in the
case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating; the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.
g) Loss on sale of assets to Asset Reconstruction Companies
If the sale of non- performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account, spread over a period as specified in RBI guidelines. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
h) The Bank makes additional provisions as per RBI''s guidelines on ''Prudential Framework on Resolution of Stressed Assets'' dated June 7, 2019 on accounts in default and with aggregate exposure above the threshold limits as laid down in the said framework where the resolution plan is not implemented within the specified timeline.
i) Loans reported as fraud are classified as loss assets and provided as per RBI guidelines.
j) In the event of substantial erosion in value of loan and remote possibility of collection, nonperforming loans with adequate provisions are evaluated for technical / prudential write off based on Bank''s policy and the RBI guidelines. Such write off does not have an impact on the Bank''s legal claim against the borrower. The Bank may also write off non-performing loans on one time settlement (''OTS'') with the borrower or otherwise.
4. Country risk
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit
as per Export Credit Guarantee Corporation of India Limited ("ECGC") guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure. This provision if any, is classified under Schedule 5 -Other Liabilities in the Balance Sheet.
5. Fixed Assets (Property Plant & Equipment and Intangibles) and depreciation / amortization
a) The Property Plant & Equipment and Intangibles (other than office premise, which are revalued) are stated at historical cost less accumulated depreciation/amortisation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on asset put to use is capitalised only when it increases the future benefit / functioning capability from/ of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises after adjustments for tax and transfer to Statutory, if any, is transferred to Capital Reserve as per the RBI guidelines.
b) Portfolio of immovable properties is revalued periodically by independent valuers to reflect current market valuation. All land and building owned by the bank and used as branches or offices or office quarters are grouped under "Office Premises" in the Property Plant & Equipment. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserve. Additional depreciation on revalued asset is charged to Profit and Loss Account and appropriated from Revaluation Reserve to Revenue and other Reserves.
c) Depreciation /Amortisation: Depreciation is provided on a pro-rata basis on a straight-line method over the estimated useful life of the fixed assets at the rates and in the manner
prescribed in Schedule II of the Companies Act, 2013, except for Vehicles which are depreciated over five years, based on technical estimates. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets, though these rates in certain cases are different from lives prescribed under Schedule II of Companies Act, 2013. Computer software is amortised over its useful life, not more than 5 years.
6. Impairment of Assets
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, an impairment is recognised for such excess amount. The impairment loss is recognised as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset.
When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognised.
7. Non-Banking Assets
Non-banking assets (NBAs) acquired in satisfaction of claims is carried at lower of net book value and net realisable value. Specific provision is made on specific Non-banking assets acquired on debt asset swap arrangements as specified by RBI.
8. Transactions involving foreign exchange
a) Foreign currency income and expenditure items are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account, as per the guidelines issued by RBI.
b) Foreign exchange spot and forward Contracts outstanding as at the Balance Sheet date (except Forward Contracts taken to hedge FCNR Deposits/Overseas Borrowings) are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. As directed by FEDAI to consider profit or loss on present value basis, the forward profit or loss on the deals are discounted till the valuation date using the discounting yields. The resulting profit or loss on valuation is recognised in the Profit and Loss Account in accordance with RBI/FEDAI Guidelines.
c) Forward Contracts taken to hedge FCNR Deposits/Overseas Borrowings are translated at the prevailing spot rate at the time of swap. The Premium/ Discount on the swap arising out of the difference in the exchange rate of the swap date and maturity date of the underlying forward exchange contract is amortised over the period of the swap and the same is recognized in the Profit and Loss Account.
d) Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date.
9. Derivative transactions
The Bank recognizes all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are remeasured at fair value as at the Balance sheet or reporting dates. Derivatives are classified as assets when the fair value is positive (Positive marked-to-market) or as liabilities when the fair value is negative (negative marked-to-market). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss Account.
10. Employee benefits
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd Employees Provident Fund", administered by the trustees is charged
to Profit and Loss account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd Employees'' Pension Fund Trust", managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
Employees who had joined the services of the Bank with effect from April 1, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes specified percentage of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes contribution to "The South Indian Bank Ltd Employees'' Gratuity Trust" administered and managed by the trustees. The present value of the bank''s obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
d) Compensated absence on Privilege / Sick / Casual Leave and Leave Travel Concession (LTC):
The employees of the Bank are entitled to compensated absence on account of privilege / sick / casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
The employees are also eligible for LTC as per the rules. The estimated cost of unused entitlement as on the Balance Sheet date based on actuarial valuation is provided for.
e) Employees Stock Option Scheme (ESOS):
The SIB ESOS 2008 Employee Stock Option Scheme (''the Scheme'') provides for grant of stock options on equity shares of the Bank to employees and Managing Director of the Bank. The Scheme is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits and sweat equity) Regulations, 2021. The Bank followed intrinsic value method to account for its stock-based employee compensation plans as per the Guidelines for all the options granted till the accounting period ending 31 March, 2021.
RBI issued a clarification on Guidelines on Compensation of Whole Time Directors/Chief Executive Officers /Material Risk Takers and Control Function Staff on 30 August, 2021, advising banks that the share-linked instruments are required to be fair valued on the date of grant using the Black-Scholes model. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after 31 March, 2021 and consequently recognized the fair value of options computed using the Black-Scholes model, without reducing estimated forfeitures, as compensation expense over the vesting period. Options are granted at an exercise price, which is equal to the fair market price of the underlying equity shares at the date of the grant or at such a discount as may be approved by NRC/Board from time to time. The fair market price being the closing price of stock exchange which recorded the highest trading volumes in equity shares of the Bank and trading day immediately preceding the date on which the grant of options was approved and recommended to Board by Nomination and Remuneration Committee of Board.
f) Other Employee Benefits:
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the
employee renders the service. These benefits include performance incentives.
g) New Pension Scheme (''NPS'')
In respect of employees who are covered under NPS, the Bank contributes certain percentage of the sum of basic salary and dearness allowance of employees to the aforesaid scheme, a defined contribution plan, which is managed and administered by pension fund management companies and regulated by PFRDA. NPS contributions are recognised in the Profit and Loss Account in the period in which they accrue. The Bank has no liability other than its contribution and recognises such contributions as an expense in the year incurred.
11. Segment Reporting
The disclosure relating to segment information is in accordance with the guidelines issued by RBI. Segmental expenses are allocated as per board approved policy.
12. Debit Card Reward Points
The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary
13. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, prescribed under section 133 of the Companies Act, 2013 read together with the Companies (Accounting Standards) Rules, 2021. Basic EPS has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. A diluted earnings per share is computed using the weighted average
number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored.
14. Taxes on income
Income tax expense is the aggregate amount of current tax and deferred tax charge. The current tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961, the rules framed there under and considering the material principles set out in Income Computation and Disclosure Standards and as per Accounting Standard 22 - "Accounting for Taxes on Income" respectively.
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961, Accounting Standard 22 - "Accounting for Taxes on Income" and other applicable tax laws.
Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay
normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Bank.
15. Accounting for Provisions, Contingent Liabilities and Contingent Assets
In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets prescribed under section 133 of the Companies Act, 2013, the Bank recognises provisions when it has a present obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate of the amount of the obligation can be made.
Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements.
16. Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms.
17. Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/institutions and Money at Call and Short Notice (including the effect of changes
in exchange rates on cash and cash equivalents in foreign currency).
18. Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013 and in line with the respective RBI guidelines issued from time to time.
19. Corporate Social Responsibility
Expenditure towards Corporate Social Responsibility is recognized in accordance with Companies Act 2013
20. Accounting of Priority Sector Lending Certificate (PSLC)
The Bank vide RBI circular FIDD.CO.Plan. BC.23/04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC, without transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.
21. Accounting for Dividend
In terms of revised Accounting Standard (AS) 4 "Contingencies and Events occurring after the Balance sheet date" as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016 dated March 30, 2016, Proposed Dividend or Dividend declared after balance sheet date are not shown as liability in current year balance sheet. The effect of the proposed dividend shall be reckoned in determining capital funds in the computation of capital adequacy ratios in Financial Year for which the dividend is declared. In case of interim dividend, the same shall be reckoned in the same quarter.
22. Cash Flows
Cash flow Statement has been prepared under the Indirect Method.
Mar 31, 2022
Background
The South Indian Bank Limited (''SIB'' or the ''Bank''), incorporated on January 29, 1929 at Thrissur, as a private limited company and was later converted into a public limited company on August 1 1, 1939. SIB has a network of 929 branches/offices in India and provides retail and corporate banking, para banking activities such as debit card, third party financial product distribution, in addition to Treasury and Foreign Exchange Business. SIB is governed by Banking Regulation Act, 1949, The Companies Act, 2013 and other applicable Acts/Regulations for Banks. Its shares are listed in BSE Limited and National Stock Exchange of India Limited.
Basis of Preparation
The Standalone financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform in all material aspects to Generally Accepted Accounting Principles in India ("Indian GAAP"), the circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013(as amended) and the relevant provisions of the Companies Act, 2013 ("the Act")and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except where otherwise stated. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year.
The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognized prospectively in the current and future periods.
Significant Accounting Policies
a) Interest / discount / other charges income from loans, advances and investments and deposits placed with banks and other institutions are recognised on accrual basis, except in respect of income relating to advances/ investments classified as non-performing advances/ investments, additional finance treated as
standard asset under approved restructuring package, where in accordance with RBI guidelines the income is recognised only on realisation.
b) Interest income on loans bought out through the direct assignment route is recognized at their effective interest rate, except in case of such loans classified as non-performing advances.
c) The recoveries made from NPA accounts are appropriated first towards unrealized interest/income debited to borrowers accounts, then expenditure/ out of pocket expenses incurred and lastly towards principal dues.
d) Dividend on investments in shares and units of mutual funds are accounted when the bank''s right to receive the dividend is established.
e) Income on discounted instruments is recognised over the tenure of the instrument on a straight-line basis.
f) Insurance claims and locker rent are accounted on receipt basis.
g) Commission income on issuance of bank guarantee / letter of credit is recognised over the period of the guarantee/letter of credit.
h) Processing fee/ upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/ facility is recognised at the inception/renewal of loan.
i) Other fees and commission income (including commission income on third party products) are recognised when due, except in cases where the bank is uncertain of ultimate collection.
j) Unpaid funded interest on term loans are recognised on realisation as per the guidelines of RBI.
k) In accordance with RBI guidelines on sale of nonperforming advances, if the sale is at a price below the net book value (i.e. book value less provisions held), the shortfall is charged to the Profit and Loss Account in the year of sale. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
l) Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is expensed as other expenses in accordance with the guidelines issued by the RBI.
m) The difference between the sale price and purchase cost of gold coins, received on consignment basis is
included in other income and is recognised at the time of sale to the customers.
n) Interest on income tax refund is recognised under "Other Income" in the year of passing of Assessment Orders.
A) Classification
a) In accordance with the RBI guidelines, investments are categorized into "Held for Trading", "Available for Sale" and "Held to Maturity" and further classified under six groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds, Subsidiaries and / or joint ventures and Other (to be specified) Investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are classified as "Held to Maturity".
d) Investments which are not classified in either of the above two categories are classified as "Available for Sale".
B) Acquisition cost
The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments and government securities is treated as a revenue item. The transaction cost including brokerage, commissions etc. paid at the time of acquisition of investments are charged to the Profit and Loss Account.
C) Valuation
The valuation of investments is performed in accordance with the RBI Guidelines:
a. Investments classified as HFT or AFS - Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/ quotes on the stock exchanges, pricelist of RBI or prices declared by Financial Benchmark India Private Limited etc. periodically. Net depreciation, if any, within each category of investment classification is recognized in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
Net depreciation on each type of investments falling under the residual category of ''Others'' (i.e. mutual funds, PTCs, security receipts etc.) is not offset against gain in another class of investment falling within the ''Others'' category.
The depreciation on securities acquired by way of conversion of outstanding loan is provided in accordance with the RBI guidelines. Provision for depreciation on investments is classified under Schedule 14 "Other Income". The book value of individual securities is not changed consequent to the periodic valuation of investments.
b. Held to Maturity - These are carried at their acquisition cost unless it is more than the face value, in which case premium on acquisition is amortized over the remaining maturity of the security on straight line basis. Such amortization of premium is adjusted against interest income under the head ''Income from Investments'' under Schedule 13 in Profit and Loss account. As per RBI guidelines, discount on securities held under HTM category is not accrued and such securities are held at the acquisition cost till maturity. Any diminution, other than temporary, in the value of such securities is provided for.
c. Treasury Bills, commercial paper, Cash management bills and Certificate of Deposits being discounted instruments, are valued at carrying cost which includes discount amortized over the period to maturity.
d. Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
e. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
⢠in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by Financial Benchmark India Pvt Limited (FBIL) and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk markup for each category and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose;
⢠in case of bonds and debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
⢠Preference shares shall be valued on YTM basis. It shall be valued with appropriate markup over the YTM rates for Central Government Securities put out by the FBIL.The preference shares shall not be valued above its redemption value.
⢠equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at breakup value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at '' 1/- per company;
⢠Investments in Security Receipts (SR''s)are valued as per the NAV declared by the issuing Asset Reconstruction company (ARC) or net book value of loans transferred or estimated recoverable value based on Bank''s internal assessment on case to case basis, whichever is lower. In case of investments in SRs which are backed by more than 10 percent of the stressed assets sold by the Bank, the valuation of such SRs is additionally subject to a floor of face value of the SRs reduced by the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continued in the books of the Bank.
⢠Non- Performing Investments are identified and valued based on RBI guidelines.
f. The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities. The investments in equity shares, they are accounted for on settlement date.
D) Repo and Reverse Repo transactions
In accordance with the RBI guidelines repo and reverse repo transactions in government securities including those conducted under the Liquidity Adjustment Facility (''LAF'') and Marginal Standby Facility (''MSF'') with RBI are reflected as collateralized borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo is accounted for as interest income.
E) Short Sales
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under ''Other Liabilities''. The short position is marked to market and
resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
F) Transfer of securities between Categories
Transfer of securities between categories is done at the lower of the acquisition cost / book value/ market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for in accordance with RBI guidelines.
G) Disposal of Investments
a. Investments classified as HFT and AFS - Profit or loss on sale / redemption is included in the Profit and Loss account.
b. Investments classified as HTM - Profit on sale of / redemption of investments is included in the Profit and Loss Account and is appropriated to capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale/redemption is charged to the Profit and Loss Account.
A) Valuation / Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (''NPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealised interest on NPAs. Interest on Non- Performing advances is not recognised in profit and loss account and transferred to an unrealised interest account until receipt. Further, NPAs are classified into substandard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made as per the guidelines and circulars of the RBI on matters relating to prudential norms.
b) Non-performing advances are written-off in accordance with the Bank''s policies. Amounts recovered against debts written off are recognised in the profit and loss account and included under "Other Income".
c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
Additional provision for restructured accounts as per the relevant restructuring scheme announced by RBI for Micro, Small and Medium (MSME) sector, accounts affected by natural calamities and as per COVID 19 resolution framework are made as per extant RBI guidelines.
d) For entities with Unhedged Foreign Currency Exposure(UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time.
f) The bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating; the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.
g) Loss on sale of assets to Asset Reconstruction Companies
If the sale of non- performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account, spread over a period as specified in RBI guidelines. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
h) The Bank makes additional provisions as per RBI''s guidelines on ''Prudential Framework on Resolution of Stressed Assets'' dated June 7, 2019 on accounts in default and with aggregate exposure above the threshold limits as laid down in the said framework where the resolution plan is not implemented within the specified timeline.
i) Loans reported as fraud are classified as loss assets and provided as per RBI guidelines.
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGC") guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure. This provision if any, is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
5. Fixed Assets (Property Plant & Equipment and Intangibles) and depreciation / amortization
a) The Property Plant & Equipment and Intangibles (other than office premise, which are revalued) are stated at historical cost less accumulated depreciation/ amortisation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on asset put to use is capitalised only when it increases the future benefit / functioning capability from/of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises after adjustments for tax and transfer to Statutory, if any, is transferred to Capital Reserve as per the RBI guidelines.
b) Portfolio of immovable properties is revalued periodically by independent valuers to reflect current market valuation. All land and building owned by the bank and used as branches or offices or office quarters are grouped under "Office Premises" in the Property Plant & Equipment. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserve. Additional depreciation on revalued asset is charged to Profit and Loss Account and appropriated from Revaluation Reserve to Revenue and other Reserves.
c) Depreciation /Amortisation: Depreciation is provided on a pro-rata basis on a straight-line method over the estimated useful life of the fixed assets at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except for Vehicles which
are depreciated over five years, based on technical estimates. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets, though these rates in certain cases are different from lives prescribed under Schedule II of Companies Act, 2013. Computer software is amortized over its useful life not more than 5 years.
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, an impairment is recognised for such excess amount. The impairment loss is recognised as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset.
When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognised.
Non-banking assets (NBAs) acquired in satisfaction of claims is carried at lower of net book value and net realisable value. Specific provision is made on specific Nonbanking assets acquired on debt asset swap arrangements as specified by RBI.
8. Transactions involving foreign exchange
a) Foreign currency income and expenditure items are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account, as per the guidelines issued by RBI.
b) Foreign exchange spot and forward Contracts outstanding as at the Balance Sheet date (except Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings) are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. As directed by FEDAI to consider profit or loss on present value basis, the
forward profit or loss on the deals are discounted till the valuation date using the discounting yields. The resulting profit or loss on valuation is recognised in the Profit and Loss Account in accordance with RBI/FEDAI Guidelines.
c) Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings are translated at the prevailing spot rate at the time of swap. The Premium/ Discount on the swap arising out of the difference in the exchange rate of the swap date and maturity date of the underlying forward exchange contract is amortised over the period of the swap and the same is recognized in the Profit and Loss Account.
d) Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date.
The Bank recognizes all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are remeasured at fair value as at the Balance sheet or reporting dates. Derivatives are classified as assets when the fair value is positive (Positive marked-to-market) or as liabilities when the fair value is negative (negative marked-to-market). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss Account.
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd Employees Provident Fund", administered by the trustees is charged to Profit and Loss account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd Employees'' Pension Fund Trust", managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
Employees who had joined the services of the Bank with effect from April 1, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes specified percentage of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further
liability beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes contribution to "The South Indian Bank Ltd Employees'' Gratuity Trust" administered and managed by the trustees. The present value of the bank''s obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
d) Compensated absence on Privilege / Sick / Casual Leave and Leave Travel Concession (LTC):
The employees of the Bank are entitled to compensated absence on account of privilege / sick / casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
The employees are also eligible for LTC as per the rules. The estimated cost of unused entitlement as on the Balance Sheet date based on actuarial valuation is provided for.
e) Employees Stock Option Scheme (ESOS):
The SIB ESOS 2008 Employee Stock Option Scheme (''the Scheme'') provides for grant of stock options on equity shares of the Bank to employees and Managing Director of the Bank. The Scheme is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits and sweat equity) Regulations, 2021. The Bank followed intrinsic value method to account for its stock based employee compensation plans as per the Guidelines for all the options granted till the accounting period ending 31 March, 2022.
RBI issued a clarification on Guidelines on Compensation of Whole Time Directors/Chief Executive Officers /Material Risk Takers and Control Function Staff on 30 August, 2021, advising banks that the share-linked instruments are required to be fair valued on the date of grant using the Black-Scholes model. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after 31 March, 2021 and consequently recognized the fair value of options computed using the Black-Scholes model, without reducing estimated forfeitures, as compensation expense over the vesting period. Options are granted at an exercise price, which is equal to the fair market price of the underlying
equity shares at the date of the grant or at such a discount as may be approved by NRC/Board from time to time.
The fair market price being the closing price of stock exchange which recorded the highest trading volumes in equity shares of the Bank and trading day immediately preceding the date on which the grant of options was approved and recommended to Board by Nomination and Remuneration Committee of Board.
f) Other Employee Benefits:
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the employee renders the service. These benefits include performance incentives.
g) New Pension Scheme (''NPS'')
In respect of employees who are covered under NPS, the Bank contributes certain percentage of the sum of basic salary and dearness allowance of employees to the aforesaid scheme, a defined contribution plan, which is managed and administered by pension fund management companies and regulated by PFRDA. NPS contributions are recognised in the Profit and Loss Account in the period in which they accrue. The Bank has no liability other than its contribution, and recognises such contributions as an expense in the year incurred.
The disclosure relating to segment information is in accordance with the guidelines issued by RBI.
The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary.
The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, prescribed under section 133 of the Companies Act, 2013. Basic EPS has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the
Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements.
16. Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms.
17. Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/ institutions and Money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
18. Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
19. Corporate Social Responsibility
Expenditure towards Corporate Social Responsibility is recognized in accordance with Companies Act 2013
20. Accounting of Priority Sector Lending Certificate (PSLC)
The Bank vide RBI circular FIDD.CO.Plan. BC.23/04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC, without transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.
21. Accounting for Dividend
In terms of revised Accounting Standard (AS) 4 "Contingencies and Events occurring after the Balance sheet date" as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016 dated March 30, 2016, Proposed Dividend or Dividend declared after balance sheet date are not shown as liability in current year balance sheet. 22. Cash Flows
Cash flow Statement has been prepared under the Indirect Method.
22. Cash Flow
Cash flow statement has been prepared under the indirect method
year. A diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored.
Income tax expense is the aggregate amount of current tax and deferred tax charge.
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Bank.
Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their readability.
15. Accounting for Provisions, Contingent Liabilities and Contingent Assets
In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets prescribed under section 133 of the Companies Act, 2013, the Bank recognises provisions when it has a present obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate of the amount of the obligation can be made.
Mar 31, 2019
Significant Accounting Policies
1. Revenue recognition
a) Interest/discount/other charges income from loans, advances and investments and deposits placed with banks and other institutions are recognised on accrual basis, except in respect of income relating to advances/ investments classified as non-performing advances/ investments, advances to eligible MSME Borrowers classified as Standard as per RBI circular dated February 7, 2018 and additional finance treated as standard asset under approved restructuring package, where in accordance with RBI guidelines the income is recognised only on realisation.
b) Interest income on loans bought out through the direct assignment route is recognized at their effective interest rate, except in case of such loans classified as nonperforming advances.
c) The recoveries made from NPA accounts are appropriated first towards unrealized interest/income debited to borrowers accounts, then expenditure/out of pocket expenses incurred and lastly towards principal dues.
d) Dividend on investments in shares and units of mutual funds are accounted when the bank''s right to receive the dividend is established.
e) Income on discounted instruments is recognised over the tenure of the instrument on a straight-line basis.
f) Insurance claims and locker rent are accounted on receipt basis.
g) Commission income on issuance of bank guarantee/ letter of credit is recognised over the period of the guarantee/letter of credit.
h) Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/facility is recognised at the inception/ renewal of loan.
i) Other fees and commission income (including commission income on third party products) are recognised when due, except in cases where the bank is uncertain of ultimate collection.
j) Unpaid funded interest on term loans are recognised on realisation as per the guidelines of RBI.
k) In accordance with RBI guidelines on sale of nonperforming advances, if the sale is at a price below the net book value (i.e. book value less provisions held), the shortfall is charged to the Profit and Loss Account. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
l) Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is expensed as other expenses in accordance with the guidelines issued by the RBI.
m) The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income.
n) Interest on income tax refund is recognised under "Other Income" in the year of passing of Assessment Orders.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized into "Held for Trading", "Available for Sale" and "Held to Maturity" and further classified under five groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds and Other Investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are classified as "Held to Maturity".
d) Investments which are not classified in either of the above two categories are classified as "Available for Sale".
B) Acquisition cost
The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments and government securities is treated as a revenue item. The transaction cost including brokerage, commissions etc. paid at the time of acquisition of investments are charged to the Profit and Loss Account.
C) Valuation
The valuation of investments is performed in accordance with the RBI Guidelines:
a. Investments classified as HFT or AFS - Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/quotes on the stock exchanges, SGL account transactions, pricelist of RBI or prices declared by Financial Benchmark India Private Limited, periodically. Net depreciation, if any, within each category of investment classification is recognised in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
b. Held to Maturity - These are carried at their acquisition cost. Any premium on acquisition of government securities are amortized over the remaining maturity of the security on a straight-line basis. Any diminution, other than temporary, in the value of such securities is provided for.
c. Treasury Bills and Certificate of Deposits being discounted instruments, are valued at carrying cost.
d. Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
e. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
- in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by Financial Benchmark India Pvt. Limited (FBIL) and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FBIL are adopted for this purpose;
- in case of bonds and debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
- equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Rs.1/- per company;
- Investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company/Securitisation Company.
- Non-Performing Investments are identified and valued based on RBI guidelines.
f. The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities.
D) Repo and Reverse Repo transactions
In accordance with the RBI guidelines repo and reverse repo transactions in government securities are reflected as borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo is accounted for as interest income.
E) Short Sales
The Bank undertakes short sale transactions in Central
Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under ''Other Liabilities''. The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
F) Transfer of securities between Categories
Transfer of securities between categories is done at the lower of the acquisition cost/book value/market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for in accordance with RBI guidelines.
G) Disposal of Investments
a. Investments classified as HFT and AFS - Profit or loss on sale/redemption is included in the Profit and Loss account.
b. Investments classified as HTM - Profit on sale of/ redemption of investments is included in the Profit and Loss Account and is appropriated to capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale/redemption is charged to the Profit and Loss Account.
3. Advances
A) Valuation/Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (''NPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealised interest on NPAs. Interest on Non-Performing advances is not recognised in profit and loss account and transferred to an unrealised interest account until receipt. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made at the minimum required level as per the guidelines and circulars of the RBI on matters relating to prudential norms.
b) Non-performing advances are written-off in accordance with the Bank''s policies. Amounts recovered against debts written off are recognised in the profit and loss account and included under "Other Income".
c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
d) For entities with Unhedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time - direct advances to Sectors agricultural and SME at 0.25%, Commercial Real Estate at 1%, restructured advances at 5%, eligible MSME borrowers retained as Standard at 5%, teaser rate housing loans at 2%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%.
f) The bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating; the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.
g) Loss on sale of assets to Asset Reconstruction Companies
If the sale of non-performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account, spread over a period as specified in RBI guidelines. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
4. Country risk
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGC") guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure.
5. Fixed Assets (Property Plant & Equipment and Intangibles) and depreciation/amortization
a) The Property Plant & Equipment and Intangibles (other than office premise, which are revalued) are stated at historical cost less accumulated depreciation/ amortisation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on asset put to use is capitalised only when it increases the future benefit/functioning capability from/of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment/Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises after adjustments for tax and transfer to Statutory, if any, is transferred to Capital Reserve as per the RBI guidelines.
b) Portfolio of immovable properties is revalued periodically by independent valuers to reflect current market valuation. All land and building owned by the bank and used as branches or offices or office quarters are grouped under "Office Premises" in the Property Plant & Equipment. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserve. Additional depreciation on revalued asset is charged to Profit and Loss Account and appropriated from Revaluation Reserve to Revenue and other Reserves.
c) Depreciation/Amortisation: Depreciation is provided on a pro-rata basis on a straight-line method over the estimated useful life of the fixed assets at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except for Vehicles which are depreciated over five years, based on technical estimates. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets, though these rates in certain cases are different from lives prescribed under Schedule II of Companies Act, 2013.
6. Impairment of Assets
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, an impairment is recognised for such excess amount. The impairment loss is recognised as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset.
When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognised.
7. Non-Banking Assets
Non-banking assets (NBAs) acquired in satisfaction of claims is carried at lower of net book value and net realisable value. Specific provision is made on specific Non-banking assets acquired on debt asset swap arrangements as specified by RBI (Refer to Sch 18.31 (a)(i))
8. Transactions involving foreign exchange
a) Foreign currency income and expenditure items are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account, as per the guidelines issued by RBI.
b) Foreign exchange spot and forward Contracts outstanding as at the Balance Sheet date (except Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings) are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. The resulting profit or loss on valuation is recognised in the Profit and Loss Account in accordance with RBI/FEDAI Guidelines.
c) Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings are translated at the prevailing spot rate at the time of swap. The Premium/Discount on the swap arising out of the difference in the exchange rate of the swap date and maturity date of the underlying forward exchange contract is amortised over the period of the swap and the same is recognized in the Profit and Loss Account.
d) Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date.
9. Employee benefits
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd. Employees Provident Fund", administered by the trustees is charged to Profit and Loss account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd. Employees'' Pension Fund Trust", managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes specified percentage of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes contribution to "The South Indian Bank Ltd. Employees'' Gratuity Trust" administered and managed by the trustees. The present value of the bank''s obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
d) Compensated absence on Privilege/Sick/Casual Leave: The employees of the Bank are entitled to compensated absence on account of privilege/sick/casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
e) Employees Stock Option Scheme (ESOS):
The Bank has formulated Employee Stock Option Scheme (ESOS) in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999. The Scheme provides for grant of options to Employees of the Bank to acquire Equity Shares of the Bank that vest in a graded manner and are to be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. In accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014 and the guidance note on "Accounting for Employee Share based payments" issued by the ICAI, the excess of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortized on a straight-line basis over the vesting period.
f) Other Employee Benefits:
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the employee renders the service. These benefits include performance incentives.
10. Segment Reporting
The disclosure relating to segment information is in accordance with the guidelines issued by RBI.
11. Debit Card Reward Points
The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary.
12. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, prescribed under Section 133 of the Companies Act, 2013. Basic EPS has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. A diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored.
13. Taxes on income
Income tax expense is the aggregate amount of current tax and deferred tax charge.
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Bank.
Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability.
14. Accounting for Provisions, Contingent Liabilities and Contingent Assets
In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets prescribed under Section 133 of the Companies Act, 2013, the Bank recognises provisions when it has a present obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate of the amount of the obligation can be made.
Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements.
15. Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms.
16. Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/ institutions and Money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
17. Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
18. Accounting of PSLC
The Bank vide RBI circular FIDD.CO.Plan.BC.23/04.09.01/ 2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC, without transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.
19. Proposed Dividend
In terms of revised Accounting Standard (AS) 4 "Contingencies and Events occurring after the Balance sheet date" as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016 dated March 30, 2016, Proposed Dividend or Dividend declared after balance sheet date are not shown as liability in current year balance sheet.
Mar 31, 2018
Background
The South Indian Bank Limited (''SIB'' or the ''Bank'') was incorporated on January 29, 1929 at Thrissur as a private limited company and was later converted into a public limited company on August 1 1, 1939. SIB has a network of 879 branches/offices in India and provides retail and corporate banking, Para banking activities such as debit card, third party product distribution, in addition to Treasury and Foreign Exchange Business. SIB is governed by Banking Regulation Act, 1949 and other applicable Acts/Regulations. Its shares are listed in BSE Limited and National Stock Exchange of India Limited.
Basis of Preparation
The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform in all material aspects to Generally Accepted Accounting Principles in India ("Indian GAAP"), the circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (as amended) read with Rule 7 of the Companies (Accounts) Rule 2014 to the extent applicable and the relevant provisions of the Companies Act, 2013 ("the Act") and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except where otherwise stated. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year.
Use of Estimates
The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.
Significant Accounting Policies
1. Revenue recognition
a) Interest/discount/other charges income from loans, advances and investments and deposits placed with banks and other institutions are recognised on accrual basis, except in respect of income relating to advances/ investments classified as non-performing advances/ investments, advances to eligible MSME Borrowers classified as Standard as per RBI circular dated February 7, 2018 and additional finance treated as standard asset under approved restructuring package, where in accordance with RBI guidelines the income is recognised only on realisation.
b) Dividend on investments in shares and units of mutual funds are accounted when the bank''s right to receive the dividend is established.
c) Income on discounted instruments is recognised over the tenure of the instrument on a straight line basis.
d) Insurance claims and locker rent are accounted on receipt basis.
e) Commission income on issuance of bank guarantee/ letter of credit is recognised over the period of the guarantee/letter of credit.
f) Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/facility is recognised at the inception/ renewal of loan.
g) Other fees and commission income (including commission income on third party products) are recognised when due, except in cases where the bank is uncertain of ultimate collection.
h) Funded interest on term loans are recognised on realisation as per the guidelines of RBI.
i) In accordance with RBI guidelines on sale of nonperforming advances, if the sale is at a price below the net book value (i.e. book value less provisions held), the shortfall is charged to the Profit and Loss Account. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
j) Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is expensed as other expenses in accordance with the guidelines issued by the RBI.
k) The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized into "Held for Trading", "Available for Sale" and "Held to Maturity" and further classified under five groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds and Other Investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are classified as "Held to Maturity".
d) Investments which are not classified in either of the above two categories are classified as "Available for Sale".
B) Acquisition cost
The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments and government securities is treated as a revenue item. The transaction cost including brokerage, commissions etc. paid at the time of acquisition of investments are charged to the Profit and Loss Account.
C) Valuation
The valuation of investments is performed in accordance with the RBI Guidelines:
a. Investments classified as HFT or AFS - Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared by Financial Benchmark India Private Limited, periodically. Net depreciation, if any, within each category of investment classification is recognised in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
b. Held to Maturity - These are carried at their acquisition cost. Any premium on acquisition of government securities are amortized over the remaining maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided for.
c. Treasury Bills and Certificate of Deposits being discounted instruments, are valued at carrying cost.
d. Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
e. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
- in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by Financial Benchmark India Pvt. Limited (FBIL) and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FBIL are adopted for this purpose;
- in case of bonds and debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
- equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at ''1/- per Company;
- Investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company/ Securitisation Company.
- Non-Performing Investments are identified and valued based on RBI guidelines.
f. The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities.
D) Repo and Reverse Repo Transactions
In accordance with the RBI guidelines repo and reverse repo transactions in government securities are reflected as borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo is accounted for as interest income.
E) Short Sales
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under ''Other Liabilities''. The short position is marked-to-market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
F) Transfer of securities between Categories
Transfer of securities between categories is done at the lower of the acquisition cost/book value/market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for in accordance with RBI guidelines.
G) Disposal of Investments
a. Investments classified as HFT and AFS - Profit or Loss on sale/redemption is included in the Profit and Loss account.
b. Investments classified as HTM - Profit on sale of/ redemption of investments is included in the Profit and Loss Account and is appropriated to capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale/redemption is charged to the Profit and Loss Account.
3. Advances
A) Valuation/Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (''NPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealised interest on NPAs. Interest on Non-performing advances is not recognised in Profit and Loss account and transferred to an unrealised interest account till the NPA classified date. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made at the minimum required level as per the guidelines and circulars of the RBI on matters relating to prudential norms.
b) Amounts recovered against debts written off are recognised in the Profit and Loss account and included under "Other Income".
c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
d) For entities with Unhedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time - direct advances to Sectors agricultural and SME at 0.25%, Commercial Real Estate at 1%, restructured advances at 5%, eligible MSME borrowers retained as Standard at 5%, teaser rate housing loans at 2%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%.
f) The bank transfers advances through interbank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating; the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.
g) Loss on sale of assets to Asset Reconstruction Companies
If the sale of non-performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account, spread over a period as specified in RBI guidelines. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
4. Country risk
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGC") guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure.
5. Fixed Assets (Property Plant & equipment and Intangibles) and depreciation/amortization
a) The Property Plant & Equipment and Intangibles (other than those, which are revalued) are stated at historical cost less accumulated depreciation/amortisation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on asset put to use is capitalised only when it increases the future benefit/functioning capability from/of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment/Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises after adjustments for tax and transfer to Statutory, if any, is transferred to Capital Reserve as per the RBI guidelines.
b) Portfolio of immovable properties is revalued periodically by independent valuers to reflect current market valuation. All land and building owned by the bank and used as branches or offices or office quarters are grouped under "Office Premises" in the Property Plant & Equipment. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserve. Additional depreciation on revalued asset is charged to Profit and Loss Account and appropriated from Revaluation Reserve to Revenue and other Reserves.
c) Depreciation/Amortisation: Depreciation is provided on a pro-rata basis on a straight line method over the estimated useful life of the fixed assets at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except for Vehicles which are depreciated over 3 years, based on technical estimates. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets, though these rates in certain cases are different from lives prescribed under Schedule II of Companies Act, 2013.
6. Impairment of Assets
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, an impairment is recognised for such excess amount. The impairment loss is recognised as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset.
When there is indication that an impairment loss recognised for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognised.
7. Non-Banking Assets
Non-banking assets (NBAs) acquired in satisfaction of claims is carried at lower of net book value and net realisable value.
8. Transactions involving foreign exchange
a) Foreign currency income and expenditure items are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account, as per the guidelines issued by RBI.
b) Foreign exchange spot and forward Contracts outstanding as at the Balance Sheet date (except Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings) are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. The resulting profit or loss on valuation is recognised in the Profit and Loss Account in accordance with RBI/FEDAI Guidelines.
c) Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings are translated at the prevailing spot rate at the time of swap. The Premium/Discount on the swap arising out of the difference in the exchange rate of the swap date and maturity date of the underlying forward exchange contract is amortised over the period of the swap and the same is recognized in the Profit and Loss Account.
d) Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date.
9. employee benefits
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd. Employees Provident Fund", administered by the trustees is charged to Profit and Loss account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd. Employees'' Pension Fund Trust", managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes 10% of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes contribution to "The South Indian Bank Ltd. Employees'' Gratuity Trust" administered and managed by the trustees. The present value of the bank''s obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
d) Compensated absence on Privilege/Sick/Casual Leave: The employees of the Bank are entitled to compensated absence on account of privilege/sick/casual leave as per the leave rules. The bank measures the long-term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the Profit and Loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.
e) Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999. The Scheme provides for grant of options to Employees of the Bank to acquire Equity Shares of the Bank that vest in a graded manner and are to be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. In accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014 and the guidance note on "Accounting for Employee Share based Payments" issued by the ICAI, the excess of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortized on a straight line basis over the vesting period.
f) Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the employee renders the service. These benefits include performance incentives.
10. Segment Reporting
The disclosure relating to segment information is in accordance with the guidelines issued by RBI.
11. Debit Card Reward Points
The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent actuary.
12. earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, prescribed under Section 133 of the Companies Act, 2013.
Basic EPS has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. A diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored.
13. Taxes on income
Income tax expense is the aggregate amount of current tax and deferred tax charge.
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Bank.
Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their reliability.
14. Accounting for Provisions, Contingent Liabilities and Contingent Assets
In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets prescribed under Section 133 of the Companies Act, 2013, the Bank recognises provisions when it has a present obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate of the amount of the obligation can be made.
Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements.
15. Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms.
16. Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/ institutions and Money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
17. Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
18. Accounting of PSLC
The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC, without transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.
A. Disclosures as per RBI''s Master Circular on Disclosure in Financial Statements
Amounts in Notes forming part of the financial statements for the year ended March 31, 2018 are denominated in Rupees Crore (unless specified otherwise) to conform to extant RBI guidelines.
In accordance with RBI Guidelines, banks are required to make Pillar 3 disclosures under Basel III Capital Regulations. The Bank has made these disclosures which are available on its website at the following link :-
http://www.southindianbank.com/content/viewContentLvl1 .aspx?l in kIdLvl2=854&Lin kIdLvl3=880&l in kId=880 Pillar 3 disclosures have not been subjected to audit.
Amount reckoned for Tier II Capital as per RBI guidelines is Rs,870.00 Crore (Previous Year Rs,420 Crore).
2. Capital Infusion:
During the year ended March 31, 2018, the Bank allotted 59,95,121 Equity Shares (Previous Year: 18,18,866 Equity Shares) aggregating to face value Rs,0.60 Crore (Previous Year: Rs,0.18 Crore) in respect of stock options exercised.
Accordingly, share capital increased by Rs,0.60 Crore (Previous year: Rs,0.18 Crore) and share premium increased by Rs,11.98 Crore (Previous year: Rs,3.60 Crore).
During financial year 2016-2017, the Bank, vide its Letter of Offer dated February 20, 2017 offered upto 45,07,09,302 Equity Shares of Face Value of Rs,1/- each at a price of Rs,14/- per Equity Share (including Share Premium of Rs,13/- per Equity Share) for an amount aggregating to Rs,630.99 Crore to the existing Equity Shareholders of the Bank on rights basis in the ratio of One Equity Share for every Three Equity Shares held by the Equity Shareholders on the record date i.e. February 17, 2017. The Company has allotted 45,07,08,052 Equity Shares, the remaining 1250 Equity Shares being kept in abeyance.
Accordingly, share capital increased by Rs,Nil (Previous Year: Rs,45.07 Crore) and share premium increased by Rs,Nil (Previous Year: Rs,585.92 Crore).
Movements in provisions held towards depreciation on investments have been reckoned on a yearly basis.
3.1 a) The mark-to-market depreciation on AFS/HFT investment category was portfolio of Rs,4.51 Crores for the quarter ended December 31, 2017 and Rs,42.83 Crore for the quarter ended March 31, 2018 on account of mark-to-market loses. RBI circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 permitted banks an option to spread provisioning for mark-to-market losses on investments held in AFS and HFT for the quarters ended December 31, 2017 and March 31, 2018 equally over up to four quarters, commencing with the quarter in which the loss was incurred. The bank has availed the option to spread the provisioning over four quarters, and accordingly charged Rs,12.96 Crore to the Profit and Loss account and the unamortised depreciation as at March 31, 2018 is Rs,34.38 Crore.
b) In respect of securities held under HTM category premium of Rs,40.27 Crore (Previous Year Rs,28.78 Crore) has been amortised during the year and debited under interest received on Government securities.
c) Profit on sale of securities from HTM category amounting to Rs,60.31 Crore (Previous Year: Rs,79.55 Crore) has been taken to Profit and Loss Account. During the year, the Bank had appropriated Rs,29.88 Crore (Previous Year Rs,39.55 Crore), net of taxes and transfer to statutory reserve, to the Capital Reserve, being the gain on sale of HTM Investments in accordance with RBI guidelines.
7. Sale and transfers to/from HTM Category:
During the years ended March 31, 2018 and March 31, 2017, the Bank has not sold and transferred securities to or from HTM category exceeding 5% of the book value of investments held in HTM category at the beginning of the year. The 5% threshold referred to above does not include one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per the extant RBI guidelines, sale of Non-SLR SL bond under Ujwal Discom Assuarance Yojana (UDAY Scheme), sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and sale of securities or transfer to AFS/HFT consequent to the reduction of ceiling on SLR securities under HTM.
8. Derivatives :
The Bank undertakes exchange traded currency future transaction for proprietary trading only. There is functional separation between the front Office, risk and back office for undertaking derivative transactions. The currency future transactions are governed by the Foreign Exchange policy of the Bank. Various limits are set up and actual exposure is monitored vis-a-vis the limits allocated. Risk Limits are in place for risk parameters viz. VaR, Stop Loss, Dealer Limit, Deal size limit. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly.
Classification of assets and liabilities under different maturity buckets is based on the same estimates and assumptions as used by the Bank for compiling the returns submitted to the RBI, which has been relied upon by the auditors.
Disclosure format of maturity pattern has been revised by RBI vide circular DBR.BP.BC.No.86/21.04.098/2015-16 dated March
23, 2016. Previous year numbers has been reclassified/rearranged accordingly.
17. Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the Bank;
During the years ended March 31, 2018 and March 31, 2017, the bank has exceeded the credit exposure to single borrower and group borrowers limit as per prudential exposure limit prescribed by RBI w.r.t. investment of Rs,1,057.15 Crore in security receipt issued by M/s. Phoenix ARC. The regulator has instructed the Bank not to take any further exposure to the ARC till the exposure is brought within the prudential limit prescribed under large exposure''s framework.
19. Penalties levied by the Reserve Bank of India:
The penalty imposed by RBI during the year ended March 31, 2018 was Rs,2,52,450/- (Previous year Rs,1,17,193/-)
During FY 2016-17 there was a single incident of SGL bouncing on 27th October, 2016 due to oversight. Based on the bank''s explanation/representation, RBI has taken a lenient view and has waived imposition of any monetary penalty in this regard. Disclosure of the above fact is made in accordance with the letter issued by RBI vide Letter No.: PDO.NDS. Bounce/08.03.000/949/2016-17 dated 21st November, 2016.
The bank has compiled the data for the purpose of this disclosure from its internal MIS system and has been furnished by the management, which has been relied upon by the auditors.
- To carry out any other function as is mandated by the Board from time to time and/or enforced by any statutory notification, amendment or modification, as may be applicable.
- To perform such other functions as may be necessary or appropriate for the performance of its duties.
- To oversee the framing, review and implementation of Bank''s overall compensation structure and related polices on remuneration packages payable to the WTDs/MD & CEO and other staff including performance linked incentives, perquisites, Stock option scheme etc. with a view to attracting, motivating and retaining employees and review compensation levels vis-a-vis other Banks and the industry in general.
- The Committee shall work in close coordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks. The Committee will also ensure that the cost/income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio.
- With respect to the Performance Linked Incentive Schemes, the Committee is empowered to:
(i) Draw up terms and conditions and approve the changes, if any, to the Performance Linked Incentive schemes;
(ii) Moderate the scheme on an on-going basis depending upon the circumstances and link the same with the recommendations of Audit Committee;
(iii) Coordinate the progress of growth of business vis -a- vis the business parameters laid down by the Board and Audit Committee and effect such improvements in the scheme as considered necessary;
(iv) On completion of the year, finalize the criteria of allotment of marks to ensure objectivity/equity.
- The Committee shall also function as the Compensation Committee as prescribed under the SEBI (Share Based Employee Benefits) Regulations, 2014 and is empowered to formulate detailed terms and conditions of the Scheme, administer, supervise the same and to allot shares in compliance with the guidelines and other applicable laws.
- To obtain necessary clearances and approvals from regulatory authorities, appoint Merchant Bankers and do such other things as may be necessary in respect of the Employees Stock Option Scheme.
- To oversee the administration of Employee benefits, such as, provident fund, Pension Fund, Gratuity, Compensation for absence on Privilege/Sick/Casual Leave etc., which are recognised in accordance with Accounting Standard-15 (revised) specified in the Companies (Accounting Standards) Rules, 2006 (as amended).
- The Committee may suggest amendments to any stock option plans or incentive plans, provided that all amendments to such plans shall be subject to consideration and approval of the Board;
- Any other matters regarding remuneration to WTDs/MD & CEO and other staffs of the Bank as and when permitted by the Board.
- To conduct the annual review of the Compensation Policy.
- To fulfil such other powers and duties as may be delegated to it by the Board.
b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy.
The Bank has formed the compensation policy based on the Reserve Bank of India guidelines vide its Circular No. DBOD. No.BC.72/29.67.001/2011-12 dated January 13, 2012.
The fixed remuneration and other allowances including retirement benefits of all subordinate, clerical and officers up to the rank of General Manager (Scale VII) is governed by the industry level wage settlement under Indian Banks Association (IBA) pattern. In respect of officers above the cadre of General Manager, the remuneration is fixed by Board/Committee. Further, the compensation structure for the Whole Time Directors (WTDs)/Managing Director & Chief Executive Officer (MD & CEO) of the bank are subject to approval of Reserve Bank of India in terms of Section 35 B of the Banking Regulation Act, 1949. The payment of compensation also requires approval of the shareholders of the Bank in the General Meeting pursuant to clause 95 of Articles of Association of the Bank read with Section 197 of the Companies Act, 2013.
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 Board of Directors through the NRC shall exercise oversight and effective governance over the framing and implementation of the Compensation Policy. Human Resource Management under the guidance of MD & CEO shall administer the compensation and Benefit structure in line with the best suited practices and statutory requirements as applicable.
d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration. The factors taken in to account for the annual review and revision in the variable pay and performance bonus are:
- The performance of the Bank
- The performance of the business unit
- Individual performance of the employee
- Other risk perceptions and economic considerations.
Further, the Bank has not identified any employee as "risk taker" for the purpose of variable pay under this compensation policy.
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.
- Where the variable pay constitutes a substantial portion of the fixed pay, i.e., 50% or more, an appropriate portion of the variable pay, i.e., 40% will be deferred for over a period of 3 years.
- In case of deferral arrangements of variable pay, the deferral period shall not be less than three years. Compensation payable under deferral arrangements shall vest no faster than on a pro rata basis.
- The Board may adopt principles similar to that enunciated for WTDs/CEOs, as appropriate, for variable pay-timing, m''alus/clawback, guaranteed bonus and hedging.
- Employee Stock Option Scheme/Employee Stock Option Plan as may be framed by the Board from time to time in conformity with relevant statutory provisions and SEBI guidelines as applicable will be excluded from the components of variable pay.
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.
Variable pay means the compensation as fixed by the Board on recommendation of the Committee, which is based on the performance appraisal of an employee in that role, that is, how well they accomplish their goals. It may be paid as:
(i) Performance Linked Incentives to those employees who are eligible for incentives.
(ii) Ex-gratia for other employees who are not eligible for Performance linked Incentives.
(iii) Bonus for those staff members who are eligible for bonus under the Payment of Bonus Act, 1965
(iv) Any other incentives, by whatever name called having the features similar to the above.
31. Securitisation Transactions:
The Bank has not done any securitisation transactions during the year ended March 31, 2018 and March 31, 2017.
32. Credit Default Swaps:
The bank has not taken any transactions in credit default swaps during the year ended March 31, 2018 and March 31, 2017.
34. Letter of Comfort (LoCs) issued by Banks:
The Bank has not issued any reportable Letter of Comfort on behalf of subsidiaries during the year ended March 31, 2018 and March 31, 2017 respectively.
35. Unhedged Foreign Currency Exposure:
The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency product portfolio and encouraging them to hedge the unhedged portion. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage.
Further, the Bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank also maintains incremental provision towards the unhedged foreign currency exposures of its borrowers in line with the extant RBI guidelines. The Bank has maintained provision of Rs,11.96 Crore (Previous Year Rs,10.93 Crore) and additional capital of Rs,10.04 Crore (Previous Year Rs,8.89 Crore) on account of Unhedged Foreign Currency Exposure of its borrowers as at March 31, 2018.
Mar 31, 2017
Background
The South Indian Bank Limited (''SIB'' or the ''Bank'') was incorporated on January 29, 1929 at Thrissur as a private limited company and was later converted into a public limited company on August 1 1, 1939. SIB has a network of 875 branches/ offices in India and provides retail and corporate banking, Para banking activities such as debit card, third party product distribution, in addition to Treasury and Foreign Exchange Business. SIB is governed by Banking Regulation Act, 1949 and other applicable Acts / Regulations. Its shares are listed in BSE Limited and National Stock Exchange of India Limited.
Basis of Preparation
The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India ("Indian GAAP"), the circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 to the extent applicable and the relevant provisions of the Companies Act, 2013 ("the Act") and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except where otherwise stated. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year except for the change in accounting policy referred to in note B. 8 of Schedule 18.
Use of estimates
The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognized prospectively in the current and future periods.
Significant Accounting Policies
1. Revenue recognition
a) Interest/discount/other charges income from loans, advances and investments (including deposits placed with banks and other institutions) are recognized on accrual basis, except in respect of income relating to advances/investments classified as non-performing advances/investments, advances under Strategic Debt Restructuring (SDR) where in accordance with RBI guidelines the income is recognized only on realization.
b) Dividend on investments in shares and units of mutual funds are accounted when the bank''s right to receive the dividend is established.
c) Income on discounted instruments is recognized over the tenure of the instrument on a straight line basis.
d) Insurance claims and locker rent are accounted on receipt basis.
e) Commission income on issuance of bank guarantee/ letter of credit is recognized over the period of the guarantee/letter of credit.
f) Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/facility is recognized at the inception/ renewal of loan.
g) Other fees and commission income are recognized when due, except in cases where the bank is uncertain of ultimate collection.
h) Funded interest on term loans are recognized on realization as per the guidelines of RBI.
i) The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized into "Held for Trading", "Available for Sale" and "Held to Maturity" and further classified under five groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds and Other Investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are classified as "Held to Maturity".
d) Investments which are not classified in either of the above two categories are classified as "Available for Sale".
B) Acquisition cost
The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments and government securities is treated as a revenue item. The transaction cost including brokerage, commissions etc. paid at the time of acquisition of investments are charged to the Profit and Loss Account.
C) Valuation
The valuation of investments is performed in accordance with the RBI Guidelines:
a. Investments classified as HFT or AFS - Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the Market Price of the Scrip as available from the trades/quotes on the stock exchanges, SGL account transactions, pricelist of RBI or prices declared by Primary Dealers Association of India (''PDAI'') jointly with Fixed Income Money Market and Derivative Associations of India (''FIMMDA''), periodically. Net depreciation, if any, within each category of investment classification is recognized in Profit and Loss Account. The net appreciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments.
b. Held to Maturity - These are carried at their acquisition cost. Any premium on acquisition of government securities are amortized over the remaining maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided for.
c. Treasury Bills and Certificate of Deposits being discounted instruments, are valued at carrying cost.
d. Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.
e. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under:
-in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by FIMMDA/PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose;
- in case of bonds and debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;
- equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Rs.1/- per Company;
- Investment insecurity receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company /Securitization Company.
- Non-Performing Investments are identified and valued based on RBI guidelines.
f. The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities.
D) Repo and Reverse Repo transactions
In accordance with the RBI guidelines repo and reverse repo transactions in government securities are reflected as borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo is accounted for as interest income.
E) Short Sales
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under ''Other Liabilities''. The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.
F) Transfer of securities Between Categories
Transfer of securities between categories is done at the lower of the acquisition cost / book value/ market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for in accordance with RBI guidelines.
G) Disposal of Investments
a. Investments classified as HFT and AFS - Profit or loss on sale/redemption is included in the Profit and Loss Account.
b. Investments classified as HTM - Profit on sale of/ redemption of investments is included in the Profit and Loss Account and is appropriated to capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale/redemption is charged to the Profit and Loss Account.
3. Advances
A) Valuation / Measurement
a) Advances are classified into performing assets (Standard) and non-performing assets (''NPAs'') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealized interest on NPAs. Interest on Non Performing advances is not recognized in profit and loss account and transferred to an unrealized interest account till the NPA classified date. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made at the minimum required level as per the guidelines of the RBI on matters relating to prudential norms.
b) The bank makes provision in accordance with the RBI guidelines on assets subjected to Strategic Debt Restructuring.
c) Amounts recovered against debts written off are recognized in the profit and loss account and included under "Other Income".
d) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
e) For entities with Unhedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position. The Provision is classified under Schedule 5 - Other Liabilities in the Balance Sheet.
f) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time - direct advances to Sectors agricultural and SME at 0.25%, Commercial Real Estate at 1%, restructured advances at 5%, teaser rate housing loans at 2%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%.
g) The bank transfers advances through interbank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating; the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.
h) Loss on sale of assets to Asset Reconstruction Companies
If the sale of non-performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account, spread over a period as specified in RBI guidelines. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.
4. Country risk
In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGC") guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure.
5. Fixed Assets (Property Plant & Equipment and Intangibles) and depreciation/amortization
a) The Property Plant & Equipment and Intangibles (other than those, which are revalued) are stated at historical cost less accumulated depreciation/amortization and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on asset put to use is capitalized only when it increases the future benefit/functioning capability from/of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment/Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognized as income or expense in the Profit and Loss Account. Profit on sale of premises after adjustments for tax and transfer to Statutory Reserve, if any, is transferred to Capital Reserve as per the RBI guidelines.
b) Portfolio of immovable properties is revalued periodically by independent valuers to reflect current market valuation. All land and building owned by the bank and used as branches or offices or office quarters are grouped under "Office Premises" in the Property Plant & Equipment. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserve. Additional depreciation on revalued asset is charged to Profit and Loss Account and appropriated from Revaluation Reserve to Revenue and other Reserves.
c) Depreciation/Amortization: Depreciation is provided on a pro-rata basis on a straight line method over the estimated useful life of the fixed assets at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013.
6. Impairment of Assets
The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceed the estimated recoverable amount, an impairment is recognized for such excess amount. The impairment loss is recognized as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction in revaluation to the extent a revaluation reserve is available for that asset.
When there is indication that an impairment loss recognized for an asset (other than a revalued asset) in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognized in the Profit and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognized.
7. Non-Banking Assets
Non-banking assets (NBAs) acquired in satisfaction of claims is carried at lower of net book value and net realizable value.
8. Transactions involving foreign exchange
a) Foreign currency income and expenditure items are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account, as per the guidelines issued by RBI.
b) Foreign exchange spot and Forward Contracts outstanding as at the Balance Sheet date (except Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings) are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/ tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. The resulting profit or loss on valuation is recognized in the Profit and Loss Account in accordance with RBI/FEDAI Guidelines.
c) Forward Contracts taken to hedge FCNR Deposits/ Overseas Borrowings are translated at the prevailing spot rate at the time of swap. The Premium/Discount on the swap arising out of the difference in the exchange rate of the swap date and maturity date of the underlying forward exchange contract is amortized over the period of the swap and the same is recognized in the Profit and Loss Account.
d) Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date.
9. Employee benefits
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd. Employees Provident Fund", administered by the trustees is charged to Profit and Loss Account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd. Employees'' Pension Fund Trust", managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognized in the Profit and Loss Account. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account.
Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes 10% of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss Account and the Bank has no further liability beyond the contribution to the fund on this account.
c) Gratuity:
The Bank makes contribution to "The South Indian Bank Ltd. Employees'' Gratuity Trust" administered and managed by the trustees. The present value of the bank''s obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account.
d) Compensated absence on Privilege/Sick/Casual Leave: The employees of the Bank are entitled to compensated absence on account of privilege/sick/casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognized in the profit and loss account. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account.
e) Employees Stock Option Scheme (ESOS):
The Bank has formulated Employee Stock Option Scheme (ESOS) in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999. The Scheme provides for grant of options to Employees of the Bank to acquire Equity Shares of the Bank that vest in a graded manner and are to be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. In accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014 and the guidance note on "Accounting for Employee Share based payments" issued by the ICAI, the excess of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortized on a straight line basis over the vesting period.
f) Other Employee Benefits:
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives.
10. Segment Reporting
The disclosure relating to segment information is in accordance with the guidelines issued by RBI.
11. Debit Card Reward Points
The Bank runs a loyalty program which seeks to recognize and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary.
12. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, prescribed under Section 133 of the Companies Act, 2013. Basic EPS has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. A diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored.
13. Taxes on income
Income tax expense is the aggregate amount of current tax and deferred tax charge.
Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognized as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Bank.
Deferred tax is recognized on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognized for all timing differences. Deferred tax assets are recognized for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realized. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realize the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their reliability.
14. Accounting for Provisions, Contingent Liabilities and Contingent Assets
In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets prescribed under Section 133 of the Companies Act, 2013, the Bank recognizes provisions when it has a present obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate of the amount of the obligation can be made.
Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements.
15. Operating Lease
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognized as an expense in the Profit and Loss Account as per the lease terms.
16. Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/ institutions and Money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
17. Corporate Social Responsibility
Spends towards corporate social responsibility, in accordance with Companies Act, 2013 are recognized in the Profit and Loss Account.
18. Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
19. Accounting of PSLC
The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.
20. CENVAT Credit
Service tax input credit is accounted for in the books within the time limit prescribed under CENVAT Credit Rules 2004, as amended.
Mar 31, 2016
Background
The South Indian Bank Limited (''SIB'' or the ''Bank'') was incorporated on
January 29, 1929 at Thrissur as a private limited company and was later
converted into a public limited company on August 1 1, 1939. SIB has a
network of 858 branches/ offices in India and provides retail and
corporate banking, Para banking activities such as debit card, third
party product distribution, in addition to Treasury and Foreign
Exchange Business. SIB is governed by Banking Regulation Act, 1949 and
other applicable Acts / Regulations. Its shares are listed in BSE
Limited and National Stock Exchange of India Limited.
Basis of Preparation
The financial statements have been prepared in accordance with
requirements prescribed under the Third Schedule (Form A and Form B) of
the Banking Regulation Act, 1949. The accounting and reporting policies
of the bank used in the preparation of these financial statements
conform to Generally Accepted Accounting Principles in India ("Indian
GAAP"), the circulars and guidelines issued by the Reserve Bank of
India (''RBI'') from time to time and the Accounting Standards prescribed
under Section 133 of the Companies Act, 2013 to the extent applicable
and the relevant provisions of the Companies Act, 2013 ("the Act") and
current practices prevailing within the banking industry in India. The
Bank follows the historical cost convention and accrual method of
accounting in the preparation of the financial statements, except where
otherwise stated. The accounting policies adopted in the preparation
of financial statements are consistent with those followed in the
previous year.
The Ministry of Corporate affairs (MCA) has notified the Companies
(Accounting Standards) Amendment Rules, 2016 vide its notification
dated March 30, 2016. As per Clarification issued by Institute of
Chartered Accountants of India dated 26th April, 2016, the said
notification is applicable to accounting periods commencing on or after
the date of notification i.e. 1st April, 2016. Hence the said
notification has not been considered in the preparation of the
financial statements.
Use of estimates
The preparation of the financial statements in conformity with the
generally accepted accounting principles requires the Management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses and disclosure of
contingent liabilities at the date of the financial statements. Actual
results could differ from those estimates. The Management believes that
the estimates used in the preparation of the financial statements are
prudent and reasonable. Any revisions to the accounting estimates are
recognised prospectively in the current and future periods.
1. Revenue recognition
a) Interest / discount income from loans, advances and investments
(including deposits placed with banks and other institutions) are
recognized on accrual basis, except in respect of income relating to
advances/ investments, classified as non-performing advances/
investments where in accordance with RBI guidelines the income is
recognized only on realization.
b) Dividend on investments in shares and units of mutual funds are
accounted when the bank''s right to receive the dividend is established.
c) Income on discounted instruments is recognised over the tenure of
the instrument on a straight line basis.
d) Insurance claims and locker rent are accounted on receipt basis.
e) Commission income on issuance of bank guarantee / letter of credit
is recognized over the period of the guarantee/letter of credit.
f) Processing fee/upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/
facility is recognized at the inception/ renewal of loan.
g) Other fees and commission income are recognised when due, except in
cases where the bank is uncertain of ultimate collection.
h) Funded interest on term loans are recognised on realisation as per
the guidelines of RBI.
i) The difference between the sale price and purchase cost of gold
coins, received on consignment basis is included in other income.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and Other
Investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Acquisition cost
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments and government securities is
treated as a revenue item. The transaction cost including brokerage,
commission etc. paid at the time of acquisition of investments are
charged to the Profit and Loss Account.
C) Valuation
The valuation of investments is performed in accordance with the RBI
Guidelines:
a. Investments classified as HFT or AFS - Investments classified under
the AFS and HFT categories are marked-to-market. The market/fair value
of quoted investments included in the ''AFS'' and ''HFT'' categories is
measured with respect to the Market Price of the Scrip as available
from the trades/ quotes on the stock exchanges, SGL account
transactions, pricelist of RBI or prices declared by Primary Dealers
Association of India (''PDAI'') jointly with Fixed Income Money Market
and Derivative Associations of India (''FIMMDA''), periodically. Net
depreciation, if any, within each category of investment classification
is recognised in Profit and Loss Account. The net appreciation, if any,
under each category of Investment is ignored. Except in cases where
provision for diminution other than temporary is created, the Book
value of individual securities is not changed consequent to the
periodic valuation of Investments.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of government securities are amortized over the
remaining maturity of the security on a straight line basis. Any
diminution, other than temporary, in the value of such securities is
provided for.
c. Treasury Bills and Certificate of Deposits being discounted
instruments, are valued at carrying cost.
d. Units of Mutual Funds are valued at the latest repurchase price/net
asset value declared by Mutual Fund.
e. Market value of investments where current quotations are not
available, is determined as per the norms prescribed by the RBI as
under:
- in case of unquoted bonds, debentures and preference shares where
interest/dividend is received regularly (i.e. not overdue beyond 90
days), the market price is derived based on the Yield to Maturity (YTM)
for Government Securities as published by FIMMDA/ PDAI and suitably
marked up for credit risk applicable to the credit rating of the
instrument. The matrix for credit risk mark-up for each categories and
credit ratings along with residual maturity issued by FIMMDA are
adopted for this purpose;
- in case of bonds and debentures (including Pass Through Certificates
or PTCs) where interest is not received regularly (i.e. overdue beyond
90 days), the valuation is in accordance with prudential norms for
provisioning as prescribed by RBI;
- equity shares, for which current quotations are not available or
where the shares are not quoted on the stock exchanges, are valued at
break- up value (without considering revaluation reserves, if any)
which is ascertained from the company''s latest Balance Sheet. In case
the latest Balance Sheet is not available, the shares are valued at
Rs.1/- per company;
- Investment in security receipts are valued as per the Net Asset Value
(NAV) obtained from the issuing Reconstruction Company / Securitisation
Company.
- Non-Performing Investments are identified and valued based on RBI
guidelines.
f. The Bank follows ''Settlement Date'' accounting for recording
purchase and sale transactions in securities.
D) Repo and Reverse Repo transactions
In accordance with the RBI guidelines repo and reverse repo
transactions in government securities [excluding transactions conducted
under Liquidity Adjustment Facility (''LAF'') and Marginal Standby
Facility (''MSF'') with RBI)] are reflected as borrowing and lending
transactions respectively. Borrowing cost on repo transactions is
accounted for as interest expense and revenue on reverse repo is
accounted for as interest income.
In respect of Repo transactions under LAF and MSF with RBI, amount
borrowed from RBI is credited to investment account and reversed on
maturity of the transaction. Costs thereon are accounted for as
interest expense. In respect of reverse Repo transactions under LAF,
amount lent to RBI is debited to investment account and reversed on
maturity of the transaction. Revenues thereon are accounted as
interest income.
E) Short Sales
The Bank undertakes short sale transactions in Central Government dated
securities in accordance with RBI guidelines. The short position is
reflected as the amount received on sale and is classified under ''Other
Liabilities''. The short position is marked to market and resultant
mark-to-market gain/losses are accounted for as per the relevant RBI
guidelines for valuation of investments.
F) Transfer of securities Between Categories
Transfer of securities between categories is done at the lower of the
acquisition cost / book value/ market value on the date of the transfer
and the depreciation, if any, on such transfer is fully provided for in
accordance with RBI guidelines.
G) Disposal of Investments
a. Investments classified as HFT and AFS - Profit or loss on sale /
redemption is included in the Profit and Loss account.
b. Investments classified as HTM - Profit on sale of / redemption of
investments is included in the Profit and Loss Account and is
appropriated to capital Reserve after adjustments for tax and transfer
to Statutory Reserve. Loss on sale/redemption is charged to the Profit
and Loss Account.
3. Advances
A) Valuation / Measurement
a) Advances are classified into performing assets (Standard) and
non-performing assets (''NPAs'') as per the RBI guidelines and are stated
net of specific provisions made towards NPAs, sacrifice provisions on
restructured advances and unrealized interest on NPAs. Interest on Non
Performing advances is transferred to an unrealized interest account
and not recognized in profit and loss account until received. Further,
NPAs are classified into sub- standard, doubtful and loss assets based
on the criteria stipulated by the RBI. Provisions for NPAs are made at
the minimum required level as per the guidelines of the RBI on matters
relating to prudential norms.
b) Amounts recovered against debts written off are recognised in the
profit and loss account and included under "Other Income".
c) For restructured/rescheduled assets, provision is made in accordance
with the guidelines issued by the RBI, which requires the diminution in
the fair value of the assets to be provided at the time of
restructuring. In respect of loans and advances accounts subjected to
restructuring, the account is upgraded to standard only after the
specified period i.e. a period of one year after the date when first
payment of interest or of principal, whichever is later, falls due,
subject to satisfactory performance of the account during the period.
d) For entities with Unhedged Foreign Currency Exposure (UFCE) ,
provision is made in accordance with the guidelines issued by RBI,
which requires to ascertain the amount of UFCE, estimate the extent of
likely loss and estimate the riskness of unhedged position. The
Provision is classified under Schedule 5 - Other Liabilities in the
Balance Sheet.
e) The Bank maintains general provision for standard assets including
credit exposures computed as per the current marked-to-market values of
foreign exchange derivative contracts, in accordance with the
guidelines and at levels stipulated by RBI from time to time - direct
advances to Sectors agricultural and SME at 0.25%, Commercial Real
Estate at 1%, restructured advances at 5%, teaser rate housing loans at
2%, commercial real estate- residential housing at 0.75% and for other
sectors at 0.40%.
f) The bank transfers advances through inter- back participation with
and without risk. In accordance with the RBI guidelines, in the case of
participation with risk, the aggregate amount of the participation
issued by the Bank is reduced from advances and where bank is
participating, the aggregate amount of participation is classified
under advances. In the case of participation without risk, the
aggregate amount of participation issued by the Bank is classified
under borrowings and where the bank is participating, the aggregate
amount of participation is shown as due from banks under advances.
g) Loss on sale of assets to Asset Reconstruction Companies
The RBI issued guidelines on sale of non- performing advances on
February 26, 2014. In accordance with these guidelines, if the sale of
non-performing advances is at a price below the net book value, the
shortfall is charged to the Profit and Loss Account spread over a
period of two years. If the sale is for a value higher than the net
book value, the excess provision is credited to the Profit and Loss
Account in the year the amounts are received.
4. Country risk:
In addition to the provisions required to be held according to the
asset classification status, provisions are held for individual country
exposure (other than for home country). The countries are categorised
into seven risk categories namely insignificant, low, moderate, high,
very high, restricted and off-credit as per Export Credit Guarantee
Corporation of India Limited ("ECGC") guidelines and provision is made
on exposures exceeding 180 days on a graded scale ranging from 0.25% to
100%. For exposures with contractual maturity of less than 180 days,
25% of the normal provision requirement is held. If the country
exposure (net) of the Bank in respect of each country does not exceed
1% of the total funded assets, no provision is maintained on such
country exposure.
5. Fixed assets and depreciation
a) The Fixed Assets (other than those, which are revalued) are stated
at historical cost less accumulated depreciation/amortisation and
impairment losses, if any.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on the historical cost or the amount substituted for the
historical cost. The Bank transfers difference between depreciation
based on the revalued carrying amount of the asset and depreciation
based on its original cost from Asset Revaluation Reserve to the
General Reserve.
Depreciation on fixed assets, including amortisation of software, is
charged over the estimated useful life of the fixed assets on a
straight line basis at the rates and in the manner prescribed in
Schedule II of the Companies Act, 2013.
6. Impairment of Assets
The carrying values of assets at each balance sheet date are reviewed
for impairment, if any indication of impairment exists. If the carrying
amount of the assets exceed the estimated recoverable amount, an
impairment is recognised for such excess amount. The impairment loss is
recognised as an expense in the Profit and Loss Account, unless the
asset is carried at revalued amount, in which case any impairment loss
of the revalued asset is treated as a reduction in revaluation to the
extent a revaluation reserve is available for that asset.
When there is indication that an impairment loss recognised for an
asset (other than a revalued asset) in earlier accounting periods no
longer exists or may have decreased, such reversal of impairment loss
is recognised in the Profit and Loss Account, to the extent the amount
was previously charged to the Profit and Loss Account. In case of
revalued assets such reversal is not recognised.
7. Non-Banking Assets
Non-Banking assets acquired in settlement of debts /dues are accounted
at the lower of their cost of acquisition or net realisable value.
8. Transactions involving foreign exchange
a) Foreign currency income and expenditure items are translated at the
exchange rates prevailing on the date of the transaction. Monetary
foreign currency assets and liabilities outstanding at the Balance
Sheet date are revalued at rates notified by Foreign Exchange Dealers
Association of India [FEDAI] and resulting profits or losses are
included in the Profit and Loss Account.
b) Foreign exchange spot and forward Contracts outstanding as at the
Balance Sheet date are revalued at the closing Spot and Forward Rates
respectively as notified by FEDAI and at interpolated rates for
contracts of interim maturities. For valuation of contracts having
longer maturities, the forward points (for rates/tenures not published
by FEDAI) are obtained from Reuters for valuation of the FX Deals. The
resulting profit or loss on valuation is recognised in the Profit and
Loss Account.
c) Contingent liabilities on account of foreign exchange contracts,
guarantees, letters of credit, acceptances and endorsements are
reported at closing rates of exchange notified by FEDAI as at the
Balance Sheet date.
9. Employee benefits
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd.
Employees Provident Fund", administered by the trustees is charged to
Profit and Loss account. The fund is a defined contribution fund and
the Bank has no further liability beyond the contribution made to the
fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd. Employees'' Pension
Fund Trust", managed by trustees, is determined on actuarial basis on
projected unit credit method as on the Balance Sheet date and is
recognized in the profit and loss account. The actuarial gain or loss
arising during the year is recognized in the Profit and Loss Account.
Employees who had joined the services of the Bank with effect from
April 01, 2010 are covered under Defined Contributory Pension Scheme
(DCPS). In respect of such employees the bank contributes 10% of the
Basic Pay plus Dearness Allowance and the expenditure thereof is
charged to Profit and Loss account and the Bank has no further
liability beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes annual contribution to "The South Indian Bank Ltd.
Employees'' Gratuity Trust" administered and managed by the trustees.
The present value of the bank''s obligation towards the same is
actuarially determined based on the projected unit credit method as at
the balance sheet date. The actuarial gain or loss arising during the
year is recognized in the Profit and Loss Account.
d) Compensated absence on Privilege / Sick / Casual Leave:
The employees of the Bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognized
in the profit and loss account. The actuarial gain or loss arising
during the year is recognized in the Profit and Loss Account.
e) Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and are to be exercised within a specified
period. The Bank follows the intrinsic value method to account for its
stock-based employee compensation plans. In accordance with the SEBI
Guidelines Regulations 2014 and the guidance note on "Accounting for
Employee Share based payments" issued by the ICAI, the excess of the
market price of the share preceding the date of grant of the option
under ESOS over the exercise price of the option is amortized on a
straight line basis over the vesting period.
f) Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employee is recognised
during the period when the employee renders the service. These
benefits include performance incentives.
10. Segment Reporting
The disclosure relating to segment information is in accordance with
the guidelines issued by RBI.
11. Debit Card Reward Points
The Bank runs a loyalty program which seeks to recognise and reward
customers based on their relationship with the Bank. Under the program,
eligible customers are granted loyalty points redeemable in future,
subject to certain conditions. The Bank estimates the probable
redemption of such loyalty/reward points using an actuarial method at
the Balance Sheet date by employing independent actuary. Provision for
said reward points is then made based on the actuarial valuation report
as furnished by the said independent Actuary.
12. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in
accordance with Accounting Standard 20, prescribed under Section 133 of
the Companies Act, 2013. Basic EPS has been computed by dividing Net
Profit for the year by the weighted average number of Equity Shares
outstanding for the year.
Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue equity shares were
exercised or converted during the year. Diluted earnings per share is
computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding at the year end. Potential
equity shares which are anti-dilutive in nature are ignored.
13. Taxes on income
Income tax expense is the aggregate amount of current tax and deferred
tax charge.
Current tax is the amount of tax payable on the taxable income for the
year as determined in accordance with the applicable tax rates and the
provisions of the Income Tax Act, 1961 and other applicable tax laws.
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which
gives future economic benefits in the form of adjustment to future
income tax liability, is considered as an asset if there is convincing
evidence that the Company will pay normal income tax. Accordingly, MAT
is recognised as an asset in the Balance Sheet when it is highly
probable that future economic benefit associated with it will flow to
the Company.
Deferred tax is recognised on timing differences, being the differences
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted as at the reporting date. Deferred tax
liabilities are recognised for all timing differences. Deferred tax
assets are recognised for timing differences of items other than
unabsorbed depreciation and carry forward losses only to the extent
that reasonable certainty exists that sufficient future taxable income
will be available against which these can be realised. However, if
there are unabsorbed depreciation and carry forward of losses and items
relating to capital losses, deferred tax assets are recognised only if
there is virtual certainty supported by convincing evidence that there
will be sufficient future taxable income available to realise the
assets. Deferred tax assets and liabilities are offset if such items
relate to taxes on income levied by the same governing tax laws and the
Bank has a legally enforceable right for such set off. Deferred tax
assets are reviewed at each balance sheet date for their realisability.
14. Accounting for Provisions, Contingent Liabilities and Contingent
Assets
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets prescribed under Section 133 of the
Companies Act, 2013, the Bank recognizes provisions when it has a
present obligation as a result of a past event and, it is probable that
an outflow of resources embodying economic benefits will be required to
settle the obligation in respect of which a reliable estimate of the
amount of the obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
15. Operating Lease
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership over the lease term are classified as
operating lease. Lease payments for assets taken on operating lease are
recognised as an expense in the Profit and Loss Account as per the
lease terms.
16. Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve
Bank of India and balances with other banks/ institutions and Money at
Call and Short Notice (including the effect of changes in exchange
rates on cash and cash equivalents in foreign currency).
17. Corporate Social Responsibility
Spends towards corporate social responsibility, in accordance with
Companies Act, 2013 are recognised in the Profit and Loss Account.
18. CENVAT Credit
Service tax input credit is accounted for in the books within the time
limit prescribed under CENVAT Credit Rules 2004, as amended.
- In accordance with RBI Circular DBR.BP.BC.No.31/21.04.018/2015-16
dated July 16, 2015, the Bank has, effective from September 30, 2015
included its deposits placed with NABARD, SIDBI, and NHB on account of
shortfall in lending to priority sector under ''Other Assets''. Hitherto
these were included under ''Investments'' and Interest income thereon was
included under ''Interest Earned - Income on Investments''. Arising out
of regrouping in line with the above mentioned RBI guidelines, interest
income on deposit placed with NABARD, SIDBI and NHB is included under
"Interest Earned - Others". Figures for the previous year have been
regrouped/reclassified to conform to current year classification. The
above change in classification has no impact on the profit of the Bank
for the year ended March 31, 2016 and March 31, 2015.
- Investments having Face Value aggregating Rs.2216 crore (Previous
Year: Rs.1730 crore) are kept as margin towards repo transactions and
those having Face Value aggregating Rs.180 crore (Previous Year: Rs.180
crore) are kept as margin towards intraday liquidity with the RBI.
- Investments having Face Value aggregating Rs.103 crore (Previous
Year: Rs.103 crore) kept as margin for clearing of securities, Face
Value of Rs.925 crore (Previous Year: Rs.905 crore) are kept as margin
for collateralized borrowing and Lending Obligations (CBLO) and Face
Value aggregating Rs.10.30 crore (Previous Year: Rs.9.25 crore) are
kept as margin for Forex forward segment-Default Fund with the Clearing
Corporation of India Ltd.
- On March 31, 2016, Investment having Face Value Rs.312 crore are
marked as lien against Repo Borrowing of Rs.300 crore.
Mar 31, 2015
Basis of Preparation
The financial statements have been prepared in accordance with the
requirements prescribed under the "Third Schedule" of the Banking
Regulation Act, 1949. The accounting and reporting policies of SIB used
in the preparation of these financial statements conform in all
material aspects to Generally Accepted Accounting Principles in India
(Indian GAAP), the guidelines issued by Reserve Bank of India (RBI)
from time to time, the Accounting Standards (AS) notified under Section
133 of the Companies Act, 2013 read with Rule 7 of the Companies
(Accounts) Rules, 2014 to the extent applicable and practices generally
prevalent in the banking industry in India. The Bank follows the
accrual method of accounting, and the historical cost convention,
except where otherwise stated. The accounting policies adopted by the
Bank are consistent with the previous year except as disclosed
otherwise.
Use of estimates
The preparation of financial statements requires the management to make
estimates and assumptions in 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
reporting period. Management believes that the estimates and
assumptions used in preparation of the financial statements are prudent
and reasonable. Actual results could differ from these estimates.
Significant Accounting Policies
1. Revenue recognition
a) Interest/discount income from loans, advances and investments
(including deposits placed with banks and other institutions) are
recognized over the period of the loans, advances and investments on
accrual basis, except in respect of income relating to advances/
investments, classified as non-performing advances/ investments where
in accordance with RBI guidelines the income is recognized only on
realization.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the bankRs.s right to receive the
dividend is established.
c) Commission income on issuance of bank guarantee/ letter of credit is
recognized over the period of the guarantee/letter of credit.
d) Processing fee/upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/facility
is recognized when it is due.
e) All other amounts collected from customers as non- interest income,
locker rent or recovery of expenses towards provision of various
services/facilities are accounted/recognized as and when these are due
to the extent that there is no uncertainty over their ultimate
collection.
f) Amounts recovered against debts written off in earlier years and
provisions no longer considered necessary in the context of the current
status of the borrower are recognized in the profit and loss account.
g) The Bank imports gold coins on a consignment basis for selling to
its customers. Other income includes the profit/loss on sale of gold
coin is arrived at after reducing all direct and indirect costs.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and Other
Investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc., paid
at the time of acquisition of investments are charged to revenue in
accordance with the requirements of valuation norms prescribed by RBI.
The valuation of investments is performed in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale - Each security in this category
is valued at the market price or fair value and the net depreciation of
each group is recognized in the Profit and Loss account. Net
appreciation, if any, is ignored. The market value of investments where
current quotations are not available is determined as per the norms
prescribed by RBI.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortized over the
remaining maturity of the security on a straight line basis. Any
diminution, other than temporary, in the value of such securities is
provided for.
c. Repurchase and reverse repurchase transactions- These are accounted
as collateralized borrowing and lending transactions respectively. The
difference between tne consideration amount of the first leg and the
second leg of the repo/reverse repo is recognized as interest
expense/interest income over the period of the transaction.
In respect of Repo transactions under Liquidity Adjustment Facility
(LAF) with RBI, monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse Repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income
d. In respect of securities included in any of the three categories of
investments where interest/principal is in arrears, for more than 90
days, income is not reckoned and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non- performing investments. Debentures/Bonds in
the nature of advances are subjected to usual prudential norms
applicable to advances.
e. In case of unquoted bonds, debentures and preference shares where
interest/dividend is received regularly (i.e. not overdue beyond 90
days), the market price is derived based on the Yield to Maturity (YTM)
for Government Securities as published by Fixed Income Money Market and
Derivatives Association of India(FIMMDA)/Primary Dealers Association of
India (PDAI) and suitably marked up for credit risk applicable to the
credit rating of the instrument. The matrix for credit risk mark-up for
each categories and credit ratings along with residual maturity issued
by FIMMDA is adopted for this purpose.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost/book value/market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for in
accordance with RBI guidelines.
D) Profit or Loss on sale/Redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on
sale/redemption is included in the Profit and Loss account.
b. Held to Maturity - Profit or loss on sale/redemption of investments
is included in the Profit and Loss account. In case of profits, the
same is appropriated to Capital Reserve after adjustments for tax and
transfer to statutory reserve.
3. Advances
A) Valuation/Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non-performing advances. In
addition, the bank adopts an approach to provisioning that is based on
past experience, evaluation of security and other related factors.
b) Provision for non-performing advances comprising Sub-standard,
Doubtful and Loss assets is made at a minimum in accordance with the
Reserve Bank of India guidelines.
c) Bank considers an account as restructured in accordance with RBI
Guidelines. Provision on assets restructured/rescheduled is made in
accordance with the applicable RBI guidelines on restructuring of
advances by Banks. In respect of non-performing loan accounts subjected
to restructuring, the account is upgraded to standard only after the
specified period i.e. a period of one year after the date when first
payment of interest or of principal, whichever is earlier, falls due,
subject to satisfactory performance of the account during the period.
d) In accordance with the RBI guidelines, the bank creates a minimum
general provisions in respect of standard assets as follows:
B) Recording/Presentation
a) Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created is netted against gross amount of advance
without adjusting the same at individual account level. Provision held
against an individual account is adjusted against individual accountRs.s
balance only at the time of write off/settlement of the account.
b) Provision made against standard assets in accordance with RBI
guidelines as above is disclosed separately under Other Liabilities and
is not netted off against Advances.
4. Fixed assets
a) The Fixed Assets (other than those, which are revalued) are stated
at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on the historical cost or the amount substituted for the
historical cost. The Bank transfers difference between depreciation
based on the revalued carrying amount of the asset and depreciation
based on its original cost to the General Reserve.
Till the year ended March 31, 2014 fixed assets (other than computers)
were depreciated using the written down value (WDV) method. From the
current year, the bank has changed its accounting policy for charging
depreciation from WDV method to Straight Line Method (SLM). The
management believes that such change better reflects the actual use of
assets acquired. On account of this change in accounting policy, the
Bank had, in the current year reversed an amount of Rs.65.74 Crores
during the year representing the excess depreciation charge for the
period up to March 31, 2014. The excess depreciation charged on
revalued assets of Rs.11.88 Crore on account of change in method has been
transferred to asset revaluation reserve.
Had the bank followed the earlier method of providing depreciation, the
charge for the year ended March 31, 2015 would have been lower by Rs.8.61
Crores (net of taxes).
Till the year ended March 31, 2014, depreciation rates prescribed under
Schedule XIV were treated as minimum rates and the company was not
allowed to charge depreciation at lower rates even if such lower rates
were justified by the estimated useful life of the asset. Schedule II
to the Companies Act, 2013 prescribes useful lives for fixed assets
which, in many cases, are different from lives prescribed under the
erstwhile Schedule XIV However, Schedule II allows companies to use
higher/lower useful lives and residual values if such useful lives and
residual values can be technically supported and justification for
difference is disclosed in the financial statements.
Considering the applicability of Schedule II, the management has
re-estimated useful lives and residual values of all its fixed assets.
The management believes that depreciation rates currently used fairly
reflect its estimate of the useful lives and residual values of fixed
assets, though these rates in certain cases are different from lives
prescribed under Schedule II. Hence, this change in accounting policy
did not have any material impact on financial statements of the
company.
The company has used the following estimated useful life to provide
depreciation on its fixed assets
Assets Estimated Useful life
Premises 60 years
Other Fixed Assets 3-10 years
5. Impairment of Assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the assetRs.s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks
specific to the asset.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
6. Transactions involving foreign exchange
a) Monetary foreign currency assets and liabilities outstanding at the
Balance Sheet date are revalued at rates notified by Foreign Exchange
Dealers Association of India [FEDAI] and resulting profits or losses
are included in the Profit and Loss Account.
b) Forward Exchange contracts are translated to Indian Rupee equivalent
at the exchange rate, notified by FEDAI at the Balance Sheet date and
the resulting profit or loss are recognized in the Profit and Loss
Account.
c) Income and Expenditure in foreign currency are accounted for at the
exchange rate prevailing on the date of transaction.
d) Contingent liabilities as at the reporting date on account of
outstanding foreign exchange contracts are restated at year end rates
notified by FEDAI.
7. Employee benefits
The liability on employee benefits are recognized in accordance with
Accounting Standard 15 (revised) specified under Section 133 of the
Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules,
2014.
a) Provident Fund:
The contribution made by the Bank to "The South Indian Bank Ltd.
Employees Provident Fund", administered by the trustees is charged to
Profit & Loss account. The fund is a defined contribution fund and the
Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards "The South Indian Bank Ltd. EmployeesRs.
Pension Fund Trust", managed by trustees, is determined on actuarial
basis on projected unit credit method as on the Balance Sheet date and
is recognized in the profit and loss account. However, the liability
arising on account of re-opening of pension option to existing
employees who had joined prior to 29th September 1995 and not exercised
the option earlier, is amortized over a period of five years as
permitted by the Reserve Bank of India until March 31, 2015. The
actuarial gain or loss arising during the year is recognized in the
Profit and Loss Account.
Employees who had joined the services of the Bank with effect from
April 01, 2010 are covered under Defined Contributory Pension Scheme
(DCPS). In respect of such employees the bank contributes 10% of the
Basic Pay plus Dearness Allowance and the expenditure thereof is
charged to Profit & Loss account and the Bank has no further liability
beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes annual contribution to "The South Indian Bank Ltd.
EmployeesRs. Gratuity Trust" administered and managed by the trustees.
The present value of the bankRs.s obligation towards the same is
actuarially determined based on the projected unit credit method as at
the balance sheet date. However, the liability arising on account of
enhancement in gratuity limit pursuant to the amendment to the Payment
of Gratuity Act, 1972, w.e.f. 24th May 2010 is amortized over a period
of five years as permitted by the Reserve Bank of India, until March
31,2015. The actuarial gain or loss arising during the year is
recognized in the Profit and Loss Account.
d) Compensated absence on Privilege/Sick/Casual Leave: The employees of
the Bank are entitled to compensated absence on account of
privilege/sick/casual leave as per the leave rules. The bank measures
the long term expected cost of compensated absence as a result of the
unused entitlement that has accumulated at the balance sheet date based
on actuarial valuation and such costs are recognized in the profit and
loss account. The actuarial gain or loss arising during the year is
recognized in the Profit and Loss Account.
Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and are to be exercised within a specified
period. The Bank follows the intrinsic value method to account for its
stock-based employee compensation plans. In accordance with the SEBI
Guidelines Regulations, 2014 and the guidance note on "Accounting for
Employee Share based payments" issued by the ICAI, the excess of the
market price of the share preceding the date of grant of the option
under ESOS over the exercise price of the option is amortized on a
straight line basis over the vesting period.
8. Segment Reporting
Business Segments have been identified and reported taking into
account, the target customer profile, the nature of product and
services, the differing risks and returns, the organization structure,
the internal business reporting system and guidelines issued by RBI
vide notification dated April 18, 2007. The Bank operates in the
following business segments;
a) Treasury:
The treasury services segment primarily consists of interest earnings
on investments portfolio of the bank, gains or losses on investment
operations and earnings from foreign exchange business. The principal
expenses of the segment consist of interest expense on funds borrowed
and other expenses.
b) Corporate/Wholesale Banking:
The Corporate/Wholesale Banking segment provides loans and other
banking services to corporate segment identified on the basis of RBI
guidelines. Revenues of this segment consist of interest earned on
Loans made to corporate customers and the charges/fees earned from
other banking services. The principal expenses of the segment consist
of interest expense on funds borrowed and other expenses.
c) Retail banking:
The Retail Banking segment provides loans and other banking services to
non-corporate customers identified on the basis of RBI guidelines.
Revenues of this segment consist of interest earned on Loans made to
non- corporate customers and the charges/fees earned from other banking
services. The principal expenses of the segment consist of interest
expense on funds borrowed and other expenses.
d) Other Banking Operations:
This segment includes income from para banking activities such as debit
cards, third party product distribution and associated costs.
Geographic segment
The Bank operations are predominantly confirmed within one geographical
segment (India) and accordingly this is considered as the only
secondary segment.
9. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in
accordance with Accounting Standard 20, specified under Section 133 of
the Companies Act, 2013 read with Rule 7 of the Companies (Accounts)
Rules, 2014. Basic EPS has been computed by dividing Net Profit for the
year by the weighted average number of Equity Shares outstanding for
the period. Diluted EPS has been computed using the weighted average
number of Equity Shares and dilutive potential equity shares
outstanding as on the Balance Sheet date except where the results are
anti-dilutive.
10. Taxes on income
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred tax
assets and liabilities are recognized for the future tax consequences
of timing differences being the difference between the taxable income
and the accounting income that originate in one period and are capable
of reversal in one or more subsequent periods. The Bank restricts
recognition of deferred tax assets to the extent that it has become
reasonably certain or virtually certain as the case may be. Changes in
deferred tax assets/ liabilities on account of changes in enacted tax
rates are given effect to in the profit and loss account in the period
of the change.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
tax is measured using the tax rates and the tax laws enacted or
substantively enacted at the reporting date. Deferred income tax
relating to items recognized directly in equity is recognized in equity
and not in the statement of profit and loss account.
11. Accounting for Provisions, Contingent Liabilities and Contingent
Assets
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified under Section 133 of the
Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules,
2014, the Bank recognizes provisions when it has a present obligation
as a result of a past event and, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation in respect of which a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
In accordance with the above policy, the Bank has recognized aggregate
provision of Rs. 254 crores as at March 31, 2015 and disclosed contingent
liabilities in Schedule 12 of financial statements.
Contingent assets, if any, are not recognized or disclosed in the
financial statements.
12. Lease
Rental payments for premises taken on operating lease agreements are
recognized as an expense in the profit and loss account over the lease
term as the lease are cancellable.
13. Cash and cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and short- term investments with an
original maturity of three months or less.
Mar 31, 2014
1 Represents notional amount
General
The South Indian Bank Limited (SIB) was incorporated on January 29,
1929 at Trichur as a private limited company and was later converted
into a public limited company on August 11, 1939. SIB has a net work of
803 branches in India and provides retail and corporate banking, Para
banking activities such as debit card, third party product
distribution, in addition to Treasury and Foreign Exchange Business.
SIB is governed by Banking Regulation Act, 1949 and other applicable
Acts / Regulations. Its shares are listed in leading stock exchanges in
India.
Basis of Preparation
The financial statements have been prepared in accordance with
requirements prescribed under the Third Schedule of the Banking
Regulation Act, 1949. The accounting and reporting policies of SIB used
in the preparation of these financial statements conform to Generally
Accepted Accounting Principles in India (Indian GAAP), the guidelines
issued by Reserve Bank of India (RBI) from time to time, the Accounting
Standards (AS) issued by the Institute of Chartered Accountants of
India (ICAI) and notified by the Companies Act 1956, read with General
Circular 8/2014 dated April 4, 2014 issued by the Ministry of Corporate
Affairs as amended to the extent applicable and practices generally
prevalent in the banking industry in India. The Bank follows the
accrual method of accounting, and the historical cost convention,
except where otherwise stated.
The preparation of financial statements requires the management to make
estimates and assumptions in 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
reporting period. Management believes that the estimates and
assumptions used in preparation of the financial statements are prudent
and reasonable. Actual results could differ from these estimates.
Significant Accounting Policies 1. Revenue recognition
a) Interest / discount income from loans, advances and investments
(including deposits placed with banks and other institutions) are
recognized over the period of the loans, advances and investments on
accrual basis, except in respect of income relating to advances /
investments, classified as non-performing advances / investments where
in accordance with RBI guidelines the income is recognized only on
realization.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the bank''s right to receive the
dividend is established.
c) Commission income on issuance of bank guarantee / letter of credit
is recognized over the period of the guarantee / letter of credit.
d) Processing fee / upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan /
facility is recognized when it is due.
e) All other amounts collected from customers as non- interest income,
locker rent or recovery of expenses towards provision of various
services /facilities are accounted / recognized as and when these are
due to the extent that there is no uncertainty over their ultimate
collection.
f) Amounts recovered against debts written off in earlier years and
provisions no longer considered necessary in the context of the current
status of the borrower are recognized in the profit and loss account.
g) The Bank imports gold coins on a consignment basis for selling to
its customers. Other income includes the profit / loss on sale of gold
coin is arrived at after reducing all direct and indirect costs.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized
into "Held for Trading", "Available for Sale" and "Held to Maturity" and
further classified under five groups, viz. Government Securities, Other
Approved Securities, Shares, Debentures & Bonds and other investments
for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc., paid
at the time of acquisition of investments are charged to revenue.
The valuation of investments is performed in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale- Each security in this category
is valued at the market price or fair value and the net depreciation of
each group is recognized in the Profit and Loss account. Net
appreciation, if any, is ignored. The market value of investments where
current quotations are not available is determined as per the norms
prescribed by RBI.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortized over the
remaining maturity of the security on a straight line basis.
Any diminution, other than temporary, in the value of such securities
is provided for.
c. Repurchase and reverse repurchase transactions - These are
accounted as collateralized borrowing and lending transactions
respectively. The difference between the consideration amount of the
first leg and the second leg of the repo / reverse repo is recognized
as interest expense / interest income over the period of the
transaction.
In respect of Repo transactions under Liquidity Adjustment Facility
(LAF) with RBI, monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse Repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
d. In respect of securities included in any of the three categories of
investments where interest/principal is in arrears, for more than 90
days, income is not reckoned and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non- performing investments. Debentures / Bonds in
the nature of advances are subjected to usual prudential norms
applicable to advances.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost/book value/market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for in
accordance with RBI guidelines.
D) Profit or Loss on sale / Redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale /
redemption is included in the Profit and Loss Account.
b. Held to Maturity - Profit or Loss on sale / redemption of
investments is included in the Profit and Loss account. In case of
profits, the same is appropriated to Capital Reserve after adjustments
for tax and transfer to statutory reserve.
3. Advances
A) Valuation/ Measurement
a) Advances are classified into Standard, Sub- standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non- performing advances. In
addition, the bank adopts an approach to provisioning that is based on
past experience, evaluation of security and other related factors.
b) Provision for non-performing advances comprising Sub-standard,
Doubtful and Loss assets is made at a minimum in accordance with the
Reserve Bank of India guidelines.
c) Bank considers an account as restructured in accordance with RBI
guidelines. Provision on assets restructured / rescheduled is made in
accordance with the applicable RBI guidelines on restructuring of
advances by Banks. In respect of non-performing loan accounts subjected
to restructuring, the account is upgraded to standard only after the
specified period i.e., a period of one year after the date when first
payment of interest or of principal, whichever is earlier, falls due,
subject to satisfactory performance of the account during the period.
B) Recording/presentation
a) Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created is netted against gross amount of advance
without adjusting the same at individual account level. Provision held
against an individual account is adjusted against individual account''s
balance only at the time of write off / settlement of the account.
b) Provision made against standard assets in accordance with RBI
guidelines as above is disclosed separately under Other Liabilities and
is not netted off against Advances.
4. Fixed Assets
a) The Fixed Assets (other than those, which are revalued) are stated
at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount
less depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on written down values including the additions made on
revaluation, and an equivalent amount towards the additional
depreciation provided on revaluation, is transferred from the Asset
Revaluation Reserve to profit and loss account.
c) Depreciation on fixed assets other than computers is provided on
written down value method, at the rates specified in Schedule XIV of
the Companies Act, 1956, which is the management''s estimate of useful
life of these assets. Computers are depreciated at 33.33% on
straight-line method as per RBI guidelines.
d) Amount expended towards acquisition of software is fully amortized
in the year of acquisition itself. Annual License fee / Maintenance
Charges, if any, are accounted on accrual basis.
e) Items costing upto Rs.5,000 are depreciated fully in the year of
acquisition.
5. Transactions involving Foreign Exchange
a) Monetary foreign currency assets and liabilities outstanding at the
Balance Sheet date are revalued at rates notified by Foreign Exchange
Dealers Association of India [FEDAI] and resulting profits or losses
are included in the Profit and Loss Account.
b) Forward Exchange contracts are translated to Indian Rupee equivalent
at the exchange rate, notified by FEDAI at the Balance Sheet date and
the resulting profit or loss are recognized in the Profit and Loss
Account.
c) Income and Expenditure in foreign currency are accounted for at the
exchange rate prevailing on the date of transaction.
d) Contingent liabilities as at the reporting date on account of
outstanding foreign exchange contracts are restated at year end rates
notified by FEDAI.
6. Employee Benefits
The liability on employee benefits are recognized in accordance with
Accounting Standard 15 (revised) specified in Companies (Accounting
Standards) Rules, 2006.
a) Provident Fund
The contribution made by the Bank to The South Indian Bank Ltd. Employees
Provident Fund, administered by the trustees is charged to Profit &
Loss Account. The fund is a defined contribution fund and the Bank has
no further liability beyond the contribution made to the fund.
b) Pension Fund
The contribution towards The South Indian Bank Ltd. Employees'' Pension
Fund, managed by trustees, is determined on actuarial basis on
projected unit credit method as on the Balance Sheet date and is
recognized in the profit and loss account. However, the liability
arising on account of re-opening of pension option to existing
employees who had joined prior to 29th September, 1995 and not
exercised the option earlier, is amortized over a period of five years
as permitted by the Reserve Bank of India. Employees who had joined
the services of the Bank with effect from April 01, 2010 are covered
under Defined Contributory Pension Scheme (DCPS). In respect of such
employees the bank contributes 10% of the Basic Pay plus Dearness
Allowance and the expenditure thereof is charged to Profit & Loss
account and the Bank has no further liability beyond the contribution
to the fund on this account. The actuarial gain or loss arising during
the year is recognized in the Profit and Loss Account.
c) Gratuity
The bank makes annual contribution to The South Indian Bank Ltd.
Employees'' Gratuity Trust Fund administered and managed by the
trustees. The net present value of the Bank''s obligation towards the
same is actuarially determined based on the projected unit credit
method as at the balance sheet date. However, the liability arising on
account of enhancement in gratuity limit pursuant to the amendment to
the Payment of Gratuity Act, 1972, w.e.f. 24th May, 2010 is amortized
over a period of five years as permitted by the Reserve Bank of India.
The actuarial gain or loss arising during the year is recognized in the
Profit and Loss Account.
d) Compensation for absence on Privilege / Sick / Casual Leave
The employees of the bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
Bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognized
in the profit and loss account. The actuarial gain or loss arising
during the year is recognized in the Profit and Loss Account.
e) Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and are to be exercised within a specified
period. The Bank follows the intrinsic value method to account for its
stock-based employee compensation plans. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" issued by the ICAI, the excess of the market price of
the share preceding the date of grant of the option under ESOS over the
exercise price of the option is amortized on a straight-line basis over
the vesting period.
7. Segment Reporting
Business Segments have been identified and reported taking into
account, the target customer profile, the nature of product and
services, the differing risks and returns, the organization structure,
the internal business reporting system and guidelines issued by RBI
vide notification dated April 18, 2007. The Bank operates in the
following business segments;
a) Treasury
The treasury services segment primarily consists of interest earnings
on investments portfolio of the Bank, gains or losses on investment
operations and earnings from foreign exchange business. The principal
expenses of the segment consist of interest expense on funds borrowed
and other expenses.
b) Corporate /Wholesale Banking
The Corporate /Wholesale Banking segment provides loans and other
banking services to corporate segment identified on the basis of RBI
guidelines. Revenues of this segment consist of interest earned on
Loans made to corporate customers and the charges/fees earned from
other banking services. The principal expenses of the segment consist
of interest expense on funds borrowed and other expenses.
c) Retail Banking
The Retail Banking segment provides loans and other banking services to
non-corporate customers identified on the basis of RBI guidelines.
Revenues of this segment consist of interest earned on Loans made to
non-corporate customers and the charges / fees earned from other
banking services. The principal expenses of the segment consist of
interest expense on funds borrowed and other expenses.
d) Other Banking Operations
This segment includes income from para banking activities such as debit
cards, third party product distribution and associated costs.
Geographic Segment
The Bank operates only in India.
8. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in
accordance with Accounting Standard 20, specified in Companies
(Accounting Standards) Rules, 2006. Basic EPS has been computed by
dividing Net Profit for the year by the weighted average number of
Equity Shares outstanding for the period. Diluted EPS has been computed
using the weighted average number of Equity Shares and dilutive
potential equity shares outstanding as on the Balance Sheet date except
where the results are anti-dilutive.
9. Taxes on Income
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred tax
assets and liabilities are recognized for the future tax consequences
of timing differences being the difference between the taxable income
and the accounting income that originate in one period and are capable
of reversal in one or more subsequent periods. The Bank restricts
recognition of deferred tax assets to the extent that it has become
reasonably certain or virtually certain as the case may be. Changes in
deferred tax assets / liabilities on account of changes in enacted tax
rates are given effect to in the profit and loss account in the period
of the change.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
tax is measured using the tax rates and the tax laws enacted or
substantively enacted at the reporting date. Deferred income tax
relating to items recognized directly in equity is recognized in equity
and not in the statement of profit and loss.
10. Impairment of Assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal / external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks
specific to the asset.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
11. Accounting for Provisions, Contingent Liabilities and Contingent
Assets
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified in Companies (Accounting
Standards) Rules, 2006, the Bank recognizes provisions when it has a
present obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent assets, if any, are not recognized or disclosed in the
financial statements.
12. Lease
Rental payments for premises taken on operating lease agreements are
recognized as an expense in the profit and loss account over the lease
term as the lease are cancellable.
13. Cash and Cash Equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
Mar 31, 2013
1. Revenue Recognition
a) Interest / discount income from loans, advances and investments
(including deposits placed with banks and other institutions) are
recognised over the period of the loans, advances and investments on
accrual basis, except in respect of income relating to
advances/investments, classified as non-performing advances/investments
where in accordance with RBI guidelines the income is recognised only
on realization.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the bank''s right to receive the
dividend is established.
c) Commission income on issuance of bank guarantee / letter of credit
is recognised over the period of the guarantee/letter of credit.
d) Processing fee/upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/facility
is recognized when it is due.
e) All other amounts collected from customers as non interest income,
locker rent or recovery of expenses towards provision of various
services / facilities are accounted / recognised as and when these are
due to the extent that there is no uncertainty over their ultimate
collection.
f) Amounts recovered against debts written off in earlier years and
provisions no longer considered necessary in the context of the current
status of the borrower are recognised in the profit and loss account.
g) The Bank imports gold coins on a consignment basis for selling to
its customers. Other income includes the profit / loss on sale of gold
coin is arrived at after reducing all direct and indirect costs.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and other
investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc. paid
at the time of acquisition of investments are charged to revenue.
The valuation of investments is performed in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale - Each security in this
category is valued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss
account. Net appreciation, if any, is ignored. The market value of
investments where current quotations are not available is determined as
per the norms prescribed by RBI.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortized over the
remaining maturity of the security on a straight line basis. Any
diminution, other than temporary, in the value of such securities is
provided for.
c. Repurchase and reverse repurchase transactions - These are
accounted as collateralized borrowing and lending transactions
respectively. The difference between the consideration amount of the
first leg and the second leg of the repo / reverse repo is recognized
as interest expense / interest income over the period of the
transaction.
In respect of Repo transactions under Liquidity Adjustment Facility
(LAF) with RBI, monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse Repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
d. In respect of securities included in any of the three categories of
investments where interest / principal is in arrears, for more than 90
days, income is not reckoned and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non-performing invest- ments. Debentures / Bonds in
the nature of advances are subjected to usual prudential norms
applicable to advances.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost / book value / market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for in
accordance with RBI guidelines.
D) Profit or Loss on sale / Redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale /
redemption is included in the Profit and Loss account.
b. Held to Maturity - Profit or loss on sale / redemption of
investments is included in the Profit and Loss account. In case of
profits, the same is appropriated to Capital Reserve after adjustments
for tax and transfer to statutory reserve.
3. Advances
A) Valuation / Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non performing advances. In
addition, the bank adopts an approach to provisioning that is based on
past experience, evaluation of security and other related factors.
b) Provision for non-performing advances comprising Sub-standard,
Doubtful and Loss assets is made at a minimum in accordance with the
Reserve Bank of India guidelines.
c) Bank considers an account as restructured in accordance with RBI
Guidelines. Provision on assets restructured/rescheduled is made in
accordance with the applicable RBI guidelines on restructuring of
advances by Banks. In respect of non-performing loan accounts subjected
to restructuring, the account is upgraded to standard only after the
specified period i.e. a period of one year after the date when first
payment of interest or of principal, whichever is earlier, falls due,
subject to satisfactory performance of the account during the period.
d) In accordance with the Reserve Bank of India guidelines, the bank
creates a minimum general provisions in respect of standard assets as
follows:
B) Recording / presentation
a) Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created is netted against gross amount of advance
without adjusting the same at individual account level. Provision held
against an individual account is adjusted against individual account''s
balance only at the time of write off /settlement of the account.
b) Provision made against standard assets in accordance with RBI
guidelines above is disclosed separately under Other Liabilities and is
not netted off against Advances.
4. Fixed Assets
a) The Fixed Assets (other than those, which are revalued) are stated
at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on written down values including the additions made on
revaluation, and an equivalent amount towards the additional
depreciation provided on revaluation, is transferred from the Asset
Revaluation Reserve to profit and loss account.
c) Depreciation on fixed assets other than computers is provided on
written down value method, at the rates specified in Schedule XIV of
the Companies Act, 1956. Computers are depreciated at 33.33% on
straight-line method as per RBI Guidelines.
d) Amount expended towards acquisition of softwares are fully written
off in the year of acquisition itself. Annual Licence fee/ Maintenance
Charges , if any , are accounted on accrual basis.
e) Items costing upto Rs. 5,000 are depreciated fully in the year of
acquisition.
5. Transactions Involving Foreign Exchange
a) Foreign Exchange contracts outstanding at the Balance Sheet date are
revalued at rates notified by FEDAI and resulting profits or losses are
included in the Profit and Loss Account.
b) Forward Exchange contracts are translated to Indian Rupee equivalent
at the exchange rate prevailing on the date of commitments.
Gain/Losses on outstanding forward exchange contracts are taken to
revenue as per the FEDAI guidelines.
c) Income and Expenditure in foreign currency are accounted for at the
exchange rate prevailing on the date of transaction.
d) Contingent liabilities as at the reporting date on account of
outstanding foreign exchange contracts are restated at year end rates
notified by FEDAI.
6. Employee Benefits
The liability on employee benefits are recognized in accordance with
Accounting Standard 15 (revised) specified in Companies (Accounting
Standards) Rules, 2006.
a) Provident Fund:
The contribution made by the Bank to The South Indian Bank Ltd.
Employees Provident Fund, administered by the trustees is charged to
Profit & Loss account. The fund is a defined contribution fund and the
Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund:
The contribution towards The South Indian Bank Ltd. Employees'' Pension
Fund, managed by trustees, is determined on actuarial basis on
projected unit credit method as on the Balance Sheet date and is
recognised in the profit and loss account. However, the liability
arising on account of re-opening of pension option to existing
employees who had joined prior to 29th September 1995 and not exercised
the option earlier, is amortised over a period of five years as
permitted by the Reserve Bank of India.
Employees who had joined the services of the Bank with effect from
April 01, 2010 are covered under Defined Contributory Pension Scheme
(DCPS). In respect of such employees the bank contributes 10% of the
Basic Pay plus Dearness Allowance and the expenditure thereof is
charged to Profit & Loss account and the Bank has no further liability
beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes annual contribution to The South Indian Bank Ltd.
Employees'' Gratuity Trust Fund administered and managed by the
trustees. The net present value of the bank''s obligation towards the
same is actuarially determined based on the projected unit credit
method as at the balance sheet date. However, the liability arising on
account of enhancement in gratuity limit pursuant to the amendment to
the Payment of Gratuity Act, 1972, w.e.f 24th May 2010 is amortised
over a period of five years as permitted by the Reserve Bank of India.
d) Compensation for absence on Privilege / Sick / Casual Leave:
The employees of the bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognised
in the profit and loss account.
e) Employees Stock Option Scheme (ESOS):
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and are to be exercised within a specified
period. The Bank follows the intrinsic value method to account for its
stock-based employee compensation plans. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" issued by the ICAI, the excess of the market price of
the share preceding the date of grant of the option under ESOS over the
exercise price of the option is amortised on a straight line basis over
the vesting period.
7. Segment Reporting
Business Segments have been identified and reported taking into
account, the target customer profile, the nature of product and
services, the differing risks and returns, the organization structure,
the internal business reporting system and guidelines issued by RBI
vide notification dated April 18, 2007. The Bank operates in the
following business segments;
a) Treasury
The treasury services segment primarily consists of interest earnings
on investments portfolio of the bank, gains or losses on investment
operations and earnings from foreign exchange business. The principal
expenses of the segment consist of interest expense on funds borrowed
and other expenses.
b) Corporate / Whole sale Banking
The Corporate / Whole sale Banking segment provides loans and other
banking services to corporate segment identified on the basis of RBI
guidelines. Revenues of this segment consist of interest earned on
Loans made to Corporate customers and the charges / fees earned from
other banking services. The principal expenses of the segment consist
of interest expense on funds borrowed and other expenses.
c) Retail banking
The Retail Banking segment provides loans and other banking services to
non corporate customers identified on the basis of RBI guidelines.
Revenues of this segment consist of interest earned on Loans made to
non corporate customers and the charges / fees earned from other
banking services. The principal expenses of the segment consist of
interest expense on funds borrowed and other expenses.
d) Other Banking Operations
This segment includes income from para banking activities such as debit
cards, third party product distribution and associated costs.
Geographic segment
The Bank operates only in India.
8. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in
accordance with Accounting Standard 20, specified in Companies
(Accounting Standards) Rules, 2006. Basic EPS has been computed by
dividing Net Profit for the year by the weighted average number of
Equity Shares outstanding for the period. Diluted EPS has been
computed using the weighted average number of Equity Shares and
dilutive potential equity shares outstanding as on the Balance Sheet
date except where the results are anti dilutive.
9. Taxes on Income
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred
tax assets and liabilities are recognised for the future tax
consequences of timing differences being the difference between the
taxable income and the accounting income that originate in one period
and are capable of reversal in one or more subsequent periods. Deferred
tax asset is recognised subject to prudence and judgment that
realization is more likely than not. Deferred tax assets and
liabilities are measured using tax rates and tax laws that have been
enacted or substantially enacted before the balance sheet date. Changes
in deferred tax assets / liabilities on account of changes in enacted
tax rates are given effect to in the profit and loss account in the
period of the change.
Deferred income taxes reflect the impact of timing differences between
taxable income and accounting income originating during the current
year and reversal of timing differences for the earlier years. Deferred
tax is measured using the tax rates and the tax laws enacted or
substantively enacted at the reporting date. Deferred income tax
relating to items recognized directly in equity is recognized in equity
and not in the statement of profit and loss.
10. Impairment of Assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks
specific to the asset.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
11. Accounting for Provisions, Contingent Liabilities and Contingent
Assets
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified in Companies (Accounting
Standards) Rules, 2006, the Bank recognizes provisions when it has a
present obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent assets, if any, are not recognized or disclosed in the
financial statements.
12. Lease
Rental payments for premises taken on operating lease agreements are
recognized as an expense in the profit and loss account over the lease
term as the lease are cancellable.
13. Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
Mar 31, 2012
1. Revenue recognition
a) Interest income from loans, advances and investments (including
deposits placed with banks and other institutions) are recognised over
the period of the loans, advances and investments on accrual basis,
except in respect of income relating to advances/ investments,
classified as non performing advances/ investments where in accordance
with RBI guidelines the income is recognised only on realization.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the bank's right to receive the
dividend is established.
c) Commission income on issuance of bank guarantee / letter of credit
is recognised over the period of the guarantee/letter of credit.
d) Processing fee/ upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/
facility is recognized when it is due.
e) All other amounts collected from customers as non interest income,
locker rent or recovery of expenses towards provision of various
services / facilities are accounted / recognised as and when these are
due to the extent that there is no uncertainty over their ultimate
collection.
f) The Bank imports gold coins on a consignment basis for selling to
its customers. Other income includes the profit / loss on sale of gold
coin arrived at after reducing all direct and indirect costs.
2. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and other
investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc paid at
the time of acquisition of investments are charged to revenue.
The valuation of investments is performed in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale - Each security in this
category is valued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss
account. Net appreciation, if any, is ignored. The market value of
investments where current quotations are not available is determined as
per the norms prescribed by RBI.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortized over the
remaining maturity of the security. Any diminution, other than
temporary, in the value of such securities is provided for.
c. Repurchase and reverse repurchase transactions These are accounted
as collateralised borrowing and lending transactions respectively. The
difference between the consideration amount of the first leg and the
second leg of the repo / reverse repo is recognised as interest expense
/ interest income over the period of the transaction.
In respect of Repo transactions under Liquidity Adjustment Facility
(LAF) with RBI, monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse Repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income
d. In respect of securities included in any of the three categories of
investments where interest / principal is in arrears, for more than 90
days, income is not reckoned and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non- performing investments. Debentures / Bonds in
the nature of advances are subjected to usual prudential norms
applicable to advances.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost / book value / market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for in
accordance with RBI guidelines.
D) Profit or Loss on sale / Redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale /
redemption is included in the Profit and Loss account.
b. Held to Maturity - Profit or loss on sale / redemption of
investments is included in the Profit and Loss account. In case of
profits, the same is appropriated to Capital Reserve after adjustments
for tax and transfer to statutory reserve.
3. Advances
A) Valuation / Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non performing advances.
b) Provision for non performing advances comprising Sub-standard,
Doubtful and Loss assets is made in accordance with the Reserve Bank of
India guidelines. In addition, the bank adopts an approach to
provisioning that is based on past experience, evaluation of security
and other related factors.
c) Provision on assets restructured/rescheduled is made in accordance
with the applicable RBI guidelines on restructuring of advances by
Banks. Amounts recovered against debts written off in earlier years and
provisions no longer considered necessary in the context of the current
status of the borrower are recognised in the profit and loss account.
In respect of non-performing loan accounts subjected to restructuring,
the account is upgraded to standard only after the specified period
i.e. a period of one year after the date when first payment of interest
or of principal, whichever is earlier, falls due, subject to
satisfactory performance of the account during the period. In
accordance with the Reserve Bank of India guidelines, the bank creates
general provisions in respect of standard assets as follows:
B) Recording / presentation
a) Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created is netted against gross amount of advance
without adjusting the same at individual account level. Provision held
against an individual account is adjusted against individual account's
balance only at the time of write off /settlement of the account.
b) Provision made against standard assets in accordance with RBI
guidelines above is disclosed separately under Other Liabilities and is
not netted off against Advances.
4. Fixed assets
a) The Fixed Assets (other than those, which are revalued) are stated
at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on written down values including the additions made on
revaluation, and an equivalent amount towards the additional
depreciation provided on revaluation, is transferred from the Asset
Revaluation Reserve to profit and loss account.
c) Depreciation on fixed assets other than computers is provided on
written down value method, at the rates specified in Schedule XIV of
the Companies Act, 1956. Computers are depreciated at 33.33% on
straight-line method as per RBI Guidelines.
d) Amount expended towards acquisition of softwares are fully written
off in the year of acquisition itself. Annual Licence fee/ Maintenance
Charges , if any , are accounted on accrual basis.
e) Items costing upto Rs. 5,000 are depreciated fully in the year of
acquisition.
5. Transactions involving foreign exchange
a) Foreign Exchange contracts outstanding at the Balance Sheet date are
revalued at rates notified by FEDAI and resulting profits or losses are
included in the Profit and Loss Account.
b) Forward Exchange contracts are translated to Indian Rupee equivalent
at the exchange rate prevailing on the date of commitments. Gain/
Losses on outstanding forward exchange contracts are taken to revenue
as per the FEDAI guidelines.
c) Income and Expenditure in foreign currency are accounted for at the
exchange rate prevailing on the date of transaction.
d) Contingent liabilities as at the reporting date on account of
outstanding foreign exchange contracts are restated at year end rates
notified by FEDAI.
6. Employee benefits
The liability on employee benefits are recognised in accordance with
Accounting Standard 15 (revised) specified in Companies (Accounting
Standards) Rules, 2006.
a) Provident Fund:
The contribution made by the Bank to The South Indian Bank Ltd
Employees Provident Fund, administered by the trustees is charged to
Profit & Loss account. The fund is a defined contribution fund and the
Bank has no further liability beyond the contribution made to the fund.
b) Pension Fund
The contribution towards The South Indian Bank Ltd Employees' Pension
Fund, managed by trustees, is determined on actuarial basis on
projected unit credit method as on the Balance Sheet date and is
recognised in the profit and loss account. However, the liability
arising on account of re-opening of pension option to existing
employees who had joined prior to 29th September 1995 and not exercised
the option earlier, is amortised over a period of five years as
permitted by the Reserve Bank of India.
Employees who had joined the services of the Bank with effect from
April 01, 2010 are covered under Defined Contributory Pension Scheme
(DCPS). In respect of such employees the bank contributes 10% of the
Basic Pay plus Dearness Allowance and the expenditure thereof is
charged to Profit & Loss account and the Bank has no further liability
beyond the contribution to the fund on this account.
c) Gratuity:
The bank makes annual contribution to The South Indian Bank Ltd
Employees' Gratuity Trust Fund administered and managed by the
trustees. The net present value of the bank's obligation towards the
same is actuarially determined based on the projected unit credit
method as at the balance sheet date. However, the liability arising on
account of enhancement in gratuity limit pursuant to the amendment to
the Payment of Gratuity Act, 1972, w.e.f 24th May 2010 is amortised
over a period of five years as permitted by the Reserve Bank of India.
d) Compensation for absence on Privilege / Sick / Casual Leave
The employees of the bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognised
in the profit and loss account.
e) Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and are to be exercised within a specified
period. The Bank follows the intrinsic value method to account for its
stock-based employee compensation plans. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" issued by the ICAI, the excess of the market price of
the share preceding the date of grant of the option under ESOS over the
exercise price of the option is amortised on a straight line basis over
the vesting period.
7. Segment Reporting
Business Segments have been identified and reported taking into
account, the target customer profile, the nature of product and
services, the differing risks and returns, the organization structure,
the internal business reporting system and guidelines issued by RBI
vide notification dated April 18, 2007. The Bank operates in the
following business segments;
a) Treasury
The treasury services segment primarily consists of interest earnings
on investments portfolio of the bank, gains or losses on investment
operations and earnings from foreign exchange business. The principal
expenses of the segment consist of interest expense on funds borrowed
and other expenses.
b) Corporate / Whole sale Banking
The Corporate / Whole sale Banking segment provides loans and other
banking services to corporate segment identified on the basis of RBI
guidelines. Revenues of this segment consist of interest earned on
Loans made to Corporate customers and the charges / fees earned from
other banking services. The principal expenses of the segment consist
of interest expense on funds borrowed and other expenses.
c) Retail banking
The Retail Banking segment provides loans and other banking services to
non corporate customers identified on the basis of RBI guidelines.
Revenues of this segment consist of interest earned on Loans made to
non corporate customers and the charges / fees earned from other
banking services. The principal expenses of the segment consist of
interest expense on funds borrowed and other expenses.
d) Other Banking Operations
This segment includes income from para banking activities such as debit
cards, third party product distribution and associated costs.
Geographic segment
The Bank operates only in India.
8. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in
accordance with Accounting Standard 20, specified in Companies
(Accounting Standards) Rules, 2006. Basic EPS has been computed by
dividing Net Profit for the year by the weighted average number of
Equity Shares outstanding for the period. Diluted EPS has been computed
using the weighted average number of Equity Shares and dilutive
potential equity shares outstanding as on the Balance Sheet date except
where the results are anti dilutive.
9. Taxes on income
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred
tax assets and liabilities are recognised for the future tax
consequences of timing differences being the difference between the
taxable income and the accounting income that originate in one period
and are capable of reversal in one or more subsequent periods. Deferred
tax asset is recognised subject to prudence and judgment that
realization is more likely than not. Deferred tax assets and
liabilities are measured using tax rates and tax laws that have been
enacted or substantially enacted before the balance sheet date. Changes
in deferred tax assets / liabilities on account of changes in enacted
tax rates are given effect to in the profit and loss account in the
period of the change.
Deferred tax assets are recognised and re-assessed at each reporting
date, based upon management's judgement as to whether their realisation
is considered as reasonably certain.
10. Impairment of Assets
The carrying amounts of assets are reviewed at each balance sheet date
if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset's net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time
value of money and risks specific to the asset.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
11. Accounting for Provisions, Contingent Liabilities and Contingent
Assets
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified in Companies (Accounting
Standards) Rules, 2006, the Bank recognizes provisions when it has a
present obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to reflect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss cannot be
reasonably estimated, a disclosure is made in the financial statements.
Contingent assets, if any, are not recognized or disclosed in the
financial statements.
12. Net profit
Net Profit is arrived at after provisions for contingencies, which
include Provision for:
i) Depreciation on Investments.
ii) Standard Assets and Non-Performing Advances and Investments;
iii) Taxation in accordance with statutory requirements.
13. Lease
Rental payments for premises taken on cancellable operating lease
agreements are recognized as an expense in the profit and loss account
over the lease term.
14. Cash and cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
Mar 31, 2011
General
The South Indian Bank Limited (SIB) was incorporated on January 29,
1929 at Trichur as a private Limited Company and was later converted
into a Public Limited Company on August 11, 1939. SIB has a net work of
637 branches in India and provides retail and corporate banking, para
banking activities such as debit card, third party product
distribution, in addition to Treasury and Foreign Exchange Business.
SIB is governed by Banking Regulation Act, 1949 and other applicable
Acts / Regulations. Its shares are listed in leading stock exchanges in
India.
1. Basis of Preparation
Financial Transactions are recorded, prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and comply with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (RBI) from time to time, Accounting Standards (AS)
issued by the Institute of Chartered Accountants of India (ICAI) and
notified by the Companies Accounting Standard Rules, 2006 to the extent
applicable and current practices prevailing within the banking industry
in India.
The preparation of financial statements requires the management to make
estimates and assumptions in 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
reporting period. Management believes that the estimates and
assumptions used in preparation of the financial statements are prudent
and reasonable. Actual results could differ from these estimates.
2. Revenue Recognition
a) Interest income from loans, advances and investments (including
deposits placed with banks and other institutions) are recognised over
the period of the loans, advances and investments on accrual basis.
However interest accrued and other dues in the nature of non interest
income (example: inspection/valuation charges)
relating to Advances/ Investments, classified as Non performing
Advances/Investments under RBI guidelines, are recognised only on
realization.
b) Dividend on investments in shares and units of mutual funds are
accounted on accrual basis when the Banks right to receive the
dividend is established.
c) Insurance claims and locker rent are accounted on receipt basis, due
to the uncertainty of collection.
d) Commission income on issuance of Bank Guarantee / Letter of Credit
is recognised over the period of the underlying liability.
e) Processing fee/ upfront fee, handling charges or income of similar
nature collected at the time of sanctioning or renewal of loan/
facility is recognised in the year of receipt without spreading it over
the period of loan/ facility.
f) All other amounts collected from customers as Non interest income or
recovery of expenses towards provision of various services / facilities
are accounted / recognised on receipt basis.
3. Investments
A) Classification
a) In accordance with the RBI guidelines, investments are categorized
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and other
investments for the purposes of disclosure in the Balance Sheet.
b) Investments which are held for sale within 90 days from the date of
purchase are classified as "Held for Trading".
c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc. paid
at the time of acquisition of investments are charged to revenue.
The valuation of investments is made in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale à Each security in this
category is valued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss
account. Net appreciation, if any, is ignored.
The market value of investments where current quotations are not
available is determined as per the norms prescribed by RBI.
b. Held to Maturity à These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortized over the
remaining maturity of the security. Any diminution, other than
temporary, in the value of such securities is provided for.
c. Repurchase and reverse repurchase transactions à These are
accounted as outright sale and outright purchase respectively. The
difference between the clean price of the first leg and the clean price
of the second leg is recognised as interest income / interest expense
over the period of the transaction. However, depreciation in their
value, if any, compared to their original cost, is provided for.
d. In respect of securities included in any of the three categories of
investments where interest / principal is in arrears, for more than 90
days, income is not reckoned and appropriate provision for the
depreciation in the value of the investments is made, as per prudential
norms applicable to non- performing investments. Debentures / Bonds in
the nature of advances are subjected
to usual prudential norms applicable to advances.
C) Transfer Between Categories
Transfer between categories is done at the lower of the acquisition
cost / book value / market value on the date of the transfer and the
depreciation, if any, on such transfer is fully provided for.
D) Profit or Loss on sale / Redemption of Investments
a. Held for Trading and Available for Sale à Profit or loss on sale /
redemption is included in the Profit and Loss account.
b. Held to Maturity à Profit or loss on sale / redemption of
investments is included in the Profit and Loss account. In case of
profits, the same is appropriated to Capital Reserve after adjustments
for tax and transfer to statutory reserve.
E) Repo and Reverse Repo Transactions
In respect of Repo transactions under Liquidity Adjustment Facility
(LAF) with RBI, monies borrowed from RBI are credited to investment
account and reversed on maturity of the transaction. Costs thereon are
accounted for as interest expense. In respect of reverse Repo
transactions under LAF, monies paid to RBI are debited to investment
account and reversed on maturity of the transaction. Revenues thereon
are accounted as interest income.
4. Advances
A) Valuation / Measurement
a) Advances are classified into Standard, Sub-standard, Doubtful and
Loss assets in accordance with the Reserve Bank of India guidelines and
are stated net of provisions made towards non performing advances.
b) Provision for non performing advances comprising Sub-standard,
Doubtful and Loss assets is made in accordance with the Reserve Bank of
India guidelines. In addition, the Bank adopts an approach to
provisioning that is based on past experience, evaluation of security
and other related factors.
B) Recording / presentation
a) Provisions created against individual accounts as per RBI guidelines
are not netted in the individual account. For presentation in financial
statements, provision created is netted against gross amount of advance
without adjusting the same at individual account level. Provision held
against an individual account is adjusted against individual accounts
balance only at the time of write off / settlement of the account.
5. Fixed Assets
a) The Fixed Assets (other than those, which are revalued) are stated
at historical cost less depreciation.
b) The revalued assets are stated at the revalued amount less
depreciation. The appreciation in value consequent to revaluation is
credited to Asset Revaluation Reserve. Depreciation on assets revalued
is charged on written down values including the additions made on
revaluation, and an equivalent amount towards the additional
depreciation provided on revaluation, is transferred from the Asset
Revaluation Reserve to profit and loss account.
c) Depreciation on fixed assets other than computers is provided on
written down value method, at the rates specified in Schedule XIV of
the Companies Act, 1956. Computers are depreciated at 33.33% on
straight-line method as per RBI Guidelines.
d) Amount expended towards acquisition of Softwares are fully written
off in the year of acquisition itself. Annual Licence fee/ Maintenance
Charges, if any, are accounted on accrual basis.
6. Transactions involving foreign exchange
a) Monetary assets and liabilities, guarantees, acceptances,
endorsements and other obligations are translated to Indian Rupee
equivalent at the exchange rates notified by FEDAI as on the Balance
Sheet date.
b) Forward Exchange contracts are translated to Indian Rupee equivalent
at the exchange rate prevailing on the date of commitments. Gain/
Losses on outstanding forward exchange contracts are taken to revenue
as per the FEDAI guidelines.
c) Income and Expenditure in foreign currency are accounted for at the
exchange rate prevailing on the date of transaction.
7. Employee benefits
The liability on employee benefits are recognised in accordance with
Accounting Standard 15 (revised) specified in Companies (Accounting
Standards) Rules, 2006.
a) Provident Fund:
The contribution made by the Bank to The South Indian Bank Ltd
Employees Provident Fund, administered by the trustees is charged to
Profit & Loss account.
b) Pension Fund:
The contribution towards The South Indian Bank Ltd Employees Pension
Fund, managed by trustees, is determined on actuarial basis on
projected unit credit method as on the Balance Sheet date and is
recognised in the accounts. However, the liability arising on account
of re- opening of pension option to existing employees who had joined
prior to 29th September 1995 and not exercised the option earlier, is
amortised over a period of five years as permitted by the Reserve Bank
of India.
Employees who had joined the services of the Bank with effect from
April 01, 2010 are covered under defined contributory pension scheme
(DCPS). In respect of such employees the bank contributes 10% of the
Basic Pay plus Dearness Allowance and the expenditure thereof is
charged to Profit & Loss account.
c) Gratuity:
The Bank makes annual contribution to The South Indian Bank Ltd
Employees Gratuity Trust Fund administered and managed by the
trustees. The net present value of the Banks obligation towards the
same is actuarially determined based on the projected unit credit
method as at the balance sheet date. However, the liability arising on
account of enhancement in gratuity limit pursuant to the amendment to
the Payment of Gratuity Act, 1972, w.e.f. 24th May 2010 is amortised
over a period of five years as permitted by the Reserve Bank of India.
d) Compensation for absence on Privilege / Sick / Casual Leave:
The employees of the Bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
Bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognised
in the accounts.
e) Employees Stock Option Scheme (ESOS):
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and that to be exercised within a
specified period. In accordance with the SEBI Guidelines and the
guidance note on "Accounting for Employee Share based payments" issued
by the ICAI, the
excess of the market price of the share preceding the date of grant of
the option under ESOS over the exercise price of the option is
amortised on a straight line basis over the vesting period.
8. Segment Reporting
Business Segments have been identified and reported taking into
account, the target customer profile, the nature of product and
services, the differing risks and returns, the organization structure,
the internal business reporting system and guidelines issued by RBI
vide notification dated April 18, 2007. The Bank operates in the
following business segments;
a) Treasury
The treasury services segment primarily consists of interest earnings
on investments portfolio of the Bank, gains or losses on investment
operations and earnings from foreign exchange business. The principal
expenses of the segment consist of interest expense on funds borrowed
and other expenses.
b) Corporate / Wholesale Banking
The Corporate / Wholesale Banking segment provides loans and other
banking services to corporate segment identifed on the basis of RBI
guidelines. Revenues of this segment consist of interest earned on
Loans made to Corporate customers and the charges / fees earned from
other banking services. The principal expenses of the segment consist
of interest expense on funds borrowed and other expenses.
c) Retail Banking
The Retail Banking segment provides loans and other banking services to
non corporate customers identified on the basis of RBI guidelines.
Revenues of this segment consist of interest earned on Loans made to
non corporate customers and the charges / fees earned from other
banking services. The principal expenses of the segment consist of
interest expense on funds borrowed and other expenses.
d) Other Banking Operations
This segment includes income from para banking
activities such as debit cards, third party product distribution and
associated costs.
Geographic Segment
The Bank operates only in India.
9. Earnings Per Share (EPS)
The Bank reports Basic and Diluted Earnings per Equity Share in
accordance with Accounting Standard 20, specified in Companies
(Accounting Standards) Rules, 2006. Basic EPS has been computed by
dividing Net Profit for the year by the weighted average number of
Equity Shares outstanding for the period. Diluted EPS has been computed
using the weighted average number of Equity Shares and dilutive
potential equity shares outstanding as on the Balance Sheet date except
where the results are anti dilutive.
10. Taxes on Income
The income tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act. Deferred
tax assets and liabilities are recognised for the future tax
consequences of timing differences being the difference between the
taxable income and the accounting income that originate in one period
and are capable of reversal in one or more subsequent periods. Deferred
tax asset is recognised subject to prudence and judgment that
realization is more likely than not. Deferred tax assets and
liabilities are measured using tax rates and tax laws that have been
enacted or substantially enacted before the balance sheet date. Changes
in deferred tax assets / liabilities on account of changes in enacted
tax rates are given effect to in the profit and loss account in the
period of the change.
11. Impairment of Assets
The Bank assesses at each Balance Sheet date
whether there is any indication that an asset may be impaired.
Impairment loss, if any, is provided in the Profit and Loss Account to
the extent the carrying amount of assets exceeds their estimated
realizable amount.
12. Accounting for Provisions, Contingent Liabilities and Contingent
Assets
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets specified in Companies (Accounting
Standards) Rules, 2006, the Bank recognizes provisions when it has a
present obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made.
Provisions are determined based on management estimate required to
settle the obligation at the balance sheet date, supplemented by
experience of similar transactions. These are reviewed at each balance
sheet date and adjusted to refect the current management estimates. In
cases where the available information indicates that the loss on the
contingency is reasonably possible but the amount of loss can not be
reasonably estimated, a disclosure is made in the financial statements.
Contingent assets, if any, are not recognized in the financial
statements since this may result in the recognition of Income that may
never be realized.
13. Net Profit
Net Profit is arrived at after provisions for contingencies, which
include Provision for:
i) Depreciation on Investments;
ii) Standard Assets and Non-Performing Advances and Investments;
iii) Taxation in accordance with statutory requirements.
11. Asset quality
Percentage of net NPAs to net advances works out to 0.29% (0.39% as on
31.03.2010). Provision coverage ratio as on 31.03.2011 is 73.64%.
Provision for Non-Performing Advances and unrealised interest thereon
are deducted from various categories of advances on a proportionate
basis except the Provision for Standard Assets, which is included under
"Other Liabilities".
21. Derivatives
The bank uses forward exchange contracts to hedge against its foreign
currency exposures relating to the underlying transactions and firm
commitments. The bank has not entered into any derivative instruments
for trading / speculative purposes either in Foreign Exchange or
domestic treasury operations.
23. (b) Disputed Tax for earlier years
The following deductions under the Income Tax Act, 1961 are considered
in computing the income chargeable to tax
(i) Bad Debts written off u/s 36 (1) (vii) pertaining to non rural
branches.
(ii) Provision for Bad and Doubtful debts u/s 36(1)(viia) subject to
limits prescribed under the Act.
The above deductions are disputed by the Income Tax Department before
the Supreme Court through Special Leave Petition (SLP). Further, the
earlier decision of Division Bench of Kerala High Court in favour of
the Bank, have been reversed by the Full Bench of the Kerala High Court
during the year and the matter is pending before the Supreme Court. The
total estimated liability on account of this dispute and other disputed
tax demands under section 14A of the Income Tax Act amounting to Rs.
116.05 Crore (excluding interest, if any), has been disclosed as
contingent liability (refer Schedule 12). The management believes that
the outcome of these appeals is likely to be in favour of the Bank and
accordingly no provision is considered necessary at this stage.
24. Penalties Levied by the Reserve Bank of India
No penalties were levied by the Reserve Bank of India during the
financial years ended March 31, 2011 and March 31, 2010.
27. Reconciliation
Identification of items pending adjustment in inter branch accounts
(including Extension counters), demand drafts paid and payable,
sundries, inter bank and clearing have been completed upto March 31,
2011. Elimination of pending items in the above is in progress and in
the opinion of the management, its consequential impact in the accounts
will not be material.
Mar 31, 2010
GENERAL
The South Indian Bank Limited (SIB) was incorporated on January 29,
1929 at Trichur as a private Limited Company and was later converted
into a Public Limited Company on August 11, 1939. SIB has a net work of
576 branches in India and provides retail and corporate banking, para
banking activities such as debit card, third party product
distribution, in addition to Treasury and Foreign Exchange Business.
SIB is governed by Banking Regulation Act, 1949 and other applicable
Acts / Regulations. Its shares are listed in leading stock exchanges in
India.
1. BASIS OF PREPARATION
The Financial Statements have been prepared on historical cost basis,
except as otherwise stated. The bank adopts the accrual system of
accounting and it conforms to statutory provisions, practices
prevailing in the banking industry and the guidelines issued by the
Reserve Bank of India (RBI) for banks.
The preparation of financial statements requires the management to make
estimates and assumptions in 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
reporting period. Management believes that the estimates and
assumptions used in preparation of the financial statements are prudent
and reasonable. Actual results could differ from these estimates.
2. REVENUE RECOGNITION
a) Interest Income is recognised on accrual basis except in the case of
non-performing / other assets where it is recognised upon realisation,
as per Reserve Bank of India guidelines. In respect of non performing
assets, overdue interest is recognized as income on realization.
b) Dividends on investments in shares and units of mutual funds are
accounted on accrual basis when the banks right to receive the
dividend is established.
c) Insurance claims and locker rent are accounted on receipt basis, due
to uncertainty of collection.
d) Fee / Commission income on Bank Guarantee / Letter of Credit issued
are recognized over the period of the underlying liability.
3. INVESTMENTS
A) Classification
(a) In accordance with the RBI guidelines, investments are categorized
in to "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under five groups, viz. Government Securities,
Other Approved Securities, Shares, Debentures & Bonds and other
investments for the purposes of disclosure in the Balance Sheet.
(b) Investments which are held for resale within 90 days from the date
of purchase are classified as "Held for Trading".
(c) Investments which the bank intends to hold till maturity are
classified as "Held to Maturity".
(d) Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
B) Valuation
The cost of investments is determined on the weighted average basis.
Broken period interest on debt instruments is treated as a revenue
item. The transaction cost, including brokerage, commission etc. paid
at the time of acquisition of investments are charged to revenue.
The valuation of investments is made in accordance with the RBI
Guidelines:
a. Held for Trading/Available for Sale - Each security in this category
is revalued at the market price or fair value and the net depreciation
of each group is recognized in the Profit and Loss account. Net
appreciation, if any, is ignored. Further, provision for diminution
other than temporary is made for, at the individual security level.
The market value of investments where current quotations are not
available is determined as per the norms laid down by the RBI.
c) Depreciation on fixed assets other than computers is provided on
written down value method, at the rates specified in Schedule XIV of
the Companies Act, 1956. Computers are depreciated at 33.33% on
straight-line method as per RBI Guidelines.
6. TRANSACTIONS INVOLVING FOREIGN EXCHANGE
a) Monetary assets and liabilities, guarantees, acceptances,
endorsements and other obligations are translated to Indian Rupee
equivalent at the exchange rates notified by FEDAI as on the Balance
Sheet date.
b) Forward Exchange contracts are translated to Indian Rupee equivalent
at the exchange rate prevailing on the date of commitments. Gain/Losses
on outstanding forward exchange contracts are taken to revenue as per
the FEDAI guidelines.
c) Income and Expenditure in foreign currency are accounted for at the
exchange rate prevailing on the date of transaction.
7. EMPLOYEE BENEFITS
a) Provident Fund:
Eligible employees (Employees who have not opted for pension plan)
receive benefits from a Provident Fund, which is a defined contribution
plan. The contribution made by the bank to the South Indian Bank Ltd
Employees Provident Fund, administered by the trustees is charged to
Profit & Loss account.
b) Pension Fund:
Contribution towards the South Indian Bank Ltd Employees Pension Fund,
managed by trustees, is determined on actuarial basis on projected unit
credit method as on the Balance Sheet date and is recognized in the
accounts.
c) Gratuity:
The bank makes annual contribution to the South Indian Bank Ltd
Employees Gratuity Trust Fund administered and managed by the trustees.
The net present value of the banks obligation towards the same is
actuarially determined based on the projected unit credit method as at
the balance sheet date. Actuarial gains and losses are recognized in
the accounts.
d) Compensation for absence on Privilege / Sick / Casual Leave
The employees of the bank are entitled to compensated absence on
account of privilege / sick / casual leave as per the leave rules. The
bank measures the long term expected cost of compensated absence as a
result of the unused entitlement that has accumulated at the balance
sheet date based on actuarial valuation and such costs are recognized
in the accounts.
e) Expenditure on Voluntary Retirement Scheme (VRS)
The expenditure incurred on VRS during financial year 2006-07 is
amortised over a period of 4 years from the year of payment, in
accordance with the Accounting Standard 15 on Retirement Benefits
specified in Companies (Accounting Standards) Rules, 2006.
f) Employees Stock Option Scheme (ESOS)
The Bank has formulated Employee Stock Option Scheme (ESOS) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Scheme provides for grant of
options to Employees of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and that to be exercised within a
specified period. In accordance with the SEBI Guidelines and the
guidance note on "Accounting for Employee Share based payments" issued
by the ICAI, the excess of the market price of the share preceding the
date of grant of the option under ESOS over the exercise price of the
option is amortised on a straight line basis over the vesting period.
Disclaimer: This is 3rd Party content/feed, viewers are requested to use their discretion and conduct proper diligence before investing, GoodReturns does not take any liability on the genuineness and correctness of the information in this article
More Information on South Indian Bank Ltd.
-
South Indian Bank Ltd. Tools
- Bulk Deals
-
South Indian Bank Ltd. Company Details
- Company Profile
- Company History
- Management Team
- Capital Structure
- Product Mix
- Banker/Auditor/Registrar
-
Company History
- Bonus
- Rights
- BSE Price History
- NSE Price History
-
South Indian Bank Ltd. Key Financial Ratios
- Ratios
-
South Indian Bank Ltd. Results
- Quarterly Results
- Half Yearly Results
- Nine Months Results
- Annual Results
-
South Indian Bank Ltd. Financial Data
- Audited Results
- Cash Flow
- Balance Sheet
-
South Indian Bank Ltd. Reports
- Accounting Policies
- Auditors Report
- Directors Report
- Notes To Account
-
South Indian Bank Ltd. Corporate Announcements
- Book Closure
- Dividend
- Board Meetings
