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Accounting Policies of State Bank Of Bikaner and Jaipur Company

Mar 31, 2015

A Basis of Preparation:

The financial statements have been prepared and presented under the historical cost convention, on accrual basis of accounting, unless otherwise stated, and are in accordance with Generally Accepted Accounting Principles in India (''GAAP''), 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 and current practices prevailing within the banking industry in India.

B Use of Estimates:

The preparation of financial statements require the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.

1. REVENUE RECOGNITION

1.1 Income & Expenditure are accounted on accrual basis except the following income, which are recognised on cash basis:

i) Interest and other income on Non Performing Assets as per IRAC norms prescribed by RBI ii) Interest on Non-performing Investments

iii) Commission on L.Cs. and Guarantees (excluding Deferred Payment Guarantees)

iv) Insurance claims

v) Dividend on shares and units of Mutual Funds vi) Interest on overdue demand bills purchased vii) Locker Rent viii) Interest on Tax refund ix) Commission from Cross Selling Activities

1.2 Profit or loss on sale of investments is recognised in the Profit and Loss Account, however, the profit on sale of investments in the ''Held to Maturity'' category is appropriated net of applicable taxes and amount required to be transferred to statutory reserve to ''Capital Reserve Account''.

1.3 Income (other than interest) on investments in "Held to Maturity" (HTM) category acquired at a discount to the face value, is recognised as follows :

a) On Interest bearing securities, it is recognized only at the time of sale/redemption.

b) On zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

The Bank has followed the Accounting Standard-11 (Revised 2003) issued by the Institute of Chartered Accountants of India regarding foreign exchange transactions and accordingly :-

2.1 Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of transaction.

2.2 Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing spot/forward rate and resultant gain / loss is recognised to Profit and Loss Account.

2.3 Exchange differences arising on the settlement of monetary items at the rates different from those at which they were initially recorded, are recognized as income or as expense in the period in which they arise.

2.4 Guarantees, Letters of Credit and Forward Exchange Contracts issued in foreign currencies are translated at FEDAI rates on the Balance Sheet date.

3. INVESTMENTS

3.1 The Transactions in all types of securities including Government Securities are recorded on ''Trade Date'' upto 31.12.2010 and on ''Settlement date'' with effect from 01.01.2011.

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

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

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

3.5 Transfer of securities from HFT/AFS category to HTM category is carried out at the lower of acquisition cost/book value/market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for. However, transfer of securities from HTM category to AFS category is carried out on acquisition price/book value. After transfer, these securities are immediately revalued and resultant depreciation, if any, is provided.

3.6 In determining acquisition cost of an investment:-

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

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

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

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

''Held to Maturity''

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

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

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

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

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

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

3.9 Accounting for Repo/ reverse repo transactions (other than transactions under the Liquidity Adjustment Facility (LAF) with the RBI)

The securities sold and purchased under Repo/ Reverse repo are accounted as Collateralized lending and borrowing transactions. However securities are transferred as in case of normal outright sale/ purchase transactions and such movement of securities is reflected using the Repo/Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo A/c is classified under schedule 4 (Borrowings) and balance in Reverse Repo A/c is classified under schedule 7 (Balance with Banks and Money at Call & Short Notice).

Securities purchased / sold under LAF with RBI are debited / credited to Investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

4. ADVANCES

4.1 Assets Classification and provisioning in respect of Non-Performing Advances is made as per Income Recognition, Asset Classification & Provisioning (IRAC) norms issued by the Reserve Bank of India.

4.2 Advances are net of specific loan loss provisions, floating provision, ECGC claims received, bills rediscounted, provision for diminution in fair value and interest sacrifice.

4.3 In addition to the specific provision on NPAs, general provisions are also made for standard assets. These provisions are reflected in Schedule 5 of the balance sheet under the head "Other Liabilities & Provisions - Others" and are not considered for arriving at Net NPAs.

4.4 In case of assets identified as fraud, the provisioning is done over four quarters upon declaration of fraud.

4.5 Legal expenses incurred in respect of suit filed accounts are treated as revenue expenditure and on recovery the same are credited to revenue expenditure.

4.6 The sale of NPA is accounted as per guidelines prescribed by RBI :-

(i) When a bank/FI sells its financial assets, on transfer the same will be removed from its books.

(ii) If the sale to SC/RC is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year. Bank can also use countercyclical/ floating provisions for meeting any shortfall on sale of NPAs i.e. when the sale is at a price below the net book value (NBV).

(iii) With regard to assets sold before February 26 2014, excess provision, on account of sale value being higher than NBV, is not reversed but is utilised to meet the shortfall / loss on account of sale of other financial assets to SC/RC. In case of assets sold after February 26 2014 excess provision on sale of NPAs is accounted if the value is higher than NBV. Further, reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the assets.

However, for assets sold on or after February 26 2014 and upto March 31 2015, as an incentive for early sale of NPAs, Bank is providing, any shortfall, if the sale value is lower than the NBV, over a period of two years.

4.7 In case of restructuring /rescheduling of advances, erosion in the fair value of advances is provided on the basis of present values computed in the manner prescribed by the RBI.

5. FLOATING PROVISION

In accordance with the Reserve Bank of India guidelines, the bank has an approved policy for creation and utilization of floating provisions separately for advances, investments and general purpose. The quantum of floating provisions to be created is assessed at the end of each financial year. The floating provisions are utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of Reserve Bank of India.

6. PROVISION FOR COUNTRY EXPOSURE

In addition to the specific provisions held according to the asset classification status, provisions are held for individual country exposures (other than the home country). Countries are categorised into seven risk categories, namely, insignificant, low, moderate, high, very high, restricted and off-credit, and provisioning made as per extant RBI guidelines. 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 exposures. The provision is reflected in schedule 5 of the balance sheet under the "Other liabilities & Provisions - Others".

7. LEASED ASSETS

7.1 Lease income is recognised based on the internal rate of return method over the primary period of the leased assets and accounted for in accordance with guideline/Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI).

7.2 Depreciation is provided on Straight Line Method at rates prescribed under Schedule-XIV of the Companies Act 1956. Extra lease depreciation, in accordance with the applicable guidelines, is adjusted against the cost of Lease assets through lease equalization account.

7.3 Provision for Non-Performing leased assets is made on the basis of IRAC norms applicable to advances, as per RBI guidelines.

8. DERIVATIVES

8.1 Derivative contracts, such as foreign currency options, interest rate swaps, currency swaps, cross currency interest rate swaps and forward rate agreements are entered, in order to hedge on-balance sheet/off-balance sheet assets and liabilities or for trading purposes. The swap contracts entered to hedge on-balance sheet assets and liabilities are structured in such a way that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is correlated with the movement of the underlying assets and accounted in accordance with the principles of hedge accounting.

8.2 All derivative instruments are recognized as assets or liabilities in the balance sheet and measured at marked to market.

8.3 Derivative contracts classified as hedge are recorded on accrual basis. Hedge contracts are not marked to market unless the underlying Assets / Liabilities are also marked to market.

8.4 Except as mentioned above, all other derivative contracts are marked to market as per the generally accepted practices prevalent in the industry. In respect of derivative contracts that are marked to market, changes in the market value are recognized in the profit and loss account in the period of change.

8.5 Option premium paid or received is recorded in profit and loss account at the expiry of the option. The Balance in the premium received on options sold and premium paid on options bought have been considered to arrive at Marked to Market value for forex Over the Counter options.

9. FIXED ASSETS

9.1 Fixed Assets are carried at cost less accumulated depreciation.

9.2 Premises include freehold as well as leasehold properties.

9.3 Cost includes cost of purchase and all expenditure such as site preparation, installation costs and professional fees incurred on the asset before it is put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefits from such assets or their functioning capability.

Depreciation has been charged on the basis of number of days put to use on a proportionate basis except in the case of non integral software, which is depreciated fully in the first year of use irrespective of number of days put in to use.

9.5 Depreciation on premises is provided on composite cost, wherever the value of land and building is not separately identifiable.

9.6 No depreciation is provided on assets sold/disposed off during the year.

9.7 Capital Work in Progress also includes advance payment for purchase of assets.

10. IMPAIRMENT OF ASSETS

As per Accounting Standard - 28, Fixed Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

11. EMPLOYEE BENEFITS

11.1 Short Term Employee Benefit:

The undiscounted amount of short term employee benefits, such as medical benefits, casual leave etc. which are expected to be paid in exchange for the services rendered by the employees are recognized during the period when the employee renders the service.

11.2 Post Employment Benefits:

i) Defined Benefit Plan

The Bank operates a Provident Fund scheme for its all eligible employees. The Bank contributes monthly its contribution for the employees who have not opted for pension, at a determined rate (currently 10% of employee''s basic pay plus eligible allowance). These contributions are remitted to an approved trust established for this purpose and are charged to Profit & Loss Account.

The Bank operates gratuity and pension schemes, which are defined benefits plans.

The Bank provides for gratuity to all eligible employees. The gratuity, an amount equivalent of 15 days eligible salary payable for each completed year of service, is paid subject to a maximum amount of "10,00,000/- as per Gratuity Act, 1972 unless the same is higher in terms of the State Bank of Bikaner & Jaipur (Payment of Gratuity to Employees) Regulation, 1970. The Bank makes annual contributions to a fund administered by trustees based on an independent external actuarial valuation carried out annually.

The Bank provides for pension to all eligible employees as per the State Bank of Bikaner & Jaipur (Employees'') Pension Regulation, 1995. The benefit is in the form of monthly pension to eligible employees. The Bank makes annual contributions to funds administered by trustees based on an independent external actuarial valuation carried out annually.

The cost of providing defined benefits is determined using the projected unit credit method (recommended method under AS-15), with actuarial valuations being carried out at each balance sheet date.

Gains/ losses are recognized in the statement of profit and loss and are not deferred.

ii) Defined Contribution Plans

The bank operates a new pension scheme (NPS) for all officers/ employees who joined the Bank on or after 1st August, 2010, which is a defined contribution plan, such new employees/officers not being entitled to become members of the existing SBBJ Pension Scheme. As per the scheme, the employees covered contribute 10% of their basic pay plus dearness allowance to the scheme together with a matching contribution from the Bank. Pending completion of registration procedures, these contributions are retained as deposits in the bank and earn interest at the same rate as that of the current account of Provident Fund balance. The bank recognises such annual contributions and interest as an expense in the year to which they relate. Upon receipt of the Permanent Retirement Account Number (PRAN), the consolidated contribution amounts are transferred to the NPS Trust.

iii) Other Long Term Employee benefits:

All eligible employees of the bank are eligible for compensated absences, silver jubilee award, leave travel concession, retirement award and resettlement allowance. The costs of such long term employee benefits are internally funded by the bank.

The cost of providing other long term benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Past service cost is recognized in the statement of profit and loss and is not deferred.

12. EARNINGS PER SHARE

12.1 The Bank reports basic and diluted earnings per share in accordance with AS 20 ''Earnings per Share ''issued by the ICAI. Basic earnings per share are computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the year.

12.2 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.

12.3 Diluted earnings per share are computed using the weighted average number of equity shares and diluted potential equity shares outstanding at year end.

13. TAXES ON INCOME

13.1 Income Tax expense is the aggregate amount of current tax, deferred tax and wealth tax. Current year taxes are determined in accordance with the prevailing tax rates and tax laws. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the year.

13.2 Deferred tax assets and liabilities are recognised on a prudent basis for the future tax consequences of timing differences arising between the carrying values of assets and liabilities and their respective tax basis and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or subsequently enacted prior to the balance sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss account.

13.3 Deferred tax assets are recognized and reassessed at each reporting date, in accordance with AS -22 and based upon management''s judgment as to whether realisation is considered certain. Deferred tax assets are recognized only if there is virtual certainty that such deferred tax assets can be realised against future taxable income.

14. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

14.1 In conformity with AS 29, "Provisions, Contingent Liabilities and Contingent Assets", issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

14.2 No provision is recognized for:

i) Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank; or

ii) Any present obligation that arises from past events but is not recognized because

a) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

b) A reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

iii) Contingent Assets are not recognized in the financial statements as this may result in the recognition of income that may never be realized.

15. CASH & CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in ATM''s, and gold in hand, balances with RBI, balances with other banks, and money at call and short notice.

16. NET PROFIT AND CONTINGENCY FUND

a) Net Profit is arrived at after accounting for the following "Provisions and Contingencies".

i) Depreciation on Investments

ii) Provision for Income Tax and Wealth Tax

iii) Provision for Loan Losses

iv) Provision for Standard Assets and

v) Other usual and necessary provisions and transfer to contingencies.

b) Contingency funds are grouped in Schedule-5 of the Balance sheet under the head "other Liabilities and Provision".


Mar 31, 2013

A BASIS OF PREPARATION:

The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and are in accordance with Generally Accepted Accounting Principles in India (''GAAP''), 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 and current practices prevailing within the banking industry in India.

B USE OF ESTIMATES:

The preparation of financial statements require the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.

1. REVENUE RECOGNITION

1.1 Income & Expenditure are recognised on accrual basis except the following income, which are recognised on cash basis:

i) Interest and other income on Non Performing Assets as per IRAC norms prescribed by RBI

ii) Interest on Non-performing Investments

iii) Commission on L.Cs. and Guarantees (excluding Deferred Payment Guarantees)

iv) Insurance claims

v) Dividend on shares and units of Mutual Funds

vi) Interest on overdue demand bills purchased

vii) Locker Rent

viii) Interest on Tax refund

ix) Commission from Cross Selling Activities

1.2 Profit or loss on sale of investments is recognised in the Profit and Loss Account, however, the profit on sale of investments in the ''Held to Maturity'' category is appropriated net of applicable taxes and amount required to be transferred to statutory reserve to ''Capital Reserve Account''.

1.3 Income (other than interest) on investments in "Held to Maturity" (HTM) category acquired at a discount to the face value, is recognised as follows :

a) On Interest bearing securities, it is recognized only at the time of sale/redemption.

b) On zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

The Bank has followed the Accounting Standard-11 (Revised 2003) issued by the Institute of Chartered Accountants of India regarding foreign exchange transactions and accordingly:-

2.1 Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of transaction.

2.2 Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing spot rate and resultant gain / loss is recognised to Profit and Loss Account.

2.3 Exchange differences arising on the settlement of monetary items at the rates different from those at which they were recorded, are recognized as income or as expense in the period in which they arise.

2.4 Guarantees, Letters of Credit and Forward Exchange Contracts issued in foreign currencies are translated at FEDAI rates on the Balance Sheet date.

3. INVESTMENTS

3.1 The Transactions in Government Securities are recorded on ''Trade Date'' upto 31.12.2010 and on ''Settlement date'' with effect from 01.01.2011. Investment other than Government Securities are recorded on ''Trade Date''.

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

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

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

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

3.6 In determining acquisition cost of an investment:-

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

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

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

3.7 Investments are valued as per RBI/ FIMMDA guidelines, on the following basis: ''Held to Maturity''

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

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

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

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

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

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

3.9 Accounting for Repo/ reverse repo transactions (other than transactions under the Liquidity Adjustment Facility (LAF) with the RBI)

The securities sold and purchased under Repo/ Reverse repo are accounted as Collateralized lending and borrowing transactions. However securities are transferred as in case of normal outright sale/ purchase transactions and such movement of securities is reflected using the Repo/Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo A/c is classified under schedule 4 (Borrowings) and balance in Reverse Repo A/c is classified under schedule 7 (Balance with Banks and Money at Call & Short Notice).

Securities purchased / sold under LAF with RBI are debited / credited to Investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

4. ADVANCES

4.1 Assets Classification and provisioning in respect of Non-Performing Advances is made as per Income Recognition, Asset Classification & Provisioning (IRAC) norms issued by the Reserve Bank of India.

4.2 Advances are net of specific loan loss provisions, floating provision, ECGC claims received, bills rediscounted, provision for diminution in fair value and interest sacrifice.

4.3 In addition to the specific provision on NPAs, general provisions are also made for standard assets. These provisions are reflected in Schedule 5 of the balance sheet under the head "Other Liabilities & Provisions - Others" and are not considered for arriving at Net NPAs.

4.4 Legal expenses incurred in respect of suit filed accounts are treated as revenue expenditure and on recovery the same are credited to revenue expenditure.

4.5 The sale of NPA is accounted as per guidelines prescribed by RBI

i) In case the sale is at a price lower than the Net Book value (NBV), the deficit is charged to Profit & Loss Account.

ii) In case the sale is at price higher than the NBV, the surplus is kept separately for meeting the shortfall/losses, if any, on future sale of other NPAs.

iii) In case of sale of written off accounts, the amount realized is credited to Profit & Loss account.

4.6 In case of restructuring /rescheduling of advances, erosion in the fair value of advances is provided on the basis of present values computed in the manner prescribed by the RBI.

5. FLOATING PROVISION

In accordance with the Reserve Bank of India guidelines, the bank has an approved policy for creation and utilization of floating provisions separately for advances, investments and general purpose. The quantum of floating provisions to be created would be assessed at the end of each financial year. The floating provisions would be utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of Reserve Bank of India.

6. PROVISION FOR COUNTRY EXPOUSURE

In addition to the specific provisions held according to the asset classification status, provisions are held for individual country exposures (other than the home country). Countries are categorised into seven risk categories, namely, insignificant, low, moderate, high, very high, restricted and off-credit, and provisioning made as per extant RBI guidelines. 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 exposures. The provision is reflected in schedule 5 of the balance sheet under the "Other liabilities & Provisions - Others".

7. LEASED ASSETS

7.1 Lease income is recognised based on the internal rate of return method over the primary period of the leased assets and accounted for in accordance with guideline/Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI).

7.2 Depreciation is provided on Straight Line Method at rates prescribed under Schedule-XIV of the Companies Act 1956. Extra lease depreciation, in accordance with the applicable guidelines, is adjusted against the cost of Lease assets through lease equalization account.

7.3 Provision for Non-Performing leased assets is made on the basis of IRAC norms applicable to advances, as per RBI guidelines.

8. DERIVATIVES

8.1 Derivative contracts, such as foreign currency options, interest rate swaps, currency swaps, cross currency interest rate swaps and forward rate agreements are entered, in order to hedge on-balance sheet/off-balance sheet assets and liabilities or for trading purposes. The swap contracts entered to hedge on-balance sheet assets and liabilities are structured in such a way that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is correlated with the movement of the underlying assets and accounted in accordance with the principles of hedge accounting.

8.2 All derivative instruments are recognized as assets or liabilities in the balance sheet and measured at marked to market.

8.3 Derivative contracts classified as hedge are recorded on accrual basis. Hedge contracts are not marked to market unless the underlying Assets / Liabilities are also marked to market.

8.4 Except as mentioned above, all other derivative contracts are marked to market as per the generally accepted practices prevalent in the industry. In respect of derivative contracts that are marked to market, changes in the market value are recognized in the profit and loss account in the period of change.

8.5 Option premium paid or received is recorded in profit and loss account at the expiry of the option. The Balance in the premium received on options sold and premium paid on options bought have been considered to arrive at Marked to Market value for forex Over the Counter options.

9. FIXED ASSETS

9.1 Fixed Assets are carried at cost less accumulated depreciation.

9.2 Premises include freehold as well as leasehold properties.

9.3 Cost includes cost of purchase and all expenditure such as site preparation, installation costs and professional fees incurred on the asset before it is put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefits from such assets or their functioning capability.

9.5 Depreciation on premises is provided on composite cost, wherever the value of land and building is not separately identifiable.

9.6 No depreciation is provided on assets sold/disposed off during the year.

9.7 Capital Work in Progress also includes advance payment for purchase of assets.

10. IMPAIRMENT OF ASSETS

As per Accounting Standard - 28, Fixed Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

11. EMPLOYEE BENEFITS

11.1 Short Term Employee Benefit:

The undisclosed amount of short term employee benefits, such as medical benefits, casual leave etc. which are expected to be paid in exchange for the services rendered by the employees are recognized during the period when the employee renders the service.

11.2 Post Employment Benefits:

i) Defined Benefit Plan

The Bank operates a Provident Fund scheme for its all eligible employees. The Bank contributes monthly its contribution for the employees who have not opted for pension, at a determined rate (currently 10% of employee''s basic pay plus eligible allowance). These contributions are remitted to an approved trust established for this purpose and are charged to Profit & Loss Account.

The Bank operates gratuity and pension schemes, which are defined benefits plans.

The Bank provides for gratuity to all eligible employees. The gratuity, an amount equivalent of 15 days eligible salary payable for each completed year of service, is paid subject to a maximum amount of Rs.10,00,000/- as per Gratuity Act, 1972 unless the same is higher in terms of the State Bank of Bikaner & Jaipur (Payment of Gratuity to Employees ) Regulation, 1970. The Bank makes annual contributions to a fund administered by trustees based on an independent external actuarial valuation carried out annually.

The Bank provides for pension to all eligible employees as per the State Bank of Bikaner & Jaipur (Employees'') Pension Regulation, 1995. The benefit is in form of monthly pension to eligible employees. The Bank makes annual contributions to funds administered by trustees based on an independent external actuarial valuation carried out annually.

The cost of providing defined benefits is determined using the projected unit credit method (recommended method under AS-15), with actuarial valuations being carried out at each balance sheet date.

Gains/ losses are recognized in the statement of profit and loss and are not deferred.

ii) Defined Contribution Plans

The Bank operates a new pension scheme (NPS) for all officers / employees joining the Bank on or after 1st April, 2010, which is a defined contribution plan, such new joinees not being entitled to become members of the existing SBBJ Pension Scheme. During the year, The Bank has approved a Defined Contribution Pension Scheme namely SBBJ Employees'' Defined Contribution Pension Scheme (SBBJEDCPS) which has been implemented in the Bank. As per the scheme, employees covered under the scheme contribute 10% of their basic pay plus dearness allowance to the scheme together with a matching contribution from the Bank. Consequently, during the year around 1800 employees out of the 2350 employees, joined on or after 01.04.2010, have been allotted Permanent Retirement Account Number (PRAN) by the National Depository Security Ltd. (NSDL), Central Recordkeeping Agency (CRA) under the scheme and their contribution amounting to Rs. 8.78 crore have been remitted to the Trustee Bank, Bank of India, Mumbai for crediting to the employees'' accounts (PRAN). Efforts are being made to get PRAN allotted to the remaining 550 employees and remit their contribution together with interest amounting to Rs. 3.44 crore. The Bank recognizes such annual contribution and interest as expenses in the year to which they relate.

iii) Other Long Term Employee benefits:

All eligible employees of the bank are eligible for compensated absences; leave travel concession, retirement award and resettlement allowance. The costs of such long term employee benefits are internally funded by the bank.

The cost of providing other long term benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Past service cost is recognized in the statement of profit and loss and is not deferred.

12. EARNINGS PER SHARE

12.1 The Bank reports basic and diluted earnings per share in accordance with AS 20 ''Earnings per Share ''issued by the ICAI. Basic earnings per share are computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the year.

12.2 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.

12.3 Diluted earnings per share are computed using the weighted average number of equity shares and diluted potential equity shares outstanding at year end.

13. TAXES ON INCOME

13.1 Income Tax expense is the aggregate amount of current tax, deferred tax and wealth tax. Current year taxes are determined in accordance with the prevailing tax rates and tax laws. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the year.

13.2 Deferred tax assets and liabilities are recognised on a prudent basis for the future tax consequences of timing differences arising between the carrying values of assets and liabilities and their respective tax basis and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or subsequently enacted prior to the balance sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss account.

13.3 Deferred tax assets are recognized and reassessed at each reporting date, in accordance with AS -22 and based upon management''s judgment as to whether realisation is considered certain. Deferred tax assets are recognized only if there is virtual certainty that such deferred tax assets can be realised against future taxable income.

13.4 Special Reserve Account has been created under section 36 (i) (viii) of the Income Tax, 1961 from the Financial Year 2011-12, to avail the deduction. Bank has decided that it has no intention to make withdrawal from such Special Reserve created and maintained. Further such special reserve is in the nature of non-reversible and thus becomes a permanent difference and accordingly no deferred tax liability is created.

14. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

14.1 In conformity with AS 29, "Provisions, Contingent Liabilities and Contingent Assets", issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

14.2 No provision is recognized for:

i) Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank; or

ii) Any present obligation that arises from past events but is not recognized because

a) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

b) A reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

iii) Contingent Assets are not recognized in the financial statements as this may result in the recognition of income that may never be realized.

15. CASH & CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in ATM''s, and gold in hand, balances with RBI, balances with other banks, and money at call and short notice.

16. NET PROFIT AND CONTINGENCY FUND

a) Net Profit is arrived at after accounting for the following "Provisions and Contingencies".

i) Depreciation on Investments

ii) Provision for Income Tax and Wealth Tax

iii) Provision for Loan Losses

iv) Provision for Standard Assets and

v) Other usual and necessary provisions and transfer to contingencies.

b) Contingency funds are grouped in Schedule-5 of the Balance sheet under the head "other Liabilities and Provision".


Mar 31, 2011

1. GENERAL

(a) Basis of Preparation:

The accompanying financial statements are prepared under the historical cost convention. They conform to Generally Accepted Accounting Principles in India, which comprises the statutory provisions, regulatory /Reserve Bank of India (RBI) Guidelines, Accounting Standards/guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and practices prevalent in the Banking Industry in India.

(b) Use of Estimates:

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

The Bank has followed the Accounting Standard-11 (Revised 2003) issued by the Institute of Chartered Accountants of India regarding foreign exchange translation and accordingly:-

a) Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of transaction.

b) Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing spot rate and resultant gain / loss is carried to Profit and Loss Account.

c) Exchange differences arising on the settlement of monetary items at the rates different from those at which they were recorded, are recognized as income or as expense in the period in which they arise.

d) Guarantees, Letters of Credit, Forward Exchange Contracts issued in foreign currencies are translated at FEDAI rates on the Balance Sheet date.

3. INVESTMENTS

a) The investment portfolio of the Bank is classified in accordance with the Reserve Bank of India guidelines into three categories viz.

i. Held to Maturity,

ii. Available for Sale,

iii. Held for Trading.

However, for disclosure in the Balance Sheet, these are classified under six groups:

i. Govt. Securities,

ii. Other Approved securities,

iii. Shares,

iv Debentures & Bonds,

v Subsidiaries/Joint Ventures,

vi Others.

b) For the purpose of valuation, in terms of RBI guidelines, the following principles have been adopted :-

i. Securities held in "Held To Maturity" category are valued at book value. However, in case of permanent diminution, the same is stated at net of such diminution. The excess of book value over the face value is amortised over the remaining period of maturity using constant yield method.

ii. Securities classified as "Available For Sale" are marked to market at the end of each quarter, which are valued scrip-wise and depreciation/appreciation for each category as disclosed in the Balance Sheet is aggregated. Net depreciation, if any, is provided for, while net appreciation is ignored.

iii. Securities in "Held For Trading" category are revalued at monthly intervals and the net depreciation is recognised and net appreciation is ignored.

iv. Broken period interest paid / received on debt instruments is treated as interest expense/ income and is excluded from cost/sale consideration.

v. Cost is determined on the weighted average cost method.

c) The securities classified, as "Available For Sale" and "Held For Trading" are valued as follows:

1. Govt, of India Securities At market price as per quotation put out by FIMMDA.

2. State Development Loans, As per YTM put out by FIMMDA. Securities guaranteed by Central/State Govt., PSU Bonds

3. Treasury Bills/Commercial At Carrying Cost. Papers/Investment in

Regional Rural Banks

4. Equity Shares At market price, if quoted, otherwise at Book value if latest Balance Sheet is available (not more than 1 year old) or Re. 1 /- per company.

5. Preference Shares, Debentures At market price, if quoted or at appropriate yield to maturity basis not exceeding redemption value.

6. Mutual Fund Units At market price, if quoted otherwise at repurchase price/Net Asset Value.

d) The non-performing investments are identified and depreciation/provision is made as per RBI guidelines.

e) The cost of investment is net of upfront incentives, brokerage and commission received.

f) Profit or Loss on sale of Investments is recognised on the basis of weighted average cost.

g) Investments in Regional Rural Banks are classified under Held To Maturity (HTM) Category.

h) Repo and Reverse Repo Transactions

a) The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions [other than transactions under the Liquidity Adjustment Facility (LAF) with the RBI], Accordingly, the securities sold/ purchased under Repo/Reverse Repo are treated as outright sales/purchases and accounted for in the Repo/Reverse Repo Accounts, and the entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo/Reverse Repo Account is adjusted against the balance in the Investment Account.

b) Securities purchased / sold under LAF with RBI are debited / credited to Investment Account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

4. ADVANCES

a) Assets Classification and provisioning in respect of Non-Performing Advances is made as per Income Recognition, Asset Classification & Provisioning (IRAC) norms issued by the Reserve Bank of India.

b) Advances are net of specific loan loss provisions, floating provision, ECGC claims received, bills rediscounted and unrealised interest on Non Performing Advances.

c) CDR approved packages are treated as fully implemented if the conditions prescribed by CDR empowered Group are fulfilled.

d) Legal expenses incurred in respect of suit filed accounts are treated as revenue expenditure and on recovery the same are credited to revenue expenditure.

e) Financial Assets sold to Assets Reconstruction company (India) Limited (ARCIL), Banks, FIs and to NBFCs :-

i) In case the sale is at a price lower than the Net Book value (NBV), the deficit is charged to Profit & Loss Account.

ii) In case the sale is at price higher than the NBV, the surplus is kept separately for meeting the shortfall/ losses, if any, on future sale of other NPAs.

iii) In case of sale of written off accounts, the amount realized is credited to Profit & Loss account.

f) In case of restructuring /rescheduling of advances, erosion in the fair value of advances is provided on the basis of present values computed in the manner prescribed by the RBI.

5. FLOATING PROVISION

In accordance with the Reserve Bank of India guidelines, the bank has an approved policy for creation and utilization of floating provisions separately for advances, investments and general purpose. The quantum of floating provisions to be created would be assessed at the end of each financial year. The floating provisions would be utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of Reserve Bank of India.

6. DERIVATIVES

i) Derivative contracts, such as foreign currency options, interest rate swaps, currency swaps and cross currency interest rate swaps and forward rate agreements are entered, in order to hedge on-balance sheet/off-balance sheet assets and liabilities or for trading purposes. The swap contracts entered to hedge on-balance sheet assets and liabilities are structured in such a way that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is corelated with the movement of the underlying assets and accounted in accordance with the principles of hedge accounting.

ii) All derivative instruments are recognized as assets or liabilities in the balance sheet and measured at marked to market.

iii) Derivative contracts classified as hedge are recorded on accrual basis. Hedge contracts are not marked to market unless the underlying Assets / Liabilities are also marked to market.

iv) Except as mentioned above, all other derivative contracts are marked to market as per the generally accepted practices prevalent in the industry. In respect of derivative contracts that are marked to market, changes in the market value are recognized in the profit and loss account in the period of change.

v) Option premium paid or received is recorded in profit and loss account at the expiry of the option. The Balance in the premium received on options sold and premium paid on options bought has been considered to arrive at Marked to Market value for forex Over the Counter options.

7. FIXED ASSETS

a) Fixed Assets are carried at cost less accumulated depreciation.

b) Premises include freehold as well as leasehold properties.

c) Cost includes cost of purchase and all expenditure such as site preparation, installation costs and professional fees incurred on the asset before it is put to use. Subsequently expenditure incurred on assets put to use is capitalised only when it is increases the future benefits from such assets or their functioning capability.

d) Depreciation on Fixed Assets is provided as under :-

i. On Computers & ATM Straight Line Method @ 33.33% every year

ii. On Computer Software not forming @ 100%, in the year of acquisition integral part of hardware

iii. Leasehold land and Building Amortised as per the life of the lease

iv On rest of the assets including On diminishing balance method at the rates and in the

Software forming integral part manner prescribed under Income Tax Rules-1962 of hardware

e) Depreciation on premises is provided on composite cost, wherever the value of land and building is not separately identifiable.

f) No depreciation is provided on assets sold/disposed off during the year.

g) Capital Work in Progress also includes advance payment for purchase of assets.

8. LEASED ASSETS

i) Lease income is recognised based on the internal rate of return method over the primary period of the leased assets and accounted for in accordance with guideline/Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI).

ii) Depreciation is provided on Straight Line Method at rates prescribed under Schedule-XIV of the Companies Act 1956. Extra lease depreciation, in accordance with the applicable guidelines, is adjusted against the cost of Lease assets through lease equalization account.

iii) Provision for Non-Performing leased assets is made on the basis of IRAC norms applicable to advances, as per RBI guidelines.

9. IMPAIRMENT OF ASSETS

As per Accounting Standard-28, Fixed Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

10. EMPLOYEE BENEFITS

i) Short Term Employee Benefit:

The undisclosed amount of short term employee benefits, such as medical benefits, casual leave etc. which are expected to be paid in exchange for the services rendered by the employees are recognized during the period when the employee renders the service.

ii) Post Employment Benefits:

a) Defined Benefit Plan

The Bank operates a Provident Fund scheme for its all eligible employees. The Bank contributes monthly its contribution for the employees who have not opted for pension, at a determined rate (currently 10% of employees basic pay plus eligible allowance). These contributions are remitted to an approved trust established for this purpose and are charged to Profit & Loss Account.

The Bank operates gratuity and pension schemes, which are defined benefits plans.

The Bank provides for gratuity to all eligible employees. The gratuity, an amount equivalent of 15 days eligible salary payable for each completed year of service, is paid subject to a maximum amount of Rs. 10,00,000/- as per Gratuity Act, 1972 unless the same is higher in terms of the State Bank of Bikaner & Jaipur (Payment of Gratuity to Employees ) Regulation, 1970. The Bank makes annual contributions to a fund administered by trustees based on an independent external actuarial valuation carried out annually.

The Bank provides for pension to all eligible employees as per the State Bank of Bikaner & Jaipur (Employees) Pension Regulation, 1995. The benefit is in form of monthly pension to eligible employees. The Bank makes annual contributions to funds administered by trustees based on an independent external actuarial valuation carried out annually.

The cost of providing defined benefits is determined using the projected unit credit method (recommended method under AS-15), with actuarial valuations being carried out at each balance sheet date.

Actuarial gains/ losses are recognized in the statement of profit and loss and are not deferred.

b) Other Long Term Employee benefits:

All eligible employees of the bank are eligible for compensated absences, leave travel concession, retirement award and resettlement allowance. The costs of such long term employee benefits are internally funded by the bank.

The cost of providing other long term benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Past service cost is recognized in the statement of profit and loss and is not deferred.

11. EARNINGS PER SHARE

i) The Bank reports basic and diluted earnings per share in accordance with AS - 20 Earnings per Share issued by the ICAI. Basic earnings per share are computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the year.

ii) 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 are computed using the weighted average number of equity shares and diluted potential equity shares outstanding at year end.

12. PROVISION FOR TAXATION

i) Income Tax expense is the aggregate amount of current tax, deferred tax and wealth tax. Current year taxes are determined in accordance with the prevailing tax rates and tax laws. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the year.

ii) Deferred tax assets and liabilities are recognised on a prudent basis for the future tax consequences of timing differences arising between the carrying values of assets and liabilities and their respective tax basis and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or subsequently enacted prior to the balance sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss account.

iii) Deferred tax assets are recognized and reassessed at each reporting date, in accordance with AS -22 and based upon managements judgment as to whether realisation is considered certain. Deferred tax assets are recognized only if there is virtual certainty that such deferred tax assets can be realised against future taxable income.

13. INCOME AND EXPENDITURE RECOGNITION

a) INCOME

Interest and other income are recognised on accrual basis except the following, which are recognised on cash basis:

i) Interest and other income on Non Performing Assets as per IRAC norms prescribed by RBI.

ii) Interest on Non-performing Investments.

iii) Commission on L.Cs. and Guarantees (excluding Deferred Payment Guarantees).

iv) Insurance claims.

v) Dividend on shares and units of Mutual Funds.

vi) Interest on overdue demand bills purchased.

vii) Locker Rent.

viii) Interest on Tax refund.

ix) Commission from Cross Selling Activities.

b) EXPENDITURE

Revenue expenditure are accounted for on accrual basis.

14. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

i) In conformity with AS-29, "Provisions, Contingent Liabilities and Contingent Assets", issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made.

ii) No provision is recognized for:

a) Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or

b) Any present obligation that arises from past events but is not recognized because

i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

ii) or a reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

c) Contingent Assets are not recognized in the financial statements as this may result in the recognition of income that may never be realised.

15. CASH & CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in ATMs and gold in hand, balances with RBI, balances with other banks and money at call and short notice.

16. NET PROFIT AND CONTINGENCY FUND

a) Net Profit is arrived at after accounting for the following "Provisions and Contingencies".

- Depreciation on Investments

- Provision for Income Tax and Wealth Tax

- Provision for Loan Losses

- Provision for Standard Assets and

- Other usual and necessary provisions and transfer to contingencies.

b) Contingency funds are grouped in the Balance Sheet under the head " Other Liabilities and Provisions".


Mar 31, 2010

1. GENERAL

The accompanying financial statements are prepared under the historical cost convention. They conform to Generally Accepted Accounting Principles in India, which comprises the statutory provisions, regulatory/ Reserve Bank of India (RBI) Guidelines, Accounting Standards/guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the Banking Industry in India.

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

The Bank has followed the Accounting Standard - 11 (Revised 2003) issued by the Institute of Chartered Accountants of India regarding foreign exchange translations and accordingly:-

a) Foreign Currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency on the date of transaction.

b) Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing spot rate and resultant gain / loss is carried to Profit and Loss Account.

c) Exchange differences arising on the settlement of monetary items at the rates different from those at which they were recorded, are recognized as income or as expense in the period in which they arise.

d) Guarantees, Letters of Credit, Forward Exchange Contracts issued in foreign currencies are translated at FEDAI rates on the Balance Sheet date.

3. INVESTMENTS

a) The investment portfolio of the Bank is classified in accordance with the Reserve Bank of India guidelines into three categories viz.

i. Held to Maturity,

ii. Available for Sale,

iii. Held for Trading.

However, for disclosure in the Balance Sheet, these are classified under six groups:

i. Govt. Securities,

ii. Other Approved securities,

iii.. Shares

iv. Debentures & Bonds,

v. Subsidiaries/Joint Ventures

vi. Others.

b) For the purpose of valuation, in terms of RBI guidelines, the following principles have been adopted :-

i. Securities held in Held To Maturity category are valued at book value. However, in case of permanent diminution, the same is stated at net of such diminution. The excess of book value over the face value is amortised over the remaining period of maturity using constant yield method.

ii. Securities classified as Available For Sale" are marked to market at the end of each quarter, which are valued scrip-wise and depreciation/appreciation for each category as disclosed in the Balance Sheet is aggre- gated. Net depreciation, if any, is provided for, while net appreciation is ignored.

iii. Securities in "Held For Trading" category are revalued at monthly intervals and the net depreciation is recognised and net appreciation is ignored.

iv. Broken period interest paid/received on debt instruments is treated as interest expense/income and is excluded from cost/sale consideration.

v. Cost is determined on the weighted average cost method.

c) The securities classified, as "Available For Sale" and "Held For Trading" are valued as follows:

1. Govt, of India Securities At market price as per quotation put out by FIMMDA.

2. State Development Loans, As per YTM put out by FIMMDA. Securities guaranteed by

Central/State Govt., PSU Bonds

3. Treasury Bills/Commercial Papers/Investment in Regional Rural Banks

At Carrying Cost.

4. Equity Shares

At market price, if quoted, otherwise at Book value if latest Balance Sheet is available (not more than 1 year old) or Re. 1/- per company.

5. Preference Shares, Debentures At market price, if quoted or at appropriate yield to maturity basis not exceeding redemption value.

6. Mutual Fund Units

At market price, if quoted otherwise at repurchase price/Net Asset Value.

d) The non-performing investments are identified and depreciation/provision is made as per RBI guidelines.

e) The cost of investment is net of upfront incentives, brokerage and commission received.

f) Profit or Loss on sale of Investments is recognised on the basis of weighted average cost

g) Investments in Regional Rural Banks are classified under Held To Maturity (HTM) Category. h) Repo and Reverse Repo Transactions

a) The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions [other than transactions under the Liquidity Adjustment Facility (LAF) with the RBI]. Accordingly, the securities sold/purchased under Repo/Reverse Repo and treated as outright sales/purchases and accounted for in the Repo/Reverse Repo Accounts, and the entries and reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo/Reverse Repo Account is adjusted against the balance in the Investment Account.

b) Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and reversed on maturity of the transaction. Interest expended/earned thereon is accounted for as expenditure/revenue.

4. ADVANCES

a) Assets Classification and provisioning in respect of Non-Performing Advances is made as per Income Recognition, Asset Classification & Provisioning (IRAC) norms issued by the Reserve Bank of India.

b) Advances are stated net of:

- Provisions including floating provisions

- Interest not collected and unrealised interest of previous years in respect of NPAs

- Bills rediscounted with IDBI/SIDBI

- Claims received

c) Implementation of the CDR approved restructuring package has been considered to have taken effect upon its approval by the CDR empowered group.

d) Legal expenses incurred in respect of suit filed accounts are treated as revenue expenditure and on recovery the same are credited to revenue expenditure.

e) Financial Assets sold to Assets Reconstruction company (India) Limited (ARCIL), Banks, FIs and to NBFCs :-

i) In case the sale is at a price lower than the Net Book value (NBV), the deficit is charged to Profit & Loss Account.

ii) In case the sale is at price higher than the NBV, the surplus is kept separately for meeting the shortfall/ losses, if any, on future sale of other NPAs.

iii) In case of sale of written off accounts, the amount realized is credited to Profit & Loss account.

f) In case of restructuring / rescheduling of advances, erosion in the fair value of advances is provided on the basis of Present values computed in the manner prescribed by the RBI.

5. FLOATING PROVISION

In accordance with the Reserve Bank of India guidelines, the bank has an approved policy for creation and utilization of floating provisions separately for advances, investments and general purpose. The quantum of floating provisions to be created would be assessed at the end of each financial year. The floating provisions would be utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of Reserve Bank of India.

6. DERIVATIVES

i) Derivative contracts, such as foreign currency options, interest rate swaps, currency swaps, and cross currency interest rate swaps and forward rate agreements are entered, in order to hedge on-balance sheet/off-balance sheet assets and liabilities or for trading purposes. The swap contracts entered to hedge on-balance sheet assets and liabilities are structured in such a way that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is corelated with the movement of the underlying assets and accounted in accordance with the principles of hedge accounting.

ii) All derivative instruments are recognized as assets or liabilities in the balance sheet and measured at marked to market

iii) Derivative contracts classified as hedge are recorded on accrual basis. Hedge contracts are not marked to market unless the underlying Assets / Liabilities are also marked to market.

iv) Except as mentioned above, all other derivative contracts are marked to market as per the generally accepted practices prevalent in the industry. In respect of derivative contracts that are marked to market, changes in the market value are recognized in the profit and loss account in the period of change.

v) Option premium paid or received is recorded in profit and loss account at the expiry of the option. The Balance in the premium received on options sold and premium paid on options bought has been considered to arrive at Marked to Market value for forex Over the Counter options.

7. FIXED ASSETS

a) Fixed assets are stated at historical cost.

b) Depreciation on Fixed Assets is provided as under :-

i) On Computers Straight Line Method @ 33.33% every year.

ii) On Computer Software not forming @ 100% integral part of hardware

iii) On rest of the assets including On diminishing balance method at the rates Software forming integral part prescribed under Income Tax Rules 1962 of hardware

c) Depreciation on premises is provided on composite cost, wherever the value of land and building is not separately identifiable.

d) No depreciation is provided on assets sold/disposed off during the year.

e) Capital Work in Progress also includes advance payment for purchase of assets.

f) In respect of leasehold premises, the lease amount is amortised over the period of lease.

8. LEASED ASSETS

i) Lease income is recognised based on the internal rate of return method over the primary period of the leased assets and accounted for in accordance with guideline/Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI).

ii) Depreciation is provided on Straight Line Method at rates prescribed under Schedule-XIV of the Companies Act 1956. Extra lease depreciation, in accordance with the applicable guidelines, is adjusted against the cost of Lease assets through lease equalization account.

iii) Provision for Non-Performing leased assets is made on the basis of IRAC norms applicable to advances, as per RBI guidelines.

9. IMPAIRMENT OF ASSETS

As per Accounting Standard - 28, Fixed Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

10. EMPLOYEES BENEFITS

All the employee benefits are recognised in conformity with AS 15 (Revised 2005).

i) Post Employment Benefit Plans

a) Contribution payable to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to contributions.

b) Liability for defined benefit schemes viz. gratuity, pension and resettlement expenses is determined in conformity with AS 15 (Revised 2005). The liability for the current year is provided by charging to the Profit & Loss A/c.

ii) Short term employee benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include compensated absence such as casual leave, medical benefits.

iii) Long Term Employee Benefits

Compensated absence which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability of the defined benefit obligation on the basis of actuarial valuation at the balance sheet date.

11. EARNINGS PER SHARE

i. The Bank reports basic and diluted earnings per share in accordance with AS 20Earnings per Share issued by the ICAI. Basic earnings per share are computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the year.

ii. 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 are computed using the weighted average number of equity shares and diluted potential equity shares outstanding at year end.

12. PROVISION FOR TAXATION

i) Provision for Income Tax is made in accordance with the provisions of Income Tax Act 1961. Disputed tax liabilities not provided for are included under "Contingent liabilities".

ii) Deferred tax liabilities/Assets are recognized/accounted for in terms of Accounting Standard 22 issued by ICAI.

13. INCOME AND EXPENDITURE RECOGNITION

(a) INCOME

Interest and other income are recognised on accrual basis except the following, which are recognised on cash basis:

(i) Interest and other income on Non Performing Assets as per IRAC norms prescribed by RBI.

(ii) Interest on Non-performing Investments

(iii) Commission on L.Cs. and Guarantees (excluding Deferred Payment Guarantees)

(iv) Insurance claims.

(v) Dividend on shares and units of Mutual Funds.

(vi) Interest on overdue demand bills purchased.

(vii) Locker Rent.

(viii) Interest on Tax refund

(ix) Commission from Cross Selling Activities

(b) EXPENDITURE

Revenue expenditures are accounted for on accrual basis.

14. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

i) In conformity with AS 29, "Provisions, Contingent Liabilities and Contingent Assets", issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made.

ii) No provision is recognized for:

a) any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank; or

b) any present obligation that arises from past events but is not recognized because

i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

ii) a reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made. c) Contingent Assets are not recognized in the financial statements as this may result in the recognition of income that may never be realised.

15. CASH & CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and in ATMs, and gold in hand, balances with RBI.

 
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