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Accounting Policies of State Bank of Travancore Company

Mar 31, 2015

1. CAPITAL

1.1 Capital Adequacy Ratio

As per the extant guidelines of RBI, Bank has migrated to Basel III framework with efect from 01.04.2013. Bank has adopted Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk towards compounding the minimum Capital under BASEL - III.

1.2 Preferential Allotment of Equity

During the year the Bank by way of a preferential allotment allotted 92,53,473 Equity Shares to SBI, which ranks pari - passu with the existing equity shares of the Bank in all respects, including dividend, at an issue price of Rs.416.06 per share (face value Rs.10 each at a premium of Rs.406.06 per equity share). The said shares have been locked in for a period of three years up to 10th June, 2017. Consequently, the SBI shareholdings has increased from 75.00% to 78.91%.

1.3 Share Application Money Pending Allotments

The Bank has ofered 1,18,50,694 Equity Shares of Rs.10 each fully paid up ("Rights Issue") for cash at a price of Rs.400 including a Premium of Rs.390 per equity share aggregating to Rs.474.03 Crores to the existing Equity Shareholders of the Bank on Rights Basis in the Ratio of 1 (One) fully paid-up equity share for every 5 (Five) equity shares held on the Record Date i.e. 4th March, 2015 ("Rights Issue"). The Issue opened on 17th March 2015 and closed on 31st March 2015. Application received for 1,18,50,694 equity shares amounting to Rs.474.03 Crores (including 1,10,91,028 shares amounting to Rs.443.64 Crores received through ASBA process) is disclosed as Share Application money pending allotment as on the date of Balance sheet.

Subsequent to the Balance Sheet date, on 13th April, 2015, the Bank has allotted 1,18,50,694 equity shares of Rs.10 each against above share application money.

The objects of the Issue are to augment the bank''s capital base to meet the capital requirements and growth in the assets, primarily the loan and investment portfolio.

a) The value of sales and transfers of securities to/from HTM category does not exceed 5 per cent of the book value of investments held in HTM category at the beginning of the year

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

b) In terms of RBI Circular No.DBOD.BP.BC.No.41/21.04.141/2013-14 dated 23.08.2013 on "Investments portfolio of banks - Classifcation, Valuation and Provisioning", Bank has transferred SLR securities with face value of Rs.1445 crores (Book Value of Rs.1402.15 crores) held under AFS portfolio to HTM portfolio and the loss on such transfer amounting to Rs.35.74 crores has been recognized during the year.

a. The Bank has entered into (1) Interest Rate Swap (Coupon only swaps) for hedging the interest rate risks of Tier II Bonds and (2) Interest Rate Swap for hedging the interest rate risks of FCNR (B) deposits. No swap transaction was undertaken for trading purpose during the year.

b. All the Interest Rate Swaps are within the counter party exposure limits.

c. The value and maturity of the hedge have not exceeded the underlying liabilities and no stand-alone transactions are initiated / outstanding.

d. The Coupon only swaps are done in Japanese Yen and Indian Rupees receiving Fixed Rate interest in Indian Rupee and paying Japanese Yen LIBOR for one year (plus a spread) with a cap of 1%.

e. There is an exchange risk in respect of interest payout for coupon only swap transaction as the same is marked to market.

f. Forex based Interest Rate Swaps are done in US Dollars receiving fxed and paying six month LIBOR – linked foating rate interest.

g. Carrying value of the Notional Principal amount of the outstanding swaps is same as the Notional Principal amount and outstanding Interest Rate Swaps arrived at FEDAI revaluation rate as on balance sheet dates

h. The Bank has not ofered any collateral for undertaking the swaps.

i. There is no concentration of credit risks arising from Interest Rate Swaps undertaken during the year.

j. No Forward Rate Agreement transaction was undertaken during the year.

k. Disclosure is made on the information/valuations provided by the counterparty banks, viz, State Bank of India and ICICI Bank Limited.

3.4 Disclosures on risk exposure in derivatives

a. Qualitative Disclosure

i. Bank has started trading in currency futures through MCX Exchange with IL&FS as Clearing agent as per Board approved policy.

ii. As risk measurement and monitoring, the hedge instrument is marked to the market at periodical intervals to ensure its efectiveness.

iii. Identifying an underlying, employing a derivative to hedge the Rate Sensitive Gap and reviewing the efectiveness based on interest rate view are some of the processes in risk mitigation.

iv. Hedge transactions are accounted on accrual basis and no marking to market is done. However, fair value and likely loss in the event of counter party default is disclosed. Credit Risk is mitigated through counter party exposure norms set internally.

b. Quantitative Disclosure

For compiling the country-wise risk exposure, the Bank has used the Country Risk Management Policy last reviewed and approved by the Board at its meeting held on 09.03.2015. Since the Bank does not have net funded exposure of more than 1% of its total assets as on 31.03.2015 to any of the Countries, provision for Country risk is not necessary.

7.4. Details of Single Borrower (SGL) / Group Borrower (GBL) Limit exceeded by the Bank In terms of the Loan Policy, the exposure should not exceed 15% of capital funds (Tier I and Tier II) for single borrower and 40% of capital funds for a group borrower. The ceiling may, however, go upto 20% for single borrower and 50% for a group borrower provided the additional exposure is on account of infrastructure projects in specifed sectors. The bank may also, in exceptional circumstances, with the approval of the Board, consider the enhancement of the exposure to a borrower (Single and Group) up to a maximum of a further 5% of the Bank''s capital funds, subject to such borrowers consenting to the bank to make appropriate disclosure in the Bank''s Annual Report. The Bank''s position as on 31.03.2015 was as under:

a. Individual accounts (Ceiling level 15% of Capital Funds- Rs.953.64 crore)

Bank has not exceeded the exposure ceiling in any single borrower.

b. Group Borrowers (Ceiling level of 40% of Capital Funds: Rs.2543.05 crores) Bank has not exceeded the exposure ceiling in any group of borrowers.

8. Disclosures of Penalties imposed by Reserve Bank of India

During the year RBI has not imposed any penalty on the Bank under Section 46(4) of Banking Regulation Act.

During the year RBI has imposed a penalty of Rs.6,21,900/- on the Bank and the details are as under:

i. Penalty for irregularities in Currency Chest Branch -- Total 6 and Rs.2,14,200/-.

ii. Penalty for the detection of Fake Indian Currency from soiled note remittances -- Total 88 and Rs. 4,07,700/-

9. DISCLOSURE AS PER ACCOUNTING STANDARDS (AS)

9.1. Accounting Standard 5: Net profit or Loss for the period, prior period items and changes in Accounting Policies There are no material prior period income / expenditure items for the year.

9.2. Change in Accounting Policy in respect of Depreciation on Fixed Assets.

1. The Bank has changed its method of charging depreciation on its fxed assets from Written Down Value Method to Straight Line Method. Computers and software (which do not form part of an integral part of hardware) continue to be depreciated under Straight Line Method as in earlier years.

2. The revised rates are based on the estimate of the management on the useful life of the respective assets.

3. The impact of the change in the Accounting Policy is as follows:

a) The Book Value of the Fixed Assets has increased by Rs.8.36 Crores and the Accumulated Depreciation as on 31st March, 2014 has reduced by Rs.5.67 Crores and Depreciation for the year ended 31st March, 2015 has also reduced by Rs.2.69 Crores.

b) Had the bank followed the earlier method, the depreciation for the year would have been Rs. 92.51 Crores as against the actual charge of Rs.84.16 Crores.

3. Under the new method, depreciation will be charged on the basis of number of days put to use on a proportionate basis except in the case of non – integral software which has been depreciated fully in the frst year of use irrespective of the number of days the assets are put into use. In the fnal year of depreciation, the book value of Rupee 1 would be left in the books so to say that the book value of any assets will not be zero at any point of time till it is discarded by the bank.

9.4 Accounting Standard 9: Revenue Recognition

Certain items of income are recognized on realization basis as per Accounting Policy number 10.1. These are considered not material in terms of RBI guidelines, and hence do not require disclosure.

9.5. Accounting Standard 15 (Revised): Employee Benefts

iii) All the actuarial gains and losses have been fully recognized in the statement of profit and loss.

iv) Brief description of type of plan:

Pension is paid to all eligible pension optees, on superannuation, voluntary retirement, etc. To be eligible for pension, the employee should have put in minimum ten years of service.

Gratuity is payable to all eligible employees on superannuation, voluntary retirement, etc. To be eligible for gratuity, the employee should have put in minimum five years of service.

v) The expected return on plan assets over the accounting period is based on an assumed rate of return. The assumed rate of return is 8.21% per annum for Pension Plan and 8.21% for Gratuity Plan.

vii) The estimates of future salary increase considered in actuarial valuation, take into account of infation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

viii) On and above the actuarial calculation, bank has provided an adhoc provision @15% to meet the requirement due to salary revision (bi-partite settlement) of Rs. 12.75 crores on account of pension and Rs. 1.65 crores on account of Gratuity.

9.7. Defned Contribution Plan

Amount of Rs 0.46 crore (Rs. 0.49 crore) recognized as an expense towards the Provident Fund scheme of the Bank and Rs. 10.62 crores (Rs 7.60 crore) as an expense towards new pension scheme is included under the head ''Payments to and provisions for employees'' in profit and loss account.

9.8. Other Long term Employee Benefts

Amount of Rs. 26.79 Crore (Previous Year Rs. 21.09 Crore) is recognized as an expense towards Other Long term Employee Benefts included under the head ''Payments to and Provisions for Employees'' in profit and loss account.

9.9. Accounting Standard 17: Segment Reporting Part A: Business Segments Pursuant to RBI guidelines, the Bank has re-classifed the business segments in which the Bank operates into:

a. Corporate / Wholesale Banking

b. Retail Banking

c. Treasury and

d. Other Banking Operations

The classifcation has been done on the basis of following criteria:

Corporate / Wholesale Banking: All loan and advance accounts with exposure of above Rs. 5 crore are classifed under wholesale / corporate Banking.

Retail: All loan and advance accounts which are not covered above will be taken as Retail Banking.

Treasury: Entire investment portfolios are classifed under Treasury segment.

Other Banking Operations: The Bank does not have Other Banking Operations segment.

Allocation of Income and Expenses and Assets / Liabilities:

(a) Income and Expenses and Assets / Liabilities directly attributed to particular segment are allocated to the relative segment.

(b) Items that are not directly attributable to segments are allocated to retail and wholesale segments in proportion to the business managed / ratio of number of employees / ratio of directly attributable income.

(c) The Bank has certain common assets / liabilities and income / expense that cannot be attributed to any particular segment and hence the same are treated as unallocated.

During year ended 31st March, 2015, the Bank has recognized Deferred Tax Assets on provision for Diminution in fair value of restructured standard assets, which was hitherto not being done. Accordingly, an amount of Rs. 92.53 crores (including Rs. 77.82 crores relating to the period upto 31.03.2014) has been accounted for in the current period under review.

9.14. Accounting Standard 28: Impairment of Assets

In the opinion of the Management, there is no impairment to the assets to which Accounting Standard 28 on "Impairment of Assets" applies.


Mar 31, 2014

Not available


Mar 31, 2013

I.GENERAL

1.1 The accompanying financial statements have been prepared under the historical cost convention and they conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory provisions, guidelines of regulatory authorities and Resen/e Bank of India (RBI), Accounting Standards and guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India.

1.2 The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as of the date ofthe 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 drfferfrom estimates.

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

2.1 Foreign Currency transactions are recorded at the exchange rates prevailing on the date ofthe respective transactions.

2.2 Monetary assets and liabilities denominated in Foreign Currencies are translated at the Foreign Exchange Dealers Association of India (FEDAI) closing spot rates prevailing on the Balance Sheet date.

2.3 Guarantees / Standby Letters of Credit, Letters of Credit, Forward Rate Agreements, Foreign Currency Options and Forward Exchange Contracts are translated at FEDAI closing spot rates as on the Balance Sheet date.

2.4 a) Each outstanding forward exchange contract is subjected to revaluation process separately.

b)The revaluation rate for each outstanding contract is derived by maturity date-wise arithmetic interpolation. The difference between revalued amount and the contracted amount is recognized as profit or loss as the case may be.

2.5 Premium received /paid on outstanding currency options are accounted for as per FEDAI guidelines.

2.6 Gains/Losses on account of change in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognized in profit and loss account

3. INVESTMENTS-Domestic

Investments are accounted for in accordance with the extant regulatory guidelines.

3.1 Classification

Investments are classified into three categories namely: Held to Maturity, Available for Sale and Held for Trading. Investments are further classified into the following six groups in the balance sheet:

(i) Government Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures and Bonds, (v) Subsidiaries / Joint Ventures and (vi) Others (CPs, Mutual Funds, Units, etc.)

3.2 Basis of Classification

Investments that the Bank intends to hold till maturity are classified as Held to Maturity

Investments that are held principally for resale within 90 days from the date of purchase are classified as Held for Trading.

Investments that are not classified in the above two categories are classified as Available for Sale.

An investment is classified as ''Held to Maturity1, Available for Sale1 or ''Held for Trading'' at the time of its purchase and subsequent shift amongst categories is done in conformity with Regulatory Guidelines.

3.3 Valuations and Accounting

i. In determiningthe cost of an investment:

a) Brokerage/commission received on subscription is reduced from the cost.

b) Brokerage / commission etc., paid in connection with the acquisition of investments is charged to revenue and not included in cost.

c) Broken period interest paid / received on debt instruments is treated as interest expended / income and is not included in cost/sale consideration.

d) Cost is determined on the weighted average cost method.

e) The transfer of a security amongstthe above three categories is accounted for at the least of the acquisition cost / book value / market value on the date of transfer and the depreciation, if any, on such transfer is fully provided for.

ii. Held to Maturity categories:

Each security is carried at acquisition cost or at amortized cost, if acquired at a premium over the face value. Any premium on acquisition is amortized over the remaining maturity period of the security on constant yield basis. Such amortization of premium is adjusted against income underthe head "Interest on investments".

iii. Available for Sale and Held for Trading categories:

a) The value of investments held under the Available For Sale category is determined as per Reserve Bank of India guidelines as under:

- Central Government Securities: Marked to market on the basis of prices declared forthe purpose of valuation jointly by Fixed Income Money Market and Derivatives Association of India (FIMMDA) and Primary Dealers Association of India (PDAI).

- State Government Securities and Other Trustee Securities: Marked to market on the basis of prices derived out ofthe yield for respective maturities declared for the purpose of valuation jointly by FIMMDA and PDAI.

- Shares: Wherever Stock Exchange quotations are available valuation is done as per lower of the quotations in Bombay Stock Exchange or National Stock Exchange. Wherever current quotations are not available and in respect of unquoted shares (i) Valuation is as per Book Value (without considering Revaluation Reserves, if any) ascertained from the latest Balance Sheet of the Company (which is not more than one year prior to the date of valuation) (ii) In case the latest Balance Sheet is not available, the shares are valued at 1.00 per Company

- Bonds & Debentures: Valued on the YTM method for the respective maturity and rating put out by FI MM DA and PDAI.

- Mutual Fund Units: Quoted MF Units are valued as per Stock Exchange quotations. Un-quoted MF Units are valued on the basis ofthe latest re-purchase price declared by the MF in respect of each particularscheme. Incaseoffundswithalock in period, where re-purchase price/market quote is not available, units arevalued at Net Asset Value (NAV). IfNAVis not available, then these are valued at cost, till the end of lock in period.

- Treasury Bills, Certificates of Deposits and Commercial Papers are valued at carrying cost.

- Preference Shares are valued at lower of market value determined on YTM basis and its redemption value.

b) Each security in the above two categories is revalued at the market price or fair value determined as per Regulatory Guidelines and only the net depreciation of each group for each category is provided for and net appreciation is ignored. On provision for depreciation, the book value of the individual securities remains unchanged after marking to market.

iv. Security receipts issued by an Asset Reconstruction Company (ARC) are valued in accordance with the guidelines applicable for Non-SLR investments.

v. Investments are classified as performing and non-performing based on the following guidelines issued by the RBI.

a. Interest / Installment (including maturity proceeds) is due and remains unpaid for more than 90 days.

b. In the case of equity shares, in the event of the investment in the share of any company is valued at Rs. 1.00 per company on account ofthe non-availability ofthe latest balance sheet, those equity shares would be reckoned as NPI.

c. If any credit facility availed by the issuer is NPAinthe books of the Bank, investment in any ofthe securities issued by the same issuer would also be treated as NPI and vice versa.

d. The above would apply mutatis mutandis to preference shares where the fixed dividend is not paid.

e. The investments in debentures /bonds, which are deemed to be in the nature of advance, are also subjected to NPI norms as applicable to investments.

vi. The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions.

3.4 Non-Performing Investments

All such securities where repayment of principal or interest not serviced within 90 days from the due date are classified as Non-performing Investments, except securities guaranteed by the Central Government, which is, treated as performing investments notwithstanding arrears of principal / interest payments. In respect of investments classified as Non-performing, appropriate provisions are made for the depreciation in the value. The depreciation requirement in respect of these securities is not set off against appreciation in respect of other performing securities.

4. DERIVATIVES

4.1 The Bank enters into derivative contracts, such as foreign currency options, interest rate swaps, currency swaps, and cross currency interest rate swaps and forward rate agreements 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.

4.2 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.

4.3 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. Any receivable under derivatives contracts, which remain overdue for more than 90 days, are reversed through profit and loss account.

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

4.5 Exchange Traded Derivatives entered into for trading purposes are valued at prevailing market rates based on rates given by the Exchange and the resultant gains and losses are recognized in the Profit and Loss Account.

4.6 Interest Rate Swaps and Forward Rate Agreements

a) When a hedge becomes naked in part or full owing to shrinking portfolio, and if allowed to continue till maturity, it is marked to market at regular intervals.

b) The periodical net cash flows arising out of Interest Rate Swaps in domestic currency are booked as income / expenditure.

c) The periodical net cash flows arising out of Interest Rate Swaps in foreign currency are booked as income / expenditure and form part of the exchange position in Forex transactions.

d) Gain / Loss arising out of swap transactions in respect of Tier I / II bonds, is computed separately. Losses, if any, are fully provided for. Gains on reset or sale is recognized as Income and appropriated to Special Reserve net of taxes and mandatory transferto statutory reserve.

5. ADVANCES

5.1 All advances have been classified under four categories i.e., (i) Standard Assets (ii) Sub-Standard Assets (iii) Doubtful Assets and (iv) Loss Assets as per RBI directives / guidelines.

5.2 Advances shown in the Balance Sheet are net of:

(a) Provision made on Non-Performing Assets (NPA)

(b) Uncollected Interest Income in respect of NPA

(c) Bills rediscounted with IDBI /SIDBI

(d) Claims received

(e) Diminution infairvalueof Restructured Assets

(f) Technical write-off

(g) Inter-Bank Participations with Risksharing

5.3 Provision on advances have been made in accordance with RBI guidelines/directives as under:

(a) For Standard Assets:

(I) 0.25% on directadvanceto agriculture and SME sectors

(ii) 1.00% on advances to commercial real estate.

(iii) 2.00% on Teaser Home Loans

(iv) 2.75% on Restructured Accounts classified as standard advances for the first two years from the date of restructuring. In cases of moratorium on payment of interest/ principal after restructuring, the period covered will be moratorium period plus two years.

(v) 2.75% on Restructured Accounts classified as Non- Performing Assets, when upgraded to Standard category for the fi rst year from the date of u pgradation.

(vi) 0.40% on all overadvances

(b) Forall Non-Performing Assets (NPA):

(i) Sub-standard Assets:

(a) Ageneral provision of 15%

(b) Additional provision of 10% for exposures, which are unsecured ab-initio (where realizable value of security is not more than 10% ab-initio)

(ii) Doubtful assets at 25%, 40% or 100% of the secured portion based on the number of years the account remained as "Doubtful Asset" and at 100% of the unsecured portion of the outstanding after netting retainable amount ofthe guarantee cover underthe scheme of Export Credit and Guarantee Corporation (ECGC) / Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), wherever applicable and

(iii) Loss Assets at 100%.

5.4 Restructuring of Advances: In respect of restructured accounts, wherethe outstanding isRs. 1.00 crore and above, the erosion in the fair value of the advance is computed as the difference between the fair value of the loan before and after restructuring.

Fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the Bank''s BPLR or Base rate (which ever is applicable to the Borrower) as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. Fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the Bank''s BPLR or Base rate (which ever is applicable to the Borrower) as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

In respect of restructured accounts, where the outstanding is less than Rs. 1.00 crore, the amount of diminution in the Fair value has been computed at 5% of the outstanding.

5.5 In the case of suit filed accounts, legal expenses are charged to Profit & Loss account and credited to revenue expenditure, when recovered.

5.6 Financial assets sold to Asset Reconstruction Company (ARC) / Securitisation Company (SC) are recognized as under:

(a) In case the sale is at a price lower than the Net Book Value (N BV), the difference is charged to the Profit & Loss account.

(b) In case the sale is at a price higher than the NBV the surplus provision is not reversed but held separately for meeting the loss if any on future sale of financial assets.

6. DEPOSITS

Interest on deposits, with provision for re-investment of interest, is capitalized for every completed quarter and shown as principal.

7. FIXED ASSETS & DEPRECIATION

7.1 Premises and other fixed assets have been accounted for at historical cost. Pending registration, the land and buildings acquired by the Bank are capitalized, based on letters of allotment/agreementand the physical possession.

7.2 (a) Cost of furnishing items like curtains (including stitching charges) / carpets / mattresses and pillows irrespective of cost,

(b) Cost of replacement of Batteries for UPS / Inverters irrespective of cost and

(c) Other individual items costing Rs. 1000 or less are changed to profit and loss account in the year of purchase.

7.3 Depreciation on premises and other fixed assets including system software is provided for on written down value method in the manner and at rates as per Income Tax Act

7.4 In respect of assets acquired duringthe year, depreciation is charged for half year in respect of assets used for 182 days or less and for the full year in respect of assets used for more than 182 days, except depreciation on computers and software, which is charged forthe full year irrespective ofthe period for which the asset was put to use. No depreciation is provided in the year of sale /disposal of an asset.

7.5 In respect of Leasehold Properties, the lease premium is amortized over the period of the lease.

8. EMPLOYEE BENEFITS

8.1 Short Term Employee benefits:

Amount of short-term employee benefits, such as casual leave and medical benefits, expected to be paid in exchange for the services rendered by employees is recognized duringthe period when the employee renders the service.

8.2 Post Employment benefits:

(i) Defined Contribution Plan

The Bank operates a Provident Fund scheme, which is a defined contribution plan. All eligible employees are entitled to receive benefits underthe Bank''s Provident Fund scheme. The Bank contributes monthly at a determined rate (currently 10% of employee''s basic pay plus eligible allowance). These contributions are made to a fund set up by the Bank and administered by a Board of Trustees. The Bank has no liability for future provident fund benefits otherthan its annual contribution, and recognizes such contributions as an expense in the year to which they relate.

(ii) Defined Benefit Plan

(a) The Bank operates gratuity, pension and resettlement schemes, which are defined benefit plans.

(b) The Bank provides for gratuity to all eligible employees. The benefit is in the form of lump sum payments to vested employees on superannuation, on death while in employment or on termination of employment. The rate of gratuity payable to an employee is 15 days based on the rate of wages / salary last drawn by the employee as per the Payment of Gratuity Act, 1972 for every completed year of service. Gratuity is payable to an employee on the termination of his employment after he has rendered continuous service for a period of not less than 5 years (on retirement, resignation, except death & disablement). To be eligible under SBT (P&yment of Gratuity to Employees) Regulations, 1972 minimum service required is lOyears.

The Bank makes annual contribution to the Fund administered by the Board of Trustees based on independent actuarial valuation carried out annually. The maximum amount payable as per the Payment of Gratuity Act, 1972 is Rs. 10.00 lakhs. The amount payable to the employees will be higher of the amount calculated as per SBT (Payment of Gratuity to Employees) Regulations or Payment of Gratuity Act, 1972, subject to deduction of Income Tax on amount in excess of Rs. 10.00 lakhs.

(c) The Bank provides for pension to all eligible employees who have opted for pension and joined the services of the Bank on or before 3151 March 2010. The benefit is in the form of monthly payments as per rules and regular payments to vested employees on retirement, on death while in employment, or on termination of employment. Vesting occurs at different stages as per rules. The Bank makes annual contributions to fund administered by Board of Trustees based on an independent external actuarial valuation carried out annually.

(d) The cost of providing defined benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Actuarial gains / losses are immediately recognized in the statement of profit and loss and are not deferred.

(e) The bank has exercised the option of recognizing the transitional liability on adoption of Accounting Standard 15 (2005) for its defined benefit schemes against revenue and other reserves.

(f) Defined Contributory Pension Scheme: Employees, joining services of the Bank on or after Ia April 2010 are eligible for Defined Contributory Pension Scheme in line with the New Pension Scheme introduced for employees of Central Government.

(g) The additional liability on account of reopening of pension option for serving employees who had not opted for pension earlier as well as the enhancement in gratuity limits is being amortized over a period of five years beginning with the financial year ending March 3 1, 201 I as per the RBI notification.

(h) The additional liability on account of reopening of pension option for retired employees who had not opted for pension earlier as well as the enhancement in gratuity limit is being charged to the profit and loss account.

(iii) Other Long Term Employee benefits:

(a) All eligible employees of the bank are eligible to encash certain portion of their earned leave while in employment or on retirement, on death or on termination of employment, subject to a maximum amount. This is paid by the Bank as and when the liability arises.

(b) 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 immediately recognized in the statement of profit and loss and is not deferred.

9. PROVISION FORTAXATION

(a) 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 of changes in the deferred tax assets or liabilities duringthe year.

(b) Deferred tax assets and liabilities are recognized 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 recognized in the profit and loss account.

(c) Deferred tax assets are recognized and reassessed at each reporting date, in accordance with Accounting Standard 22 and based upon Management''s judgment as to whether realization is considered certain. Deferred tax assets are recognized only if there is virtual certainty that such deferred tax assets can be realized against future taxable income.

10. REVENUE RECOGNITION

10.1 Income: Interest and other income are recognized on accrual basis except for the following, which are recognized on cash basis:

(a) Incomefrom Non performing assets (NPAs), projects under implementation with time over run and government guaranteed accounts where interest is not received regularly, is recognized upon realization as per RBI prudential norms.

(b) Dividend on investment in shares and income distributed on units of Mutual Funds.

(c) Locker Rent.

(d) Exchange on demand bills purchased / commission on bills sentfor collection.

(e) Interest on Overdue bills on realization basis.

(f) Income on cross selling products and management fee.

(g) Interest on application moneyfor Investments.

(h) Insurance claims.

(I) Funded interest on restructured accounts represented by FITL.

(j) Profit on sale / redemption of securities is recognized as income and appropriated to Capital Reserve net of taxes and mandatory transfer to statutory reserves.

(k) Income (other than interest) on investments in "Held to Maturity" category acquired at a discount to the face value is recognized 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.

10.2 Adjustment in respect of recoveries made in NPA accounts; The recoveries made are appropriated in the order of Charges, Interest and then to Principal in live NPA and in respect of protested bills accounts, the recoveries made are appropriated in the order of Principal, Charges and then to unrealized Interest.

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

10.4 Expenditure: Revenue expenditure is accounted for on accrual basis except Property Taxes and Bank''s liabilities in respect of disputes pertaining to additional rent / lease rent, which are accounted for on cash basis.

11. NET PROFIT

The net profit disclosed in the Profit and Loss account is arrived at, after making provisions for the following:

(a) Provision for taxes on Income including Deferred Tax and Wealth Tax,

(b) Provision for Non-performing Advances and / or Investments,

(c) Provision on Standard Assets,

(d) Interest sacrifice on restructured accounts,

(e) Depreciation on Investments,

(f) Transfers to contingencies and

(g) Other usual and necessary provisions.

12. IMPAIRMENTOF ASSETS

Impairment loss, if any, on Rxed Assets is recognized in accordance with the Accounting Standard 28 issued in this regard by the Institute of Chartered Accountants of India.

13. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

I. In conformity with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets", the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an out flow of resources embodying economic benefits will be required to settle the obligations, and when a reliable estimate of the amount of the obligation can be made.

2. No provision required 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 ofthe Bank; or

ii any present obligation that arises from past events but is not recognised 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.

3. Contingent Assets are not recognised in the financial Statements.


Mar 31, 2012

1. GENERAL

1.1 The accompanying financial statements have been prepared under the historical cost convention and they conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory provisions, guidelines of regulatory authorities and Reserve Bank of India (RBI), Accounting Standards and guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India.

1.2 The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount 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 estimates.

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

2.1 Foreign Currency transactions are recorded at the exchange rates prevailing on the date of the respective transactions.

2.2 Monetary assets and liabilities denominated in Foreign Currencies are translated at the Foreign Exchange Dealers Association of India (FEDAI) closing spot rates prevailing on the Balance Sheet date.

2.3 Guarantees / Standby Letters of Credit, Letters of Credit, Forward Rate Agreements, Foreign Currency Options and Forward Exchange Contracts are translated at FEDAI closing spot rates as on the Balance Sheet date.

2.4 All outstanding forward exchange contracts in each currency are revalued on the Balance Sheet date at the corresponding forward rates for the respective maturity of the contract. The difference between revalued amount and the contracted amount is recognized as profit or loss, as the case may be.

2.5 Premium received / paid on outstanding currency options are accounted for as per FEDAI guidelines.

2.6 Gains/Losses on account of change in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognized in profit and loss account

3. INVESTMENTS - Domestic

Investments are accounted for in accordance with the extant regulatory guidelines

3.1 Classification

Investments are classified into three categories namely: Held to Maturity, Available for Sale and Held for Trading. Investments are further classified into the following six groups in the balance sheet:

(i) Government Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures and Bonds,

(v) Subsidiaries/ Joint Ventures and (vi) Others (CPs, Mutual Funds, Units, etc.)

3.2 Basis of Classification

Investments that the Bank intends to hold till maturity are classified as Held to Maturity.

Investments that are held principally for resale within 90 days from the date of purchase are classified as Held for Trading.

Investments that are not classified in the above two categories are classified as Available for Sale.

An investment is classified as 'Held to Maturity', 'Available for Sale' or 'Held for Trading' at the time of its purchase and subsequent shift amongst categories is done in conformity with Regulatory Guidelines..

3.3 Valuations and Accounting

(i) In determining the cost of an investment:

(a) Brokerage / commission received on subscription is reduced from the cost..

(b) Brokerage / commission etc., paid in connection with the acquisition of investments is charged to revenue and not included in cost.

(c) Broken period interest paid / received on debt instruments is treated as interest expended / income and is not included in cost / sale consideration.

(d) Cost is determined on the weighted average cost method.

(e) The transfer of a security amongst the above three categories is accounted for at the least of the acquisition cost / book value / market value on the date of transfer and the depreciation, if any, on such transfer is fully provided for.

(ii) Held to Maturity categories:

Each security is carried at acquisition cost or at amortized cost, if acquired at a premium over the face value. Any premium on acquisition is amortized over the remaining maturity period of the security on constant yield basis. Such amortization of premium is adjusted against income under the head Interest on investments..

(iii) Available for Sale and Held for Trading categories:

(a) The value of investments held under the Available For Sale category is determined as per Reserve bank of India guidelines as under:

- Central Government Securities: Marked to market on the basis of prices declared for the purpose of valuation jointly by Fixed Income Money Market and Derivatives Association of India (FIMMDA) and Primary Dealers Association of India (PDAI).

- State Government Securities and Other Trustee Securities: Marked to market on the basis of prices derived out of the yield for respective maturities declared for the purpose of valuation jointly by FIMMDA and PDAI.

- Shares: Wherever Stock Exchange quotations are available valuation is done as per lower of the quotations in Bombay Stock Exchange or National Stock Exchange. Wherever current quotations are not available and in respect of unquoted shares (i) Valuation is as per Book Value (without considering Revaluation Reserves, if any) ascertained from the latest Balance Sheet of the Company (which is not more than one year prior to the date of valuation)

(ii) In case the latest Balance Sheet is not available, the shares are valued at Re.1.00 per Company.

- Bonds & Debentures: Valued on the YTM method for the respective maturity and rating put out by FIMMDA and PDAI.

- Mutual Fund Units: Quoted Mutual Fund Units are valued as per Net Asset Value as declared by the Mutual Fund.

- Treasury Bills, Certificates of Deposits and Commercial Papers are valued at carrying cost.

- Preference Shares are valued at lower of market value determined on YTM basis and its redemption value.

(b) Each security in the above two categories is revalued at the market price or fair value determined as per Regulatory Guidelines and only the net depreciation of each group for each category is provided for and net appreciation is ignored. On provision for depreciation, the book value of the individual securities remains unchanged after marking to market.

(iv) Security receipts issued by an Asset Reconstruction Company (ARC) are valued in accordance with the guidelines applicable for Non-SLR investments.

(v) Investments are classified as performing and non- performing based on the following guidelines issued by the RBI.

(a) Interest / Installment (including maturity proceeds) is due and remains unpaid for more than 90 days.

(b) In the case of equity shares, in the event of the investment in the share of any company is valued at Re.1.00 per company on account of the non- availability of the latest balance sheet, those equity shares would be reckoned as NPI.

(c) If any credit facility availed by the issuer is NPA in the books of the Bank, investment in any of the securities issued by the same issuer would also be treated as NPI and vice versa.

(d) The above would apply mutatis mutandis to preference shares where the fixed dividend is not paid.

(e) The investments in debentures / bonds, which are deemed to be in the nature of advance, are also subjected to NPI norms as applicable to investments.

(vi) The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions.

3.4 Non-Performing Investments

All such securities where repayment of principal or interest not serviced within 90 days from the due date are classified as Non-performing Investments, except securities guaranteed by the Central Government, which is, treated as performing investments notwithstanding arrears of principal / interest payments. In respect of investments classified as Non-performing, appropriate provisions are made for the depreciation in the value. The depreciation requirement in respect of these securities is not set off against appreciation in respect of other performing securities.

4. Derivatives

4.1 The Bank enters into derivative contracts, such as foreign currency options, interest rate swaps, currency swaps, and cross currency interest rate swaps and forward rate agreements 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.

4.2 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.

4.3 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. Any receivable under derivatives contracts, which remain overdue for more than 90 days, are reversed through profit and loss account.

4.4 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 Mark to Market value for fore Over the Counter options.

4.5 Exchange Traded Derivatives entered into for trading purposes are valued at prevailing market rates based on rates given by the Exchange and the resultant gains and losses are recognized in the Profit and Loss Account.

4.6 Interest Rate Swaps and Forward Rate Agreements.

(a) When a hedge becomes naked in part or full owing to shrinking portfolio, and if allowed to continue till maturity, it is marked to market at regular intervals.

(b) The periodical net cash flows arising out of Interest Rate Swaps in domestic currency are booked as income/expenditure.

(c) The periodical net cash flows arising out of Interest Rate Swaps in foreign currency are booked as income / expenditure and form part of the exchange position in Force transactions.

(d) Gain / Loss arising out of swap transactions in respect of Tier I / II bonds, is computed separately. Losses, if any, are fully provided for. Gains on reset or sale is recognized as Income and appropriated to Special Reserve net of taxes and mandatory transfer to statutory reserve.

S. ADVANCES

5.1 All advances have been classified under four categories i.e., (i) Standard Assets (ii) Sub-Standard Assets (iii) Doubtful Assets and (iv) Loss Assets as per RBI directives / guidelines.

5.2 Advances shown in the Balance Sheet are net of:

(a) Provision made on Non-Performing Assets (NPA)

(b) Uncollected Interest Income in respect of NPA

(c) Bills rediscounted with IDBI / SIDBI

(d) Claims received

(e) Diminution in fair value of Restructured Assets

(f) Technical write-off

(g) Inter-Bank Participations with Risk sharing

5.3 Provision on advances have been made in accordance with RBI guidelines/directives as under:

(a) For Standard Assets:

(i) 0.25% on direct advance to agriculture and SME sectors

(ii) 1.00% on advances to commercial real estate.

(iii) 2.00% on Teaser Home Loans

(iv) 2.00% on Restructured Accounts classified as standard advances for the first two years from the date of restructuring. In cases of moratorium on payment of interest/ principal after restructuring, the period covered will be moratorium period plus two years.

(v) 2.00% on Restructured Accounts classified as Non- Performing Assets, when upgraded to Standard category for the first year from the date of up gradation.

(vi) 0.40% on all other advances

(b) For all Non-Performing Assets (NPA):

(i) Sub-standard Assets:

(a) A general provision of 15%

(b) Additional provision of 10% for exposures, which are unsecured ab-initio (where realizable value of security is not more than 10% ab-initio)

(ii) Doubtful assets at 25%, 40% or 100% of the secured portion based on the number of years the account remained as "Doubtful Asset" and at 100% of the unsecured portion of the outstanding after netting retainable amount of the guarantee cover under the scheme of Export Credit and Guarantee Corporation (ECGC) / Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), wherever applicable and

(iii) Loss Assets at 100%.

5.4 Restructuring of Advances: In respect of restructured accounts, where the outstanding is Rs.1.00 crore and above, the erosion in the fair value of the advance is computed as the difference between the fair value of the loan before and after restructuring.

Fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the Bank's BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. Fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the Bank's BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

In respect of restructured accounts, where the outstanding is less than Rs.1.00 crore, the amount of diminution in the Fair value has been computed at 5% of the outstanding.

5.5 In the case of suit filed accounts, legal expenses are charged to Profit & Loss account and credited to revenue expenditure, when recovered.

5.6 Financial assets sold to Asset Reconstruction Company (ARC) / Securitization Company (SC) are recognized as under:

(a) In case the sale is at a price lower than the Net Book Value (NBV), the difference is charged to the Profit & Loss account.

(b) In the case the sale is at a price higher than the NBV, the surplus provision is not reversed but held separately for meeting the loss if any on future sale of financial assets.

6. DEPOSITS

Interest on deposits, with provision for re- investment of interest, is capitalized for every completed quarter and shown as principal.

7. FIXED ASSETS & DEPRECIATION

7.1 Premises and other fixed assets have been accounted for at historical cost. Pending registration, the land and buildings acquired by the Bank are capitalized, based on letters of allotment / agreement and the physical possession.

7.2 (a) Cost of mobile sets/phones up to Rs.5000/-,

(b) Cost of furnishing items like curtains (including stitching charges) / carpets / mattresses and pillows irrespective of cost,

(c) Cost of replacement of Batteries for UPS / Inverters irrespective of cost and

(d) Other individual items costing Rs.1000 or less are charged to profit and loss account in the year of purchase.

7.3 Depreciation on premises and other fixed assets including system software is provided for on written down value method in the manner and at rates as per Income Tax Act / Rules except as under:

7.4 In respect of assets acquired during the year, depreciation is charged for half year in respect of assets used for 182 days or less and for the full year in respect of assets used for more than 182 days, except depreciation on computers and software, which is charged for the full year irrespective of the period for which the asset was put to use. No depreciation is provided in the year of sale / disposal of an asset.

7.5 In respect of Leasehold Properties, the lease premium is amortized over the period of the lease.

8. EMPLOYEE BENEFITS

8.1 Short Term Employee benefits:

Amount of short-term employee benefits, such as casual leave and medical benefits, expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service.

8.2 Post Employment benefits:

(i) Defined Contribution Plan

The Bank operates a Provident Fund scheme, which is a defined contribution plan. All eligible employees are entitled to receive benefits under the Bank's Provident Fund scheme. The Bank contributes monthly at a determined rate (currently 10% of employee's basic pay plus eligible allowance). These contributions are made to a fund set up by the Bank and administered by a Board of Trustees. The Bank has no liability for future provident fund benefits other than its annual contribution, and recognizes such contributions as an expense in the year to which they relate.

(ii) Defined Benefit Plan

(a) The Bank operates gratuity, pension and resettlement schemes, which are defined benefit plans.

(b) The Bank provides for gratuity to all eligible employees. The benefit is in the form of lump sum payments to vested employees on superannuation, on death while in employment or on termination of employment. The rate of gratuity payable to an employee is 15 days based on the rate of wages / salary last drawn by the employee as per the Payment of Gratuity Act, 1972 for every completed year of service. Gratuity is payable to an employee on the termination of his employment after he has rendered continuous service for a period of not less than 5 years (on retirement, resignation, except death & disablement). To be eligible under SBT (Payment of Gratuity to Employees) Regulations, 1972 minimum service required is 10 years. The Bank makes annual contribution to the Fund administered by the Board of Trustees based on independent actuarial valuation carried out annually. The maximum amount payable as per the Payment of Gratuity Act, 1972 is Rs.10.00 lakhs. The amount payable to the employees will be higher of the amount calculated as per SBT (Payment of Gratuity to Employees) Regulations or Payment of Gratuity Act, 1972, subject to deduction of Income Tax on amount in excess of Rs.10.00 lakhs.

(c) The Bank provides for pension to all eligible employees who have opted for pension and joined the services of the Bank on or before 31st March 2010. The benefit is in the form of monthly payments as per rules and regular payments to vested employees on retirement, on death while in employment, or on termination of employment. Vesting occurs at different stages as per rules. The Bank makes annual contributions to fund administered by Board of Trustees based on an independent external actuarial valuation carried out annually.

(d) The cost of providing defined benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Actuarial gains / losses are immediately recognized in the statement of profit and loss and are not deferred.

(e) The bank has exercised the option of recognizing the transitional liability on adoption of Accounting Standard 15 (2005) for its defined benefit schemes against revenue and other reserves.

(f) Defined Contributory Pension Scheme: Employees, joining services of the Bank on or after 1st April 2010 are eligible for Defined Contributory Pension Scheme in line with the New Pension Scheme introduced for employees of Central Government.

(g) The additional liability on account of reopening of pension option for serving employees who had not opted for pension earlier as well as the enhancement in gratuity limits is being amortized over a period of five years beginning with the financial year ending March 31, 2011 as per the RBI notification.

(h) The additional liability on account of reopening of pension option for retired employees who had not opted for pension earlier as well as the enhancement in gratuity limit is being charged to the profit and loss account.

(iii) Other Long Term Employee benefits:

(a) All eligible employees of the bank are eligible to encase certain portion of their earned leave while in employment or on retirement, on death or on termination of employment, subject to a maximum amount. This is paid by the Bank as and when the liability arises.

(b) 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 immediately recognized in the statement of profit and loss and is not deferred.

9. PROVISION FOR TAXATION

(a) 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 of changes in the deferred tax assets or liabilities during the year.

(b) Deferred tax assets and liabilities are recognized 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 recognized in the profit and loss account.

(c) Deferred tax assets are recognized and reassessed at each reporting date, in accordance with Accounting Standard 22 and based upon Management's judgment as to whether realization is considered certain. Deferred tax assets are recognized only if there is virtual certainty that such deferred tax assets can be realized against future taxable income.

10. REVENUE RECOGNITION

10.1 Income: Interest and other income are recognized on accrual basis except for the following, which are recognized on cash basis:

(a) Income from Non performing assets (NPAs), projects under implementation with time over run and government guaranteed accounts where interest is not received regularly, is recognized upon realization as per RBI prudential norms.

(b) Dividend on investment in shares and income distributed on units of Mutual Funds;

(c) Locker Rent;

(d) Exchange on demand bills purchased / commission on bills sent for collection;

(e) Interest on Overdue bills on realization basis;

(f) Income on cross selling products and management fee;

(g) Interest on application money for Investments

(h) Insurance claims.

(i) Funded interest on restructured accounts represented by FITL.

(j) Profit on sale / redemption of securities is recognized as income and appropriated to Capital Reserve net of taxes and mandatory transfer to statutory reserves.

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

(i) On interest bearing securities, it is recognized only at the time of sale/redemption

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

10.2 Adjustment in respect of recoveries made in NPA accounts - the recoveries made are appropriated in the order of Charges, Interest and then to Principal in live NPA and in respect of protested bills accounts, the recoveries made are appropriated in the order of Principal, Charges and then to unrealized Interest.

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

10.4 Expenditure: Revenue expenditure is accounted for on accrual basis except Property Taxes and Bank's liabilities in respect of disputes pertaining to additional rent / lease rent, which are accounted for on cash basis.

11. NET PROFIT

The net profit disclosed in the Profit and Loss account is arrived at, after making provisions for the following:

(a) Provision for taxes on Income including Deferred Tax and Wealth Tax,

(b) Provision for Non-performing Advances and / or Investments,

(c) Provision on Standard Assets,

(d) Interest sacrifice on restructured accounts,

(e) Depreciation on Investments,

(f) Transfers to contingencies and

(g) Other usual and necessary provisions.

12. IMPAIRMENT OF ASSETS

Impairment loss, if any, on Fixed Assets is recognized in accordance with the Accounting Standard 28 issued in this regard by the Institute of Chartered Accountants of India.

13. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

13.1 In conformity with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an out flow of resources embodying economic benefits will be required to settle the obligations, and when a reliable estimate of the amount of the obligation can be made.

13.2 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.

13.3 Contingent Assets are not recognized in the financial Statements.


Mar 31, 2011

1. GENERAL

The accompanying financial statements have been prepared under the historical cost convention as modified for foreign currency transactions and they conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory provisions, guidelines of regulatory authorities and Reserve Bank of India (RBI), Accounting Standards and 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

2.1 Monetary assets and liabilities denominated in Foreign Currencies are translated at the Foreign Exchange Dealers Association of India (FEDAI) rates prevailing on the Balance Sheet date.

2.2 Guarantees / Standby Letters of Credit, Letters of Credit, Forward Rate Agreements, Foreign Currency Options and Forward Exchange Contracts are translated at FEDAI rates as on the Balance Sheet date.

2.2 Income and Expenses are translated at the market exchange rates prevailing on the date of the respective transactions. Interest earned but not due on foreign currency funds deployed abroad, are translated at the FEDAI rates as on the balance sheet date.

2.4 In accordance with the guidelines of FEDAI all outstanding forward exchange contracts in each currency are revalued on the Balance Sheet date at the corresponding forward rates for the respective maturity of the contract. The difference between revalued amount and the contracted amount is recognized as profit or loss, as the case may be.

2.5 Premium received / paid on outstanding currency options has been accounted for as per FEDAI guidelines.

3. INVESTMENTS - Domestic

Investments are accounted for in accordance with the extant regulatory guidelines. The Bank has changed (w.e.f.) 01.01.2011 the method of accounting of investments from Trade Date to Settlement Date method.

3.1 Classification

Investments are classified into three categories namely: Held to Maturity, Available for Sale and Held for Trading. Investments are further classified into the following six

groups in the balance sheet:

(i) Government Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures and Bonds, (v) Subsidiaries / Joint Ventures and (vi) Others (CPs, Mutual Funds, Units, etc.)

3.2 Basis of Classification

Investments that the Bank intends to hold till maturity are classified as Held to Maturity.

Investments that are held principally for resale within 90 days from the date of purchase are classified as Held for Trading.

Investments that are not classified in the above two categories are classified as Available for Sale.

An investment is classified as Held to Maturity, Available for Sale or Held for Trading at the time of its purchase and subsequent shift amongst categories is done in conformity with Regulatory Guidelines.

3.3 Valuations and Accounting

(i) In determining the cost of an investment:

(a) Brokerage / commission received on subscription is reduced from the cost.

(b) Brokerage / commission etc., paid in connection with the acquisition of investments is charged to revenue and not included in cost.

(c) Broken period interest paid / received on debt instruments is treated as interest expended / income and is not included in cost / sale consideration.

(d) Cost is determined on the weighted average cost method.

(e) The transfer of a security amongst the above three categories is accounted for at the least of the acquisition cost / book value / market value on the date of transfer and the depreciation, if any, on such transfer is fully provided for.

(ii) Held to Maturity categories:

Each security is carried at acquisition cost or at amortized cost, if acquired at a premium over the face value. Any premium on acquisition is amortized over the remaining maturity period of the security on constant yield basis. Such amortization of premium is adjusted against income under the head "Interest on investments".

Profit on sale / redemption of securities is recognized as income and appropriated to Capital Reserve net of taxes and mandatory transfer to statutory reserves.

(iii) Available for Sale and Held for Trading categories:

(a) The value of investments held under the Available For Sale category is determined as per Reserve bank of India guidelines as under:

- Central Government Securities: Marked to market on the basis of prices declared for the purpose of valuation jointly by Fixed Income Money Market and Derivatives Association of India (FIMMDA) and Primary Dealers Association of India (PDAI).

- State Government Securities and Other Trustee Securities: Marked to market on the basis of prices derived out of the yield for respective maturities declared for the purpose of valuation jointly by FIMMDA and PDAI.

- Shares: Wherever Stock Exchange quotations are available valuation is done as per lower of the quotations in Bombay Stock Exchange or National Stock Exchange. Wherever current quotations are not available and in respect of unquoted shares (i) Valuation is as per Book Value (without considering Revaluation Reserves, if any) ascertained from the latest Balance Sheet of the Company (which is not more than one year prior to the date of valuation) (ii) In case the latest Balance Sheet is not available, the shares are valued at Re. 1.00 per Company.

- Bonds & Debentures: Valued on the YTM method for the respective maturity and rating put out by FIMMDA and PDAI.

- Mutual Fund Units: Quoted Mutual Fund Units are valued as per Net Asset Value as declared by the Mutual Fund.

- Treasury Bills, Certificates of Deposits and Commercial Papers are valued at carrying cost.

- Preference Shares are valued at lower of market value determined on YTM basis and its redemption value.

(b) Each security in the above two categories is revalued at the market price or fair value determined as per Regulatory Guidelines and only the net depreciation of each group for each category is provided for and net appreciation is ignored. On provision for depreciation, the book value of the individual securities remains unchanged after marking to market.

(iv) Security receipts issued by an Asset Reconstruction Company (ARC) are valued in accordance with the guidelines applicable for Non-SLR investments.

(v) Investments are classified as performing and non- performing based on the following guidelines issued by the RBI.

(a) Interest / Instalment (including maturity proceeds) is due and remains unpaid for more than 90 days.

(b) In the case of equity shares, in the event of the nvestment in the share of any company is valued at Re. 1.00 per company on account of the non-availability of the latest balance sheet, those equity shares would be reckoned as NPI.

(c) If any credit facility availed by the issuer is NPA in the books of the Bank, investment in any of the securities issued by the same issuer would also be treated as NPI and vice versa.

(d) The above would apply mutatis mutandis to preference shares where the fixed dividend is not paid.

(e) The investments in debentures / bonds, which are deemed to be in the nature of advance, are also subjected to NPI norms as applicable to investments.

(vi) The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions.

3.4 Interest Rate Swaps and Forward Rate Agreements

(a) Interest Rate Swaps and Forward Rate Agreements have been undertaken for hedging purposes only and hence the cash flows are accounted on accrual basis and the balances are carried at Notional Principal Value.

(b) When a hedge becomes naked in part or full owing to shrinking portfolio, and if allowed to continue till maturity, it is marked to market at regular intervals.

(c) The periodical net cash flows arising out of Interest Rate Swaps in domestic currency are booked as income / expenditure.

(d) The periodical net cash flows arising out of Interest Rate Swaps in foreign currency are booked as income / expenditure and form part of the exchange position in Forex transactions.

(e) The Forward Rate Agreements in foreign currency are valued at FEDAI rate prevailing on the Balance Sheet date and the outstanding position is shown under Contingent liabilities.

(f) Gain / Loss arising out of swap transactions in respect of Tier I / II bonds, is computed separately. Losses, if any, are fully provided for. Gains on reset or sale is recognized as Income and appropriated to Special Reserve net of taxes and mandatory transfer to statutory reserve.

3.5 Non-Performing Investments

All such securities where repayment of principal or interest not serviced within 90 days from the due date are classified as Non-performing Investments, except securities guaranteed by the Central Government, which is, treated as performing investments notwithstanding arrears of principal / interest payments. In respect of investments classified as Non-performing, appropriate provisions are made for the depreciation in the value. The depreciation requirement in respect of these securities is not set off against appreciation in respect of other performing securities.

4. ADVANCES

4.1 All advances have been classified under four categories i.e., (i) Standard Assets (ii) Sub-Standard Assets (iii) Doubtful Assets and (iv) Loss Assets as per RBI directives / guidelines.

4.2 Advances shown in the Balance Sheet are net of:

(a) Provision made on Non-Performing Assets (NPA)

(b) Uncollected Interest Income in respect of NPA

(c) Bills rediscounted with IDBI / SIDBI

(d) Claims received

(e) Diminution in fair value of Restructured Assets

(f) Technical write-off

(g) Inter-Bank Participations with Risk sharing

4.3 Provision on advances have been made in accordance with RBI guidelines / directives as under:

(a) For Standard Assets:

(i) 0.25% on direct advance to agriculture and SME sectors

(ii) 1.00% on advances to commercial real estate.

(iii) 2.00% on Teaser Home Loans

(iv) 0.40% on all other advances

(b) For all Non-Performing Assets (NPA):

(i) Sub-standard Assets:

(a) A general provision of 10%

(b) Additional provision of 10% for exposures, which are unsecured ab-initio (where realizable value of security is not more than 10% ab-initio)

(ii) Doubtful assets at 20%, 30% or 100% of the secured portion based on the number of years the account remained as "Doubtful Asset" and at 100% of the unsecured portion of the outstanding after netting retainable amount of the guarantee cover under the scheme of Export Credit and Guarantee Corporation (ECGC) / Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), wherever applicable and

(iii) Loss Assets at 100%.

4.4 Restructuring of Advances: In respect of restructured accounts, where the outstanding is Rs. 1.00 crore and above, the erosion in the fair value of the advance is computed as the difference between the fair value of the loan before and after restructuring.

Fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the Banks BPLR as on the date of

restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. Fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the Banks BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

In respect of restructured accounts, where the outstanding is less than Rs.1.00 crore, the amount of diminution in the Fair value has been computed at 5% of the outstanding.

4.5 In the case of suit filed accounts, legal expenses are charged to Profit & Loss account and credited to revenue expenditure, when recovered.

4.6 Financial assets sold to Asset Reconstruction Company (ARC) / Securitisation Company (SC) are recognized as under:

(a) In case the sale is at a price lower than the Net Book Value (NBV), the difference is charged to the Profit & Loss account.

(b) In the case the sale is at a price higher than the NBV, the surplus provision is not reversed but held separately for meeting the loss if any on future sale of financial assets.

5. DEPOSITS

Interest on deposits, with provision for re-investment of interest, is capitalized for every completed quarter and shown as principal.

6. FIXED ASSETS & DEPRECIATION

6.1 Premises and other fixed assets have been accounted for at historical cost. Pending registration, the land and buildings acquired by the Bank are capitalized, based on letters of allotment / agreement and the physical possession.

6.2 (a) Cost of mobile sets / phones up to Rs. 5000,

(b) Cost of furnishing items like curtains (including stitching charges) / carpets / mattresses and pillows irrespective of cost and

(c) Other individual items costing Rs.1000 or less are charged to profit and loss account in the year of purchase.

6.3 Depreciation on premises and other fixed assets including system software is provided for on written down value method in the manner and at rates as per Income Tax Act / Rules except as under:

6.4 In respect of assets acquired during the year, depreciation is charged for half year in respect of assets used for 182 days or less and for the full year in respect of assets used for more than 182 days, except depreciation on computers and software, which is charged for the full year irrespective of the period for which the asset was put to use. No depreciation is provided in the year of sale / disposal of an asset.

6.5 In respect of Leasehold Properties, the lease premium is amortized over the period of the lease.

7. EMPLOYEE BENEFITS

7.1 Short Term Employee benefits:

Amount of short-term employee benefits, such as casual leave and medical benefits, expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service.

7.2 Post Employment benefits:

(i) Defined Contribution Plan

The Bank operates a Provident Fund scheme, which is a defined contribution plan. All eligible employees are entitled to receive benefits under the Banks Provident Fund scheme. The Bank contributes monthly at a determined rate (currently 10% of employees basic pay plus eligible allowance). These contributions are made to a fund set up by the Bank and administered by a Board of Trustees. The Bank has no liability for future provident fund benefits other than its annual contribution, and recognizes such contributions as an expense in the year to which they relate.

(ii) Defined Benefit Plan

(a) The Bank operates gratuity, pension and resettlement schemes, which are defined benefit plans.

(b) The Bank provides for gratuity to all eligible employees.

The benefit is in the form of lump sum payments to vested employees on superannuation, on death while in employment or on termination of employment. The rate of gratuity payable to an employee is 15 days based on the rate of wages / salary last drawn by the employee as per the Payment of Gratuity Act, 1972 for every completed year of service. Gratuity is payable to an employee on the termination of his employment after he has rendered continuous service for a period of not less than 5 years (on retirement, resignation, except death & disablement). To be eligible under SBT (Employees) Gratuity Regulations, 1972 minimum service required is 10 years. The Bank makes annual contribution to the Fund administered by the Board of Trustees based on independent actuarial valuation carried out annually. The maximum amount payable as per the Payment of Gratuity Act, 1972 is Rs.10.00 lakhs. The amount payable to the employees will be higher of the amount calculated as per SBT (Payment of Gratuity to Employees) Regulations and Payment of Gratuity Act, 1972, subject to deduction of Income Tax on amount in excess of Rs.10.00 lakhs.

(c) The Bank provides for pension to all eligible employees who have opted for pension and joined the services of the Bank on or before 31st March 2010. The benefit is in the form of monthly payments as per rules and regular payments to vested employees on retirement, on death while in employment, or on termination of employment. Vesting occurs at different stages as per rules. The Bank makes annual contributions to fund administered by Board of Trustees based on an independent external actuarial valuation carried out annually.

(d) The cost of providing defined benefits is determined using the projected unit credit method with actuarial valuations being carried out at each balance sheet date. Actuarial gains / losses are immediately recognized in the statement of profit and loss and are not deferred.

(e) The bank has exercised the option of recognizing the transitional liability on adoption of Accounting Standard 15 (2005) for its defined benefit schemes against revenue and other reserves.

(f) Defined Contributory Pension Scheme: Employees, joining services of the Bank on or after 1st April 2010 are eligible for Defined Contributory Pension Scheme in line with the New Pension Scheme introduced for employees of Central Government.

(g) The additional liability on account of reopening of pension option for serving employees who had not opted for pension earlier as well as the enhancement in gratuity limits is being amortized over a period of five years beginning with the financial year ending March 31, 2011 as per the RBI notification.

(h) The additional liability on account of reopening of pension option for retired employees who had not opted for pension earlier as well as the enhancement in gratuity limit is being charged to the profit and loss account.

(iii) Other Long Term Employee benefits:

(a) All eligible employees of the bank are eligible to encash certain portion of their earned leave while in employment or on retirement, on death or on termination of employment, subject to a maximum amount. This is paid by the Bank as and when the liability arises.

(b) 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 immediately recognized in the statement of profit and loss and is not deferred.

8. PROVISION FOR TAXATION

(a) 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 of changes in the deferred tax assets or liabilities during the year.

(b) Deferred tax assets and liabilities are recognized 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 recognized in the profit and loss account.

(c) Deferred tax assets are recognized and reassessed at each reporting date, in accordance with Accounting Standard 22 and based upon Managements judgment as to whether realization is considered certain. Deferred tax assets are recognized only if there is virtual certainty that such deferred tax assets can be realized against future taxable income.

9. REVENUE RECOGNITION

9.1 Income: Interest and other income are recognized on accrual basis except for the following, which are recognized on cash basis:

(a) Interest and other income on NPA, projects under implementation with time over run and government guaranteed accounts where interest is not received regularly, as per Reserve Bank of India guidelines;

(b) Dividend on investment in shares and income distributed on units of Mutual Funds;

(c) Locker Rent;

(d) Exchange on demand bills purchased / commission on bills sent for collection;

(e) Interest on Overdue bills on realization basis;

(f) Income on cross selling products;

(g) Interest on Non Performing Investments and (h) Insurance claims

9.2 Adjustment in respect of recoveries made in NPA accounts - the recoveries made are appropriated in the order of Charges, Interest and then to Principal in live NPA and in respect of protested bills accounts, the recoveries made are appropriated in the order of Principal, Charges and then to unrealized Interest.

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

9.4 Expenditure: Revenue expenditure is accounted for on accrual basis except Property Taxes and Banks liabilities in respect of disputes pertaining to additional rent / lease rent, which are accounted for on cash basis.

10. NET PROFIT

The net profit disclosed in the Profit and Loss account is arrived at, after making provisions for the following:

(a) Provision for taxes on Income including Deferred Tax and Wealth Tax,

(b) Provision for Non-performing Advances and / or Investments,

(c) Provision on Standard Assets,

(d) Interest sacrifice on restructured accounts,

(e) Depreciation on Investments,

(f) Transfers to contingencies and

(g) Other usual and necessary provisions.

11. IMPAIRMENT OF ASSETS

Impairment loss, if any, on Fixed Assets is recognized in accordance with the Accounting Standard 28 issued in this regard by the Institute of Chartered Accountants of India.

12. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In conformity with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets", the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an out flow of resources embodying economic benefits will be required to settle the obligations, and when a reliable estimate of the amount of the obligation can be made.

 
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