Notes to Accounts of State Bank of Travancore

Mar 31, 2014

1. CAPITAL

Capital Adequacy Ratio

As per the extant guidelines of RBI, Bank has migrated to Basel III framework with effect 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.

The value of sales and transfers of securities to/from HTM category does not exceeds 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.BRBCNo.41/21.04.141/2013-14 dated 23.08.2013 on "Investments portfolio of banks -Classification, Valuation and Provisioning", Bank has transferred SLR securities with face value of T4246.40 crores (Book Value of T4456.28 crores) held under AFS portfolio to HTM portfolio and the loss on such transfer amounting to Rs.50.63 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 and provision of Rs.1.20 crores is made

(f) Forex based Interest Rate Swaps are done in US Dollars receiving fixed and paying six month LIBOR - linked floating 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 offered any collateral for undertaking the swaps.

(i) There is no concentration of credit risks arising from merest 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.

2. Disclosures on risk exposure in derivatives

a) Qualitative Disclosure

(0 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 effectiveness.

(iii) Identifying an underlying, employing a derivative to hedge the Rate Sensitive Gap and reviewing the effectiveness 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.

For compiling the countywide risk exposure, the Bank has used the Country risk Management Policy last reviewed and approved by the Board at its meeting neon 30.01.2014 Since the Bank does not have net Funded exposure of more than 1% of its total assets as on 31.03.2014 to any of the Countries provision for Country risk is not necessary.

3. Details of Single Borrower (SGL) / Group Sorrower (GBL) Limit exceeded by the Bank

In terms of the Loan Policy, the exposure to a single borrower should not exceed 15% of Bank''s capital funds. In exceptional circumstances with the approval of the Executive Committee of Bank''s Board, addition exposure to a borrower up to a maximum of 5% capital funds may be considered subject to the borrower consenting to the Bank to make appropriate disclosures in it Annual Report.

a. Individual accounts (Ceiling level 15% of Capital Funds->926.36 crore)

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

b. Group Borrowers (Celling level of 40% of Capital Funds:>2470.28 crores)

Bank has not exceeded the exposure celling in any group of borrowers.

4. 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

5. DISCLOSURE AS PER ACCOUNTING STANDARDS (AS)

5.1 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 and changes in accounting policies requiring disclosure under Accounting Standard 5.

5.2 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.

5.3 Accounting Standard 15 (Revised): Employee Benefits

5.3.1 Significant changes in the Principal Accounting Policies

During the Financial Year 2010-11, the Bank re-opened the pension option for such of its employees who had not opted for pension scheme earlier. As a result of this exercise, the Bank has incurred a liability of 7558.35 crore Further the limit of Gratuity payable to the employees of the Bank was also enhanced pursuant to the amendment to Payment of Gratuity Act, 1972. As a result of this the Gratuity liability of the Bank has increased by 7113.56 crore.

In accordance with the provision of the RBI Circular number DBOD.BP.BC.80/21.04.018/2010-11, the Bank would amortize the amount of 7671.91 crore over a period of five years commencing from the year ended 31.03.2011. Accordingly, 7134.38 crore (representing one- fifth of T671.91 crore) has been charged to the Profit and Loss Account during the year. In terms of the requirements of the aforesaid circular, the balance amount carried forward, ie.134.38 crore does not include any amount relating to separated / retired employees and shown under "Other Assets'' Schedule 11. Had such a circular not been issued by the RBI, and accounting had been done in terms of the Accounting Standard 15, Employee Benefit, the profit of the Bank for the year would have been higher by 7134.38 crore and Reserves and Surplus would have been lower by 7134.38 crore.

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 9.27% per annum for Pension Plan and 9.31% for Gratuity Plan.

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

6. Defined Contribution Plan

Amount of fOA9 crore (Rs.0.89 crore) recognized as an expense towards the Provident Fund scheme of the Bank and Rs.7.60 crores (Rs.3.09 crore) as an expense towards new pension scheme is included under the head ''Payments to and provisions for employees'' in profit and loss account.

7. Other Long term Employee Benefits

Amount ofRs.21.09 crore (Previous Year 714.07crore) is recognized as an expense towards Other Long term Employee Benefits included under the head ''Payments to and Provisions for Employees'' in profit and loss account.

8. Accounting Standard 17: Segment Reporting Part A: Business Segments

Pursuant to RBI guidelines, the Bank has re-classified the business segments in which the Bank operates into:

a. Corporate/Wholesale Banking

b. Retail Banking

c. Treasury and

d. Other Banking Operations

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

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

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

iii) Treasury: Entire investment porticos are classified under Treasury segment.

iv) 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.

9. Accounting Standard 19: Leases

The properties taken on lease/ rental basis are renewable / cancelable at the option of the Bank. The Bank''s liabilities in respect of disputes pertaining to additional rent / lease rent are recognized on settlement or on renewal.

10. Accounting Standard 20: Earnings Per Share

b) In terms of circular NoHBl/2013-14/412DBODNo BRBC.77/ 21/04.018/2013-14 dated 20.12.2013, issued by Reserve Bank of India, the Bank has created DTL of Rs.79.88 crores for the Special Reserve of T235.00 crores created under Section 36 (1) (viii) of Income Tax Act. 1961 as at 31.03.2013 directty from General Reserve. The expenditure of T25.17 crores towards creation of DTL on SpecialReserve for itw Current year is chargged to the Profit and Loss Account.

11. 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"

b) Contingent liabilities

Liabilities at I turn -1 and VIII of Schedule 12 of the Balance Sheet are dependent upon the outcome of court / arbitration / out of court sentiment, disposal of appea s, the amount being cai:ed up, terms of contractual obligations, development and raising of demand by concerned parties, respectively.

c) Claims against the Bank, not acknowledged as debts

Total claims against the Bank, which is not acknowledged as debt includes tax demands in respect of which the Bank is in appeal of Rs.158.74 crore and the cases sub-judice Rs.1.73 crore.

The Bank is a party to various proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank''s financial conditions, results of operations or cash flows.

d. Liability on account of outstanding forward exchange contracts

The Bank enters in to foreign exchange contracts, currency options forward rate agreements, currency swaps and interest rate swaps with inter-Bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as Contingent Liabilities, are typically amounts used as a benchmark for the calculation of the interest component of the contracts.

e. Guarantees given on behalf of Constituents, acceptance, endorsements and other obligations

As part of its commercial banking activities, the Bank issues Documentary credits and guarantees on behalf of its customers Documentary credits enhance the credit standing of the customers of the Bank. Guarantees generally represent irrevocable assurances that the Bank will make payment in the event of the customer failing to fulfill his financial or performance obligations.

f. Other items for which the Bank is contingently liable

The Bank is a party to various taxation matters in respect of which appeals are pending. These are being contested by the Bank and not provide for. Further, the Bank has made commitments to subscribe to shares in the normal course of business.

12. FIXED ASSETS

a) Depreciation on flats has been provided on the actual cost of acquisition, as land value is not separately available

b) Gross Value of fixed assets (other than premises) jointly owned by State Bank of India and other Associate Banks

13. INTER OFFICE ACCOUNTS

Reconciliation of transactions in inter-branch transactions, ATM balances, Accounts with State Bank of India & Associate Banks, Government (Central & State) transactions accounts. Draft Payable account, Nostra accounts, System Suspense account, Clean and other Adjusting accounts are completed up to 313.2014 and steps for elimination of outstanding entries are in progress, In the opinion of the management, there are no significant items in the reconciliation to have any material consequential effect.

14. Draw Down from Reserves

Amount drawn from reserves during the year is Rs.79.88 crores (Nil) in terms of circular No.RBI/2013-14/412 DBOD. No. BP.BC.77/ 21.04,018/2013-14 dated 20.12,2013, issued by Reserve Bank of India.

15. Disclosure of Letter of Comforts (LoCs) issued by the Bank

The Bank has not issued any Letter of Comforts (LoCs) during the year other than those issued in the normal course of business.

16. Fees/Remuneration received in respect of Banc-assurance business undertaken by the Bank

The Bank has received the following fees / remuneration in respect of the Banc-assurance business undertaken by the Bank:

We, the undersigned auditors of State Bank of Travancore, appointed under section41(1)of the State Bank of India (Subsidiary Banks) Act, 1959 do hereby report that:

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Mar 31, 2013

1. CAPITAL Capital Adequacy Ratio

The Capital to Risk-weighted Assets Ratio (CRAR) as assessed by the Bank on the basis ofthe financial statements and guidelines issued by the Reserve Bankof India (RBI) has been computed as below:

b. As per BASEL-II

As per the extant guidelines of RBI, Bank has migrated to New Capital Adequacy framework with effect from 31.03.2008. Bank has adopted Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risktowardscompoundingthe minimum Capital under BASEL - II.

Prudential Floor as on 31.03.2013

While migrating to BASEL - II framework, RBI has set out a Prudential Floor on minimum capital for the smooth transition from BASEL -1 framework to BASEL - II framework. The Prudential Floor is higher of "minimum capital is required to be maintained as per BASEL - II framework or as a percentage (prescribed as 80% forthe financial year ending 31st March 2013) of minimum capital requirement computed as per BASEL -1 framework" for credit and market risks.

-includes sales under RBI-OMO Rs 464.95cr

The value of sales and transfers of securities toArom HTM category does not exceed 5 percent ofthe book value of investments held in HTM category at the beginning ofthe 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 ofthe accounting year and sales to the Reserve Bank of India under pre-announced OMO auctions.

(a) The Bank has entered into (I) 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 duringthe year.

(b) All the Interest Flate Swaps are within the counter party exposure limits.

(c) The value and maturity ofthe 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 LIBORfor one year (plus a spread) with a cap of I %.

(e) There is an exchange risk in respect of interest payout for coupon only swap transaction as the same is marked to market and provision of Rs.2.55 crores is made

(f) Forex based Interest Rate Swaps are done in US Dollars receiving fixed and paying six month LIBOR-linked floating rate interest.

(g) Carrying value ofthe Notional Principal amount ofthe 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 offered any collateral for undertakingthe swaps.

(i) There is no concentration of credit risks arisingfrom Interest Rate Swaps undertaken duringthe year.

- No Forward Rate Agreement transaction was undertaken duringthe year.

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

1.1 Disclosures on risk exposure in derivatives

a) Qualitative Disclosure

(i) Bank has started trading in currency futures through MCX Exchange with I L&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 effectiveness.

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

(iv) Hedge transactions are accounted on accrual basis and no markingto 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.

1. Closing Balance of Gross & Net NPA is net ofthe interest Not Collected (INCA) and Uncollected Interest Previous Year (UIPY).

2. For the purpose of arriving at Net NPA, claims received from ECGC amounting to Rs. 10.21 crores and provision for diminution in fair value of Restructured NPAaccounts amountingto Rs. 15.67 crores have been deducted from Gross NPA.

3. @ includes Floating provision of Rs. 100 crores.

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 21.03.2013. Since the Bank does not have net funded exposure of more than I % of its total assets as on 31.03.2013to any ofthe Countries, provision for Country risk is not necessary.

2.1 Details of Single Borrower (SGL)/Group Borrower (GBL) Limit exceeded by the Bank

In terms ofthe Loan Policy, the exposure to a single borrower should not exceed 15% of Bank''s capital funds. In exceptional circumstances with the approval of the Executive Committee of Bank''s Board, additional exposure to a borrower up to a maximum of 5% of capital funds may be considered subject to the borrower consentingto the Bankto make appropriate disclosures in its Annual Report.

a. Individual accounts (Ceiling level 15% of Capital Funds-Rs.880.06 crore) Bank has not exceeded the exposure ceiling in any single borrower.

b. Group Borrowers (Ceiling level of 40% of Capital Funds: Rs.2346.84 crores) Bank has not exceeded the exposure ceiling in any group of borrowers.

* Net of excess provision written back of Rs.49.83 crores pertaining to previous years

3.1 Disclosures of Penalties imposed by Reserve Bank of India

Duringthe year RBI has not imposed any penalty on the Bank.

4.DISCLOSURE AS PER ACCOUNTING STANDARDS (AS)

4.1 Accounting Standard 5: Net Profit or Loss forthe period, prior period items and changes in Accounting Policies

There are no material prior period income/expenditure items and changes in accounting policies requiring disclosure under Accounting Standard 5.

4.2 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.

4.3 Accounting Standard 15 (Revised): Employee Benefits

4.3.1. Significant changes in the Principal Accounting Policies

During the Rnancial ''fear 2010-1 I, the Bank re-opened the pension option for such of its employees who had not opted for pension scheme earlier. As a result of this exercise, the bank has incurred a liability ofRs. 558.35 crore . Further the limit of Gratuity payable to the employees of the Bank was also enhanced pursuant to the amendment to Payment of Gratuity Act, 1972. Asa result of this the Gratuity liability ofthe bank has increased by Rs. I 13.56 crore.

In accordance with the provision ofthe RBI Circular number DBOD.BPBC.80/21.04.018/2010-1 I, the bank would amortize the amount of Rs.671.91 crore over a period of five years commencing from the year ended 31.03.201 I. Accordingly, Rs. 134.38 crore (representing one-fifth of Rs.671.91 crore) has been charged to the Profit and Loss Account duringthe year. In terms ofthe requirements ofthe aforesaid circular, the balance amount carried forward, ie.Rs. 268.76 crore does not include any amount relating to separated / retired employees and shown under "Other Assets1 Schedule I I. Had such a circular not been issued by the RBI, and accounting had been done in terms of the Accounting Standard 15, Employee Benefit, the profit ofthe Bankforthe year would have been higher byRs. 134.38 crore and Reserves and Surplus would have been lower by Rs. 268.76 crore.

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

iv) Brief description oftype 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. "lb 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 7.50% perannum.

Amount of Rs. 0.89 crore recognized as an expense towards the Provident Fund scheme of the Bank and Rs. 3.09 crore as an expense towards new pension scheme is included underthe head ''Payments to and provisions for employees'' in profit and loss account.

Amount ofRs. 14.07 crore (Previous YearRs. 33.86 crore) is recognized as an expense towards Other Longterm Employee Benefits included Pursuant to RBI guidelines, the Bank has re-classified the business segments in which the Bank operates into:

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

ii) Retail: All loan and advance accounts which are not covered above will betaken as Retail Banking.

(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

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

4.4 Accounting Standard 19: Leases

The properties taken on lease /rental basis are renewable /cancelable at the option ofthe Bank. The Bank''s liabilities in respect of disputes pertainingto additional rent/lease rent are recognized on settlement or on renewal.

4.5 Accounting Standard 28: Impairment of Assets

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

b Contingent liabilities

Liabilities at Item -1 and VII of Schedule 12 ofthe Balance Sheet are dependent upon the outcome of court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties, respectively.

d Claims against the Bank, not acknowledged as debts

Total claims against the Bank, which is not acknowledged as debt represent tax demands in respect of which the Bank is in appeal of Rs. 493.48 crore and the cases sub-judice Rs. 1.56 crore.

The Bank is a party to various proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank''s financial conditions, results of operations or cash flows.

d. Liability on account of outstandingforward exchange contracts

The bank enters in to foreign exchange contracts, currency options forward rate agreements, currency swaps and interest rate swaps with inter-Bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as Contingent Liabilities, are typically amounts used as a benchmark forthe calculation ofthe interest component ofthe contracts.

e. Guarantees given on behalf of Constituents, acceptance, endorsements and other obligations

As part of its commercial banking activities, the Bank issues Documentary credits and guarantees on behalf of its customers Documentary credits enhance the credit standing ofthe customers ofthe Bank. Guarantees generally represent irrevocable assurances that the Bank will make payment in the event ofthe customerfailingto fulfill his financial or performance obligations.

f .Other items for which the bank is contingently liable

The Bank is a party to various taxation matters in respect of which appeals are pending. These are being contested by the Bank and not providefor. Further, the Bank has made commitments to subscribe to shares in the normal course of business.

5. FIXED ASSETS

a) Depreciation on flats has been provided on the actual cost of acquisition, as land value is not separately available

b) Gross Value offixed assets (otherthan premises) jointly owned by State Bank of India and other Associate Banks

6.INTER OFFICE ACCOUNTS

Reconciliation of transactions in Inter-Branch transactions, ATM balances, Accounts with State Bank of India & Associate Banks, Government (Central & State) transactions accounts, Draft Payable account, Nostro accounts, System Suspense account, Clearing and other Adjusting accounts are completed upto 31.3.2013 and steps for elimination of outstanding entries are in progress. In the opinion of the management, there are no significant items in the reconciliation to have any material consequential effect.

7.1 Previous year''s figures have been regrouped / rearranged wherever necessary.

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Mar 31, 2012

I. CAPITAL Capital Adequacy Ratio

The Capital to Risk-weighted Assets Ratio (CRAR) as assessed by the Bank on the basis of the financial statements and guidelines issued by the Reserve Bank of India (RBI) has been computed as below:

b. As per BASEL - II

As per the extant guidelines of RBI, Bank has migrated to New Capital Adequacy framework with effect from 31.03.2008. 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 - II.

Prudential Floor as on 31.03.2012

While migrating to BASEL - II framework, RBI has set out a Prudential Floor on minimum capital for the smooth transition from BASEL - I framework to BASEL - II framework. The Prudential Floor is higher of minimum capital is required to be maintained as per BASEL - II framework or as a percentage (prescribed as 80% for the financial year ending 31st March 2012) of minimum capital requirement computed as per BASEL - I framework for credit and market risks.

The value of sales and transfers of securities to/from HTM category does not exceed 5% 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.

(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 and provision of Rs.3.44 crores (net of specific reserve of Rs.3.25 crores) is made

(f) Forex based Interest Rate Swaps are done in US Dollars receiving fixed and paying six month LIBOR - linked floating 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 offered 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.

1.1 Options

(a) Options offered to customers have been covered back to back in the market.

1.2 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 effectiveness.

(iii) Identifying an underlying, employing a derivative to hedge the Rate Sensitive Gap and reviewing the effectiveness 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.

* Includes Rs.0.95 crores written back in respect of interest sacrifice in restructured NPA accounts and Rs.1.06 crores relating to technical write off

1. Closing Balance of Gross & Net NPA is net of Interest Not Collected (INCA) and Uncollected Interest Previous Year (UIPY).

2. For the purpose of arriving at Net NPA, claims received from ECGC are deducted from the Gross NPA.

3. @ Includes Floating Provision of Rs. 100 Cr .

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 22.02.2012. Since the Bank does not have net funded exposure of more than 1% of its total assets as on 31.03.2012 to any of the Countries, provision for Country risk is not necessary.

1.3 Details of Single Borrower (SGL) / Group Borrower (GBL) Limit exceeded by the Bank

In terms of the Loan Policy, the exposure to a single borrower should not exceed 15% of Bank's capital funds. In exceptional circumstances with the approval of the Executive Committee of Bank's Board, additional exposure to a borrower up to a maximum of 5% of capital funds may be considered subject to the borrower consenting to the Bank to make appropriate disclosures in its Annual Report. The Bank during the year has sanctioned exposure beyond 15% of capital funds with the approval of the Executive Committee of Bank's Board in the case of the following accounts:

b. Group Borrowers (Ceiling level of 40% of Capital Funds: Rs.1952.35 crores) Bank has not exceeded the exposure ceiling in any group of borrowers

1.4. Disclosures of Penalties imposed by Reserve Bank of India During the year RBI has not imposed any penalty on the Bank.

2. DISCLOSURE AS PER ACCOUNTING STANDARDS (AS)

2.1 Amounting Standard S: Net Profit or Loss for the period, prior period items and changes in Accounting Policies

There are no material prior period income / expenditure items requiring disclosure under

2.2 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.

3.1 Accounting Standard IS (Revised): Employee Benefits

3.1.2 During Financial Year 2010-11, the Bank reopened the pension option for such of its employees who had not opted for the pension scheme earlier. As a result of this exercise , the Bank incurred a liability of Rs.558.35 crore. Further the limit of gratuity payable to the employees of the Bank was also enhanced pursuant to the amendment to the Payment of Gratuity Act, 1972. As a result the gratuity liability of the Bank increased by Rs.113.56 crore.

In accordance with the provisions of the RBI Circular No DB0D.BP.BC.80 / 21.04.018 / 2010-11, the Bank is amortizing Rs.671.91 crore over a period of five years commencing from year ended 31.03.2011. Accordingly, Rs.134.38 crore (representing one-fifth of Rs.671.91 crore) has been charged to the Profit and Loss Account during the year. In terms of the requirements of the aforesaid circular, the balance amount carried forward, ie. Rs.403.15 crore does not include any amount relating to separate/retired employees and shown under 'Other Assets' Schedule

4. Had such a circular not been issued by the RBI, and accounting had been done in terms of the Accounting Standard 15, Employee Benefits, the profit of the Bank for the year would have been more by 134.38 crore and Reserves and Surplus would have been lower by Rs.403.15 crore.

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 7.50% per annum.

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

5.1 Defined Contribution Plan

Amount of Rs.1.97 crore (Previous Year Rs.9.38 crores)is recognized as an expense towards the Provident Fund scheme of the Bank included under the head 'Payments to and provisions for employees' in profit and loss account.

5.2 Other Long term Employee Benefits

Amount of Rs.33.86 crore (Previous Year Rs.20.42 crores)is recognized as an expense towards Other Long term Employee Benefits included under the head 'Payments to and Provisions for Employees' in profit and loss account.

5.3 Accounting Standard 17: Segment Reporting

Part A: Business Segments

Pursuant to RBI guidelines, the Bank has re-classified the business segments in which the Bank operates into:

a. Corporate / Wholesale Banking

b. Retail Banking

c. Treasury and

d. Other Banking Operations

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

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

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

iii)Treasurv: Entire investment portfolios are classified under Treasury segment. Iv A 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.

* Operating profit is arrived at after deduction of provisions & contingencies of Rs.501.05 crore (previous year Rs.293.94 crore)

Part C: Geographic Segment

The Bank operates only in the Domestic segment and therefore, no separate disclosure under geographic segment is made.

Note: As all the other related parties are State Controlled Enterprises as defined in Accounting Standard 18 issued by the Institute of Chartered Accountants of India, transactions with them are not disclosed.

5.4 Accounting Standard 19: Leases

The properties taken on lease / rental basis are renewable / cancelable at the option of the Bank. The Bank's liabilities in respect of disputes pertaining to additional rent / lease rent are recognized on settlement or on renewal.

5.5 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.

b) Contingent liabilities

Liabilities at Item - I, VI and VII of Schedule 12 of the Balance Sheet are dependent upon the outcome of court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties, respectively.

c) Claims against the Bank, not acknowledged as debts

Total claims against the Bank, which is not acknowledged as debt represent tax demands in respect of which the Bank is in appeal of Rs.353.57 crore and the cases sub-judice Rs.5.93 crore.

The Bank is a party to various proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank's financial conditions, results of operations or cash flows.

d. Liability on account of outstanding forward exchange contracts

The bank enters in to foreign exchange contracts, currency options forward rate agreements, currency swaps and interest rate swaps with inter-Bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as Contingent Liabilities, are typically amounts used as a benchmark for the calculation of the interest component of the contracts.

e. Guarantees given on behalf of Constituents, acceptance, endorsements and other obligations As part of its commercial banking activities, the Bank issues Documentary credits and guarantees on behalf of its customers Documentary credits enhance the credit standing of the customers of the Bank. Guarantees generally represent irrevocable assurances that the Bank will make payment in the event of the customer failing o fulfill its financial or performance obligations.

f .Other items for which the bank is contingently liable

The Bank is a party to various taxation matters in respect of which appeals are pending. These are being contested by the Bank and not provide for. Further, the Bank has made commitments to subscribe to shares in the normal course of business.

6. FIXED ASSETS

a) Depreciation on flats has been provided on the actual cost of acquisition, as land value is not separately available

II. RECONCILIATION

Inter-Branch transactions, ATM balances, Accounts with State Bank of India and Associate Banks, Government (Central & State) transactions accounts, Draft Payable account, Nostril accounts, System Suspense account, Clearing and other Adjusting accounts are at various stages of reconciliation. In the opinion of the Management there will not be any material impact of such reconciliation on the financial statements.

7.1 Disclosure of Letter of Comforts (LoCs) issued by the Bank

The Bank has not issued any Letter of Comforts (LoCs) during the year.

7.2 Fees / Remuneration received in respect of Banc-assurance business undertaken by the Bank

The Bank has received the following fees / remuneration in respect of the Banc-assurance business undertaken by the Bank:

7.3 Previous year's figures have been regrouped / rearranged wherever necessary.

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Mar 31, 2011

A. As per BASEL - II

As per the extant guidelines of RBI, Bank has migrated to New Capital Adequacy framework with effect from 31.03.2008. 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 - II.

Prudential Floor as on 31.03.2011

While migrating to BASEL - II framework, RBI has set out a Prudential Floor on minimum capital for the smooth transition from BASEL - I framework to BASEL - II framework. The Prudential Floor is higher of "minimum capital is required to be maintained as per BASEL - II framework or as a percentage (prescribed as 80% for the financial year ending 31st March 2011) of minimum capital requirement computed as per BASEL - I framework" for credit and market risks.

2.0In compliance with RBI guidelines, the Bank has changed the Accounting Policy 3 with effect from 01.01.2011 regarding accounting of investments, from trade date to settlement date and this change has no impact on these financial statements.

3. DERIVATIVES

3.1. Interest Rate Swap / Forward Rate Agreement / Options

(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) Forex based Interest Rate Swaps are done in US Dollars receiving fixed and paying six month LIBOR – linked floating rate interest.

(f) 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 RBI reference rate as on trade dates.

(g) The Bank has not offered any collateral for undertaking the swaps.

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

(i) No Forward Rate Agreement transaction was undertaken during the year.

3.2 Exchange Traded Interest Rate Derivatives (Rupee & Forex)

(Rs. in crore)

S.No. Particulars Amount i) Notional Principal amount of exchange traded interest rate derivatives undertaken during the year. Nil

ii) Notional Principal amount of exchange traded interest rate derivatives outstanding as on 31.03.2011. Nil

iii) Notional Principal amount of exchange traded interest rate derivatives and not "highly effective". Nil

iv) Marked-to-market value of exchange traded interest rate derivatives outstanding and not "highly effective". Nil

3.3 Options

(a) Options offered to customers have been covered back to back in the market.

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 effectiveness.

(iii) Identifying an underlying, employing a derivative to hedge the Rate Sensitive Gap and reviewing the effectiveness 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.

4.3 Details of financial assets sold to Securitisation / Reconstruction Company for Asset Reconstruction

(Rs. in crore)

Particulars 31.03.2011 31.03.2010

1. Number of accounts Nil Nil

2. Aggregate value (net of provisions) of accounts sold to SC / RC Nil Nil

3. Aggregate consideration Nil Nil

4. Additional consideration realized in respect of accounts transferred in earlier years Nil Nil

5. Aggregate gain / loss over net book value Nil Nil

4.4 Details of Non-performing financial assets purchased / sold A. Details of Non-performing financial assets purchased

(Rs. in crore)

Particulars 31.03.2011 31.03.2010

1. (a) Number of accounts purchased during the year Nil Nil

(b) Aggregate Outstanding Nil Nil

2. (a) Of these, number of accounts restructured during the year Nil Nil

(b) Aggregate Outstanding Nil Nil

7.4 Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the Bank

In terms of the Loan Policy, the exposure to a single borrower should not exceed 15% of Banks capital funds. In exceptional circumstances with the approval of the Executive Committee of Banks Board, additional exposure to a borrower up to a maximum of 5% of capital funds may be considered subject to the borrower consenting to the Bank to make appropriate disclosures in its Annual Report.

Prudential norm at 15% of Capital funds as on 31.03.2010 for Single borrower is Rs.659.59 crore and 40% for Group borrowers is Rs.1758.89 crore. During the year Bank has not exceeded the exposure ceiling to individual / group borrowers.

8. MISCELLANEOUS

8.2 Disclosures of Penalties imposed by Reserve Bank of India

During the year RBI has not imposed any penalty on the Bank.

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 requiring disclosure under Accounting Standard 5.

9.3 Accounting Standard 9: Revenue Recognition

Certain items of income are recognized on realization basis as per Accounting Policy number 9.1. These are considered not material in terms of RBI guidelines, and hence do not require disclosure.

9.4 Accounting Standard 15 (Revised): Employee Benefits

9.4.1. Significant changes in the Principal Accounting Policies

During the year, the Bank reopened the pension option for such of its employees who had not opted for the pension scheme earlier. As a result of exercise of which by 3720 continuing employees, the Bank has incurred a liability of Rs.558.35 crore. Further,

during the year, the limit of gratuity payable to the employees of the Bank was also enhanced pursuant to the amendment to the Payment of Gratuity Act, 1972. As a result the gratuity liability of the Bank has increased by Rs.113.56 crore.

In terms of the requirements of the Accounting Standard 15, Employee Benefits, the entire amount of Rs.671.91 crore (i.e. Rs.558.35 crore + Rs.113.56 crore) is required to be charged to the Profit and Loss Account. However, the RBI has issued a Circular No. DBOD.BP.BC.80 / 21.04.018 / 2010-11) on Re- opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits – Prudential Regulatory Treatment, dated 09.02.2011. In accordance with the provisions of the said Circular, the Bank would amortize the amount of Rs.671.91 crore over a period of five years. Accordingly, Rs.134.38 crore (representing one-fifth of Rs.671.91 crore) has been charged to the Profit and Loss Account. In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward, i.e., Rs.537.53 crore (Rs.671.91 crore – Rs.134.38 crore) does not include any employees relating to separated / retired employees and shown under Other Assets – Schedule 11.

Had such a circular not been issued by the RBI, the profit of the Bank would have been lower by Rs.537.53 crore pursuant to application of the requirements of Accounting Standard 15.

9.4.2. Employee Benefits

i) Defined Benefit Pension Plan and Gratuity The following table sets out the status of the defined benefit Pension Plan, Gratuity Plan and Resettlement Plan as required under Accounting Standard 15:

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 7.50% per annum.

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

9.4.3. Defined Contribution Plan

Amount of Rs.9.38 crore is recognized as an expense towards the Provident Fund scheme of the Bank included under the head Payments to and provisions for employees in profit and loss account.

9.4.4. Other Long term Employee Benefits

Amount of Rs.20.42 crore is recognized as an expense towards Other Long term Employee Benefits included under the head Payments to and Provisions for Employees in profit and loss account.

9.5 Accounting Standard 17: Segmental Reporting

Part A: Business Segments

Pursuant to RBI guidelines, the Bank has re-classified the business segments in which the Bank operates into:

a. Corporate / Wholesale Banking

b. Retail Banking

c. Treasury and

d. Other Banking Operations

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

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

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

iii) Treasury: Entire investment portfolios are classified under Treasury segment.

iv) 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.

Part C: Geographic Segment

The Bank operates only in the Domestic segment and therefore, no separate disclosure under geographic segment is made.

9.7 Accounting Standard 19: Leases

The properties taken on lease / rental basis are renewable / cancelable at the option of the Bank. The Banks liabilities in respect of disputes pertaining to additional rent / lease rent are recognized on settlement or on renewal.

b) Contingent liabilities

Liabilities at Item - I, VI and VII of Schedule 12 of the Balance Sheet are dependent upon the outcome of court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties, respectively.

c) Claims against the Bank, not acknowledged as debts

Total claims against the Bank, which is not acknowledged as debt comprise tax demands in respect of which the Bank is in appeal of Rs.177.52 crore and the cases sub-judice is Rs.5.25 crore of which, as per estimates, Bank may result in an outgo of Rs.1.72 crore and this has been fully provided for.

d) Amount of capital contract to be executed net of advances has been estimated to Rs.1.05 crore

FIXED ASSETS

a) Depreciation on flats has been provided on the actual cost of acquisition, as land value is not separately available

b) Gross value of Fixed Assets (other than Premises) jointly owned by State Bank of India and other Associate Banks amounts to Rs.699.57 crore (previous year Rs.634.32 crore). The share of the Bank is Rs.69.95 crore (previous year Rs.63.43 crore).

RECONCILIATION

Inter-Branch transactions, ATM balances, Accounts with State Bank of India and Associate Banks, Government (Central & State) transactions accounts, Draft Payable account, Nostro accounts, System Suspense account, Clearing and other Adjusting accounts are at various stages of reconciliation. In the opinion of the Management there will not be any material impact of such reconciliation on the financial statements.

B. Award passed by the Banking Ombudsman

S. Particulars Nos. No. 1 Number of Unimplemented Awards at the beginning of the year Nil

2 Number of Awards passed by the Banking Ombudsmen during the year Nil

3 Number of Awards implemented during the year Nil

4 Number of Unimplemented Awards at the end of the year Nil

12.4 Disclosure of Letter of Comforts (LoCs) issued by the Bank

The Bank has not issued any Letter of Comforts (LoCs) during the year.

12.5 Fees / Remuneration received in respect of Banc-assurance business undertaken by the Bank The Bank has received the following fees / remuneration in respect of the Banc-assurance business undertaken by the Bank:

12.7 Off-Balance Sheet SPVs sponsored

Name of the SPV sponsored

Domestic Overseas

Nil Nil

12.9 Others

a) The Bank implemented the Agriculture Debt Waiver and Relief Scheme (ADWDRS), 2008 as per the directives of Government of India. The eligible amount receivable under the Debt Waiver Scheme and Debt Relief Scheme is Rs.328.17 crore and Rs.15.18 crore respectively. The Bank has submitted audited claims for Rs.324.23 crore under Debt Waiver (SF / MF) and Rs.11.55 crore under Debit Relief (OTS) schemes respectively and the same have been received from the Government in full.

The claim for the balance amount of Rs.3.94 crore under Debt Waiver and Rs. 3.63 crore under Debt Relief on account of grievances admitted by the Grievance Redressal Officers / relief paid to other farmers on payment of their share of 75% up-to the extended last date for such payment i.e. from 01.01.2010 to 30.06.2010 will be submitted to RBI before June 2011 as advised by them.

The Government of India has also decided to pay interest on the installments payable by them. The Bank has recognized a sum of Rs.8.08 crore on account of such interest receivable under the scheme and booked in Profit & Loss account for the financial year 2010-11.

Provision for the loss in Present Value (PV) terms for moneys receivable from the Government of India, for the accounts covered under the Debt Waiver Scheme and the Debt Relief Scheme, an amount of Rs.1.17 crore has been reversed to the Profit and Loss account in accordance with Para 21.1 of RBI Circular No. DBOD.NO.BP.BC.21/ 21.04.048/2010-11

b) The Bank has not received the necessary information from the suppliers / service providers covered under Micro, Small and Medium Enterprises Development Act, 2006, with regard to their registration with the appropriate authority. Hence the information, to be disclosed under section 22 of the said Act, is not given.

c) General Reserves as on 31.03.2011 includes an amount of Rs.6.50 crore transferred during 2009- 10 being the amount of individual credit entries of value less than USD 2500 or equivalent, originated up-to March 2002 and outstanding in the Nostro accounts, in terms of RBI Circular No. DBOD.BP.BC.No.133/21.04.018/2008-09 dated 11.05.2009.

12.10 The Bank has implemented a Special Home Loan Scheme for the period December 2008 to June 2009, arising out of which one time insurance premium has been paid covering the life of the borrowers over the tenure of the home loan availed. The total premium paid amounting to Rs.12.69 crore on account of such scheme is being charged off over the average loan period and accordingly 1/10th of the premium has been charged to profit and loss account.

12.11 Bank has entered into an Inter-Bank participation contract with risk sharing basis as an issuing bank. In terms of the scheme of Inter-Bank Participants-Guidelines issued by RBI vide DBOD.No.BP.BC.57/62-82 dated 31.12.1988, the aggregate amount of participation of Rs.1000 crore outstanding as on 31.03.2011 has been reduced from the aggregate advances including from the sub- classifications.

12.12 Previous years figures have been regrouped / rearranged wherever necessary.

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Mar 31, 2010

1.0 In pursuance of the change disclosed in the Accounting Policy 3 with effect from 01.04.2009 regarding accounting of investments, from ‘transaction date’ to ‘trade date’, the Government securities amounting to Rs.18.67 Crores purchased on 31.03.2009 and broken period interest of Rs.0.20 Crores thereon has been accounted for during the current financial year.

1.1 During the year Bank has incurred a loss of Rs.0.99 crores on account of ‘Coupon Only Swap’ (a derivative product for hedging). Pursuant to RBI guidelines, the same has been charged to Profit and Loss account.

2. DERIVATIVES

2.1 Interest Rate Swap/Forward Rate Agreement/Options

(a) The Bank has entered into Interest Rate Swap (Coupon only swaps) for hedging the interest rate risks of Tier II Bonds. 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) The Bank has not offered any collateral for undertaking the swaps.

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

(g) No Forward Rate Agreement transaction was undertaken during the year.

3.0 Options:

(a) Options offered to customers have been covered back to back in the market.

3.1 Disclosures on risk exposure in derivatives

a) Qualitative Disclosures

(i) Bank is not undertaking trading in derivatives. They are being used for hedging purposes only. The underlying to be hedged and the hedge instrument are identified by the user department. The hedge methodology is approved by the Executive Committee of the Board of Directors. The execution of trade and monitoring is done by user department.

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

(iii) Identifying an underlying, employing a derivative to hedge the Rate Sensitive Gap and reviewing the effectiveness 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 counterparty default is disclosed. Credit Risk is mitigated through counterparty exposure norms set internally.

3.2 Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) Exceeded by the Bank

In terms of the Loan Policy, the exposure to a single borrower should not exceed 15% of Bank’s capital funds. In exceptional circumstances with the approval of the Executive Committee of Bank’s Board, additional exposure to a borrower up to a maximum of 5% of capital funds may be considered subject to the borrower consenting to the Bank to make appropriate disclosures in its Annual Report. The bank during the year has sanctioned exposure beyond 15% of capital funds with the approval of the Executive Committee of Bank’s Board in the case of the following accounts:

3.3 Disclosures of Penalties Imposed by RBI

During the year Reserve Bank of India has not imposed any penalty on the Bank.

4. DISCLOSURE AS PER ACCOUNTING STANDARDS (AS)

4.1 ACCOUNTING STANDARDS: AS 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 requiring disclosure under AS 5.

4.2 ACCOUNTING STANDARD: AS 9

(Revenue recognition)

Certain items of income are recognized on realization basis as per Accounting Policy No. 9.1. These are considered not material in terms of Reserve Bank of India guidelines, and hence do not require disclosure.

4.3 ACCOUNTING STANDARDS: AS 15 (Revised) - Employee Benefits

1. Significant Changes in the Principal Accounting Policies

No significant change in the Principal Accounting Policy during the year.

2. Employee Benefits

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

2.4 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 5 years of service.

2.5 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% per annum.

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

3. Defined Contribution Plan

3.1 Amount of Rs. 19.20 crores is recognised as an expense towards the Provident Fund scheme of the Bank included under the head ‘Payments to and provisions for employees’ in profit and loss account.

4. Other Long term Employee Benefits

4.1 Amount of Rs.40.18 crores is recognised as an expense towards Other Long term Employee Benefits included under the head ‘Payments to and provisions for employees’ in profit and loss account.

5.1 ACCOUNTING STANDARD: AS 17 (Segmental Reporting)

Part A: Business Segments

Pursuant to RBI Guidelines, the Bank has re-classified the business segments in which the Bank operates into:

a. Corporate/Wholesale Banking

b. Retail Banking

c. Treasury and

d. Other Banking Operations

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

i) Wholesale/Corporate Banking: All loan and advance accounts with exposure of above Rs 5.00 crore are classified under wholesale/corporate Banking.

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

iii) Treasury: Entire investment portfolios are classified under Treasury segment.

iv) 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.

Part C: Geographic Segment

The Bank operates only in the Domestic segment and therefore, no separate disclosure under geographic segment is made.

5.6 ACCOUNTING STANDARD: AS 18

(Related Party Disclosures)

Related Party Disclosures: The Key Managerial Personnel of the Bank and their remuneration (including Superannuation benefits) are as below: Shri. A. K. Jagannathan, Managing Director (Period: 01.04.2009 – 31.03.2010) Salary & Allowances: Rs.10,22,764/-; Perquisites: Rs.2,23,404/- Note: As all the other related parties are State Controlled Enterprises as defined in AS - 18 issued by the Institute of Chartered Accountants of India, transactions with them are not disclosed.

5.7 ACCOUNTING STANDARD: AS 19

(LEASES)

The properties taken on lease/rental basis are renewable/ cancelable at the option of the bank. The Bank’s liabilities in respect of disputes pertaining to additional rent/lease rent are recognized on settlement or on renewal.

5.8 ACCOUNTING STANDARD: AS 28

Impairment of Assets

In the opinion of the Bank management, there is no impairment to the assets to which Accounting Standard 28 - “Impairment of Assets” applies.

5.9 ACCOUNTING STANDARD: AS 29 Statement of Provisions, Liabilities and Contingent Liabilities

a) Movement in Provision for contingent liabilities

(Rs in crore)

Particulars Current Previous Year Year

Balance as on 1st April 2009 1.72 1.72

Additions during the year Nil Nil

Utilised/Reversed during the year Nil Nil

Balance as on 31st March 2010 1.72 1.72

b) Contingent liabilities

Liabilities at Item No. I, VI and VII of Schedule 12 of the Balance Sheet are dependent upon the outcome of court / arbitration / out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties, respectively.

c) Claims against the Bank not acknowledged as debts comprise tax demands in respect of which the Bank is in appeal of Rs.150.21 crores and the cases sub-judice Rs.512.42 crores. The above are based on the management’s estimate and no significant liability is expected to arise out of the same.

6. Fixed Assets

a) Depreciation on flats has been provided on the actual cost of acquisition, as land value is not separately available

b) Gross value of Fixed Assets (other than Premises) jointly owned by State Bank of India and other Associate Banks amounts to Rs.634.32 crores (Previous year Rs. 515.58 Crores). The share of the Bank is Rs.63.43 crores (Previous year Rs. 51.56 crores).

7. Reconciliation

Inter-Branch transactions, Accounts with State Bank of India & Associate Banks, Government Transactions accounts (Central & State), Draft Payable Account, Nostro accounts, System Suspense account, Clearing and other Adjusting Accounts are at various stages of reconciliation. In the opinion of the management there will not be any material impact of such reconciliation on the financial statements.

8 Others

a. The Bank implemented the Agriculture Debt Waiver and Relief Scheme 2008 (ADWDRS) as per the directives of Government of India. The eligible amount receivable under the Debt Waiver scheme and Debt Relief scheme is Rs.327.31 Crores and Rs.19.95 Crores respectively. The amount is receivable from the Government in four installments, out of which the bank has so far received Rs.208.15 crores in three installments as shown below:

Adequate provision for the Loss on Present Value basis in respect of the amount receivable from the eligible farmers has been made up to 31.03.2010 Rs.1.17 Crore (Rs.1.17 Crore). The Government of India has also decided to pay interest on the instalments payable by them. The Bank has recognised a sum of Rs.5.05 Crore in the Profit & Loss account on account of such interest receivable under the scheme. The Bank has received an amount of Rs.2.37 crore so far on this account.

b. The bank has not received the necessary information from the suppliers/service providers covered under Micro, Small, Medium Enterprises Development Act, 2006, with regards to their registration with the appropriate authority. Hence the information required to be disclosed under section 22 of the said Act is not given.

c. In terms of RBI Circular No.DBOD.BP.BC.No.133/ 21.04.018/2008-09 dated 11-05-2009, an amount of Rs.6.50 Crore has been transferred to Profit & Loss Account and included in ‘Other Income’ being the individual credit entries of value less than USD 2500 or equivalent, originated up to March 2002 and outstanding in the Nostro accounts.

9 Forward Exchange Contracts Outstanding as on 31.03.2010 Rs.6,754.18 crore

10 The Bank has implemented a Special Home Loan Scheme for the period Dec 2008 to Jun 2009, arising out of which one time insurance premium has been paid covering the life of the borrowers over the tenure of the home loan availed. The total premium paid amounting to Rs. 19.80 Crores on account of such scheme is being charged off over the average loan period and accordingly 1/10th of the premium has been charged to profit and loss account.

11 Previous year’s figures have been regrouped / rearranged wherever necessary.