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Notes to Accounts of Syndicate Bank

Mar 31, 2015

1.1 Profit on account of sale of securities from HTM category amounting to Rs.4,03,96,846.21 (Previous Year Rs.2,16,26,380.00) has been taken to Profit and Loss Account and 25% of such profit net of tax of Rs.1,99,99,468 has been appropriated towards Capital Reserve Account.

1.2 The amortization charges of Rs.53,92,64,029.01 (Previous Year Rs.56,21,11,965.41) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule - 13, Interest Earned: Item II – Income on Investments as a deduction as per RBI Master Circular.

1.3 Investment in Floating Rate Notes and Foreign Currency Bonds held in London Branch are classified as Available for Sale and are valued at closing rate. Floating Rate Notes are valued based on issuers'' value.

(1) Losses have been defined as the Total Credit Exposure inclusive of Current Credit Exposure and Replacement Risk (Positive MTM).

(2) Fair Value of Swaps book is the Net MTM receivable or payable on the above Swaps.

(3) Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRS) were undertaken by the Bank to hedge its own books and for managing asset and liability mismatches. Currency swap has been undertaken with customers for hedging their exposures and covered back-to-back with identical terms.

(4) These derivative transactions are entered with counterparties satisfying the criteria as prescribed by the Credit and Treasury Policies. These Board approved policies prescribe various parameters / limits to manage and monitor Credit and Market Risks.

(5) The Accounting Policy for Derivatives has been drawn-up in accordance with RBI guidelines, the details of which are presented under Schedule 17 – Significant Accounting Policies 2014 - 2015.

3.B Exchange Traded Interest Rate Derivatives

Currency Futures:

The Bank is undertaking proprietary trading in Currency Futures in USD/INR on the three Exchanges. RBI, vide AP (DIR Series) circular no. 147 dated 20th June 2014, has allowed Banks to resume Exchange Traded Currency Derivatives Trades. Earlier RBI vide their AP (DIR) Series Circular no. 07 dated 08.07.2013 had restricted Banks to not to carry out Proprietary Trading in Currency Future in Exchange Markets. There is no Outstanding Contracts under Currency future as at 31.03.2015.

3.C Disclosures on Risk Exposure in Derivatives a) Qualitative Disclosure 99The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

99The Bank is undertaking derivative transactions for hedging risks on its Balance Sheet as well as for trading / market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest rate swaps, Currency swaps and Currency Options, with bank and Non-bank Counterparties. The Bank is only undertaking proprietary trading position in Currency Futures on the Exchanges.

99Forward contracts under past performance category are booked for clients with Rating SYND 01 - SYND 04 only and on complying with RBI guidelines.

99Currency futures have no credit risk for the Bank, as the Exchanges guarantee the payment.

99During the year Bank undertook Interest Rate Swaps and FRA for hedging purpose to mitigate Interest Rate Risk in Banking Book for Liabilities at London Branch.

99Cross Currency swaps are undertaken for both principal and interest, back-to-back, thus hedging both exchange rate risk and interest rate risk without involvement of any outlays.

99Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position.

99Currency swaps are undertaken for non-bank counterparty with ratings SYND 01 to 04 only.

99The bank has set in place appropriate control system to assess the risks associated with Derivatives and MIS in place to monitor the same.

99The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counterparties.

99Credit exposures for derivative transactions are monitored on the basis of Current Credit Exposure Method (CEM).

99Credit Risk is monitored by setting up counterparty exposure limits setting country risk exposure limits and mitigating settlement risk through CCIL / CLS.

99The transactions with our Counterparty Banks and non-bank counterparty are undertaken within the limits approved by the Board. The transactions with non-bank counterparties are done on a back-to-back covered basis without assuming any market risk.

99The Bank is not having any exposure in complex derivatives nor has it any direct exposure to the sub-prime assets.

99The Bank has not crystallized and written off any account nor incurred any loss on account of undertaking derivative transactions.

99The segregation of Front Office, Mid Office and Back Office is ensured to avoid conflict of interests and to mitigate the degree of risk. The Mid Office is directly reporting to Risk Management Department at Corporate Office, Bangalore.

99ISDA agreements are executed / exchanged with every counterparty banks and non-bank clients as per RBI guidelines.

99Mid Office measures and monitors the risk arising out of trading deals independently.

99The transactions are undertaken within the overall Aggregate Gap Limits and Net Overnight Open position limits sanctioned by the Board / RBI.

99Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity.

99The transactions are separately classified as hedge or non- hedge transactions and measured at fair value.

99The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Bank assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis.

99Premium at the time of purchase, if any, is amortized over the residual period of the transaction. Profit is recognized on maturity. Discount is held in Income Received in Advance account and appropriated to Profit and Loss Account on maturity.

99Adequate provision is made for transactions undertaken for hedging purpose, which became naked resulting in mark-to market losses.

99Provision is also made for net funded country exposures, where the exposure is 1% or more of the bank''s assets. 99Transactions for market making purposes are marked-to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis. 99Collaterals are also obtained depending on the terms of sanction.

9992.18% of Derivatives fall under the short tenure of less than one year of remaining Maturity.

b) Change in Policy on appropriation of recoveries in NPA Accounts:

Hitherto, the Bank was appropriating recoveries in NPA accounts first towards unrecovered charges and balance towards unrecovered interest and principal in that order. With effect from 1st April 2014, the Bank has changed its accounting policy for appropriation of recoveries in NPA accounts. Thus, recoveries in such accounts are now first appropriated towards unrecovered charges and balance towards unrecovered principal and interest in that order. The impact of this change in policy on interest income on NPA accounts for the year and on net profit for the year is not readily ascertainable. However, had the policy not been changed, the profit for the year would have been higher.

f) The Bank has changed its policy with respect to treatment of excess provision on sale of financial assets to Asset Reconstruction Company (ARC)/Securitization Company (SC) / Banks / FIs / NBFCs where the sale is at a value higher than the NBV. The excess provision was hitherto being maintained for utilization towards future shortfall/loss on account of sale of other financial assets. In accordance with RBI Circular No.DBOD.BP.BC.No.98/21.04.132/2013-14 dated 26th February, 2014, the policy has been changed and the excess provision is now reversed to the Profit & Loss Account in the year amounts are received. Had the policy not been changed, Net profit for the year would have been lower by Rs.161.60 crores and provision against sold assets would have been higher by Rs.161.60 crores and reserves would have been lower by Rs.106.67 (net of Tax).

8. TAX PROVISIONS

a) Income Tax Provision

Following its consistent policy based on the advice of its tax consultants that MAT is not applicable to the Public Sector Banks, the Bank calculated its current year tax liability and the surplus provision of Income Tax lying in the books of Rs.335 crores has been written back.

c) Deferred Tax Liability on HTM Securities:

Based on the opinion of tax consultant, the Bank considers the difference between accounting income and taxable income on account of difference in valuation of securities as permanent difference and accordingly recognition of Deferred Tax Liability of Rs.754.91 crores as at 31st March 2015 has not been considered necessary.

B. Qualitative Disclosures:

1. The main drivers for the contribution to the LCR are Excess liquid investments over the SLR requirement, the marginal standing facility(MSF) available from RBI and the facility to avail liquidity for LCR. Major outflows are the Deposits. Promotion of acceptance of Term Deposits without pre-mature option will improve the ratio over a period.

2. The LCR would undergo change due to change in the interest rate scenario, likely pick up in the credit etc.

3. High Quality Liquid Assets(HQLA) mainly consists of Cash, Excess CRR, Government securities in excess of SLR requirements, Available MSF facility, Facility to avail liquidity for LCR.

4. Mainly the funding sources are concentrated with the retail deposits, Deposits from non-financial corporate and funding from other legal entities.

5. Bank has modest derivative exposures and its contribution to the LCR is not significant. Currently potential collateral calls are not significant.

6. Major currency is INR and the LCR in other currency is not significant.

7. Investment Committee is the top level committee, comprising of Chairman and Managing Director, Executive Directors and the General Managers from significant departments like Treasury, Risk Management, Credit and Planning etc. This committee meets preferably on daily basis and as may be required depending upon the urgency. One of the major functions of the Investment committee is to review the Funds and Investment position of the Bank. The liquidity position and the projected cash inflow and the outflows will be discussed during this meeting. The degree of centralization of liquidity management is high and the communication between the group''s units is high.

8. Bank does not have any other major cash inflows and outflows omitted for the purpose of LCR computation.

10. DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

The disclosures under Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) (to the extent applicable) are given below:

i) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (AS 5):

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

iii) Revenue Recognition (AS 9):

As per Accounting Policy no. 8, given in Schedule – 17, Significant Accounting Policies, certain items of income are recognised on realisation basis on account of statutory requirement or on account of materiality.

iv) Effects of changes in Foreign Exchange Rate (AS 11):

a) The net profit for the year includes an amount of loss of Rs.37.98 crores {Rs.43.76 cr of Loss for the previous year} being the profit/ loss booked under difference in Exchange on account of AS-11 valuation of FX Assets & Liabilities.

b) In terms of Regulatory directives, Accounting Standard (AS 11) in respect of Forex Assets and Liabilities has been implemented to ensure a fair and true disclosure of the value of the same in the Balance Sheet.

v) Employee Benefits (AS 15):

In accordance with the RBI guidelines, the Bank has amortised 1/5th (Rs.145.38 crores) of the enhanced liability of Rs.726.90 crores from the year 2010 - 11 in respect of pension and gratuity liabilities relating to continuing employees. Accordingly, the Bank has charged remaining balance of Rs.145.38 crores to the current year Profit and Loss Account being the last year.

The Indian Banks Association has made a settlement of wage negotiation with various Officers'' Associations and Workmen Unions on 23.02.2015 to settle the annual wage increase in salary and allowances @ 15% w.e.f. 01.11.2012 and accordingly, the bank is holding a total provision of Rs.520 crores as on 31.03.2015 towards wage arrears which is 15.72% of the salary and allowances. During the current year Rs.180 crores provision was made (for the quarter - nil).

A reconciliation of Opening and Closing Balances of the present value of the defined benefit obligations and the effects during the period attributable to each of the following is as under:

x) Interim Financial Reporting (AS 25):

The Bank is adopting the format prescribed by the RBI for the purpose of quarterly return of its accounts as per RBI Circular No.: DBS.ARS. No.BC. 17/08.91.001/2002-03 dated June 5, 2003.

xi) Impairment of Assets (AS 28):

In the opinion of the Management of the Bank, there is no impairment of assets of the Bank.

As permitted by Reserve Bank of India vide its circular no. RBI/2014- 15/522/DBR No. BP.BC.79/21.04.048/2014-15 dated 30.03.2015 and also pursuant to Bank''s Board approved policy, the Bank has during the year utilised a sum of Rs.102.21 crores from Floating Provisions / Counter Cyclical Provisioning buffer towards specific provision for Non-Performing Assets.

i) Letters of comfort issued by the Bank

(A) Letters of Comfort issued in favour of overseas branch at LONDON by International Division, Mumbai & Branches

The Bank has given an undertaking to FSA (Financial Services Authority) of U.K. with approval from the Board of Directors / RBI, that it will make available liquidity resources at all times to its London Branch (if needed) in connection with application made for "Whole form liquidity modification" of the London Branch under the new liquidity regime of FSA U.K.

Treasury and International Banking Department, Mumbai issued Letter of Comfort amounting to USD 75.00 Mio and also issued a letter of commitment amounting to USD 100.00 Mio (valid upto 31.12.2015) with approval from the Board of Directors of the Bank.

(B) Letters of Comforts issued by our Branches for the purpose of providing Buyer''s Credit facility to Corporate Clients Branches have issued Letters of Comfort on behalf of their corporate customers in favour of SyndicateBank, London Branch for providing Buyer''s Credit, to the extent of Rs.65.26 crore as on 31.03.2015 ( Previous Year Rs.16.94 crores).

Letters of Comfort issued by the Branches for the purpose of providing buyers credit facility to corporate clients, in favour of various Foreign Banks and Indian Banks'' Branches outside India, is Rs.5,664.91crore as on 31.03.2015 (Previous Year Rs.1,573.77 crores).

The Outstanding Gross Amount of Letters of Comfort issued by our Branches as at 31.03.2015 stands at Rs.5,730.17 crore (Previous Year Rs.1,770.43 crores).

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings / World Rankings, Securities, Collaterals and Counter Guarantees available of / from the underlying reference entities are taken into account.

j) Bancassurance Business

The total income from the Bancassurance Business during the year 2014 - 15 is Rs.1288.52 Lakhs as against Rs.1,054.95 Lakhs in the previous year. This comprises of Rs.615.71 Lakhs (PY Rs.486.78 Lakhs) from Life Insurance business and Rs.672.81 Lakhs (Rs.568.17 Lakhs) from Non Life Insurance business.

q) The disclosures relating to Securitisation is not applicable since the Bank has not sponsored any SPVs.

r) Fixed Assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained.

The bank owned premises have been revalued during the year 2011-12 (last revaluation done in the year 2006-07) at value determined based upon the appraisal by the approved valuers. Additional depreciation for the year aggregating to Rs. 28.09 crores on the revalued assets has been adjusted to the revaluation reserves.

s) Inter Branch transactions, clearing and other adjustment accounts, including with other Banks, which being an on-going process are at various stages of reconciliation. In the opinion of the management, there will not be any material impact on the financial statements arising out of such reconciliation.

Note: Rs.0.18 crore being aggregate of unclaimed overdue matured deposits as on 31.03.2015 including interest thereon are yet to be remitted to DEAF.

u) Unhedged Foreign Currency Exposure :

Unhedged foreign currency exposures of the entities are an area of concern not only for individual entity but also to the entire financial system. Entities who don''t hedge their foreign currency exposures can incur significant losses due to exchange rate movements. These losses may reduce their capacity to service the loans taken from the banking system and thereby affect the health of the banking system.

I. Methodology of computation of Incremental provision on account of Unhedged Foreign Currency Exposure: For calculating the incremental provisioning and capital requirements, the following methodology is followed:

a) Ascertainment of the amount of Unhedged Foreign Currency Exposure (UFCE):

Foreign Currency Exposure (FCE) refers to the gross sum of all items on the balance sheet of the borrowers that have impact on profit and loss account due to movement in foreign exchange rates.

UFCE may exclude items which are effective hedge of each other. For this purpose, both financial hedge and natural hedge can be considered. Financial hedge is ensured normally through a derivative contract with a financial institution. Natural hedge may be considered when cash flows arising out of the operations of the company offset the risk arising out of the foreign currency exposure.

b) Estimation the extent of likely loss:

The loss to the entity in case of movement in USD-INR exchange rate is calculated using the annualised volatilities. For this purpose, largest annual volatility seen in the USD-INR rates during the period of last ten years is taken as the movement of the USD-INR rate in the adverse direction.

Likely loss = UFCE * Highest annual volatility of last ten years

c) Estimation of the risk of unhedged position

Once the loss figure is calculated, it is compared with the annual EBID as per the latest quarterly results of the constituents certified by the statutory auditors. This loss is computed as a percentage of EBID. Higher this percentage, higher will be the susceptibility of the entity to adverse exchange rate movements. Therefore, as a prudential measure, all exposures to such entities would attract incremental capital and provisioning requirements (i.e., over and above the present requirements) as under:

d) Incremental Provision

This provision is over and above the standard provision requirement. This aggregated amount of the incremental provision on account of UFCE has been provided starting with the quarter ending June- 2014. For the first year the total provision requirement can be apportioned for the four quarters.

Beginning with quarter ending June-2015, Bank shall provide the total actual incremental provision with respect to the UFCE.

Based on the available data, available financial statements and the declaration from borrowers wherever received, the Bank has estimated the liability of Rs.35 crores on Unhedged Foreign Currency Exposure of its constituents in terms of RBI circular no.DBOD no.BP.85/21.06.200/2013-14 dated January 15, 2014 and clarification vide Circular no.DBOD.NO.BP. BC.116/21.06.200/2013-14 dated 03.06.2014. Accordingly the Bank has made incremental provision for the year ended March 31, 2015 of Rs.35 crores.

(v) Previous year figures

Previous year figures have been regrouped/rearranged wherever considered necessary to conform to the current year''s classification.

We, the undersigned Statutory Central Auditors of the SyndicateBank, have verified the above Cash Flow Statement of the Bank for the year ended 31.03.2015. The Statement has been prepared in accordance with the requirements of Clause 32 of the listing agreement with the Stock Exchanges and is based on and is in agreement with the corresponding Profit and Loss Account and Balance Sheet of the Bank covered by our Report.


Mar 31, 2014

I) Sale and transfers to / from HTM category

The value of sales and transfers of securities to / from HTM category does not exceed 5 percent of the book value of investments held in HTM category at the beginning of the year as per RBI guidelines.

ii) SGL Bouncing

There was one instance of SGL bouncing on technical grounds. A lenient view has been taken in this matter and monetary penalty has been waived by RBI.

iii) Depreciation on Valuation of Investments held in AFS and HFT Categories:

In terms of circular DBOD.BP.BC.41/21.04.141/2013-14 dated August 23, 2013 on "Investment Portfolio of Banks – Classification, Valuation and Provisioning" RBI permitted banks to distribute the net depreciation on the Available For Sale (AFS) and Held For Trading (HFT) portfolios as on each of the valuation dates in equal installments during the financial year 2013 - 14. The Bank amortised such depreciation during the quarters ended September and December, 2013. In the Profit and Loss Account for the quarter and twelve months ended March 31, 2014 the Bank has recognised depreciation in respect of AFS and HFT portfolios in full.

1.1 Profit on account of sale of securities from HTM category amounting to Rs.2,16,26,380.00 (Previous Year Rs.4,75,01,665.15) has been taken to Profit and Loss Account and thereafter appropriated towards Capital Reserve Account.

1.2 The amortization charges of Rs.56,21,11,965.41 (Previous Year Rs. 56,49,74,074.44) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule - 13, Interest Earned: Item II – Income on Investments as a deduction as per RBI Master Circular.

1.3 Investment in Floating Rate Notes and Foreign Currency Bonds held in London Branch are classified as Available For Sale and are valued at closing rate. Floating Rate Notes are valued based on issuers value. Consequently, the provision for depreciation on these investments is at Rs. 3.20 Crores.

1) Losses have been defined as the Total Credit Exposure inclusive of Credit and Replacement Risk.

2) Fair Value of Swaps book is the Net MTM receivable or payable on the above Swaps.

3) Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRS) were undertaken by the Bank to hedge its own books and for managing asset and liability mismatches. Currency swap has been undertaken with customers for hedging their exposures and covered back-to-back with identical terms.

4) These derivative transactions are entered with counter parties satisfying the criteria as prescribed by the Credit and Treasury Policies. These Board approved policies prescribe various parameters / limits to manage and monitor Credit and Market Risks.

5) The Accounting Policy for Derivatives has been drawn-up in accordance with RBI guidelines, the details of which are presented under Schedule 17 – Significant Accounting Policies 2013 - 2014.

2.A Exchange Traded Interest Rate Derivatives

Currency Futures:

The Bank was undertaking proprietary trading in Currency Futures in USD/ INR on the three Exchanges. However, vide AP (DIR Series) on 8th July 2013, RBI directed AD category – I banks not to carry out proprietary trading in currency future transactions, hence Bank has stopped undertaking any currency future transactions. There are no outstanding contracts under currency future as on 31.03.2014.

2.B Disclosures on Risk Exposure in Derivatives a) Qualitative Disclosure

- The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

- The Bank is undertaking derivative transactions for hedging risks on its Balance Sheet as well as for trading / market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest Rate Swaps, Currency Swaps and Currency Options, with Bank and Non-bank Counter parties. The Bank is only undertaking proprietary trading position in Currency Futures on the Exchanges.

- Forward contracts under past performance category are booked for clients with Rating SYND 01 - SYND 04 only and on complying with RBI guidelines.

- Currency futures have no credit risk for the Bank, as the Exchanges guarantee the payment.

- During the year Bank undertook Interest Rate Swaps and FRA for hedging purpose to mitigate Interest Rate Risk in Banking Book for liabilities at London Branch.

- Cross Currency swaps are undertaken for both principal and interest, back-to-back thus hedging both exchange rate risk and interest rate risk without involvement of any outlays.

- Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position.

- Currency swaps are undertaken for non-bank counter party with ratings SYND 01 to 04 only.

- The Bank has set in place appropriate control system to assess the risks associated with Derivatives and MIS is in place to monitor the same.

- The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counter-parties.

- Credit exposures for derivative transactions are monitored on the basis of Current Credit Exposure Method (CEM).

- Credit Risk is monitored by setting up counter party exposure limits setting country risk exposure limits and mitigating settlement risk through CCIL / CLS.

- The transactions with Counter-Party Banks and non-bank counter parties are undertaken within the limits approved by the Board. The transactions with non-bank counterparties are done on a back-to-back covered basis without assuming any market risk.

- The Bank is not having any exposure in complex derivatives nor has it any direct exposure to the sub-prime assets.

- The Bank has not crystallized and written off any account nor incurred any loss on account of undertaking derivative transactions.

- The segregation of Front Office, Mid Office and Back Office is ensured to avoid conflict of interests and to mitigate the degree of risk. The Mid Office is directly reporting to Risk Management Department at Corporate Office, Bangalore.

- ISDA agreements are executed / exchanged with every counter party banks and non-bank clients as per RBI guidelines.

- Mid Office measures and monitors the risk arising out of trading deals independently.

- The transactions are undertaken within the overall Aggregate Gap Limits and Net Overnight Open position limits sanctioned by the Board / RBI.

- Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity.

- The transactions are separately classified as hedge or non- hedge transactions and measured at fair value.

- The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Bank assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis.

- Premium at the time of purchase, if any, is amortized over the residual period of the transaction. Profit is recognized on maturity. Discount is held in Income Received in Advance account and appropriated to Profit and Loss Account on maturity.

- Adequate provision is made for transactions undertaken for hedging purpose, which become naked resulting in marked- to-market losses.

- Provision is also made for net funded country exposures, where the exposure is 1% or more of the bank''s assets.

- Transactions for market making purposes are marked-to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis.

- Collaterals are also obtained depending on the terms of sanction.

- 92.07% of Derivatives fall under the short tenure of less than one year of remaining maturity.

3. TAX PROVISIONS

a) Income Tax Provision

Provision for Income Tax for the current year of Rs. (-) 69.56 Crores (Previous Year Rs. (-) 441.01 Crores) is made net of DTA / DTL on the basis of Regular Tax, as in the opinion of the Management, based on the opinion of Tax Consultant, Minimum Alternate Tax (MAT) in accordance with Section 115JB of the Income Tax Act, 1961 is not applicable to the public sector banks.

4. DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

The disclosures under Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) (to the extent applicable) are given below:

i) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (AS 5):

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

iii) Revenue Recognition (AS 9):

As per Accounting Policy No. 8, given in schedule - 17, Significant Accounting Policies, certain items of income are recognised on realisation basis on account of statutory requirement or on account of materiality.

iv) Effects of changes in Foreign Exchange Rate (AS 11):

a) The net profit for the year includes a loss of Rs.43.76 Crores (Rs.19.54 Crores Loss for the previous year) being the loss booked for the difference in exchange rate on valuation of Forex Assets and Liabilities.

b) In terms of regulatory directives, Accounting Standard (AS 11) in respect of Forex Assets and Liabilities has been implemented to ensure a fair and true disclosure of the value of the same in the Balance Sheet.

v) Employee Benefits (AS 15):

In accordance with the RBI guidelines, the Bank has amortised 1/5th (Rs.145.38 Crores) of the enhanced liability of Rs.726.90 Crores from the year 2010 - 11 in respect of pension and gratuity liabilities relating to continuing employees. Accordingly the Bank has charged Rs. 145.38 Crores to the current year Profit and Loss Account and the balance amount of Rs.145.38 Crores will be absorbed in future years.

Pending finalisation of wage revision with effect from November 1, 2012, Bank has made provision of Rs.240 Crores during the current year on estimated basis.

A reconciliation of Opening and Closing Balances of the present value of the defined benefit obligations and the effects during the period attributable to each of the following is as under:

vii) Related Party Disclosures (AS 18):

(A) Names of Related Parties and their Relationship:

a) Subsidiary:

Syndbank Services Limited

b) Associates: Prathama Bank

Karnataka Vikas Grameena Bank

Andhra Pragathi Grameena Bank

The Bank has reversed Deferred Tax Liability of Rs.109.30 Crores created on claim of marked to market loss of investments in tax computation and has also not recognized the same in the current year, as in the Bank''s opinion, the difference arising out of the treatment as per books and the Income Tax Act, 1961 is a permanent difference. Pursuant to the Opinion of the Expert Advisory Council of the Institute of Chartered Accountants of India on the subject, the matter is being referred to the Indian Banks Association for their guidance on the matter

Treatment of Deferred Tax Liability on Special Reserve:

Pursuant to RBI Circular No. DBOD NO. BP.BC.77/21.04.018/2013-14 dated 20.12.2013, Deferred Tax Liability of Rs. 270.28 Crores on Special Reserve under section 36(1)(viii) of the Income Tax Act, 1961 has been created directly through Revenue Reserves on the amount outstanding as at 31.03.2013.

During the current year, Rs. 280 Crores have been transferred to Special Reserve under section 36 (1) (viii) of the Income Tax Act, 1961 and Deferred Tax liability of Rs. 95.17 Crores has been provided on the same by debiting to the Profit and Loss account.

x) Interim Financial Reporting (AS 25):

The Bank is adopting the format prescribed by the RBI for the purpose of quarterly return of its accounts as per RBI Circular No.: DBS.ARS. No.BC. 17/08.91.001/2002-03 dated June 5, 2003.

xi) Impairment of Assets (AS 28):

In the opinion of the Management of the Bank, there is no impairment of assets of the Bank.

xii) Provisions, Contingent Liabilities and Contingent Assets (AS 29):

Movement of provisions (excluding provisions for other)

(Rs. in crores)

Legal Cases/ Contingencies Particulars Current Year Previous Year

Opening Balances 12.47 6.32

Provided during the year 1.95 6.15

Amount used during the year - -

Closing Balance 14.42 12.47

Timing of Outflow/ uncertainties Outflow on settlement / crystallization

Prepared by the management and relied upon by the Auditors.

As permitted by Reserve Bank of India vide its circular no. RBI/2013- 14/485/DBOD No.BP.95/21.04.048/2013-14 dated 07-02-2014 and also pursuant to Bank''s Board approved policy, the Bank has during the year utilised a sum of Rs. 102.21 Crores from Floating Provisions / Counter Cyclical Provisioning buffer towards specific provision for Non Performing Assets.

c) During the year no penalty was imposed by RBI on the Bank under section 46 (4) of the Banking Regulation Act, 1949. (Previous Year Nil).

i) Letters of comfort issued by the Bank

(a) Letters of Comfort issued in favour of overseas branch at London by International Division, Mumbai and Branches: The Bank has given an undertaking to FSA (Financial Services Authority) of U.K. with approval from the Board of Directors / RBI, that it will make available liquidity resources at all times to its London Branch (if needed) in connection with application made for "Whole form liquidity modification" of the London Branch under the new liquidity regime of FSA, U.K.

Treasury and International Banking Division; Mumbai issued Letters of Comfort amounting to USD 75.00 Mio and also issued a Letter of Commitment amounting to USD 100.00 Mio valid up to 31-12-2014 (Previous Year USD 100.00 Mio) with the approval from the Board of Directors of the Bank.

(b) Letters of Comfort issued by our Branches for the purpose of providing Buyer''s Credit facility to Corporate Clients:

Branches have issued Letters of Comfort on behalf of their corporate customers in favor of Syndicate Bank; London Branch for providing Buyers Credit, to the extent of Rs. 16.94 Crores as on 31-03-2014 . (Previous Year Rs. 27.31 Crores).

Amount of Letters of Comfort issued by the Branches for the purpose of providing buyers'' credit facility to corporate clients, in favor of various Foreign Banks and Indian Banks'' Branches outside India, is Rs. 1,573.77 Crores as on 31-03-2014 (Previous Year Rs. 1,743.12 Crores).

The outstanding gross amount of Letters of Comfort issued by Banks'' Branches as on 31-03-2014 stands at Rs. 1,590.72 Crores (Previous Year Rs. 1,770.43 Crores).

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings/World Rankings, Securities, Collaterals and Counter Guarantees available of/from the underlying reference entities are taken into account.

5 Bancassurance Business

The total income from the Bancassurance Business during the year 2013 - 14 is Rs. 1,054.95 Lakhs as against Rs. 565.09 Lakhs in the previous year. This comprises of Rs. 486.78 Lakhs (PY Rs. 497.99 Lakhs) from Life Insurance business and Rs. 568.17 Lakhs (Rs. 67.10 Lakhs) from Non Life Insurance business.

6 The disclosures relating to Securitisation is not applicable since the Bank has not sponsored any SPVs.

7 Fixed Assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained.

The bank owned premises have been revalued during the year 2011-12 (last revaluation done in the year 2006-07) at value determined based upon the appraisal by the approved values. Additional depreciation for the year aggregating to Rs. 29.18 Crores on the revalued assets has been adjusted to the revaluation reserves.

8) Inter Branch transactions, clearing and other adjustment accounts, including with other Banks, which being an on-going process are at various stages of reconciliation. In the opinion of the management, there will not be any material impact on the financial statements arising out of such reconciliation.

9) Previous year figures

Previous year figures have been regrouped / rearranged wherever considered necessary to conform to the current year''s classification.


Mar 31, 2013

Note: *Appreciation / Reduction in rupee valuation of Investments is due to fluctuation in USD/INR rates.

Face Value of non performing FCCB''s USD 0.250 Mio on which provision of USD 0.250 Mio was made as on 31-03-2013.

i) Sale and transfer to / from HTM category

The value of sales and transfers of securities to / from HTM category does not exceed 5 percent of the book value of investments held in HTM category (excluding exempted category) at the beginning of the year as per RBI guidelines.

Note: All Forward Rate Agreements and Interest Rate Swaps undertaken are against Banks to hedge Balance Sheet gaps. During the financial year, Bank has raised the Fixed Interest rate MTN fund of USD 500.00 Mio. The fixed interest rate liability was converted into Floating rates by entering into Interest Rate Swaps of matching maturity

(1) Losses have been defined as the Total Credit Exposure inclusive of Credit and Replacement Risk.

(2) Fair Value of Swaps book is the Net MTM receivable or Payable on the above Swaps.

(3) Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRS) were undertaken by the Bank to hedge its own books and for managing asset and liability mismatches. Currency swap has been undertaken with customers for hedging their exposures and covered back-to-back with identical terms.

(4) These derivative transactions are entered with counter parties satisfying the criteria as prescribed by the Credit and Treasury Policies. These Board approved policies prescribe various parameters / limits to manage and monitor Credit and Market Risks.

(5) The Accounting Policy for Derivatives has been drawn-up in accordance with RBI guidelines, the details of which are presented under Schedule 17 - Significant Accounting Policies 2012 - 2013.

1.A Exchange Traded Interest Rate Derivatives Currency Futures:

The Bank undertakes proprietary trading in Currency Futures in USD/INR on the three Exchanges. There are no outstanding contracts under Currency future as at 31-03-2013.

1.B Disclosures on Risk Exposure in Derivatives a) Qualitative Disclosure

- The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

- The Bank is undertaking derivative transactions for hedging risks on its Balance Sheet as well as for trading / market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest rate swaps, Currency swaps and Currency Options, with bank and Non-bank Counter parties. The Bank is only undertaking proprietary trading position in Currency Futures on the Exchanges.

- Forward contracts under past performance category are booked for clients with Rating SYND 01 - SYND 04 only and on complying with RBI guidelines.

- Currency futures have no credit risk for the Bank, as the Exchanges guarantee the payment.

- During the year Bank undertook Interest Rate Swaps and FRA for Hedging Purpose to Mitigate Interest Rate Risk in Banking Book for Liabilities at London Branch.

- Cross Currency swaps are undertaken for both principal and interest, back-to-back, thus hedging both exchange rate risk and interest rate risk without involvement of any outlays.

- Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position.

- Currency swaps are undertaken for non-bank counter party with ratings SYND 01 to 04 only

- The bank has set in place appropriate control system to assess the risks associated with Derivatives and MIS in place to monitor the same.

- The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counter-parties.

- Credit exposures for derivative transactions are monitored on the basis of Current Credit Exposure Method (CEM).

- Credit Risk is monitored by setting up counterparty exposure limits setting country risk exposure limits and mitigating settlement risk through CCIL / CLS.

- The transactions with our Counter-Party Banks and non-bank counterparty are undertaken within the limits approved by the Board. The transactions with non-bank counterparties are done on a back-to-back covered basis without assuming any market risk.

- The Bank is not having any exposure in complex derivatives nor has it any direct exposure to the sub-prime assets.

- The Bank has not crystallized and written off any account nor incurred any loss on account of undertaking derivative transactions.

- The segregation of Front Office, Mid Office and Back Office is ensured to avoid conflict of interests and to mitigate the degree of risk. The Mid Office is directly reporting to Risk Management Department at Corporate Office, Bangalore.

- ISDA agreements are executed / exchanged with every counter party banks and non-bank clients as per RBI guidelines.

- Mid Office measures and monitors the risk arising out of trading deals independently.

- The transactions are undertaken within the overall Aggregate Gap Limits and Net Overnight Open position limits sanctioned by the Board / RBI.

- Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity.

- The transactions are separately classified as hedge or non- hedge transactions and measured at fair value.

- The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Bank assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis.

- Premium at the time of purchase, if any, is amortized over the residual period of the transaction. Profit is recognized on maturity. Discount is held in Income Received in Advance account and appropriated to P&L account on maturity.

- Adequate provision is made for transactions undertaken for hedging purpose, which became naked resulting in mark-to- market losses.

- Provision is also made for net funded country exposures, where the exposure is 1% or more of the bank''s assets.

- Transactions for market making purposes are marked-to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis.

- Collaterals are also obtained depending on the terms of sanction.

- 89.87% of Derivatives fall under the short tenure of less than one year of remaining Maturity.

c) Country Risk Management

The Bank has analysed its net funded exposures to various countries as on 31-03-2013 and such exposures to countries is well within the stipulation of 1% of total assets of the Bank.

2. MISCELLANEOUS

a) Minimum Alternate Tax (MAT):

Provision for Income Tax for the current year of Rs. (-)441.01 crore (PY Rs. 74.64 crore) is made net off DTA / DTL and adjustment for earlier years on the basis of Minimum Alternate Tax (MAT) in accordance with Section 115JB of the Income Tax Act 1961. Considering the future profitability and taxable position of the Bank in subsequent years, the bank management has recognised MAT credit entitlement of Rs. 573.59 crore (Previous Year: NIL) as other assets (Schedule - 11) by crediting to Profit & Loss, since in the opinion of the bank management based on Tax Consultants Opinion, MAT credit can be set-off during specified period as per the provisions of the Income Tax Act 1961.

3. DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

The disclosures under Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) (to the extent applicable) are given below:

i) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (AS 5):

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

ii) Revenue Recognition (AS 9):

As per Accounting Policy no. 8, given in schedule - 17, Significant Accounting Policies, certain items of income are recognised on realisation basis on account of statutory requirement or on account of materiality

iii) Effects of changes in Foreign Exchange Rate (AS 11):

a) The net profit for the year includes an amount of Rs. 19.54 crore, (Rs. 13.54 Cr. Loss for the previous year) being the loss booked under difference in Exchange on account of AS-11 valuation of FX Assets & Liabilities.

b) In terms of Regulatory directives, Accounting Standard (AS 11) in respect of Forex Assets and Liabilities has been implemented to ensure a fair and true disclosure of the value of the same in the Balance Sheet.

iv) Employee Benefits (AS 15):

In accordance with the RBI guidelines, the Bank has amortised 1/5th (Rs. 145.38 crore) of the enhanced liability of Rs. 726.90 crore from the year 2010 - 11 in respect of pension and gratuity liabilities relating to continuing employees. Accordingly, the Bank has charged Rs. 145.38 crore to the current year profit and loss account and the balance amount of Rs. 290.76 crore will be absorbed in future years.

In expectation of wage revision with effect from 1st November, 2012, Bank has made adhoc provision of Rs. 100 crore during the current year.

A reconciliation of Opening and Closing Balances of the present value of the defined benefit obligation and the effects during the period attributable to each of the following is as under:

v) Related Party Disclosures (AS 18):

(A) Names of Related Parties and their relationship:

a) Subsidiary:

Syndbank Services Limited

b) Associates:

Prathama Bank

Karnataka Vikas Grameena Bank

Andhra Pragathi Grameena Bank

North Malabar Gramin Bank Gurgaon Gramin Bank

vi) Consolidated Financial Statements (AS 21):

The consolidated financial statements for the year ended 31st March 2013 have been prepared in accordance with AS 21 and on the basis of the audited financial statements of the subsidiary of the Bank, M/s. Syndbank Services Ltd.

vii) Accounting for Taxes on Income (AS 22):

The Bank has complied with the requirements of AS 22. The Net balance of DTA / DTL as on 31st March, 2013 amounting to Rs. 268.16 crore consists of the following:

viii) Impairment of Assets (AS 28):

In the opinion of the Management of the Bank, there is no impairment of assets of the Bank.

c) Draw down from reserves:

The Bank has not made any draw down from the Reserves during the year.

e) Letters of comfort issued by the Bank

(a) Letters of Comfort issued in favour of overseas branch at LONDON by International Division, Mumbai & Branches.

The Bank has given an undertaking to FSA (Financial Services Authority) of U.K. with approval from the Board of Directors / RBI, that it will make available liquidity resources at all times to its London Branch (if needed) in connection with application made for "Whole form liquidity modification" of the London Branch under the new liquidity regime of FSA U.K.

International Division; Mumbai issued Letter of Comfort amounting to USD 75 Mio and also issued a letter of commitment amounting to USD 100.00 Mio (valid upto 31-12-2013) with approval from the Board of Directors of the Bank.

(b) Letters of Comforts issued by our Branches for the purpose of providing Buyer''s Credit facility to Corporate Clients:

Branches have issued Letters of Comfort on behalf of their corporate customers in favour of SyndicateBank; London Branch for providing Buyer''s Credit, to the extent of Rs. 27.31 crore as on 31-03-2013.

Letters of Comfort issued by the Branches for the purpose of providing buyers credit facility to corporate clients, in favour of various Foreign Banks and Indian Banks'' Branches outside India, is Rs. 1,743.12 crore as on 31-03-2013.

The Outstanding Gross Amount of Letters of Comfort issued by our Branches as at 31-03-2013 stands at Rs. 1,770.43 crore.

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings / World Rankings, Securities, Collaterals and Counter Guarantees available of / from the underlying reference entities are taken into account.

f) Provision Coverage Ratio:

The provision coverage ratio for the financial Year 2012-13 is 83.41%

g) Bancassurance Business:

Income from the Bancassurance Business during the year 2012 -13 is Rs. 565.09 Lakhs as against Rs. 749.33 Lakhs in the previous year.

m) OTHERS

(i) Fixed Assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained.

The bank owned premises at London has been revalued on a desk top basis during the year 2012 - 13 at value determined, based on the appraisal by valuer. Surplus arising on such valuation aggregating to Rs. 1.32 crore is credited to revaluation reserves. Additional depreciation aggregating to Rs. 30.93 crore on revalued domestic assets and Rs. 0.04 crore on revalued premises at London have been adjusted to the revaluation reserves.

(ii) Investments

(a) Profit on account of sale of securities from HTM category amounting to Rs. 475,01,665.15 has been taken to Profit and Loss Account and thereafter appropriated towards Capital Reserve Account.

(b) The amortization charges of Rs. 56,49,74,074.44 (previous year Rs. 58,1 7,27,342.62) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule-13, Interest Earned: Item II - Income on Investments as a deduction as per RBI Master Circular.

(iii) Details of Bonds Issue

During the year, the Bank has issued Bonds of Rs. 1,000 crore as subordinated debts to strengthen the Tier II Capital of the Bank. The Bank has also raised USD 500 Mio through its London Branch during the financial year for funding its London Branch business.

(iv) Credit Default Swaps

During the financial year, the Bank has not traded in Credit Default Swaps.

(v) Investment in Floating Rate Notes and Foreign Currency Bonds held in London Branch are classified as Available For Sale and are valued at closing rate. Floating Rate Notes are valued based on issuers value. Consequently the provision for depreciation on these investments is at Rs. 3.08 Crs.

(vi) Inter Branch transactions, clearing and other adjustment accounts, including with other Banks, which being an on-going process are at various stages of reconciliation. In the opinion of the management, there will not be any material impact on the financial statements arising out of such reconciliation.

(vii) Previous year figures

Previous year figures have been regrouped / rearranged wherever considered necessary to conform to the current year''s classification.


Mar 31, 2012

I) Sale and transfer to/from HTM category

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 as per RBI guidelines.

(1) Losses have been defined as the Total Credit Exposure inclusive of Credit and Replacement Risk

(2) Fair Value of Swaps book is the Net MTM receivable or Payable on the above Swaps

(3) Forward rate agreements (FRA) and Interest rate Swaps (IRS) were undertaken by the Bank to hedge its own books and for managing asset and liability mismatches. Currency swap has been undertaken with customers for hedging their exposures and covered back-to-back with identical terms.

(4) These derivative transactions are entered with counter parties satisfying the criteria as prescribed by Credit and Treasury policies. These Board approved policies prescribe various parameters/limits to manage and monitor credit and Market risks.

(5) The accounting policy for derivatives has been drawn-up in accordance with RBI guidelines. The details ofwhich are presented under Schedule 17 - Significant Accounting policies 2011-12.

1. C Disclosures on Risk Exposure in Derivatives

a) Qualitative Disclosure

- The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

- The Bank is undertaking derivative transactions for hedging risks on its Balance Sheet as well as for trading/market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest rate swaps, Currency swaps and Currency Options, with bank and Non-bank Counter parties. The Bank is only undertaking proprietary trading position in Currency Futures on the Exchanges.

- Forward contracts under past performance category are booked for clients with Rating SYND 01- SYND 04 only and on complying with RBI guidelines

- Currency futures have no credit risk for the Bank, as the Exchanges guarantee the payment.

- During the year Bank undertook Interest Rate Swaps and FRA for Hedging Purpose to Mitigate Interest Rate Risk in Banking Book for Liabilities at London Branch.

- Cross Currency swaps are undertaken for both principal and interest, back-to-back, thus hedging both exchange rate risk and interest rate risk without involvement of any outlays.

- Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position.

- Currency swaps are undertaken for non-bank counter party with ratings SYND 01 to 04 only.

- The bank has set in place appropriate control system to assess the risks associated with Derivatives and MIS in place to monitor the same.

- The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counter-parties.

- Credit exposures for derivative transactions are monitored on the basis of current credit exposure Method.

- Credit risk is monitored by setting up counterparty exposure limits setting country risk exposure limits and mitigating settlement risk through CCIL/ CLS.

- The transactions with our Counter-Party Banks and non-bank counterparty are undertaken within the limits approved by the Board. The transactions with non-bank counterparty's are done on a back-to- back covered basis without assuming any market risk.

- The Bank is not having any exposure in complex derivatives nor has it any direct exposure to the sub-prime assets.

- The Bank has not crystallized and written off any account nor incurred any loss on account of undertaking derivative transactions.

- The segregation of front Office, Mid Office and Back office is ensured to avoid conflict of interests and to mitigate the degree of risk. The Mid office is directly reporting to Risk Management Department at Corporate Office, Bengaluru.

- ISDA agreements are executed / exchanged with every counter party banks and non-bank clients as per RBI guidelines.

- Mid-office measures and monitors the risk arising out of trading deals independently.

- The transactions are undertaken within the overall Aggregate Gap Limits and Net Overnight Open position limits sanctioned by the Board/ RBI.

- Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity.

- The transactions are separately classified as hedge or non-hedge transactions and measured at fair value.

- The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Bank assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis.

- Premium at the time of purchase, if any, is amortized over the residual period of the transaction. Profit is recognized on maturity. Discount is held in Income Received in Advance account and appropriated to P&L account on maturity.

- Adequate provision is made for transactions undertaken for hedging purpose, which became naked resulting in mark-to-market losses.

- Provision is also made for net funded country exposures, where the exposure is 1% or more of the bank's assets.

- Transactions for market making purposes are marked-to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis.

- Collaterals are also obtained depending on the terms of sanction.

- 94.87 % of Derivatives fall under the short tenure of less than one year of remaining Maturity.

Note: As per the financial restructuring package of short term loans/term loans aggregating to Rs 1,100.00 crores sanctioned to M/s Air India Limited, the diminution in fairvalue (DMV) on account of restructuring of debts isRs 127.82 crores. Reserve Bank of India permitted Banks to amortize the provision required for diminution in the fair value of advances over 8 quarters. Accordingly 1/8th of the provision amounting to Rs 15.98 crores have been provided in the books of the Bank as on 31.03.2012 and the balance amount to be provided in subsequent quarters works outto Rs 111.84 crores.

DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

The disclosures under Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) (to the extent applicable) are given below:

i) Accounting Standard 9 - Revenue Recognition

As per Accounting Policy no. 8, given in schedule - 17, Significant Accounting Policies, certain items of income are recognised on realisation basis on account of statutory requirement or on account of materiality.

ii) Effect of changes in Foreign Exchange Rate (AS 11):

a) The net profit for the year includes an amount of Rs 13.54 crores Loss, (Rs 1.72 Cr. Loss for the previous year) being the loss booked under difference in Exchange on account of AS-11 valuation of FX Assets & Liabilities.

b) In terms of Regulatory directives, Accounting Standard (AS 11) in respect of Forex Assets and Liabilities has been implemented to ensure a fair and true disclosure of the value of the same in the Balance- Sheet.

iii) Employee Benefits (AS 15)

Bank has complied with the revised Accounting Standard 15 and accordingly a sum ofRs 298.68 crores has been considered as transitional liability as on 31.03.2007. Out of total transitional liability, the Bank has charged Rs 59.74 crores (one fifth) to the current year's profit and loss account being the last year.

In accordance with the RBI guidelines, the bank has amortised 1/5th (Rs 145.38 crores) of the enhanced liability of Rs 726.90 crores from the year 2010-11 in respect of pension and gratuity liabilities relating to continuing employees. Accordingly, the bank has charged Rs 145.38 crores to the current year profit and loss account and the balance amount ofRs 436.14 crores will be absorbed in future years.

vi) Consolidated Financial Statements (AS 21)

The consolidated financial statements for the year ended 31a March 2012 have been prepared in accordance with AS 21 and on the basis of the audited financial statements of the subsidiary of the Bank, M/s Syndbank Services Ltd.

e) Letters of comfort issued by the bank

a) Letters of Comfort issued in favour of overseas branch at LONDON by International Division, Mumbai & Branches.

The Bank has given an undertaking to FSA (Financial Services Authority) of U.K. with approval from the Board of Directors/RBI, that it will make available liquidity resources at all times to its London branch (if needed) in connection with application made for "Whole form liquidity modification" of the London Branch under the new liquidity regime of FSA U.K.

International Division Mumbai issued Letter of Comfort amounting to US$ 75 Mio and also issued a letter of commitment amounting to USD 100.00 Mio (valid up to 31.12.2012) with approval from the Board of Directors of the Bank.

b) Letters of Comforts issued by our Branches for the purpose of providing Buyer's Credit facility to Corporate Clients:

Branches have issued Letters of Comfort on behalf of their corporate customers in favour of London branch for providing Buyer's credit, to the extent of Rs 65.33 crores as on 31.03.2012.

Letters of Comfort issued by the branches for the purpose of providing buyers credit facility to corporate clients, in favour of various other banks, is Rs 986.74 crores as on 31.03.2012.

The Outstanding Gross Amount of Letters of Comfort issued by our Branches as at 31.03.2012 stands atRs 1,052.07 crores.

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings / World Rankings, Securities, Collaterals and Counter Guarantees available of / from the underlying reference entities are taken into account.

c) Provision Coverage Ratio:

The provision coverage ratio for the financial Year 2011-12 is 80.06%.

d) Bancassurance Business

Income on the bancassurance Business during the year 2011-12 is Rs 749.33 lakhs againstRs 704.88 lakhs in previous year.

e) OTHERS

i) Fixed assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained.

The bank owned premises (except at London branch) have been revalued during the year 2011-12 (last revaluation done in the year 2006-07) at value determined based on the appraisal by approved valuers. Surplus arising at such valuation aggregating to Rs 644.07 crores is credited to revaluation reserves. Additional depreciation aggregating to Rs 32.56 crores on the revalued assets has been adjusted to the revaluation reserve.

ii) Investments

(a) Profit on account of sale of securities from HTM category amounting to Rs 6,97,46,250.00 has been taken to Profit and Loss Account and thereafter appropriated towards Capital Reserve Account net of Tax.

(b) The amortization charges of Rs 58,17,27,342.62 (previous year Rs 60,77,42,763.02) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule-13, Interest Earned : Item II - Income on Investments as a deduction as per RBI Master Circular.

iii) Details of Bonds/Capital Issue

During the year ended 31.03.2012, Bank has allotted 2,86,64,284 equity shares of face value of Rs 10/- each for cash at premium of Rs 104.15 (Rupees one hundred four and paise fifteen only) determined in accordance with Regulation 76(4) of SEBI ICDR Regulations aggregating to Rs 327.20 crore, on preferential basis to LIC of India and its various schemes.

iv) Previous year figures

Previous year figures have been regrouped / rearranged wherever considered necessary to conform to the current year's classification.


Mar 31, 2011

1.0 RETIREMENT BENEFITS

1.1 Statutory contribution is made to Provident Fund Trust in respect of employees who have opted for Provident Fund. For others who have opted for pension scheme, contribution to Pension Fund Trust is made based on actuarial valuation.

1.2 Contribution to Gratuity Fund Trust is based on actuarial valuation.

1.3 Liability towards leave encashment is provided on accrual basis as per actuarial valuation

2.0 REVENUE RECOGNITION

a) Revenue and expenses are generally accounted for on accrual basis except in respect of fees/ commission on transactions with Mutual Funds, income on non-banking assets, locker rent, interest on overdue bills/tax refunds, income from non-performing assets and legal expenses on suit filed accounts which are accounted on cash basis.

b) Income from dividend on shares is accounted on accrual basis when the same is declared and the right to receive the dividend is established.

c) Interest on overdue deposits is accounted for at the time of renewal. In respect of matured deposits provision has been made as per the RBI guidelines.

d) The broken period interest on sale or purchase of securities is treated as revenue as per RBI guidelines.

e) Expenditure in respect of application software, bonds issue, franchises of credit card and insurance products are charged off to revenue.

f) Income from consignment sale of imported gold coins is accounted for as other income after the sale is complete.

3. TAXES ON INCOME

3.1 Current tax is determined as per the provisions of the Income tax Act, 1961.

3.2 Deferred tax assets and liabilities arising on account of timing differences between taxable and accounting income, is recognized keeping in view, the consideration of prudence in respect of deferred tax assets in accordance with the Accounting Standard 22 issued by ICAI.

4. COUNTRY RISK MANAGEMENT

The bank has adopted the Country Risk Management policy in accordance with the RBI guidelines.

5. GOLD COINS

Stock of imported gold coins is valued at cost or market price, whichever is lower.

6. NET PROFIT

Net Profit is arrived at after accounting for the following under "Provisions & Contingencies":

- Provision for Income Tax and Wealth Tax

- Provision/Write off of Non-Performing Advances and Investments

- Provision on Standard Assets

- Adjustment for appreciation/depreciation on Investments

- Transfer to Contingencies

- Other usual and necessary provisions.

7. B. Exchange Traded Derivatives - Currency Futures

- The Bank undertakes proprietary trading in Currency Futures in USD/INR on the Exchanges. There are no outstanding contracts under Currency Futures as on 31-3-2011.

- Exchange traded Interest Rate derivatives is NIL. The bank is not dealing in exchange traded interest rate derivatives.

7. C. Disclosures on Risk Exposure in Derivatives a) Qualitative Disclosure

The Bank is undertaking derivative transactions for hedging risks on its balance sheet as well as for trading/ market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest rate swaps. Currency swaps and Currency Options, with bank and Non-bank Counter parties. The bank is also undertaking proprietary trading in Currency Futures on the Exchange.

- Bank is not having any exposure in complex derivatives nor has it any direct exposure to the sub- prime assetSi

- The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

- The Bank has not crystallised and written off any account nor incurred any loss on account of undertaking derivative transactions.

- The segregation of front Office, Mid Office and Back Office is ensured to avoid conflict of interest and to mitigate the degree of risk. The Mid Office is directly reporting to Risk Management and Monitoring Department at Corporate Office, Bangalore.

- Credit risk of counter parties, including non-bank clients is properly appraised and limits fixed.

- Credit risk is monitored by setting counterparty exposure limits, setting country risk exposure and mitigating settlement risk through CCIL/CLS.

- Currency Futures have no credit risk for the Bank as the exchanges guarantee payment.

- Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position and upto an amount of USD 50 Mio for non-bank clients.

- Currency swaps are undertaken for non-bank clients with ratings SYND 01 to SYND 03 only.

- Forward contracts under past performance category are booked for clients with rating SYND 01- SYND 04 only and on complying with RBI guidelines.

- Cover currency swaps are undertaken both principal and interest back-to-back thus hedging both exchange rate risk and interest rate risk without involvement of any outlays.

- The transactions with our counter-party banks and non-bank counterparty are undertaken within the limits approved by the Board. The transactions with non-bank counterparty are done on a back-to-back covered basis without assuming any market risk.

- Credit exposures for derivative transactions are monitored on the basis of current credit exposure Method.

- ISDA agreements are executed / exchanged with every counterparty bank and non-bank clients as per RBI guidelines.

- Midoffice measures and monitors the risk arising out of trading deals independently.

- The transactions are undertaken within the overall Aggregate Gap Limits sanctioned by the Board.

- Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity.

- The transactions are separately classified as hedge or non-hedge transactions and measured at fair value.

- The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Banks assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis.

- Premium at the time of purchase, if any, is amortized over the residual period of the transaction. Profit is recognised on maturity. Discount is held in Income Received in Advance account and appropriated to P&L account on maturity.

- Adequate provision is made for transactions undertaken for hedging purpose, which become naked resulting in mark-to-market losses.

- Provision is also made for net funded country exposures, where the exposure is 1 % or more of the Banks assets.

- Transactions for market making purposes are marked- to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis.

- Collaterals are also obtained depending on the terms of sanction.

- Banks branch at London is undertaking FRAs and IRS for hedging purpose only and accounting interest on accrual basis.

- 83.82 % of Derivatives fall under the short tenure of less than one year.

8. DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

The disclosures under Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) (to the extent applicable) are given below:

i) Net profit or loss for the period, prior period items and changes in accounting policy (AS 5)

a) Investment in Floating Rate Note and Credit Linked Note Investments held in London branch are classified as available for sale and are valued at nominal value or market value whichever is lower. FRNs are valued based on issuers value and the CLNs are valued based on FIMMDA spread. Consequently the provision for depreciation on these investments is at Rs.25.35 crore.

ii) Effect of changes in Foreign Exchange Rate (AS 11):

The net loss for the year includes an amount of Rs. 1.72 crores (Rs. 2.94 crores profit for the previous year) being the profit booked under difference in exchange on account of AS 11 valuation of FIX assets & Liabilities.

In terms of regulatory directives. Accounting procedure (AS 11) in respect of Forex Assets and Liabilities have been implemented to ensure a fair and true disclosure of the value of the same in the Balance Sheet.

iii) Employee Benefits (AS 15)

Bank has complied with the revised Accounting Standard 15 and accordingly a sum of Rs.298.68 crores has been considered as transitional liability as on 31 -3-2007. Out of total transitional liability, the Bank has charged Rs.59.74 crores (one fifth) to the current years profit and loss account and the balance amount of Rs.59.74 crores (previous year Rs.119.48 crores) will be provided in the next year.

In accordance with the RBI guidelines, the bank has amortised l/5,h of the enhanced liability of Rs. 726.90 crores in respect of pension and gratuity relating to continuing employees resulting in carry forward of unamortised liability of Rs. 581.52 crores. Further the bank has also absorbed an amount of Rs. 364 crores during the year towards the additional pension liability for retired/separated employees as per the RBI guidelines.

v) Related Party Disclosures (AS 18)

Names of Related Parties and their relationship:

a) Subsidiary:

Syndbank Services Limited

b) Associates:

Gurgaon Grameena Bank North Malabar Grameena Bank Prathama Bank

Andhra Pragathi Grameena Bank Karnataka Vikas Grameena Bank

c) Key Management Personnel:

Sri Basant Seth Chairman and Managing

Director

Sri V K Nagar Executive Director

Sri Ravi Chatterjee Executive Director

vl) Consolidated Financial Statements (AS 21)

The consolidated financial statements for the year ended 31st March, 2011 have been prepared in accordance with the AS 21 and on the basis of the audited financial statements of the subsidiary of the Bank, M/s Syndbank Services Ltd.

vii) Accounting for Taxes on Income (AS 22)

The Bank has complied with the requirements of AS 22. The net balance of Deferred Tax Liability (DTL) as on 31-03-2011 stood at Rs.2.09 crore (Rs.5.93 crore as on 31-03-2010) after adjusting a sum of Rs.3.84 crore towards Deferred Tax Assets (DTA) for the year on depreciation on fixed asset. Further bank has not recognised DTA on provision made for employee benefit liabilities (allowable upon payment/crystallisation) and capital loss out of prudence.

g) Fixed Assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained.

h) Investments

Profit on account of sale of securities from HTM category amounting to NIL has been taken to Profit and Loss Account and thereafter appropriated towards Capital Reserve Account.

The amortization charges of Rs.60.77 crore (previous year Rs.80.88 crore) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule-13, Interest Earned: Item II - Income on Investments as a deduction as per RBI Master Circular.

i) Details of Bonds/Capital Issue

During the year, bank has allotted 5.13 crore equity shares of face value of Rs.10/- each for cash at premium of Rs.113.35 (Rupees one hundred thirteen and paisa thirty five only) determined in accordance with Regulation 76(1) of SEBI ICDR Regulations aggregating to Rs.632.99 crore on preferential basis to Government of India.

j) Provision Coverage Ratio:

The provision coverage ratio for the financial Year 2010- 11 is 77.18%.

k) Letters of Comfort issued in favour of overseas branch at LONDON by International Division, Mumbai & Branches

The Bank has given a confirmation to FSA (Financial Services Authority) of U.K. that it will make available liquidity resources at all times to its London branch (if needed) in connection with application made for "Whole form liquidity modification" of the London branch under the new liquidity regime of FSA U.K.

International Division Mumbai issued Letter of Comfort amounting to US$ 75 Mb in favour of London branch with the approval of Board of Directors / Reserve Bank of India.

During the financial year 2010-11, the daily outstanding placements made at market related rates by International Division with London branch stands above the minimum undertaken level, as per the Letter of Comfort issued for US$ 75 Mio. Hence, the amount of Letter of Comfort for US$ 75 Mio will not appear as a Contingent Liability as on Balance Sheet date. Total Deposit of US$ 166.02 Mio placed by International Division with London branch as on 31-03-2011.

I) Letter of Comfort issued by branches for the purpose of buyers credit facility to corporate clients

Branches have issued Letters of Comfort on behalf of their corporate customers in favour of London branch for providing Buyers credit to the extent of Rs.483.17 crores as on 31-03-2011.

Letter of Comfort issued by the branches for the purpose of providing buyers credit facility to the Corporate clients, in favour of various other banks is Rs.92.39 crores and the outstanding gross amount of Letter of comfort issued by our branches and International Division, Mumbai as at 31-03-2011 stands at US$ 129.06 Mio (Rs.575.56 crores).

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings / World Rankings, Securities, Collaterals and Counter Guarantees available of / from the underlying reference entities are taken into account.

o) Income earned on the bank assurance business during the year 2010-11 is Rs.704.88 lakhs against Rs.1551.94 lakhs in previous year.

p) Amount of advance for which, intangible securities has been taken :

Total Amount of advances for which intangible securities, such as charge over the rights, licences, authorizations, etc., charged as collateral in respect of projects (including infrastructure projects) is Rs.1 70.00 crores. Estimated value of such intangible collaterals is Rs.524.52 crores.

q) Previous year figures

Previous year figures have been regrouped / rearranged wherever considered necessary to conform to the current years classification.

 
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