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Notes to Accounts of Union Bank of India

Mar 31, 2015

1. BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH / BANK TRANSACTIONS

Adjustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Adjustments, Bank Reconciliation Statements and various inter-branch/office accounts is in progress on an ongoing basis.

Pending final clearance of the same, the overall impact, if any, on the accounts, in the opinion of the management will not be significant.

2. INVESTMENTS

i) Profit of Rs.58.43 crore (previous year Rs. 37.18 crore) on sale of "Held to Maturity" category securities have been taken to the Profit and Loss account initially and thereafter an amount of Rs. 27.00 crores (previous year Rs. 17.18 crore) has been appropriated to Capital Reserve net of taxes.

ii) In respect of "Held to Maturity" category, as stated in Significant Accounting Policy No.5 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs. 124.07 crore (previous year Rs. 115.68 crore).

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to Rs. 1,200.93 crore (previous year Rs. 1,251.84 crore).

3. DISCLOSURES IN TERMS OF THE RESERVE BANK OF INDIA GUIDELINES

3.1 A. CAPITAL

The Bank is subjected to Basel III capital adequacy guidelines stipulated by RBI with effect from April 1,2013. The guidelines provide a transition schedule for Basel III implementation till March 31,2019. As per guidelines, the Tier I capital is made up of Common Equity Tier I (CET I) and Additional Tier I.

Basel III guidelines require the Bank to maintain minimum capital to Risk Weighted Assets ratio (CRAR) of 9% with minimum CET I of 5.5% and minimum Tier I CRAR OF 7% as at March 31,2015.

During the year, the Bank has allotted 54, 72,563 equity shares of Rs.10/- each at a conversion price of Rs.202.83 per equity share (including premium of Rs.192.83 per equity share) to Government of India as approved by shareholders in Annual General Meeting dated 27th June, 2014, by conversion of entire Perpetual Non-Cumulative Preference Shares (PNCPS) amounting to Rs.111 crore held by the Government of India. Consequently the Government share holding has increased from 60.13% to 60.47%.

During the FY 2014-15, as an one time measure, the Bank had transferred Statutory Liquidity Ratio (SLR) securities from AFS category to HTM category for Rs. 2256 crore (previous year Rs. 10378.02 crores).The Bank has booked a loss of Rs. 38.82 crore (previous year Rs. 109.97 crores)on the transfer of such securities.

3.2.1 REPO Transactions (In face value terms)

The details of securities sold and purchased under repo and reverse repo transactions respectively is given below:

3.2.2 Non-SLR Investment Portfolio

i. Issuer composition of Non SLR Investments

The issuer composition of investments in securities, other than government and other approved securities is given below:

* Investment of Rs. 15.96 crores in Subsidiaries and Joint Ventures in Schedule 8 to Balance Sheet includes Banks investment in shares of Regional Rural Banks which are classified under SLR investments.

ii. Non performing Non-SLR investments

The movement in gross non performing investments in securities other than government and other approved securities is given below:

3.2.3 Sale and transfers to/from HTM Category

The Bank has not made sale and transfer to/from HTM category during the financial year 2014-15 exceeding 5 per cent of the book value of investments held in HTM category at the beginning of the year. During the year 2014-15, the Bank had carried out one time transfer of securities to/ from HTM category with the approval of Board of Directors aggregating Rs. 4,980.29 crore (previous year Rs. 6226.45 crore) and Rs. 4,804.15 crore (previous year Rs. 6244.78 crore), being face value and book value respectively. In order to comply to the Reserve Bank of India Circular no. RBI/2014- 15/254 BDOD.No.BP.BC.42/21.04.141/2014-15 dated October 7, 2014 directing banks to reduce its total SLR securities held in the HTM category to below 23.50 per cent with effect from January 10, 2015, 23.00 per cent with effect from April 4, 2015, 22.50 per cent with effect from July 11, 2015 and 22.00 per cent with effect from September 19, 2015 of their NDTL as on the last Friday of the second preceding fortnight, the Bank on January 6, 2015, transferred securities from HTM to AFS Category aggregating Rs. 3,074.75 crore (previous year Rs. 5297.00 crore) and Rs. 3,010.07 crore (previous year Rs. 5338.26 crore), being face value and book value respectively. The Bank has not sold any securities to Reserve Bank of India under pre announced OMO auctions during the FY 2014- 15, (previous year Rs. 1447.26 crore) (book value).

Hong Kong branch has transferred an amount of Rs. 61.57 crores from HTM category to AFS category (previous year Rs. 11.98 crore)

3.3.3 Disclosures on risk exposures in derivatives A. QUALITATIVE DISCLOSURE

a) The Bank deals in two groups of derivative transactions within the framework of RBI guidelines.

i) Over the Counter Derivatives

ii) Exchange Traded Derivatives

The Bank deals in Forward Rate Agreement, Interest Rate Swaps, Cross Currency Swap and Currency Options in Over the Counter Derivatives Group.

In Exchange Traded Derivatives Group, the Bank trades in Currency Futures and Interest Rate Futures. The Bank is trading & clearing member with four Exchanges viz. National Stock Exchange (NSE), United Stock Exchange (USE), Bombay Stock exchange (BSE) & MCX Stock Exchange (MCX-SX), on their Currency Derivative segment as permitted by Reserve Bank of India. The Bank carries out proprietary trading as well as trading on behalf of its customers in currency futures on these exchanges. The Bank has set up the necessary infrastructure for Front, Mid and Back office operations. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators. The Bank trades in Interest Rate Futures on National Stock Exchange.

The Bank undertakes derivative transactions for proprietary trading/market making, hedging own

balance sheet and for offering to customers, who use them for hedging their risks within the prevalent regulations. Proprietary trading/market making positions are taken in Rupee Interest Rate Swap, Currency Futures and Interest Rate Futures. While derivative instruments present immense opportunity for making a quantum leap in non-interest income and also for hedging market risk, it exposes the Bank to various risks. The Bank has adopted the following mechanism for managing different risks arising out of derivative transactions.

In terms of the structure, operations in the Treasury Branch are segregated into following three functional areas, which are provided with trained officers with necessary systems support and their responsibilities are clearly defined.

I) Front Office - Dealing Room. Ensures Compliance with trade origination requirements as per the Bank''s policy and RBI guidelines.

II) Mid-Office - Risk Management, Accounting Policies and Management

III) Back Office - Settlement, Reconciliation, Accounting.

Mid Office monitors transactions in the trading book and excesses, if any, are reported to Risk Management Department for necessary action. Mid Office also measures the financial risk for transactions in the trading book on a daily basis, by way of Mark to Market. Daily Mark to Market position is reported to Risk Management Department, for onward reporting of the risk profile to the Directors'' Committee on the Assets and Liability Management.

a) In case of corporate clients, transactions are concluded only after the inherent credit exposures are quantified and approved in terms of approval process laid down in the Treasury Policy for customer appropriateness and suitability. The necessary documents like ISDA agreements are duly executed. The Bank has adopted Current Exposure Method for monitoring credit exposures.

b) Treasury Policy of the Bank lays down the types of financial derivative instruments, scope of usages, and approval process as also the limits like the open position limits, deal size limits, stop loss limits and counterparty exposure limit for trading in approved instruments.

Various Risk Limits are set up and actual exposures are monitored vis-a-vis the limits.

These limits are set up taking in to account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, stop loss, counterparty credit exposure. Actual positions are measured against these limits periodically and breaches if any are reported promptly. The Bank ensures that the Gross PV01 position arising out of all non option derivative contracts is within the 0.25% of net worth of the Bank.

c) The Bank also uses financial derivative transactions for hedging its own Balance Sheet Exposures. Treasury Policy of the Bank spells out approval process for hedging the exposures. The hedge transactions are monitored on a regular basis. The notional profit or loss calculated on Mark to Market basis, PV01 and VaR on these deals are reported to the Assets Liability Committee (ALCO) every month. Hedge effectiveness is the degree to which changes in the fair value or cash flows of the hedged items that are attributed to a hedged risk are offset by changes in the fair value or cash flows of the hedging instruments. This exercise is carried out periodically to ensure hedge effectiveness.

d) The hedged/un-hedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis. All trading contracts are Mark to Market and resultant gross gain or loss is recorded in income statement.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium, and discount are being followed.

To mitigate the credit risk, the Bank has policy in place to sanction limits to Counterparty banks and Counterparty clients. The Bank adopts Current Exposure method for monitoring counterparty exposure periodically. While sanctioning derivative limit, the competent authority may stipulate condition of obtaining collaterals/margin as deemed appropriate. The derivative limit is reviewed periodically along with other credit limits.

The customer related derivative transactions are covered with counterparty Banks, on back- to-back basis for identical amount and tenure and the Bank does not carry any market risk.

3.8 Disclosure of Penalties imposed by RBI. : Rs. 3.53 lacs, (previous year Rs. 13.25 lacs)

4 Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for Notes to Account.

4.1 Revenue Recognition (AS 9)

Certain items of income are recognized on realization basis as per Accounting Policy no.3 (iii) of Schedule 17 of Significant Accounting Policies. However, the said income is not considered to be material.

4.4 Related Party Disclosures (AS-18)

A. List of Related Parties

a) Subsidiaries

- Union KBC AMC Pvt. Ltd.

- Union KBC Trustee Company Private Ltd.

- UnionBankoflndia(UK)Ltd.

b) Joint Venture

- Star Union Dai-ichi Life Insurance Co.

c) Associate

- Regional Rural Bank sponsored by the Parent Bank viz. Kashi Gomti Samyut Gramin Bank

Parties with whom transactions were entered into during the year

No disclosure is required in respect of related parties, which are "State controlled Enterprises" as per paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions in the nature of Banker - Customer relationship have not been disclosed including those with Key Management Personnel and relatives of Key Management Personnel.

4.5 Earnings per Share (AS-20)

Basic earnings per equity share are computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year. The diluted earnings per equity share is computed using the weighted average number of equity shares and weighted average number of diluted potential equity shares outstanding during the year.

4.7 Impairment of Asset (AS-28)

In the opinion of the Management, there is no indication for Impairment during the year with regard to the asset to which Accounting Standards 28 applies.

4.8 Contingent liabilities referred to in Schedule-12 at S. No.(i) to (vi) are dependent upon the outcome of court/arbitration/out of court settlement, the amount being called up, terms of contractual obligations, devolvement and raising of demand by parties concerned, disposal of appeals respectively.

5 Additional Disclosures

5.1 Provisions and Contingencies

(Rs. In crore)

Break up of Provision & Contingencies. shown under the head in Profit & Loss 31.03.2015 31.03.2014

Provision / (Reversal) for Depreciation on Investment -37.62 87.85

Provision towards NPA 2536.67 2106.17

Provision towards Standard Assets 239.81 308.87

Net Provision made towards Income Tax (IT)/ Wealth Tax/ Deferred tax liability (DTL) 1001.74 370.79

Other Provision and Contingencies:

- Shifting Loss 38.82 109.97

- Restructured Advances 127.11 254.69

- Others 135.30 283.56

TOTAL 4041.83 3521.90

Towards the proposed wage revision effective from 1st November, 2012 pending settlement, an adhoc provision of Rs. 464 crore is held as on 31st March, 2015, which includes Rs. 209 crore provided during the current year.

5.2 Counter Cyclical Provisioning Buffer / Floating Provision

Pursuant to RBI circular DBR.No.BP.BC.79/21.04.048/ 2014-15 dated 30th March 2015; Bank has utilized 50% of its floating provision held as at 31st December 2014. Accordingly, an amount of Rs. 293.195 crore out of floating provision of Rs. 511.21 crore held has been utilized towards specific provisions for non performing assets.

5.3 Draw Down from Reserves

Bank has not made any draw down during the year 2014- 15 (previous year Rs. 0.03 crore).

5.17 Un-hedged Foreign Currency Exposure

Bank has an approved Policy on Un-hedged Foreign Currency Exposure for 2014-15. The Bank has taken into consideration the exchange risks arising out of volatility in the forex market while framing the policy and accordingly, has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of un-hedged foreign currency exposure and accordingly has put in place risk mitigation measures by incorporating additional loan pricing framework. Incremental provision made for exposures to entities with UFCE for March, 2015 quarter is Rs. 24.98 crores.

6 Liquidity Coverage Ratios (LCR)

Qualitative Disclosure

LCR aims to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario specified by RBI.

LCR is the ratio of HQLA to Net Cash Outflow.

LCR = HQLA/Net Cash Outflows over 30 days

Minimum requirement of LCR as stipulated by RBI is 60% for the calendar year 2015. LCR is applicable to Bank''s domestic operations as well as overseas operations.

HQLA:

Liquid assets comprise of high quality assets that can be readily sold or used as collateral to obtain funds in a range of stress scenarios. They should be unencumbered i.e. without legal, regulatory or operational impediments. Assets are considered to be high quality liquid assets if they can be easily and immediately converted into cash at little or no loss of value.

HQLA is categorized into two a) Level 1 Assets, and b) Level 2 Assets. Level 2 Assets are also sub divided into Level 2A Assets & Level 2B Assets based on Liquidity & Price Volatility.

Level 1

Levels 1 Asset mainly comprise Cash including excess CRR, Excess SLR, MSF (2% of NDTL) & FALLCR (5% of NDTL.

Level 2A Assets

15% haircut is applied on current market value of Level 2A asset. Level 2A assets mainly comprise Securities with 20% risk weight not issued by a bank/financial institution/ NBFC, Corporate bonds, not issued by bank/financial institution/NBFC, rated AA- or above and Commercial Papers with rating AA- or above.

Level 2B Assets

50% haircut is applied on current market value of Level 2B asset. Level 2B assets comprise not more than 15% of the total stock of HQLA. Level 2B assets mainly comprise Securities with risk weights higher than 20% but not higher than 50%, i.e., with credit rating not lower than BBB- and

Equity Shares not issued by bank/financial institution/ NBFC and index component.

Brief about LCR of the Bank:

For all three months, i.e., January to March''15, Bank''s LCR has been more than the minimum 60% regulatory requirement for 2015 Calendar year. Based on the general liquidity in the market as well as Bank''s internal liquidity status the LCR of the Bank varied during the quarter.

HQLA:

Bank is having sufficient High Quality Liquid Assets so as to maintain LCR above regulatory prescription. Level 1 asset is the main driver of HQLA, contributing around 89% in the Total HQLA of the Bank.

Outflows & Inflows:

Deposits are the main source of funds for the Bank comprising around 83% of total liabilities. Bank''s exposure is mainly in Indian rupee.

7 FIXED ASSETS

a) Documentation formalities are yet to be completed in respect of five ( P.Y. nine) immovable properties held by the Bank at written down value of Rs. 11.17 crores ( P.Y. Rs. 49.35 crores.) in respect of which steps have already been initiated.

b) Land and Buildings revalued as on 31.3.1995 at fair market value as determined by an approved valuer, have further been revalued as on 30.11.2007 at fair market value by approved valuer. The resultant increase in value thereof on such revaluation amounting to Rs. 456.59 crores as on 31.3.1995 and Rs. 1290.68 crores as on 30.11.2007 have been credited to Revaluation Reserve and depreciation amounting to Rs. 34.62 crores ( Previous year Rs. 10.22 crores) attributable thereto has been deducted there from.

8 During the current year, there is no prior period item and change in accounting policy (as per AS 5) and no discontinued operations (as per AS 24).

9 The figures of the previous year have been regrouped / rearranged wherever considered necessary.


Mar 31, 2014

1 BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH /BANK TRANSACTIONS

Adjustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Adjustments, Bank Reconciliation Statements and various inter-branch/offi ce accounts is in progress on an ongoing basis.

Pending fi nal clearance of the same, the overall impact, if any, on the accounts, in the opinion of the management will not be signifi cant.

2 INVESTMENTS

i) Profi t on sale of investments held under "Held to Maturity" category amounting to Rs. 37.18 crores has been taken to the Profi t and Loss Account initially and thereafter an amount of Rs. 17.18 crores has been appropriated to Capital Reserve net of taxes.

ii) In respect of "Held to Maturity" category, as stated in Signifi cant Accounting Policy No.5 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs.115.68 crore (previous year Rs.86.27 crore).

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to Rs.1,251.84 crore (previous year Rs.1,282.50 crore).

3.2.3 Sale and transfers to/from HTM Category

The Bank has not made sales and transfers to/from HTM category during the fi nancial year 2013-14 exceeding 5 per cent of the book value of investments held in HTM category at the beginning of the year. During the year 2013-14, the Bank has carried out one time transfer of securities to/from HTM category with the approval of Board of Directors aggregating to Rs. 6,226.45 crore and Rs. 6,244.78 crore being face value and book value respectively. In compliance with RBI guidelines No. DBOD.No. BP.92/21.04.141/2012-13 dated May 15, 2013 on HTM category wherein the maximum cap of 25% of DTL for investment held in HTM category to be reduced to 23% of DTL by March 2014 in phased manner. Bank on July 9, 2013 transferred securities from HTM to AFS category aggregating Rs. 5,297.00 crore (face value) and Rs. 5,338.26 crore (book value). Further on September 23, 2013 the Bank had shifted securities from AFS to HTM category aggregating Rs. 7,526.58 crore (face value) and Rs. 7,668.72 crore (book value) as per RBI circular No. RBI/2013-14/198 DBOD.BP.BC. No.41/21.04.141/2013-14 dated August 23, 2013 at the price of July 15, 2013. The Bank has sold securities to Reserve Bank of India under pre announced OMO auctions having book value of Rs.1,447.26 crore.

Hong Kong Branch has transferred an amount of Rs. 11.98 crore (face value Rs. 11.98 crore) from HTM category to AFS category as per RBI guidelines mentioned above.

3.3.3 Disclosures on risk exposures in derivatives

A. QUALITATIVE DISCLOSURE

a) The Bank deals in two groups of derivative transactions within the framework of RBI guidelines. i) Over the Counter Derivatives ii) Exchange Traded Derivatives

The Bank deals in Forward Rate Agreement, Interest Rate Swaps, Cross Currency Swap and Currency Options in Over the Counter Derivatives Group.

In Exchange Traded Derivatives Group, the Bank traded in Currency Futures and Interest Rate Futures. The Bank is trading & Clearing member with three Exchanges viz. National Stock Exchange (NSE), United Stock Exchange (USE) & MCX Stock Exchange (MCX-SX), on their Currency Derivative segment as permitted by Reserve Bank of India. The Bank carries out proprietary trading as well as trading on behalf of its customers in currency futures on these exchanges. The Bank has set up the necessary infrastructure for Front, Mid and Back offi ce operations. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators.

The Bank trades in Interest Rate Futures on National Stock Exchange. The bank has necessary infrastructure for Front, Mid and Back offi ce operations in place. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators.

The Bank undertakes derivative transactions for proprietary trading/market making, hedging own balance sheet and for offering to customers, who use them for hedging their risks within the prevalent regulations. Proprietary trading/market making positions are taken in Rupee Interest Rate Swap, Currency Futures and Interest Rate Futures. While derivative instruments present immense opportunity for making a quantum leap in non-interest income and also for hedging market risk, it exposes the Bank to various risks. The Bank has adopted the following mechanism for managing different risks arising out of derivative transactions.

In terms of the structure, operations in the Treasury Branch are segregated into following three functional areas, which are provided with trained offi cers with necessary systems support and their responsibilities are clearly defi ned.

I) Front Offi ce - Dealing Room. Ensures Compliance with trade origination requirements as per the Bank''s policy and RBI guidelines.

II) Mid-Offi ce - Risk Management, Accounting Policies and Management

III) Back Offi ce - Settlement, Reconciliation, Accounting.

Mid Offi ce monitors transactions in the trading book and excesses, if any, are reported to Risk Management Department for necessary action. Mid Offi ce also measures the fi nancial risk for transactions in the trading book on a daily basis, by way of Mark to Market. Daily Mark to Market position is reported to Risk Management Department, for onward reporting of the risk profi le to the Directors'' Committee on the Assets and Liability Management.

In case of corporate clients transactions are concluded only after the inherent credit exposures are quantifi ed and approved in terms of approval process laid down in the Treasury Policy for customer appropriateness and suitability. The necessary documents like ISDA agreements are duly executed. The Bank has adopted Current Exposure Method for monitoring credit exposures.

b) Treasury Policy of the Bank lays down the types of fi nancial derivative instruments, scope of usages, and approval process as also the limits like the open position limits, deal size limits, stop loss limits and counterpart exposure limit for trading in approved instruments.

Various Risk Limits are set up and actual exposures are monitored vis-à-vis the limits. These limits are set up taking in to account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, stop loss, counterparty credit exposure. Actual positions are measured against these limits periodically and breaches if any are reported promptly. The Bank ensures that the Gross PV01 position arising out of all non option derivative contracts is within the 0.25% of net worth of the Bank.

c) The Bank also uses fi nancial derivative transactions for hedging its own Balance Sheet Exposures. Treasury Policy of the Bank spells out approval process for hedging the exposures. The hedge transactions are monitored on a regular basis. The notional profi t or loss calculated on Mark to Market basis, PV01 and VaR on these deals are reported to the Assets Liability Committee (ALCO) every month. Hedge effectiveness is the degree to which changes in the fair value or cash fl ows of the hedged items that are attributed to a hedged risk are offset by changes in the fair value or cash fl ows of the hedging instruments. This exercise is carried out periodically to ensure hedge effectiveness.

d) The hedged/un-hedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis. All trading contracts are Mark to Market and resultant gross gain or loss is recorded in income statement.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium, and discount are being followed.

To mitigate the credit risk, the Bank has policy in place to sanction limits to Counterparty banks and Counterparty clients. The Bank adopts Current Exposure method for monitoring counterparty exposure periodically. While sanctioning derivative limit, the competent authority may stipulate condition of obtaining collaterals/margin as deemed appropriate. The derivative limit is reviewed periodically along with other credit limits.

The customer related derivative transactions are covered with counterparty banks, on back-to-back basis for identical amount and tenure and the bank does not carry any market risk.

3.4.6.1The Bank has made additional provision of 2% over and above the prescribed guidelines of RBI amounting to Rs. 75.18 crore on certain category of Standard Advances (such as loans for consumer durables, education loans, loans through credit cards and other personal loans ) up to 31-12-2013. As per the revised provision policy of the Bank, such additional provision on Standard Advances has been discontinued from the quarter ended 31- 3-2014. Had the Bank continued its policy of making additional provision, Profi t for the quarter/year ended 31-3-2014 would have been lower by Rs. 2.43 crore.

3.7.5 Unsecured Advances: Nil

Advances backed by Annuity under Build Operate Transfer (BOT) model in respect of Road / Highway Projects and toll collection rights have been considered secured as per RBI circular NO. DBOD.BP.BC.No.83/08.12.014/2012-13 dated 18th March, 2013

3.8 Disclosure of Penalties imposed by RBI. : Rs. 13.25 lacs. 4 Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for Notes to Account.

4.1 Accounting Standard 9 - Revenue Recognition.

Certain items of income are recognized on realization basis as per Accounting Policy no.3 (iii) of Schedule 17 of Signifi cant Accounting Policies. However, the said income is not considered to be material.

4.2.2 Defi ned Contribution Plan:

The Bank has Defi ned Contribution Pension Scheme (DCPS) applicable to all categories of offi cers and employees joining the Bank on or after August 1, 2010. The scheme is managed by NPS Trust under the aegis of the Pension Fund Regulatory and Development Authority. National Securities Depository Limited has been appointed as the Central Record Keeping Agency for the NPS. During F.Y. 2013-14, the Bank has contributed Rs. 28.55 crore (Previous Year Rs. 16.53 crore).

4.4 Accounting Standard 18 – Related Party Disclosures. 4.4.1 List of Related Parties:

a) Subsidiaries: Union KBC Asset Management Company Private Ltd. Union KBC Trustee Company Private Ltd. Union Bank of India (UK) Ltd.

b) Joint Venture: Star Union Dai-Ichi Life Insurance Company Ltd.

c) Associate: Regional Rural Bank sponsored by the Parent Bank viz., Kashi Gomti Samyut Gramin Bank.

d) The Bank has identifi ed the following persons to be the Key Management Personnel as per AS – 18 on Related Party

Disclosures:

i. Shri D.Sarkar, Chairman & Managing Director upto 30.11.2013.

ii. Shri Arun Tiwari, Chairman & Managing Director from 26.12.2013.

iii. Shri S.K.Jain, Executive Director from 01.09.2011.

iv. Shri K. Subrahmanyam, Executive Director from 21.01.2013.

v. Shri Rakesh Sethi, Executive Director from 05.08.2013.

vi. Shri S. S. Mundra Executive Director upto 21.01.2013

4.4.1.2 Parties with whom transactions were entered into during the year

In terms of paragraph 5 of AS-18, transactions in the nature of Banker-Customer relationship have not been disclosed including those with Key Management Personnel and relatives of Key Management Personnel.

4.5 Accounting Standard 20 – Earnings per Share

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on "Earning per Share". Basic Earnings per Share is computed by dividing net profi t after tax by the weighted average number of equity shares outstanding during the year.

4.6 Accounting Standard 22 – Accounting for Taxes on Income

4.6.1 The Bank has accounted for Income Tax in compliance with AS 22 on Accounting for Taxes on Income. Accordingly, Deferred Tax Assets and Liabilities are recognized. Tax effect on the components of Deferred Tax Assets and Deferred Tax Liabilities as on 31st March 2014 are as under:

4.6.3 "Pursuant to Reserve Bank of India (RBI) circular N.DBOD. No.BP.BC.77/21.04.018/2013-14 dated December 20, 2013, the Bank has created Deferred Tax Liability on the Special Reserve under section 36 (1) (viii) of the Income- Tax Act, 1961. As required by the said RBI Circular, the expenditure amounting to Rs. 720.59 crore due to the creation of DTL on Special Reserve as at March 31, 2013, not previously charged to Profi t & Loss Account has now been adjusted directly from the reserve. Had this amount been charged to Profi t and Loss Account in accordance with the Generally Accepted Accounting Principles in India, the amount of the Profi t for the year had been lower by Rs. 720.59 crore. Further, DTL of Rs. 60.50 crore on the Special Reserve for the year has been created in the year-ended March 31, 2014."

4.7 Accounting Standard 28

In the opinion of the management, there is no indication for impairment during the year with regard to the assets to which Accounting Standard 28 applies.

4.8 Contingent liabilities referred to in Schedule-12 at S. No.(i) to (vi) are dependent upon, the outcome of court/ arbitration/out of court settlement, the amount being called up, terms of contractual obligations, devolvement and raising of demand by parties concerned, disposal of appeals respectively.

5.3 Draw Down from Reserves

Bank has made drawn down Rs.0.03 crore during the year to honour claims received in respect of unreconciled credit entries in Inter Branch Account up to March 31, 1999 (RBI Circular No. DBS.CO.SMC.NO 8825/22.09.001/2005-06 dated 20th December, 2005).

5.6 Provision Coverage Ratio (PCR)

Provision Coverage Ratio as on 31.03.2014 is 59.98%. Any excess provision held over the stipulated Provision Coverage Ratio (PCR) would be held under "Countercyclical Provisioning Buffer account" as per the extant RBI guidelines.

5.13 Unamortized Pension and Gratuity Liabilities

5.13.1 In accordance with RBI circular no.DBOD.BP.BC.80 / 21.04.018/ 2010-11 dated 09.02.2011 one-fi fth of the additional pension fund liability of Rs. 338.00 crore towards serving employees, who have exercised pension option has been charged to Profi t & Loss account in 2013-14, with Rs. 338.00 crore carried forward to be charged over the next year.

5.13.2 In accordance with the above circular, one fi fth of the additional gratuity liability which arose on enhancement of Gratuity limit from Rs.3.50 lacs to Rs.10 lacs amounting to Rs. 65.00 crore has also been charged to the Profi t and Loss account in 2013-14 with the balance of Rs. 65.00 crore being carried forward to be charged over the next year.

5.16 Credit Default Swaps:

The Bank had not entered into any Credit Default Swap transactions during the fi nancial year 2013-14.

6 FIXED ASSETS

Documentation formalities are yet to be completed in respect of nine immovable properties held by the Bank at written down value of Rs. 49.35 crores (previous year Rs.11.34 crores) in respect of which steps have already been initiated. Land and Buildings revalued as on 31st March, 1995 at fair market value as determined by an approved valuer, have further been revalued as on 30th November, 2007 at fair market value by approved valuers. The resultant increase in value thereof on such revaluations amounting to Rs.456.59 crores as on 31st March, 1995 and Rs.1,290.68 crores as on 30th November, 2007 have been credited to Revaluation Reserve and depreciation amounting to Rs. 10.22 crores (previous year Rs.38.07 crore) attributable thereto has been deducted there from.

7 FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL

During the year the Bank allotted 3,35,12,064 Equity Shares of Rs.10 each to Government of India at a price of Rs.149.20 per share, on preferential basis, as approved by the shareholders in an Extra ordinary General Meeting held in accordance with the regulation 76(1) of SEBI (Issue of Capital and disclosure requirements) Regulations, 2009. The amount received by the bank on this account is Rs.500 crores. Consequently, the Government of India shareholding has increased from 57.89% to 60.13%

During the year, the Bank has also raised Tier II capital of Rs. 2000 crore by issue of Basel III compliant unsecured Redeemable Non-Convertible Tier II Bonds.

8 During the year, commission under NREGA receivable from Government of Andhra Pradesh amounting to Rs. 21.66 crore has been recognized as income which was hitherto recognized on realization basis. Accordingly, other income for the year- ended March 31, 2014 is higher by this amount

9 The figures of the previous year have been regrouped /rearranged wherever considered necessary.


Mar 31, 2013

1 BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH /BANK TRANSACTIONS

i) Confirmation / reconciliation of balances with Foreign Banks and other Banks has been obtained /carried out. Reconciliation of Central Office Accounts maintained by branches has been completed up to 31st March, 2013.

ii) Adjustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Adjustments, Bank Reconciliation Statements and various inter- branch/office accounts is in progress.

iii) Pending final clearance of (ii) above, the overall impact, if any, on the accounts, in the opinion of the management will not be significant.

2 INVESTMENTS

i) As per RBI guidelines, an amount of Rs.114.68 Crore (previous year Rs.83.15 crore), being an amount equivalent to the profit on sale of "Held to Maturity" category securities is transferred to "Capital Reserve Account".

ii) In respect of "Held to Maturity" category, as stated in Significant Accounting Policy No.3 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs. 86.27 crore (previous year Rs.76.43 crore).

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to Rs. 1282.50 crore (previous year Rs.1379.55 crore).

* Investment of Rs.15.96 crores in subsidiaries and Joint ventures in Schedule 8 to Balance Sheet includes the Bank''s investment in shares of Regional Rural Banks which are SLR investments.During the year consequent to the merger of Rewa Siddhi Gramin Bank with Madhyanchal Gramin Bank sponsored by the State Bank of India, the equity and deposit of Bank amounting to Rs.31943450.00 in the said RRB has been received back by the Bank.

** Unrated & unlisted securities disclosed includes only Ratings and Listing of securities required as per Master Circular Dated 01.7.2011 issued by RBI.

3.1.1 Sale and transfers to/from HTM Category

The Bank has not made sales and transfers to/from HTM category during the financial year 2012-13 exceeding 5 per cent of the book of investments held in HTM category at the beginning of the year. During the year 2012-13, the Bank has carried out one time transfer of securities to/from HTM category with the approval of Board of Directors at the beginning of the year aggregating to Rs.3600.06crore and Rs. 3516.38 crores being face value and book value respectively. In addition to the above on November 06, 2012, the bank had transferred securities from HTM to AFS Category aggregating to Rs. 2.31 crore after obtaining approval from Department of Banking Supervision, Reserve Bank of India. The Bank has sold securities to Reserve Bank of India under pre announced OMO auctions having book value of Rs.4997.01 crore.

Note

I. Interest rate swaps in Indian Rupees were undertaken for hedging Tier II Bonds, Term Loans and Term Deposits.

II. The Bank has entered into Floating to Fixed or Fixed to Floating Interest Rate Swap transactions for trading during the year.

III. All underlyings for hedge transactions are on accrual basis.

3.1.2 Disclosures on risk exposures in derivatives

A. QUALITATIVE DISCLOSURE

a) The Bank deals in two groups of derivative transactions within the framework of RBI guidelines.

i) Over the Counter Derivatives

ii) Exchange Traded Derivatives

The Bank deals in Forward Rate Agreement, Interest Rate Swaps, Cross Currency Swap and Currency Options in Over the Counter Derivatives Group.

In Exchange Traded Derivatives Group, the Bank trades in Currency Futures and Interest Rate Futures. The Bank is trading cum clearing member with three Exchanges viz. National Stock Exchange (NSE), United Stock Exchange (USE) & MCX Stock Exchange (MCX-SX), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading as well as trading on behalf of its customers in currency futures on these exchanges. The Bank has set up the necessary infrastructure for Front, Mid and Back office operations. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators.

The Bank trades in Interest Rate Futures on National Stock Exchange. The Bank has necessary infrastructure for Front, Mid and Back office operations in place. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators.

The Bank undertakes derivative transactions for proprietary trading/market making, hedging own balance sheet and for offering to customers, who use them for hedging their risks within the prevalent regulations. Proprietary trading/market making positions are taken in Rupee Interest Rate Swap, Currency Futures and Interest Rate Futures. While derivative instruments present immense opportunity for making a quantum leap in non-interest income and also for hedging market risk, it exposes the Bank to various risks. The Bank has adopted the following mechanism for managing different risks arising out of derivative transactions.

In terms of the structure, operations in the Treasury Branch are segregated into following three functional areas, which are provided with trained officers with necessary systems support and their responsibilities are clearly defined.

I) Front Office - Dealing Room. Ensures Compliance with trade origination requirements as per the Bank''s policy and RBI guidelines.

II) Mid-Office - Risk Management, Accounting Policies and Management

III) Back Office - Settlement, Reconciliation, Accounting.

Mid Office monitors transactions in the trading book and excesses, if any, are reported to Risk Management Department for necessary action. Mid Office also measures the financial risk for transactions in the trading book on a daily basis, by way of Mark to Market. Daily Mark to Market position is reported to Risk Management Department, for onward reporting of the risk profile to the Directors'' Committee on the Assets and Liability Management.

In case of corporate clients transactions are concluded only after the inherent credit exposures are quantified and approved in terms of approval process laid down in the Treasury Policy for customer appropriateness and suitability. The necessary documents like ISDA agreements are duly executed. The Bank has adopted Current Exposure Method for monitoring credit exposures.

b) Treasury Policy of the Bank lays down the types of financial derivative instruments, scope of usages, and approval process as also the limits like the open position limits, deal size limits, stop loss limits and counterpart exposure limit for trading in approved instruments.

Various Risk Limits are set up and actual exposures are monitored vis-a-vis the limits. These limits are set up taking in to account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, stop loss, counterparty credit exposure. Actual positions are measured against these limits periodically and breaches if any are reported promptly. The Bank ensures that the Gross PV01 position arising out of all non option derivative contracts is within the 0.25% of net worth of the Bank.

c) The Bank also uses financial derivative transactions for hedging its own Balance Sheet Exposures. Treasury Policy of the Bank spells out approval process for hedging the exposures. The hedge transactions are monitored on a regular basis. The notional profit or loss calculated on Mark to Market basis, PV01 and VaR on these deals are reported to the Assets Liability Committee (ALCO) every month. Hedge effectiveness is the degree to which changes in the fair value or cash flows of the hedged items that are attributed to a hedged risk are offset by changes in the fair value or cash flows of the hedging instruments. This exercise is carried out periodically to ensure hedge effectiveness.

d) The hedged/un-hedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis. All trading contracts are Mark to Market and resultant gross gain or loss is recorded in income statement.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium, and discount are being followed.

To mitigate the credit risk, the Bank has policy in place to sanction limits to Counterparty banks and Counterparty clients. The Bank adopts Current Exposure method for monitoring counterparty exposure periodically. While sanctioning derivative limit, the competent authority may stipulate condition of obtaining collaterals/margin as deemed appropriate. The derivative limit is reviewed periodically along with other credit limits.

The customer related derivative transactions are covered with counterparty Banks, on back-to-back basis for identical amount and tenure and the Bank does not carry any market risk.

# Group Exposure Limit - 40%

For Infrastructure, Group Exposure ceiling is 50%

# 5% additional exposure can be taken with the permission of the Board

3.1.4 Unsecured Advances: Nil

Advances backed by Annuity under Build Operate Transfer (BOT) model in respect of Road/Highway Projects and toll collection rights have been considered secured as per RBI circular No. OD. BP. BC. No. 83 / 08.12.014 / 2012-13 dated 18 March 2013.

3.1.5 Disclosure of Penalties imposed by RBI. : Nil

4 Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for Notes to Account.

4.1 Accounting Standard 5 - Net Profit or Loss for the period, prior period items and changes in accounting policies.

There was no material prior period Income/Expenditure requiring disclosure under AS-5.

4.2 Accounting Standard 9 - Revenue Recognition.

Income items recognized on cash basis were not material and hence no disclosure under AS - 9 has been made.

i) The Bank operates in four segments viz., Treasury, Retail, Corporate / Wholesale and Other Banking Operations. These segments have been identified in line with AS-17 on segment reporting after considering the nature and risk profile of the products and services, the target customer profiles, the organizational structure and the internal reporting system of the Bank. The Bank has disclosed the business segment as primary segment. The revenue and other parameters prescribed in AS-17 of foreign branch for the period are within the threshold limits as stipulated under AS-17 and hence the Bank has only one reportable geographical segment.

ii) Segment wise income, expenditure, assets and liabilities which are not directly allocable have been allocated to the reportable segments based on assumptions considered appropriate.

iii) Figure of previous period have been reclassified/regrouped wherever necessary.

4.3 Accounting Standard 18 - Related Party Disclosures.

4.3.1 The Bank has identified the following persons to be the Key Management Personnel as per AS - 18 on Related Party Disclosures:

4.3.1.1 List of Related Parties:

a) The Bank has identified the following persons to be the Key Management Personnel as per AS - 18 on Related Party Disclosures:

i. Shri D.Sarkar, Chairman & Managing Director

ii. Shri S. S. Mundra, Executive Director upto 21.01.2013

iii. Shri S.K.Jain, Executive Director

iv. Shri K. Subrahmanyam, Executive Director from 21.01.2013

b) Subsidiaries:

Union KBC Asset Management Company Private Ltd.

Union KBC Trustee Company Private Ltd.

c) Joint Venture:

Star Union Dai-Ichi Life Insurance Company Ltd.

d) Associate:

Regional Rural Bank sponsored by the Parent Bank viz., Kashi Gomti Samyut Gramin Bank.

One of the Regional Rural Bank i.e Rewa Sidhi Gramin Bank, which was sponsored by our Bank has been amalgamated into Madhanchal Gramin bank (Sponsored by SBI) during the FY 2012-13, in terms of notification dated 1st November, 2012 of Ministry of Finance, Dept. of Financial Services New Delhi.

# Includes performance based incentives of Rs. 6.00 lacs and Rs. 8.00 lacs paid to the Chairman and Managing Director and Executive Directors of the Bank respectively during the previous year.

4.4 Earning per Share - Accounting Standard - 20

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on "Earning per Share". Basic Earning per Share is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year.

4.5 Accounting Standard 28

In the opinion of the Management, there is no indication for impairment during the year with regard to the assets to which Accounting Standard 28 applies.

4.6 Contingent liabilities referred to in Schedule-12 at S. No.(i) to (vi) are dependent upon, the outcome of court/ arbitration/out of court settlement, the amount being called up, terms of contractual obligations, devolvement and raising of demand by parties concerned, disposal of appeals respectively.

5.1 Draw Down from Reserves

The Bank has not made any drawdown from the reserves during the year.

5.2 Provision Coverage Ratio (PCR)

Provision Coverage Ratio as on 31.03.2013 is 65.21%. Any excess provision held over the stipulated Provision Coverage Ratio (PCR) would be held under "Countercyclical Provisioning Buffer account" as per the extant RBI guidelines.

5.3 Unamortized Pension and Gratuity Liabilities

5.3.1 In accordance with RBI circular no.DBOD.BP.BC.80 / 21.04.018/ 2010-11 dated 09.02.2011 one-fifth of the additional pension fund liability of Rs.338 crore towards serving employees, who have exercised second option has been charged to Profit & Loss account in 2012-13, with Rs.675 crore carried forward to be charged over the next 2 years.

5.3.2 In addition one fifth of the additional gratuity liability which arose on enhancement of Gratuity limit from Rs.3.50 lacs to Rs.10 lacs amounting to Rs.65 crore has also been charged to the Profit and Loss account in 2012-13 with the balance of Rs.130 crore being carried forward to be charged over the next 2 years.

5.3.3 AS-15 (revised 2005) Employee Benefits states benefits involving employer established provident funds, which require interest shortfall to be provided, are to be considered as defined benefit plans. Pending determination of liability in view of issues in making reasonable actuarial assumptions, effect in this respect has not been ascertained. Accordingly, other related disclosures in this respect have not been made and Rs.17.56 crores (previous year Rs. 7.16 crore) has been recognized as an expense towards provident fund scheme and included in payments to and provisions for employees under operating expenses.

5.2 Credit Default Swaps:

The Bank had not entered into any Credit Default Swap transactions during the financial year 2012-13.

6 FIXED ASSETS

Documentation formalities are yet to be completed in respect of six immovable properties (including one immovable property purchased during the year) held by the Bank at written down value of Rs.11.34 crores (previous year Rs.6.17 crores) in respect of which steps have already been initiated. Land and Buildings revalued as on 31st March,1995 at fair market value as determined by an approved valuer, have further been revalued as on 30th November, 2007 at fair market value by approved valuers. The resultant increase in value thereof on such revaluations amounting to Rs.456.59 crore as on 31st March, 1995 and Rs.1,290.68 crore as on 30th November, 2007 have been credited to Revaluation Reserve and depreciation amounting to Rs..38.07 crore (previous year Rs.40.01 crore) attributable thereto has been deducted there from.

7 FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL

During the year, the Bank has allotted on preferential basis 4,62,45,174 equity shares of Rs.10/- each at a premium of Rs.230.89 per share to Government of India aggregating to Rs.1114 crores. Consequently the Government share holding has increased from 54.35%.to 57.89%.

Further during the year, the Bank has raised Lower Tier II Bonds amounting to Rs. 800 crore.

8 PROVISION ON STANDARD ADVANCES

As per RBI guidelines, provision for Standard Advances and credit risk exposure on derivatives amounts to Rs.1125.34 crore (previous year Rs.899.13 crore). For certain category of standard advances such as loans for consumer durables, educational loans, loans through credit cards and other personal loans, additional provision of 2% amounting to Rs.66.73 crores (previous year Rs.56.74 crore) over and above the statutory requirement has been made.

9 The figures of the previous year have been regrouped /rearranged wherever considered necessary.


Mar 31, 2012

1 BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH /BANK TRANSACTIONS

i) Confirmation / reconciliation of balances with Foreign Banks and other Banks has been obtained /carried out.

ii) Adjustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Adjustments, Bank Reconciliation Statements and various inter- branch/office accounts is in progress. Reconciliation of Central Office Accounts maintained by branches has been completed up to 31st March, 2012.

iii) Pending final clearance of (i) and (ii) above, the overall impact, if any, on the accounts, in the opinion of the management will not be significant.

2 INVESTMENTS

i) As per RBI guidelines, an amount of Rs 83.15 Crore (previous year Rs 61.20 crore), being an amount equivalent to the profit on sale of "Held to Maturity" category securities is transferred to "Capital Reserve Account".

ii) In respect of "Held to Maturity" category, as stated in Significant Accounting Policy No.3 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs 76.43 crore (previous year Rs 79.06 crore).

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to Rs 1379.55 crore (previous year Rs 1362.33 crore).

* Investment of Rs19.16 crores in subsidiaries and Joint ventures in Schedule 8 to Balance Sheet includes the Bank's investment in shares of Regional Rural Banks which are SLR investments.

** Unrated & unlisted securities disclosed includes only Ratings and Listing of securities required as per Master Circular Dated 01.7.2011 issued by RBI.

3.1.1 Sale and transfers to/from HTM Category

The Bank has not made sales and transfers to/from HTM category during the financial year 2011-12 exceeding 5 per cent of the book of investments held in HTM category at the beginning of the year. During the year 2011-12, the Bank has carried out one time transfer of securities to/from HTM category with the approval of Board of Directors at the beginning of the year aggregating to Rs 3190.32 crore and Rs 3114.36 crores being face value and book value respectively. The Bank has sold to Reserve Bank of India under pre announced OMO auctions having book value of Rs 1339.47 crore. Apart from the above one time transfer of securities and sales to RBI under OMO auction, the Bank has not sold any securities from its HTM category.

Note

I. Interest rate swaps in Indian Rupees were undertaken for hedging Tier II Bonds, Term Loans and Term Deposits.

II. The Bank has entered into Floating to Fixed or Fixed to Floating Interest Rate Swap transactions for trading during the year.

III. All underlyings for hedge transactions are on accrual basis.

3.2.1 Disclosures on risk exposures in derivatives

A. QUALITATIVE DISCLOSURE

a) The Bank deals in two groups of derivative transactions within the framework of RBI guidelines.

i) Over the Counter Derivatives

ii) Exchange Traded Derivatives

The Bank deals in Forward Rate Agreement, Interest Rate Swaps, Cross Currency Swap and Currency Options in Over the Counter Derivatives Group.

In Exchange Traded Derivatives Group, the Bank trades in Currency Futures and Interest Rate Futures. The Bank is trading & clearing member with three Exchanges viz. National Stock Exchange (NSE), United Stock Exchange (USE) & MCX Stock Exchange (MCX-SX), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading as well as trading on behalf of its customers in currency futures on these exchanges. The Bank has set up the necessary infrastructure for Front, Mid and Back office operations. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators.

The Bank trades in Interest Rate Futures on National Stock Exchange. The Bank has necessary infrastructure for Front, Mid and Back office operations in place. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators.

The Bank undertakes derivative transactions for proprietary trading/market making, hedging own balance sheet and for offering to customers, who use them for hedging their risks within the prevalent regulations. Proprietary trading/market making positions are taken in Rupee Interest Rate Swap, Currency Futures and Interest Rate Futures. While derivative instruments present immense opportunity for making a quantum leap in non-interest income and also for hedging market risk, it exposes the Bank to various risks. The Bank has adopted the following mechanism for managing different risks arising out of derivative transactions.

In terms of the structure, operations in the Treasury Branch are segregated into following three functional areas, which are provided with trained officers with necessary systems support and their responsibilities are clearly defined.

I) Front Office - Dealing Room. Ensures Compliance with trade origination requirements as per the Bank's policy and RBI guidelines.

II) Mid-Office - Risk Management, Accounting Policies and Management

III) Back Office - Settlement, Reconciliation, Accounting.

Mid Office monitors transactions in the trading book and excesses, if any, are reported to Risk Management Department for necessary action. Mid Office also measures the financial risk for transactions in the trading book on a daily basis, by way of Mark to Market. Daily Mark to Market position is reported to Risk Management Department, for onward reporting of the risk profile to the Directors' Committee on the Assets and Liability Management.

In case of corporate clients transactions are concluded only after the inherent credit exposures are quantified and approved in terms of approval process laid down in the Treasury Policy for customer appropriateness and suitability. The necessary documents like ISDA agreements are duly executed. The Bank has adopted Current Exposure Method for monitoring credit exposures.

b) Treasury Policy of the Bank lays down the types of financial derivative instruments, scope of usages, and approval process as also the limits like the open position limits, deal size limits, stop loss limits and counterpart exposure limit for trading in approved instruments.

Various Risk Limits are set up and actual exposures are monitored vis-a-vis the limits. These limits are set up taking in to account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, stop loss, counterparty credit exposure. Actual positions are measured against these limits periodically and breaches if any are reported promptly. The Bank ensures that the Gross PV01 position arising out of all non option derivative contracts is within the 0.25% of net worth of the Bank.

c) The Bank also uses financial derivative transactions for hedging its own Balance Sheet Exposures. Treasury Policy of the Bank spells out approval process for hedging the exposures. The hedge transactions are monitored on a regular basis. The notional profit or loss calculated on Mark to Market basis, PV01 and VaR on these deals are reported to the Assets Liability Committee (ALCO) every month. Hedge effectiveness is the degree to which changes in the fair value or cash flows of the hedged items that are attributed to a hedged risk are offset by changes in the fair value or cash flows of the hedging instruments. This exercise is carried out periodically to ensure hedge effectiveness.

d) The hedged/un-hedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis. All trading contracts are Mark to Market and resultant gross gain or loss is recorded in income statement.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium, and discount are being followed.

To mitigate the credit risk, the Bank has policy in place to sanction limits to Counterparty the banks and Counterparty clients. The Bank adopts Current Exposure method for monitoring counterparty exposure periodically. While sanctioning derivative limit, the competent authority may stipulate condition of obtaining collaterals/margin as deemed appropriate. The derivative limit is reviewed periodically along with other credit limits.

The customer related derivative transactions are covered with counterparty Banks, on back-to-back basis for identical amount and tenure and the Bank does not carry any market risk.

3.3.1 Disclosure of Penalties imposed by RBI. : Nil

4 Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for Notes to Account.

4.1 Accounting Standard 5 - Net Profit or Loss for the period, prior period items and changes in accounting policies.

There was no material prior period Income/Expenditure requiring disclosure under AS-5.

4.2 Accounting Standard 9 - Revenue Recognition.

Income items recognized on cash basis were not material and hence no disclosure under AS - 9 has been made.

4.3 Accounting Standard 15 - Employee Benefits :

4.3.1 The Bank has accounted for employee benefits as per Accounting Standards issued by the Institute of Chartered Accountants of India, as per actuarial valuation report for the year ended March 31, 2012. The disclosure is as under:

i) The Bank operates in four segments viz., Treasury, Retail, Corporate / Wholesale and Other Banking Operations. These segments have been identified in line with AS-17 on segment reporting after considering the nature and risk profile of the products and services, the target customer profiles, the organizational structure and the internal reporting system of the Bank. The Bank has disclosed the business segment as primary segment. The revenue and other parameters prescribed in AS-17 of foreign branch for the period are within the threshold limits as stipulated under AS-17 and hence the Bank has only one reportable geographical segment.

ii) Segment wise income, expenditure, assets and liabilities which are not directly allocable have been allocated to the reportable segments based on assumptions considered appropriate.

4.4 Accounting Standard 18 - Related Party Disclosures.

4.4.1 The Bank has identified the following persons to be the Key Management Personnel as per AS - 18 on Related Party Disclosures:

4.4.1.1 List of Related Parties:

a) The Bank has identified the following persons to be the Key Management Personnel as per AS - 18 on Related Party Disclosures:

i. Shri M. V. Nair, Chairman & Managing Director

ii. Shri S. C. Kalia, Executive Director (Upto 31.08.2011)

iii. Shri S. S. Mundra, Executive Director

iv Shri S.K.Jain, Executive Director ( from 01.09.2011)

b) Subsidiaries:

Union KBC Asset Management Company Private Ltd.

Union KBC Trustee Company Private Ltd.

c) Joint Ventures:

Star Union Dai-Ichi Life Insurance Company Ltd.

d) Associates:

Two Regional Rural Banks sponsored by the Parent Bank viz., Kashi Gomti Samyut Gramin Bank and Rewa Sidhi Gramin Bank.

# Includes performance based incentives of Rs 6.00 lacs and Rs 8.00 lacs paid to the Chairman and Managing Director and Executive Directors of the Bank respectively during the previous year.

4.5 Earning per Share - Accounting Standard - 20

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on "Earning per Share". Basic Earning per Share is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year.

4.6 Accounting Standard 22 - Accounting for Taxes on Income

The Bank has accounted for Income Tax in compliance with AS 22 on Accounting for Taxes on Income. Accordingly, Deferred Tax Assets and Liabilities are recognized. Tax effect on the components of Deferred Tax Assets and Deferred Tax Liabilities as on 31st March 2012 are as under:

4.7 Accounting Standard 28

In the opinion of the Management, there is no indication for impairment during the year with regard to the assets to which Accounting Standard 28 applies.

4.8 Contingent liabilities referred to in Schedule-12 at S.No. (i) to (vi) are dependent upon, the outcome of court/ arbitration/out of court settlement, the amount being called up, terms of contractual obligations, devolvement and raising of demand by parties concerned, disposal of appeals respectively.

5.1 Draw Down from Reserves

The Bank has not made any drawdown from the reserves during the year.

5.2 Provision Coverage Ratio (PCR)

Provision Coverage Ratio as on 31.03.2012 is 62.22%. Any excess provision held over the stipulated Provision Coverage Ratio (PCR) would be held under "Countercyclical Provisioning Buffer account" as per the extant RBI guidelines.

5.3 Unamortized Pension and Gratuity Liabilities

5.3.1 In accordance with RBI circular no.DBOD.BP.BC.80 / 21.04.018/ 2010-11 dated 09.02.2011 one-fifth of the additional pension fund liability of Rs 338.04 crore towards serving employees, who have exercised second option has been charged to Profit & Loss account in 2011-12, with Rs 1014.13 crore carried forward to be charged over the next 3 years.

5.3.2 In addition one fifth of the additional gratuity liability which arose on enhancement of Gratuity limit from Rs 3.50 lacs to Rs 10 lacs amounting to Rs 65 crore has also been charged to the Profit and Loss account in 2011-12 with the balance of Rs 195.00 crore being carried forward to be charged over the next 3 years.

5.3.3 AS-15 (revised 2005) Employee Benefits states benefits involving employer established provident funds, which require interest shortfall to be provided, are to be considered as defined benefit plans. Pending determination of liability in view of issues in making reasonable actuarial assumptions, effect in this respect has not been ascertained. Accordingly, other related disclosures in this respect have not been made and Rs 7.16 crores (previous year Rs 22.88 crore) has been recognized as an expense towards provident fund scheme and included in payments to and provisions for employees under operating expenses.

6 FIXED ASSETS

Documentation formalities are yet to be completed in respect of five immovable properties held by the Bank at written down value of Rs 6.17 crores (previous year Rs 6.50 crores) in respect of which steps have already been initiated. Land and Buildings revalued as on 31st March,1995 at fair market value as determined by an approved valuer, have further been revalued as on 30th November, 2007 at fair market value by approved valuers. The resultant increase in value thereof on such revaluations amounting to Rs 456.59 crore as on 31st March, 1995 and Rs 1,290.68 crore as on 30th November, 2007 have been credited to Revaluation Reserve and depreciation amounting to Rs 40.01 crore (previous year Rs 42.06 crore) attributable thereto has been deducted there from.

7 FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL

During the year, the Bank has allotted on preferential basis 26216620 equity shares of Rs 10/ - each at a premium of Rs 238.05 per share to Life Insurance Corporation of India aggregating to Rs 650.30 crores. Consequently the Government share holding has decreased from 57.06%.to 54.35%.

8 PROVISION ON STANDARD ADVANCES

As per RBI guidelines, provision for Standard Advances and credit risk exposure on derivatives amounts to Rs 899.13 crore ( previous year 663.77 crore). For certain category of standard advances such as loans for consumer durables, educational loans, loans through credit cards and other personal loans, additional provision of 2% amounting to Rs 56.74 crores (previous year Rs 76.07 crore) over and above the statutory requirement has been made.

9 The figures of the previous year have been regrouped / rearranged wherever considered necessary.


Mar 31, 2011

1 BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH / BANK TRANSACTIONS:

i) Confrmation / reconciliation of balances with foreign and other banks has been obtained /carried out except in a few cases and reconciliation is in progress.

ii) Adjustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Adjustments and various inter-branch/offce accounts is in progress. Reconciliation of Central Offce Accounts maintained by branches has been completed up to 31st March 2011.

iii) Pending fnal clearance of (i) and (ii) above, the overall impact, if any, on the accounts, in the opinion of the management will not be signifcant.

2 INVESTMENTS

i) As per RBI guidelines, an amount of Rs. 61.20 crore (previous year Rs. 100.09 crore), being an amount equivalent to the Profit on sale of "Held to Maturity" category securities is transferred to "Capital Reserve Account".

ii) In respect of "Held to Maturity" category, as stated in signifcant Accounting Policy No.3, the excess of acquisition cost over face value of the securities amortised during the year amounted to Rs. 79.06 crore (previous year Rs. 96.21 crore).

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to Rs. 1362.33 crore (previous year Rs. 1289.39 crore).

3 FIXED ASSETS

Documentation formalities are yet to be completed in respect of fve immovable properties held by the Bank at written down value of Rs. 6.50 crores (previous year Rs. 6.84 crores) in respect of which steps have already been initiated. Land and Buildings revalued as on 31st March,1995 at fair market value as determined by an approved valuer, have further been revalued as on 30th November, 2007 at fair market value by approved value Rs. The resultant increase in value thereof on such revaluations amounting to Rs. 456.59 crore as on 31st March, 1995 and Rs. 1,290.68 crore as on 30th November, 2007 have been credited to Revaluation Reserve and depreciation amounting to Rs. 42.06 crore (previous year Rs. 69.94 crore) attributable thereto has been deducted there from.

4 FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL

During the year, the Bank has raised additional funds ranking for Tier - II capital by way of issue of Upper Tier II Bonds of Rs. 500 crores (previous year: Upper Tier II Bonds of Rs. 200 crore, Perpetual Bonds of Rs. 240 crore and sub-ordinated Bonds of Rs. 1000 crore) and the amount is refected under "Borrowings" in Schedule 4 of the Balance Sheet.

During the year bank has allotted 11,10,00,000 Perpetual Non-cumulative Preference Shares (PNCPS) of Rs. 10/- each to Govt. of India, carrying annual foating coupon benchmarked to Repo rate with a spread of 100 bps. to be readjusted annually based on the prevailing Repo rate on the relevant date.

During the year, the bank has allotted on preferential basis 1,92,14,515 equity shares of Rs. 10/- each at a premium of Rs. 344.94, to Govt. of India. Consequently the Government share holding has increased from 55.43% to 57.06%.

5 PROVISION ON STANDARD ADVANCES

As per RBI guidelines, provision for Standard Advances and credit risk exposure on derivatives amounts to Rs. 663.77 crore (previous year Rs. 516.06 crore). For certain category of standard advances such as loans for consumer durables, educational loans, loans through credit cards and other personal loans, additional provision of 2% amounting to Rs. 76.07 crore (previous year Rs. 52.38 crore) over and above the statutory requirement has been made.

6.3.3 Disclosures on risk exposures in derivatives

A. QUALITATIVE DISCLOSURE:

a) The Bank deals in two groups of derivative transactions within the framework of RBI guidelines.

i) Over the Counter Derivatives

ii) Exchange Traded Derivatives

The Bank deals in Forward Rate Agreement, Interest Rate Swaps, Cross Currency Swap, and Currency Options in Over the Counter Derivatives group.

In Exchange Traded Derivatives Group, the Bank trades in Currency Futures and Interest Rate Futures. The Bank is Trading & clearing member with three Exchanges viz. National Stock Exchange (NSE), United Stock Exchange (USE) & MCX- SX Stock Exchange (MCX-SX), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading as well as trading on behalf of its customers in currency futures on these exchanges. The Bank has set up the necessary infrastructure for Front, Mid and Back offce operations. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulator

Bank trades in Interest Rate Futures on National Stock Exchange. The bank has necessary infrastructure for Front, Mid and Back offce operations in place. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by The Regulator

The Bank undertakes derivative transactions for proprietary trading/market making, hedging own balance sheet and for offering to customers, who use them for hedging their risks within the prevalent regulations. Proprietary trading/market making positions are taken in Rupee Interest Rate Swap, Currency Futures and Interest Rate Futures. While derivative instruments present immense opportunity for making a quantum leap in non-interest income and also for hedging market risk, it exposes the Bank to various risks. The Bank has adopted the following mechanism for managing different risks arising out of derivative transactions.

In terms of the structure, operations in the Treasury Branch are segregated into following three functional areas, which are provided with trained Officers with necessary systems support and their responsibilities are clearly defned.

I) Front Offce—Dealing Room. Ensures Compliance with trade origination requirements as per Banks policy and RBI guidelines.

II) Mid-Offce---Risk Management, Accounting Policies and Management.

III) Back Offce- Settlement, Reconciliation, Accounting.

Mid Offce monitors transactions in the trading book and excesses, if any, are reported to Risk management Department for necessary action. Mid Offce also measures the financial risk for transactions in the trading book on a daily basis, by way of Mark to Market. Daily Mark to Market position is reported to Risk Management Department, for onward reporting of the risk profle to the Directors Committee on the Assets and Liability Management.

In case of corporate clients transactions are concluded only after the inherent credit exposures are quantifed and approved in terms of approval process laid down in the Treasury Policy for customer appropriateness and suitability. The necessary documents like ISDA agreements are duly executed. The bank has adopted Current Exposure Method for monitoring credit exposures.

b) Treasury Policy of the Bank lays down the types of financial derivative instruments, scope of usages, and approval process as also the limits like the open position limits, deal size limits, stop loss limits and counterpart exposure limit for trading in approved instruments.

Various Risk Limits are set up and actual exposures are monitored vis-à-vis the limits.

These limits are set up taking in to account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, stop loss, counterparty credit exposure. Actual positions are measured against these limits periodically and breaches if any are reported promptly. The Bank ensures that the Gross PV01 position arising out of all non option derivative contracts is within the 0.25% of net worth of the Bank.

c) The Bank also uses financial derivative transactions for hedging its own Balance Sheet Exposures. Treasury Policy of the Bank spells out approval process for hedging the exposures. The hedge transactions are monitored on a regular basis. The notional Profit or loss calculated on Mark to Market basis, PV01 and VaR on these deals are reported to the Assets Liability Committee (ALCO) every month. Hedge effectiveness is the degree to which changes in the fair value or cash flows of the hedged items that are attributed to a hedged risk are offset by changes in the fair value or cash flows of the hedging instruments. This exercise is carried out periodically to ensure hedge effectiveness.

d) The hedged/un-hedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis. All trading contracts are mark- to-market and resultant gross gain or loss is recorded in income statement.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium, and discount are being followed.

To mitigate the credit risk, Bank has policy in place to sanction limits to counterparty Banks and Counterparty clients. Bank adopts Current Exposure method for monitoring counterparty exposure periodically. While sanctioning derivative limit, the competent authority may stipulate condition of obtaining collaterals/margin as deemed appropriate. The derivative limit is reviewed periodically along with other credit limits.

The customer related derivative transactions are covered with counterparty banks, on back-to-back basis for identical amount and tenure and the bank does not carry any market risk.

6.7.6 Advances secured by intangible securities : Nil

Advances backed by Annuity under Build Operate Transfer (BOT) model and toll collection rights have been considered secured as per RBI circular DBOD.BP.BC.96/08.12.014/2009-10 dated 23 April 2010

7.2 Disclosure of Penalties imposed by RBI. : Nil

8 Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for Notes to Account:

8.1 Accounting Standard 5 – Net Profit or Loss for the period, prior period items and changes in accounting policies.

There were no material prior period Income/Expenditure requiring disclosure under AS–5.

8.2 Accounting Standard 9 - Revenue Recognition.

Income items recognized on cash basis were not material and hence no disclosure under AS – 9 has been made.

8.3.3 AS-15 (revised 2005) Employee benefits states benefits involving employer established provident funds, which require interest shortfall to be provided, are to be considered as defned beneft plans. Pending determination of liability in view of issues in making reasonable actuarial assumptions, effect in this respect has not been ascertained. Accordingly, other related disclosures in this respect have not been made and Rs. 22.88 crore (previous year Rs. 30.55 crore) has been recognized as an expense towards provident fund scheme and have been included in payments to and provisions for employees under operating expenses.

8.3.4 In accordance with RBI circular no.DBOD.BP.BC.80 / 21.04.018/ 2010-11 dated 09.02.2011 one-ffth of the additional pension fund liability of Rs. 338.04 crore towards serving employees, who have exercised second option and 100% of such liability of Rs. 375.65 crore towards retired / separated employees aggregating to Rs. 713.69 crore has been charged to Profit & Loss account this year, with Rs. 1352.17 crore carried forward to be charged over the next 4 years.

8.3.5 In addition one ffth of the additional gratuity liability which arose on enhancement of Gratuity limit from Rs. 3.50 lacs to Rs. 10 lacs amounting to Rs. 65 crore has also been charged to the Profit and Loss account with the balance of Rs. 260 crore being carried forward to be charged over the next 4 years.

i) The Bank operates in four segments viz., Treasury, Retail, Non-Retail and Para Banking. These segments have been identifed in line with AS-17 on segment reporting after considering the nature and risk profle of the products and services, the target customer profles, the organizational structure and the internal reporting system of the bank. The bank has disclosed the business segment as primary segment. The revenue and other parameters prescribed in AS-17 of foreign branch for the period are within the threshold limits as stipulated under AS-17 and hence the bank has only one reportable geographical segment.

ii) Segment wise income, expenditure, assets and liabilities which are not directly allocable have been allocated to the reportable segments based on assumptions considered appropriate.

8.5 Accounting Standard 18 – Related Party Disclosures.

8.5.1 The Bank has identifed the following persons to be the Key Management Personnel as per AS – 18 on Related Party Disclosures:

8.5.1.1 List of Related Parties:

a) The Bank has identifed the following persons to be the Key Management Personnel as per AS – 18 on Related Party Disclosures:

i. Shri M. V. Nair, Chairman & Managing Director

ii. Shri S. C. Kalia, Executive Director

iii. Shri S. Raman, Executive Director (till 31.08.2010)

iv. Shri S. S. Mundra, Executive Director (from 01.09.2010)

b) Subsidiaries:

Union KBC Asset Management Company Private Ltd. Union KBC Trustee Company Private Ltd.

c) Joint Ventures:

Star Union Dai-Ichi Life Insurance Company Ltd.

d) Associates:

Two Regional Rural Banks sponsored by the Parent Bank viz., Kashi Gomti Samyut Gramin Bank and Rewa Sidhi Gramin Bank.

8.8 Accounting Standard 28

In the opinion of the Management, there is no indication for impairment during the year with regard to the assets to which Accounting Standard 28 applies.

8.9 Contingent liabilities referred to in Schedule-12 at S.No.(i) to (vi) are dependent upon, the outcome of court/arbitration/out of court settlement, the amount being called up, terms of contractual obligations, devolvement and raising of demand by parties concerned, disposal of appeals respectively.

9 Provisions & Contingencies:

(Break up of Provision & Contingencies shown under the head in Profit & Loss)

(Rs. in crore)

2010-11 2009-10

Provision / (Reversal) for Depreciation on Investment 26.65 (117.34)

Provision towards NPA 1187.69 698.92

Provision towards Standard Assets 148.54 20.95

Provision made towards Income Tax (IT)/Deferred tax liability (DTL) 873.45 758.00 Other Provision and Contingencies:

- Shifting Loss 82.94 46.76

- Restructured Advances 1.63 95.21

- Others -95.86 81.89

TOTAL 2223.04 1584.39

10 Floating Provisions

(Rs. in crore)

Particulars 2010-11 2009-10

i) Opening Balance in the foating provisions 697.00 539.50

ii) Floating provisions made during the accounting year 46.00 157.50

iii) Amount of drawdown made during the accounting year 0 0

iv) Closing balance in the foating provision account 743.00 697.00

11 Draw Down from Reserves

The Bank has not made any drawdown from the reserves during the year.

12 Provision Coverage Ratio (PCR)

Provision Coverage Ratio as on 31.03.2011 is 67.58%. Any excess provision held over the stipulated Provision Coverage Ratio (PCR) would be held under "Countercyclical Provisioning Buffer account" as per the extant RBI guidelines.

13 The figures of the previous year have been regrouped / rearranged wherever considered necessary.


Mar 31, 2010

1. BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH / BANK TRANSACTIONS:

i) Confi rmation reconciliation of balances with foreign and other banks has been obtained carried out except in a few cases.

ii) Ad ustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Ad ustments, Bank Reconciliation statements and various inter- branch offi ce accounts is in progress. Reconciliation of Central Offi ce Accounts maintained by branches has been completed up to 31st March 2010.

iii) Pending fi nal clearance of (i) and (ii) above, the overall impact, if any, on the accounts, in the opinion of the management will not be signifi cant.

2. INVESTMENTS

i) As per RBI guidelines, an amount of Rs. 100.09 crore (previous year Rs. 217.08 crore), being an amount equivalent to the profi t on sale of "Held to Maturity" category securities is transferred to "Capital Reserve Account".

ii) In respect of "Held to Maturity" category, as stated in signifi cant Accounting Policy No.3 (ii)(a), the excess of acquisition cost over face value of the securities amortised during the year amounted to Rs. 96.21 crore (previous year Rs.111.55 crore).

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds venture capital funds and also advances against shares aggregate to Rs. 1,289.39 crore (previous year Rs. 938.68 crore).

3. FIXED ASSETS

Documentation formalities are yet to be completed in respect of fi ve immovable properties held by the Bank at written down value of Rs. 6.84 crores (previous year Rs. 7.20 crores) in respect of which steps have already been initiated. Land and Buildings revalued as on 31st March,1995 at fair market value as determined by an approved valuer, have further been revalued as on 30th November, 2007 at fair market value by approved valuers. The resultant increase in value thereof on such revaluations amounting to Rs.456.59 crore as on 31st March, 1995 and Rs.1,290.68 crore as on 30th November, 2007 have been credited to Revaluation Reserve and depreciation amounting to Rs. 69.94 crore (previous year Rs. 38.42 crore) attributable thereto has been deducted there from.

4. INCOME TAX

The Bank considers that provision for Income tax held in its accounts is adequate.

5. FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL

During the year, the Bank has raised additional funds ranking for Tier - I and Tier -II capital by way of issue of Perpetual Bonds of Rs. 200 crore and Upper Tier II Bonds of Rs. 1,000 crores respectively (previous year: Perpetual Bonds of Rs. 340 crore and sub-ordinated Bonds of Rs. 800 crore in the previous year) and the amount is refl ected under "Borrowings" in Schedule 4 of the Balance Sheet.

6. PROVISION ON STANDARD ADVANCES

Provision for Standard Advances and credit risk exposure on derivatives at 0.40% amounts to Rs. 516.06 crore (previous year Rs. 495.11 crore). For certain category of standard advances such as loans for consumer durables, educational loans, loans through credit cards and other personal loans, additional provision of 2% amounting to Rs. 52.38 crore (previous year Rs.39.61 crore) over and above the statutory requirement has been made.

7.3.3 Disclosures on risk exposures in derivatives

A. QUALITATIVE DISCLOSURE:

Operations in the Treasury Branch are segregated into three functional areas, i.e., Front Offi ce, Mid Offi ce and Back Offi ce, which are provided with trained offi cers with necessary system support and their responsibilities are clearly defi ned.

The Treasury Policy of the Bank clearly lays down the types of fi nancial derivative instruments, scope of usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for trading in approved instruments. While sanctioning derivative limit, the competent authority may stipulate condition of obtaining collaterals margin as deemed appropriate. The derivative limit is reviewed periodically along with other credit limits.

Mid Offi ce monitors transactions in the trading book and excesses, if any, are reported to Risk Management Department for necessary action. Mid Offi ce also measures the fi nancial risk for transactions in the trading book on a daily basis, by way of Mark to Market. Daily Mark to Market position is reported to Risk Management Department, who, in turn, appraises the risk profi le to the Directors Committee on the Assets and Liability Management.

In case of corporate clients transactions are concluded only after the inherent credit exposures are quantifi ed and approved in terms of the approval process laid down in the Treasury Policy for customer appropriateness and suitability and necessary documents like ISDA agreements are duly executed. The bank has adopted Current Exposure Method for monitoring the credit exposures.

The Bank also uses fi nancial derivative transactions for hedging it s own Balance Sheet Exposures. Treasury Policy of the Bank spells out approval process for hedging the exposures. The hedge transactions are monitored on a regular basis. The notional profi ts or losses calculated on Mark To Market basis, PV01 and VAR on these deals are reported to the ALCO every month.

The hedged unhedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis. All trading contracts are Marked To Market and resultant gross gain or loss is recorded in income statement.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium and discount are being followed.

The customer related derivative transactions for

Notional value of Rs 929.96 crores are covered with counterparty banks, on back-to-back basis for identical amount and tenure and the bank does not carry any market risk.

The Bank is Trading & Clearing member of 3 Currency Futures Exchanges namely National Stock Exchange (NSE), Bombay Stock Exchange (BSE) & MCX-SX Stock Exchange (MCX-SX) as permitted by Reserve Bank of India. The Bank started proprietary trading as well as trading on behalf of customers in currency futures on these exchanges. The Bank has set up the necessary infrastructure for Front, Mid and Back offi ce operations. Daily Mark to Market (MTM) and Margin obligations are settled with the Exchanges as per guidelines issued by the regulators.

During the year, the Bank has started proprietary trading in Interest Rate Futures on National Stock Exchange. The bank has necessary infrastructure for Front. Mid and Back offi ce operations in place. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by regulators.

8.2 Disclosure of Penalties imposed by RBI. : Nil

9. Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for ‘Notes to Account :

9.1 Accounting Standard 5 – Net Profi t or Loss for the period, prior period items and changes in accounting policies.

There were no material prior period Income Expenditure requiring disclosure under AS–5.

9.2 Accounting Standard 9 - Revenue Recognition.

Income items recognized on cash basis were not material and hence no disclosure under AS – 9 has been made.

9.5 Accounting Standard 18 – Related Party Disclosures.

9.5.1 The Bank has identifi ed the following persons to be the Key Management Personnel as per AS – 18 on Related Party Disclosures:

i. Shri M. V. Nair, Chairman & Managing Director

ii. Shri T.Y. Prabhu, Executive Director (till 26.08.2009)

iii. Shri S. C. Kalia, Executive Director (from 23.11.2009)

iv. Shri S. Raman, Executive Director

9.5.2. The Bank carries on distribution of life insurance products of “Star Union Dai – Ichi Life Insurance Company Ltd.” in which it holds 23% of the shares as strategic investment by contributing Rs. 57.50 crores as of 31.03.2010. (Previous year Rs. 2.30 crores). During the year the Bank has earned commission of Rs. 1,748.63 lacs (previous year Rs. 383.68 lacs) by selling their insurance products.

9.5.3. The bank holds 51% shareholding as a subsidiary business in Union KBC Assets Management Company Pvt. Ltd. by contributing Rs. 48.45 crores in AMC and Rs. 2.25 lacs in Trustee Co. i.e. Union KBC Trustee Company Pvt. Ltd. on 26.03.2010. The Companies have already received in principal approval from RBI and SEBI but are yet to commence the commercial activities.

6.7 Consolidated Financial Statement (CFS) AS 21:

The subsidiary has decided to close its books of account on 30th September every year. This year being the fi rst year, the subsidiary is yet to close its books.

9.9 Accounting Standard 28

In the opinion of the Management, there is no indication for impairment during the year with regard to the assets to which Accounting Standard 28 applies.

9.10 Contingent liabilities referred to in Schedule-12 at S.No.(i) to (vi) are dependent upon, the outcome of court arbitration out of court settlement, the amount being called up, terms of contractual obligations, devolvement and raising of demand by parties concerned, disposal of appeals respectively.

12. Draw Down from Reserves

The Bank has not made any drawdown from the reserved during the year.

17. Provision Coverage Ratio (PCR)

Provision Coverage Ratio as on 31.03.2010 is 74.02%

18. Wage Revision

An amount of Rs. 367 crore including Rs. 170 crore during the year has been provided towards estimated liability in respect of revision in employee cost benefits.

19. In line with the Reserve Bank of India guidelines, the bank has implemented the Agricultural Debt Waiver and Debt Relief Scheme, 2008 and an amount of Rs. 744.47 crore had been waived for which preliminary claim was preferred with RBI in the month of October 2008 against which the bank has received Rs. 482 crore.

In line with the Reserve Bank of India guidelines in respect of Agricultural Debt Relief Scheme (OTS), the amounts due from eligible borrowers have been classified as standard.

20. The figures of the previous year have been regrouped rearranged wherever considered necessary.