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Notes to Accounts of Union Bank of India

Mar 31, 2023

1. REGULATORY 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 Oct. 1,2021. As per RBI Guidelines, Basel III has been completely implemented from Oct. 1,2021. As per guidelines, the Tier I capital is made up of Common Equity Tier I (CET I) and Additional Tier I Capital (AT 1).

Basel III guidelines require the Bank to maintain minimum capital to Risk Weighted Assets ratio (CRAR) of 11.50% with minimum CET I of 8.00% and minimum Tier I CRAR of 9.50% (both inclusive of Capital Conservation Buffer of 2.50%) as at March 31, 2023.

During the year, the Bank has issued Basel III compliant Tier-2 bonds of ? 2,200 Crore & additional Tier-1 Bonds of ? 1,983 crore in tranches and exercised call option for redemption of Basel III compliant Tier-2 bonds of ? 2,300.00 crore & additional Tier-1 Bonds of ? 1,000.00 crore.

b) Liquidity Coverage Ratio

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.

High Quality Liquid Assets (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 further sub divided into Level 2A Assets & Level 2B Assets based on Liquidity & Price Volatility.

Minimum requirement of LCR as stipulated by RBI is 100% for the calendar year 2019 onwards. LCR is applicable to bank''s domestic operations as well as overseas operations.

Level 1 assets are stock of HQLA without any haircut. Level 1 Assets mainly comprise Cash including excess Cash Reserve Ratio (CRR) , Excess SLR (Statutory Liquidity Ratio), Marginal Standing Facility (2% of Net Demand and Time Liability w.e.f. 01st January 2022) & FALLCR (16.00% of Net Demand and Time Liability).

A haircut of 15% is applied on current market value of Level 2A asset. Level 2A assets mainly comprise of securities with 20% risk weight. A 50% haircut is applied on current market value of Level 2B asset. Level 2B assets should not be 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%.

Net Cash Outflows

The total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows. In order to determine cash outflows, the Bank, in terms of RBI guidelines, segregates its deposits into various customer segments, viz Retail (which include deposits from Natural Persons), Small Business Customers (those with total aggregated funding upto '' 7.5 crore) and deposits from Non Financial Customers (NFC) and Other Legal Entity Customers (OLE). Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in, up to an aggregate cap of 75% of total expected cash outflows.

Brief about LCR of the Bank

The entities covered are Union Bank of India Ltd. And Union Bank of India UK Ltd. The Bank during the three months ended 31st March 2023 maintained average HQLA of ? 2,70,381 crores. Level 1 assets are the main drivers of HQLA for the bank. They contribute to 97% of the total stock of HQLA. Based on daily averages for the quarter ended 31st March 2023, Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion to HQLA i.e. around 64% of the total HQLA. Level 2 assets which are lower in quality as compared to Level 1 assets, constitute 3% of the total stock of HQLA against maximum permissible level of 40%.

Bank''s exposure is mainly in Indian Rupee. Unsecured wholesale funding constitute major portion of total funding sources. Retail deposits and deposits from small business customers contributed around 22% and 4% of the total weighted cash outflows, respectively. Deposits from non-financial corporates contributed around 43% of the total weighted cash outflows. The other contingent funding obligations primarily include bank guarantees (BGs) and letters of credit (LCs) issued on behalf of the Bank''s clients. Inflows by various counterparties contribute around 77% of the total weighted cash inflows.

Bank has calculated LCR for all working days over the March 2023 quarter. The average of the daily observation of 66 data points is calculated. The average LCR for the quarter ended 31st March 2023 is 167.42% as against 157.20% for the quarter ended December 2022, and is well above the present minimum requirement prescribed by RBI of 100% for the calendar year 2023.

c) Net Stable Funding Ratio (NSFR) i) Qualitative Disclosure:

The objective of the Net Stable Funding Ratio (NSFR) is to promote the resilience of bank''s liquidity risk profiles and to incentivize a more resilient banking sector over a longer time horizon. The NSFR will require banks to maintain a stable funding profile in the form of Capital & liabilities in relation to the composition of their assets and off-balance sheet activities.

NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. Available Stable Funding (ASF)

NSFR =

Required Stable Funding (RSF)

RBI issued the regulations on the implementation of the Net Stable Funding Ratio in May 2018 with minimum requirement of equal to at least 100%. The implementation is effective from 1st October, 2021. NSFR is applicable to Bank''s domestic operations as well as overseas operations and computed at standalone and consolidated level.

Available Stable Funding (ASF) is defined as the portion of capital and liabilities expected to be reliable which is determined by various factor weights according to the nature and maturity of liabilities with liabilities having maturity of 1 year or more receiving 100 weight.

Required Stable Funding (RSF) is defined as the portion of on balance sheet and off-balance sheet exposures which requires to be funded on an ongoing basis. The amount of such stable funding required is a function of the liquidity characteristics and residual maturities of the various assets held.

Brief about NSFR of the Bank

The entities covered are Union Bank of India Ltd. And Union Bank of India UK Ltd. The main drivers of the Available Stable Funding (ASF) are the capital base, retail deposit base, and funding from non-financial companies and longterm funding from institutional clients. The capital base formed around 10%, retail deposits (including deposits from small sized business customers) formed 69% and wholesale funding formed 21% of the total Available Stable Funding, after applying the relevant weights.

The Required Stable Funding primarily comprised lending to corporates, retail clients and financial institutions which constituted 85% of the total RSF after applying the relevant weights. The stock of High-Quality Liquid Assets which majorly includes cash and reserve balances with the RBI, government debt issuances attracted no or low amount of stable funding due to their high quality and liquid characteristic. Accordingly, the HQLA constituted only 2% of the Required Stable Funding after applying the relevant weights. Other assets and Contingent funding obligations, such as committed credit facilities, guarantees and letters of credit constituted 13% of the Required Stable Funding.

Bank has maintained comfortable stable funding buffers with Available Stable Funding at consolidated level of ''9,42,399 Crores against ''6,76,671 Crores of Required Stable Funding, resulting in a consolidated NSFR of 139.27% as on 31st March, 2023.

During the FY 2022-23, Investment Reserve has been created since the bank is currently maintaining excess provision in AFs and HFT categories to the tune of ? 362.56 Crore and the amount has been transferred net of taxes & transfer to Statutory Reserve.

c) Sale and transfers to/from HTM category

The Bank has not made sales and transfers to/from HTM category during the financial year 2022 - 23 exceeding 5 per

cent of the book value of investments held in HTM category at the beginning of the year. The 5 per cent threshold to

above will exclude:

i. The one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning of the accounting year.

ii. Direst sale from HTM for bringing down SLR holding in HTM category consequent to a downward revision in SLR requirements by RBI.

iii. Sale to Reserve Bank of India under liquidity management operations of RBI like Open Market Operations (OMO) and the Government securities acquisition programme (GSAP).

iv. Repurchase of Government Securities by Government of India from banks under buyback / switch operations.

v. Repurchase of State Development Loans by respective state governments under buyback / switch operations.

vi. Additional shifting of securities explicitly permitted by the Reserve Bank of India

f) Profit of ? 193.77 Crore (previous year ? 2,120.13 crore) on sale of "Held to Maturity" category securities have been taken to profit and loss account initially.

g) In respect of "Held to Maturity" category, the excess of acquisition cost over face value of the securities amortized during the year amounted to ? 723.50 crore (previous year ? 719.79 Crore).

h) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to '' 2,353.41 crore (previous year '' 2,523.77 crore).

4. Asset Quality

a) Classification of advances and provisions held

g) Un-Hedged Foreign Currency Exposures

In terms of guidelines issued by Reserve Bank of India with regard to UFCE, Bank has approved Policy on Unhedged Foreign Currency Exposure of Clients 2022-23. While framing the policy, bank has taken into consideration the exchange risks arising out of volatility in the forex market and accordingly has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of unhedged foreign currency exposure and accordingly Bank has put in place risk mitigation measures by incorporating additional loan pricing framework. Total provision made for exposures to entities with UFCE for the year ended March 2023 is ?16.83 Crore.

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), Bombay Stock Exchange (BSE) & Metropolitan Stock Exchange (MSEIL), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading 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.

a) 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 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.

Bank has entered into Credit Support Annex (CSA) with few banks. CSA is a legal document regulating the terms and conditions under which collateral is posted to mitigate counterparty credit risk in bilateral derivative transactions.

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 the 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.

f) Implementation of IFRS converged Indian Accounting Standards (Ind AS)

The RBI vide DBR.BPBC.No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a Consultant to assist in implementation of the Ind-AS. Further, the Bank has procured the required softwares and onboarded the vendor for software implementation of Indian Accounting Standards (Ind-AS). The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. Further, in terms of DO.DBR.BPNo.2535/21.07.001/2017-18 dated 13th September 2017, the Bank had been submitting Proforma Ind AS financial statements to the RBI on quarterly basis till 31st March 2021. Thereafter, in term of RBI''s (Department of Regulation) mail dated 8th August 2021, bank has been advised to submit Proforma Ind AS financial statements on half yearly basis. Last proforma financials for the half year ended 30th September 2022 was submitted to RBI vide letter dated 22nd November 2022.

15. DISCLOSURES AS PER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

a. REVENUE RECOGNITION (AS 9)

Income and Expenditure have been accounted for on accrual basis except certain items of income are recognized on realization basis as per Accounting Policy no.3.4 of Schedule 17 of Significant Accounting Policies which however, is not considered to be material.

b. EMPLOYEE BENEFITS (AS 15 - REVISED) i) Short Term Employment Benefits:

The undiscounted amounts of short-term employee benefits (e.g. medical benefits) payable wholly within twelve months of rendering the service are treated as short term and recognized during the period in which the employee rendered the service.

ii) Long Term Employee Benefits:

a) Defined Contribution Plans:

The Bank operates a new pension scheme (NPS) for all officers/employees joining the Bank on or after 1st April,2010, which is a defined contribution plan, such new joinees not being entitled to become members of the existing Pension Scheme. As per the scheme, the covered employees contribute 10% of their basic pay plus dearness allowance to the scheme together with 14% contribution from the Bank. Pending completion of registration procedures of the employees concerned, these contributions retained with the Bank. The Bank recognizes such annual contributions in the year to which they relate. Upon receipt of the Permanent Retirement Account Number (PRAN), the consolidated contribution amounts are transferred to the NPS trust.

The Bank has Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers and employees joining the Bank on or after April 1, 2010. The scheme is managed by National Pension Scheme (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. 2022-2023, the Bank has contributed '' 525.36 crores including arrears of '' 0.12 crores (Previous Year ''501.51 crore) to NPS.

b) Defined Benefit Plan:

Gratuity, Pension and Leave Encashment are defined benefit plans. These are provided for on the basis of an actuarial valuation as per Accounting Standard-15 "Employee Benefit" issued by the Institute of Chartered Accountants of India, made at the end of each financial year, based on the projected unit credit method. Actuarial gains/losses are immediately taken to the Profit & Loss account.

Defined Benefit Plans - Employee''s Pension plan and Gratuity plan:

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 31,2023.

1. 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 issued by the Institute of Chartered Accountants of India (ICAI) 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 of foreign branch for the period are within the threshold limits stipulated as per AS-17 and hence the bank has only one reportable segment.

2. Segment wise income, expenditure, Capital employed which are not directly allocable have been allocated to the reportable segments based on assumptions as considered appropriate by the management.

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

4. In accordance with RBI circular DOR.AUT.REC.12/22.01.001/2022-23 dated April 7, 2022 on Establishment of Digital Banking Units, the Bank has for the first time disclosed ''Digital Banking'' as a sub-segment of the Retail Banking segment.

c. ii) In terms of RBI circular no. RBI/DOR/2021-22/83 DOR.ACC.REC.No.45/21.04.018/2021-22 dated August 30, 2021 (Updated as on February 20, 2023), the following disclosures are required:

a. In case of Other Liabilities and Provisions, any item under the head "Others (including provisions)" exceeds one per cent of the total assets,

b. In case of Other Assets, any item under the head "Others" exceeds one per cent of the total assets,

c. In case of Other Income, any item under the head "Miscellaneous Income" exceeds one per cent of the total income,

d. In case of Operating Expenses, any item under the head "Other expenditure" exceeds one per cent of the total income,

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 6 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.

As per the RBI Master Direction, KMPs are construed to be the Whole Time Directors of the Bank.

e. "Leases" - Premises taken on Operating Lease (AS 19):

The Bank has no non-cancellable operating lease during the FY 2022-23. Hence, additional disclosure under AS-19 is not applicable. However, the amount of lease payment recognized in the profit & loss account for operating lease is '' 801.99 crore (PY '' 816.15 crore)

f. EARNING 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.

CORPORATE TAXATION:

Provision for tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rates and tax laws. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet.

Deferred Tax Assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred Tax Assets/Liabilities are reviewed at each Balance Sheet date based on developments during the year.

h. INVESTMENT IN JOINT VENTURES (AS - 27)

Investments include '' 286.88 Crores (Previous year '' 236.68 Crores) representing Bank''s interest in Star Union Dai-ichi Life Insurance Co., ASREC(India) Limited, and India International Bank (Malaysia) BHD.

i. Revaluation of Property

Land and Building of the bank were revalued as on 31.12.2019 at Fair Market Value as determined by approved valuer have further been revalued as on 31.12.2022 at Fair Market Value by approved valuer. The resultant increase in value thereof on such revaluations amounting to ? 1,418.26 crore for Premises and ? 101.02 crore for Vacant Land as on 31.12.2022 have been credited to Revaluation Reserve. As AS-10 (Revised), the depreciation of revalued portion is recouped from Revaluation Reserve resulting in decrease in Revaluation Reserve by ? 125.20 crore for the year ended 31st March, 2023.

j. 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.

k. CONTINGENT LIABILITIES (AS - 29)

Contingent liabilities referred to in Schedule-12 at S. No.(I) & (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.

l. During the current year, there is no material prior period item (as per AS 5) and no discontinued operations (as per AS 24).

m. Climate Control

Union Bank of India has a policy in place in name of "Sustainable Development and Business Responsibility Policy" which is reviewed every year and last reviewed by the Board on 02.03.2023. Through this policy, the Bank is committed to make effort to protect and restore the environment. Bank has taken various initiatives like Electricity Conservations, avoid usage of plastic bottles for packaged drinking water etc. To manage Environmental, Social and Governance (ESG) and climate risk, the Bank''s Board has put in place "ESG Risk Framework and Climate Risk Policy". The Bank has formed ESG Steering Committee to formulate and implement ESG strategy and transition in the Bank.

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

(i) Confirmation/ Reconciliation of balance 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.

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

o. Compliance to the Provision of MSME Development Act, 2006

Bank is complying with the extant provisions of MSME Development Act, 2006 and there has been no reported cases of any delayed payments of the principal amount or interest due thereon to Micro, Small and Medium Enterprises.

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


Mar 31, 2022

Liquidity Coverage Ratio

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.

HQLA

LCR =

Net Cash Outflows over 30 days

Where Net Cash Outflow = Max ((Cash Outflows-Cash Inflows), 25% of Cash Outflow)

Minimum requirement of LCR as stipulated by RBI is 100% for the calendar year 2019 onwards. LCR is applicable to Bank''s domestic operations as well as overseas operations.

High Quality Liquid Assets (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 further sub divided into Level 2A Assets & Level 2B Assets based on Liquidity & Price Volatility.

Level 1 assets are stock of HQLA without any haircut. Level 1 Assets mainly comprise Cash including excess Cash Reserve Ratio (CRR), Excess SLR (Statutory Liquidity Ratio), Marginal Standing Facility (2% of Net Demand and Time Liability w.e.f. 01st January 2022) & FALLCR (15.00% of Net Demand and Time Liability).

A haircut of 15% is applied on current market value of Level 2A asset. Level 2A assets mainly comprise of securities with 20% risk weight. A 50% haircut is applied on current market value of Level 2B asset. Level 2B assets should not be 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%.

Net Cash Outflows

The total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows. In order to determine cash outflows, the Bank, in terms of RBI guidelines, segregates its deposits into various customer segments, viz Retail (which include deposits from Natural Persons), Small Business Customers (those with total aggregated funding upto ''7.5 crore) and deposits from Non-Financial Customers (NFC) and Other Legal Entity Customers (OLE). Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in, up to an aggregate cap of 75% of total expected cash outflows.

Brief about LCR of the Bank

The Bank during the three months ended 31st March 2022 maintained average HQLA of ''2,80,230 crore. Level 1 assets are the main drivers of HQLA for the bank. They contribute to 96% of the total stock of HQLA. Based on daily averages for the quarter ended 31st March 2022, Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion to HQLA i.e. around 52% of the total HQLA. Level 2 assets which are lower in quality as compared to Level 1 assets, constitute 4% of the total stock of HQLA against maximum permissible level of 40%.

Bank''s exposure is mainly in Indian Rupee. Unsecured wholesale funding constitute major portion of total funding sources. Retail deposits and deposits from small business customers contributed around 22% and 5% of the total weighted cash outflows, respectively. Deposits from non-financial corporates contributed around 38% of the total weighted cash outflows. The other contingent funding obligations primarily include bank guarantees (BGs) and letters of credit (LCs) issued on behalf of the Bank''s clients. Inflows by various counterparties contribute around 75% of the total weighted cash inflows.

Bank has calculated LCR for all working days over the March 2022 quarter. The average of the daily observation of 67 data points is calculated. The average LCR for the quarter ended 31st March 2022 is 175.38% as against 184.89% for the quarter ended December 2021, and is well above the present minimum requirement prescribed by RBI of 100% for the calendar year 2022.

c) Net Stable Funding ratio

i) Qualitative Disclosure:

The objective of the Net Stable Funding Ratio (NSFR) is to promote the resilience of bank''s liquidity risk profiles and to incentivize a more resilient banking sector over a longer time horizon. The NSFR will require banks to maintain a stable funding profile in the form of Capital & liabilities in relation to the composition of their assets and off-balance sheet activities.

NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. Available Stable Funding (ASF)

NSFR =

Required Stable Funding (RSF)

RBI issued the regulations on the implementation of the Net Stable Funding Ratio in May 2018 with minimum requirement of equal to at least 100%. The implementation is effective from 1st October, 2021. NSFR is applicable to Bank''s domestic operations as well as overseas operations and computed at standalone and consolidated level.

Available Stable Funding (ASF) is defined as the portion of capital and liabilities expected to be reliable which is determined by various factor weights according to the nature and maturity of liabilities with liabilities having maturity of 1 year or more receiving 100 weight.

Required Stable Funding (RSF) is defined as the portion of on balance sheet and off-balance sheet exposures which requires to be funded on an ongoing basis. The amount of such stable funding required is a function of the liquidity characteristics and residual maturities of the various assets held.

Brief about NSFR of the Bank

The main drivers of the Available Stable Funding (ASF) are the capital base, retail deposit base, and funding from non-financial companies and long-term funding from institutional clients. The capital base formed around 9%, retail deposits (including deposits from small sized business customers) formed 68% and wholesale funding formed 21% of the total Available Stable Funding, after applying the relevant weights.

The Required Stable Funding primarily comprised lending to corporates, retail clients and financial institutions which constituted 82% of the total RSF after applying the relevant weights. The stock of High-Quality Liquid Assets which majorly includes cash and reserve balances with the RBI, government debt issuances attracted no or low amount of stable funding due to their high quality and liquid characteristic. Accordingly, the HQLA constituted only 3% of the Required Stable Funding after applying the relevant weights. Other assets and Contingent funding obligations, such as committed credit facilities, guarantees and letters of credit constituted 15% of the Required Stable Funding.

Bank has maintained comfortable stable funding buffers with Available Stable Funding at consolidated level of '' 90,67,645 Mio against ''61,51,200 Mio of Required Stable Funding, resulting in a consolidated NSFR of 147.41% as on 31st March, 2022.

c) Sale and transfers to/from HTM category

The Bank has not made sales and transfers to/from HTM category during the financial year 2021 - 22 exceeding 5 per

cent of the book value of investments held in HTM category at the beginning of the year. The 5 per cent threshold to

above will exclude:

i) The one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning of the accounting year.

ii) Direct sale from HTM for bringing down SLR holding in HTM category consequent to a downward revision in SLR requirements by RBI.

iii) Sale to Reserve Bank of India under liquidity management operations of RBI like Open Market Operations (OMO) and the Government securities acquisition program (GSAP).

iv) Repurchase of Government Securities by Government of India from banks under buyback / switch operations.

v) Repurchase of State Development Loans by respective state governments under buyback / switch operations.

vi) Additional shifting of securities explicitly permitted by the Reserve Bank of India.

f) Profit of ''2,120.13 Crore (previous year ''1,844.94 crore) on sale of "Held to Maturity" category securities has been taken to profit and loss account initially.

g) In respect of "Held to Maturity" category, the excess of acquisition cost over face value of the securities amortized during the year amounted to ''719.79 crore (previous year ''703.10 Crore).

h) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances against shares aggregate to ''2,523.77 crore (previous year ''2,387.17 crore).

Divergence is asset classification and provisioning

e) In terms of RBI circular DBR.BPBC.No. 32/21.04.018/2018-19 dated 1st April, 2019, the Bank should disclose the divergence, resulting due to RBI''s Supervisory Program for Assessment of Risk and Capital, wherever either or both of the following conditions are satisfied:

i) The additional provisioning for NPAs assessed by RBI exceeds 10 percent of the reported profit before provisions and contingencies for the reference period, and;

ii) The additional Gross NPAs identified by RBI exceeds 15 percent of the published incremental Gross NPAs for the reference period.

g) Un-Hedged Foreign Currency Exposures

In terms of guidelines issued by Reserve Bank of India with regard to UFCE, Bank has approved Policy on Unhedged Foreign Currency Exposure of Clients 2021-22. While framing the policy, bank has taken into consideration the exchange risks arising out of volatility in the forex market and accordingly has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of unhedged foreign currency exposure and accordingly Bank has put in place risk mitigation measures by incorporating additional loan pricing framework. Total provision made for exposures to entities with UFCE for the year ended March 2022 is ''30.49 Crores.

c) Disclosures on Risk Exposures in Derivatives i) Qualitative disclosure:

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), Bombay Stock Exchange (BSE) & Metropolitan Stock Exchange (MSEIL), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading 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.

a) 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 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.

Bank has entered into Credit Support Annex (CSA) with few banks. CSA is a legal document regulating the term and condition under which collateral of posted to mitigate counterparty credit risk in bilateral credit transactions.

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 the 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.

f) ROADMAP FOR IMPLEMENTATION OF INDIAN ACCOUNTING STANDARDS (Ind-AS)

The RBI vide DBR.BPBC.No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a Consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. Further, in terms of DO.DBR.BPNo.2535/21.07.001/2017-18 dated 13th September 2017, the Bank had been submitting Proforma Ind AS financial statements to the RBI on quarterly basis till 31st March 2021. Thereafter, in term of RBI''s (Department of Regulation) mail dated 8th August 2021, bank has been advised to submit Proforma Ind AS financial statements on half yearly basis. Last proforma financials for the half year ended 30th September 2021 was submitted to RBI vide letter dated 25th November 2021.

15. DISCLOSURES AS PER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIAa. REVENUE RECOGNITION (AS 9)

Income and Expenditure have been accounted for on accrual basis except certain items of income are recognized on realization basis as per Accounting Policy no.3.4 of Schedule 17 of Significant Accounting Policies which however, is not considered to be material.

b. EMPLOYEE BENEFITS (AS 15 - REVISED)i) Short Term Employment Benefits:

The undiscounted amounts of short-term employee benefits (e.g. medical benefits) payable wholly within twelve months of rendering the service are treated as short term and recognized during the period in which the employee rendered the service.

ii) Long Term Employee Benefits: a) Defined Contribution Plans:

The Bank operates a new pension scheme (NPS) for all officers/ employees joining the Bank on or after 1st April, 2010, which is a defined contribution plan, such new joinees not being entitled to become members of the existing Pension Scheme. As per the scheme, the covered employees contribute 10% of their basic pay plus dearness allowance to the scheme together with a 14% contribution from the Bank. Pending completion of registration procedures of the employees concerned, these contributions retained with the Bank. The Bank recognizes such annual contributions in the year to which they relate. Upon receipt of the Permanent Retirement Account Number (PRAN), the consolidated contribution amounts are transferred to the NPS Trust.

The Bank has Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers and employees joining the Bank on or after April 1,2010. The scheme is managed by National Pension Scheme (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. 2021-2022, the Bank has contributed Rs 501.51 crores including arrears of Rs120.35 crores (Previous Year ''297.92 crore) to NPS.

b) Defined Benefit Plan:

Gratuity, Pension and Leave Encashment are defined benefit plans. These are provided for on the basis of an actuarial valuation as per Accounting Standard-15 "Employee Benefit" issued by the Institute of Chartered Accountants of India, made at the end of each financial year, based on the projected unit credit method. Actuarial gains/losses are immediately taken to the Profit & Loss account.

Defined Benefit Plans - Employee''s Pension plan and Gratuity plan:

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, 2022.

The additional liability on account on enhancement in family pension for employees covered under XI Bi-partite settlement and Joint note dated 11th November, 2020 is arrived at ''1,902.02 Crores as per Acturial valuation. Further, in terms of RBI circular RBI/2021-22/105 DOR.ACC.REC.57/21.04.018/2021-22 dated October 4, 2021, Banks are permitted to amortize the said liability over a period of not exceeding 5 years beginning with FY ending 31.03.2022. Accordingly, Bank has opted to amortize the said liability over a period, of 5 years and charged an amount of '' 380.40 crore to the profit/loss account for year ended March 31,2022 and the balance unamortized expense of ''1,521.62 crore has been carried forward to be amortized in next 4 years. If the unamortized expenditure has been fully recognized in the profit or loss account, the net profit would be ''3,710.48 Crore for the year ended 31st March 2022.

1. 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.

2. Segment wise income, expenditure, Capital employed which are not directly allocable have been allocated to the reportable segments based on assumptions as considered appropriate by the management.

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

"Leases" - Premises taken on Operating Lease (AS 19):

The Bank has no non-cancellable operating lease during the FY 2021-22. Hence, additional disclosure under AS-19 is not applicable. However, the amount of lease payment recognized in the profit & loss account for operating lease is ''816.15 crore (PY ''835.15 crore)

EARNING 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.

CORPORATE TAXATION:

Provision for tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rates and tax laws. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet.

Deferred Tax Assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred Tax Assets/Liabilities are reviewed at each Balance Sheet date based on developments during the year.

h. INVESTMENT IN JOINT VENTURES (AS - 27)

Investments include ''236.68 Crores (Previous year ''435.72 Crores) representing Bank''s interest in Star Union Dai-ichi Life Insurance Co., ASREC(India) Limited, and India International Bank (Malaysia) BHD.

i. 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.

j. CONTINGENT LIABILITIES (AS - 29)

Contingent liabilities referred to in Schedule-12 at S. No.(I) & (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.

k. The bank has changed the method of appropriation of recovery in NPA accounts (other than the accounts where method of appropriation has been specifically agreed upon between borrower and the Bank) w.e.f. 1st April 2021. Accordingly, the recoveries in such NPA accounts are now first appropriated towards interest and then towards principal as contrary to the reverse process followed in the earlier periods. The change in accounting policy has resulted in increase in interest income for the quarter by ''495.26 crore & for the year by ''1081.77 crore and consequential non-reduction in Gross NPA by equivalent amount.

l. During the current year, there is no material prior period item (as per AS 5) and no discontinued operations (as per AS 24).

m. Climate Control

Union Bank of India has a policy in place in name of "Sustainable Development and Business Responsibility Policy" which is reviewed every year and last reviewed by the Board on 30.03.2022. Through this policy, the Bank is committed to make effort to protect and restore the environment. Bank has taken various initiatives like Electricity Conservations, avoid usage of plastic bottles for packaged drinking water etc.

n. COVID-19 Pandemic has adversely impacted the economic activity across the globe including the Indian economy. During last Financial year also, India witnessed two more waves of COVID -19 pandemic and the re-imposition of the localized/regional lockdown measures in certain parts of the country. The Bank is continuously monitoring the situation and taking all possible measures including various digital initiatives to ensure continuance of customer outreach & full-fledged banking operations. Keeping in view of the various initiatives and steps taken by the Bank, Government & Reserve Bank of India and with the progress of vaccination program, the Management believes that there would not be any significant impact on Bank''s

performance in future and going concern assumptions.

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

(i) Confirmation/ Reconciliation of balance 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.

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

p. Compliance to the Provision of MSME Development Act, 2006

Bank is complying with the extant provisions of MSME Development Act, 2006 and there has been no reported cases of any delayed payments of the principal amount or interest due thereon to Micro, Small and Medium Enterprises.

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


Mar 31, 2021

1. DISCLOSURES IN TERMS OF THE RESERVE BANK OF INDIA GUIDELINES1.1 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, 2021. 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 10.875% with minimum CET I of 7.375% (inclusive of Capital Conservation Buffer of 1.875%) and minimum Tier I CRAR of 9.50% as at March 31, 2021.

However, RBI vide its circular No. DOR.BPBC. No.15/21.06.201/2020-21 dated Sep 29, 2020, has extended deferment of last tranche of Capital Conservation Buffer i.e. deferment of implementation of the last tranche of 0.625% of Capital Conservation Buffer (CCB) from September 30, 2020 to 1st April 2021. Further, RBI vide its circular no. DOR.CAP BC.No.34/21.06.201/2020-21 dated Feb 5, 2021 has extended for achievement of ratios as mentioned above to October 1,2021.

The Government of India (GOI), Ministry of Finance, Department of Financial Services vide Gazette Notification CG-DL-E-04032020-216535 dated 4th March, 2020 approved the scheme of amalgamation of Andhra Bank and Corporation Bank (Amalgamating Banks) into Union Bank of India effective from 1st April, 2020.

a) The working results for the year ended 31st March, 2021 include operations of erstwhile Andhra Bank and erstwhile Corporation Bank. Hence the results for the current year are not comparable with corresponding periods of previous year.

b) The Bank has adopted “Pooling of Interest” method as prescribed under the Accounting Standard - 14 on “Accounting for Amalgamations” issued by the Institute of Chartered Accountants of India (ICAI), to record amalgamation of Andhra Bank and Corporation Bank (the amalgamating banks) with the Bank with effect from 1st April, 2020.

Accordingly, the difference of ''1309.60 Crore between the net assets of amalgamating banks

and the amount of shares issued to shareholders of the amalgamating banks has been recognized as Amalgamation Reserve in the opening balance sheet as on 1st April, 2020. The Bank has considered this amount under CET I for the purpose of calculation of CRAR.

The computation of Capital Adequacy as per the framework is indicated below:

of Shareholders in Annual General Meeting held on 4th August, 2020 and also after the approval of RBI, the Bank has set off accumulated losses of Rs.32,758.49 Crore against securities premium account as it stood on 1st April, 2020.

During the year the Bank has raised Basel III compliant AT-1 and Tier-2 bonds of ''1,705 Crore and '' 2,000 Crore respectively. Also the Bank has exercised call option and has redeemed AT-1 and Tier-2 bonds of '' 800 and Rs.3,050 Crore (of which ''1,050 is Basel II compliant).

In terms of notification no. CG-DL-E-23032020-218862 dated 23rd March, 2020, issued by Ministry of Finance, Department of Financial Services, Government of India containing amendment in Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970, after obtaining approval

1.2 (C) Sale and transfers to/from HTM Category

The Bank has made sales and transfers to/from HTM category during the financial year 2020 - 21 exceeding 5 per cent of the book value of investments held in HTM category at the beginning of the year. The Market Value of Investment held in HTM category as at March 31,2021 was '' 2,53,814.41 Crore (excluding investment in Subsidiaries / Joint venture). The excess of Book value (excluding investment in Subsidiaries / Joint venture) over market value for which provision was not made was Nil. The 5 per cent threshold to above will exclude:

a) The one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning of the accounting year.

b) Sale to the Reserve Bank of India under pre-announced OMO auctions.

c) Repurchase of Government Securities by Government of India from banks.

1.3.3 Disclosures on Risk Exposures in Derivatives a) Qualitative disclosure:

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), Bombay Stock Exchange (BSE) & Metropolitan Stock Exchange (MSEIL), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading 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 necessaryinfrastructure 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.

a) 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 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 the 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.

2. DISCLOSURES AS PER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA2.1 REVENUE RECOGNITION (AS 9)

Income and Expenditure have been accounted for on accrual basis except certain items of income are recognized on realization basis as per Accounting Policy no.3.3 of Schedule 17 of Significant Accounting Policies which however, is not considered to be material.

2.2 EMPLOYEE BENEFITS (AS 15 - REVISED)

(A) Short Term Employment Benefits:

The undiscounted amounts of short term employee benefits (e.g. medical benefits) payable wholly within twelve months of rendering the service are treated as short term and recognized during the period in which the employee rendered the service.

(B) Long Term Employee Benefits:

i. Defined Contribution Plans:

The Bank operates a new pension scheme (NPS) for all officers/ employees joining the Bank on or after 1st April, 2010, which is a defined contribution plan, such new joinees not being entitled to become members of the existing Pension Scheme. As per the scheme, the covered employees contribute 10% of their basic pay plus dearness allowance to the scheme together with a matching contribution from the Bank. Pending completion of registration procedures of the employees concerned, these contributions retained with the Bank. The Bank recognizes such annual contributions in the year to which they relate. Upon receipt of the Permanent Retirement Account Number (PRAN), the consolidated contribution amounts are transferred to the NPS Trust.

The Bank has Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers and employees joining the Bank on or after April 1,2010. The scheme is managed by National Pension Scheme (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 2020-21, the Bank has contributed Rs 297.92 crore (Previous Year Rs 120.24 crore) to NPS.

ii. Defined Benefit Plan:

Gratuity, Pension and Leave Encashment are defined benefit plans. These are provided for on the basis of an actuarial valuation as per Accounting Standard-15 “Employee Benefit” issued by the Institute of Chartered Accountants of India, made at the end of each financial year, based on the projected unit credit method. Actuarial gains/losses are immediately taken to the Profit & Loss account.

Defined Benefit Plans - Employee’s Pension plan and Gratuity plan:

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 31,2021.

1. 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.

2. Segment wise income, expenditure, Capital employed which are not directly allocable have been allocated to the reportable segments based on assumptions as considered appropriate by the management.

3. There has been change in the methodology of allocation of various items in reportable segments due to which previous periods figures have been regrouped/recasted.

2.8 INVESTMENT IN JOINT VENTURES (AS - 27)

Investments include Rs.435.72 Crores (Previous year '' 65 Crores) representing Bank’s interest in Star Union Dai-ichi Life Insurance Co., ASREC(India) Limited, India First Life Insurance Co., and India International Bank (Malaysia) BHD.

2.9 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.

2.10 CONTIGENT LIABILITIES (AS - 29)

Contingent liabilities referred to in Schedule-12 at S. No.(I) & (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.

3.12 In terms of RBI circular DBR.BPBC.No. 32/21.04.018/2018-19 dated 1st April, 2019, the Bank should disclose the divergence, resulting due to RBI’s Supervisory Program for Assessment of Risk and Capital, wherever either or both of the following conditions are satisfied:

i) The additional provisioning for NPAs assessed by RBI exceeds 10 percent of the reported profit before provisions and contingencies for the reference period, and;

ii) The additional Gross NPAs identified by RBI exceeds 15 percent of the published incremental Gross NPAs for the reference period.

As the divergence are within the prescribed threshold limit, hence no disclosure is required with respect to RBI’s annual supervisory process for the FY 2019-20.

3.22 UN-HEDGED FOREIGN CURRENCY EXPOSURES

In terms of guidelines issued by Reserve Bank of India with regard to UFCE, Bank has approved Policy on Unhedged Foreign Currency Exposure of Clients 2020-21. While framing the policy, Bank has taken into consideration the exchange risks arising out of volatility in the forex market and accordingly has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of unhedged foreign currency exposure and accordingly Bank has put in place risk mitigation measures by incorporating additional loan pricing framework. Total provision made for exposures to entities with UFCE for the year ended March 2021 is '' 19.09 Crores.

3.23 Compliance to the Provision of MSME Development Act, 2006

Bank is complying with the extant provisions of MSME Development Act, 2006 and there has been no reported cases of any delayed payments of the principal amount or interest due thereon to Micro, Small and Medium Enterprises.

4. LIQUIDITY COVERAGE RATIOS (LCR)

4.1 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.

HQLA

LCR =

Net Cash Outflows over 30 days

Where Net Cash Outflow = Max ((Cash Outflows-Cash Inflows), 25% of Cash Outflow)

Minimum requirement of LCR as stipulated by RBI is 100% for the calendar year 2019 onwards. 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 further sub divided into Level 2A Assets & Level 2B Assets based on Liquidity & Price Volatility.

Level 1 assets are stock of HQLA without any haircut. Level 1 Assets mainly comprise Cash including excess CRR (Cash Reserve Ratio), Excess SLR (Statutory Liquidity Ratio) securities, Marginal Standing Facility (3 % of Net demand & time liability) & FALLCR (15.00 % of Net demand & time liability). On account of the ongoing pandemic situation and resultant adverse impact on economic activity, RBI on 17th April 2020 has brought down the LCR minimum requirement to 80% till 31st December 2020, which is to be gradually restored to 90% from 1st October 2020 and 100% from 1st April 2021. Other relaxation extended are as under:

? Enhanced Marginal Standing Facility (MSF) from 2% to 3% of NDTL till 31st March 2021.

? Reduced CRR limit from 4% to 3% for 1 year (till 26th March 2021) and restored in phased manner to 3.5% from 27th March, 2021 & 4% with effective from 22nd May,2021.

A haircut of 15% is applied on current market value of Level 2A asset. Level 2A assets mainly comprise of securities with 20% risk weight. A 50% haircut is applied on current market value of Level 2B asset. Level 2B assets should not be 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%.

Net Cash Outflows

The total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows. In order to determine cash outflows, the Bank, in terms of RBI guidelines, segregates its deposits into various customer segments, viz Retail (which include deposits from Natural Persons), Small Business Customers (those with total aggregated funding up to '' 5 crore) and deposits from Non-Financial Customers (NFC) and Other Legal Entity Customers (OLE). Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in, up to an aggregate cap of 75% of total expected cash outflows.

Brief about LCR of the Bank

As per the Government of India order dated 4th March 2020 Andhra Bank and Corporation Bank have been merged with Union Bank of India. Since 1st April 2020, Liquidity Coverage Ratio (LCR) is being computed on daily basis as per RBI guidelines for amalgamated entity (including UBI, e-Corporation Bank, e-Andhra Bank, Overseas branches located in Dubai, Hong-Kong and Sydney and Subsidiary- Union Bank of India (UK) Limited).

The Bank during the three months ended March 31st, 2021 maintained average HQLA of ''2,60,800 crores. Level 1 assets are the main drivers of HQLA for the bank. They contribute to 94% of the total stock of HQLA. Based on daily averages for the quarter ended 31st March 2021, Facility to avail Liquidity for Liquidity Coverage Ratio (FALLCR) constitutes the highest portion to HQLA i.e. around 53% of the total HQLA. Level 2 assets which are lower in quality as compared to Level 1 assets, constitute 6% of the total stock of HQLA against maximum permissible level of 40%.

Bank’s exposure is mainly in Indian Rupees. Unsecured wholesale funding constitute major portion of total funding sources. Retail deposits and deposits from small business customers contributed around 23% and 5% of the total weighted cash outflows, respectively. Deposits from non-financial corporates contributed around 38% of the total weighted cash outflows. The other contingent funding obligations primarily include bank guarantees (BGs) and letters of credit (LCs) issued on behalf of the Bank’s clients. Inflows by various counterparties contribute to around 78% of the total weighted cash inflows.

Bank has calculated LCR for all working days over the March 2021 quarter. The average of the daily observation of 69 data points is calculated. The average LCR for the quarter ended 31 st March, 2021 is 181.01%, and is well above the present minimum requirement prescribed by RBI of 90% for the Quarter ended March 2021.

5. FIXED ASSETS

Documentation formalities are yet to be completed in respect of one( RY two) immovable properties held by the Bank at written down value of Rs 1.82 crore ( RY '' 1.98 crore.) in respect of which steps have already been initiated.

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

(i) Confirmation/ Reconciliation of balance 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.

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

8. ROADMAP FOR IMPLEMENTATION OF INDIAN ACCOUNTING STANDARDS (Ind-AS)

The RBI vide DBR.BRBC.No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose

the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a Consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. Further, in terms of DO.DBR.BPNo.2535 /21.07.001/2017-18 dated 13th September 2017, the Bank is submitting Proforma Ind-AS financial statements to the RBI on quarterly basis. Latest Proforma financials for the quarter ended 31st December 2020 was submitted to RBI on 26th February 2021. However, vide Circular No RBI/2018-19/146 DBR.BPBC.No.29/21.07.001/2018-19 dated 22nd March, 2019, RBI has deferred Ind-AS implementation till further notice.

9. CORPORATE TAXATION:

Provision for tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rates and tax laws. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet. Deferred Tax Assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred Tax Assets/Liabilities are reviewed at each Balance Sheet date based on developments during the year.

10. INVESTMENTS

i) Profit of '' 1,844.94 crore (previous year '' 575.95 crore) on sale of “Held to Maturity” category securities has been taken to profit and loss account initially.

ii) In respect of “Held to Maturity” category, as stated in Significant Accounting Policy No.4 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to '' 703.10 crore (previous year '' 291.33 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 '' 2,387.16 crore (previous year '' 1869.08 crore).

11. Climate Control

Union Bank of India has a policy in place in name of “Sustainable Development and Business Responsibility Policy” which is reviewed every year and last reviewed by the Board on 25.03.2021. Through this policy, the Bank is committed to make effort to protect and restore the environment. Bank has taken various initiatives like Electricity Conservations, avoid usage of plastic bottles for packaged drinking water etc.

12. During the current year, there is no material prior period item (as per AS 5) and no discontinued operations (as per AS 24).

13. There is change in the accounting policies/estimates followed (with effect from 1st April, 2020) during the year ended 31st March, 2021 as compared to those followed in the preceding financial year ended 31st March, 2020:

a) With effect from 1st April, 2020, the income on account of LC/BG commission is recognized as revenue on accrual basis as against receipt basis followed in earlier periods. Impact due to the change in accounting policy has resulted in decrease in other income and net profit (before tax) for the year by '' 441.06 Crore.

b) Pursuant to amalgamation of Andhra Bank and Corporation Bank into Union Bank of India, there is a change in method of depreciation on Fixed Assets from Written Down Value to Straight Line Method and change in estimated useful life with respect to some categories of assets. Impact due to the said changes has resulted in increase in depreciation and decrease in net profit (before tax) of '' 3.24 Crore for the year ended 31st March, 2021. However, due to harmonisation, one time impact on the depreciation during the year amounting to '' 180.16 Crore.

15. In terms of RBI instructions contained in DOR.STR.REC.4/21.04.048/2021-22 dtd. 7th April, 2021 the Bank shall refund/adjust interest on interest charged to all borrowers during the moratorium period i.e. 1st March, 2020 to 31st August, 2020. Pursuant to these instructions, the methodology for calculation of the amount to be refunded/adjusted shall be finalised by the Indian Bank Association (IBA) in consultation with other industry participants/bodies, which shall be adopted by the lending institutions. The IBA vide its letter dtd. 19th April, 2021 has informed the methodology as per Supreme Court Judgement. Accordingly, the Bank has estimated the liability of ''127.30 Crore and recognised a charge in its Profit and Loss Account for the year ended March 31,2021.

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


Mar 31, 2019

SCHEDULE 18 - NOTES TO ACCOUNTS:

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

1.1 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 10.875% with minimum CET I of 7.375% (inclusive of Capital Conservation Buffer of 1.875%) and minimum Tier I CRAR OF 8.875% as at March 31, 2019.

The computation of Capital Adequacy as per the framework is indicated below:

NOTE:

1. The Government of India infused Rs. 4112 Crore for which the Bank has issued and allotted 52,15,62,658 equity shares having Face Value of Rs 10/- each at a premium of Rs. 68.84 per share, on preferential basis, to the Government of India on 28th March, 2019.

2. Further, the Bank, under Union Bank of India-Employee Share Purchase Scheme (ESPS), has raised an amount of Rs. 568.32 Crore. Under this scheme the Bank has allotted 7,28,80,275 equity shares having Face Value of Rs. 10/each at a discount of 25% on the Floor Price of Rs. 77.98 per share.

1.2 INVESTMENTS

The detail of Investments and the Movement of provision held towards depreciation on investments of the Bank is given below:

1.2 (A) REPO Transactions (In face value terms)

The following tables set forth for the periods indicated, the details of securities sold and purchased under repo and reverse repo transactions respectively including transactions under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF).

1.2 (B) 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:

1.2 (C) Sale and transfers to/from HTM Category

The Bank has not made sales and transfers to/from HTM category during the financial year 2018-19 exceeding 5 per cent of the book value of investments held in HTM category at the beginning of the year. The 5 per cent threshold to above will exclude:

a) The one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning of the accounting year.

b) Sale to the Reserve Bank of India under pre-announced OMO auctions.

c) Repurchase of Government Securities by Government of India from banks.

1.3 DERIVATIVES

1.3.1 Forward Rate Agreement/Interest Rate Swap

Note:

I. Interest rate swaps in Indian Rupees were undertaken for hedging Reciprocal Loan Arrangements.

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

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

1.3.2 Disclosures on Risk Exposures in Derivatives

a) Qualitative disclosure:

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), Bombay Stock Exchange (BSE) & Metropolitan Stock Exchange (MSEIL), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading 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 noninterest 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.

a) 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 Bank’s policy and RBI guidelines.

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

ill) Back Office- Settlement, Reconciliation, Accounting.

Mid Office monitors transactions in the trading book and excesses over limit, 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 ofthe 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, deals 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 ofthe 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.

Provision includes provision in lieu of diminution in fair value of restructured advances classified as NPAs. Opening and closing balances of provision for NPAs also include ECGC claims received/ recoveries in suit filled accounts and held pending adjustment of Rs. 202.87 Crore (Previous year Rs. 181.91 Crore) and Rs. 6.48 crore (Previous year Rs. 0.59 Crore) respectively.

1.4.1 The Reserve Bank of India (RBI) vide DBR. BP BC. No. 32/21.04.018/2018-19 dated 1 April 2019, has prescribed certain additional disclosure to be made under “Notes to Accounts” for the reference period i.e. FY 2018-19. As part of Risk Based Supervision (RBS) exercise for the year ended 31st March, 2018 the RBI had pointed out divergence in respect of Bank’s asset classification and provisioning in certain accounts. In conformity with the RBI circular DBR. BP. BC. No. 32/21.04.018/2018-19 dated 1 April 2019 and SEBI Circular issued on 18th July, 2017 the below table outlines divergences in asset classification and provisioning:

1.5 ASSET LIABILITY MANAGEMENT

The maturity pattern of Deposits, Borrowings, Advances and Investment as of 31st March 2019 is based on the following:

- RBI Guidelines on ALM

- Behavioral studies of Assets & Liabilities which do not have definite maturity and for embedded optionality

- Foreign Currency On-balance sheet Assets & Liabilities

As per Country Risk Policy 2018-19, Bank has used ECGC country risk classification for the Trade Exposure and other than Trade exposure in India both for branches in India and for overseas branches.

Bank will make provision for country risk exposure onlyin respect of a country where the net funded exposure is1%or more of its total assets.

- Individual borrower exposure limit is 15% of Capital Fund. However, 5% additional exposure can be taken with the approval ofthe Board as permitted by Reserve Bank of India.

- Individuals with additional 5% for Infrastructure Projects (20% of Capital Funds)

- Individuals for Oil Companies which have been issued Oil Bonds (which do not have SLR status) by Government of India is 25% of Capital funds.

- Group Exposure Limit - 40%

- For Infrastructure, Group Exposure ceiling is 50%,

- Additional exposures can be taken with the permission of the Board

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.

1.6 DISCLOSURE OF PENALTIES IMPOSED BY RBI:

2. DISCLOSURES AS PER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

2.1 REVENUE RECOGNITION (AS 9)

Certain items of income are recognized on realization basis as per Accounting Policy no.3.3 of Schedule 17 of Significant Accounting Policies which however, is not considered to be material.

2.2 EMPLOYEE BENEFITS (AS 15 - REVISED)

2.3 Defined Benefit Plans - Employee’s Pension plan and Gratuity plan:

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, 2019.

2.4 Defined Contribution Plan:

The Bank has Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers and employees joining the Bank on or after April 1, 2010. The scheme is managed by National Pension Scheme (NPS) Trust under the aegis ofthe 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. 2018-19, the Bank has contributed Rs 100.20 crore (Previous Year Rs 86.48 crore) to NPS.

2.5 Other long term Employee Benefits:

Details of Provisions made for various Long Term Employees Benefits during the year are as follows:

Notes:

1. 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.

2. Segment wise income, expenditure, Capital employed which are not directly allocable have been allocated to the reportable segments based on assumptions as considered appropriate by the management.

3. Previous year’s/Twelve Month’s figures have been regrouped/recasted wherever considered necessary to correspond with the current Twelve Month’s classification/ presentation.

2.6 RELATED PARTY DISCLOSURES (AS-18)

2.6.1 List of Related Parties

a) Subsidiaries

- Union Asset Management Company Private Limited

- Union Trustee Company Private Limited

- Union Bank of India (UK) Limited

b) JointVenture

- Star Union Dai-ichi Life Insurance Company Limited

c) Associate

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

d) Key Management Personnel

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.

2.7 EARNING 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.

2.8 INVESTMENT IN JOINT VENTURES (AS - 27)

Investments include Rs.65 Crores (Previous year Rs. 65 Crores) representing Bank’s interest in Star Union Dai-ichi Life Insurance Co. it is jointly controlled entity.

2.9 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.

2.10 CONTIGENT LIABILITIES (AS - 29)

Contingent liabilities referred to in Schedule-12 at S. No.(l) & (Vl)(i) 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 ofappeals respectively.

3.1 DRAW DOWN FROM RESERVES:

During the year 2018-19, bank has drawn Rs 3,73.25 crore form reserves. The detail is as under:

1- Rs 3,66.90 Crore for payment of Interest on AT-I Bonds.

2- Rs 6.35 Crore for expenditure towards allotment of shares to Government of India & ESPS

Sub sectors where the outstanding advance exceeds 10% ofthe outstanding total advances to that sector for the FY 2018-19 are as under: NIL

3.2 DISCLOSURES RELATING TO SECURITISATION

As on March 31, 2019 Bank does not have any Special Purpose Vehicles (SPVs) sponsored for securitization transactions.

3.3 CREDIT DEFAULT SWAPS:

The Bank has not entered into any Credit Default Swap transactions during the financial year 2018-19.

3.4 UN-HEDGED FOREIGN CURRENCY EXPOSURES

In terms of guidelines issued by Reserve Bank of India with regard to UFCE, Bank has approved Policy on Unhedged Foreign Currency Exposure of Clients 2018-19. While framing the policy, Bank has taken into consideration the exchange risks arising out of volatility in the forex market and accordingly has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of unhedged foreign currency exposure and accordingly Bank has put in place risk mitigation measures by incorporating additional loan pricing framework. Total provision made for exposures to entities with UFCE for the year ended March 2019 is Rs. 23.32 Crores.

4. LIQUIDITY COVERAGE RATIOS (LCR)

4.1 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 100% for the calendar year 2019. LCR is applicable to Bank’s domestic operations as well as overseas operations.

According to RBI, the LCR has been introduced in a phased manner starting with a minimum requirement of 60% from January 1, 2015 and reaching minimum 100% on January 1, 2019.

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 further sub divided into Level 2A Assets & Level 2B Assets based on Liquidity & Price Volatility.

Level 1 assets are stock of HQLA without any haircut. Level 1 Assets mainly comprise Cash including excess CRR, Excess SLR, MSF (2% of NDTL) & FALLCR (13% of NDTL). RBI has increased FALLCR limit over a period and the same is 13% w.e.f. 1st October 2018 till 31st March 2019. Further as per RBI circular dated 19th October 2018, the incremental credit to NBFCs & HFCs has also been included in the total stock of HQLA.

A haircut of 15% is applied on current market value of Level 2A asset. Level 2A assets mainly comprise of securities with 20% risk weight. A 50% haircut is applied on current market value of Level 2B asset. Level 2B assets should not be 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%.

Net Cash Outflows

The total net cash outflow is defined as the total expected cash outflows minus total expected cash inflows. In order to determine cash outflows, the Bank, in terms of RBI guidelines , segregates its deposits into various customer segments, viz Retail (which include deposits from Natural Persons), Small Business Customers (those with total aggregated funding upto Rs. 5 crore) and deposits from Non Financial Customers (NFC) and Other Legal Entity Customers (OLE). Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in, up to an aggregate cap of 75% of total expected cash outflows.

Brief about LCR of the Bank

The Bank during the three months ended March 31, 2019 maintained average HQLA of Rs. 87,858.45 crores. Level 1 assets are the main drivers of HQLA for the bank. They contribute to 90.47% of the total stock of HQLA. Based on daily averages for the quarter ended 31st March 2019, Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion to HQLA i.e. around 62% of the total HQLA. Level 2 assets which are lower in quality as compared to Level 1 assets constitute 9.53% of the total stock of HQLA against maximum permissible level of 40%.

Bank’s exposure is mainly in Indian Rupee. Unsecured wholesale funding constitute major portion of total funding sources. Retail deposits and deposits from small business customers contributed around 27% and 6% of the total weighted cash outflows, respectively. Deposits from non-financial corporate contributed around 36% of the total weighted cash outflows. The other contingent funding obligations primarily include bank guarantees (BGs) and letters of credit (LCs) issued on behalf of the Bank’s clients. Inflows by various counterparties contribute to around 65% of the total weighted cash inflows.

Bank has calculated LCRfor all working days over the March 2019 quarter. The average ofthe daily observation of 69 data points is calculated. The average LCR for the quarter ended 31st March, 2019 is 156.87% as against 102.26% for the quarter ended March 2018, and is well above the present minimum requirement prescribed by RBI of 100% for the calendar year 2019. Annual average LCR is 128.76% which is the average of quarterly average LCR of the Bank during the FY 2018-19.

5 FIXED ASSETS

a) Documentation formalities are yet to be completed in respect of two( P.Y three) immovable properties held by the Bank at written down value of Rs 1.98 crore ( RY Rs. 29.26 crore.) 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 crore as on 31.3.1995 and Rs 1290.68 crore as on 30.11.2007 have been credited to Revaluation Reserve and depreciation amounting to Rs 56.56 crore (Rs 34.62 crore) attributable thereto has been deducted there from. As per AS-10, the depreciation on revalued portion is recouped from revenue reserve resulting in decrease in revaluation reserve by Rs. 107.07 crore for the year ended March 31,2019.

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

Confirmation/ Reconciliation of balance with foreign banks and other banks has been obtained/ carried out.

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

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

7. ROADMAP FOR IMPLEMENTATION OF INDIAN ACCOUNTING STANDARDS (Ind-AS)

The RBI vide DBR.BRBC.No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a Consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. Further, in terms of DO.DBR.BRNo.2535 /21.07.001/2017-18 dated 13th September 2017, the Bank is submitting Proforma Ind-AS financial statements to the RBI on quarterly basis. Latest Proforma financials for the quarter ended 31st December 2018 was submitted to RBI on 04th February 2019. To enable computations as per Ind-AS, Bank has also floated a Request For Proposal (RFP) for purchase of a software solution in September 2018. The technical evaluation of bidders is completed and the software vendor will be finalised shortly after commercial evaluation. However, by virtue of Circular No RBI/2018-19/146 DBR.BP.BC.No.29/21.07.001/2018-19 dated 22nd March, 2019, RBI has deferred Ind-AS implementation till further notice.

8. CORPORATE TAXATION:

Provision for tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rates and tax laws. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet.

Deferred Tax Assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred Tax Assets/ Liabilities are reviewed at each Balance Sheet date based on developments during the year.

9. INVESTMENTS

i) Profit ofRs. 71.60 crore (Previous yearRs. 2,42.86 crore) on sale of “ Held to maturity" category securities have been taken to profit and loss account initially

ii) In respect of “Held to Maturity” category, as stated in Significant Accounting Policy No.4 (ii) (a), the axcess of acquisition cost over face value of the securities amortized during the year amounted to Rs. 2,38.47 crore (previous yearRs. 2,45.46 crore.)

iii) Total investments made in shares, convertible debentures and units of equity linked mutual funds / venture capital funds and also advances againest shares aggregate to Rs. 16,62,61 crore (previous yearRs. 17,78.72 crore)

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

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


Mar 31, 2018

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

1.1 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 EquityTier I (CET I) and Additional Tier I.

Basel III guidelines require the Bank to maintain minimum capital to Risk Weighted Assets ratio (CRAR) of 10.875% with minimum CET I of 7.375% (inclusive of Capital Conservation Buffer of 1.875%) and minimum Tier I CRAR OF 8.875% as at March 31, 2018.

1. During the year the Bank has raised Rs, 500 Crore by way of issuing Basel III compliant Additional Tier - I (AT-1) Bonds.

2. During the year, the Bank has issued 12,93,24,280 equity shares having Face Value of Rs 10 each for cash pursuant to a Qualified Institutional Placement (QIP) in accordance with the provisions of SEBI (issue of Capital and Disclosure Requirements) Regulations, 2009 at a premium ofRs, 144.65 per share aggregating Rs, 2000 crore.

3. The Government of India vide letter No. 7/38/2014-BOA dated 31st March, 2017 infused Rs 541 Crore which was controlled under Share Application Money, pending allotment as on 31st March, 2017. Subsequently, upon receipt of approval from the Government of India vide letter No. F.No. 7/38/2014-BOA dated 04th August, 2017, the Bank has issued and allotted 3,89,88,181 equity shares having Face Value of Rs 10/- each at a premium of Rs, 128.76 per share, on preferential basis, to the Government of India on 04th August, 2017

Further, the Government of India vide letter No. F.No. 7/38/2014-BOA dated 21st March, 2018 has infused Rs 4524 Crore for which the Bank has issued and allotted 31,28,19,803 equity shares having Face Value of Rs 10/each at a premium of Rs 134.62 per share, on preferential basis, to the Government of India on 27th March, 2018.

2.2 REPO Transactions (In face value terms)

The following tables set forth for the periods indicated, the details of securities sold and purchased under repo and reverse repo transactions respectively including

2. Sale and transfers to/from HTM Category

The Bank has not made sales and transfers to/from HTM category during the financial year exceeding 5 per cent of the book value of investments held in HTM category at the beginning of the year. During the year securities under HTM category with Face Value Rs 3,638.61 crore/ book value of Rs, 3,666.20 crore were sold. Further on April 3, 2017, the Bank had carried out one time transfer of securities to/from HTM category with approval of Board of Directors, aggregating to Rs, 26,881.77 crore and Rs, 27,163.81 crore being face value and book value respectively. Reserve Bank of India vide circulars no. RBI/2016-17/318 DBR No. BC.71/12.02.001/2016-17 dated June 7, 2017 and RBI/2017-18 DBR No BC.90/12.02.001/2017-18 dated October 4, 2017 had advised banks to reduce its total SLR securities held in the HTM category in a graduated matter. Accordingly, the Bank had transferred securities from HTM to AFS category aggregating to face value 1,097.15 crore/ book value Rs, 1,073.87 crore on December 27, 2017.

Note:

I. Interest rate swaps in Indian Rupees were undertaken for hedging Reciprocal Loan Arrangements.

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

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

3.3 Disclosures on Risk Exposures in Derivatives

a) Qualitative disclosure:

1. 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), Bombay Stock Exchange (BSE)

& Metropolitan Stock Exchange (MSEIL), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading 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 noninterest 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 Bank’s policy and RBI guidelines.

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

ill) 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.

2) 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, deals 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.

3) 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.

4) 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.

Provision includes provision in lieu of diminution in fair value of restructured advances classified as NPAs. Opening and closing balances of provision for NPAs also include ECGC claims received/ recoveries in suit filled accounts and held pending adjustment of Rs, 181.91 Crore (Previous yearRs, 86.47 Crore) and Rs, 0.59 crore (Previous yearRs, 1.02 Crore) respectively

4.2 The Reserve Bank of India (RBI) vide DBR.BPBC.No. 63/21.04.018/2016-17 dated 18th April 2017, has prescribed certain additional disclosure to be made under “Notes to Accounts” for the reference period i.e. FY 2015-16, neither the additional provisioning requirements assessed by RBI nor the additional Gross NPAs identified by RBI exceeds 15 percent of the published net profits after tax and incremental Gross NPAs respectively of the Bank.

- Individual borrower exposure limit is 15% of Capital Fund. However, 5% additional exposure taken with the approval of the Board as permitted by Reserve Bank of India.

- Individuals with additional 5% for Infrastructure Projects (20% of Capital Funds)

- Individuals for Oil Companies which have been issued Oil Bonds (which do not have SLR status) by Government of India is 25% of Capital funds.

- Group Exposure Limit - 40%

- For Infrastructure, Group Exposure ceiling is 50% additional exposures can be taken with the permission of the Board

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. DISCLOSURE OF PENALTIES IMPOSED BY RBI: Rs, 414.86 LACS (PREVIOUS YEAR Rs, 8.43 LACS)

A. DISCLOSURES AS PER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

94 REVENUE RECOGNITION (AS 9)

Certain items of income are recognized on realization basis as per Accounting Policy no.3.3 of Schedule 17 of Significant Accounting Policies which however, is not considered to be material.

5. EMPLOYEE BENEFITS (AS 15 - REVISED)

6. Defined Benefit Plans - Employee’s Pension plan and Gratuity plan:

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, 2018.

7. Defined Contribution Plan:

The Bank has Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers and employees joining the Bank on or after April 1,2010. The scheme is managed by National Pension Scheme (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. 2017-18, the Bank has contributed Rs,86.48 crore (Previous Year Rs 68.69 crore) to NPS.

Notes:

1. 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 issued by The Institute of Charterd Accountants of India (ICAI) 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.

2. Segment wise income, expenditure, Capital employed which are not directly allocable have been allocated to the reportable segments based on assumptions as considered appropriate bythe management.

3. Previous year’s/Twelve Month’s figures have been regrouped/recasted wherever considered necessary to correspond with the current Twelve Month’s classification/ presentation.

12 RELATED PARTY DISCLOSURES (AS-18)

8. List of Related Parties

a) Subsidiaries

- Union Asset Management Co. Pvt. Ltd.

- Union Trustee Company Private Ltd.

- Union Bank of India (UK) Ltd.

b) Joint Venture

- Star Union Dai-ichi Life Insurance Co. Ltd.

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.

9. CONTIGENT LIABILITIES (AS - 29)

Contingent liabilities referred to in Schedule-12 at S. No.(l) & (Vl)(i) 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.

- In the yearly statement of March 2017, amount reported under “Amount reimbursed by DEAF towards claims” was inadvertently mentioned as Rs 21.71 Crores (inclusive of Rs 0.29 crores, which should have been excluded), instead of Rs 21.42 Crores.

10. UN-HEDGED FOREIGN CURRENCY EXPOSURE (UFCE)

In terms of guidelines issued by Reserve Bank of India with regard to UFCE, Bank has approved Policy on Unhedged Foreign Currency Exposure of Clients 2017-18. While framing the policy, Bank has taken into consideration the exchange risks arising out of volatility in the forex market and accordingly has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of unhedged foreign currency exposure and accordingly Bank has put in place risk mitigation measures by incorporating additional loan pricing framework. Total provision made for exposures to entities with UFCE for the year ended March 2018 is '' 33.69 Crores.

11. DISCLOSURE RELATING TO SECURITISATION

As on March 31, 2018 Bank does not have any Special Purpose Vehicles (SPVs) sponsored for securitization transactions.

12. LIQUIDITY COVERAGE RATIOS (LCR)

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 =_H QLA_

Net Cash Outflows over 30 days

Minimum requirement of LCR as stipulated by RBI is 90% for the calendar year 2018. 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 further 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 (9% of NDTL).

Level 2A Assets

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

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 included in any index.

Net Cash Outflows

The total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows for the subsequent 30 calendar days. Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and off-balance sheet commitments by the rates at which they are expected to run off or be drawn down. Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in up to an aggregate cap of 75% of total expected cash outflows. In other words, Total net cash outflows over the next 30 days = Outflows - Min (inflows; 75% of outflows).

Brief about LCR of the Bank:

As per RBI’s directions, Banks are required to calculate LCR on a daily basis from 1st January 2017. Bank has calculated LCR for all working days over the March 2018 quarter. The average of the daily observation of 66 data points is calculated. Banks has maintained LCR above the minimum requirement, prescribed by RBI of 90% for the calendar year 2018.Annual LCR is the average of quarterly LCR of the Bank during FY2017-18.

HQLA:

Bank is having sufficient High Quality Liquid Assets so as to maintain LCR above regulatory prescription. Level 1 asset are the main driver of HQLA, contributing around 87% in the Total HQLA of the Bank.

Outflows & Inflows:

Bank has diversified sources of funding of which retail deposits are the main source of funds. Bank’s exposure is mainly in Indian Rupee. Outflows are dominated by Rupee term deposits from Non-financial corporate, as categorized by the RBI.

13. FIXED ASSETS

a) Documentation formalities are yet to be completed in respect of three ( RY three) immovable properties held by the Bank at written down value ofRs, 29.26 crore (RY Rs, 31.17 crore.) 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 on30.11.2007 at fair market value by approved valuer. The resultant increase in value thereof on such revaluation amounting to Rs, 456.59 crore as on 31.3.1995 and Rs, 1290.68 crore as on 30.11.2007 have been credited to Revaluation Reserve and depreciation amounting to Rs, 56.56 crore (Rs, 34.62 crore) attributable thereto has been deducted there from. As per AS-10, the depreciation on revalued portion has been debited to revaluation reserve resulting in decrease in revaluation reserve by Rs, 114.92 crore for the year ended March 31, 2018

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

Confirmation/ Reconciliation of balance with foreign banks and other banks has been obtained/ carried out.

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

15. ROADMAP FOR IMPLEMENTATION OF INDIAN ACCOUNTING STANDARDS (Ind-AS)

The Reserve Bank of India (RBI) vide DBR.BRBC.No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. Further, in terms of DO.DBR.BP.No.2535 /21.07.001/2017-18 dated 13th September 2017, the Bank has submitted proforma Ind-As financial statements to the RBI for the quarter ended 30th June 2017 on 31st October 2017. However by virtue of RBI’s statement on development and regulatory policies dated April 05, 2018, RBI has deferred the applicability of Ind-AS to the banks by one more year.

16. CORPORATE TAXATION:

Provision for tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rates and tax laws. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet.

Deferred Tax Assets are recognized only if there is virtual certainty of realization of such assets in future. Deferred Tax Assets/ Liabilities are reviewed at each Balance Sheet date based on developments during the year.

17. As part of Risk Based Supervision (RBS) exercise for the year ended 31st March, 2017 the RBI had pointed out divergence in respect of Bank’s asset classification and provisioning in certain accounts. In conformity with the RBI circular DBR.BRBC.No. 63/21.04.018/2016-17 dated 18th April, 2017 and SEBI Circular issued on 18th July, 2017 the below table outlines divergences in asset classification and provisioning:

The Bank had duly recorded the impact of the above in its working results for the quarter ended 31st December, 2017.

18. INVESTMENTS

i) Profit ofRs, 242.86 crore (previous yearRs, 493.51 crore) on sale of “Held to Maturity” category securities have been taken to profit on loss account initially

ii) In respect of “Held to Maturity” category, as stated in Significant Accounting Policy No.4 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs, 245.46 crore (previous yearRs, 188.50 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, 1,778.72 crore (previous yearRs, 1,701.49 crore).

9. During the current year, there are no material prior period item and change in accounting policy (as per AS-5) and no discontinued

operations (as perAS-24).

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


Mar 31, 2017

1. Fixed Assets and Depreciation

i) Premises and Other Fixed Assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, eligible borrowing costs and directly attributable costs of bringing the Asset to its working condition for the intended use less trade discounts and rebates. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefits from such assets or their functional capability. Land and Buildings, if revalued are stated at revalued amount. The appreciation on revaluation is credited to Revaluation Reserve and the depreciation provided thereon is deducted there from.

ii) Application Software is capitalized and clubbed under Intangible assets. Depreciation on Computers and Software forming an integral part of Computer hardware and on ATM is provided on Straight Line Method (SLM) at the rate of 33.33% as per the guidelines of RBI.

iii) Depreciation on Fixed Assets is provided for on the written down value method at the rates considered appropriate by the management as under:

iv) Depreciation on additions to assets made up to 30th September of the year is provided at full rate and on additions made thereafter, at half the rate.

v) Depreciation on premises is provided on composite cost, wherever the value of Land and Buildings is not separately identifiable.

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

vii) Depreciation on Leased assets and Leasehold improvements is recognized on a straight-line basis using rates determined with reference to the primary period of lease.

2. Impairment of Assets

The carrying costs of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying cost of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying cost of the asset over its remaining useful life. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

3. Counter Cyclical Provisioning Buffer

The Bank has a policy of creation and utilization of Counter Cyclical Provisioning Buffer separately for Advances and Investments. The quantum of provision to be created is assessed at the end of each financial year. The Counter Cyclical Provisions are utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of the RBI.

4. Transactions involving Foreign Exchange

11.1 Accounting for transactions involving foreign exchange is done in accordance with AS 11, (The Effects of Changes in Foreign Exchange Rates), issued by the ICAI. As stipulated in AS 11, the foreign currency operations of the Bank are classified as

a) Integral Operations and

b) Non Integral Operations.

All Overseas Branches, Offshore Banking Units, Overseas Subsidiaries are treated as Non Integral Operations and domestic operations in foreign exchange and Representative Offices are treated as Integral Operations.

a. Translation in respect of Integral Operations

i. Income and Expenditure items are recognized at the exchange rates prevailing on the date of the transaction.

ii. Foreign Currency Monetary and Non-Monetary Assets and Liabilities are translated at the closing spot rates notified by FEDAI at the end of each quarter.

iii. Contingent liabilities on account of guarantees, acceptances, endorsements and other obligations are stated at the exchange rates notified by FEDAI at the close of the year.

iv. The resulting exchange differences are recognized as income or expenses and are accounted through Profit and Loss Account.

v. Forward exchange contracts are recorded at the exchange rate prevailing on the date of commitment. Outstanding forward exchange contracts are revalued at the exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of ‘in-between'' maturities. The resultant gains or losses are recognized in the Profit and Loss account.

b. Translation in respect of Non Integral Operations

i. Assets and Liabilities (including contingent liabilities) are translated at the closing spot rates notified by FEDAI at the end of each quarter

ii. Foreign Exchange Spot and Forwards contingent liabilities outstanding as at the balance sheet date are translated at the closing spot and forward rates respectively notified by FEDAI and at interpolated rates for contracts of interim maturities.

iii. Income and Expense are translated at quarterly average rate notified by FEDAI at the end of each quarter.

iv. The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account “Foreign Currency Translation Reserve” till the disposal of the net investment.

5. Employee Benefits

Retirement benefit in the form of Provident Fund is a defined contribution scheme. The contributions to the Provident Fund are charged to the Profit & Loss account for the year when the contributions are due. The Bank has no obligation other than the contribution payable to the Provident Fund.

Gratuity, Pension and provision towards Leave are defined benefit obligations, and are provided for on the basis of an actuarial valuation as per Accounting Standard-15 (Revised) “Employee Benefit” issued by the Institute of Chartered Accountants of India, made at the end of each financial year, based on the projected unit credit method. Actuarial gains/ losses are immediately taken to the Profit & Loss account. New Pension Scheme is applicable to employees who joined the Bank on or after 01.04.2010 is a defined contribution scheme. Bank pays fixed contribution at predetermined rate and the obligation of the Bank is limited to such fixed contribution. The contribution is charged to Profit & Loss account.

Employee benefits relating to employees employed at foreign offices are valued and accounted for as per the local laws/regulations of the respective countries.

6. Segment Reporting

The Bank recognizes the Business segment as the Primary reporting segment and Geographical segment as the Secondary reporting segment, in accordance with the RBI guidelines and in the compliances with the Accounting Standard-17 “Segment Reporting” issued by the Institute of Chartered Accountants of India.

Business segments are classified into

(a) Treasury Operations,

(b) Corporate and Wholesale Banking,

(c) Retail Banking Operations and

(d) Other Banking Operations.

7. Lease Transactions

Lease payments for Assets taken on operating lease are amortized over the lease term. The properties taken on lease/rental basis are renewable / cancellable at the option of the Bank. The Bank''s liabilities in respect of disputes pertaining to additional rent / lease rent are recognized on settlement or on renewal.

8. Earnings per Share

Earnings per Share is calculated by dividing the net Profit or Loss (after tax) for the year attributable to the Equity share holders by the weighted average number of Equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue Equity shares were exercised or converted during the year. Diluted earnings per Equity share is calculated by using the weighted average number of Equity shares and dilutive potential Equity shares outstanding as at the year-end.

9. Taxation

Provision for Tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rate and tax laws. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet. Deferred Tax Assets are not recognized unless there is ‘reasonable certainty'' that sufficient future taxable income will be available against which such Deferred Tax Assets will be realized. In case of carry forward of unabsorbed depreciation and tax losses, Deferred Tax Assets are recognized only if there is “virtual certainty”.

10. Provisions, Contingent Liabilities and Contingent Assets

As per AS 29 (Provisions, Contingent Liabilities and Contingent Assets) issued by the ICAI, the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

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

11. Share Issue Expenses:

Share Issue expenses are charged to the Share Premium account.

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

13CAPITAL

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, 2017.

NOTE:

14. During the reporting period (i.e. 2016-17) the Bank has raised Rs,. 3500 Crore by way of issuing Additional Tier - I (AT-1) Bonds and Rs,. 1750 Crore by way of issuing Tier - 2 Bonds.

15. During the reporting period (i.e. 2016-17) the Government of India vide its letter No. 7/38/2014-BOA dated 31st March 2017 infused Rs,. 541 Crore which has been controlled under Share Application Money , pending allotment.

16 REPO Transactions (In face value terms)

The following tables set forth for the periods indicated, the details of securities sold and purchased under repo and reverse repo transactions respectively including transactions under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF).

NOTE: The balance depreciation provision as per the RBI Circular on Scheme for Sustainable Structuring of Stressed Assets dated June 13,2016 and Guidelines on Sale of Stressed Assets by Banks dated September 1,2016 is Rs,.111.50 crore.

** Unrated & unlisted securities disclosed includes only Ratings and Listing of securities required as per Master Circular Dated 01.7.2015 issued by RBI.

NOTE: RBI vide the circular RBI/2015-16/127 DBR.BPBC. No.31/21.04.018/2015-16 dated July 16,2015 advised that commencing April 1,2015 deposit placed with NABARD/SIDBI/NHB on account of shortfall in priority sector targets should be included under schedule 11-other assets under the subheads ‘Others'' of the balance sheet. The exposure to RIDF of NABARD/ SIDBI/NHB as of 31/03/2017 aggregating to Rs,.8,693.68 crore is included under other assets. The same for the previous year ended 31/03/2016 was Rs,.8,076.88 crore.

17. Sale and transfers to/from HTM Category

The Bank has not made sales and transfers to/from HTM category during the financial year 2016-17 exceeding 5 per cent of the book value of investments held in HTM category at the beginning of the year. During the year 2016-17, the Bank had carried out one time transfer of securities to/from HTM category with the approval of Board of Directors aggregating Rs, 11,922.95 crore and Rs,.12,230.56 crore being face value and book value respectively. Bank in order to comply with the Reserve Bank of India circular no. RBI/2015-16/261 DBOD.No.BP BC.65/21.04.141/2015-16 dated December 10, 2015 directing banks to reduce its total SLR securities held in the HTM category in graduated manner, transferred securities from HTM to AFS Category aggregating Rs,. 998.87 crore (face value) and Rs,. 1,012.10 crore (book value). The Bank during the FY 2016-17 sold securities worth Rs,. 3,435.86 crore (book value) to Reserve Bank of India under pre announced OMO auctions.

18. DERIVATIVES

19. Forward Rate Agreement/Interest Rate Swap

Note:

I. Interest rate swaps in Indian Rupees were undertaken for hedging Reciprocal Loan Arrangements.

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

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

20.Exchange Traded Interest Rate Derivatives

21. Disclosures on Risk Exposures in Derivatives

a) Qualitative disclosure:

1. 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), Bombay Stock Exchange (BSE) & Metropolitan Stock Exchange (MSEIL), on their Currency Derivative segment, as permitted by Reserve Bank of India. The Bank carries out proprietary trading 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 noninterest 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 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.

22) 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.

23) 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.

24) 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.

- Individual borrower exposure limit is 15% of Capital Fund. However, 5% additional exposure taken with the approval of the Board as permitted by Reserve Bank of India.

- Individuals with additional 5% for Infrastructure Projects (20% of Capital Funds)

- Individuals for Oil Companies which have been issued Oil Bonds (which do not have SLR status) by Government of India is 25% of Capital funds.

- Group Exposure Limit - 40%

For Infrastructure, Group Exposure ceiling is 50%

- Additional exposures can be taken with the permission of the Board

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.

25. DISCLOSURE OF PENALTIES IMPOSED BY RBI : '' 8.43 LACS ( PREVIOUS YEAR '' 6.26 LACS )

B. DISCLOSURES AS PER ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

26. REVENUE RECOGNITION (AS 9)

Certain items of income are recognized on realization basis as per Accounting Policy no.3.3 of Schedule 17 of Significant Accounting Policies which however, is not considered to be material.

27 EMPLOYEE BENEFITS (AS 15 - REVISED)

28.fined Benefit Plans - Employee’s Pension plan and Gratuity plan:

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, 2017.

29.fined Contribution Plan:

The Bank has Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers and employees joining the Bank on or after April 1, 2010. The scheme is managed by National Pension Scheme (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 2016-17, the Bank has contributed Rs, 68.69 crore (Previous Year Rs, 58.52 crore) to NPS.

Notes:

30 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.

31. Segment wise income, expenditure, Capital employed which are not directly allocable have been allocated to the reportable segments based on assumptions as considered appropriate by the management.

32 Previous year''s/Twelve Month''s figures have been regrouped/recanted wherever considered necessary to correspond with the current Twelve Month''s classification/ presentation.

33.LATED PARTY DISCLOSURES (AS-18)

34.st of Related Parties

a) Subsidiaries

- Union Asset Management Co. Pvt. Ltd.

- Union Trustee Company Private Ltd.

- Union Bank of India (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.

# includes performance linked incentives of Rs, 0.06 crore and Rs, 0.09 crore paid to the Chairman & Managing Director and Executive Directors of the Bank respectively during the year ended March 2016. No performance linked incentives paid during the year ended March 2017.

35.RNING 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.

36.ESTMENT IN JOINT VENTURES (AS - 27)

Investments include Rs,.65 Crores (Previous year Rs,. 65 Crores) representing Bank''s interest in Star Union Dai-ichi Life Insurance Co. it is jointly controlled entity.

37. 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.

17 CONTIGENT LIABILITIES (AS - 29)

Contingent liabilities referred to in Schedule-12 at S. No.(I) & (VI)(i) 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.

38 UN-HEDGED FOREIGN CURRENCY EXPOSURE (UFCE)

In terms of guidelines issued by Reserve Bank of India with regard to UFCE, Bank has approved Policy on Unhedged Foreign Currency Exposure of Clients 2015-16. While framing the policy, bank has taken into consideration the exchange risks arising out of volatility in the forex market and accordingly has made suitable provisions to reduce the risks. Bank has also taken into consideration credit risks arising out of unhedged foreign currency exposure and accordingly Bank has put in place risk mitigation measures by incorporating additional loan pricing framework. Total provision made for exposures to entities with UFCE for the year ended March 2017 is Rs,.12.90 crores (Rs,.33.30crores as on 31.03.2016).

39. DISCLOSURE RELATING TO SECURITISATION

As on March 31,2017, Bank does not have any Special Purpose Vehicles (SPVs) sponsored for securitization transactions.

40. LIQUIDITY COVERAGE RATIOS (LCR)

A. 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 80% for the calendar year 2017. 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 further 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 (9% of NDTL).

Level 2A Assets

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

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 included in any index.

Net Cash Outflows

The total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows for the subsequent 30 calendar days. Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and off-balance sheet commitments by the rates at which they are expected to run off or be drawn down. Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in up to an aggregate cap of 75% of total expected cash outflows. In other words, Total net cash outflows over the next 30 days = Outflows - Min (inflows; 75% of outflows).

Brief about LCR of the Bank:

As per RBI''s directions, Banks are required to calculate LCR on a daily basis from 1st January 2017. Bank has calculated LCR for all working days over the March 2017 quarter. The average of the daily observation of 66 data points is calculated. Banks has maintained LCR above the minimum requirement, prescribed by RBI of 80% for the calendar year 2017.

Annual LCR is the average of quarterly LCR of the Bank during FY 2016-17.

HQLA:

Bank is having sufficient High Quality Liquid Assets so as to maintain LCR above regulatory prescription. Level 1 assets are the main driver of HQLA, contributing around 84% in the Total HQLA of the Bank.

Outflows & Inflows:

Bank has diversified sources of funding of which retail deposits are the main source of funds. Bank''s exposure is mainly in Indian Rupee. Outflows are dominated by Rupee term deposits from Non-financial corporate, as categorized by the RBI.

# The above mentioned information is based on the weighted average of LCR as on quarter ending June 2016, Sept 2016, December 2016 and March 2017. The information for quarter ending June 2016, Sept 2016, December 2016 is compiled from unaudited data of April 2016, May 2016, July 2016, August 2016, October 2016, November 2016 and audited data for the month of June 2016, September 2016 and December 2016. For quarter ending March 2017 LCR is compiled from unaudited data of 65 data points and audited data for 31st March 2017

41.XED ASSETS

a) Documentation formalities are yet to be completed in respect of three ( PY five) immovable properties held by the Bank at written down value of Rs, 31.17 crores ( PY Rs,. 36.43 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, 56.56 crores (Rs, 34.62 crores) attributable thereto has been deducted there from. Certain assets were revalued during the year 2015-16 and as a result of which the revaluation reserve have increased by Rs,. 1213.10 crore for the year ended March 31, 2017

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

Confirmation/ Reconciliation of balance with foreign banks and other banks has been obtained/ carried out.

i. 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.

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

43.DMAP FOR IMPLEMENTATION OF INDIAN ACCOUNTING STANDARDS (Ind-AS)

The Reserve Bank of India (RBI) vide DBR.BPBC.No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. In terms of the requirement stipulated vide said circular, the Bank has submitted proforma Ind-AS financial statements to the RBI for the half year ended 30th September 2016 on 30th November 2016.

44. CORPORATE TAXATION:

Income Computation and Disclosure Standards (ICDS) as notified u/s 145(2) of the Income Tax, 1961 on 29th September 2016, are applicable for the financial year ended on 31st March 2017 and accordingly tax provisions and deferred tax for the financial year 2016-17 have been computed after considering its impact.

The Bank has recognized Deferred Tax Assets as on 31.03.2017 aggregating to Rs,.1878.61 crore (Rs,. 867.79 crore during PY 201516) based on reasonable certainty of availability of future taxable income against which such DTA can be realized.

During the year, as per the legal position as exist and also based on legal opinion, Bank has written back excess provisions of income tax aggregating to Rs, 644.01 Crore pertaining to the period up to which the appeals have been decided by Hon''ble ITAT in favour of the Bank. References against the same filed by the Income Tax Department are pending before High Court.

45. INVESTMENTS

i) Profit of Rs,. 493.51 crore (previous year Rs,.97.97 crores) on sale of “Held to Maturity” category securities have been taken to profit on loss account initially

ii) In respect of “Held to Maturity” category, as stated in Significant Accounting Policy No.4 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs,.188.50 crore (previous year Rs,.134.48 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,. 1,701.49 crore (previous year Rs, 1,432.61 crore).

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

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


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.

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