Home  »  Company  »  YES Bank Ltd.  »  Quotes  »  Accounting Policy
Enter the first few characters of Company and click 'Go'

Accounting Policies of YES Bank Ltd. Company

Mar 31, 2023

17. Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2023

17.1 Background

YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also, the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation.

17.2 Basis of preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines and clarifications issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013 read together with Companies (Accounting Standards) Rules, 2021 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines.

17.3 Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The impact of any revision in these estimates is recognised prospectively from the period of change.

While India is emerging from COVID-19 pandemic, the extent to which any new wave of COVID-19 will impact the Bank''s results will depend on ongoing as well as future developments, inter-alia including, the impacts of actions of governments and other authorities to contain its spread or mitigate its impact.

Significant accounting policies17.4.1 Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

• Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognized as per the prudential norms of the RBI. Penal Interest for covenant breach is recognized upon certainty of its realization. Late payment penalty on retail loans is recognized on cash basis.

• Dividend income is recognized when the right to receive payment is established.

• Commission on Guarantees and Letters of Credit (''LC'') issued by the Bank is recognized as income over the period of the Guarantee and LC respectively.

• Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

• In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis.

• Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

• Facility fees and loan processing fees are recognised when due and realizable.

• Other fees and commission are accounted for as and when they became due.

• Gain / loss on sell down of loans is recognised in line with the extant RBI guidelines"

17.4.2 Investments

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DOR. MRG.42/21.04.141/2021-22 dated August 25, 2021.

Accounting and Classification

The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorized as "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') or "Held to Maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) debentures and bonds (e) subsidiaries and/or joint ventures and (f) others.

a) Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines.

b) Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity and investment in equity shares of subsidiaries are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

c) Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price/book value and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.

On transfer from HTM to AFS/HFT category, securities are immediately revalued and resultant depreciation, if any, is provided.

Transfer of investments from AFS to HFT or vice- a- versa (in exceptional circumstances and with the approval of the Board of Directors/ Asset Liability Committee (ALCO) /Investment Committee) is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

d) Valuation

Investments categorized under AFS and HFT categories are marked to market (MTM) on periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule

8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of premium on investments in the HTM category is deducted from interest income in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Profit/loss on sale of investments in the ''Held to Maturity'' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve.

Equity investments in subsidiaries/joint ventures are classified under ''Held to Maturity''. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

Pass Through Certificates purchased for priority sector lending requirements are valued in accordance with RBI guidelines.

The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the recognized stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd.(FBIL).

The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA/FBIL.

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale which is categorized under HFT category and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognised in the Profit and Loss account.

Investments in unquoted Alternative Investment Funds (AIF)/Venture Capital Funds (VCF) are categorised, at the discretion of the Bank, under HTM category for an initial period of three years and valued at cost during this period. Such investments are transferred to the AFS category after the said period of three years. Investments in AFS category are valued at NAV shown by the AIF/VCF as per the financial statements. The VCF/AIFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF/AIF.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '' 1 per company, as per relevant RBI guidelines.

For stressed loans transferred to Asset Reconstruction Company (ARC) where the consideration in the form of security receipts is lower than the net book value (NBV) at the time of transfer, the shortfall is debited to the Profit and Loss Account and spread equally over the financial year. The realized profit, where the cash recovery exceeds the NBV of the stressed loans, the same is credited to Profit and Loss Account. For stressed loans where the consideration received was higher than the NBV at the time of transfer but the cash recovery is lower than the NBV, such excess amount is not reversed in the Profit and Loss Account and the Bank continues to carry forward the same as provision against the security receipts. In effect, the value of security receipts is reflected in a manner that the value of security receipts is not higher than the NBV of the loans transferred to ARC. The provisioning requirements is as per the extant RBI guidelines applied on each reporting date, taking into account the principle that there should be no provisioning arbitrage between the provisioning on security receipts vis-a-vis the provisioning requirements on the underlying stressed loans, had it stayed in the books.

Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

Investment in listed instruments of Real Estate Investment Trust (REIT)/Infrastructure Investment Trust (INVIT) is valued at closing price on a recognized stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer.

Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.

Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN), Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability.

Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.

Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (''GOI'') is valued based on FBIL valuation.

Equity shares in the Bank''s demat account, acquired through exercise of pledge, is not accounted as investments. Upon sale of the pledged shares, the proceeds are utilized to offset the borrower''s liability.

Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss account until received in cash.

e) Profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.

f) Accounting for repos / reverse repos/targeted long-term repo operations (TLTRO)

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.

In compliance with RBI circular RBI/2022-23/55 DOR.ACC.REC.No.37/21.04.018/2022-23 dated May 19, 2022, reverse repos with banks and other institutions having original tenors more than 14 days classified under Schedule 9 - Advances

g) Investment fluctuation reserve (IFR)

With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, advised all banks to create an IFR with effect from the FY 2018-19.

Transfer to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations; until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis.

17.4.3 Advances Accounting and classification

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued, direct assignment and bills rediscounted.

Assets transferred through direct assignment of cash flows are de-recognised in the Balance Sheet when they are sold (true sale criteria being fully met with) and consideration is received by the Bank.

Provisioning

Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing advances are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. In relation to non-performing derivative contracts, as per the extant RBI guidelines, the Bank makes provision for the entire amount of overdue and future receivables relating to positive marked to market value of the said derivative contracts.

The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower''s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on RBI guidelines is not accounted as restructuring of loan. The RBI guidelines on ''Resolution Framework for COVID-19-related Stress'' provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured.

In respect of loans reported as fraud to RBI the entire amount is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been delay in reporting the fraud to the RBI or which are classified as loss accounts, the entire amount is provided immediately.

The Bank makes additional provisions as per RBI guidelines for the cases where viable resolution plan has not been implemented within timelines prescribed by RBI, from the date of default. These additional provisions are written back on satisfying the conditions for reversal as per RBI guidelines.

As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The general provision also includes provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Further, provision requirement under various Restructure scheme of RBI also forms part of general provision. Such provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''.

In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

As per requirement of RBI guideline, any interest accrued and due if converted into a loan (i.e. Funded Interest Term Loan) then such income will be reversed and will be recognised on cash basis.

Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under Provisions and Contingencies.

In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines.

The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately High Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100%.

17.4.4 Transactions involving foreign exchange

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.

Premia/discounts on foreign exchange swaps that are used to hedge risks arising from foreign currency assets and liabilities are amortized over the life of the swap.

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using risk-free rates (''RFRs'')/SWAP curves of the respective currencies with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (''MTM'')) on a gross basis.

Financial conduct authority (''FCA'') of the United Kingdom has phased out London interbank offered rate (''LIBOR'') on December 2021, replacing it by Alternate Reference rate (''ARR''). Libor was used by the Bank as benchmark for funded as well as Non-funded exposure. Accordingly, MIFOR (derived with LIBOR and forward premium in forex markets) has also been replaced by Modified MIFOR.

RBI vide the press release CO.FMRD.DIRD.S39/14.02.001/2021-22 on July 08, 2021 has encouraged the Banks to cease entering into new financial contracts that has reference LIBOR/MIFOR as a benchmark and instead use widely accepted ARR. Bank has started offering new transaction based on ARR curve w.e.f January 1, 2022 except existing underlying transactions linked to LIBOR/MIFOR as permissible by the regulations.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations.

In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations.

Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit / loss is daily settled.

17.4.5 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share". Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti-dilutive.

17.4.6 Accounting for derivative transactions

Derivative transactions comprises foreign exchange contracts, forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings are designated as cash flow hedges (effective hedges) and are measured at fair value. The corresponding gain or loss is recognised as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ''Other Income''.

Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdue if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

The Bilateral Netting of Qualified Financial Contracts Act, 2020 (the Act), has been notified by the Government of India and subsequent to this the RBI through circular dated March 30, 2021 allowed netting of the Qualified Financial Contracts (QFC). In respect of derivative contracts, the Bank has computed the exposure under the Current Exposure Method for counterparty credit risk capital computation based on the guidelines issued by RBI on "Bilateral Netting of Qualified Financial Contracts - Amendments to Prudential Guidelines" dated March 30, 2021 and subsequent amendments dated March 31, 2022 and August 11,2022 for eligible counterparties.

17.4.7 Fixed assets

Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price including import duties and non -refundable purchase taxes, after deducting trade discounts and rebates and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets.

17.4.8 Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below:

Class of asset

Useful life of Assets as per Companies Act, 2013

Useful life of Assets as per the Bank''s Accounting Policy

Owned Premises

60 years

60 years

Office equipment

5 years

5 years

Computer hardware1

6 years

3 years

Computer software *

6 years

4 years

Vehicles1

8 years

5 years

Furniture and Fixtures

10 years

10 years

Leasehold improvements to premises

-

Over the lease period or 9 years whichever is less.

*As per RBI Guidelines.

1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.

• Asset costing up to '' 5,000 are fully depreciated in the year of purchase.

• For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank.

• Improvements to leasehold assets are depreciated over the remaining period of lease.

• Reimbursement, if any, is recognised on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset.

• Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset.

• The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.

17.4.9 Impairment of assets

The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount.

17.4.10 Employee benefits Employee Stock Option Scheme (''ESOS'')

The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods.

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. RBI, vide its clarification dated August 30, 2021 on Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff, advised banks that the fair value of share-linked instruments on the date of grant should be recognized as an expense for all instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after March 31,2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model is recognized as compensation expense over the vesting period.

Options granted till March 31,2021, the Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options.

Compensated absences

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation.

Gratuity

The Bank provides for gratuity, for all employees. The Gratuity is payable to an employee as per Payment of Gratuity Act. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on independent actuarial valuation.

The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognised in the Profit and Loss account.

Provident fund

All employees of the Bank are covered under the Employees Provident Fund, a defined contribution plan in which both the employee and the Bank contribute monthly. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.

National Pension System (NPS)

The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme.

17.4.11 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.

17.4.12 Income taxes

Tax expense comprises of current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income-tax Act, 1961 and the rules framed there under. Deferred taxes reflect the impact of timing differences between taxable income and accounting income for the current year and reversal of timing differences of earlier years and carry forward losses. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. Deferred tax assets in case of unabsorbed depreciation/ losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Deferred tax assets are recognized and reassessed at each balance sheet date based upon management''s judgement and appropriately adjusted to reflect the amount that is reasonably certain to be realized.

17.4.13 Provisions and contingent assets/liabilities

In accordance with Accounting Standard-29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

17.4.14 Cash and Cash equivalents

Cash and cash equivalents include cash in hand, including foreign currency notes, balances with RBI, balances with other banks and money at call and short notice.

17.4.15 Corporate social responsibility

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account.

17.4.16 Debit and credit cards reward points

The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.

Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.

17.4.17 Bullion

The Bank imports bullion (gold and silver bars) on a consignment basis for selling to its customers. The imports are typically based on a request of the client and are settled based on a back to back price fixing with supplier and client. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in gold borrowing and lending and the interest paid/received thereon is classified as interest expense / income respectively.

17.4.18 Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

17.4.19 Segment information

The disclosure relating to segment information is in accordance with Accounting Standard-17, Segment Reporting and as per guidelines issued by RBI from time to time.

17.4.20 Priority Sector Lending Certificates (PSLC)

The Bank, in accordance with RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLCs. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLCs is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income'' and the same is amortised on a straight line basis over the life of the certificate.

17.5 Capital 17.5.1 Equity Issue

On December 13, 2022, the Bank issued 3,696,155,702 equity shares of face value '' 2 each fully paid up for cash on a preferential basis. During the year ended March 31, 2023, the Bank has issued 3,666,651 equity shares (Previous year: 47,000 equity shares) of face value of '' 2 each pursuant to the exercise of stock options by employees under the approved stock option schemes.

Movement in Share Capital

('' in million)

Share Capital

As at March 31, 2023

As at March 31, 2022

Opening Share Capital

50,109.90

50,109.81

Addition due to exercise of Stock Option

7.34

0.09

Addition due to shares issued on a preferential basis

7,392.31

-

Closing Share Capital

57,509.55

50,109.90

The Bank has accreted '' 43,488.79 million net of estimated share issue expenses '' 98.70 million during the year ended March 31,2023 (Previous year: '' 0.54 million) towards share premium.

17.5.2 Share Warrants Subscription Money

On December 13, 2022, the Bank allotted a total of 2,559,761,818 share warrants convertible into equity shares of face value '' 2 each paid up to the extent of 25% of the issue price of '' 14.82 per share warrant on a preferential basis in an equal ratio to two marquee investors totaling to '' 9,483.92 million. Each Share Warrant is convertible to one fully paid equity share of the Bank, upon exercise of the option by paying the remaining 75% within 18 months of allotment.

17.5.3 Proposed Dividend

During FY 2022-23 and FY 2021-22 the Bank has not declared any dividend on equity shares.

17.5.4 Capital Reserve

Profit on sale of investments in the Held to Maturity (HTM) category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ended March 31, 2023''31.67 million (Previous year: '' 108.31 million) was transferred to Capital Reserve. The above mentioned amount also includes profit on sale of immovable property net of taxes and transfer to statutory reserve, are transferred to capital reserve account '' 31.49 million.

17.5.5 Investment Reserve

The Bank has transferred '' 16.79 million to Investment Reserve (Previous year: '' 34.30 million) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.

17.5.6 Cash Flow Hedge Reserve

There was Nil utilization of Cash Flow Hedge Reserve during the financial year ended March 31, 2023 (Previous year: utilised '' 8.02 million).

17.5.7 Investment Fluctuation Reserve (IFR)

The Bank has transferred '' 2,358.76 million (net of applicable taxes and transfer to statutory reserve requirements) to Investment Fluctuation Reserve during the year ended March 31,2023 (Previous year: '' 1,347.89 million).

17.5.8 Employee Stock Option Plan (ESOP) Compensation Reserves

The Bank has transferred '' 216.26 million to ESOP Compensation Reserves during the year ended March 31, 2023 (Previous year: '' 82.42 million).

17.5.9 Transfer to Revenue and other Reserves

With respect to two accounts classified as fraud the Bank has transferred '' 1,279.58 million to Revenue and other Reserves on account of unamortised fraud provision in terms of RBI circular DOR.No.STR.REC.55/21.04.048/2021-22 dated October 1, 2021 (Previous year: for three borrower accounts, unamortised fraud provision amounting to '' 4,752.16 reversed in the current year).

17.5.10 Capital Adequacy Ratio

Capital Adequacy Ratio as per RBI guidelines as at March 31,2023 and March 31, 2022 are given below:

('' in million)

Sr. Particulars No.

As at March 31, 2023

As at March 31, 2022

i) Common Equity Tier 1 capital (CET 1) (net of deductions, if any)

324,969.38

268,806.67

ii) Additional Tier 1 capital *

-

-

iii) Tier 1 capital (i ii)

324,969.38

268,806.67

iv) Tier 2 capital

114,265.27

135,137.76

v) Total capital (Tier 1 Tier 2)

439,234.65

403,944.44

vi) Total Risk Weighted Assets (RWAs)

2,450,927.75

2,317,659.08

vii) CET 1 Ratio (CET 1 as a percentage of RWAs)

13.3%

11.6%

viii) Tier 1 Ratio (Tier 1 capital as a percentage of RWAs)

13.3%

11.6%

ix) Tier 2 Ratio (Tier 2 capital as a percentage of RWAs)

4.7%

5.8%

x) Capital to Risk Weighted Assets Ratio (CRAR) (Total Capital as a percentage of RWAs)

17.9%

17.4%

xi) Leverage Ratio

7.7%

7.0%

xii) Percentage of the shareholding of Government of India

Nil

Nil

xiii) Amount of paid-up equity capital raised during the year

7,399.65

0.09

xiv) Amount of non-equity Tier 1 capital raised during the year

Nil

Nil

xv) Amount of non-equity Tier 2 capital raised during the year

Nil

Nil

* The Bank had issued Additional Tier-I capital of '' 2,800 million in Dec 2013, however the same has not been considered for regulatory capital for FY 2023 and FY 2022 basis guidance received from RBI.

17.5.11 Tier I and Tier II Capital

During the financial year ended March 31, 2023 and March 31, 2022, the Bank has not issued any Tier I or Tier II instruments.

Write Down of AT1 Bonds

On March 5, 2020, Central Government in terms of Section 45 of the Banking Regulation Act, 1949 ("BR Act") imposed moratorium on the Bank. Reserve Bank of India (''RBI'') in exercise of its powers conferred under Section 36ACA of the BR Act superseded the then Board of Directors and appointed an Administrator to manage the affairs of the Bank w.e.f. March 5, 2020. Subsequently on March 13, 2020, through the ''YES BANK Limited Reconstruction Scheme, 2020'' ("the YES BANK Reconstruction Scheme"), the relevant authorities (i.e., Central Government in consultation with RBI) decided to "reconstitute" the Bank. Further, in terms of the YES BANK Reconstruction Scheme, the Administrator was to continue in office until the Board of Directors mentioned in the YES BANK Reconstruction Scheme assumed office, i.e., on March 26, 2020.

In light of the above, the Administrator, on behalf of the Bank, consequent to the invocation of Section 45 of the BR Act, and to protect the interest of the Bank and its depositors, was constrained to write down ('' 84,150 million) two tranches of the Additional Tier 1 Bonds ("AT-1 Bonds") issued in 2016 and 2017, in compliance with the contractual covenants and applicable RBI guidelines, on March 14, 2020.

Aggrieved by the said write down of AT-1 Bonds, AT-1 Bondholders filed various writ petition(s), civil suit(s), criminal and consumer complaint(s) across India challenging the decision of the Bank to write down the AT-1 Bonds since 2020. The same are pending adjudication, save and except the batch of writ petition(s) filed before the Hon''ble Bombay High Court and one writ petition before the Hon''ble Madras High Court (as mentioned below).

Judgment dated September 30, 2020 of the Hon''ble Madras High Court ("MHC"):

The RBI Master Circular on Basel III Capital Regulations, insofar as it relates to issuance and write down of AT-1 Bonds, was challenged before the Division Bench of the Hon''ble MHC in the Writ Petition titled Piyush Bokaria Vs. Reserve Bank of India and Ors., (being W.P. (Civil) 12586 of 2020). The Hon''ble MHC vide its judgment dated September 30, 2020 upheld the validity of the RBI Master Circular in relation to the AT-1 Bonds. Additionally, with respect to the aspect of writing down of AT-1 Bonds, the Hon''ble MHC observed that one of the features of AT-1 Bonds is that they can be written-down before the equity shares bear losses and considering that the Petitioners purchased the AT -1 Bonds in the secondary market, they cannot claim to be ignorant of the terms and conditions thereof. The Hon''ble MHC also noted the loss absorbency feature of the AT-1 Bonds and dismissed the Writ Petition.

Judgment dated January 20, 2023 of the Hon''ble Bombay High Court ("BHC"):

Multiple writ petition(s) were filed before the Hon''ble BHC challenging the write down of AT-1 Bonds and the stock exchange intimation dated March 14, 2020 made in relation to the write down. The Hon''ble BHC vide its judgment dated January 20, 2023 set aside the stock exchange intimation and decision of the Bank to write down the AT-1 Bonds ("Judgment"). At the request of the Bank, the Hon''ble BHC stayed the order for a period of 6 (six) weeks.

Proceedings before the Hon''ble Supreme Court of India ("Supreme Court"):

Aggrieved by the Judgment of the Hon''ble BHC, the Bank and the RBI filed separate Special Leave Petition(s) ("SLPs") before the Hon''ble Supreme Court challenging the Judgement of the Hon''ble BHC. On March 3, 2023, the Hon''ble Supreme Court issued notice and extended the stay granted by the Hon''ble BHC, subject to the final orders of the Hon''ble Supreme Court. The SLPs are pending hearing.

Further, the Central Government has also filed a separate SLP before the Hon''ble Supreme Court challenging the Judgement of the Hon''ble BHC.

Given that the write down of the AT-1 Bonds was in accordance with the relevant regulations and as RBI and Central Government ("relevant authorities" in terms of the RBI Master Circular) have also filed SLPs challenging the Judgement of Hon''ble BHC, the Bank has estimated that there should not be any material financial impact of the matter under litigation. Upon final verdict of the Hon''ble Supreme Court, financial impact, if any, on the results and/or other financial information shall be accounted for in future reporting periods.

Separately, Securities and Exchange Board of India ("SEBI") issued a Show Cause Notice dated October 28, 2020 to the Bank and other noticee(s) (ex-employees of the Bank) alleging violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Thereafter, SEBI vide its order dated April 12, 2021 imposed penalty of '' 250 million on the Bank under Section 15 HA of Securities and Exchange Board of India Act, 1992 for the alleged mis-selling of AT-1 Bonds in the secondary market. SEBI also imposed penalties on other noticee(s). Aggrieved by the above-mentioned SEBI order, the Bank and other noticee(s) preferred separate Appeal(s) before the Hon''ble Securities Appellate Tribunal, Mumbai ("SAT"). SAT heard the Appeal(s) and the effect and operation of the SEBI order dated April 12, 2021 has been stayed. The said Appeal(s) are pending final hearing.

17.5.12 Provisions and Contingencies

The breakup of provisions of the Bank for the year ended March 31,2023 and March 31, 2022 are given below:

('' in million)

Particulars

For the year ended March 31, 2023

For the year ended March 31, 2022

Provision for taxation

2,455.10

3,696.36

Provision for non performing investments#

24,087.38

7,903.78

Provision for standard advances#


Mar 31, 2022

17. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 202217.1 Background

YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21,2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also, the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation.

17.2 Basis of preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines.

17.3 Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The impact of any revision in these estimates is recognised prospectively from the period of change.

The outbreak of the COVID-19 pandemic had led to a nation-wide lockdown in April-May 2020. This was followed by localised lockdowns in areas with a significant number of COVID-19 cases. In FY2022, India witnessed two more waves of the COVID-19 pandemic and the re-imposition of localised/regional lock-down measures in certain parts of the country. Currently, while the number of new COVID-19 cases have reduced significantly and the Government of India has withdrawn most of the COVID-19 related restrictions, however, the extent to which the COVID-19 pandemic will continue to impact the Bank''s results will depend on ongoing as well as future developments, which are uncertain.

Significant Accounting Policies17.4.1 Revenue recognition

Revenue is recognised to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

• Interest income is recognised in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognised as per the prudential norms of the RBI. Penal Interest for covenant breach is recognised upon certainty of its realisation. Late payment penalty on retail loans is recognised on cash basis.

• Dividend income is recognised when the right to receive payment is established.

• Commission on Guarantees and Letters of Credit (''LC'') issued by the Bank is recognised as income over the period of the Guarantee and LC respectively.

• Income on non-coupon bearing discounted instruments is recognised over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognised over the tenor of the instrument on yield basis.

• In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis.

• Revenue from financial advisory services is recognised in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

• Facility fees and loan processing fees are recognised when due and realisable.

• Other fees and commission are accounted for as and when they became due.

17.4.2 Investments

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DOR. MRG.42/21.04.141/2021 -22 dated August 25, 2021.

Accounting and Classification

The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorised as "Held for trading" (''HFT''), "Available for sale" (''AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

a) Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines.

b) Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

c) Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price/book value and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortised cost.

On transfer from HTM to AFS / HFT category, securities are immediately revalued and resultant depreciation, if any, is provided.

Transfer of investments from AFS to HFT or vice- a- versa (in exceptional circumstances and with the approval of the Board of Directors/ ALCO/Investment Committee) is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

d) Valuation

Investments categorised under AFS and HFT categories are marked to market (MTM) on periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognised in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortisation expense of premium on investments in the HTM category is deducted from interest income in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Profit/loss on sale of investments in the ''Held to Maturity'' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve.

Equity investments in subsidiaries/joint ventures are classified under ''Held to Maturity''. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

Pass Through Certificates purchased for priority sector lending requirements are valued in accordance with RBI guidelines.

The market/fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the recognised stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd.(FBIL).

The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA / FBIL.

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale which is categorised under HFT category and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit/Loss on settlement of the short position is recognised in the Profit and Loss account.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF.

Quoted equity shares are valued at their closing price on a recognised stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '' 1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. In case of investment in Security Receipts on or after April 01, 2017

which are backed by more than 50% of the stressed assets sold by the bank or 10% of the stressed asset sold by the bank post April 01, 2018, provision for depreciation in value is made at higher of - provisioning rate required in terms of net assets value declared by Reconstruction Company(RC)/Securitisation Company(SC) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continue in the books of the Bank. All other investments in the Security Receipts are valued as per the NAV obtained from issuing RC / SC.

Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

Investment in listed instruments of Real Estate Investment Trust (REIT)/Infrastructure Investment Trust (INVIT) is valued at closing price on a recognised stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer.

Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.

Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN) , Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability.

Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.

Special bonds such as oil bonds, fertiliser bonds, UDAY bonds etc. which are directly issued by Government of India (''GOI'') is valued based on FBIL valuation.

Equity shares in the Banks demat account, acquired through exercise of pledge, is not accounted as investments. Upon sale of the pledged shares, the proceeds are utilised to offset the borrower''s liability.

Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation/provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss account until received in cash.

e) Profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognised in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognised in the Profit and Loss account.

f) Accounting for repos/ reverse repos/ targeted long-term repo operations (TLTRO)

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralised borrowing and lending transactions respectively in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognised as interest income/expense over the period of transaction.

g) Investment fluctuation reserve

With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP.BC.102/21.04.048/2017-18 dated April 02, 2018, advised all banks to create an IFR with effect from the FY 2018-19.

Transfer to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations; until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis.

17.4.3 Advances

Accounting and classification

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued, direct assignment and bills rediscounted.

Assets transferred through direct assignment of cash flows are de-recognised in the Balance Sheet when they are sold (true sale criteria being fully met with) and consideration is received by the Bank.

Provisioning

Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. In relation to non-performing derivative contracts, as per the extant RBI guidelines, the Bank makes provision for the entire amount of overdue and future receivables relating to positive marked to market value of the said derivative contracts.

The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower''s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on RBI guidelines is not accounted as restructuring of loan. The RBI guidelines on ''Resolution Framework for COVID-19-related Stress'' provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured.

In respect of non-retail loans reported as fraud to RBI the entire amount, is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been delay in reporting the fraud to the RBI or which are classified as loss accounts, the entire amount is provided immediately. In case of fraud in retail accounts, the entire amount is provided immediately.

The Bank makes additional provisions as per RBI guidelines for the cases where viable resolution plan has not been implemented within timelines prescribed by RBI, from the date of default. These additional provisions are written back on satisfying the conditions for reversal as per RBI guidelines.

As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The general provision also includes provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Further, provision requirement under various Restructure scheme of RBI also forms part of general provision. Such provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''.

In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

As per requirement of RBI guideline, any interest accrued and due if converted into a loan (i.e. Funded Interest Term Loan) then such income will be reversed and will be recognised on cash basis.

Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under Provisions and Contingencies.

In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines.

The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorised into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100%.

17.4.4 Transactions involving foreign exchange

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.

Premia/discounts on foreign exchange swaps that are used to hedge risks arising from foreign currency assets and liabilities are amortised over the life of the swap.

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using risk-free rates (''RFRs'')/SWAP curves of the respective currencies with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (''MTM'')) on a gross basis.

Financial conduct authority (''FCA'') of the United Kingdom has phased out London interbank offered rate (''LIBOR'') on December 2021, replacing it by Alternate Reference rate (''ARR''). Libor was used by the Bank as benchmark for funded as well as Non-funded exposure. Accordingly, MIFOR (derived with LIBOR and forward premium in forex markets) has also been replaced by Modified MIFOR.

RBI vide the press release CO.FMRD.DIRD.S39/14.02.001/2021-22 on July 08, 2021 has encouraged the Banks to cease entering into new financial contracts that has reference LIBOR/MIFOR as a benchmark and instead use widely accepted ARR. Bank has started offering new transaction based on ARR curve w.e.f Jan 1, 2022 except existing underlying transactions linked to LIBOR/MIFOR as permissible by the regulations.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations.

In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations.

Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit/loss is daily set.

17.4.5 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share" notified under Section 133 of the Companies Act, 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares options outstanding during the period except where the results are anti-dilutive.

17.4.6 Accounting for derivative transactions

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealised gains/losses are recognised in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges (effective hedges) and are measured at fair value. The corresponding gain or loss is recognised as cash flow hedge reserve. Further to match profit/loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognised as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''.

The amounts received/ paid on cancellation of option contracts are recognised as realised gains/ losses on options. Charges receivable/ payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognised as income/ expense on the date of cancellation/ termination under ''Other Income''.

Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdue if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

The Bilateral Netting of Qualified Financial Contracts Act, 2020 (the Act), has been notified by the Government of India and subsequent to this the RBI through circular dated March 30, 2021 allowed netting of the Qualified Financial

Contracts (QFC). The Bank shall work progressively on classification of multiple permissible transactions into a netting set which may result in reduction in capital requirement due to these transactions over the period.

17.4.7 Fixed assets

Fixed assets are stated at cost less accumulated depreciation, amortisation and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from/ of such assets.

17.4.8 Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below:

Class of asset

Useful life of Assets as per Companies Act, 2013

Useful life of Assets as per Bank''s Accounting Policy

Owned Premises

60 years

60 years

Office equipment

5 years

5 years

Computer hardware1

6 years

3 years

Computer software *

6 years

4 years

Vehicles1

8 years

5 years

Furniture and Fixtures

10 years

10 years

Leasehold improvements to premises

-

Over the lease period or 9 years whichever is less.

• As per RBI Guidelines.

1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013.

• Asset costing up to '' 5,000 are fully depreciated in the year of purchase.

• For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.

• Improvements to leasehold assets are depreciated over the remaining period of lease.

• Reimbursement, if any, is recognised on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset.

• Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset.

• The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.

17.4.9 Impairment of assets

The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount.

17.4.10 Employee benefits

Employee Stock Option Scheme (''ESOS'')

The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods.

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. RBI, vide its clarification dated August 30, 2021 on Guidelines on Compensation of Whole time Directors/ Chief Executive Officers/Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after March 31, 2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model is recognised as compensation expense over the vesting period.

Options granted till March 31, 2021, the Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

Compensated absence

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilised leave subject to a maximum limit. The employees cannot encash unavailed/unutilised leave. The Bank provides for leave encashment /compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation.

Gratuity

The Bank provides for gratuity, for all employees. The Gratuity is payable to an employee as per Payment of Gratuity Act. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognised in the Profit and Loss account.

Provident fund

All employees of the Bank are covered under the Employees Provident Fund, a defined contribution plan in which both the employee and the Bank contribute monthly. Contribution to provident fund are recognised as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.

National Pension System (NPS)

The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme.

17.4.11 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.

17.4.12 Income taxes

Tax expense comprises of current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income-tax Act, 1961 and the rules framed there under. Deferred taxes reflect the impact of timing differences between taxable income and accounting income for the current year and reversal of timing differences of earlier years and carry forward losses. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. Deferred tax assets in case of unabsorbed depreciation/ losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Deferred tax assets are recognized and reassessed at each balance sheet date based upon management''s judgement and appropriately adjusted to reflect the amount that is reasonably certain to be realized.

17.4.13 Provisions and contingent assets/liabilities

In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognise a contingent liability but discloses its existence in the financial statements.

Contingent assets are not recognised in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

17.4.14 Cash and Cash equivalents

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

17.4.15 Corporate social responsibility

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account.

17.4.16 Debit and credit cards reward points

The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.

Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.

17.4.17 Bullion

The Bank imports bullion (gold and silver bars) on a consignment basis for selling to its customers. The imports are typically based on a request of the client and are settled based on a back to back price fixing with supplier and client. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in gold borrowing and lending and the interest paid/received thereon is classified as interest expense/income respectively.

17.4.18 Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

17.4.19 Segment information

The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI.

17.4.20 Priority Sector Lending Certificates (PSLC)

The Bank, in accordance with RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLCs. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLCs is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income'' and the same is amortised on a straight line basis over the life of the certificate.

17.4.21 Related Party Transactions

The Bank has formulated a policy on dealing with Related Party Transactions in terms of the provisions of Section 188 of the Companies Act, 2013 and Regulation 23 of LODR Regulations, and the same is placed on the Banks website.

17.5 Capital 17.5.1 Equity Issue FY 2021-22

During FY 2021-22, the Bank has issued 47,000 equity shares of face value of ''2 each pursuant to the exercise of stock options by employees under the approved stock option schemes.

FY 2020-21

On July 23, 2020, the Bank issued 12,504,433,750 equity shares of face value of ''2 each for cash pursuant to FPO aggregating to ''14,872 crore (Accreted ''12,371 crore as share premium net of share issue expenses). The Issue was made through book building process in accordance with regulation 129(1) of the SEBI ICDR Regulations. The Bank has issued ''Nil'' shares pursuant to the exercise of stock options.

Movement in Share Capital

(? in million)

Share Capital

As at March 31, 2022

As at March 31, 2021

Opening Share Capital

50,109.81

25,100.94

Addition due to exercise of Stock Option

0.09

-

Addition due to shares issued for QIP / FPO

-

25,008.87

Addition due to shares issued under Reconstruction scheme

-

-

Closing Share Capital

50,109.90

50,109.81

17.5.2 Proposed Dividend

During FY 2021-22, the Bank had not declared any dividend on equity shares. RBI vide circular dated April 22, 2021 allowed banks to pay dividend for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than fifty percent of the amount determined as per the dividend payout ratio prescribed in the RBI guidelines. However, during FY 2020-21, the Bank had reported a loss and as a consequence to that the Bank had not declared any dividend.

17.5.3 Capital Reserve

Profit on sale of investments in the Held to Maturity (HTM) category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ''108.31 million (net of applicable taxes and transfer to statutory reserve requirements) (previous year: ''4,969.76 million) was transferred to Capital Reserve.

17.5.4 Investment Reserve

The Bank has transferred '' 34.30 million to Investment Reserve (Previous year: '' 153.70 million) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.

17.5.5 Cash Flow Hedge Reserve

The Bank has utilised '' 8.02 million to Cash Flow Hedge Reserve (Previous year: utilised '' 32.84 million) on cross currency interest rate swaps which were used by the Bank to hedge its foreign currency borrowings has been expired and hence the Cash Flow Hedge Reserve has been nullified.

17.5.6 Investment Fluctuation Reserve (IFR)

The Bank has transferred '' 1,347.89 million (net of applicable taxes and transfer to statutory reserve requirements) to Investment Fluctuation Reserve during the year ended March 31, 2022 (Previous year: '' ''Nil'').

17.5.7 Employee Stock Option Plan (ESOP) Compensation Reserves

The Bank has transferred '' 82.42 million to ESOP Compensation Reserves during the year ended March 31, 2022 (Previous year: '' ''Nil'').

17.5.8 Transfer to Revenue and other Reserves

With respect to three borrower accounts classified as fraud during Q4 FY22, the Bank has transferred '' 4,752.16 million to Revenue and other Reserves on account of unamortised fraud provision in terms of RBI circular DOR.No.STR. REC.55/21.04.048/2021 -22 dated October 01, 2021 during the year ended March 31, 2022 (Previous year: '' ''Nil'').

17.5.10 Tier I and Tier II Capital

During the financial year ended March 31, 2022 and March 31, 2021, the Bank has not issued any Tier I or Tier II instruments.

Write Down of AT1 Bonds

The Bank issued Additional Tier 1 Bonds ("AT-1 Bonds") in three tranches (issued in the year 2013, 2016 and 2017) in compliance with the applicable laws/regulations.

On March 05, 2020, RBI invoked Section 45 of the Banking Regulation Act, 1949 ("BR Act"), and imposed a moratorium on the Bank. Further, RBI in exercise of its powers conferred under Section 36ACA of the BR Act superseded the Board of Directors and appointed an Administrator to manage the affairs of the Bank.

Clause 2.15 of Annex 16 of the Master Circular - Basel III Capital Regulations dated July 01, 2015 issued by the RBI, provides that "If the relevant authorities decide to reconstitute a bank or amalgamate a bank with any other bank under the Section 45 of the BR Act, such a bank will be deemed as non-viable or approaching non-viability and both the pre-specified trigger and the trigger at the point of non-viability for conversion/ write-down of AT1 instruments will be activated. Accordingly, the AT1 instruments will be converted/written-down before amalgamation/reconstitution in accordance with these rules."

Accordingly, the Administrator, on behalf of the Bank was constrained to write down two tranches of the AT-1 Bonds, i.e. AT-1 Bonds issued in 2016 and 2017 in accordance with the RBI guidelines/regulations and the relevant provisions in the Information Memorandum(s) of the said AT-1 Bonds, to protect the interests of the Bank and its depositors.

The Axis Trustee Services Limited (Trustee on behalf of the bondholders of AT 1 Bonds) and other bondholders filed various writ petition(s) and consumer complaint(s) across India challenging the decision of the Bank to write down the AT 1 Bonds. The same is pending adjudication. The Bank based on the legal opinion of its external independent legal counsel is of the view that the Bank''s decision to write down the AT 1 Bonds is in accordance with the contractual terms for issuance of AT 1 Bonds.

Separately, Securities and Exchange Board of India ("SEBI") issued a Show Cause Notice dated October 28, 2020 to the Bank and other noticee(s) (ex-employees of the Bank) alleging violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Thereafter, SEBI vide its order dated April 12, 2021 imposed penalty of ''25 Crore on the Bank under Section 15 HA of Securities and Exchange Board of India Act, 1992 for the alleged mis-selling of AT-1 Bonds in the secondary market. SEBI also imposed penalties on other noticee(s). Aggrieved by the above-mentioned SEBI order, the Bank and other noticee(s) preferred separate Appeal(s) before the Hon''ble Securities Appellate Tribunal, Mumbai ("SAT"). SAT heard the Appeal(s) and the effect and operation of the SEBI order dated April 12, 2021 has been stayed. The said Appeal(s) are pending final hearing.

Interest on Additional Tier I Capital (Unsecured, Non-Convertible, Tier I Subordinated Perpetual Bonds in the nature of Promissory Notes issued under Basel II guidelines) amounting to '' 84.0 million which was not cumulative was not paid by Bank during FY 2019-20 as the regulatory Capital Adequacy ratio of the Bank were lower than the minimum prudential requirement. However, post capital raise (FPO), the Bank exercised the call option with approval of RBI and repaid the Bonds along with interest for FY 2020-21.

17.5.11 Provisions and Contingencies

The breakup of provisions of the Bank for the year ended March 31, 2022 and March 31, 2021 are given below:

(? in million)

Particulars

For the year ended March 31, 2022

For the year ended March 31, 2021

Provision for taxation

3,696.36

(12,728.47)

Provision for investments#

7,903.78

14,073.35

Provision for standard advances

(251.53)

6,895.36

Provision made/write-off for non-performing advances#

7,185.19

70,447.66

Other Provisions1#

(36.64)

2,417.18

TOTAL

18,497.17

81,105.07

#In compliance with the RBI circular dated August 30, 2021 (further updated on November 15, 2021), on Master Direction on Financial Statements-Presentation and Disclosures, the Bank has regrouped/reclassified provision for depreciation on investments, Foreign Currency Translation Reserve (FCTR) and bad debt recovery from written off accounts. Though there is no change in the net profit/loss for the previous periods, the previous period figures regrouped/reclassified wherever necessary to conform to current period classification.

1

Other Provisions includes provision made against other assets.


Mar 31, 2021

Significant accounting policies and notes forming part of theaccounts for the year ended March 31,2021

Background

YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21,2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21,2004. Also, the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation.

Basis of preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines.

Assessment of Going Concern:

The audit report for the Financial Year ended March 2020 was qualified on account of material uncertainty related to Going Concern. The opinion was predicted on a significant decline in Bank''s deposit base, credit downgrades resulting in partial prepayment of foreign currency debt linked to external credit rating, breaches in liquidity ratios and RBI mandated Capital ratios.

During the current year, the Bank raised capital of ''150,000 million through FPO in July-20. As a consequence, Bank''s capital ratio stands at 17.5% as on Mar 31, 2021 as against a minimum requirement of 10.875%. Further, Bank has increased its deposit position by 54.7% to ''1,629,466 million while also improving the LCR well in excess of the minimum regulatory

Given the capital raise, reinforced capital buffers, strong growth in deposit base, the Banks'' compliance with regulatory ratios and expanding customer & branch network, the audit report for FY 2020-21 is not modified

Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period.

Due to outbreak of the COVID-19 pandemic, the country had witnessed lockdowns across India, imposed by the Indian government from March 2020. Subsequently, the national lockdown was lifted by the government, but regional lockdowns continue to be implemented in areas with a significant number of COVID-19 cases. The current second wave of Covid-19 pandemic, where the number of new cases has increased significantly in India, has resulted in re-imposition of localised/regional lockdown measures in various parts of the country. The extent to which the COVID- 19 pandemic will impact the Bank''s results will depend on ongoing as well as future developments, which are highly uncertain. However, management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

Significant accounting policies

COVID

The SARS-CoV-2 virus responsible for COVID-19 started spreading across the globe and India in March 2020, which has contributed to a significant decline and volatility in global and Indian financial markets and a significant decrease in global and local economic activities. Due to outbreak of the COVID-19 pandemic, the country had witnessed lockdowns across India, imposed by the Indian government from March 2020. Subsequently, the national lockdown was lifted by the government, but regional lockdowns continue to be implemented in areas with a significant number of COVID-19 cases. The current second wave of Covid-19 pandemic, where the number of new cases has increased significantly in India, has resulted in re-imposition of localised/regional lockdown measures in various parts of the country.

RBI issued guidelines on COVID-19 Regulatory Packages under which, the Bank granted a moratorium of three months (further extended by three months) on the payment of all instalments and / or interest, as applicable, falling due between March 1, 2020 and August

31, 2020. For all such accounts where the moratorium was granted, the asset classification remained stand still during the moratorium period (i.e. the number of days past-due shall exclude the moratorium period for the purposes of asset classification under the Income Recognition, Asset Classification and Provisioning norms) and the same had been retained based on the overdue status as at February 29, 2020.

The Supreme Court, in a public interest litigation (Gajendra Sharma Vs. Union of India & Anr), through its interim order dated September 3, 2020 had directed that accounts which were not declared as NPA till August 31, 2020 shall not be declared as NPA till further orders. Accordingly, the Bank did not classify relevant account which was not NPA as of August 31, 2020 as per the RBI IRAC norms, as NPA after August 31, 2020. The Bank had made contingency provision of ''2,683 crore till December 31, 2020. The interim order granted to not declare accounts as NPA stood vacated on March 23, 2021 vide the judgement of the Hon''ble SC in the matter of Small Scale Industrial Manufacturers Association vs. UOI & Ors. and other connected matters. Further in accordance with the instructions in paragraph 5 of the RBI circular dated April 07, 2021 issued in this connection, the Bank has classified such borrower accounts as per the extant IRAC norms with effect from September 1, 2020 and utilised the above contingency provisions towards provision on these accounts.

During the FY 2020-21, the Bank in line with extant regulatory guidelines has offered the below:

» Loan moratorium: Offered to all customer (whether opt-in or otherwise) on the payment of all instalments and / or interest, as applicable, falling due between March 1, 2020 and August 31,2020.

» COVID - 19 Restructuring: As per Resolution Framework for COVID-19 related stress (RBI circular no. RBI/2020-21/16 DOR. No.BP.BC./3/21.04.048/2020-21 dated August 6, 2020) and Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances (RBI circular no. RBI/2020-21/17 DOR.NO.BP.BC/4/21.04.048/2020-21 dated August 6, 2020), the Bank has provided restructuring facility to eligible borrower in line with above mentioned RBI circulars.

» NPA classification: Based on direction issued by the Hon''ble Supreme Court of India, Bank has not declared relevant borrower accounts as NPA till nine months ended December 31, 2020. Hon''ble Supreme Court of India has vacated the order and Bank has initiated reporting of NPA from Q4 FY 2020-21.

» Interest on interest for loans upto ''2 crores: As per direction issued by Government of India, the Bank has reversed eligible interest amount and credited to customers and

subsequently submitted claim to Government. The refund claim from the Government has been received by the Bank.

Interest on interest for loans above ''2 crores: Based on direction issued by Hon''ble Supreme Court of India and further guidance from IBA, the Bank has reversed eligible penal interest / interest on interest charged to borrower during moratorium period i.e March 1, 2020 to August 31,2020. Same will be appropriately refunded to the borrower.

Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

» Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognized as per the prudential norms of the RBI. Penal Interest for covenant breach is recognized upon certainty of its realization.

» Dividend income is recognized when the right to receive payment is established.

» Commission on Guarantees and Letters of Credit (''LC'') issued by the Bank is recognized as income over the period of the Guarantee and LC respectively.

» Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

» In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis.

» Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

» Facility fees and loan processing fees are recognised when due and realizable.

» Other fees and commission are accounted for as and when they became due.

Investments

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBR.No.BP.BC.6/21.04.141/2015-16 dated 1July 2015.

Accounting and Classification

The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorized as "Held for trading" (''HFT''), "Available for sale"

(''AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and

debentures (e) subsidiaries and joint ventures and (f) others

Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines.

Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.

Transfer of investments from AFS to HFT or vice- a- versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

Valuation

Investments categorized under AFS and HFT categories are marked to market (MTM) on periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities

in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP.BC.6/21.04.141/2015-16 dated 1 July 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Profit/loss on sale of investments in the ''Held to Maturity'' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve.

Equity investments in subsidiaries/joint ventures are classified under ''Held to Maturity''. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made.

Treasury Bills, CommercialPaper and Certificates of deposit being discounted instruments, are valued at carrying cost.

Pass Through Certificates purchased for priority sector lending requirements are valued at Book Value in accordance with RBI guidelines.

The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd.(FBIL).

The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA/FBIL.

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale which is categorized under HFT category and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognised in the Profit and Loss account.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at ''1 per VCF.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at ''1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. In case of investment in Security Receipts on or after April 01, 2017 which are backed by more than 50% of the stressed assets sold by the bank or 10% of the stressed asset sold by the bank post April 01, 2018, provision for depreciation in value is made at higher of - provisioning rate required in terms of net assets value declared by Reconstruction Company(RC)/Securitization Company(SC) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continue in the books of the Bank. All other investments in the Security Receipts are valued as per the NAV obtained from issuing RC/SC.

Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/ net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

Investment in listed instruments of Real Estate Investment Trust (REIT)/Infrastructure Investment Trust (INVIT) is valued at closing price on a recognized stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange

within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer.

Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.

Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price , Bloomberg Generic price (BGN) , Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability.

Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.

Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (''GOI'') is valued based on FBIL valuation.

Equity shares in the Banks demat account, acquired through exercise of pledge, is not accounted as investments. Upon sale of the pledged shares, the proceeds are utilized to offset the borrower''s liability

Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss account until received in cash.

Profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.

Accounting for repos / reverse repos/targeted long-term repo operations (TLTRO)

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively

in accordance with RBI master circular No. DBR.No.BP.BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.

Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions.

Investment fluctuation reserve

With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, advised all banks to create an IFR with effect from the FY 2018-19.

Transfer to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations; until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis.

Advances

Accounting and classification

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued, direct assignment and bills rediscounted.

Asset classification Provisioning

Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies.

» RBI issued guidelines on COVID-19 Regulatory Packages, under which, the Bank granted a moratorium of three months (further extended by three months) on the payment of all instalments and / or interest, as applicable, falling due between March 1, 2020 and August 31, 2020. For all such accounts where the moratorium was granted, the asset classification shall remain stand still during the moratorium period (i.e. the number of days past-due shall exclude the moratorium period for the purposes of asset classification under the Income Recognition, Asset Classification and Provisioning norms) and the same has been retained based on the overdue status as at February 29, 2020. Subsequently, based on direction issued by the Hon''ble Supreme Court of India, Bank has not declared relevant borrower account as NPA till nine months ended December 31,2020. Hon''ble Supreme Court of India has vacated the order and the Bank has initiated reporting of NPA from Q4 FY 2020-21.

As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. These also include provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Further, provision requirement under various Restructure scheme of RBI also forms part of general provision. Such provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''.

In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

As per requirement of RBI guideline, any interest accrued and due if converted into a loan (i.e. Funded Interest Term Loan) then such income will be reversed and will be recognised on cash basis.

Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under other income.

In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines.

The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100%.

Transactions involving foreign exchange

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations are translated at the daily average closing rates and of nonintegral foreign operations (foreign branches) at the monthly average closing rates.

Premia/discounts on foreign exchange swaps that are used to hedge risks arising from foreign currency assets and liabilities are amortized over the life of the swap.

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (MTM)) on a gross basis.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations.

In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations.

Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily

settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit / loss is daily set.

6 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share" notified under section 133 of the Companies Act 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares options outstanding during the period except where the results are anti-dilutive.

7 Accounting for derivative transactions

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognised as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ''Other Income''.

Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdue if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

The Bilateral Netting of Qualified Financial Contracts Act, 2020 (the Act), has been notified by the Government of India and subsequent to this the RBI through circular dated March 30, 2021 allowed netting of the Qualified Financial Contracts (QFC). The Bank shall work progressively on classification of multiple permissible transactions into a netting set which may result in reduction in capital requirement due to these transactions over the period

> Fixed assets

Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit /functioning capability from / of such assets.

I Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below-

Class of asset

Useful life of Assets as per Companies Act, 2013

Useful life of Assets as per Bank''s Accounting Policy

Owned Premises

60 years

60 years

Office equipment

5 years

5 years

Computer hardware1

6 years

3 years

Computer software*

6 years

4 years

Class of asset

Useful life of Assets as per Companies Act, 2013

Useful life of Assets as per Bank''s Accounting Policy

Vehicles1

8 years

5 years

Furniture and Fixtures

10 years

10 years

Automated Teller Machines (''ATMs'')1

15 years

10 years

Leasehold improvements to premises

-

Over the lease period or 9 years whichever is less.

*As per RBI Guidelines.

1Based on technical evaluation, the management believes that the useful lives as given above best represent the period over

which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as

prescribed under Part C of Schedule II of the Companies Act 2013.

» Assets costing up to ''5,000 are fully depreciated in the year of purchase.

» For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank.

» Improvements to leasehold assets are depreciated over the remaining period of lease

» Reimbursement, if any, is recognised on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset

» Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset

» The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.

Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets.

1 Employee benefits

Employee Stock Option Scheme (''ESOS'')

The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods.

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

Compensated absence

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation.

Gratuity

The Bank provides for gratuity, for all employees. The Gratuity is payable to an employee as per Payment of Gratuity Act. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognised in the Profit and Loss account.

Provident fund

All employees of the Bank are covered under the Employees Provident Fund, a defined contribution plan in which both the employee and the Bank contribute monthly. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.

National Pension System (NPS)

The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme.

12 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.

13 Income taxes

Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of timing differences between taxable income and accounting income for the current year and reversal of timing differences of earlier years and carry forward losses. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. Deferred tax assets in case of unabsorbed depreciation/ losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Deferred tax assets are recognized and reassessed at each balance sheet date based upon management''s judgement and appropriately adjusted to reflect the amount that is reasonably certain to be realized.

18.5.14 Provisions and contingent assets/liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements.

In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

18.5.15 Cash and Cash equivalents

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

18.5.16 Corporate social responsibility

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account.

18.5.17 Debit and credit cards reward points

The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.

Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.

18.5.18 Bullion

The Bank imports bullion (gold and silver bars) on a consignment basis for selling to its customers. The imports are typically based on a request of the client and are settled based on a back to back price fixing with supplier and client. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in gold borrowing and lending and the interest paid/received thereon is classified as interest expense / income respectively.

18.5.19 Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

18.5.20 Segment information

The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI.

18.5.21 Priority Sector Lending Certificates (PSLC)

The Bank, in accordance with RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.

18.5.22 Related Party Transactions

The Bank has formulated a policy on dealing with Related Party Transactions in terms of the provisions of Section 188 of the Companies Act, 2013 and Regulation 23 of LODR Regulations, and the same is placed on the Banks website.

18.6 Capital

18.6.1 Equity Issue FY 2020-21

On July 23, 2020, the Bank issued 12,504,433,750 equity shares of face value of ''2 each for cash pursuant to FPO aggregating to ''14,872 crore (Accreted ''12,371 crores as share premium net of share issue expenses). The Issue was made through book building process in accordance with regulation 129(1) of the SEBI ICDR Regulations.

Movement in Share Capital

('' in million)

Share Capital

As at March 31, 2021

As at March 31, 2020

Opening Share Capital

25,100.94

4,630.07

Addition due to exercise of Stock Option

-

8.76

Addition due to shares issued for QIP/FPO

25,008.87

462.11

Addition due to shares issued under Reconstruction scheme

-

20,000.00

Closing Share Capital

50,109.81

25,100.94

During FY 2020-21, the Bank has issued ''Nil'' shares pursuant to the exercise of stock options (Previous year 4,384,174 shares issued aggregating to ''284.53 million).

FY 2019-20

During the financial year ended March 31, 2020, the Bank has issued 231,055,018 equity shares of ''2 each for cash pursuant to a Qualified Institutions Placement (QIP) at ''83.55 aggregating to ''19,304.64 million.

On March 13, 2020, the Government of India notified the "Yes Bank Ltd. Reconstruction Scheme, 2020" (Scheme). As per the Scheme, authorized capital has been increased from ''11,000 million to ''62,000 million. The State Bank of India (SBI) and other investors invested in the Bank at a price of ''10 per equity share of the Bank (''2 face value with a ''8 premium). As per the scheme, SBI is required to hold upto 49% with a minimum holding of 26% by SBI in the Bank (which is subject to a 3 year lock in). Other investors are subject to a 3 year lock in for 75% of the investments they make in the Bank under this Scheme. Existing investors (other than investors holding less than 100 shares) in YES Bank are also subject to a lock in for 75% of their holding as per this Scheme. Further, as per final reconstruction scheme of the Bank, Bank has issued 10,000 million equity shares at ''10 each aggregating to ''100,000.00 million and accreted ''79,550.00 million (net of share issue expenses of ''375.00 million) as premium.

Sr

No.

The share allotment under reconstruction scheme Name of Investor

is given below:

Subscription Amount '' in million

Number of Equity Shares Allotted in million

1

State Bank of India

60,500

6,050

2

Housing Development Finance Corporation Limited

10,000

1,000

3

ICICI Bank Limited

10,000

1,000

4

Axis Bank Limited

6,000

600

5

Kotak Mahindra Bank Limited

5,000

500

6

The Federal Bank Ltd

3,000

300

7

Bandhan Bank Limited

3,000

300

8

IDFC First Bank Limited

2,500

250

TOTAL

100,000

10,000

18.6.2 Proposed Dividend

The RBI through circular dated April 22, 2021 allowed banks to pay dividend on equity shares from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than fifty percent of the amount determined as per the dividend payout ratio prescribed in the RBI guidelines. However, during FY 2020-21, the Bank has reported loss and as consequence to that the Bank has not declared any dividend.

The Reserve Bank of India (RBI), vide notification dated December 4, 2020, stated that in view of the ongoing stress and heightened uncertainty on account of COVID-19, banks should continue to conserve capital to support the economy and absorb losses. The notification also stated that in order to further strengthen the banks'' balance sheets, while at the same time support lending to the real economy, banks shall not make any dividend payment on equity shares from the profits pertaining to the financial year ended March 31,2020.

18.6.3 Capital Reserve

Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ''4,969.76 million (net of applicable taxes only) (previous year: ''6,655.51 million) was transferred to Capital Reserve.

18.6.4 Investment Reserve

The Bank has transferred ''153.70 million to Investment Reserve (Previous year: ''147.23 million) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.

18.6.5 Cash Flow Hedge Reserve

The Bank has credited ''32.84 million to Cash Flow Hedge Reserve (Previous year: debited ''15.53 million) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value.

18.6.6 Investment Fluctuation Reserve (IFR)

The Bank has reported loss during the year ended March 31,2021, and hence the Bank has transferred ''Nil'' in IFR (Previous year: '' ''Nil'').

18.6.7 Capital Adequacy Ratio

Capital Adequacy Ratio as per RBI guidelines as at March 31,2021 is given below:

('' in million)

Basel - III

As at March 31, 2021

As at March 31, 2020

Common Equity Tier I

257,330.42

151,738.68

Additional Tier I Capital

2,800.00

3,414.00

Tier-1 capital

260,130.42

155,152.68

Tier-2 capital

143,075.29

152,940.48

Total capital

403,205.71

308,093.16

Credit Risk - Risk Weighted Assets (RWA)

1,956,588.71

2,036,091.58

Market Risk - RWA

124,161.16

137,164.65

Operational Risk - RWA

226,742.47

228,985.67

Total risk weighted assets

2,307,492.34

2,402,241.90

Common Equity capital adequacy ratio (%)

11.2%

6.3%

Tier-1 capital adequacy ratio (%)

11.3%

6.5%

Tier-2 capital adequacy ratio (%)

6.2%

2.0%(*)

Total capital adequacy ratio (%)

17.5%

8.5%

Amount raised during the year by issue of IPDI

-

-

Amount raised during the year by issue of Tier II Capital

-

-

* Tier 1 ratio of the Bank was below the regulatory minimum requirements and hence as per RBI guidelines Tier II ratio is restricted to 2%

18.6.8 Tier I and Tier II Capital

During the financial year ended March 31,2021 and March 31,2020, the Bank has not issued Tier I or Tier II instruments.

Write Down of AT1 Bonds

In March 2020, YES Bank Limited ("the Bank") was reconstructed pursuant to the provisions of Section 45 of the Banking Regulation Act, 1949 under the "YES Bank Reconstruction Scheme, 2020". As a consequence of the reconstruction, the Bank was deemed to be nonviable or approaching non-viability and both "the pre-specified trigger" and "the trigger at the point of non-viability" were activated. Accordingly, the Bank was constrained to write down Additional Tier 1 Bonds ("AT 1 Bonds") on March 14, 2020. The Axis Trustee Services Limited (Trustee on behalf of the bondholders of AT 1 Bonds) and other bondholders have filed various writ petition(s) and consumer complaint(s) across India challenging the decision of the Bank to write down AT 1 Bonds. A Transfer Petition has been preferred by the Bank to transfer all pending litigation(s) to Mumbai as per the jurisdictional clause in the Information Memorandum(s) for the issuance of AT 1 Bonds. The Bank, based on the legal opin


Mar 31, 2019

Schedules forming part of Financial Statements

18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2019

18.1 Background

YES BANK Limited (the ''Bank'' or ''YES BANK'') is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation.

18.2 Basis of preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines.

18.3 Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

18.4 Significant accounting policies 18.4.1 Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

A Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets and accounts under SDR / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized as per the prudential norms of the RBI. Penal Interest is recognized upon certainty of its realization.

A Dividend income is recognized when the right to receive payment is established.

A Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee.

A Commission on Letters of Credit (''LC'') issued by the Bank is recognized as income at the time of issue of the LC.

A Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight-line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

A In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis.

A Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

A Facility fees and loan processing fees are recognized when due and realizable.

A Other fees and commission are accounted for as and when they became due.

18.4.2 Investments

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 1, 2015.

Accounting and Classification

The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorized as "Held for trading" (''HFT''), "Available for sale" (AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

a) Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines.

b) Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

c) Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS /HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS /HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS / HFT at the amortized cost.

Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

d) Valuation

Investments categorized under AFS and HFT categories are Marked-to-Market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight-line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR. No.BP.BC.6/21.04.141/2015-16 dated July 1, 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchased for priority sector lending requirements are valued at Book Value in accordance with RBI guidelines.

The market/fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd. (FBIL).

The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA / FBIL.

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit /Loss on settlement of the short position is recognized in the Profit and Loss account.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs. 1 per VCF.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at Rs.1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. In case of investment in Security Receipts on or after April 1, 2017 which are backed by more than 50% of the stressed assets sold by the bank, provision for depreciation in value is made at higher of - provisioning rate required in terms of net assets value declared by Rreconstruction Company (RC)/ Securitization Company (SC) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continue in the books of the Bank. All other investments in the Security Receipts are valued as per the NAV obtained from issuing RC / SC.

Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

Investment in listed instruments of Real Estate Investment Trust (REIT) / Infrastructure Investment Trust (INVIT) is valued at closing price on a recognized stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer.

Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.

Non-Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN), Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability.

Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.

Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (''GOT) is valued based on FBIL valuation.

Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation/provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received.

e) Profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit there after is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.

f) Accounting for repos/reverse repos

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP.BC.6/21.04.141/2015-16 dated July 1, 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.

Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions.

g) Investment fluctuation reserve

With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP. BC.102/21.04.048/201 7-18 dated April 2, 2018, advised all banks to create an IFR with effect from the FY 2018-19.

Transferred to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis.

18.4.3 Advances

Accounting and classification

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted.

Provisioning

Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies.

As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. These also include provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Such provisions are included in Schedule 5 -''Other liabilities & provisions - Others''.

In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income.

In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines.

The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100% for exposures with contractual maturity greater than or equal to 180 days. In respect of short-term exposures with contractual maturity less than 180 days, 25% of the normal provision requirement is held.

18.4.4 Transactions involving foreign exchange

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.

Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap.

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies with the resulting unrealized gain or loss being recognized in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (MTM)) on a gross basis.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations.

In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations.

Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit /loss is daily set.

18.4.5 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share" notified under Section 133 of the Companies, Act 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares options outstanding during the period except where the results are anti dilutive.

18.4.6 Accounting for derivative transactions

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL - circular dated December 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark-to-Market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/expense on the date of cancellation/termination under ''Other Income''.

Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

18.4.7 Fixed assets

Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit/functioning capability from/of such assets.

18.4.8 Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below -

Class of asset Owned Premises

Useful life of Assets as per Companies Act, 2013 60 years

Useful life of Assets as per Bank''s Accounting Policy 60 years

Office equipment

5 years

5 years

Computer hardware1

6 years

3 years

Computer software *

6 years

4 years

Vehicles1

8 years

5 years

Furniture and Fixtures

10 years

10 years

Automated Teller Machines (''ATMs'')1

15 years

10 years

Leasehold improvements to premises

-

Over the lease period or 9 years whichever is less.

*As per RBI Guidelines.

1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.

A Assets costing up to Rs.5,000 are fully depreciated in the year of purchase.

A For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.

A Improvements to leasehold assets are depreciated over the remaining period of lease

A Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset

A Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset

A The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.

18.4.9 Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets.

18.4.10 Employee benefits

Employee Stock Option Scheme (''ESOS'')

The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods.

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

Compensated absence

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment/compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation.

Gratuity

The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account.

Provident fund

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered The Bank has no liability for future provident fund benefits other than its annual contribution.

In February 2019, the honorable Supreme Court of India in its judgment clarified that certain special allowances should be considered to measure obligations under Employees'' Provident Funds and Miscellaneous Provisions Act, 1952 (the PF Act). The Bank has been legally advised that there are interpretative challenges on the application of judgment retrospectively and as such does not consider there is any probable obligations for past periods. Due to imperative challenges, the Bank has not disclosed contingent liability amount for past liability.

National Pension System (NPS)

The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme.

18.4.11 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight-line basis over the lease term in accordance with Accounting Standard - 19, Leases.

18.4.12 Income taxes

Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

18.4.13 Provisions and contingent assets/liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements

In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

18.4.14 Cash and Cash equivalent

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

18.4.15 Corporate social responsibility

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account.

18.4.16 Debit and credit cards reward points

The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.

Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.

18.4.17 Bullion

The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income.

The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received thereon is classified as interest expense/income respectively.

18.4.18 Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

18.4.19 Segment information

The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI.

18.4.20 Priority Sector Lending Certificates (PSLC)

The Bank, in accordance with RBI circular FIDD.CO.PIan. BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''.

18.5 Capital

18.5.1.1 Equity Issue

During the financial year ended March 31, 2019, the Bank has issued 12,065,794 shares pursuant to the exercise of stock option aggregating to Rs.953.47 million (previous year: Rs.1,378.65 million)

Movement in Share Capital

(Rs. in million)

Share Capital

As at March 31. 2019

As at March 31, 2018

Opening Share Capital

4,605.93

4,564.86

Addition due to exercise of Stock Option

24.13

41.07

Addition due to shares issued to QIP - -

Closing Share Capital

4,630.07

4,605.93

18.5.1.2 Proposed Dividend:

The Board of Directors of the Bank has recommended a dividend of Rs.2 per equity share for approval by shareholders at the 15th Annual General Meeting. If approved, the total liability arising to the Bank would be Rs.5,582.01 million, including dividend tax (previous year: Rs.7,503.64 million). The actual dividend payout may however change due to equity shares options exercised by employees between the end of the financial year and the dividend declaration date.

18.5.1.3 Capital Reserve

Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs.1,010.10 million (previous year: Rs. 659.65 million) was transferred to Capital Reserve.

18.5.1.investment Reserve

The Bank has transferred Rs.6.71 million to Investment Reserve (previous year: Rs. Nil) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.

18.5.1 .5 Cash Flow Hedge Reserve

The Bank has credited Rs.218.73 million to Cash Flow Hedge Reserve (previous year: debited Rs. 83.92 million) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value.

18.5.1.6 Investment Fluctuation Reserve (IFR)

During the year ended March 31, 2019, the Bank has transferred Rs. 539.07 million in IFR (previous year: Rs. Nil).

18.5.1.7 Capital Adequacy Ratio

Capital Adequacy Ratio as per RBI guidelines as at March 31, 2019 is given below:

(Rs. in million)

Basel -III

As at March 31. 2019

As at March 31, 2018

Common Equity Tier I*

256,989.71

248,503.97

Additional Tier I Capital

87,871.00

88,879.76

Tier I capital

344,860.71

337,383.73

Tier II capital

159,730.59

132,373.34

Total capital

504,591.30

469,757.06

Credit Risk - Risk Weighted Assets (RWA)

2,678,862.12

2,232,542.97

Market Risk - RWA

191,932.33

181,613.67

Operational Risk - RWA

184,986.56

139,276.11

Total risk weighted assets

3,055,781.01

2,553,432.74

Common Equity capital adequacy ratio (%)

8.4%

9.7%

Tier I capital adequacy ratio (%)

11.3%

13.2%

Tier II capital adequacy ratio (%)

5.2%

5.2%

Total capital adequacy ratio (%)

16.5%

18.4%

Amount raised during the year by issue of IPDI

54,150.00

Amount raised during the year by issue of Tier II Capital

30,420.00

70,000.00


Mar 31, 2018

18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS

FOR THE YEAR ENDED MARCH 31, 2018

18.1 BACKGROUND

YES BANK Limited (the ‘Bank’ or ‘YES BANK’) is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (‘RBI’) on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also the Bank has a branch at International Financial Services Centre (‘IFSC’) at GIFT City, Gujarat (‘IBU’). The Bank classifies transactions undertaken by IBU as overseas operation.

18.2 BASIS OF PREPARATION

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines.

18.3    USE OF ESTIMATES

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

18.4    SIGNIFICANT ACCOUNTING POLICIES

18.4.1 Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

-    Interest income is recognized in the profit and loss account on accrual basis, except in the case of nonperforming assets and accounts under SDR/S4A. Interest on non-performing assets and accounts under SDR/S4A is recognized as per the prudential norms of the RBI. Penal Interest is recognized upon certainty of its realization. RBI has withdrawn the SDR and S4A schemes with effect from February 12, 2018. Accordingly, for cases where the SDR, change in management outside SDR or S4A schemes were not implemented at that date, asset classification and income recognition are done as per the extant RBI norms.

-    Dividend income is recognized when the right to receive payment is established.

-    Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee.

-    Commission on Letters of Credit (‘LC’) issued by the Bank is recognized as income at the time of issue of the LC.

-    Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

-    In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis.

Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

Facility fees and loan processing fees are recognized when due and realizable.

Other fees and commission are accounted for as and when they became due.

18.4.2 Investments

Classification and valuation of the Bank’s investments are carried out in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated 1 July 2015.

Accounting and Classification

The Bank follows settlement date accounting for investments. In compliance with RBI guidelines, all investments, are categorized as “Held for trading” (‘HFT’), “Available for sale” (‘AFS’) or “Held to maturity” (‘HTM’) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (‘Investments’) under six groups (a) government securities (b) other approved securities

(c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

a)    Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines.

b)    Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

c)    Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS/HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS/HFT category, the investments held under HTM at a discount are transferred to AFS/HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.

Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

d) Valuation

Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (‘Investments’) is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP.BC.6/21.04.141/2015-16 dated 1 July 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

Pass Through Certificates purchased for priority sector lending requirements are valued at Book Value in accordance with RBI guidelines.

The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (‘SGL’) account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd. (FBIL).

The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (‘YTM’) rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA/FBIL.

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit/Loss on settlement of the short position is recognized in the Profit and Loss account.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '1 per VCF.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.

Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

Sovereign foreign currency bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.

Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN), last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability.

Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.

Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (‘GOI’) is valued based on FBIL valuation.

Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation/provision on such non-performing

investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received.

e)    Profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.

f)    Accounting for repos/reverse repos

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. D B R. N o. B P. BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.

Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions.

18.4.3 Advances Accounting and classification

Advances are classified as performing and nonperforming based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted.

Provisioning

Provisions in respect of non-performing advances are made based on management’s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines.

The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of nonperforming advances are charged to the Profit and Loss account and included under Provisions and Contingencies.

As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. These also includes provision for stressed sector exposures. Such provisions are included in Schedule 5 - ‘Other liabilities & provisions - Others’.

In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Accounts are written-off in accordance with the Bank’s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under other income.

In case of loans sold to asset reconstruction company and consideration is more than net book value, the Bank records the security receipts at Net Book Value as per RBI guidelines.

The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank’s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank’s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100% for exposures with contractual maturity greater than or equal to 180 days. In respect of short-term exposures with contractual maturity less than 180 days, 25% of the normal provision requirement is held.

18.4.4    Transactions involving foreign exchange

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative office) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.

Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap.

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers’ Association of India (‘FEDAI’). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account.

In accordance with AS 11 ‘The Effects of changes in Foreign Exchange Rates’, contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS - 11.

18.4.5    Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, “Earnings per Share” notified under section 133 of the Companies Act 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity share options outstanding during the period except where the results are anti dilutive. The shareholders of the Bank had approved the sub-division of each equity share having a face value of ? 10 into five equity shares having a face value of ? 2 each through postal ballot on September 8, 2017. The record date for the sub-division was September 22, 2017. All shares and per share information in the financial results are restated to reflect the effect of sub-division for the year ended March 31, 2017.

18.4.6. Accounting for derivative transactions

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ‘Other Income’.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ‘Other Income’.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Over dues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ‘Prudential Norms for Off-balance Sheet Exposures of Banks’ a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.

18.4.7    Fixed assets

Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit/functioning capability from/of such assets.

18.4.8    Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below-

-    Assets costing up to '5,000 are fully depreciated in the year of purchase.

* As per RBI Guidelines.

1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part

C of Schedule II of the Companies Ac t 2013.

-    For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank.

-    Improvements to leasehold assets are depreciated over the remaining period of lease.

-    Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset.

-    Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset.

-    The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.

18.4.9 Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset’s recoverable amount is the higher of an asset’s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets.

18.4.10 Employee benefits

Employee Stock Option Scheme (‘ESOS’)

The Employee Stock Option Scheme (‘the Scheme’) provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period.

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank’s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

Leave salary

The employees of the Bank are entitled to carry forward a part of their unveiled/unutilized leave subject to a maximum limit. The employees cannot encash unveiled/unutilized leave. The Bank provides for leave encashment/compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization.

Gratuity

The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days’ eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account.

Provident fund

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.

National Pension System (NPS)

The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme.

18.4.11 Leases

Leases where the less or effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.

18.4.12    Income taxes

Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

18.4.13    Provisions and contingent assets/ liabilities

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements.

In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

18.4.14    Cash and Cash equivalent

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

18.4.15    Corporate social responsibility

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account.

18.4.16    Debit and credit cards reward points

The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.

Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.

18.4.17    Bullion

The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received thereon is classified as interest expense/income respectively.

18.4.18    Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

18.4.19    Segment information

The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI.

18.4.20    Priority Sector Lending Certificates (PSLC)

The Bank in accordance with RBI circular FIDD.CO.Plan. BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ‘Expense’ and the fee received from the sale of PSLCs is treated as ‘Other Income’.

18.5.1    Capital

18.5.1.1    Equity Issue

On September 8, 2017, the shareholders of the Bank approved the sub-division of each equity share having a face value of ? 10 into five equity shares having a face value of ? 2 each through postal ballot. The record date for the sub-division was September 22, 2017. All shares and per share information in the financial results reflect the effect of such sub-division.

During the financial year ended March 31, 2018, the Bank has issued 20,538,180 shares pursuant to the exercise of stock option aggregating to Rs,1,378.65 millions.

During the financial year ended March 31, 2017, the Bank had issued 32,711,000 equity shares of Rs,10 each (163,555,000 shares of Rs,2 each) for cash pursuant to a Qualified Institutions Placement (QIP) at Rs,1,500 aggregating to Rs,49,066.50 millions. The Bank accreted Rs,48,239.39 millions (net of estimated share issue expenses of Rs,500 millions) as premium, on account of QIP. The actual share issue expenses adjusted against share premium was Rs,458.48 millions. The Bank also issued 32,43,172 shares (16,215,860 shares of Rs,2 each) pursuant to the exercise of stock option aggregating to Rs,1,010.12 millions.

18.5.1.2 Proposed Dividend:

From the financial year ended March 31, 2017, the Bank has not accounted for proposed dividend as a liability in accordance with revised Accounting Standard (AS) 4 ‘Contingencies and Events occurring after the Balance sheet date’ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016.

The Board of Directors of the Bank has recommended a dividend of '2.70 per equity share for approval by shareholders at the 14th Annual General Meeting. If approved, the total liability arising to the Bank would be Rs,7,496.43 millions, including dividend tax (previous year: Rs,6,605.48 millions). The actual dividend payout may however change due to equity share options exercised by employees between the end of the financial year and the dividend declaration date.

18.5.1.3    Capital Reserve

Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs,659.65 millions (previous year: Rs,1,083.00 millions) was transferred to Capital Reserve.

18.5.1.4    Investment Reserve

The Bank has transferred Rs, Nil to Investment Reserve (previous year: Rs, Nil) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.

18.5.1.5    Cash Flow Hedge Reserve

The Bank has debited Rs,83.92 millions to Cash Flow Hedge Reserve (previous year: Rs,160.14 millions) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value.

RBI circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 grants banks an option to spread provisioning for mark to market losses on investments held in AFS and HFT for the quarters ended December 31, 2017 and March 31, 2018. The circular states that the provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss was incurred. The Bank has recognised the entire net mark to market loss on investments in the respective quarters and has not availed of the said option.

*    Investments amounting to Rs,35,643 millions are exempted from applicability of RBI prudential limit for Unlisted Non-SLR securities. ** Includes a provision of Rs,400.16 millions held for non performing investments

#    excludes investment in equity shares and units.

Amounts reported under columns (a), (b), (c) and (d) above are not mutually exclusive

Sales and transfers of securities to/from Held to Maturity (HTM) category

The Bank has not sold or transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. The 5% threshold referred to above does not include onetime transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per extant RBI guidelines, shifting of securities explicitly permitted by the Reserve Bank from time to time, sale of securities or transfer to AFS/HFT consequent to the reduction of ceiling on SLR securities under HTM, sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and repurchase of Government securities by Government of India from banks as permitted by RBI.

18.5.5.4    Currency Futures

The Bank had dealt in exchange traded currency forwards (Futures) during the financial year ended March 31, 2018

and March 31, 2017. As at March 31, 2018 and March 31, 2017 the open contracts on the exchange were Rs, Nil.

18.5.5.5    Disclosures on risk exposure in derivatives

As per RBI Master circular DBR.BP.BC.No.23/21.04.018/2015-16 dated July 1, 2015, the following disclosures are being

made with respect to risk exposure in derivatives of the Bank:

a)    Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes including hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriate ness Policy, Hedging Policy and ALM policy.

b)    Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (‘RMC’) and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof.

c)    As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including suitability and appropriateness framework. The Bank has an internal reporting mechanism providing regular reports to the RMC as well as management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX and interest rates.

d)    The Bank has an independent Middle Office and Market Risk functions, which are responsible for monitoring, measurement, and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives transactions, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank.

e)    I n addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk.

f)    The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (‘MIS’) and control purposes and records the same in the books of accounts on a monthly basis.

g)    For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and the ALCO monitors all outstanding hedges on a periodical basis. Further the Bank’s ‘Hedging Policy’ has stipulated conditions to ensure that the Hedges entered into are effective.

1    Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures.

2    Trading portfolio including accrued interest.

3    Mark to Market for credit exposure includes accrued interest.

4    Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives.

 


Mar 31, 2017

18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2017

18.1 BACKGROUND

YES BANK Limited (the ‘Bank'' or ‘YES BANK'') is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the license to commence banking operations from the Reserve Bank of India (‘RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004.

18.2 BASIS OF PREPARATION

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, except in the case of interest income on non-performing assets (NPAs), loans under strategic debt restructuring (SDR) and Sustainable Structuring of Stressed Assets (S4A) scheme of RBI where it is recognized upon realization.

18.3 USE OF ESTIMATES

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

18.4 SIGNIFICANT ACCOUNTING POLICIES

18.4.1 SIGNIFICANT CHANGES IN ACCOUNTING POLICY

PROPOSED DIVIDEND:

In terms of revised Accounting Standard (AS) 4 ‘Contingencies and Events occurring after the Balance sheet date'' as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016, Bank has not accounted for proposed dividend as a liability as at March 31, 2017. Proposed Dividend was however accounted for as a liability as at March 31, 2016 in line with the existing accounting standard applicable at that time.

The Board of Directors of the Bank has recommended a dividend of '' 12 per equity share for approval by shareholders at the 13th Annual General Meeting. If approved the total liability arising to the Bank would be '' 6,593.11 million, including dividend tax (previous year '' 5,061.52 million). The actual dividend payout may however change due to equity shares exercised by employees between the end of the financial year and the dividend declaration date.

ACCOUNTING FOR CASH FLOW HEDGE RESERVE:

The Bank has applied the Guidance Note on Accounting for Derivative Contracts (‘Guidance Note'') issued by the Institute of Chartered Accountants of India effective from April 01, 2016 in respect of derivative contracts which are not covered by existing accounting standards or RBI guidelines. For the Bank, this impacts the accounting for cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges under the Guidance

Note. The adoption of the Guidance Note resulted in the recognition of derivative assets of '' 52.83 million , derivative liabilities of '' 212.96 million and a cash flow hedge reserve of ('' 160.14) million as at March 31, 2017. The application of the Guidance Note has no impact on the net profit for the year ended March 31, 2017 as compared to the previous accounting policy followed by the Bank.

18.4.2 REVENUE RECOGNITION

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

- Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets and accounts under SDR / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized upon realization as per the prudential norms of the RBI.

- Loan processing fee is recognized when it becomes due and realizable.

- Dividend income is recognized when the right to receive payment is established.

- Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee

- Commission on Letters of Credit (‘LC'') issued by the Bank is recognized as income at the time of issue of the LC.

- Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

- I n case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis.

- Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

- Other fees and commission income are recognized on accrual basis.

18.4.3 INVESTMENTS

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBR. No.BP.BC.6/21.04.141/2015-16 dated July 01, 2015 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2017-18/001/April 03, 2017.

ACCOUNTING AND CLASSIFICATION Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as "Held for trading” (‘HFT''), "Available for sale” (‘AFS'') or "Held to maturity” (‘HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (‘Investments'') under six groups (a) government securities

(b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and

(f) others.

A) COST OF ACQUISITION

Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account as per the RBI guidelines.

B) BASIS OF CLASSIFICATION

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

C) TRANSFER BETWEEN CATEGORIES Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scripts from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.

Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

D) VALUATION

Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (‘Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances/under Strategic Debt Restructuring (SDR) scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under SDR scheme is provided as per RBI guidelines.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 01, 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

Pass Through Certificates purchase for priority sector lending requirements are valued at Book Value in accordance with FIMMDA guidelines FIMCIR/2017-18/001/April 03, 2017.

The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (‘SGL'') account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA.

The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (‘YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA.

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognized in the Profit and Loss account.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '' 1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.

Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.

Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.

Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (‘GOI'') is valued based on FIMMDA valuation.

Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank may additionally create provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received.

E) PROFIT/LOSS ON SALE OF INVESTMENTS Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.

F) ACCOUNTING FOR REPOS / REVERSE REPOS

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP. BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.

Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions.

18.4.4 ADVANCES

ACCOUNTING AND CLASSIFICATION Advances are classified as performing and nonperforming based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted.

PROVISIONING

Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines.

The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies.

As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unheeded foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Bank. These provisions are included in Schedule 5 - ‘Other liabilities & provisions - Others''.

Further to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures (other than for home country exposure). Countries are categorized into risk categories as per Export Credit Guarantee Corporation of India Ltd. (‘ECGC'') guidelines and provisioning is done in respect of that country where the net funded exposure is one percent or more of the Bank''s total assets.

In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income.

In case of loans sold to asset reconstruction company and consideration is more than net book value, the Bank records the security receipts at Net Book Value as per RBI guidelines.

18.4.5 TRANSACTIONS INVOLVING FOREIGN EXCHANGE

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.

Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap.

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (‘FEDAI''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account.

In accordance with AS 11 ‘The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS - 11.

18.4.6 EARNINGS PER SHARE

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share” notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.

18.4.7 ACCOUNTING FOR DERIVATIVE TRANSACTIONS

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly and the resultant unrealized gains/losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated December 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ‘Other Income''.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ‘Other Income''.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Over dues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ‘Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.

18.4.8 FIXED ASSETS

Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefit /functioning capability from / of such assets.

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

18.4.9 DEPRECIATION

Depreciation on fixed assets is provided on straight-line method, overestimated useful lives, as determined by the management, at the rates mentioned below-

*As per RBI Guidelines.

1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013.

- Assets costing up to '' 5,000 are fully depreciated in the year of purchase.

- For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.

- Improvements to leasehold assets are depreciated over the remaining period of lease

- Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset

- Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset

- The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.

18.4.10 IMPAIRMENT OF ASSETS

The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount.

18.4.11 EMPLOYEE BENEFITS

EMPLOYEE STOCK OPTION SCHEME (‘ESOS’)

The Employee Stock Option Scheme (‘the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period.

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

LEAVE SALARY

The employees of the Bank are entitled to carry forward a part of their unveiled/unutilized leave subject to a maximum limit. The employees cannot encash unveiled/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization.

GRATUITY

The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account.

PROVIDENT FUND

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre-determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.

NEW PENSION SCHEME

The National Pension System (NPS) is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than its annual contribution for the employees who agree to contribute to the scheme.

18.4.12 LEASES

Leases where the less or effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.

18.4.13 INCOME TAXES

Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

18.4.14 PROVISIONS AND CONTINGENT ASSETS/LIABILITIES

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Bank does not recognize a contingent liability but discloses its existence in the financial statements

In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

18.4.15 CASH AND CASH EQUIVALENT

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

18.4.16 CORPORATE SOCIAL RESPONSIBILITY

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account.

18.4.17 DEBIT AND CREDIT CARDS REWARD POINTS

The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.

Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.

18.4.18 BULLION

The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid / received thereon is classified as interest expense / income respectively.

18.4.19 SHARE ISSUE EXPENSES

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the C o m p a n i e s Act, 2013.

18.4.20 SEGMENT INFORMATION

The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI.

18.4.21 PRIORITY SECTOR LENDING CERTIFICATES (PSLC)

The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ‘Expense'' and the fee received from the sale of PSLCs is treated as ‘Other Income''.

18.5.1 CAPITAL

18.5.1.1 EQUITY ISSUE

During the financial year ended March 31, 2017, the Bank has issued 32,711,000 equity shares of '' 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at '' 1,500 per share aggregating to '' 49,066.50 million. The Bank accreted '' 48,239.39 million (net of share issue expenses of '' 500 million) as premium, on account of QIP. Provision on share issue expenses created by debiting to share premium account is on estimated basis. Adjustments, if any required, to share premium shall be made upon final settlement of these expenses. The Bank also issued 32,43,172 shares pursuant to the exercise of stock option aggregating to '' 1,010.12 million.

During the financial year ended March 31, 2016, the Bank has issued 2,795,543 shares pursuant to the exercise of stock option aggregating to '' 739.51 million.

18.5.1.2 CAPITAL RESERVE

Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year '' 1,083.00 million (previous year: '' 734.83 million) was transferred to Capital Reserve.

18.5.1.3 INVESTMENT RESERVE

The Bank has transferred '' Nil to Investment Reserve (Previous year: '' Nil transferred to Investment Reserve) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.

18.5.1.4 CASH FLOW HEDGE RESERVE

The Bank has debited '' 160.14 million to Cash Flow Hedge Reserve (Previous year: '' Nil) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value.

a) Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriate ness Policy, Hedging Policy and ALM policy.

b) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (‘RMC'') and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof.

c) As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC as well as Top management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX, interest rates as well as credit risk, operational risk, reputational risk and legal risk.

d) The Bank has an independent Middle Office and Market Risk, which are responsible for monitoring, measurement, and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank.

e) I n addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk.

f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (‘MIS'') and control purposes and records the same in the books of accounts on a monthly basis.

g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and ALCO monitors all outstanding hedges on a periodical basis. Further the Bank''s ‘Hedging Policy'' has stipulated conditions to ensure that the Hedges entered into are effective.

1 Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures.

2 Trading portfolio including accrued interest.

3 Mark to Market for credit exposure includes accrued interest.

4 Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives.


Mar 31, 2015

1.1 Background

YES BANK Limited (the ''Bank'' or ''YES BANK'') is a private sector Bank promoted by the Late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK Limited is a pubLicLy heLd bank engaged in providing a wide range of banking and financiaL services. YES BANK Limited is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a Limited company under the Companies Act, 1956 on November 21,2003. The Bank received the Licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24,2004. Further,YES BANK was incLuded to the Second ScheduLe of the Reserve Bank of India Act, 1934 with effect from August 21,2004.

1.2 Basis of preparation

The financiaL statements have been prepared in accordance with requirements prescribed under the Third ScheduLe (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financiaL statements conform to GeneraLLy Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) RuLes 2014 to the extent appLicabLe and practices generaLLy prevalent in the banking industry in India.The Bank foLLows the accruaL method of accounting and the historical cost convention.

1.3 Use of estimates

The preparation of financiaL statements requires the management to make estimates and assumptions that are considered whiLe reporting amounts of assets and Liabilities (including contingent Liabilities) as of the date of the financiaL statements and income and expenses during the reporting period. Management beLieves that the estimates used in the preparation of the financiaL statements are prudent and reasonable.

Future results

Could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

1.4 Significant accounting policies

1.4.1 Significant Changes in Accounting Policy

For the year ended March 31, 2015 commission on guarantees issued by the Bank is recognized as income over the period of the guarantee. TiLL March 31,2014 the Bank had amortized commission earned on yearLy basis at each anniversary over the period of the guarantee. Had the Bank foLLowed the earLier method of amortization of guarantee commission, the profit after tax for the current year wouLd have been higher by '' 186,922 thousands

1.4.2 Revenue recognition

Revenue is recognized to the extent it is probabLe that the economic benefits wiLL Row to the Bank and the revenue can be reLiabLy measured.

Interest income is recognized in the profit and Loss account on accruaL basis, except in the case of non-performing assets. Interest on non-performing assets is recognized upon realization as per the prudentiaL norms ofthe RBI.

Revenue in certain structured transactions where interest income is partiaLLy receivable in advance is recognized when due.

Loan processing fee is accounted for upfront when it becomes due.

Dividend income is recognized when the right to receive payment is established.

Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee

Commission on Letters of Credit (''LC'') issued by the Bank is recognized as income at the time of issue of the LC.

Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight Line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

In case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortized over the tenure ofthe instrument on a yield basis.

Revenue from financiaL advisory services is recognized in Line with milestones achieved as per terms of agreement with cLients which is reflective of services rendered.

Other fees and commission income are recognized on accruaL basis.

1.4.3 Investments

Classification and vaLuation of the Bank''s investments are carried out in accordance with RBI CircuLar DBOD. No.BP.BC.20/21.04.141/2014-15 dated JuLy 1, 2014 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2014-15/46/March 30,2015.

Accounting and Classification

Investments are recognized using the vaLue date basis of accounting. In compliance with RBI guidelines, aLL investments, are categorized as "HeLd for trading" (''HFT''), "AvaiLabLe for saLe" (AFS'') or "HeLd to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the baLance sheet, investments are classified as discLosed in ScheduLe 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures

(e) subsidiaries and joint ventures and (f) others.

a) Costofacquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and Loss account.

b) Basis of classification

Securities that are heLd principally for resaLe within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hoLd tiLL maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

c) Transfer between categories

RecLassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the Lower of book vaLue or market vaLue. In the case of transfer of securities from HTM to AFS / HFT category, the investments heLd under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments pLaced in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.

Transfer of investments from AFS to HFT or vice- a- versa is done at the bookvaLue. Depreciation carried, if any, on such investments is also transferred from one category to another

d) VaLuation

Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per reLevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in ScheduLe 8 (''Investments'') is recognized in the profit and Loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The bookvaLue of individual securities is not changed consequent to periodic vaLuation ofinvestments.

Investments received in Lieu of restructured advances are vaLued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category.

Investments classified underthe HTM category are carried at their acquisition cost and any premium overthe face vaLue,paid on acquisition,is amortized on a straight Line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income. Where in the opinion of management, a diminution, other than temporary in the vaLue of investments classified under HTM hastaken pLace,suitabLe provisions are made.

Treasury BiLLs,Commercial Paper and Certificates of deposit being discounted instruments, are vaLued at carrying cost.

The market/ fair vaLue appLied for the purpose of periodical vaLuation of quoted investments incLuded in the AFS and HFT categories is the market price of the scrip as avaiLabLe from the trades/ quotes on the stock exchanges and for Subsidiary GeneraL Ledger (''SGL'') account transactions, the prices as periodically decLared by Primary DeaLers Association of India jointly with FIMMDA.

The market/ fair vaLue of unquoted government securities incLuded in the AFS and HFT category is determined as per the prices pubLished by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates and preference shares, vaLuation is carried out by appLying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates appLied are as per the reLevant rates pubLished by FIMMDA.

Units of Venture CapitaL Funds (VCF) heLd under AFS category are vaLued using the Net Asset VaLue (NAV) shown by VCF as per the financiaL statement. The VCFs are vaLued based on the audited resuLts once in a year. In case the audited financiaLs are not avaiLabLe for a period beyond 18 months, the investments are valued at Rs.1 per VCF.

Quoted equity shares are vaLued at their cLosing price on a recognized stock exchange. Unquoted equity shares are vaLued at the book vaLue if the Latest baLance sheet is avaiLabLe, eLse, at Rs.1 per company, as per reLevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are vaLued in accordance with the guidelines appLicabLe to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actuaL realization of the financiaL assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset vaLue obtained from the asset reconstruction company from time to time, for vaLuation of such investments at each reporting date.

Investments in quoted MutuaL Fund (MF) Units are vaLued as per Stock Exchange quotations. Investments in un-quoted MF Units are vaLued on the basis of the Latest re-purchase price decLared by the MFin respect of each particular Scheme.

e) Accounting for repos / reverse repos

Securities soLd under agreements to repurchase (Repos) and securities purchased under agreements to reseLL (Reverse Repos) including Liquidity adjustment faciLity (LAF) with RBI are treated as coLLateraLized borrowing and Lending transactions respectively in accordance with RBI master circuLar No. DBOD.No.BP.BC.20/21.04.141/2014-15 dated JuLy 1, 2014. The first Leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversaL of first) Leg reflects interest and is recognized as interest income/expense over the period oftransaction.

f) Profit/LossonsaLeoflnvestments

Profit/Loss on saLe of Investments in the HTM category is recognized in the profit and Loss account and profit thereafter is appropriated (net of appLicabLe taxes and statutory reserve requirements) to CapitaL Reserve. Profit/Loss on saLe of investments in HFT and AFS categories is recognized in the Profit and Loss account.

1.4.4 Advances

Advances are classified as performing and non- performing based on the reLevant RBI guidelines. Advances are stated net of specific Loan Loss provisions, interest in suspense, inter-bank participation certificates issued and biLLs rediscounted. Specific Loan Loss provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning LeveL prescribed in reLevant RBI guidelines.

As per the RBI guidelines a generaL provision is made on aLL standard advances based on the category of advances as prescribed in the said guidelines. The Bank aLso maintains additional generaL provisions on standard exposure based on the internaL credit rating matrix as approved by the Board of the Bank. These provisions are incLuded in ScheduLe 5 - ''Other Liabilities & provisions - Others''.

In respect of restructured standard and non performing advances, provision is made for the present vaLue of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Amounts recovered against debts written off in earLier years and provisions no longer considered necessary based on the current status of the borrower are recognized in the profit and Loss account

1.4.5 Transactions involving foreign exchange

Monetary foreign currency assets and Liabilities are translated at the baLance sheet date at rates notified by the Foreign Exchange DeaLers'' Association of India

(''FEDAI''). Foreign exchange contracts are stated at net present vaLue using LIBOR/SWAP curves of the respective currencies.The resuLting profits or Losses are recognized in the profit and Loss account.

Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and Liabilities,are amortized overthe Life ofthe swap.

Income and expenditure in foreign currency are accounted for at exchange rates prevalent on the date ofthe transaction.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent Liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the baLance sheet date.

1.4.6 Earnings per share

The Bank reports basic and diLuted earnings per equity share in accordance with Accounting Standard(AS) 20, "Earnings per Share" notified under section 133 ofthe Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) RuLes 2014. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and diLutive potential equity shares outstanding during the period except where the resuLts are anti dilutive.

1.4.7 Accounting for derivative transactions

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-baLance sheet assets and Liabilities. ALL market making/trading transactions are marked to market on a periodic basis and the resuLtant unreaLized gains/Losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual, basis except for the transaction designated with an asset or LiabiLity that is carried at market vaLue or Lower of cost or market vaLue in the financial statements,which are accounted simiLar to the underlying asset or LiabiLity.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circuLar dated December 14, 2007. Premium on option transaction is recognized as income/expense on expiry or earLy termination of the transaction. Mark to market (MTM) gain/Loss (adjusted for premium received/paid on option contracts) is recorded under''Other Income''.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/Losses on options. Charges receivabLe/payabLe on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of canceLLation/termination under''Other Income''.

The requirement for collateral, and credit risk mitigation on derivative contracts is assessed based on internal, credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''PrudentiaL Norms for Off- baLance Sheet Exposures of Banks''a generaL provision is made on the current gross MTM gain of the contract for aLL outstanding interest rate and foreign exchange derivative transactions.

1.4.8 Fixed assets

Fixed assets are stated at cost Less accumulated depreciation, amortization and accumulated impairment Losses. Cost comprises the purchase price and any cost attributabLe for bringing the asset to its working condition for its intended use.

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net seLLing price and its vaLue in use. If such assets are considered to be impaired,the impairment is recognized by debiting the profit and Loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair vaLue ofthe assets.

1.4.9 Depreciation

TiLL the year ended 31 March 2014, depreciation rates prescribed under ScheduLe XIV were treated as minimum rates and the company was not aLLowed to charge depreciation at Lower rates even if such Lower rates were justified by the estimated usefuL Life of the asset. ScheduLe II to the Companies Act 2013 prescribes usefuL Lives for fixed assets which, in many cases, are different from Lives prescribed under the erstwhiLe ScheduLe XIV.

Considering the applicability of ScheduLe II, the management has re-estimated usefuL Lives and residuaL vaLues of aLL its fixed assets. The management beLieves that depreciation rates currently used fairly reflect its estimate ofthe usefuL Lives and residuaL vaLues of fixed assets.

Depreciation on fixed assets is provided on straight-Line method, over estimated usefuL Lives, as determined by the management, atthe rates mentioned beLow:

Assets costing Less than Rs.5,000 are fuLLy depreciated in the year of purchase.

For assets purchased/ soLd during the year, depreciation is being provided on pro rata basis by the Bank.

The Bank has changed the depreciation rates for Office Equipment from 16.21% to 20% and Furniture and Fixtures from 6.33% to 10% in Line with ScheduLe II to the Companies Act, 2013 in FinanciaL Year 2014-15. TiLL March 31,2014 the Bank had foLLowed depreciation rate as prescribed in ScheduLe XIV of the Companies Act 1956 for Office Equipments and Furniture and Fixtures. Had the Bank foLLowed the earLier depreciation rates the profit after tax wouLd have been higher by '' 51,050 thousands.

1.4.10 Retirement and employee benefits

Leave saLary

The empLoyees of the Bank are entitLed to carryforward a part of their unavaiLed/unutiLized Leave subject to a maximum Limit. The empLoyees cannot encash unavaiLed/unutiLized Leave. The Bank has computed the compensated absence provision as per revised AS 15 - EmpLoyee Benefits.

Gratuity

The Bank provides for gratuity, a defined benefit retirement pLan,covering eLigibLe empLoyees.The pLan provides for Lump sum payments to vested empLoyees at retirement or upon death whiLe in empLoyment or on termination of empLoyment for an amount equivaLent to 15 days'' eLigibLe saLary payabLe for each compLeted year of service if the service is more than 5 years. The Bank accounts for the LiabiLity for future gratuity benefits using the projected unit cost method based on annuaL actuariaL vaLuation.

The Bank recognizes the actuariaL gains and Losses during the year in which the same are incurred.

Provident fund

In accordance with Law, aLL empLoyees of the Bank are entitLed to receive benefits under the provident fund, a defined contribution pLan in which both the empLoyee and the Bank contribute monthLy at a pre determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no LiabiLity for future provident fund benefits other than its annuaL contribution.

1.4.11 Leases

Leases where the Lessor effectiveLy retains substantiaLLy aLL risks and benefits of ownership are cLassified as operating Leases. Operating Lease payments are recognized as an expense in the profit and Loss account on a straight Line basis over the Lease term.

1.4.12 Income taxes

Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the ruLes framed there under. Deferred income taxes reflects the impact of current year timing differences between taxabLe income and accounting income for the year and reversaL of timing differences of earLier years. Deferred tax assets and LiabiLities are recognized for the future tax consequences of timing differences between the carrying vaLues of assets and LiabiLities and their respective tax bases and operating Loss carry forwards. Deferred tax assets and LiabiLities are measured using the enacted or substantiveLy enacted tax rates at the baLance sheet date.

Deferred tax assets are recognized onLyto the extent there is reasonabLe certainty that the assets can be reaLized in future. In case of unabsorbed depreciation or carried forward Loss undertaxation Laws,aLL deferred tax assetsare recognized onLy if there is virtuaL certainty of reaLization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each baLance sheet date and appropriateLy adjusted to reflect the amount that is reasonabLy/VirtuaLLy certain to be reaLized.

1.4.13 Provisions and contingent assets/liabilities

A contingent LiabiLity is a possibLe obLigation that arises from past events whose existence wiLL be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the controL of the company or a present obLigation that is not recognized because it is not probabLe that an outflow of resources wiLL be required to settLe the obLigation. A contingent LiabiLity also arises in extremeLy rare cases where there is a LiabiLity that cannot be recognized because it cannot be measured reLiabLy. The company does not recognize a contingent LiabiLity but discLoses its existence in the financiaLstatements

The Bank creates a provision when there is a present obligation as a resuLt of a past event that probabLy requires an outflow of resources and a reLiable estimate can be made ofthe amount ofthe obligation.

Provisions are reviewed at each baLance sheet date and adjusted to reflect the current best estimate. If it is no Longer probabLe that an outflow of resources wouLd be required to settLe the obligation,the provision is reversed.

Contingent assets are not recognized in the financiaL statements. However, contingent assets are assessed continuaLLy and if it is virtuaLLy certain that an inflow of economic benefits wiLL arise,the asset and reLated income are recognized in the period in which the change occurs.

1.4.14 Employee Stock Compensation Cost

Measurement of the empLoyee share-based payment pLans is done in accordance with the Guidance Note on Accounting for EmpLoyee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based EmpLoyee Benefits) Regulations, 2014. The Bank measures compensation cost reLating to empLoyee stock options using the intrinsic vaLue method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the Last cLosing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price.The exercise price ofthe Bank''s stock option is the Last dosing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

1.4.15 Cash and Cash equivalent

Cash and cash equivalents incLude cash in hand, baLances with RBI, baLances with other banks and money at call and short notice.

1.5.1 Capital

1.5.1.1 Equity Issue

During FinanciaL Year 2014-15, the Bank has issued 53,492,272 equity shares of Rs.10 each for cash pursuant to a OuaLified Institutions Placement (OIP) at Rs.550 aggregating to Rs.29,420,750 thousands. The Bank accreted Rs.28,713,354 thousands (net of share issue expenses ofRs. 172,473 thousands) as premium,on account of OIP. The Bank aLso issued 3,610,200 shares pursuant to the exercise of stock option aggregating to Rs. 808,240 thousands.

During the financiaL year ended March 31, 2014, the Bank has issued 2,011,337 shares pursuant to the exercise of stock option aggregating to Rs. 359,622 thousands.

18.5.1.2 CapitaL Reserve

Profit on saLe of investments in the HeLd to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capitaL reserve (net of appLicabLe taxes and transfer to statutory reserve requirements). During the year Rs. 262,447 thousands (previous year:Rs. 41,359 thousands) was transferred to CapitaL Reserve.

1.5.1.3 Investment Reserve

The Bank has transferred Rs.124,099 thousands (Previous year: Rs.4,385 thousands) (net of appLicabLe taxes and transfer to statutory reserve requirements) towards Investment Reserve on provisions for depreciation on investments credited to Profit and Loss Account.

1.5.1.5 Tier I and Tier II Capital.

During Financial. Year 2014-15,the Bank has not raised Tier I Debt instruments or Tier II Debt Instruments.

During Financial. Year 2013-14, the Bank has raised Tier I Debt instruments amounting to Rs.2,800,000 thousands, detaiLs ofwhich are as follows:

There was no provision for depreciation on investments outside India as at March 31,2015 and March 31,2014.

1.5.3 Repo Transactions

The detaiLs ofsecurities soLd and purchased under repos and reverse repos during the year ended March 31,2015:

The bank has dealt only in government securities in repo or reverse repo transactions during the financial year ended March 31, 2015 and March 31,2014.

The above figures excludes securities sold and purchased under Liquidity Adjustment Facility (LAF) with RBI.

The Bank has not soLd and transferred securities to or from HTM category exceeding 5% of the book vaLue of investment heLd in HTM category at the beginning of the year. The 5% threshold referred to above does not incLude onetime transfer of securities to/from HTM category with the approval, of Board of Directors permitted to be undertaken by banks as per extant RBI guidelines and saLe of securities under pre-announced Open Market Operation (OMO) auction to the RBI.

1.5.5.2 Un-hedged / uncovered foreign currency exposure ofthe Bank

The Bank''s foreign currency exposures as at March 31, 2015 that are not hedged/covered by either derivative instruments or otherwise are within the Net Overnight Open Position Limit (NOOP) and the Aggregate Gap Limit, as approved by the RBI. NOOP at March 31,2015 is Rs.1,884,151 thousands (March 31,2014 Rs.251,121 thousands).

1.5.5.3 Exchange Traded Interest Rate Derivatives

The foLLowing tabLe sets forth,for the period indicated,the detaiLs of exchange traded interest rate derivatives:

1.5.5.4 Currency Futures

The bank had deaLt in exchange traded currency forwards (Futures) during the financiaLyear ended March 31, 2015. As on March 31, 2015, the open contracts on the exchange were to the tune of USD 5,023 thousand (Rs. 315,608 thousand) for April 2015 expiry.

The Bank had deaLt in exchange traded currency Forwards (futures) during the financial year ended March 31, 2014. As on March 31, 2014 there were NiL Open Contracts.

1.5.5.5 Disclosures on risk exposure in derivatives As per RBI Master circuLar DBOD.BP.BC. No.8/21.04.018/2014-15 dated July 1, 2014, the foLLowing disclosures are being made with respect to risk exposure in derivatives ofthe Bank:

a) Purpose: The Bank uses Derivatives incLuding Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its baLance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk PoLicy, Investment PoLicy, Derivatives PoLicy, Derivatives Appropriateness PoLicy, Hedging PoLicy and ALM poLicy.

b) Structure: The Board of Directors ofthe Bank have constituted a Board LeveLsub-committee,the Risk Monitoring Committee (''RMC'') and delegated to it aLL functions and responsibilities reLating to the risk management poLicy of the Bank and its supervision thereof.

c) As part of prudent business and risk management practice, the Bank has aLso instituted a comprehensive Limit and control structure encompassing VaLue-at-Risk (VAR), Sensitivity and Greeks, Stop Loss & credit Limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internaL reporting mechanism providing reguLar reports to the RMC. Such a structure heLps the Bank to monitorand mitigate market risk across FX, interest rates,credit risk,operational risk incLuding reputationaL risk and LegaL risk.

d) The Bank has an independent MiddLe Office, which isresponsibLeformonitoring, measurement a n d anaLysis of derivative reLated risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty Limits and aLso a treasury operation unit which is responsible for managing operational aspects of derivatives controLfunctionand settlement of transactions. The Bank is subject to a concurrent audit for aLL treasury transactions, incLuding derivatives, a monthLy report of which is periodically submitted totheAudit& Compliance Committee of the Bank.

e) In addition to the above, the Bank independently evaLuates the potentiaL credit exposure on account of aLL derivative transactions, wherein risk Limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit PoLicy ofthe Bank,the Bank has instituted an approvaL structure for aLL treasury/derivative reLated credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to caLL for coLLateraLs or terminate a transaction and contain the risk.

f) The Bank reports aLL trading positions to the management on a daiLy basis. The Bank revaLues its trading position on a daiLy basis for Management and Information System (''MIS'') and control purposes and records the same in the books ofaccounts on a monthLy basis.

g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the hedged item, the risk management objective for undertaking the hedge and ALCO monitors aLL outstanding hedges on a periodical basis. Further the Bank''s ''Hedging Policy'' has stipulated conditions to ensure that the Hedges entered into are effective.

h) Refer Note 1.4.7 for accounting poLicy on derivatives.

The Bank does not have any advances which are outstanding in the books of the branches, but have been written-off (fuLLy or partially) at Head Office LeveL.

1.5.6.3 Provision coverage Ratio

The provision coverage ratio of the Bank as at March 31, 2015 computed as per the RBI guidelines is 72.01% (previous year 85.10%)

1.5.6.4 Concentration ofNPAs

Exposure (Funded Non Funded) of the Bank to top four NPA is Rs. 1,151,171 thousands as at March 31, 2015 (previous year Rs.718,632 thousands).

1.5.8 Non-performing financial, assets purchased/ soLd from/ to other bank

The Bank has not purchased/sold any non performing financial assets from/to bank during the year ended March 31,2015 and March 31,2014.

1.5.9 Provisions for Standard Assets

Provision on standard advances is Rs.6,593,528 thousands and Rs.4,153,204 thousands as at March 31,2015 and March 31,2014 respectively.

1.5.11 Asset Liability Management

In compiling the information of maturity pattern estimates and assumptions have been made by the management and have been relied upon by the auditors. For Investment Securities, the Bank buckets HFT portfolio and reLated depreciation in 29-90 days bucket oractuaL maturity whichever is earlier.

1.5.12 Exposures

The Bank has lending to sectors, which are sensitive to asset price fluctuations. Such sectors include capital market and real estate.

1.5.12.1 Exposure to ReaL Estate Sector

The exposure, representing the higher of funded and non-funded limits sanctioned or outstanding to real estate sector, is given in the table below:

1.5.12.2 Exposure to CapitaL Market

The exposure representing the higher of funded and non-funded limits sanctioned or outstanding to capital market sector is given in the table below:

1.5.12.3 Risk Category wise Country Exposure

As perthe extant RBI guidelines, the country exposure of the Bank is categorized into various risk categories Listed in the foLLowing tabLe. As at March 31,2015 and March 31, 2014, the Bank''s funded exposure to any individual country did not exceed l%of the totaL funded assets of the Bank :

During the year ended March 31, 2014, with the prior approval, of the Board of Directors, the Bank sanctioned enhancement in singLe borrower Limit for Sesa SterLite Ltd from 15% of CapitaL Funds to 20% of CapitaL Funds. At March 31,2014,the exposure to Sesa SterLite Ltd as a percentage of capitaL funds as of March 31,2014 was 17.0%.

During the year ended March 31, 2014, with the prior approvaL of the Board of Directors, the Bank sanctioned enhancement in group borrower Limit for Tata Group from 50% of CapitaL Funds to 55% of CapitaL Funds. At March 31,2014, the exposure to Tata Group as a percentage of capitaL funds as of March 31,2014 was 40.7%.

1.6 Miscellaneous

1.6.1 Income Taxes

Provisions made for Income Tax during the year

1.6.2 Disclosure of penalties imposed by RBI

As per the provision of RBI Master CircuLar DCM (CC) No. G-3/03.39.01/2013-14 -Scheme of Incentive and penaLties for Bank branches based on performance in rendering customer service to the member of public dated July 1, 2013, RBI has imposed penalty of Rs.10 thousand in June 2014 on account of deficiencies in services in providing facility for adjudication and exchange of mutiLated notes.

RBI has imposed penalty of Rs.1,000 thousands in July 2014 under sub section 1 of Section 47A of the Banking Regulation Act, 1949 for non compliance with the RBI guidelines pertaining to discipline in current account opening and quarterly exchange of information amongst banks under MuLtipLe / Consortium banking.

RBI has Levied penaLty of Rs.20,000 thousand in July 2013 under Section 47 A (1) (c) read with section 46 (4) (i) of the Banking Regulation Act, 1949 for non compliance of the RBI instruction on Know Your Customer/Anti Money Laundering. Further, in terms of RBI circuLar reference no. IDMD.DOD.17/11.01.01 (B) 2010-11 dated July 14, 2010, RBI has Levied penaLty of Rs.500 thousand on January 3, 2014 on account of instance of Subsidiary GeneraL Ledger (SGL) bounce due to insufficient baLance in the SGL account.

1.6.3 Fees/ Remuneration received from bancassurance

Bank has earned Rs.357,876 thousands from bancassurance business during year ended March 31, 2015 (previous year: Rs.237,572 thousands).

1.6.4 Concentration of Deposits

As at March 31,2015, the deposits of top 20 depositors aggregated to Rs.120,505,557 thousands (previous year: Rs. 104,528,126 thousands) (excLuding certificate of deposits, which are tradabLe instruments), representing 13.22% (previous year: 14.09%) of the totaL deposit base.

1.6.5 Concentration of Advances

As at March 31,2015 the top 20 advances aggregated to Rs.234,026,685 thousands (previous year Rs.200,355,130 thousands), representing 14.24% (previous year 16.19%) of the totaL advances. For this purpose, advance is computed as per definition of Credit Exposure in RBI Master CircuLar on Exposure Norms DBOD.No.Dir. BC.12/13.03.00/2014-15 dated July 1,2014.

1.6.6 Concentration of Exposures

As at March 31,2015 the top 20 exposures aggregated to Rs.261,110,589 thousands (previous year Rs.229,680,404 thousands), representing 14.35% (previous year 16.10%) of the total, exposures. Exposure is computed as per definition of Credit and Investment Exposure in RBI Master CircuLar on Exposure Norms DBOD.No.Dir. BC.12/13.03.00/2014-15 datedJuLy 1,2014.

1.6.7 Overseas Assets, NPAs and Revenue

For the year ended March 31,2015 and March 31,2014, the Bank has not earned any revenue from overseas branches. The Bank does not have any assets or NPA from overseas branches as at March 31,2015 and March 31,2014.

1.6.8 Sponsored SPVs

The Bank has not sponsored any SPV and hence there is no consolidation due to SPVs in Bank''s books.

1.7.1 Staff retirement benefits

The foLLowing tabLe sets out the funded status of the Gratuity PLan and the amounts recognized in the Bank''s financiaLstatements as of March 31,2015 and March 31,2014:

The Bank has entire contribution of Gratuity Fund as Investments with Insurance Companies.

The overaLL expected rate of return on assets is determined based on the market prices prevailing on that date, appLicabLe to the period over which the obligation is to be settLed.


Mar 31, 2014

1 Background

YES BANK Limited (the ''Bank'' or ''YES BANK'') is a private sector Bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK Limited is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK Limited is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004.

2 Basis of preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the Accounting Standards (AS) notified under the Companies Act, 1956, read with General Circular 8/2014 dated April 4, 2014 issued by the Ministry of Corporate Affairs to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention.

3 Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.

4 Significant accounting policies

4.1 Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

- Interest income is recognized in the profit and loss account on accrual basis, except in the case of non- performing assets. Interest on non-performing assets is recognized upon realization as per the prudential norms of the RBI.

- Revenue in certain structured transactions where interest income is partially receivable in advance is recognized when due.

- Loan processing fee is accounted for upfront when it becomes due.

- Dividend income is recognized when the right to receive payment is established.

- Commission on guarantees issued by the Bank is recognized as income on yearly basis at each anniversary over the period of the guarantee, except for guarantee commission not exceeding Rs.100 thousands, which is recognized at the time of issue of the guarantee.

- Commission on Letters of Credit (''LC'') issued by the Bank is recognized as income at the time of issue of the LC.

- Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.

- In case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis.

- Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

- Other fees and commission income are recognized on accrual basis.

4.2 Investments

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBOD.No.BP. BC.8/21.04.141/2013-14 dated 1 July 2013 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2013-14/50/March 28, 2014.

a) accounting and classification

Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as "Held for trading" (''HFT''), "Available for sale" (''AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

b) cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account.

c) Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

d) Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS/HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS/HFT category, the investments held under HTM at a discount are transferred to AFS/HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/HFT at the amortized cost.

Transfer of investments from AFS to HFT or vice- a- versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

e) Valuation

Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

The market/fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA.

The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs.1 per VCF.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the book value if the latest balance sheet is available, else, at Rs.1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.

Investments in quoted Mutual Fund (MF) Units are valued as per Stock Exchange quotations. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

f) accounting for repos/reverse repos

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBOD.No.BP.BC.8/21.04.141/2013- 14 dated July 1, 2013. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.

g) profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/ Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.

4.3 advances

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific loan loss provisions, interest in suspense, inter- bank participation certificates issued and bills rediscounted. Specific loan loss provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines.

As per the RBI guidelines a general provision is made on all standard advances based on the category of advances as prescribed in the said guidelines. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Bank. These provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''.

In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Amounts recovered against debts written off in earlier years and provisions no longer considered necessary based on the current status of the borrower are recognised in the profit and loss account.

4.4 Transactions involving foreign exchange Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts of original maturities less than 12 months outstanding at the balance sheet date are marked to market at rates notified by FEDAI for specified maturities, suitably interpolated for in-between maturity contracts. Long term foreign exchange contracts (original maturities of over 12 months) are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account.

Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap.

Income and expenditure in foreign currency are accounted for at exchange rates prevalent on the date of the transaction.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

4.5 earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard(AS) 20, "Earnings per Share" notified under the Companies Act, 1956, read with General Circular 8/2014 dated April 4, 2014 issued by the Ministry of Corporate Affairs to the extent applicable. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.

4.6 accounting for derivative transactions Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on- balance sheet assets and liabilities. All market making/ trading transactions are marked to market on a periodic basis and the resultant unrealized gains/losses are recognized in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''.

The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/termination of foreign exchange forward contracts and swaps are recognized as income/expense on the date of cancellation/ termination under ''Other Income''.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''Prudential Norms for Off- balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

4.7 Fixed assets

Fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use.

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

4.8 Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below (which are higher than or equal to the corresponding rates prescribed in Schedule XIV to the Companies Act, 1956):

Assets costing less than Rs.5,000 are fully depreciated in the year of purchase.

For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.

4.9 Retirement and employee benefits

Leave salary

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/ unutilized leave. The Bank has computed the compensated absence provision as per revised AS 15 – Employee Benefits.

gratuity

The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The Bank recognizes the actuarial gains and losses during the year in which the same are incurred.

provident fund

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. The Bank has no liability for future provident fund benefits other than its annual contribution and recognizes such contributions as an expense in the year incurred.

4.10 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term.

4.11 Income taxes

Income tax expense comprises current tax provision (i.e. the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under) and the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

4.12 provisions and contingent assets/liabilities

The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for contingent liability is made when there is a possible obligation or a present obligation that may but probably will not require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

4.13 employee Stock compensation cost Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI ESOP Guidelines 1999. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

4.14 cash and cash equivalent

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

5.1 capital

5.1 equity Issue

During the financial year ended March 31, 2014, the Bank has issued 2,011,337 shares (previous year: 5,634,865 shares) pursuant to the exercise of stock option aggregating to Rs.359,622 thousands (previous year: Rs.813,123 thousands).

5.2 capital Reserve

Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs.41,359 thousands (previous year: Rs.348,646 thousands) was transferred to Capital Reserve.

5.3 Investment Reserve

The Bank has transferred Rs.4,385 thousands (Previous year: Rs.97,136 thousands) (net of applicable taxes and transfer to statutory reserve requirements) towards Investment Reserve on provisions for depreciation on investments credited to Profit and Loss Account.

5.4 Un-hedged/uncovered foreign currency exposure

The Bank''s foreign currency exposures as at March 31, 2014 that are not hedged/covered by either derivative instruments or otherwise are within the Net Overnight Open Position limit (NOOP) and the Aggregate Gap limit, as approved by the RBI. NOOP at March 31, 2014 is Rs.251,121 thousands (March 31, 2013 Rs.519,379 thousands).

5.5 currency Futures

The Bank had dealt in exchange traded currency forwards(futures) during the financial year ended March 31, 2014. As on March 31, 2014 there were Nil Open Contracts (Previous Year: Nil).

5.6 Disclosures on risk exposure in derivatives

As per RBI Master circular DBOD.No.BP.BC. 9/21.06.001/2013-14 dated July 1, 2013, the following disclosures are being made with respect to risk exposure in derivatives of the Bank:

a) Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriateness Policy, Hedging Policy and ALM policy.

b) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (''RMC'') and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof.

c) As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity and Greeks, Stop loss & credit limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC. Such a structure helps the Bank to monitor and mitigate market risk across FX, interest rates, credit risk, operational risk including reputational risk and legal risk.

d) The Bank has an independent Middle Office, which is responsible for monitoring, measurement and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank.

e) In addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk.

f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (''MIS'') and control purposes and records the same in the books of accounts on a monthly basis.

g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the hedged item, the risk management objective for undertaking the hedge and ALCO monitors all outstanding hedges on a periodical basis. Further the Bank''s ''Hedging Policy'' has stipulated conditions to ensure that the Hedges entered into are effective.

h) Refer Note

5.7 for accounting policy on derivatives.

1 Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures.

2 Trading portfolio including accrued interest.

3 Mark to Market for credit exposure includes accrued interest.

4 Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives

Note:

1) Denotes absolute value of loss which the Bank could suffer on account of a change in interest rates by 1% which however doesn''t capture the off-setting exposures between interest rate and currency derivatives.

2) PV01 exposures reported above may not necessarily indicate the interest rate risk the bank is exposed to, given that PV01 exposures in Investments (which may offset the PV01 reflected above) do not form part of the above table.

3) The notional principal amount of foreign exchange contracts classified as trading at March 31, 2014 amounted to Rs.1,097,322,162 thousands( previous year: Rs.1,460,579,466 thousands). For these trading contracts, at March 31, 2014, marked to market position was asset of Rs.24,404,919 thousands( Previous year: Rs.17,375,046 thousands) and liability of Rs.24,082,263 thousands( Previous Year: Rs.16,538,216 thousands).The notional principal amount of foreign exchange contracts classified as hedging at March 31, 2014 amounted to Rs.7,344,331 thousands (previous year: Rs.39,722,630 thousands). Credit exposure on forward exchange contracts at March 31, 2014 was Rs.41,056,119 thousands (Previous Year: Rs.39,992,956 thousands).

5.8 provision coverage Ratio

The provision coverage ratio of the Bank as at March 31, 2014 computed as per the RBI guidelines is 85.10% (previous year 92.59%)

5.9 concentration of npas

Exposure (Funded Non Funded) of the Bank to top four NPA is Rs.718,632 thousands as at March 31, 2014 (previous year Rs.558,250 thousands) and the Bank has provided for Rs.718,632 thousands (previous year Rs.558,250 thousands) for the same.

5.10 non-performing financial assets purchased/sold from/to other bank

The Bank has not purchased/sold any non performing financial assets from/to bank during the year ended March 31, 2014 and March 31, 2013.

5.11 provisions for Standard assets

Provision on standard advances is Rs.4,153,204 thousands and Rs.2,655,326 thousands as at March 31, 2014 and March 31, 2013 respectively.

5.12 asset Liability Management

In compiling the information of maturity pattern, estimates and assumptions have been made by the management and have been relied upon by the auditors. For Investment Securities, the Bank buckets HFT portfolio and related depreciation in 29-90 days bucket or actual maturity whichever is earlier.

5.13 Details of Single Borrower Limit (SBL) and group Borrower Limit (gBL)

During the year ended March 31, 2014, the Bank has complied with the Reserve Bank of India guidelines on single borrower and borrower group limit. As per the exposure limits permitted under the extant RBI regulation, the Bank, with the approval of the Board of Directors, can enhance exposure to a single borrower or borrower group by a further 5 percent of capital funds.

During the year ended March 31, 2014, with the prior approval of the Board of Directors, the Bank sanctioned enhancement in single borrower limit for Sesa Sterlite Ltd from 15% of Capital Funds to 20% of Capital Funds. At March 31, 2014, the exposure to Sesa Sterlite Ltd as a percentage of capital funds as of March 31, 2014 was 17.0%.

During the year ended March 31, 2014, with the prior approval of the Board of Directors, the Bank sanctioned enhancement in group borrower limit for Tata Group from 50% of Capital Funds to 55% of Capital Funds. At March 31, 2014, the exposure to Tata Group as a percentage of capital funds as of March 31, 2014 was 40.7%.

During the year ended March 31, 2013, the Bank has complied with the Reserve Bank of India guidelines on single borrower and borrower group limit. As per the exposure limits permitted under the extant RBI regulation, the Bank, with the approval of the Board of Directors, can enhance exposure to a single borrower or borrower group by a further 5 percent of capital funds. During the year ended March 31, 2013, with the prior approval of the Board of Directors, the Bank exceeded the single borrower limit of 15% of capital funds to Tata Steel and Hindalco Industries. At March 31, 2013, the exposure to Tata Steel as a percentage of capital funds was 11.68% and exposure to Hindalco Industries as a percentage of capital funds was 5.32%.

6.1 Disclosure of penalties imposed by RBI Pursuant to the show cause notice dated June 7, 2013, RBI has levied penalty of Rs.20,000 thousand in July 2013 under Section 47 A (1) (c ) read with section 46 (4) (i) of the Banking Regulation Act, 1949 for non compliance of the RBI instruction on Know Your Customer/Anti Money Laundering. Further, In terms of RBI circular reference no. IDMD.DOD.17/11.01.01 (B) 2010-11 dated July 14, 2010, RBI has levied penalty of Rs.500 thousand on January 3, 2014 on account of instance of Subsidiary General Ledger (SGL) bounce due to insufficient balance in the SGL account on December 26, 2013.

No penalty has been imposed by RBI on the Bank during the financial year ended March 31, 2013.

6.2 Fees/Remuneration received from bancassurance Bank has earned Rs.237,572 thousands from bancassurance business during year ended March 31, 2014 (previous year: Rs.200,049 thousands).

6.3 concentration of Deposits

As at March 31, 2014, the deposits of top 20 depositors aggregated to Rs.104,528,126 thousands (previous year: Rs.100,431,510 thousands) (excluding certificate of deposits, which are tradable instruments), representing 14.09% (previous year: 15.01%) of the total deposit base.

6.4 concentration of advances

As at March 31, 2014 the top 20 advances aggregated to Rs.200,355,130 thousands (previous year Rs.140,002,772 thousands), representing 16.19% (previous year 13.38%) of the total advances. For this purpose, advance is computed as per definition of Credit Exposure in RBI Master Circular on Exposure Norms DBOD.No.Dir.BC.13/13.03.00/2013-14 dated July 1, 2013.

6.5 concentration of exposures

As at March 31, 2014 the top 20 exposures aggregated to Rs.229,680,404 thousands (previous year Rs.193,299,611 thousands), representing 16.10% (previous year 15.55%) of the total exposures. Exposure is computed as per definition of Credit and Investment Exposure in RBI Master Circular on Exposure Norms DBOD.No.Dir.BC.13/13.03.00/2013-14 dated July 1, 2013.

6.6 Overseas assets, npas and Revenue

For the year ended March 31, 2014 and March 31, 2013, the Bank has not earned any revenue from overseas branches. The Bank does not have any assets or NPA from overseas branches as at March 31, 2014 and March 31, 2013.

6.7 Sponsored SpVs

The Bank has not sponsored any SPV and hence there is no consolidation in Bank''s books.

7.1 Staff retirement benefits

The following table sets out the funded status of the Gratuity Plan and the amounts recognized in the Bank''s financial statements as of March 31, 2014 and March 31, 2013:

7.2 Segment Results

Pursuant to the guidelines issued by RBI on AS-17 (Segment Reporting) - Enhancement of Disclosures dated April 18, 2007, effective from period ending March 31, 2008, the following business segments have been reported.

- Treasury: Includes investments, all financial markets activities undertaken on behalf of the Bank''s customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions.

- Corporate/Wholesale Banking: Includes lending, deposit taking and other services offered to corporate customers.

- Retail Banking: Includes lending, deposit taking and other services offered to retail customers.

- Other Banking Operations: Includes para banking activities like third party product distribution, merchant banking etc.


Mar 31, 2013

1.4.1 Revenue recognition

Revenue is recognised to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

- Interest income is recognised in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non- performing assets is recognised upon realisation as per the prudential norms of the RBI.

- Revenue in certain structured transactions where interest income is partially receivable in advance is recognised when due.

- Loan processing fee is accounted for upfront when it becomes due.

- Dividend income is recognised when the right to receive payment is established.

- Commission on guarantees issued by the Bank is recognised as income on yearly basis at each anniversary over the period of the guarantee, except for guarantee commission not exceeding Rs. 100 thousands, which is recognised at the time of issue of the guarantee.

- Commission on Letters of Credit (''LC'') issued by the Bank is recognised as income at the time of issue of the LC.

- Income on non-coupon bearing discounted instruments is recognised over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognised over the tenor of the instrument on yield basis.

- In case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis.

- Revenue from financial advisory services is recognised in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.

- Other fees and commission income are recognised on accrual basis.

1.4.2 Investments

Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DB0D.No.BPBC.13/21.04.141/2012-13 dated 2 July 2012 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2012-13/41/March 01, 2013.

a) Accounting and Classification

Investments are recognised using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorised as "Held for trading" (''HFT''), "Available for sale" (''AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

b) Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account.

c) Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

d) Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortised cost.

Transfer of investments from AFS to HFT or vice- a- versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

e) Valuation

Investments categorised under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognised in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments received in lieu of restructured advances are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortisation expense of premia on investments in the HTM category is deducted from interest income. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA.

The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA.

Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs. 1 per VCF.

Quoted equity shares are valued at their closing price on a recognised stock exchange. Unquoted equity shares are valued at the book value if the latest balance sheet is available, else, at Rs. 1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.

Investments in quoted Mutual Fund (MF) Units are valued as per Stock Exchange quotations. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.

f) Accounting for repos / reverse repos

Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralised borrowing and lending transactions respectively in accordance with RBI master circular No. DBOD. No.BPBC.13/21.04.141/2012-13 dated July 2, 2012. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognised as interest income/ expense over the period of transaction.

g) Profit/Loss on sale of Investments

Profit/Loss on sale of Investments in the HTM category is recognised in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/ Loss on sale of investments in HFT and AFS categories is recognised in the Profit and Loss account.

1.4.3 Advances

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific loan loss provisions, interest in suspense, inter- bank participation certificates issued and bills rediscounted. Specific loan loss provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines.

As per the RBI guidelines a general provision is made on all standard advances based on the category of advances as prescribed in the said guidelines. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix. These provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''.

In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Amounts recovered against debts written off in earlier years and provisions no longer considered necessary based on the current status of the borrower are recognised in the profit and loss account.

1.4.4 Transactions involving foreign exchange

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts of original maturities less than 12 months outstanding at the balance sheet date are marked to market at rates notified by FEDAI for specified maturities, suitably interpolated for in-between maturity contracts. Long term foreign exchange contracts (original maturities of over 12 months) are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognised in the profit and loss account.

Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortised over the life of the swap.

Income and expenditure in foreign currency are accounted for at exchange rates prevalent on the date of the transaction.

In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

1.4.5 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with (AS) 20, "Earnings per Share" prescribed by the Companies (Accounting Standards) Rules, 2006. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.

1.4.6 Accounting for derivative transactions

Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a periodic basis and the resultant unrealised gains/losses are recognised in the profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.

The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognised as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/ paid on option contracts) is recorded under ''Other Income''.

The amounts received/paid on cancellation of option contracts are recognised as realised gains/ losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognised as income/ expense on the date of cancellation/ termination under ''Other Income''.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.

As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

1.4.7 Fixed assets

Fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use.

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

1.4.8 Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below (which are higher than or equal to the corresponding rates prescribed in Schedule XIV to the Companies Act, 1956):

Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase.

For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank.

1.4.9 Retirement and employee benefits Leave salary

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilised leave subject to a maximum limit. The employees cannot encash unavailed/unutilised leave. The Bank has computed the compensated absence provision as per revised AS 15 - Employee Benefits.

Gratuity

The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The Bank recognises the actuarial gains and losses during the year in which the same are incurred.

Provident fund

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. The Bank has no liability for future provident fund benefits other than its annual contribution and recognises such contributions as an expense in the year incurred.

1.4.10 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the profit and loss account on a straight line basis over the lease term.

1.4.11 Income taxes

Income tax expense comprises current tax provision (i.e. the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under) and the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realised.

1.4.12 Provisions and contingent assets/ liabilities

The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for contingent liability is made when there is a possible obligation or a present obligation that may but probably will not require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognised in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

1.4.13 Employee Stock Compensation Cost

Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI ESOP Guidelines 1999. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

1.4.14 Cash and Cash equivalent

Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.


Mar 31, 2011

1.1.1 Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will fow to the Bank and the revenue can be reliably measured.

- Interest income is recognized in the Profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognized upon realization as per the prudential norms of the RBI.

- Revenue in certain structured transactions where interest income is partially receivable in advance is recognized when due.

- Dividend income is recognized when the right to receive payment is established.

- Commission on guarantees issued by the Bank is recognized as income on yearly basis over the period of the guarantee, except for guarantee commission not exceedingRs. 100 thousands, which is recognized at the time of issue of the guarantee.

- Commission on Letters of Credit (LC) issued by the Bank is recognized as income at the time of issue of the LC.

- Income on discounted instruments is recognized over the tenure of the instrument on a straight line basis.

- Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients.

- Other fees and commission income are recognized on accrual basis.

1.1.2 Investments

Classification and valuation of the Banks investments are carried out in accordance with RBI Circular DBOD no. B P. BC. 18- 21.04.141- 2010-11 dated July 1, 2010 and Fixed Income Money Market and Derivative association (FIMMDa) guidelines FIMCIR-2010-11-72-March 11, 2011.

a) Accounting and Classification

Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as "Held for trading" (HFT), "available for sale" (aFs) or "Held to maturity" (HTM) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classifed as disclosed in schedule 8 (Investments) under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

b) Cost of acquisition

Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the Profit and loss account.

c) Basis of Classification securities that are held principally for resale within 90 days from the date of purchase are classifed under the HFT category. Investments that the Bank intends to hold till maturity are classifed under the HTM category. securities which are not classifed in the above categories are classifed under the aFs category.

d) Transfer between categories

ReClassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from aFs - HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to aFs - HFT category, the investments held under HTM at a discount is transferred to aFs - HFT category at the aquisition price and investments placed in the HTM category at a premium is transferred to aFs - HFT at the amortized cost.

Transfer of investments from aFs to HFT or vice a versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.

e) Valuation

Investments categorized under aFs and HFT categories are marked to market on a periodical basis as per relevant RBI guidelines. net depreciation, if any, in any Classification mentioned in schedule 8 (Investments) is recognized in the Profit and loss account. The net appreciation if any, under each Classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments classifed under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. amortization expense of premia on investments in the Held to Maturity (HTM) category is deducted from interest income. Where in the opinion of management, a diminution, other than temporary in the value of investments classifed under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certifcates of deposit being discounted instruments, are valued at carrying cost.

The market-fair value applied for the purpose of periodical valuation of quoted investments included in the aFs and HFT categories is the market price of the scrip as available from the trades-quotes on the stock exchanges and for subsidiary General Ledger (sGL) account transactions, the prices as periodically declared by Primary Dealers association of India jointly with FIMMDa.

The market-fair value of unquoted government securities included in the aFs and HFT category is determined as per the rates published by FIMMDa. Further, in the case of unquoted fixed income securities (other than government securities), valuation is carried out by applying an appropriate mark-up (refecting associated credit risk) over the Yield to Maturity (YTM) rates of government securities. such mark up and YTM rates applied are as per the relevant rates published by FIMMDa.

Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the book value if the latest balance sheet is available, else, at Re. 1 per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. accordingly, in cases where the cash fows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.

Mutual Fund units are valued at their net asset value on the reporting date.

f) Accounting for repos-reverse repos

Pursuant to Reserve Bank of Indias circular - RBI- 2009-2010- 356 IDMD- 4135-11.08.43- 2009-10 dated March 23, 2010 on Uniform accounting for Repo-Reverse Repo Transactions, effective april 1, 2010, securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are treated as collateralized borrowing and lending transactions respectively. The frst leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of frst and second (reversal of frst) leg refects interest and is recognized as interest income- expense over the period of transaction.

For the year ended March 31, 2010 repurchase (repos) and reverse repurchase (reverse repos) transactions were accounted for on outright sale and outright purchase basis respectively in line with then applicable RBI guidelines. The difference between the clean price of frst leg and the clean price of the second leg is recognized as interest income-expense over the period of transaction.

In respect of repo transactions under Liquidity adjustment Facility (LaF) with RBI, money borrowed from RBI are credited to borrowing account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LaF, money paid to RBI are debited to lending account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income.

18.4.3 Advances

advances are classifed as performing and non-performing based on the relevant RBI guidelines. advances are stated net of specific loan loss provisions, interest in suspense, export Credit Guarantee Corporation of India Limited (eCGC) claims received, inter-bank participation certifcates issued and bills rediscounted. specific loan loss provisions in respect of non-performing advances are made based on managements assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. as per the RBI guidelines a general provision is made on all standard advances based on the category of advances as prescribed in the said guidelines. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix. These provisions are included in schedule 5 - Other liabilities and provisions - Others.

In addition to the provisions required according to the asset Classification status, provisions are made for individual country exposures (other than for home country exposure) in accordance with RBI guidelines. Countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit and provisioning is done in respect of that country where the net funded exposure is one percent or more of the Banks total assets.

In respect of restructured standard and non-performing assets, provision is made for the present value of principal and interest component sacrifced at the time of restructuring the assets, based on the RBI guidelines.

Amounts recovered against debts written off in earlier years and provisions no longer considered necessary based on the current status of the borrower are recognized in the Profit and loss account.

1.1.3 Securitization transactions

The Bank enters into securitization transactions wherein corporate loans are sold to a special Purpose Vehicle (sPV). These securitization transactions are accounted for in accordance with the RBI guidelines on "securitization of standard assets". securitized assets are derecognized upon sale if the Bank surrenders control over the contractual rights that comprise the financial asset and fulfls other conditions as per the applicable extant RBI guidelines.

Gain on securitization is amortized over the life of the securities issued by the sPV. Losses are recognized immediately. sales and transfers that do not meet the criteria for surrender of control are accounted for as secured borrowings.

1.1.4 Transactions involving foreign exchange

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notifed by the Foreign exchange Dealers association of India (FeDaI). Foreign exchange contracts outstanding at the balance sheet date are marked to market at rates notifed by FeDaI for specifed maturities, suitably interpolated for in-between maturity contracts as specifed by FeDaI, and are stated at net present value based on LIBOR-sWaP curves of the respective currencies for contracts of maturities over 12 months (long-term forex contract). The resulting Profits or losses are recognized in the Profit and loss account.

Premia-discounts on foreign exchange swaps, that are used to cover risks arising from foreign currency assets and liabilities, are amortized over the life of the swap.

Income and expenditure in foreign currency are accounted for at exchange rates prevalent on the date of the transaction.

In accordance with as 11 The effects of changes in Foreign exchange Rates, contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notifed by FeDaI corresponding to the balance sheet date.

1.1.5 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with as 20, "earnings per share" prescribed by the Companies (accounting standards) Rules, 2006. Basic earnings per equity share have been computed by dividing net Profit for the year by the weighted average number of equity shares outstanding for the period.

Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.

1.1.6 Accounting for derivative transactions

Derivative transactions comprise of forward rate agreements, swaps and option contracts. The Bank undertakes derivatives transactions for market making-trading and hedging on-balance sheet assets and liabilities. all market making-trading transactions are marked-to-market on a periodic basis and the resultant unrealized gains-losses are recognized in the Profit and loss account.

Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements.

The Bank follows the option premium accounting framework prescribed by FeDaI sPL - circular dated December 14, 2007. Premium on option transaction is recognized into Profit and Loss on expiry or early termination of the transaction. Mark to Market gain-loss (adjusted for premium received-paid on option contracts) is recorded under Other Income.

The amounts received-paid on cancellation of Option contracts are recognized as realized gains-losses on options. Charges receivable- payable on cancellation- termination of foreign exchange forward contracts and swaps are recognized as income- expense on the date of cancellation- termination under Other Income.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Provisions for overdues, if any, are made as per the relevant RBI guidelines.

As per the RBI guidelines on Prudential norms for Off-balance sheet exposures of Banks a general provision is made on the current gross marked to market gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

1.1.7 Fixed assets

Fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use.

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net discounted cash fows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is recognised by debiting the Profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

1.1.7 Retirement and employee benefits

Leave salary

The employees of the Bank are entitled to carry forward a part of their unavailed-unutilized leave subject to a maximum limit. The employees cannot encash unavailed-unutilized leave. The Bank has computed the leave compensated absence provision as per revised as 15 – employee benefits. The Bank accounts for the liability for compensated absence benefits using the Projected unit cost method based on annual acturial valuation.

Gratuity

The Bank provides for gratuity, a defned beneft retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The Bank recognizes the actuarial gains and losses during the year in which the same are incurred.

Provident fund

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defned contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. The Bank has no liability for future provident fund benefits other than its annual contribution and recognizes such contributions as an expense in the year incurred.

1.1.8 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classifed as operating leases. Operating lease payments are recognized as an expense in the Profit and loss account on a straight line basis over the lease term.

1.1.9 Income taxes

Income tax expense comprises current tax provision (i.e. the amount of tax for the period determined in accordance with the Income Ta x act, 1961 and the rules framed thereunder) and the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to refect the amount that is reasonably-virtually certain to be realized.

1.1.10 Provisions and contingent assets-liabilities

The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outfow of resources and a reliable estimate can be made of the amount of the obligation. a disclosure for contingent liability is made when there is a possible obligation or a present obligation that may but probably will not require an outfow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outfow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to refect the current best estimate. If it is no longer probable that an outfow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an infow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

1.1.11 Employee Stock Compensation Cost

Measurement of the employee share-based payment plans is done in accordance with the Guidance note on accounting for employee share-based Payments issued by Institute of Chartered accountants of India (ICaI) and seBI esop Guidelines 1999. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Banks stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

1.2 Statutory disclosures as per RBI

1.2.1 Capital

1.2.1.1 Equity Issue

During the financial year ended March 31, 2011, the Bank has issued 7,479,855 shares pursuant to the exercise of stock option aggregating to Rs. 840,738 thousands.

During the financial year ended March 31, 2011, the Bank has charged to share Premium account, an amount of Rs. 54,447 thousands on account of the possible disallowance of tax beneft on certain expenses incurred in the financial year ended March 31, 2006, in connection with the Initial Public Offering. In the financial year ended March 31, 2006, these expenses were charged net of taxes to the share premium account.

During the financial year ended March 31, 2010 the Bank had issued 38,362,709 equity shares of Rs. 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at Rs. 269.50 aggregating to Rs. 10,338,750 thousands. The Bank also issued 4,325,630 shares pursuant to the exercise of stock option aggregating to Rs. 279,355 thousands. The Bank accreted Rs. 10,045,157 thousands (net of share issue expenses of Rs. 146,065 thousands) as premium, on the QIP and stock options excercised.

1.2.1.2 Capital Reserve

Profit on sale of investments in the HTM category is credited to the Profit and loss account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs. 19,924 thousands (previous year: Rs. 315,182 thousands) was transferred to capital reserve.

1.2.1.3 Investment Reserve

The Bank has transferred Rs. 137 thousands (Previous year: Rs. nil ) towards Investment Reserve on provisions for depreciation on investments credited to Profit and loss account.

1.2.1.2 Unhedged-uncovered foreign currency exposure

The Banks foreign currency exposures as at March 31, 2011 that are not hedged-covered by either derivative instruments or otherwise are within the net Overnight Open Position limit (nOOP) and the aggregate Gap limit, as approved by the RBI. nOOP at March 31, 2011 is Rs. 423,481 thousands (March 31, 2010: Rs. 281,577 thousands).

1.2.1.3 Exchange Traded Interest Rate Derivatives

The Bank has not dealt in exchange traded interest rate derivatives during the financial year ended March 31, 2011 (Previous Year: nIL)

1.2.1.4 Currency Futures

The bank had dealt in exchange traded currency Forwards (Futures) during the financial year ended March 31, 2011. as at March 2011, there were nIL open contracts. as at March 31, 2010 the open contracts on the exchange were to the tune of eURO 6,000,000 (InR 365,535,000) and GBP 337,000 (InR 22,997,722) for april 2010 expiry.

1.2.1.5 Disclosures on risk exposure in derivatives as per RBI Master circular RBI DBOD.BP.BC.no. 3- 21.04.018- 2010-11 dated July 1, 2010, the following disclosures are being made with respect to risk exposure in derivatives of the Bank:

a) Purpose: The Bank uses Derivatives including forwards and swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives appropriateness Policy, Hedging Policy.

b) structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (RMC) and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof.

c) as part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VaR), stop loss and portfolio credit limits for derivative transactions. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC.

d) The Bank has an independent Middle Offce, which is responsible for monitoring, measurement and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the top management and audit and Compliance Committee of the Bank.

e) In addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specifed separately for each product, in terms of both credit exposure and tenor. as mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury-derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk.

f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information system (MIs) and control purposes and records the same in the books of accounts on a monthly basis.

g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the hedged item, the risk management objective for undertaking the hedge.

h) Refer note 18.4.7 for accounting policy on derivatives.

1.2.6 Asset quality

1.2.6.1 Provision coverage Ratio

The provision coverage ratio of the Bank as at March 31, 2011 computed as per the the RBI circular dated December 1, 2009 is 88.63% (previous year 78.43%) (excluding technical write-offs).

1.2.6.2 Concentration of NPAs

exposure (Funded + non Funded) of the Bank to top four nPa is Rs. 575,899 thousands (previous year Rs. 473,980 thousands) and the Bank has provided for Rs. 520,468 thousands (previous year Rs. 382,114 thousands) for the same.

1.2.7 Financial assets sold to Securitization-Reconstruction Company for Asset Reconstruction

The Bank has not sold any financial assets to securitization-Reconstruction Company for asset reconstruction during year ended March 31, 2011 and March 31, 2010.

1.2.8 Non-performing financial assets purchased- sold from- to other Bank

The Bank has not purchased-sold any non performing financial assets from-to Bank during the year ended March 31, 2011 and March 31, 2010.

1.2.9 Provisions for Standard Assets

Provision on standard advances is Rs. 1,700,838 thousands and Rs. 1,179,863 thousands as at March 31, 2011 and 2010 respectively.

1.3.0 Asset Liability Management

Maturity pattern of certain items of assets and liabilities

In compiling the information of maturity pattern (refer 18.5.11 (a), (b), (c) and (d) below), estimates and assumptions have been made by the management.

Assets and liabilities in foreign currency exclude off-balance sheet assets and liabilities.

1.3.1 Exposures

The Bank has lending to sectors, which are sensitive to asset price fuctuations. such sectors include capital market, real estate and commodities.

1.4 Miscellaneous

1.4.1 Disclosure of penalties imposed by RBI no penalties have been imposed by RBI on the Bank during the financial year 2010-11 (previous year: Rs. nil).

The Bank does not have any bouncing of securitites general ledger and has not incurred any penalty for sGL bouncing in the financial year ended March 31, 2011.

1.4.2 Fees- Remuneration received from bancassurance

Bank has earned Rs. 128,171 thousands from bancassurance business during year ended March 31, 2011 (previous year: Rs. 112,293 thousands).

1.4.3 Concentration of Deposits

as at March 31, 2011 the deposits of top 20 depositors aggregated to Rs. 86,204,381 thousands (previous year: Rs. 50,416,139 thousands) (excluding certifcate of deposits, which are tradable instruments), representing 18.76% (previous year: 18.81%) of the total deposit base.

1.4.4 Concentration of advances

as at March 31, 2011 the top 20 advances aggregated to Rs. 105,461,474 thousands (previous year Rs. 72,725,550 thousands), representing 14.06% (previous year 15.91%) of the total advances. For this purpose, advance is computed as per defnition of Credit exposure in RBI Master Circular on exposure norms DBOD. no. Dir. BC.14- 13.03.00-2010-11 dated July 1, 2010.

1.4.5 Concentration of exposures as at March 31, 2011 the top 20 exposures aggregated to Rs. 126,910,027 thousands (previous year Rs. 72,725,550 thousands), representing 15.29% (previous year 14.80%) of the total exposures. exposure is computed as per defnition of Credit and Investment exposure in RBI Master Circular on exposure norms DBOD. no. Dir. BC.14- 13.03.00-2010-11 dated July 1, 2010.

1.4.6 Overseas assets, nPas and Revenue For the year ended March 31, 2011 and March 31, 2010, the Bank does not have any overseas revenue. The Bank does not have any overseas assets or nPa as at March 31, 2011 and March 31, 2010.

1.4.7 sponsored sPVs

The Bank has not sponsored any sPV and hence there is no consolidation in Banks books.


Mar 31, 2010

1.1 Basis of preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949.The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by Reserve Bank of India (RBI) from time to time, the Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI) and notified by the Companies (Accounting Standards) Rules, 2006 to the extent applicable and practices generally prevalent in the banking industry in India.The Bank follows the accrual method of accounting, except where otherwise stated, and the historical cost convention.

1.2 Use of estimates

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.

1.3.1 Revenue recognition

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.

- Interest income is recognised in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognized upon realisation as per the prudential norms of the RBI.

- Revenue, in certain structured transactions where interest income is partially receivable in advance is recognised when due.

- Dividend income is recognised when the right to receive payment is established.

- Commission on guarantees issued by the Bank is recognised as income on yearly basis over the period of the guarantee, except for guarantee commission not exceeding Rs. 100 thousands, which is recognised in the profit and loss account at the time of issue of the guarantee.

- Commission on Letters of Credit (LC) issued by the Bank is recognised as income at the time of issue of the LC.

- Income on discounted instruments is recognised over the tenure of the instrument on a straight-line basis.

- Revenue from financial advisory services is recognized based on milestones achieved as per terms of agreement with client.

- Other fees and commission income are recognised on accrual basis.

1.3.2 Investments

Classification and valuation of the Banks investments are carried out in accordance with RBI Circular DBOD. No. BR BC. 3/21.04.141 /2009-10 dated I July 2009 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2009-10/50 dated March 17,2010.

a) Accounting and Classification

Investments are recognised using the value date basis of accounting. In compliance with RBI guidelines, all investments, which cover both debt and equity securities, are categorized as Held for trading (HFT), Available for sale (AFS) or "Held to maturity" (HTM) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (Investments) under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others.

b) Cost of acquisition

Costs such as brokerage, commission, etc. pertaining to investments, paid at the time of acquisition are charged to the profit and loss account.

c) Basis of classification

Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category. Securities which are not classified in the above categories are classified under the AFS category.

d) Transfer between categories

Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines and any such transfer is accounted for at the acquisition cost/ book value/ market value, whichever is lower, as at the date of transfer Depreciation, if any, on such transfer is fully provided for.

e) Valuation

Investments categorized under AFS and HFT categories are marked to market on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in any classification mentioned in Schedule 8 (Investments) is recognised in the profit and loss account. The net appreciation if any, under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight-line basis over the remaining period to maturity. Amortization expense of premia on investments in the Held to Maturity (HTM) category is deducted from interest income. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.

The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the Available for Sale and Held for Trading categories is the market price of the scrip as available from the trades/quotes on the stock exchanges, Subsidiary General Ledger (SGL) account transactions, the price list published by RBI or the prices periodically declared by Primary DealersAssociation of India jointly with Fixed Income Money Market and Derivatives Association (FIMMDA).

The market/fair value of unquoted government securities included in the Available for Sale and Held for Trading category is determined as per the rates published by FIMMDA. Further, in the case of unquoted fixed income securities (other than government securities), valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (YTM) rates of government securities. Such mark-up and YTM rates applied are as per the relevant rates published by FIMMDA.

Quoted equity shares are valued at their closing price on a recognised stock exchange. Unquoted equity shares are valued at the book value if the latest balance sheet is available, else, at Re. I per company, as per relevant RBI guidelines.

At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.

Mutual Fund units are valued at their net asset value on the valuation date.

f) Accounting for repos/reverse repos

Repurchase (repos) and reverse repurchase (reverse repos) transactions are accounted for on outright sale and outright purchase basis respectively in line with RBI guidelines.The difference between the clean price of first leg and the clean price of the second leg is recognised as interest income/expense over the period of transaction. However; depreciation in the value, if any, compared to the original cost, is provided for

In respect of repo transactions under Liquidity Adjustment Facility (LAF) with RBI, money borrowed from RBI are credited to borrowing account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LAF, money paid to RBI are debited to lending account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income.

1.3.4 Advances

Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific loan loss provisions, interest in suspense, Export Credit Guarantee Corporation of India Limited (ECGC) claims received, inter-bank participation certificates issued and bills rediscounted. Specific loan loss provisions in respect of non-performing advances are made based on managements assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines.

As per the RBI guidelines a general provision is made on all standard advances based on the category of advances as prescribed in the said guidelines.The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix.These provisions are included in Schedule 5 - Other liabilities and provisions - Others.

In addition to the provisions required according to the asset classification status, provisions are made for individual country exposures (other than for home country exposure) in accordance with RBI guidelines. Countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit and provisioning is done in respect of that country where the net funded exposure is one per cent or more of the Banks total assets.

In respect of restructured standard and sub-standard assets, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.

Amounts recovered against debts written off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognised in the profit and loss account.

1.3.5 Securitization transactions

The Bank enters into securitization transactions wherein corporate loans are sold to a Special Purpose Vehicle (SPV). These securitization transactions are accounted for in accordance with the RBI guidelines on Securitization of Standard Assets.

Securitized assets are derecognised upon sale if the Bank surrenders control over the contractual rights that comprise the financial asset and fulfils other conditions as per the applicable extant RBI guidelines.

Gain on securitization is amortised over the life of the securities issued by the SPV. Losses are recognised immediately.

Sales and transfers that do not meet the criteria for surrender of control are accounted for as secured borrowings.

1.3.6 Transactions involving foreign exchange

Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers Association of India (FEDAI). Foreign exchange contracts outstanding at the balance sheet date are marked to market at rates notified by FEDAI for specified maturities, suitably interpolated for in-between maturity contracts as specified by FEDAI, and are stated at net present value based on LIBOR/SWAP curves of the respective currencies for contracts of maturities over 12 months (Long Term Forex Contract).The resulting profits or losses are recognised in the profit and loss account.

The premium or discount arising on inception of forward exchange contracts that are entered into to establish the amount of reporting currency required or available at the settlement date of a transaction is amortised over the life of the contract. Premia/ discounts on foreign exchange swaps, that are used to cover risks arising from foreign currency assets and liabilities, are amortised over the life of the swap.

Income and expenditure in foreign currency are accounted for at exchange rates prevalent on the date of the transaction.

In accordance with Accounting Standard I I The Effects of changes in Foreign Exchange Rates issued by the Institute of Chartered Accountants of India (ICAI), contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.

1.3.7 Earnings per share

The Bank reports basic and diluted earnings per equity share in accordance with (AS) 20,Earnings per Share prescribed by the Companies (Accounting Standards) Rules, 2006. Basic earnings per equity share have been computed by dividing net profit for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.

1.3.7 Accounting for derivative transactions

Derivative transactions comprise of forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a periodic basis and the resultant unrealised gains/losses are recognised in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis.

Premia received on Options transactions are recorded under Other Income. The amounts received/paid on cancellation of Option contracts are recognised as realized gains/losses on Options. Charges receivable/ payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognised as income/ expense on the date of cancellation/ termination under Other Income.

The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Provisions for overdues, if any, are made as per the relevant RBI guidelines.

As per the RBI guidelines on Prudential Norms for Off-balance Sheet Exposures of Banks a general provision is made on the current gross marked to market gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.

1.3.8 Fixed assets

Fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use.

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

1.3.9 Depreciation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below which are higher than or equal to the corresponding rates prescribed in Schedule XIV to the Companies Act, 1956:

Class of asset Rates of depreciation per annum

Office equipment 16.21 %

Computer hardware 33.33%

Computer software 25.00%

Vehicles 20.00%

Furniture and Fixtures 6.33%

Leasehold improvements to premises Over the lease period.

Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase.

For assets purchased/sold during the year depreciation is being provided on pro rata basis by the Bank.

1.3.10 Retirement and employee benefits

Leave salary

The employees of the Bank are entitled to carry forward a part of their unavailed/unutilised leave subject to a maximum limit. The employees cannot encash unavailed/unutilised leave.The Bank has computed the leave compensated absence provision as per revised Accounting Standard 15 - Employee Benefits.

Gratuity

The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees.The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.

The Bank recognises the actuarial gains and losses during the year in which the same are incurred.

Provident fund

In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a predetermined rate. The Bank has no liability for future provident fund benefits other than its annual contribution and recognises such contributions as an expense in the year incurred.

1.3.11 Leases

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases, Operating lease payments are recognized as an expense in the profit and loss account on a straight-line basis over the lease term.

1.3.12 Income taxes

Tax expense comprises of current and deferred tax. Current income tax is measured as the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 and as per Accounting Standard 22 - Accounting forTaxes on Income issued by the Institute of Chartered Accountants of India.The levy of Fringe Benefit Tax is not applicable as the Finance (No.2) Act, 2009 has abolished the tax with effect from April 1, 2009.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. In

situations where the Bank has unabsorbed depreciation and carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.

The carrying amount of deferred tax assets are reassessed and reviewed at each balance sheet date. The Bank recognises deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realised.

1.3.13 Provisions and Contingent Assets / Liabilities

The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for contingent liability is made when there is a possible obligation or a present obligation that may but probably will not require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognised in the financial statements. However; contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

1.3.14 Employee Stock Compensation Cost

Measurement and disclosure of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the ICAl.The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Banks stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.

1.4 Statutory disclosures as per RBI

1.4.1 Capital

1.4.1.1 Equity Issue:

During the financial year 2009-10, the Bank has issued 38,362,709 equity shares of Rs. 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at Rs. 269.50 aggregating to Rs. 10,338,750 thousands, The Bank also issued 4,325,630 shares pursuant to the exercise of stock option aggregating to Rs. 279,355 thousands.The Bank accreted Rs. 10,045,157 thousands (net of share issue expenses of Rs. 146,065 thousands) as premium, on the QIP and stock options excercised.

In connection with the QIP issue, the Bank has incurred share issue expenses aggregating to Rs. 146,065 thousands.The proposed payment of the issue expenses is higher than the limit prescribed under Section 13 of the Banking Regulation Act, 1949. In this connection, the Bank has written to the Reserve Bank of India seeking its approval, which is awaited.The Bank has utilized the share premium account for meeting the said share issue expenses.

During the financial year 2008-09, the Bank has issued 1, 189,180 equity shares of Rs. 10 each for cash pursuant to the exercise of stock options by certain employees.The Bank collected Rs. 2,635 thousands as premium on allotment of stock options.

1.4.1.2 Capital Reserve

Profit on sale of investments in the HTM category is credited to the profit and loss account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs. 3 15,182 thousands (previous year: Rs. 671,672 thousands) were transferred to capital reserve.

1.4.1.3 Investment Reserve

The Bank has transferred Rs. Nil (Previous year: Rs. 212 thousands) towards Investment Reserve on provisions credited to profit and loss account.

1.4.2 Derivatives

1.4.2.1 Forward Rate Agreement/ Interest Rate Swap

The details of Forward Rate Agreements/Interest Rate Swaps outstanding as at March 31,2010 are provided in accordance with the RBI guidelines on Forward Rate Agreements and Interest Rate Swaps (MPD.BC. 187/07.01.279/1999-2000) as applicable to Indian Rupee transactions:

1.4.2.2 Unhedged/uncovered foreign currency exposure

The Banks foreign currency exposures as at March 31, 2010 that are not hedged/covered by either derivative instruments or otherwise are within the Net Overnight Position limit and the Aggregate Gap limit, as approved by the RBI.The Net Overnight position at March 3 1, 2010 is Rs. 281,577 thousands (March 3 1, 2009: Rs. 530,727 thousands).

1.4.2.3 Exchange Traded Interest Rate Derivatives

The Bank has not dealt in exchange traded interest rate derivatives during the financial year ended March 3 1, 2010 (Previous Year: Nil).

1.4.2.4 Currency Futures

The Bank had dealt in exchange traded currency Futures during the financial year ended March 31, 2010. As at March 31, 2010 the open contracts on the exchange were to the tune of EURO 6,000,000 (INR 365,535,000) and GBP 337,000 (INR 22,997,722) for April 2010 expiry (Previous Year: USD 2,968,000 (INR 150,536,930) for April 2009 expiry).

1.4.2.5 Disclosures on risk exposure in derivatives

As per RBI Master circular RBI BRBC. No. 22/21.04.018/2009-10 dated July 1,2009, the following disclosures are being made with respect to risk exposure in derivatives of the Bank:

a) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (RMC) and delegated to it all functions and responsibilities relating to the Risk Management Policy of the Bank and its supervision thereof.

b) The Bank has adopted various policies including a Derivatives Appropriateness Policy as part of prudent business and risk management practice. The Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Stop loss and portfolio credit limits for derivative transactions.The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC.

c) The Bank has an independent Middle Office, which is responsible for monitoring, measurement and analysis of derivative related risks, among others.The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions.The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the top management and Audit and Compliance Committee of the Bank.

d) In addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenure. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures.

e) The Bank reports all trading positions to the management on a daily basis.The Bank revalues its trading position on a daily basis for MIS and control purposes and records the same in the books of account on a monthly basis.

f) * Refer Note 18.4.7 for accounting policy on derivatives.

1.4.5.1 Provsision coverage Ratio

The provision coverage ratio of the Bank as at March 3 1,2010 computed as per the the RBI circular dated December 01, 2009 is 78.43% (excluding technical write-offs).

1.4.5.2 Concentration of NPAs

Exposure (Funded + Non-Funded) of the Bank to top four NPA is Rs. 473,980 thousands and the Bank has provided for Rs. 382,1 14 thousands for the same.

1.5.1 Financial assets sold to Securitization/Reconstruction Company for Asset Reconstruction

The Bank has not sold any financial assets to Securitizations/Reconstruction Company for Asset Reconstruction during year ended March 31, 2010 and March 3 1, 2009.

1.5.2 Non-performing financial assets purchased/sold from/ to other Bank

The Bank has not purchased/sold any Non Performing financial assets from/to Bank during year ended March 31, 2010 and March 3 1, 2009.

1.5.3 Provisions for Standard Assets

Provision on standard advances is Rs. 1,179,863 thousands and Rs. 791,208 thousands as at March 31, 2010 and 2009 respectively.The Bank has not writern back any standard asset provision pursuant to the issuance of the RBI Circular no. DBOD. BRBC.83/21.01.002/2008-2009 dated November 15,2008.

1.5.4 Asset Liability Management

Maturity pattern of certain items of assets and liabilities;

In compiling the information of maturity pattern (refer 18,5.1 I (a), (b), (c) and (d) below), certain estimates and assumptions have been made by the management.

Assets and liabilities in foreign currency exclude off-balance sheet assets and liabilities.

1.5.4.1 Details of Single Borrower Limit (SBL) and Group Borrower Limit (GBL)

During the year ended March 31, 2010, the Bank has not exceeded single borrower or group borrower exposure limit.

During the year ended March 3 1,2009, the Bank has exceeded single borrower exposure limit of 1596 (but within 25/6 in case of oil companies who have been issued oil bonds and 2096 for other companies) with the approval of the Board of Directors in the case of (i) Larsen &Toubro where the sanctioned limit to capital funds was 16.8996, (ii) MMTC India Ltd where the sanctioned limit to capital funds was 16.8996, (iii) Bharat Petroleum Corporation Limited where the sanctioned limit to capital funds was 24.6396, (iv) Hindustan Petroleum Corporation Limited where the sanctioned limit to capital funds was 24.6396, (v) Indian Farmers Fertiliser Cooperative Limited (IFFCO) where the sanctioned limit to capital funds was 19.7096, (vi) Steel Authority of India Limited where the sanctioned limit to capital funds was 19.7096 and (vii) Punjab State Co-op, Supply and Mktg. Federation Ltd. (MARKFED), where the sanctioned limit to percentage of capital funds was 19.7096.

1.5 Miscellaneous

1.5.1 Disclosure of penalties imposed by RBI

No penalties have been imposed by RBI on the Bank during the financial year 2009-10 (Previous year: Rs Nil).

1.5.2 Fees/Remuneration received from bancassurance

Bank has earned Rs. 112,293 thousands from bancassurance business during year ended March 31, 2010.

1.5.3 Concentration of Deposits

As at March 31, 2010 the deposits of top 20 depositors aggregated to Rs. 50,416,139 thousands (excluding certificate of deposits, which are tradable instruments), representing 18.8196 of the total deposit base.

1.5.4 Concentration of Advances

As at March 31, 2010 the top 20 advances aggregated to Rs. 72,725,550 thousands, representing 15.9196 of the total advances. For this purpose, advance is computed as per definition of Credit Exposure in RBI Master Circular on Exposure Norms DBOD No. Dir BC. 15/1 3.03.00/2009-10 dated July 1, 2009.

1.5.5 Concentration of Exposures

As at March 31,2010 the top 20 exposures aggregated to Rs. 72,725,550 thousands, representing 14.8096 of the total exposures. Exposure is computed as per definition of Credit and Investment Exposure in RBI Master Circular on Exposure Norms DBOD. No. Dir. BC. 15/1 3.03.00/2009-10 dated July 1, 2009.

1.5.6 Overseas Assets, NPAs and Revenue

For the year ended March 31,2010, the Bank does not have any overseas revenue.The Bank does not have any overseas assets or NPA as at March 31,2010.

1.5.7 Sponsored SPVs

The Bank has not sponsored any SPV and hence there is no consolidation in Banks books.

Get Instant News Updates
Enable
x
Notification Settings X
Time Settings
Done
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X