Accounting Policies of DCB Bank Ltd. Company
Mar 31, 2023
1. BACKGROUND
DCB Bank Limited ("DCBâ or "the Bankâ), incorporated in Mumbai, India is a publicly held banking company engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949 and the Companies Act, 2013.
The financial statements have been prepared and presented under the historical cost convention and on the accrual basis of accounting unless otherwise stated, and comply with the Generally Accepted Accounting Principles in India (''GAAP''), statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (the "RBIâ) from time to time and the Accounting Standards notified under Section 133 of the Companies Act 2013 read with paragraph 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standard) Amendment Rules, 2016 as amended, in so far as they apply to banks and the current practices prevailing within the banking industry in India.
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon the management''s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.
4.1 Classification:
The investment portfolio comprising approved securities (predominantly Government Securities) and other securities (Pass through Certificates, Shares, Debentures and Bonds, etc.) is classified at the time of acquisition in accordance with the RBI guidelines under three categories viz. ''Held to Maturity'' (''HTM''), ''Available for Sale'' (''AFS'') and ''Held for Trading'' (''HFT''). For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and Other Investments.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions..
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified as HTM securities.
Investments which are not classified in the above categories are classified as AFS securities.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments is accounted as per the RBI guidelines.
4.4 Acquisition Cost:
Cost including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit and Loss Account.
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost method.
4.5 Valuation:
Held for Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per the RBI guidelines. These securities are valued scrip-wise and any resultant depreciation or appreciation is aggregated for each category. The net depreciation for each category within each group is provided for whereas the net appreciation for each category is ignored. The book value of individual securities is not changed consequent to periodic valuation of investments.
Traded investments are valued based on the trades / quotes from the recognised stock exchanges, prices declared by Primary Dealers Association of India (''PDA!) jointly with Fixed Income Money Market and Derivatives Association (''FIMMDA'')/Financial Benchmark India Private Limited (''FBIL''), periodically.
The market value of unquoted government securities which qualify for determining the Statutory Liquidity Ratio (''SLR'') included in the AFS and HFT categories is computed as per the Yield-to-Maturity (''YTM'') rates published by FIMMDA/FBIL.
The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities, Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity, published by FIMMDA/FBIL. Unquoted equity shares are valued at the break-up value, if the latest Balance Sheet is available or at '' I as per the RBI guidelines. Units of mutual funds are valued at the latest repurchase price /net asset value declared by the mutual fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at carrying cost.
Units of Alternate Investment Fund (''AIF'') held under AFS category are marked to market based on the NAV provided by AIF based on the latest audited financial statements. In case the audited financials are not available for a period beyond I8 months, the investments are valued at '' I per AIF.
In the event provisions recognised on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year such excess is recognised in the Profit and Loss Account and subsequently appropriated, from profit available for appropriation, if any to Investment Reserve Account in accordance with the RBI guidelines after adjusting for income tax and appropriation to Statutory Reserve..
Held to Maturity:
These are carried at their acquisition cost and are not marked to market. Any premium on acquisition is amortised over the remaining maturity period of the security on a straight-line basis. Provision is recognised for diminution other than temporary in the value of such investments for each investment individually.
Non-performing investments are identified and provision is recognised as per the RBI guidelines.
4.6 Security Receipts (SR):
Where sale of stressed asset results in a consideration lower than the value of the stressed assets net of provisions carried there against, the shortfall is debited to Profit & Loss account. Where such sale results in consideration higher than the value of the stressed assets net of provisions carried there against, the excess is netted off against the cost of corresponding SRs to arrive at their Book Value.
SRs issued by Asset Reconstruction Companies (''ARC'') are valued at Net Asset Value (''NAV'') declared by the ARC except in respect of stressed assets which are sold on or after Apr I, 20I8 and the Bank holds more than 90% of SRs backed by its sold assets, the provision held against the Book Value of these SRs is higher of provision required in terms of NAV declared by the ARC and provisioning applicable to the underlying loans, assuming that the assets sold notionally continued in the books of the Bank.
4.7 Disposal of Investments:
Profit/Loss on sale of investment under the aforesaid three categories is recognised in the Profit and Loss Account. The profit on sale of investment in HTM category, net of taxes and transfer to Statutory Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions:
Repo and reverse repo transactions are accounted for as secured borrowing/ lending transactions respectively. Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is treated as interest income.
4.9 Short Sale:
In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reflected in ''Securities Short Sold (''SSS'') A/c'', specifically created for this purpose. Such short positions are categorised under HFT category and netted off from investments in the Balance Sheet. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.
5.1 In pursuance of guidelines issued by the RBI, advances are classified as Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of specific provisions made towards NPAs and floating provisions.
5.2 Advances are net of bills rediscounted, Inter-bank participation with risk, provisions for non- performing advances, floating provisions, unrealised fees and unrealised interest held in suspense account.
5.3 Credit facility/investment are classified as performing and non-performing asset as per applicable RBI guidelines.
5.4 In case of NPAs other than retail EMI loans, recoveries effected are first adjusted towards the principal amount. In case of retail EMI loans, recoveries effected are adjusted towards the EMI and within the EMI first towards the principal amount.
5.5 Provision for non-performing advances (''NPAs'') comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a higher provision based on sound commercial judgement. NPAs are identified by periodic appraisals of the loan portfolio by the management. In respect of identified NPAs in Retail portfolio, provision is recognised on the homogeneous retail loans and advances assessed at borrower level on the basis of ageing of loans in the non-performing category and in respect of identified NPAs in other cases, provision is recognised account by account. The provisioning done is at or higher than the minimum rate prescribed under the RBI guidelines. The non-performing assets are written-off in accordance with the Bank''s policy.
5.6 In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI as applicable, which require the diminution in the fair value of the assets to be provided in the Profit and Loss Account at the time of restructuring.
5.7 In addition to the above, the Bank, on a prudent basis, recognises provisions on advances or exposures which are performing assets as per the IRAC norms, but has reasons to believe on the basis of the extant environment impacting a specific exposure or any specific information, the possible deterioration of a specific advance or a group of advances or exposures or potential exposures. These provisions are recognised as per Board approved policy and are classified as Provision for Specific Standard Assets, included under Provision for Standard Assets and reported under Other Liabilities. These provisions are not reversed to the Profit and Loss Account but are transferred as provision on the same specific advance / exposure in case the asset slips into non-performing asset, except in case of full repayment of the exposure when such provision will be reversed and recognised in the Profit and Loss Account.
5.8 The Bank maintains general provision for Standard Assets, including credit exposures computed as per the current marked to market values of foreign exchange forward contracts, at levels stipulated by the RBI from time to time. These provisions on Standard Assets are included under Other Liabilities.
5.9 The Bank estimates the inherent risk of the unhedged foreign currency exposures of its borrowers as per the regulatory guidelines stipulated by the RBI from time to time and recognises incremental provisions on exposures to such entities as per methodology prescribed. These provisions are included in Provision for Standard Assets and reported under Other Liabilities.
5.10 The RBI guidelines further permit banks to create floating provisions on Advances up to levels as per a Board approved policy over and above the regulatory provisions required on standard assets. These floating provisions are netted from Advances. These provisions are not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the RBI under specific circumstances.
5.11 The Bank enters into transactions for the sale or purchase of Priority Sector Lending Certificates (PSLCs). In the case of a sale transaction, the Bank sells the fulfilment of priority sector obligation and in the case of a purchase transaction the Bank buys the fulfilment of priority sector obligation through RBI trading platform. There is no transfer of risks or loan assets. The fee received for the sale of PSLCs is recorded as miscellaneous income and the fee paid for purchase of the PSLCs is recorded as other expenditure in Profit and Loss Account.
Premises and other fixed assets are stated at historical cost (or revalued amounts, as the case may be), less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of 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. Profit on sale of immovable properties are transfer to the Capital Reserves after adjusting for income tax and appropriation to Statutory Reserve.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an independent valuer to reflect current market valuation. All land and building owned by the Bank and used as branches or offices are grouped under "Office Premisesâ in the fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Profit and Loss Account i.e. revenue reserves.
8. DEPRECIATION & AMORTISATION
Depreciation on fixed assets, including amortisation of software, is charged over the estimated useful life of the fixed assets on a straight-line basis at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except as mentioned below. The useful life of an asset is the period over which an asset is expected to be available for use to the Bank.
⦠Computer: Desktop and Laptop - 3 years.
⦠Hardware and Servers - 5 years.
⦠Air conditioners - 9 years.
⦠Core Software for Bank Operations - 8 years.
⦠Application Software and System Development Expenditure - 3 years to 5 years.
⦠Improvements (Civil) to Leased Premises and Fixed Furniture in Leased Premises such as work-stations, etc. - over the contracted period of the lease or 5 years (Previous Year: 3 years) whichever is less.
⦠Vehicles - 19% p.a. over 5 years with 5% residual value.
⦠Cash safe and Safe Deposit Vaults - 10 years.
Assets purchased/sold during the year are depreciated on a pro-rata basis, based on the actual number of days the assets have been put to use.
The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Bank and the revenue can be reliably measured.
10.2 Items of income and expenditure are accounted on accrual basis.
10.3 Interest income is recognised in the Profit and Loss Account on accrual basis as per Accounting Standard, except in the case of non-performing assets where it is recognised on receipt basis as per the RBI norms.
10.4 Interest income on investments in Pass Through Certificates (PTC) is recognised at the coupon rate.
10.5 Interest income on loans bought out through the direct assignment route is recognised at the effective interest rate i.e. after amortising premium, if any, on the bought out portfolio as per Guidelines on Securitised Transactions issued by the RBI.
10.6 Processing fees on loans are recognised as income on accrual basis, however processing overheads on loans are expensed at the inception of the loan.
10.7 Overdue rent on safe deposit lockers is accounted for when there is certainty of receipts.
10.8 Guarantee commission, annual safe deposit locker rent fees are recognised on a straight-line basis over the period of contract. Letters of credit (''LC'') are generally issued for a shorter tenor, typically of 90 days. The commission on such LC is recognised when due.
10.9 Dividend income is recognised as income when the right to receive dividend is established..
11. FOREIGN CURRENCY TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate notified by Foreign Exchange Dealers'' Association of India (''FEDAI'') at the Balance Sheet date and the resulting profit or loss is recognised in the Profit and Loss Account, as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.
11.4 Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognised in the Profit and Loss Account in accordance with the RBI/FEDAI guidelines.
11.5 Contingent liabilities denominated in foreign currencies are disclosed in the Balance Sheet at the rates notified by FEDAI as at the Balance Sheet date.
11.6 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI
Valuation of Exchange Traded Interest Rate Futures is carried out on the basis of the daily settlement price of
each contract provided by the exchange. Changes in the fair value of the Exchange Traded Interest Rate Futures
are recognised in the Profit and Loss Account.
13.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is made on the basis of actuarial valuation on projected unit credit method made at the end of the year. Gratuity is funded with the Gratuity Trust duly registered under the provisions of Income tax Act, 1961. Actuarial gains/losses are recognised immediately in the Profit and Loss Account and are not deferred.
13.2 Defined Contribution Scheme
Retirement benefits in the form of provident fund and national pension scheme is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the fund are due. There is no other obligation other than the contribution payable to the fund.
14.1 Tax expense comprises current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income Tax reflects the impact of current year timing differences between the taxable income and the accounting income for the year and reversal of timing differences of earlier years.
14.2 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to taxes levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Bank has unabsorbed depreciation or 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.
14.3 At each Balance Sheet date, the Bank re-assesses unrecognised deferred tax assets and recognises deferred tax asset 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.
15. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions are recognised when there is a present legal or statutory obligation as a result of past events leading to probable outflow of resources, where a reliable estimate can be made of the amount required to settle the obligation.
Contingent Liabilities are recognised only when there is a possible obligation arising from past events due to occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, or where there is a present obligation arising from a past event which is not recognised as 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. 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.
Contingent assets are neither recognised nor disclosed in the financial statements.
16. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is done in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants (''ICAI'') of India. The Bank measures compensation cost relating to employee stock options/cash settled stock appreciation rights using the fair value method. Deferred compensation expense is amortised over the vesting period.
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effect of dilutive potential equity shares.
Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013.
Cash and cash equivalents include cash in hand and ATMs, balances with the Reserve Bank of India, balances with other banks and money at call and short notice (including effect of changes in exchange rates on cash and cash equivalents in foreign currency)..
Leases where the Lessor effectively retains substantially all risks and benefits of ownership of the leased item 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.
As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations.
Treasury Operations includes 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.
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, 2022
1. BACKGROUND
DCB Bank Limited ("DCBâ or "the Bankâ), incorporated in Mumbai, India is a publicly held banking company engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949 and the Companies Act, 2013.
The financial statements have been prepared and presented under the historical cost convention and on the accrual basis of accounting unless otherwise stated, and comply with the Generally Accepted Accounting Principles in India (''GAAP''), statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (the "RBIâ) from time to time and the Accounting Standards notified under Section 133 of the Companies Act 2013 read with paragraph 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standard) Amendment Rules, 2016 as amended, in so far as they apply to banks and the current practices prevailing within the banking industry in India.
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon the management''s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.
4.1 Classification:
The investment portfolio comprising approved securities (predominantly Government Securities) and other securities (Pass through Certificates, Shares, Debentures and Bonds, etc.) is classified at the time of acquisition in accordance with the RBI guidelines under three categories viz. ''Held to Maturity'' (''HTM''), ''Available for Sale'' (''AFS'') and ''Held for Trading'' (''HFT''). For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and Other Investments.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified as HTM securities.
Investments which are not classified in the above categories are classified as AFS securities.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments is accounted as per the RBI guidelines.
4.4 Acquisition Cost:
Cost including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit and Loss Account.
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost method.
4.5 Valuation:
Held for Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per the RBI guidelines. These securities are valued scrip-wise and any resultant depreciation or appreciation is aggregated for each category. The net depreciation for each category within each group is provided for, whereas the net appreciation for each category is ignored. The book value of individual securities is not changed consequent to periodic valuation of investments.
Traded investments are valued based on the trades / quotes from the recognised stock exchanges, prices declared by Primary Dealers Association of India (''PDAI'') jointly with Fixed Income Money Market and Derivatives Association (''FIMMDA'')/Financial Benchmark India Private Limited (''FBIL''), periodically.
The market value of unquoted government securities which qualify for determining the Statutory Liquidity Ratio (''SLR'') included in the AFS and HFT categories is computed as per the Yield-to-Maturity (''YTM'') rates published by FIMMDA/FBIL.
The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities, Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity, published by FIMMDA/FBIL. Unquoted equity shares are valued at the break-up value, if the latest Balance Sheet is available or at '' 1 as per the RBI guidelines. Units of mutual funds are valued at the latest repurchase price / net asset value declared by the mutual fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at carrying cost.
Units of Alternate Investment Fund (''AIF'') held under AFS category are marked to market based on the NAV provided by AIF based on the latest audited financial statements. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per AIF.
In the event provisions recognised on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year, such excess is recognised in the Profit and Loss Account and subsequently appropriated, from profit available for appropriation, if any, to Investment Reserve Account in accordance with the RBI guidelines after adjusting for income tax and appropriation to Statutory Reserve.
Held to Maturity:
These are carried at their acquisition cost and are not marked to market. Any premium on acquisition is amortised over the remaining maturity period of the security on a straight-line basis. Provision is recognised for diminution other than temporary in the value of such investments for each investment individually.
Non-performing investments are identified and provision is recognised as per the RBI guidelines.
4.6 Security Receipts (SR):
Where sale of stressed asset results in a consideration lower than the value of the stressed assets net of provisions carried there against, the shortfall is debited to Profit & Loss account. Where such sale results in consideration higher than the value of the stressed assets net of provisions carried there against, the excess is netted off against the cost of corresponding SRs to arrive at their Book Value.
SRs issued by Asset Reconstruction Companies (''ARC'') are valued at Net Asset Value (''NAV'') declared by the ARC except in respect of stressed assets which are sold on or after Apr 1, 2018 and the Bank holds more than 90% of SRs backed by its sold assets, the provision held against the Book Value of these SRs is higher of provision required in terms of NAV declared by the ARC and provisioning applicable to the underlying loans, assuming that the assets sold notionally continued in the books of the Bank.
4.7 Disposal of Investments:
Profit/Loss on sale of investment under the aforesaid three categories is recognised in the Profit and Loss Account. The profit on sale of investment in HTM category, net of taxes and transfer to Statutory Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions:
Repo and reverse repo transactions are accounted for as secured borrowing/ lending transactions respectively. Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is treated as interest income.
4.9 Short Sale:
In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reflected in ''Securities Short Sold (''SSS'') A/c'', specifically created for this purpose. Such short positions are categorised under HFT category and netted off from investments in the Balance Sheet. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.
5.1 In pursuance of guidelines issued by the RBI, advances are classified as Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of specific provisions made towards NPAs and floating provisions.
5.2 Advances are net of bills rediscounted, Inter-bank participation with risk, provisions for non-performing advances, floating provisions, unrealised fees and unrealised interest held in suspense account.
5.3 Credit facility/investment are classified as performing and non-performing asset as per applicable RBI guidelines.
5.4 In case of NPAs other than retail EMI loans, recoveries effected are first adjusted towards the interest amount. In case of retail EMI loans, recoveries effected are adjusted towards the EMI and within the EMI first towards the principal amount.
5.5 Provision for non-performing advances (''NPAs'') comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a higher provision based on sound commercial judgement. NPAs are identified by periodic appraisals of the loan portfolio by the management. In respect of identified NPAs in Retail portfolio, provision is recognised on the homogeneous retail loans and advances assessed at borrower level on the basis of ageing of loans in the non-performing category and in respect of identified NPAs in other cases, provision is recognised account by account. The provisioning done is at or higher than the minimum rate prescribed under the RBI guidelines. The non-performing assets are written-off in accordance with the Bank''s policy.
5.6 In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI as applicable, which require the diminution in the fair value of the assets to be provided in the Profit and Loss Account at the time of restructuring.
5.7 In addition to the above, the Bank, on a prudent basis, recognises provisions on advances or exposures which are performing assets as per the IRAC norms, but has reasons to believe on the basis of the extant environment impacting a specific exposure or any specific information, the possible deterioration of a specific advance or a group of advances or exposures or potential exposures. These provisions are recognised as per Board approved policy and are classified as Provision for Specific Standard Assets, included under Provision for Standard Assets and reported under Other Liabilities. These provisions are not reversed to the Profit and Loss Account but are transferred as provision on the same specific advance / exposure in case the asset slips into non-performing asset, except in case of full repayment of the exposure when such provision will be reversed and recognised in the Profit and Loss Account.
5.8 The Bank maintains general provision for Standard Assets, including credit exposures computed as per the current marked to market values of foreign exchange forward contracts, at levels stipulated by the RBI from time to time. These provisions on Standard Assets are included under Other Liabilities.
5.9 The Bank estimates the inherent risk of the unhedged foreign currency exposures of its borrowers as per the regulatory guidelines stipulated by the RBI from time to time and recognises incremental provisions on exposures to such entities as per methodology prescribed. These provisions are included in Provision for Standard Assets and reported under Other Liabilities.
5.10 The RBI guidelines further permit banks to create floating provisions on Advances up to levels as per a Board approved policy over and above the regulatory provisions required on standard assets. These floating provisions are netted from Advances. These provisions are not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the RBI under specific circumstances.
5.11 The Bank enters into transactions for the sale or purchase of Priority Sector Lending Certificates (PSLCs). In the case of a sale transaction, the Bank sells the fulfilment of priority sector obligation and in the case of a purchase transaction the Bank buys the fulfilment of priority sector obligation through RBI trading platform. There is no transfer of risks or loan assets. The fee received for the sale of PSLCs is recorded as miscellaneous income and the fee paid for purchase of the PSLCs is recorded as other expenditure in Profit and Loss Account.
Premises and other fixed assets are stated at historical cost (or revalued amounts, as the case may be), less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of 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. Profit on sale of immovable properties are transfer to the Capital Reserves after adjusting for income tax and appropriation to Statutory Reserve.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an independent valuer to reflect current market valuation. All land and building owned by the Bank and used as branches or offices are grouped under "Office Premisesâ in the fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Profit and Loss Account i.e. revenue reserves.
8. DEPRECIATION & AMORTISATION
Depreciation on fixed assets, including amortisation of software, is charged over the estimated useful life of the fixed assets on a straight-line basis at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except as mentioned below. The useful life of an asset is the period over which an asset is expected to be available for use to the Bank.
⦠Computer: Desktop and Laptop - 3 years.
⦠Hardware and Servers - 5 years.
⦠Air conditioners - 9 years.
⦠Core Software for Bank Operations - 8 years.
⦠Application Software and System Development Expenditure - 3 years to 5 years.
⦠Improvements (Civil) to Leased Premises and Fixed Furniture in Leased Premises such as work-stations, etc. - over the contracted period of the lease or 5 years (Previous Year: 3 years) whichever is less.
⦠Vehicles - 19% p.a. over 5 years with 5% residual value.
⦠Cash safe and Safe Deposit Vaults - 10 years.
Assets purchased/sold during the year are depreciated on a pro-rata basis, based on the actual number of days the assets have been put to use.
The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Bank and the revenue can be reliably measured.
10.2 Items of income and expenditure are accounted on accrual basis.
10.3 Interest income is recognised in the Profit and Loss Account on accrual basis as per Accounting Standard, except in the case of non-performing assets where it is recognised on receipt basis as per the RBI norms.
10.4 Interest income on investments in Pass Through Certificates (PTC) is recognised at the coupon rate.
10.5 Interest income on loans bought out through the direct assignment route is recognised at the effective interest rate i.e. after amortising premium, if any, on the bought out portfolio as per Guidelines on Securitised Transactions issued by the RBI.
10.6 Processing fees on loans are recognised as income on accrual basis, however processing overheads on loans are expensed at the inception of the loan.
10.7 Overdue rent on safe deposit lockers is accounted for when there is certainty of receipts.
10.8 Guarantee commission, annual safe deposit locker rent fees are recognised on a straight-line basis over the period of contract. Letters of credit (''LC'') are generally issued for a shorter tenor, typically of 90 days. The commission on such LC is recognised when due.
10.9 Dividend income is recognised as income when the right to receive dividend is established.
11. FOREIGN CURRENCY TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate notified by Foreign Exchange Dealers'' Association of India (''FEDAI'') at the Balance Sheet date and the resulting profit or loss is recognised in the Profit and Loss Account, as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.
11.4 Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognised in the Profit and Loss Account in accordance with the RBI/FEDAI guidelines.
11.5 Contingent liabilities denominated in foreign currencies are disclosed in the Balance Sheet at the rates notified by FEDAI as at the Balance Sheet date.
11.6 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.
Valuation of Exchange Traded Interest Rate Futures is carried out on the basis of the daily settlement price of
each contract provided by the exchange. Changes in the fair value of the Exchange Traded Interest Rate Futures
are recognised in the Profit and Loss Account.
13.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is made on the basis of actuarial valuation on projected unit credit method made at the end of the year. Gratuity is funded with the Gratuity Trust duly registered under the provisions of Income tax Act, 1961. Actuarial gains/losses are recognised immediately in the Profit and Loss Account and are not deferred.
13.2 Defined Contribution Scheme
Retirement benefits in the form of provident fund and national pension scheme is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the fund are due. There is no other obligation other than the contribution payable to the fund.
14.1 Tax expense comprises current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income Tax reflects the impact of current year timing differences between the taxable income and the accounting income for the year and reversal of timing differences of earlier years.
14.2 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to taxes levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Bank has unabsorbed depreciation or 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.
14.3 At each Balance Sheet date, the Bank re-assesses unrecognised deferred tax assets and recognises deferred tax asset 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.
15. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions are recognised when there is a present legal or statutory obligation as a result of past events leading to probable outflow of resources, where a reliable estimate can be made of the amount required to settle the obligation.
Contingent Liabilities are recognised only when there is a possible obligation arising from past events due to occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, or where there is a present obligation arising from a past event which is not recognised as 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. 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.
Contingent assets are neither recognised nor disclosed in the financial statements.
16. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is done in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants (''ICAI'') of India. The Bank measures compensation cost relating to employee stock options using the fair value method. Deferred compensation expense is amortised over the vesting period of the option.
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effect of dilutive potential equity shares.
Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013.
Cash and cash equivalents include cash in hand and ATMs, balances with the Reserve Bank of India, balances with other banks and money at call and short notice (including effect of changes in exchange rates on cash and cash equivalents in foreign currency).
Leases where the Lessor effectively retains substantially all risks and benefits of ownership of the leased item 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.
As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations.
Treasury Operations includes 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.
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, 2019
1. BACKGROUND
DCB Bank Limited (âDCBâ or âthe Bankâ), incorporated in Mumbai, India is a publicly held banking company engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949 and the Companies Act, 2013.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the historical cost convention and on the accrual basis of accounting unless otherwise stated, and comply with the Generally Accepted Accounting Principles in India (âGAAPâ), statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (the âRBIâ) from time to time and the Accounting Standards notified under Section 133 of the Companies Act 2013, to the extent applicable and the current practices prevailing within the banking industry in India.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon the managementâs best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.
4. INVESTMENTS
4.1 Classification:
The investment portfolio comprising approved securities (predominantly Government Securities) and other securities (Shares, Debentures and Bonds, etc.) is classified at the time of acquisition in accordance with the RBI guidelines under three categories viz. âHeld to Maturity7 (âHTMâ), âAvailable for Saleâ (âAFSâ) and âHeld for Tradingâ (âHFTâ). For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and Other Investments.
The Bank follows âSettlement Dateâ accounting for recording purchase and sale transactions.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified as HTM securities.
Investments which are not classified in the above categories are classified as AFS securities.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments is accounted as per the RBI guidelines.
4.4 Acquisition Cost:
Cost including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit and Loss Account. Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost method.
4.5 Valuation:
Held for Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per the RBI guidelines. These securities are valued scrip-wise and any resultant depreciation or appreciation is aggregated for each category. The net depreciation for each category within each group is provided for, whereas the net appreciation for each category is ignored. The book value of individual securities is not changed consequent to periodic valuation of investments.
Traded investments are valued based on the trades / quotes from the recognised stock exchanges, price list of RBI or prices declared by Primary Dealers Association of India (âPDAIâ) jointly with Fixed Income Money Market and Derivatives Association (âFIMMDAâ)/Financial Benchmark India Private Limited (âFBILâ), periodically.
The market value of unquoted government securities which qualify for determining the Statutory Liquidity Ratio (âSLRâ) included in the AFS and HFT categories is computed as per the Yield-to-Maturity (âYTMâ) rates published by FIMMDA/FBIL.
The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities, Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity, published by FIMMDA/FBIL. Unquoted equity shares are valued at the break-up value, if the latest Balance Sheet is available or at Rs. 1 as per the RBI guidelines. Units of mutual funds are valued at the latest repurchase price / net asset value declared by the mutual fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at carrying cost.
Units of Alternate Investment Fund (âAIFâ) held under AFS category are marked to market based on the NAV provided by AIF based on the latest audited financial statements. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs. 1 per AIF.
In the event provisions recognised on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year, such excess is recognised in the Profit and Loss Account and subsequently appropriated, from profit available for appropriation, if any, to Investment Reserve Account in accordance with the RBI guidelines after adjusting for income tax and appropriation to Statutory Reserve. Held to Maturity:
These are carried at their acquisition cost and are not marked to market. Any premium on acquisition is amortised over the remaining maturity period of the security on a straight-line basis. Provision is recognised for diminution other than temporary in the value of such investments for each investment individually.
Non-performing investments are identified and provision is recognised as per the RBI guidelines.
4.6 Security Receipts (SR):
Security receipts issued by the Asset Reconstruction Companies (âARCâ) are valued at the net asset value declared by ARC and valued in accordance with the guidelines applicable to such instruments, prescribed by the RBI from time to time.
4.7 Disposal of Investments:
Profit/Loss on sale of investment under the aforesaid three categories is recognised in the Profit and Loss Account. The profit on sale of investment in HTM category, net of taxes and transfer to Statutory Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions:
Repo and reverse repo transactions are accounted for as secured borrowing/ lending transactions respectively. Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is treated as interest income.
4.9 Short Sale
In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reflected in âSecurities Short Sold (âSSSâ) A/câ, specifically created for this purpose. Such short positions are categorised under HFT category and netted off from investments in the Balance Sheet. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are classified as Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of specific provisions made towards NPAs and floating provisions.
5.2 Advances are net of bills rediscounted, Inter-bank participation with risk, claims realised from Export Credit Guarantee Corporation (âECGCâ), provisions for non- performing advances, floating provisions, unrealised fees and unrealised interest held in suspense account.
5.3 Credit facility/investment, where interest and/or installment of principal has remained overdue for more than 90 days, is classified as nonperforming asset. However, in respect of Equated Monthly Instalment (âEMIâ) based advances, those accounts where more than 3 EMIs are overdue are classified as NPAs.
5.4 In case of NPAs other than retail EMI loans, recoveries effected are first adjusted towards the principal amount. In case of retail EMI loans, recoveries effected are adjusted towards the EMI and within the EMI first towards the principal amount.
5.5 Provision for non-performing advances (âNPAsâ) comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a higher provision based on sound commercial judgement. NPAs are identified by periodic appraisals of the loan portfolio by the management. In respect of identified NPAs in Retail portfolio, provision is recognised on the homogeneous retail loans and advances assessed at borrower level on the basis of ageing of loans in the non-performing category and in respect of identified NPAs in other cases, provision is recognised account by account. The provisioning done is at or higher than the minimum rate prescribed under the RBI guidelines.
5.6 In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which require the diminution in the fair value of the assets to be provided in the Profit and Loss Account at the time of restructuring.
5.7 In addition to the above, the Bank, on a prudent basis, recognises provisions on advances or exposures which are performing assets as per the IRAC norms, but has reasons to believe on the basis of the extant environment impacting a specific exposure or any specific information, the possible deterioration of a specific advance or a group of advances or exposures or potential exposures. These provisions are recognised as per Board approved policy and are classified as Provision for Specific Standard Assets, included under Provision for Standard Assets and reported under Other Liabilities. These provisions are not reversed to the Profit and Loss Account but are transferred as provision on the same specific advance / exposure in case the asset slips into non-performing asset, except in case of full repayment of the exposure when such provision will be reversed and recognised in the Profit and Loss Account.
5.8 The Bank maintains general provision for Standard Assets, including credit exposures computed as per the current marked to market values of foreign exchange forward contracts, at levels stipulated by the RBI from time to time. These provisions on Standard Assets are included under Other Liabilities.
5.9 The Bank estimates the inherent risk of the unhedged foreign currency exposures of its borrowers as per the regulatory guidelines stipulated by the RBI from time to time and recognises incremental provisions on exposures to such entities as per methodology prescribed. These provisions are included in Provision for Standard Assets and reported under Other Liabilities.
5.10 The RBI guidelines further permit banks to create floating provisions on Advances up to levels as per a Board approved policy over and above the regulatory provisions required on standard assets. These floating provisions are netted from Advances. These provisions are not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the RBI under specific circumstances.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or revalued amounts, as the case may be), less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of 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. Profit on sale of immovable properties are transfer to the Capital Reserves after adjusting for income tax and appropriation to Statutory Reserve.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an independent valuer to reflect current market valuation. All land and building owned by the Bank and used as branches or offices or godowns are grouped under âOffice Premisesâ in the fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Profit and Loss Account i.e. revenue reserves.
8. DEPRECIATION & AMORTISATION
Depreciation on fixed assets, including amortisation of software, is charged over the estimated useful life of the fixed assets on a straight-line basis at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except as mentioned below. The useful life of an asset is the period over which an asset is expected to be available for use to the Bank.
- Computer: Desktop and Laptop â 3 years.
- Hardware and Servers - 5 years (Previous Year : 2017-18 â 3 years)
- Air conditioners â 9 years.
- Core Software for Bank Operations â 8 years
- Application Software and System Development Expenditure â 3 years to 5 years.
- Improvements (Civil) to Leased Premises and Fixed Furniture in Leased Premises such as work-stations, etc. â over the contracted period of the lease or 5 years (Previous Year: 3 years) whichever is less.
- Vehicles â 19% p.a. over 5 years with 5% residual value.
- Cash safe and Safe Deposit Vaults â 10 years (Previous Year : 2017-18 â 21 years).
Assets purchased/sold during the year are depreciated on a pro-rata basis, based on the actual number of days the assets have been put to use. Assets individually costing upto Rs. 5,000/- are depreciated fully over a period of one year from the date of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assetâs net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Bank and the revenue can be reliably measured.
10.2 Items of income and expenditure are generally accounted on accrual basis.
10.3 Interest income is recognised in the Profit and Loss Account on accrual basis as per Accounting Standard, except in the case of non-performing assets where it is recognised on receipt basis as per the RBI norms.
10.4 Interest income on investments in Pass Through Certificates (PTC) is recognised at the coupon rate, net of tax on distributed income.
10.5 Interest income on loans bought out through the direct assignment route is recognised at the effective interest rate i.e. after amortising premium, if any, on the bought out portfolio as per Guidelines on Securitised Transactions issued by the RBI.
10.6 Processing fees on loans are recognised as income, however processing overheads on loans are expensed at the inception of the loan.
10.7 Overdue rent on safe deposit lockers is accounted for when there is certainty of receipts.
10.8 Guarantee commission, annual safe deposit locker rent fees are recognised on a straight-line basis over the period of contract. Letters of credit (âLCâ) are generally issued for a shorter tenor, typically of 90 days. The commission on such LC is recognised when due.
10.9 Dividend income is recognised as income when the right to receive dividend is established.
11. FOREIGN CURRENCY TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate notified by Foreign Exchange Dealersâ Association of India (âFEDAIâ) at the Balance Sheet date and the resulting profit or loss is recognised in the Profit and Loss Account, as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.
11.4 Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain / loss on revaluation is recognised in the Profit and Loss Account in accordance with the RBI / FEDAI guidelines.
11.5 Contingent liabilities denominated in foreign currencies are disclosed in the Balance Sheet at the rates notified by FEDAI as at the Balance Sheet date.
11.6 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.
12. DERIVATIVE TRANSACTIONS
Valuation of Exchange Traded Interest Rate Futures is carried out on the basis of the daily settlement price of each contract provided by the exchange. Changes in the fair value of the Exchange Traded Interest Rate Futures are recognised in the Profit and Loss Account.
13. EMPLOYEE BENEFITS
13.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is made on the basis of actuarial valuation on projected unit credit method made at the end of the year. Gratuity is funded with the Gratuity Trust duly registered under the provisions of Income tax Act, 1961. Actuarial gains / losses are recognised immediately in the Profit and Loss Account and are not deferred.
13.2 Defined Contribution Scheme
Retirement benefits in the form of provident fund and national pension scheme is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the fund are due. There is no other obligation other than the contribution payable to the fund.
14. TAXES ON INCOME
14.1 Tax expense comprises current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income Tax reflects the impact of current year timing differences between the taxable income and the accounting income for the year and reversal of timing differences of earlier years.
14.2 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to taxes levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Bank has unabsorbed depreciation or 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.
14.3 At each Balance Sheet date, the Bank re-assesses unrecognised deferred tax assets and recognises deferred tax asset 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.
15. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions are recognised when there is a present legal or statutory obligation as a result of past events leading to probable outflow of resources, where a reliable estimate can be made of the amount required to settle the obligation.
Contingent Liabilities are recognised only when there is a possible obligation arising from past events due to occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, or where there is a present obligation arising from a past event which is not recognised as 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. 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.
Contingent assets are not recognised in the financial statements.
16. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is done in accordance with the Securities and Exchange Board of India ( Share Based Employee Benefits) Regulations, 2014 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants (âICAIâ) of India. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Deferred compensation expense is amortised over the vesting period of the option.
17. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effect of dilutive potential equity shares.
18. SHARE ISSUE EXPENSES
Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013.
19. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with the Reserve Bank of India, balances with other banks and money at call and short notice (including effect of changes in exchange rates on cash and cash equivalents in foreign currency).
20. LEASES
Leases where the Lessor effectively retains substantially all risks and benefits of ownership of the leased item 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.
21. SEGMENT REPORTING
As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations.
Treasury Operations includes all financial markets activities undertaken on behalf of the Bankâs customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions.
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, 2018
1. BACKGROUND
DCB Bank Limited (âDCBâ or âthe Bankâ), incorporated in Mumbai, India is a publicly held banking company engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting unless otherwise stated, and comply with the Generally Accepted Accounting Principles in India (âGAAPâ), statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (the âRBIâ) from time to time and the Accounting Standards notified under Section 133 of the Companies Act 2013, to the extent applicable and the current practices prevailing within the banking industry in India.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon the managementâs best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future periods.
4. INVESTMENTS
4.1 Classification:
The investment portfolio comprising approved securities (predominantly Government Securities) and other securities (Shares, Debentures and Bonds, etc.) is classified at the time of acquisition in accordance with the RBI guidelines under three categories viz. âHeld to Maturityâ (âHTMâ), âAvailable for Saleâ (âAFSâ) and âHeld for Tradingâ (âHFTâ). For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and Other Investments.
The Bank follows âSettlement Dateâ accounting for recording purchase and sale transactions.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified as HTM securities.
Investments which are not classified in the above categories are classified as AFS securities.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments is accounted as per the RBI guidelines.
4.4 Acquisition Cost:
Cost including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit and Loss Account. Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost method.
4.5 Valuation:
Held for Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per the RBI guidelines. These securities are valued scrip-wise and any resultant depreciation or appreciation is aggregated for each category. The net depreciation for each category within each group is provided for, whereas the net appreciation for each category is ignored. The book value of individual securities is not changed consequent to periodic valuation of investments.
Traded investments are valued based on the trades / quotes from the recognized stock exchanges, price list of RBI or prices declared by Primary Dealers Association of India (âPDAIâ) jointly with Fixed Income Money Market and Derivatives Association (âFIMMDAâ)/Financial Benchmark India Private Limited (âFBILâ), periodically.
The market value of unquoted government securities which qualify for determining the Statutory Liquidity Ratio (âSLRâ) included in the AFS and HFT categories is computed as per the Yield-to-Maturity (âYTMâ) rates published by FIMMDA/FBIL.
The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities, Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity, published by FIMMDA/FBIL. Unquoted equity shares are valued at the break-up value, if the latest Balance Sheet is available or at '' 1 as per the RBI guidelines. Units of mutual funds are valued at the latest repurchase price / net asset value declared by the mutual fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at carrying cost.
In the event provisions recognized on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year, such excess is recognized in the Profit and Loss Account and subsequently appropriated, from profit available for appropriation, if any, to Investment Reserve Account in accordance with the RBI guidelines after adjusting for income tax and appropriation to Statutory Reserve. Held to Maturity:
These are carried at their acquisition cost and are not marked to market. Any premium on acquisition is amortized over the remaining maturity period of the security on a straight-line basis. Provision is recognized for diminution other than temporary in the value of such investments for each investment individually.
Non-performing investments are identified and provision is recognized as per the RBI guidelines.
4.6 Security Receipts (SR):
Security receipts issued by the Asset Reconstruction Companies (âARCâ) are valued at the net asset value declared by ARC and valued in accordance with the guidelines applicable to such instruments, prescribed by the RBI from time to time.
4.7 Disposal of Investments:
Profit/Loss on sale of investment under the aforesaid three categories is recognized in the Profit and Loss Account. The profit on sale of investment in HTM category, net of taxes and transfer to Statutory Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions:
Repo and reverse repo transactions are accounted for as secured borrowing/ lending transactions respectively. Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is treated as interest income.
4.9 Short Sale
In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reflected in âSecurities Short Sold (âSSSâ) A/câ, specifically created for this purpose. Such short positions are categorized under HFT category and netted off from investments in the Balance Sheet. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are classified as Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of specific provisions made towards NPAs and floating provisions.
5.2 Advances are net of bills rediscounted, Inter-bank participation with risk, claims realized from Export Credit Guarantee Corporation (âECGCâ), provisions for non- performing advances, floating provisions, unrealized fees and unrealized interest held in suspense account.
5.3 Credit facility/investment, where interest and/or installment of principal has remained overdue for more than 90 days, is classified as nonperforming asset. However, in respect of Equated Monthly Installment (âEMIâ) based advances, those accounts where more than 3 EMIs are overdue are classified as NPAs.
5.4 In case of NPAs other than retail EMI loans, recoveries effected are first adjusted towards the principal amount. In case of retail EMI loans, recoveries effected are adjusted towards the EMI and within the EMI first towards the principal amount.
5.5 Provision for non-performing advances (âNPAsâ) comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a higher provision based on sound commercial judgement. NPAs are identified by periodic appraisals of the loan portfolio by the management. In respect of identified NPAs in Retail portfolio, provision is recognized on the homogeneous retail loans and advances assessed at borrower level on the basis of ageing of loans in the non-performing category and in respect of identified NPAs in other cases, provision is recognized account by account. The provisioning done is at or higher than the minimum rate prescribed under the RBI guidelines.
5.6 In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which require the diminution in the fair value of the assets to be provided in the Profit and Loss Account at the time of restructuring.
5.7 In addition to the above, the Bank, on a prudent basis, recognizes provisions on advances or exposures which are performing assets as per the IRAC norms, but has reasons to believe on the basis of the extant environment impacting a specific exposure or any specific information, the possible deterioration of a specific advance or a group of advances or exposures or potential exposures. These provisions are recognized as per Board approved policy and are classified as Provision for Specific Standard Assets, included under Provision for Standard Assets and reported under Other Liabilities. These provisions are not reversed to the Profit and Loss Account but are transferred as provision on the same specific advance / exposure in case the asset slips into non-performing asset, except in case of full repayment of the exposure when such provision will be reversed and recognized in the Profit and Loss Account.
5.8 The Bank maintains general provision for Standard Assets, including credit exposures computed as per the current marked to market values of foreign exchange forward contracts, at levels stipulated by the RBI from time to time. These provisions on Standard Assets are included under Other Liabilities.
5.9 The Bank estimates the inherent risk of the unheeded foreign currency exposures of its borrowers as per the regulatory guidelines stipulated by the RBI from time to time and recognizes incremental provisions on exposures to such entities as per methodology prescribed. These provisions are included in Provision for Standard Assets and reported under Other Liabilities.
5.10 The RBI guidelines further permit banks to create floating provisions on Advances up to levels as per a Board approved policy over and above the regulatory provisions required on standard assets. These floating provisions are netted from Advances. These provisions are not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the RBI under specific circumstances.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or revalued amounts, as the case may be), less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of 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. Profit on sale of immovable properties are transfer to the Capital Reserves after adjusting for income tax and appropriation to Statutory Reserve.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an independent valuer to reflect current market valuation. All land and building owned by the Bank and used as branches or offices or god owns are grouped under âOffice Premisesâ in the fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Profit and Loss Account i.e. revenue reserves.
8. DEPRECIATION & AMORTISATION
Depreciation on fixed assets, including amortization of software, is charged over the estimated useful life of the fixed assets on a straight-line basis at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except as mentioned below. The useful life of an asset is the period over which an asset is expected to be available for use to the Bank.
- Computer Hardware and Servers - 33.33% p.a.
- Air conditioners â 11.11% p.a.
- Application Software and System Development Expenditure - 33.33% p.a.
- Improvements (Civil) to Leased Premises and Fixed Furniture in Leased Premises such as work-stations, etc. â over the contracted period of the lease
- Vehicles â 19% p.a. over 5 years with 5% residual value.
- Cash safe and Safe Deposit Vaults â 4.75% p.a.
Assets purchased/sold during the year are depreciated on a pro-rata basis, based on the actual number of days the assets have been put to use. Assets individually costing upto '' 5,000/- are depreciated fully over a period of one year from the date of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assetâs net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognized to the extent that it is probable that the economic benefit will flow to the Bank and the revenue can be reliably measured.
10.2 Items of income and expenditure are generally accounted on accrual basis.
10.3 Interest income is recognized in the Profit and Loss Account on accrual basis as per Accounting Standard, except in the case of non-performing assets where it is recognized on receipt basis as per the RBI norms.
10.4 Interest income on investments in Pass Through Certificates (PTC) is recognized at the coupon rate, net of tax on distributed income.
10.5 Interest income on loans bought out through the direct assignment route is recognized at the effective interest rate i.e. after amortizing premium, if any, on the bought out portfolio as per Guidelines on Securitized Transactions issued by the RBI.
10.6 Processing fees on loans are recognized as income, however processing overheads on loans are expensed at the inception of the loan.
10.7 Overdue rent on safe deposit lockers is accounted for when there is certainty of receipts.
10.8 Guarantee commission, annual safe deposit locker rent fees are recognized on a straight-line basis over the period of contract. Letters of credit (âLCâ) are generally issued for a shorter tenor, typically of 90 days. The commission on such LC is recognized when due.
10.9 Dividend income is recognized as income when the right to receive dividend is established.
11. FOREIGN CURRENCY TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate notified by Foreign Exchange Dealersâ Association of India (âFEDAIâ) at the Balance Sheet date and the resulting profit or loss is recognized in the Profit and Loss Account, as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items is recognized as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortized as expense or income over the life of the contract.
11.4 Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognized in the Profit and Loss Account in accordance with the RBI/ FEDAI guidelines.
11.5 Contingent liabilities denominated in foreign currencies are disclosed in the Balance Sheet at the rates notified by FEDAI.
11.6 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.
12. EMPLOYEE BENEFITS
12.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is made on the basis of actuarial valuation on projected unit credit method made at the end of the year. Gratuity is funded with the Gratuity Trust duly registered under the provisions of Income tax Act, 1961. Actuarial gains/ losses are recognized immediately in the Profit and Loss Account and are not deferred.
12.2 Defined Contribution Scheme
Retirement benefit in the form of provident fund is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the fund are due. There is no other obligation other than the contribution payable to the fund.
13. TAXES ON INCOME
13.1 Tax expense comprises current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income Tax reflects the impact of current year timing differences between the taxable income and the accounting income for the year and reversal of timing differences of earlier years.
13.2 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to taxes levied by same governing taxation laws. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Bank has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.
13.3 At each Balance Sheet date, the Bank re-assesses unrecognized deferred tax assets and recognizes deferred tax asset 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 realized.
14. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Provisions are recognized when there is a present legal or statutory obligation as a result of past events leading to probable outflow of resources, where a reliable estimate can be made of the amount required to settle the obligation.
Contingent Liabilities are recognized only when there is a possible obligation arising from past events due to occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, or where there is a present obligation arising from a past event which is not recognized as 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. 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.
Contingent assets are not recognized in the financial statements.
15. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is done in accordance with the Securities and Exchange Board of India ( Share Based Employee Benefits) Regulations, 2014 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants (âICAIâ) of India. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Deferred compensation expense is amortized over the vesting period of the option.
16. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effect of dilutive potential equity shares.
17. SHARE ISSUE EXPENSES
Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013.
18. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with the Reserve Bank of India, balances with other banks and money at call and short notice (including effect of changes in exchange rates on cash and cash equivalents in foreign currency).
19. LEASES
Leases where the Lessor effectively retains substantially all risks and benefits of ownership of the leased item 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.
20. SEGMENT REPORTING
As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations.
Treasury Operations includes all financial markets activities undertaken on behalf of the Bankâs customers, proprietary trading, maintenance of reserve requirements and resource mobilization from other banks and financial institutions.
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.
1 CAPITAL
1.1 During the financial year 2017-18, the Bank issued 21,770,000 equity shares to Qualified Institutional Investors at Rs, 174.00 per share. Net of issue costs of Rs, 7.86 crore, this resulted in an increase of Rs, 21.77 crore in Share Capital and Rs, 349.17 crore in Securities Premium Account.
1.2 Capital to Risk-weighted Assets Ratio (CRAR)
2 SUB-ORDINATED DEBT THROUGH PRIVATE PLACEMENT OF BONDS
During the year the Bank raised Rs, 450.00 crore (Previous year: Rs, 150.00 crore) of subordinated debt. The subordinated debts raised through private placement of bonds are Unsecured Redeemable Non-Convertible Basel III Compliant Subordinated Tier II bonds in the nature of Debenture to augment capital adequacy.
3.6 Sale and Transfers to / from HTM Category
During the years ended March 31, 2018 and March 31, 2017, 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 one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per the extant RBI guidelines, sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and sale of securities or transfer to AFS / HFT consequent to the reduction of ceiling on SLR securities under HTM.
4.3 Disclosures on risk exposure in derivatives: a) Qualitative Disclosures
Management of Risk in Derivatives Trading
The Bankâs market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.
All limits are monitored on a daily basis by the Bankâs Treasury Back Office and Mid Office. Exposure reports are submitted to the Treasurer as well as the Assistant CRO and any limit excesses are brought to the notice of the management immediately for further action.
Policies for Hedging Risk
All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back-to-back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.
The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net marked to market (âMTMâ) is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.
The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.
Provisioning
The Bank conforms to the RBI guidelines with regard to provisioning requirements. Overdue receivables representing crystallized positive mark-to-market value of a derivative contract are treated as non-performing assets, if these remain unpaid for 90 days or more. Full provision is made for the entire amount of overdue and future receivables relating to positive marked to market value of non-performing derivative contracts.
Mar 31, 2017
1. BACKGROUND
DCB Bank Limited (âDCBâ or âthe Bankâ), incorporated in Mumbai, India is a publicly held banking company engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting unless otherwise stated, and comply with the Generally Accepted Accounting Principles in India (âGAAP''), statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (the âRBIâ) from time to time and the notified Accounting Standards prescribed under Section 133 of the Companies Act 2013, to the extent applicable and the current practices prevailing within the banking industry in India.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon the management''s best knowledge of current events and actions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognized prospectively in the current and future periods.
4. INVESTMENTS
4.1 Classification:
The investment portfolio comprising approved securities (predominantly Government Securities) and other securities (Shares, Debentures and Bonds, etc.) is classified at the time of acquisition in accordance with the RBI guidelines under three categories viz. âHeld to Maturity7 (âHTM''), âAvailable for Sale'' (âAFS'') and âHeld for Trading'' (âHFT''). For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and Other Investments.
The Bank follows âSettlement Date'' accounting for recording purchase and sale transactions.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified as HTM securities.
Investments which are not classified in the above categories are classified as AFS securities.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments is accounted as per the RBI guidelines.
4.4 Acquisition Cost:
Cost including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit and Loss Account. Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost method.
4.5 Valuation:
Held for Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per the RBI guidelines. These securities are valued scrip-wise and any resultant depreciation or appreciation is aggregated for each category. The net depreciation for each category within each group is provided for, whereas the net appreciation for each category is ignored. The book value of individual securities is not changed consequent to periodic valuation of investments.
Traded investments are valued based on the trades / quotes from the recognized stock exchanges, price list of RBI or prices declared by Primary Dealers Association of India (âPDAI'') jointly with Fixed Income Money Market and Derivatives Association (âFIMMDA''), periodically.
The market value of unquoted government securities which qualify for determining the Statutory Liquidity Ratio (âSLR'') included in the AFS and HFT categories is computed as per the Yield-to-Maturity (âYTM'') rates published by FIMMDA.
The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities, Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity profile published by FIMMDA. Unquoted equity shares are valued at the break-up value, if the latest Balance Sheet is available or at '' 1 as per the RBI guidelines. Units of mutual funds are valued at the latest repurchase price / net asset value declared by the mutual fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at carrying cost.
In the event provisions recognized on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year, such excess is recognized in the Profit and Loss Account and subsequently appropriated, from profit available for appropriation, if any, to Investment Reserve Account in accordance with the RBI guidelines after adjusting for income tax and appropriation to Statutory Reserve. Held to Maturity:
These are carried at their acquisition cost and are not marked to market. Any premium on acquisition is amortized over the remaining maturity period of the security on a straight-line basis. Provision is recognized for diminution other than temporary in the value of such investments for each investment individually.
Non-performing investments are identified and provision is recognized as per the RBI guidelines.
4.6 Security Receipts (SR)
Security receipts issued by the Asset Reconstruction Companies (âARCâ) are valued at the net asset value declared by ARC and valued in accordance with the guidelines applicable to such instruments, prescribed by the RBI from time to time.
4.7 Disposal of Investments:
Profit/Loss on sale of investment under the aforesaid three categories is recognized in the Profit and Loss Account. The profit on sale of investment in HTM category, net of taxes and transfer to Statutory Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions under Liquidity Adjustment Facility (âLAFâ):
Repo transactions under LAF with RBI are accounted for as secured borrowing/ lending transactions. Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is treated as interest income.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are classified as Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of specific provisions made towards NPAs and floating provisions.
5.2 Advances are net of bills rediscounted, Inter-bank participation with risk, claims realized from Export Credit Guarantee Corporation (âECGCâ), provisions for non- performing advances, floating provisions, unrealized fees and unrealized interest held in suspense account.
5.3 Credit facility/investment, where interest and/or installment of principal has remained overdue for more than 90 days, is classified as nonperforming asset. However, in respect of Equated Monthly Installment (âEMIâ) based advances, those accounts where more than 3 EMIs are overdue are classified as NPAs.
5.4 In case of NPAs other than retail EMI loans, recoveries effected are first adjusted towards the principal amount. In case of retail EMI loans, recoveries effected are adjusted towards the EMI and within the EMI first towards the principal amount.
5.5 Provision for non-performing advances (âNPAsâ) comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a higher provision based on sound commercial judgment. NPAs are identified by periodic appraisals of the loan portfolio by the management. In respect of identified NPAs in Retail portfolio, provision is recognized on the homogeneous retail loans and advances assessed at borrower level on the basis of ageing of loans in the non-performing category and in respect of identified NPAs in other cases, provision is recognized account by account. The provisioning done is at or higher than the minimum rate prescribed under the RBI guidelines.
5.6 In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which require the diminution in the fair value of the assets to be provided in the Profit and Loss Account at the time of restructuring.
5.7 In addition to the above, the Bank, on a prudent basis, recognizes provisions on advances or exposures which are performing assets as per the IRAC norms, but has reasons to believe on the basis of the extant environment impacting a specific exposure or any specific information, the possible deterioration of a specific advance or a group of advances or exposures or potential exposures. These provisions are recognized as per Board approved policy and are classified as Provision for Specific Standard Assets, included under Provision for Standard Assets and reported under Other Liabilities. These provisions are not reversed to the Profit and Loss Account but are transferred as provision on the same specific advance / exposure in case the asset slips into non-performing asset, except in case of full repayment of the exposure when such provision will be reversed and recognized in the Profit and Loss Account.
5.8 The Bank maintains general provision for Standard Assets, including credit exposures computed as per the current marked to market values of foreign exchange forward contracts, at levels stipulated by the RBI from time to time. These provisions on Standard Assets are included under Other Liabilities.
5.9 The Bank estimates the inherent risk of the unhinged foreign currency exposures of its borrowers as per the regulatory guidelines stipulated by the RBI from time to time and recognizes incremental provisions on exposures to such entities as per methodology prescribed. These provisions are included in Provision for Standard Assets and reported under Other Liabilities.
5.10 The RBI guidelines further permit banks to create floating provisions on Advances up to levels as per a Board approved policy over and above the regulatory provisions required on standard assets. These floating provisions are netted from Advances. These provisions are not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the RBI under specific circumstances.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or revalued amounts, as the case may be), less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of 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.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an independent value to reflect current market valuation. All land and building owned by the Bank and used as branches or offices or god owns are grouped under âOffice Premisesâ in the fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Profit and Loss Account i.e. revenue reserves.
8. DEPRECIATION & AMORTISATION
Depreciation on fixed assets, including amortization of software, is charged over the estimated useful life of the fixed assets on a straight-line basis at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except as mentioned below. The useful life of an asset is the period over which an asset is expected to be available for use to the Bank.
- Computer Hardware and Servers - 33.33% p.a.
- Air conditioners â 11.11% p.a.
- Application Software and System Development Expenditure - 33.33% p.a.
- Improvements (Civil) to Leased Premises and Fixed Furniture in Leased Premises such as work-stations, etc. â over the contracted period of the lease
- Vehicles â 19% p.a. over 5 years with 5% residual value.
- Cash safe and Safe Deposit Vaults â 4.75% p.a.
Assets purchased/sold during the year are depreciated on a pro-rata basis, based on the actual number of days the assets have been put to use. Assets individually costing upto '' 5,000/- are depreciated fully over a period of one year from the date of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assetâs net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognized to the extent that it is probable that the economic benefit will flow to the Bank and the revenue can be reliably measured.
10.2 Items of income and expenditure are generally accounted on accrual basis.
10.3 Interest income is recognized in the Profit and Loss Account on accrual basis, except in the case of non-performing assets where it is recognized on receipt basis as per the RBI and Accounting Standard norms.
10.4 Interest income on investments in Pass Through Certificates (PTC) is recognized at the coupon rate, net of tax on distributed income.
10.5 Interest income on loans bought out through the direct assignment route is recognized at the effective interest rate i.e. after amortizing premium, if any, on the bought out portfolio as per Guidelines on Securitized Transactions issued by the RBI.
10.6 Processing fees on loans are recognized as income, however processing overheads on loans are expensed at the inception of the loan.
10.7 Overdue rent on safe deposit lockers is accounted for when there is certainty of receipts.
10.8 Guarantee commission, annual safe deposit locker rent fees are recognized on a straight-line basis over the period of contract. Letters of credit (âLCâ) are generally issued for a shorter tenor, typically of 90 days. The commission on such LC is recognized when due.
11. FOREIGN CURRENCYTRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate notified by Foreign Exchange Dealersâ Association of India (âFEDAIâ) at the Balance Sheet date and the resulting profit or loss is recognized in the Profit and Loss Account, as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items is recognized as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortized as expense or income over the life of the contract.
11.4 Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognized in the Profit and Loss Account in accordance with the RBI/ FEDAI guidelines.
11.5 Contingent liabilities denominated in foreign currencies are disclosed in the Balance Sheet at the rates notified by FEDAI.
11.6 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.
12. EMPLOYEE BENEFITS
12.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is made on the basis of actuarial valuation on projected unit credit method made at the end of the year. Gratuity is funded with the Gratuity Trust duly registered under the provisions of Income tax Act, 1961. Actuarial gains/ losses are recognized immediately in the Profit and Loss Account and are not deferred.
12.2 Defined Contribution Scheme
Retirement benefit in the form of provident fund is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the fund are due. There is no other obligation other than the contribution payable to the fund.
13. TAXES ON INCOME
13.1 Tax expense comprises current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income Tax reflects the impact of current year timing differences between the taxable income and the accounting income for the year and reversal of timing differences of earlier years.
13.2 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to taxes levied by same governing taxation laws. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where the Bank has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.
13.3 At each Balance Sheet date, the Bank re-assesses unrecognized deferred tax assets and recognizes deferred tax asset 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 realized.
Mar 31, 2015
1. BACKGROUND
DCB Bank Limited ("DCB" or "the Bank"), incorporated in Mumbai,
India is a publicly held banking company engaged in providing banking
and financial services and governed by the Banking Regulation Act,
1949.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, and
comply with the Generally Accepted Accounting Principles in India
(''GAAP''), statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the RBI from
time to time and the notified Accounting Standards prescribed under
Section 133 of the Companies Act 2013, read with Rule 7 of the
Companies (Accounts) Rules, 2014 to the extent applicable and the
current practices prevailing within the banking industry in India.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP
requires the management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
results of operations during the reporting period. Although these
estimates are based upon the management''s best knowledge of current
events and actions, actual results could differ from these estimates.
Any revisions to the accounting estimates are recognised prospectively
in the current and future periods.
4. INVESTMENTS
4.1 Classification:
The investment portfolio comprising approved securities (predominantly
Government Securities) and other securities (Shares, Debentures and
Bonds, etc.) is classified at the time of acquisition in accordance
with the RBI guidelines under three categories viz. ''Held to
Maturity5 (''HTM''), ''Available for Sale'' (''AFS'') and ''Held
for Trading'' (''HFT''). For the purposes of disclosure in the
Balance Sheet, they are classified under six groups viz. Government
Securities, Other Approved Securities, Shares, Debentures and Bonds,
Subsidiaries and/or joint ventures and Other Investments.
The Bank follows ''Settlement Date'' accounting for recording
purchase and sale transactions.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from
the date of purchase are classified as HFT securities. As per the RBI
guidelines, HFT securities, which remain unsold for a period of 90 days
are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified
as HTM securities.
Investments which are not classified in the above categories are
classified as AFS securities.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments
is accounted as per the RBI guidelines.
4.4 Acquisition Cost:
Cost including brokerage, commission pertaining to investments, paid at
the time of acquisition, is charged to the Profit and Loss Account.
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost
method.
4.5 Valuation:
Heldfor Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per
the RBI guidelines. These securities are valued scrip-wise and any
resultant depreciation or appreciation is aggregated for each category.
The net depreciation for each category is provided for, whereas the net
appreciation for each category is ignored. The book value of individual
securities is not changed consequent to periodic valuation of
investments.
Traded investments are valued based on the trades / quotes from the
recognised stock exchanges, price list of RBI or prices declared by
Primary Dealers Association of India (''PDAI'') jointly with Fixed
Income Money Market and Derivatives Association (''FIMMDA''),
periodically.
The market value of unquoted government securities which qualify for
determining the Statutory Liquidity Ratio (''SLR'') included in the
AFS and HFT categories is computed as per the Yield-to-Maturity
(''YTM'') rates published by FIMMDA.
The valuation of other unquoted fixed income securities (viz. State
government securities, Other approved securities, Bonds and debentures)
wherever linked to the YTM rates, is computed with a mark-up
(reflecting associated credit and liquidity risk) over the YTM rates
for government securities with similar maturity profile published by
FIMMDA. Unquoted equity shares are valued at the break-up value, if the
latest Balance Sheet is available or at Rs. 1 as per the RBI guidelines.
Units of mutual funds are valued at the latest repurchase price / net
asset value declared by the mutual fund. Treasury bills, commercial
papers and certificate of deposits, being discounted instruments, are
valued at carrying cost.
In the event provisions recognised on account of depreciation in the
AFS or HFT categories are found to be in excess of the required amount
in any year, such excess is recognised in the Profit and Loss Account
and subsequently appropriated, from profit available for appropriation,
if any, to Investment Reserve Account in accordance with the RBI
guidelines after adjusting for income tax and appropriation to
Statutory Reserve. Held to Maturity:
These are carried at their acquisition cost and are not marked to
market. Any premium on acquisition is amortised over the remaining
maturity period of the security on a straight-line basis. Provision is
recognised for diminution other than temporary in the value of such
investments for each investment individually.
Non-performing investments are identified and provision is recognised
as per the RBI guidelines.
4.6 Security Receipts (SR)
Security receipts issued by the asset reconstruction companies are
valued at the net asset value declared by and valued in accordance with
the guidelines applicable to such instruments, prescribed by the RBI
from time to time.
4.7 Disposal of Investment:
Profit/Loss on sale of investment under the aforesaid three categories
is recognised in the Profit and Loss Account. The profit on sale of
investment in HTM category, net of taxes and transfer to Statutory
Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions under Liquidity Adjustment
Facility (''LAF''):
Repo transactions under LAF with RBI are accounted for as secured
borrowing/ lending transactions.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are
classified as Standard, Sub-Standard, Doubtful and Loss Assets and are
stated net of specific provisions made towards NPAs and floating
provisions.
5.2 Advances are net of bills rediscounted, claims realised from Export
Credit Guarantee Corporation (''ECGC''), provisions for non-
performing advances, floating provisions, unrealised fees and
unrealised interest held in suspense account.
5.3 Credit facility/investment, where interest and/or installment of
principal has remained overdue for more than 90 days, is classified as
non- performing asset. However, in respect of Equated Monthly
Instalment (''EMI'') based advances, those accounts where more than 3
EMIs are overdue are classified as NPAs.
5.4 In case of NPAs other than retail EMI loans, recoveries effected
are first adjusted towards the principal amount. In case of retail EMI
loans, recoveries effected are adjusted towards the EMI and within the
EMI first towards the principal amount.
5.5 Provision for non-performing advances (''NPAs'') comprising
sub-standard, doubtful and loss assets is made in accordance with the
RBI guidelines which prescribe minimum provision levels and encourage
banks to make a higher provision based on sound commercial judgement.
NPAs are identified by periodic appraisals of the loan portfolio by the
management. In respect of identified NPAs in Retail portfolio,
provision is recognised on the homogeneous retail loans and advances
assessed at borrower level on the basis of ageing of loans in the
non-performing category and in respect of identified NPAs in other
cases, provision is recognised account by account. The provisioning
done is at or higher than the minimum rate prescribed under the RBI
guidelines.
5.6 In case of restructured/rescheduled assets, provision is made in
accordance with the guidelines issued by the RBI, which require the
diminution in the fair value of the assets to be provided in the Profit
and Loss Account at the time of restructuring.
5.7 In addition to the above, the Bank, on a prudent basis, recognises
provisions on advances or exposures which are performing assets, but
has reasons to believe on the basis of the extant environment impacting
a specific exposure or any specific information, the possible
deterioration of a specific advance or a group of advances or exposures
or potential exposures. These provisions are recognised as per Board
approved policy and are classified as Provision for Specific Standard
Assets, included under Provision for Standard Assets and reported under
Other Liabilities. These provisions are not reversed to the Profit and
Loss Account but are transferred as provision on the same specific
advance / exposure in case the asset slips into non-performing asset,
except in case of full repayment of the exposure when such provision
will be reversed and recognised in the Profit and Loss Account.
5.8 The Bank maintains general Provision for Standard Assets, including
credit exposures computed as per the current marked to market values of
foreign exchange forward contracts, at levels stipulated by RBI from
time to time. These provisions on standard assets are included under
Other Liabilities.
5.9 The Bank estimates the inherent risk of the unhedged foreign
currency exposures of its borrowers as per the regulatory guidelines
stipulated by the RBI from time to time and recognises incremental
provisions on exposures to such entities as per methodology prescribed.
These provisions are included in Provision for Standard Assets and
reported under Other Liabilities.
5.10 The RBI guidelines further require banks to create floating
provisions on Advances up to levels as per a Board approved policy over
and above the regulatory provisions required on standard assets. These
floating provisions are netted from Advances. These provisions are not
reversed by credit to the Profit and Loss Account without prior
approvals of the Board and the RBI under specific circumstances.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or
revalued amounts, as the case may be), less accumulated depreciation
and impairment losses, if any. Cost comprises the purchase price and
any attributable cost of 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.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an
independent valuer to reflect current market valuation. All land and
building owned by the Bank and used as branches or offices or godowns
are grouped under "Office Premises" in the fixed assets category.
Appreciation, if any, on revaluation is credited to Revaluation Reserve
under Capital Reserves.
8. DEPRECIATION & AMORTISATION
Depreciation on fixed assets, including amortisation of software, is
charged over the estimated useful life of the fixed assets on a
straight line basis at the rates and in the manner prescribed in
Schedule II of the Companies Act, 2013, except as mentioned below. The
useful life of an asset is the period over which an asset is expected
to be available for use to the Bank.
 Computer Hardware and Servers - 33.33% p.a.
 Air conditioner  11.11% p.a.
 Application Software and System Development Expenditure - 33.33%
p.a.
 Improvements (Civil) to Leased Premises and Fixed Furniture in
Leased Premises such as work-stations, etc. Â over the contracted
period of the lease
 Vehicles  19% p.a. over 5 years with 5% residual value.
 Cash safe and Safe Deposit Vault  4.75% p.a.
Assets purchased/sold during the year are depreciated on a pro-rata
basis, based on the actual number of days the assets have been put to
use. Assets individually costing upto '' 5,000/- are depreciated fully
over a period of one year from the date of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date if
there is any indication of impairment based on internal/external
factors. An impairment loss is recognised wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks
specific to the asset. After impairment, depreciation is provided on
the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the
economic benefit will flow to the Bank and the revenue can be reliably
measured.
10.2 Items of income and expenditure are generally accounted on accrual
basis.
10.3 Interest income is recognised in the Profit and Loss Account on
accrual basis, except in the case of non-performing assets where it is
recognised on receipts as per the RBI and Accounting Standard norms.
10.4 Interest income on investments in Pass Through Certificates (PTC)
is recognised at the coupon rate net of tax on distributed income.
10.5 Interest income on loans bought out through the direct assignment
route is recognised at their effective interest rate i.e. after
amortising premium, if any, on the bought out portfolio as per
Guidelines on Securitised Transactions issued by the RBI.
10.6 Processing fees on loans are recognised as income and processing
overheads on loans are expensed at the inception of the loan.
10.7 Overdue rent on safe deposit lockers is accounted for when there
is certainty of receipts.
10.8 Guarantee commission, annual safe deposit locker rent fees are
recognised on a straight-line basis over the period of contract.
Letters of credit (''LC'') are generally issued for a shorter tenor,
typically of 90 days. The commission on such LC is recognised when due.
11. FOREIGN EXCHANGE TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by
applying to the foreign currency amount the exchange rate between the
reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate
notified by Foreign Exchange Dealers'' Association of India
(''FEDAI'') at the Balance Sheet date and the resulting profit or
loss is recognised in the Profit and Loss Account, as per the
guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items, is
recognised as income or as expense in the year in which it arises.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction and non-monetary items which are carried
at fair value or other similar valuations denominated in a foreign
currency are reported using exchange rates that existed when the values
were determined.
Foreign exchange forward contracts not intended for trading, that are
entered into to establish the amount of reporting currency required or
available at the settlement date of transaction and are outstanding at
the Balance Sheet date, are effectively valued at the closing spot
rate. The premium or discount arising at the inception of such a
forward exchange contract is amortised as expense or income over the
life of the contract.
11.4 Outstanding forward exchange contracts are revalued on the Balance
Sheet date at the rates notified by FEDAI and at interpolated rates for
contracts of interim maturities. The resultant gain/loss on revaluation
is recognised in the Profit and Loss Account in accordance with the
RBI/ FEDAI guidelines.
11.5 Contingent liabilities denominated in foreign currencies are
disclosed in the Balance Sheet at the rates notified by FEDAI.
11.6 Forward exchange contracts and other derivative contracts which
have overdue receivables remaining unpaid over 90 days or more are
classified as non-performing assets and provided for as per the extant
master circular on Prudential Norms on Income Recognition, Asset
Classification and Provisioning issued by the RBI.
12. RETIREMENT BENEFITS OF EMPLOYEES
12.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is
made on the basis of actuarial valuation on projected unit credit
method made at the end of the year. Gratuity is funded with the
Gratuity Trust duly registered under the provisions of Income tax Act,
1961. Actuarial gains/ losses are recognised immediately in the Profit
and Loss Account and are not deferred.
12.2 Defined Contribution Scheme
Retirement benefit in the form of provident fund is a defined
contribution scheme and the contributions are charged to the Profit and
Loss Account of the year when the contributions to the fund are due.
There is no other obligation other than the contribution payable to the
fund.
13. TAXES ON INCOME
13.1 Tax expense comprises current and deferred taxes. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Income Tax Act, 1961. Deferred
Income Tax reflects the impact of current year timing differences
between the taxable income and the accounting income for the year and
reversal of timing differences of earlier years.
13.2 Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to taxes levied by same governing taxation laws.
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised. In
situations where the Bank has unabsorbed depreciation or 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.
13.3 At each Balance Sheet date, the Bank re-assesses unrecognised
deferred tax assets and recognises deferred tax asset 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.
14. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
Provisions are recognised in terms of Accounting Standard 29 on
"Provisions, Contingent Liabilities and Contingent Assets", when
there is a present legal or statutory obligation as a result of past
events leading to probable outflow of resources, where a reliable
estimate can be made of the amount required to settle the obligation.
Contingent Liabilities are recognised only when there is a possible
obligation arising from past events due to occurrence or non-occurrence
of one or more uncertain future events, not wholly within the control
of the Bank, or where there is a present obligation arising from a past
event which is not recognised as 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. 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.
Contingent assets are not recognised in the financial statements.
15. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is
done in accordance with the SEBI (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999 / Guidance Note on
Accounting for the Employee Share-based Payments issued by The
Institute of Chartered Accountants (''ICAI'') of India. The Bank
measures compensation cost relating to employee stock options using the
intrinsic value method. Compensation expense is amortised over the
vesting period.
16. EARNINGS PER Share
Basic and diluted earnings per share are computed in accordance with
Accounting Standard 20 Â Earnings per share. Basic earnings per share
is calculated by dividing the net profit or loss for the year
attributable to equity shareholders (after deducting attributable
taxes) by the weighted average number of equity shares outstanding
during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effect of dilutive potential equity shares.
17. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with
the Reserve Bank of India, balances with other banks and money at call
and short notice (including effect of changes in exchange rates on cash
and cash equivalents in foreign currency).
18. LEASES
Leases where the Bank effectively retains substantially all risks and
benefits of ownership of the leased item 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.
19. SEGMENT REPORTING
As per the RBI guidelines on Segment Reporting, the Bank has classified
its activity into Treasury Operations, Corporate/Wholesale Banking,
Retail Banking and Other Banking Operations.
Treasury Operations includes 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. BACKGROUND
Development Credit Bank Limited ("DCB" or "the Bank"),
incorporated in Mumbai, India is a publicly held banking company
engaged in providing banking and financial services. DCB is a banking
company governed by the Banking Regulation Act, 1949.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, and
comply with Generally Accepted Accounting Principles in India
(''GAAP''), statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (''RBI'') from time to time and notified Accounting
Standards by Companies (Accounting Standards) Rules, 2006, (as amended)
to the extent applicable and current practices prevailing within the
banking industry in India.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP
requires the management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
results of operations during the reporting period. Although these
estimates are based upon management''s best knowledge of current
events and actions, actual results could differ from these estimates.
Any revisions to the accounting estimates are recognized prospectively
in the current and future periods.
4. INVESTMENTS
4.1 Classification:
The Investment portfolio comprising approved securities (predominantly
Government Securities) and other securities (Shares, Debentures and
Bonds, etc.) are classified at the time of acquisition in accordance
with the Reserve Bank of India (RBI) guidelines under three categories
viz. ''Held to Maturity'' (''HTM''), ''Available for Sale''
(''AFS'') and ''Held for Trading'' (''HFT''). For the purposes of
disclosure in the Balance Sheet, they are classified under six groups
viz. Government Securities, Other Approved Securities, Shares,
Debentures and Bonds, Subsidiaries and/or joint ventures and Other
Investments.
The Bank follows ''Settlement Date'' accounting for recording
purchase and sale transactions.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from
the date of purchase are classified as HFT securities. As per RBI
guidelines, HFT securities, which remain unsold for a period of 90 days
are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity are classified
as HTM securities.
Investments which are not classified in the above categories are
classified under AFS category.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments
is accounted as per RBI guidelines.
4.4 Valuation:
Held for Trading and Available for Sale categories:
Investments classified under HFT and AFS are marked to market as per
the RBI guidelines. These securities are valued scrip-wise and any
resultant depreciation or appreciation is aggregated for each category.
The net depreciation for each category is provided for, whereas the net
appreciation for each category is ignored. The book value of individual
securities is not changed consequent to periodic valuation of
investments.
Traded investments are valued based on the trades / quotes on the
recognized stock exchanges, price list of RBI or prices declared by
Primary Dealers Association of India (''PDAI'') jointly with Fixed
Income Money Market and Derivatives Association (''FIMMDA''),
periodically.
The market value of unquoted government securities which qualify for
determining the Statutory Liquidity Ratio (''SLR'') included in the
AFS and HFT categories is computed as per the Yield-to-Maturity
(''YTM'') rates published by FIMMDA.
The valuation of other unquoted fixed income securities (viz. State
government securities, Other approved securities, Bonds and debentures)
wherever linked to the YTM rates, is computed with a mark-up
(reflecting associated credit and liquidity risk) over the YTM rates
for government securities published by FIMMDA. Unquoted equity shares
are valued at the break-up value, if the latest Balance Sheet is
available or at Rs. 1 as per the RBI guidelines. Units of mutual funds
are valued at the latest repurchase price / net asset value declared by
the mutual fund. Treasury bills, commercial papers and certificate of
deposits being discounted instruments, are valued at carrying cost.
In the event provisions created on account of depreciation in the AFS
or HFT categories are found to be in excess of the required amount in
any year, such excess is recognized in the Profit and Loss Account and
subsequently appropriated, from profit available for appropriation, if
any, to Investment Reserve Account in accordance with RBI guidelines
after adjusting for income tax and appropriation to Statutory Reserve.
Held to Maturity:
These are carried at their acquisition cost and are not marked to
market. Any premium on acquisition is amortized over the remaining
maturity period of the security on a straight-line basis. Provisions
are made for diminutions other than temporary in the value of such
investments for each investment individually.
Non-performing investments are identified and provision is made as per
RBI guidelines.
4.5 Disposal of Investment:
Profit/Loss on sale of investment under the aforesaid three categories
is taken to the Profit and Loss Account. The profit on sale of
investment in HTM category, net of taxes and transfers to Statutory
Reserve is appropriated to Capital Reserves.
4.6 Acquisition Cost:
Costs including brokerage, commission pertaining to investments, paid
at the time of acquisition, are charged to the Profit and Loss Account.
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost
method.
4.7 Repo and reverse repo transactions under LAF:
In respect of repo transactions under LAF with RBI, amount borrowed
from RBI is accounted for as borrowing transactions.
In respect of reverse repo transactions under LAF with RBI, amount lent
to RBI is accounted for as lending transactions.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are
classified as Standard, Sub-Standard, Doubtful and Loss Assets and are
stated net of specific provisions made towards NPAs and floating
provisions.
5.2 Provision for non-performing advances (''NPAs'') comprising
sub-standard, doubtful and loss assets is made in accordance with the
RBI guidelines which prescribes minimum provision levels and also
encourages banks to make a higher provision based on sound commercial
judgement. Non- performing advances are identified by periodic
appraisals of the loan portfolio by the management. In respect of
identified NPAs, provision is made based on the inherent risk assessed
for the various product categories. The provisioning done is at or
higher than the minimum rate prescribed under the RBI guidelines.
5.3 Advances are net of bills rediscounted, claims realized from ECGC,
provisions for non- performing advances, floating provisions,
unrealized fees and unrealized interest held in suspense account.
5.4 In case of restructured/rescheduled assets, provision is made in
accordance with the guidelines issued by RBI, which requires the
diminution in the fair value of the assets to be provided at the time
of restructuring.
5.5 Credit facility/investment, where interest and/or installment of
principal has remained overdue for more than 90 days, is classified as
non- performing asset. However, in respect of Equated Monthly
Instalment (EMI) based advances those accounts where more than 3 EMIs
are overdue are classified as non-performing advances.
5.6 In case of NPAs other than retail EMI loans, recoveries effected
are first adjusted towards the principal amount. In case of retail EMI
loans, recoveries effected are adjusted towards the EMI and within the
EMI first towards the principal amount.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or
revalued amounts, as the case may be), less accumulated depreciation
and impairment losses, if any. Cost comprises the purchase price and
any attributable cost of 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.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an
independent valuer to reflect current market valuation. All land and
building owned by the Bank and used as branches or offices or godowns
are grouped under "Office Premises" in the fixed assets category.
Appreciation, if any, on revaluation is credited to Revaluation Reserve
under Capital Reserves.
8. DEPRECIATION
Depreciation on fixed assets, including amortisation of software, is
charged over the estimated useful life of the fixed assets on a
straight line basis at the rates and in the manner prescribed in
Schedule XIV of the Companies Act, 1956, except as mentioned below:
 Computer Hardware - 33.33% p.a.
 ATM - 12.50% p.a.
 Core Banking Software - 12.50% p.a.
 Application Software and System Development Expenditure - Depending
upon estimated useful life between 3-5 years.
 Hard Furnishing  25% p.a.
 Improvements (Civil) to Leased Premises  over the contracted
period of the lease.
 Fixed Furniture in Leased Premises such as work-stations, etc. Â
over the contracted period of the lease.
 Vehicle  19% p.a. over 5 years with 5% residual value.
Assets purchased/sold during the year are depreciated on a pro-rata
basis, based on the actual number of days the asset has been put to
use. Assets individually costing upto Rs. 5,000/- are depreciated
fully in the year of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date if
there is any indication of impairment based on internal/external
factors. An impairment loss is recognized wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset''s net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks
specific to the asset. After impairment, depreciation is provided on
the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognized to the extent that it is probable that the
economic benefit will flow to the Bank and the revenue can be reliably
measured.
10.2 Items of income and expenditure are generally accounted on accrual
basis.
10.3 Interest income is recognized in Profit and Loss Account on
accrual basis, except in the case of non-performing assets where it is
recognized as per RBI norms.
10.4 Interest income on investments in PTCs and loans bought out
through the direct assignment route is recognized at their effective
interest rate.
10.5 Processing fees recovered on loans are recognized as income and
processing overheads on loans are expensed at the inception of the
loan.
10.6 Overdue rent on Safe Deposit Lockers is accounted for on
realisation.
10.7 Guarantee commission, annual safe deposit locker rent fees are
recognized on a straight line basis over the period of contract.
Letters of credit (LC) are generally issued for a shorter tenor,
typically of 90 days. The Commission on such LC is recognized when due.
11. FOREIGN EXCHANGE TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and foreign currency at the date of the
transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate
notified by Foreign Exchange Dealers'' Association of India (FEDAI),
as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items or on
reporting monetary items of the Bank at rates different from those at
which they were initially recorded during the year, or reported in
previous financial statements, are recognized as income or as expenses
in the year in which they arise. Non-monetary items which are carried
in terms of historical cost denominated in a foreign currency are
reported using the exchange rate at the date of the transaction and
non-monetary items which are carried at fair value or other similar
valuations denominated in a foreign currency are reported using
exchange rates that existed when the values were determined.
11.4 Outstanding forward exchange contracts are revalued on the Balance
Sheet date at rates notified by FEDAI and at interpolated rates for
contracts of interim maturities. The resultant gain/loss on revaluation
is included in the Profit and Loss Account in accordance with RBI/FEDAI
guidelines.
11.5 Contingent liabilities denominated in foreign currencies are
disclosed in Balance Sheet date at the rates notified by FEDAI.
11.6 Forward exchange contracts and other derivative contracts which
have overdue receivables which have remained unpaid over 90 days or
more are classified as non-performing assets and provided for as per
the extant master circular on Prudential Norms on Income Recognition,
Asset Classification and Provisioning issued by the RBI.
12. RETIREMENT BENEFITS OF EMPLOYEES
12.1 Provision in respect of future liability for payment of gratuity
is made on the basis of actuarial valuation on projected unit credit
method made at the end of the year. Gratuity is funded with the
Gratuity Trust duly registered under the provisions of Income tax Act,
1961. Actuarial gains/ losses are immediately taken to Profit and Loss
Account and are not deferred.
12.2 Retirement benefit in the form of provident fund is a defined
contribution scheme and the contributions are charged to the Profit and
Loss Account of the year when the contributions to the fund are due.
There are no other obligations other than the contribution payable to
the fund.
13. TAXES ON INCOME
13.1 Tax expense comprises current and deferred tax. Current income tax
is measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act, 1961 enacted in India. Deferred
Income Tax 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.
13.2 Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to taxes levied by same governing taxation laws.
Deferred tax assets are recognized only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realized. In
situations where the Bank has unabsorbed depreciation or carry forward
tax losses, all deferred tax assets are recognized only if there is
virtual certainty supported by convincing evidence that they can be
realized against future taxable profits.
13.3 At each Balance Sheet date the Bank re-assesses unrecognized
deferred tax assets. It recognises unrecognized deferred tax asset 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 realized.
14. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
Provisions are recognized in terms of Accounting Standard-29 on
"Provisions, Contingent Liabilities and Contingent Assets", when
there is a present legal or statutory obligation as a result of past
events leading to probable outflow of resources, where a reliable
estimate can be made of the amount required to settle the obligation.
Contingent Liabilities are recognized only when there is a possible
obligation arising from past events due to occurrence or non-occurrence
of one or more uncertain future events, not wholly within the control
of the Bank, or where there is a present obligation arising from a past
event which is not recognized as 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. 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
15. ACCOUNTING FOR DERIVATIVE CONTRACTS
Income from derivative transactions designated as hedge is recorded on
an accrual basis and these transactions are not marked to market.
Derivative transactions, which are not designated as hedge, are marked
to market as per the generally accepted practices prevalent in the
industry. Any resultant gain or loss is recognized in the Profit and
Loss Account.
16. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for the Employee Share-based Payments issued by The
Institute of Chartered Accountants of India. The Bank measures
compensation cost relating to employee stock options using the
intrinsic value method. Compensation expense is amortised over the
vesting period of the option on a straight line basis.
17. EARNINGS PER SHARE
Basic and diluted earnings per share are computed in accordance with
Accounting Standard 20 Â Earning per share. Basic earnings per share
is calculated by dividing the net profit or loss for the year
attributable to equity shareholders (after deducting attributable
taxes) by the weighted average number of equity shares outstanding
during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effect of dilutive potential equity shares.
18. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with
Reserve Bank of India, balances with other banks and money at call and
short notice (including effect of changes in exchange rates on cash and
cash equivalents in foreign currency).
19. LEASES
Leases where lessor effectively retains substantially all risks and
benefits of ownership of the leased item 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.
Mar 31, 2012
1. BACKGROUND
Development Credit Bank Limited ("DCB" or "the Bank"),
incorporated in Mumbai, India is a publicly held banking company
engaged in providing banking and financial services. DCB is a banking
company governed by the Banking Regulation Act, 1949.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, unless
otherwise stated, and comply with generally accepted accounting
principles in India, statutory requirements prescribed under the
Banking Regulation Act, 1949, circulars and guidelines issued by the
Reserve Bank of India ('RBI') from time to time and notified
Accounting Standards by Companies (Accounting Standards) Rules, 2006,
(as amended) to the extent applicable and current practices prevailing
within the banking industry in India. The Accounting policies have been
consistently applied and are consistent with those used in the previous
year.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ
from these estimates. Any revisions to the accounting estimates are
recognized prospectively in the current and future periods.
4. INVESTMENTS
4.1 The Investment portfolio comprising approved securities
(predominantly Government Securities) and other securities (Shares,
Debentures and Bonds, etc.) are classified at the time of acquisition
in accordance with the Reserve Bank of India (RBI) guidelines under
three categories viz. 'Held to Maturity' ('HTM'), 'Available for
Sale' ('AFS') and 'Held for Trading' ('HFT'). For the purposes of
disclosure in the Balance Sheet, they are classified under six groups
viz. Government Securities, Other Approved Securities, Shares,
Debentures & Bonds, Subsidiaries and/or Joint Ventures and Other
Investments.
4.2 Basis of Classification:
Investments that are held principally for resale within 90 days from
the date of purchase are classified as HFT securities. As per RBI
guidelines, HFT securities, which remain unsold for a period of 90 days
are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity, are
classified as HTM securities.
Investments which are not classified in the above categories, are
classified under AFS category.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments
is accounted as per RBI guidelines.
4.4 Valuation:
Held for Trading and Available for Sale categories:
Investments classified as HFT and AFS are marked to market at monthly
intervals. These securities are valued scrip-wise and any resultant
depreciation or appreciation is aggregated for each category. The net
depreciation for each category is provided for, whereas the net
appreciation for each category is ignored. The book value of individual
securities is not changed consequent to periodic valuation of
investments.
Held to Maturity:
These are carried at their acquisition cost and are not marked to
market. Any premium on acquisition is amortized over the remaining
maturity period of the security on a straight-line basis. Provisions
are made for diminutions other than temporary in the value of such
investments for each investment individually.
In the event provisions created on account of depreciation in the AFS
or HFT categories are found to be in excess of the required amount in
any year, such excess is recognized in the Profit and Loss account and
subsequently appropriated, from profit available for appropriation, if
any, to Investment Reserve Account in accordance with RBI guidelines
after adjusting for income tax and appropriation to Statutory Reserve.
4.5 Non-performing investments are identified and provision is made as
per RBI guidelines.
4.6 Profit/Loss on sale of investment under the aforesaid three
categories is taken to the Profit & Loss Account. The profit on sale of
investment in HTM category, net of taxes and transfers to Statutory
Reserve is appropriated to Capital Reserves.
For all securities other than discounted instruments, weighted average
cost after adjusting the depreciation booked is used to compute
profit/loss on sale. In case of discounted instruments the FIFO method
is used for computing profit/loss on sale.
4.7 Brokerage, fees, commission and broken period interest incurred at
the time of acquisition of securities, including money market
instruments, are recognized as expenses.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are
classified as Standard, Sub-Standard, Doubtful and Loss Assets and are
stated net of the required provision made on such advances.
5.2 Provision for non-performing advances ('NPAs') comprising
sub-standard, doubtful and loss assets is made in accordance with the
RBI guidelines which prescribes minimum provision levels and also
encourages banks to make a higher provision based on sound commercial
judgement. Non- performing advances are identified by periodic
appraisals of the loan portfolio by the management. In respect of
identified NPAs, provision is made based on the inherent risk assessed
for the various product categories. The provisioning done is at or
higher than the minimum prescribed under the RBI guidelines.
5.3 Advances are net of bills rediscounted, claims realised from ECGC,
provisions for non- performing advances, unrealized fees and unrealized
interest held in suspense account.
5.4 Credit facility/investment, where interest and/or installment of
principal has remained overdue for more than 90 days, is classified as
non-performing asset. However, in respect of Equated Monthly Instalment
(EMI) based advances those accounts where more than 3 EMIs are overdue
are classified as non-performing advances.
5.5 In case of non performing assets other than retail EMI loans,
recoveries effected are first adjusted towards the principal amount. In
case of retail EMI loans, recoveries effected are adjusted towards the
EMI and within the EMI first towards the principal amount.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or
revalued amounts, as the case may be), less accumulated depreciation
and impairment losses, if any. Cost comprises the purchase price and
any attributable cost of bringing the asset to its working condition
for its intended use.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an
independent valuer to reflect current market valuation. All land and
building owned by the Bank and used as branches or offices or godowns
are grouped under "Office Premises" in the fixed assets category.
Appreciation, if any, on revaluation is credited to Revaluation Reserve
under Capital Reserves.
8. DEPRECIATION
Depreciation on fixed assets, including amortisation of software, is
charged over the estimated useful life of the fixed assets on a
straight line basis at the rates and in the manner prescribed in
Schedule XIV of the Companies Act, 1956, except as mentioned below:
- Computer Hardware - 33.33% p.a.
- ATM - 12.50% p.a.
- Core Banking Software - 12.50% p.a.
- Application Software & System Development Expenditure - Depending
upon estimated useful life between 3-5 years.
- Hard Furnishing - 25% p.a.
- Improvements (Civil) to Leased Premises - over the contracted period
of the lease.
- Fixed Furniture in Leased Premises such as work-stations, etc. - over
the contracted period of the lease.
- Vehicle - 19% p.a. over 5 years with 5% residual value.
Assets purchased/sold during the year are depreciated on a pro-rata
basis, based on the actual number of days the asset has been put to
use. Assets individually costing upto Rs 5,000/- are depreciated fully
in the year of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each balance sheet date if
there is any indication of impairment based on internal/external
factors. An impairment loss is recognised wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset's net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks
specific to the asset. After impairment, depreciation is provided on
the revised carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME & EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the
economic benefit will flow to the Bank and the revenue can be reliably
measured.
10.2 Items of income and expenditure are generally accounted on accrual
basis, except as otherwise stated.
10.3 Interest income is recognised in Profit & Loss Account on accrual
basis, except in the case of non-performing assets where it is
recognised as per RBI norms.
10.4 Processing fees recovered on loans are recognised as income and
processing overheads on loans are expensed at the inception of the
loan.
10.5 Overdue rent on Safe Deposit Lockers is accounted for on
realisation.
10.6 Commission on bank guarantees issued is amortised over the period
of the guarantees.
11. FOREIGN EXCHANGE TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and foreign currency at the date of the
transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate
notified by Foreign Exchange Dealers' Association of India (FEDAI), as
per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items or on
reporting monetary items of the Bank at rates different from those at
which they were initially recorded during the year, or reported in
previous financial statements, are recognised as income or as expenses
in the year in which they arise. Non-monetary items which are carried
in terms of historical cost denominated in a foreign currency are
reported using the exchange rate at the date of the transaction and
non-monetary items which are carried at fair value or other similar
valuations denominated in a foreign currency are reported using
exchange rates that existed when the values were determined.
11.4 Outstanding forward exchange contracts, bills and foreign currency
loans are revalued on the balance sheet date at rates notified by FEDAI
and the resultant gain/loss on revaluation is included in the Profit
and Loss Account.
11.5 Contingent liabilities denominated in foreign currencies are
disclosed in balance sheet date at the rates notified by FEDAI.
11.6 Forward exchange contracts and other derivative contracts which
have overdue receivables which have remained unpaid over 90 days or
more are classified as non-performing assets and provided for as per
the extant master circular on Prudential Norms on Income Recognition,
Asset Classification and Provisioning issued by the RBI.
12. RETIREMENT BENEFITS OF EMPLOYEES:
12.1 Provision in respect of future liability for payment of gratuity
is made on the basis of actuarial valuation on projected unit credit
method made at the end of the year. Gratuity is funded with the
Gratuity Trust duly registered under the provisions of Income tax Act,
1961. Actuarial gains/losses are immediately taken to Profit and Loss
Account and are not deferred.
12.2 Retirement benefit in the form of provident fund is a defined
contribution scheme and the contributions are charged to the profit and
loss account of the year when the contributions to the fund are due.
There are no other obligations other than the contribution payable to
the fund.
13. TAXES ON INCOME:
13.1 Tax expense comprises current and deferred tax. Current income tax
is measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act, 1961 enacted in India. Deferred
Income Tax 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.
13.2 Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to taxes levied by same governing taxation laws.
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised. In
situations where the Bank has unabsorbed depreciation or carry forward
tax losses, all deferred tax assets are recognised only if there is
virtual certainty supported by convincing evidence that they can be
realized against future taxable profits.
13.3 At each balance sheet date the Bank re-assesses unrecognized
deferred tax assets. It recognises unrecognized deferred tax asset 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.
14. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS:
Provisions are recognised in terms of Accounting Standard-29 on
"Provisions, Contingent Liabilities and Contingent Assets" issued
by the ICAI, when there is a present legal or statutory obligation as a
result of past events leading to probable outflow of resources, where a
reliable estimate can be made of the amount required to to settle the
obligation.
Contingent Liabilities are recognised only when there is a possible
obligation arising from past events due to occurrence or non-occurrence
of one or more uncertain future events, not wholly within the control
of the Bank, or where there is a present obligation arising from a past
event which is not recognised as 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. 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
15. ACCOUNTING FOR DERIVATIVE CONTRACTS:
Income from derivative transactions designated as hedge is recorded on
an accrual basis and these transactions are not marked to market.
Derivative transactions, which are not designated as hedge, are marked
to market as per the generally accepted practices prevalent in the
industry. Any resultant gain or loss is recognised in the Profit &
Loss Account.
16. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments issued by the Institute of
Chartered Accountants of India. The Bank measures compensation cost
relating to employee stock options using the intrinsic value method.
Compensation expense is amortised over the vesting period of the option
on a straight line basis.
17. EARNINGS PER SHARE
Basic and diluted earnings per share are computed in accordance with
Accounting Standard 20 - Earning per share. Basic earnings per share is
calculated by dividing the net profit or loss for the year attributable
to equity shareholders (after deducting attributable taxes) by the
weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effect of dilutive potential equity shares.
18. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with
Reserve Bank of India, balances with other banks/institutions and money
at call and short notice (including effect of changes in exchange rates
on cash and cash equivalents in foreign currency).
19. LEASES
Leases where lessor effectively retains substantially all risks and
benefits of ownership of the leased item 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.
Mar 31, 2011
1. BACKGROUND
Development Credit Bank Limited ("DCB" or "the Bank"), incorporated in
Mumbai, India is a publicly held banking company engaged in providing
banking and financial services. DCB is a banking company governed by the
Banking Regulation Act, 1949.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, unless
otherwise stated, and comply with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (ÃRBI) from time to time and notifed Accounting
Standards by Companies (Accounting Standards) Rules, 2006, (as amended)
to the extent applicable and current practices prevailing within the
banking industry in India. The Accounting policies have been
consistently applied and are consistent with those used in the previous
year.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon managements best
knowledge of current events and actions, actual results could differ
from these estimates. Any revisions to the accounting estimates are
recognized prospectively in the current and future periods.
4. INVESTMENTS
4.1 The Investment portfolio comprising approved securities
(predominantly Government Securities) and other securities (Shares,
Debentures and Bonds, etc.) are classified at the time of acquisition in
accordance with the Reserve Bank of India (RBI) guidelines under three
categories viz. ÃHeld to Maturity (ÃHTM), ÃAvailable for Sale
(ÃAFS) and ÃHeld for Trading (ÃHfit). For the purposes of disclosure
in the Balance Sheet, they are classified under six groups viz.
Government Securities, Other Approved Securities, Shares, Debentures &
Bonds, Subsidiaries and/or joint ventures and Other Investments.
4.2 Basis of Classifcation:
Investments that are held principally for resale within 90 days from
the date of purchase are classified as Hfit securities. As per RBI
guidelines, Hfit securities, which remain unsold for a period of 90 days
are reclassified as AFS securities as on that date.
Investments which the Bank intends to hold till maturity, are classified
as HTM securities.
Investments which are not classified in the above categories, are
classified under AFS category.
4.3 Transfer of Securities between Categories:
The transfer/shifiting of securities between categories of investments
is accounted as per RBI guidelines.
4.4 Valuation:
Held for Trading and Available for Sale categories:
Investments classified as Hfit and AFS are marked to market at monthly
intervals. These securities are valued scrip-wise and any resultant
depreciation or appreciation is aggregated for each category. The net
depreciation for each category is provided for, whereas the net
appreciation for each category is ignored. The book value of individual
securities is not changed consequent to periodic valuation of
investments.
Held to Maturity:
These are carried at their acquisition cost and are not marked to
market. Any premium on acquisition is amortized over the remaining
maturity period of the security on a straight-line basis. Provisions
are made for diminutions other than temporary in the value of such
investments for each investment individually.
In the event provisions created on account of depreciation in the AFS
or Hfit categories are found to be in excess of the required amount in
any year, such excess is recognized in the Profit and Loss account and
subsequently appropriated, from profit available for appropriation, if
any, to Investment Reserve Account in accordance with RBI guidelines
afiter adjusting for income tax and appropriation to Statutory Reserve.
4.5 Non-performing investments are identifed and provision is made as
per RBI guidelines.
4.6 Profit/Loss on sale of investment under the aforesaid three
categories is taken to the Profit & Loss Account. The profit on sale of
investment in HTM category, net of taxes and transfers to Statutory
Reserve is appropriated to Capital Reserves.
For all securities other than discounted instruments, weighted average
cost afiter adjusting the depreciation booked is used to compute
profit/loss on sale. In case of discounted instruments the FIFO method
is used for computing profit/loss on sale.
4.7 Brokerage, fees, commission and broken period interest incurred at
the time of acquisition of securities, including money market
instruments, are recognized as expenses.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are
classified as Standard, Sub-Standard, Doubtful and Loss Assets and are
stated net of the required provision made on such advances.
5.2 Provision for non-performing advances (ÃNPAs) comprising
sub-standard, doubtful and loss assets is made in accordance with the
RBI guidelines which prescribes minimum provision levels and also
encourages banks to make a higher provision based on sound commercial
judgement. Non-performing advances are identifed by periodic appraisals
of the loan portfolio by the management. In respect of identifed NPAs,
provision is made based on the inherent risk assessed for the various
product categories. The provisioning done is at or higher than the
minimum prescribed under the RBI guidelines.
5.3 Advances are net of bills rediscounted, claims realised from ECGC,
provisions for non- performing advances, unrealized fees and unrealized
interest held in suspense account.
5.4 Credit facility/investment, where interest and/or installment of
principal has remained overdue for more than 90 days, is classified as
non-performing asset. However, in respect of Equated Monthly
Instalment (EMI) based advances those accounts where more than 3 EMIs
are overdue are classified as non- performing advances.
5.5 In case of non performing assets other than retail EMI loans,
recoveries effected are frst adjusted towards the principal amount. In
case of retail EMI loans, recoveries effected are adjusted towards the
EMI and within the EMI frst towards the principal amount.
6. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or
revalued amounts, as the case may be), less accumulated depreciation
and impairment losses, if any. Cost comprises the purchase price and
any attributable cost of bringing the asset to its working condition
for its intended use. Appreciation, if any, on revaluation is credited
to Revaluation Reserve under Capital Reserves.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an
independent valuer to refect current market valuation. All land and
building owned by the Bank and used as branches or offces or godowns
are grouped under "Offce Premises" in the fixed assets category.
8. DEPRECIATION
Depreciation on fixed assets, including amortisation of sofitware, is
charged over the estimated useful life of the fixed assets on a straight
line basis at the rates and in the manner prescribed in Schedule XIV of
the Companies Act, 1956, except as mentioned below:
à Computer Hardware - 33.33% p.a.
à ATM - 12.50% p.a.
à Core Banking Sofitware - 12.50% p.a.
à Application Sofitware & System Development Expenditure - Depending
upon estimated useful life between 3-5 years.
à Hard Furnishing à 25% p.a.
à Improvements (Civil) to Leased Premises à over the contracted period
of the lease.
à Fixed Furniture in Leased Premises such as work-stations, etc. à over
the contracted period of the lease.
à Vehicle à 19% p.a. over 5 years with 5% residual value.
Assets purchased/sold during the year are depreciated on a pro-rata
basis, based on the actual number of days the asset has been put to
use.
Assets individually costing upto Rs. 5,000/- are depreciated fully in the
year of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each balance sheet date if
there is any indication of impairment based on internal/external
factors. An impairment loss is recognised wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the assets net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that refects
current market assessments of the time value of money and risks specifc
to the asset. Afiter impairment, depreciation is provided on the revised
carrying amount of the asset over remaining useful life.
10. RECOGNITION OF INCOME & EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the
economic benefit will flow to the Bank and the revenue can be reliably
measured.
10.2 Items of income and expenditure are generally accounted on accrual
basis, except as otherwise stated.
10.3 Interest income is recognised in Profit & Loss Account on accrual
basis, except in the case of non-performing assets where it is
recognised as per RBI norms.
10.4 Processing fees recovered on loans are recognised as income and
processing overheads on loans are expensed at the inception of the
loan.
10.5 Overdue rent on Safe Deposit Lockers is accounted for on
realisation.
10.6 Commission on bank guarantees issued is amortised over the period
of the guarantees.
11. FOREIGN EXCHANGE TRANSACTIONS
11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and foreign currency at the date of the
transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate
notifed by Foreign Exchange Dealers Association of India (FEDAI), as
per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items or on
reporting monetary items of the Bank at rates different from those at
which they were initially recorded during the year, or reported in
previous financial statements, are recognised as income or as expenses
in the year in which they arise. Non-monetary items which are carried
in terms of historical cost denominated in a foreign currency are
reported using the exchange rate at the date of the transaction and
non-monetary items which are carried at fair value or other similar
valuations denominated in a foreign currency are reported using
exchange rates that existed when the values were determined.
11.4 Outstanding forward exchange contracts, bills and foreign currency
loans are revalued on the balance sheet date at rates notifed by FEDAI
and the resultant gain/loss on revaluation is included in the Profit and
Loss Account.
11.5 Contingent liabilities denominated in foreign currencies are
disclosed in balance sheet date at the rates notifed by FEDAI.
11.6 Forward exchange contracts and other derivative contracts which
have overdue receivables which have remained unpaid over 90 days or
more are classified as non-performing assets and provided for as per the
extant master circular on Prudential Norms on Income Recognition, Asset
Classifcation and Provisioning issued by the RBI.
12. RETIREMENT BENEFITS OF EMPLOYEES:
12.1 Provision in respect of future liability for payment of gratuity
is made on the basis of actuarial valuation on projected unit credit
method made at the end of the year. Gratuity is funded with the
Gratuity Trust duly registered under the provisions of Income Ta x Act,
1961. Actuarial gains/losses are immediately taken to Profit and Loss
Account and are not deferred.
12.2 Retirement benefit in the form of provident fund is a defned
contribution scheme and the contributions are charged to the Profit and
Loss account of the year when the contributions to the fund are due.
There are no other obligations other than the contribution payable to
the fund.
13. TAXES ON INCOME:
13.1 Tax expense comprises current and deferred tax. Current income tax
is measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act, 1961 enacted in India. Deferred
Income Tax refects the impact of current year timing differences
between taxable income and accounting income for the year and reversal
of timing differences of earlier years.
13.2 Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the balance sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to taxes levied by same governing taxation laws.
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that suffcient future taxable income will be
available against which such deferred tax assets can be realised. In
situations where the Bank has unabsorbed depreciation or carry forward
tax losses, all deferred tax assets are recognised only if there is
virtual certainty supported by convincing evidence that they can be
realized against future taxable profits.
13.3 At each balance sheet date the Bank re-assesses unrecognized
deferred tax assets. It recognises unrecognized deferred tax asset to
the extent that it has become reasonably certain or virtually certain,
as the case may be that suffcient future taxable income will be
available against which such deferred tax assets can be realised.
14. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS:
Provisions are recognised in terms of Accounting Standard-29 on
"Provisions, Contingent Liabilities and Contingent Assets" issued by
the ICAI, when there is a present legal or statutory obligation as a
result of past events leading to probable outflow of resources, where a
reliable estimate can be made to settle the same.
Contingent Liabilities are recognised only when there is a possible
obligation arising from past events due to occurrence or non-occurrence
of one or more uncertain future events, not wholly within the control
of the Bank, or where any present obligation cannot be measured in
terms of future outflow of resources, or where a reliable estimate of
the obligation cannot be made. Obligations are assessed on an ongoing
basis and only those having a largely probable outflow of resources are
provided for.
Contingent Assets are not recognized in the financial statements.
15. ACCOUNTING FOR DERIVATIVE CONTRACTS:
Income from derivative transactions designated as hedge is recorded on
an accrual basis and these transactions are not marked to market.
Derivative transactions, which are not designated as hedge, are marked
to market as per the generally accepted practices prevalent in the
industry. Any resultant gain or loss is recognised in the Profit and
Loss Account.
16. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments issued by the Institute of
Chartered Accountants of India. The Bank measures compensation cost
relating to employee stock Options using the intrinsic value method.
Compensation expense is amortised over the vesting period of the option
on a straight line basis.
17. EARNINGS PER SHARE
Basic and diluted earnings per share are computed in accordance with
Accounting Standard 20 Ã Earning per share. Basic earnings per share is
calculated by dividing the net profit or loss for the year attributable
to equity shareholders (afiter deducting attributable taxes) by the
weighted average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effect of dilutive potential equity shares.
18. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with
Reserve Bank of India, balances with other banks/institutions and money
at call and short notice (including effect of changes in exchange rates
on cash and cash equivalents in foreign currency).
19. LEASES
Leases where lessor effectively retains substantially all risks and
benefits of ownership of the leased item 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.
4.3 Disclosures on risk exposure in derivatives: a) Qualitative
Disclosures
Management of Risk in Derivatives Trading
The Banks market risk unit plays a key role in sanctioning of the
limits, and laying down of the risk assessment and monitoring methods.
The policies of the Bank include setting limits upon the notional
principle value of product specificgaps, maximum tenor, overall
outstanding and also the setting-up of counter party-wise, tenor-wise
limits.
All limits are monitored on a daily basis by the Banks Treasury and
Settlements Department. Exposure reports are submitted to the Treasurer
as well as the Head-Market Risk and any limit excesses are brought to
the notice of the management immediately for further action.
Policies for Hedging Risk
All transactions undertaken by the Bank for trading purposes are
classified under the Trading Book. All other transactions are classified
as a part of the Banking Book. The Banking Book includes transactions
concluded for the purpose of providing structures to customers on a
back to back basis. It also consists of transactions in the nature of
hedges based on identifcation of supporting trades, with appropriate
linkages done for matching amounts and tenor within the approved
tolerance limits.
The accounting for all derivative trades is done for the Notional
amount on the trade date. The valuation of all outstanding trades is
done category wise. The valuation for outstanding trades under the
Trading portfolio is done on a daily basis and the net MTM is accounted
in the Profit & Loss account. The valuation for outstanding trades under
the hedged portfolio is done on a monthly basis and the net MTM if any
is accounted in the Profit & Loss account on monthly basis. Valuation of
the outstanding hedged Forex Options is done on a monthly basis and the
net MTM is zero as all customer trades are hedged on identical basis
with counter party banks.
Coupon payments on IRS are settled on a net basis for individual trades
on settlement date. Interest income is recognized on settlement date.
The MTM position on all outstanding trades of individual corporate
customers is reported on a monthly basis to Credit Risk department for
exposure monitoring.
8.3 Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL)
exceeded by the Bank
As per regulatory guidelines, the Bank should restrict its exposure to
15% of its capital funds to any Single Borrower, defned as Single
Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank
can lend 5% to infrastructure projects and a further 5% with the
specificapproval of its Board.
During the year ended March 31, 2011 the Bank had not exceeded the
prudential exposure limits as laid down by RBI guidelines for the
Single Borrower Limit (SBL).
During the year ended March 31, 2010 the Bank had extended an exposure
of Rs. 120.00 Crore to Simplex Infrastructure Ltd. with the specifc
approval of its Board of Directors, which is within the overall limits
prescribed above, though exceeding the basic limit of 15% and the
additional limit of 5% for infrastructure projects.
During the year ended March 31, 2011 and March 31, 2010 the Bank had
not exceeded the prudential exposure limits as laid down by RBI
guidelines for the Group Borrower Limit (GBL).
9 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES 9.1
Staff Retirement Benefits (Accounting Standard 15 Revised)
The contribution to employees Provident Fund amounted to Rs. 3.73 Crore
for the year ended March 31, 2011 (Previous year Rs. 3.37 Crore).
The Company has a gratuity trust approved by Income Tax Department
namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every
employee who has completed 5 years or more of service gets gratuity on
separation at half months last drawn salary for each completed year of
service, subject to a cap of Rs. 10.00 lakhs for employees who joined
afiter 01.04.2006 and without any such limit for other employees.
All the plan assets are invested by the gratuity trust namely
"Development Credit Bank Ltd. Staff Gratuity Fund" in Government
securities (CY about 33%, PY about 25%), high rated corporate bonds (CY
about 58%, PY about 65%), Money Market Instruments (CY about 1%, PY
NIL) and units of mutual funds/ insurance companies (CY about 8%, PY
about 10%) set up as dedicated funds for management of gratuity funds.
The estimates of future salary increases, considered in actuarial
valuation, take account of infation, seniority, promotion and other
relevant factors, such as supply and demand in the employment market.
9.2 Employees Stock Options
The Shareholders of the Bank had approved an ESOP plan Phase I in
November 2005, enabling the Board and /or the Nomination Committee to
grant such number of equity shares and/or equity linked instruments
including Options of the Bank not exceeding 4% of the Issued Capital or
6,000,000 Equity Shares of the Bank. The Shareholders, at the Annual
General Meeting held in September 2006, had approved an additional 3%
of the Issued Capital, aggregating the total Equity Share Capital
reserved for all ESOPs to 7% of the Issued Capital from time to time.
As the shares of the Bank were subsequently listed, confrmation of
Shareholders was obtained at the Extra-Ordinary General Meeting held on
15th December, 2006, in line with the guidelines of the Securities &
Exchange Board of India. Pursuant thereto, during the year the
Nomination Committee of the Bank granted the following options:
Mr. Murali M. Natrajan, MD & CEO has been granted 500,000 Options
(approved by RBI) & 1,500,000 Options (subject to RBI approval) duly
approved by the Board of Directors -
- 500,000 Options vest in a graded manner over a 5 year period, with
40% at the end of the 3rd year from the date of the grant, 30% at the
end of the 4th year from the date of the grant and 30% at the end of
the 5th year from the date of the grant.
- 1,500,000 Options vest in a graded manner over a 5 year period, with
30% at the end of the 2nd year from the date of grant, 30% at the end
of the 3rd year from the date of the grant, 20% at the end of the 4th
year from the date of the grant and 20% at the end of the 5th year from
the date of the grant.
Method used for accounting for ESOP
The Bank has applied the intrinsic value method to account for the
compensation cost of ESOP to the employees of the Bank. Intrinsic value
is the amount by which the quoted market price of the underlying share
exceeds the exercise price of the options.
9.3 Segment Reporting
Part A: Business Segments
As per the RBI guidelines on Segment reporting the Bank has classified
its activity into Treasury operations, Corporate Banking, Retail
Banking, and other Banking operations.
Treasury operations includes all financial markets activities undertaken
on behalf of the Banks customers, proprietary trading, maintenance of
reserve requirements and resource mobilisation from other banks and
financial institutions.
Corporate 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.
Part B: Geographic Segments
The Bank does not have overseas branches and the operations are
entirely domestic. Therefore, no separate reporting is done based on
geographic segments.
In computing the above information, certain estimates and assumptions
have been made by management which have been relied upon by the
auditors.
9.4 Related Party Transactions
Related Party Transactions in terms of AS-18 on "Related Party
Disclosures" are disclosed below:
List of Related Parties and details of transactions entered into with
them during the year:
Associate
Platinum Jubilee Investments Ltd.
As per para 4.5 of the Master circular on "Disclosure in Financial
Statements à Notes to Accounts" dated 1st July, 2010, where there is
only one entity in any
category of related party, banks need not disclose any details
pertaining to that related party other than the relationship with that
related party.
Since Platinum Jubilee Investments Ltd. is the only entity in the
category of associates, details pertaining to the same are not
disclosed.
The details of transactions entered into with the Key Management
Personnel of the Bank are as under:
Financial Year 2010-11
Mr. Murali M. Natrajan : Managing Director
Managerial Remuneration : Rs. 1.99 Crore
Financial Year 2009-10
Mr. Murali M. Natrajan : Managing Director (from 29 April 2009)
Managerial Remuneration : Rs. 1.69 Crore
9.5 Deferred Tax
a. In accordance with AS-22 on "Accounting for Taxes on Income" issued
by the Institute of Chartered Accountants of India, the Bank has
recognized Deferred Tax Assets on such timing differences where there
is a virtual certainty based on contracts and arrangements in place
that such deferred tax assets can be reversed. Deferred Tax Assets have
been recognized on unabsorbed depreciation to the extent of deferred
tax liability arising on account of timing difference arising between
book depreciation and tax depreciation.
9.6 Provisions, Contingent Liabilities and Contingent Assets
Mar 31, 2010
1. BASIS OF PREPARATION
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, unless
otherwise stated, and comply with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (RBI) from time to time and notified Accounting
Standards by Companies (Accounting Standards) Rules, 2006 to the extent
applicable and current practices prevailing within the banking industry
in India. The Accounting policies have been constantly applied and are
consistent with those used in the previous year.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period. Although these estimates are based upon managements best
knowledge of current events and actions, actual results could differ
from these estimates. Any revisions to the accounting estimates are
recognized prospectively in the current and future periods.
3. INVESTMENTS
3.1 The Investment portfolio comprising approved securities
(predominantly Government Securities) and other securities (Shares,
Debentures and Bonds, etc.) are classified at the .time of acquisition
in accordance with the Reserve Bank of India (RBI) guidelines under
three categories viz. Held to Maturity (HTM), Available for Sale
(AFS) and Held for Trading (HFT). For the purposes of disclosure
in the Balance Sheet, they are classified under six groups viz.
Government Securities, Other Approved Securities, Shares, Debentures &
Bonds, Subsidiaries and/or joint ventures and Other Investments.
3.2 Basis of Classification:
Investments that are held principally for resale within 90 days from
the date of purchase are classified as HFT category.
Investments which the Bank intends to hold till maturity, are
classified as HTM category.
Investments which are not classified in the above categories, are
classified under AFS category.
3.3 Transfer of Securities between Categories:
The transfer/shifting of securities between the three categories of
investments is accounted for at the lower of acquisition cost/book
value/market value on the date of transfer and depreciation, if any, on
such transfer is fully provided for.
3.4 Valuation:
Held for Trading and Available for Sale categories:
Investments classified as HFT and AFS are revalued at monthly
intervals. These securities are valued scrip-wise and any resultant
depreciation or appreciation is aggregated for each category. The net
depreciation for each category is provided for, whereas the net
appreciation for each category is ignored. The book value of individual
securities is not changed consequent to periodic valuation of
investments.
Held to Maturity:
These are carried at their acquisition cost and are not marked to
market. Any premium on acquisition is amortized over the remaining
maturity period of the security on a straight-line basis. Provisions
are made for diminutions other than temporary in the value of such
investments.
In the event provisions created on account of depreciation in the AFS
or HFT categories are found to be in excess of the required amount in
any year, such excess is recognized in the Profit and Loss account and
subsequently appropriated, from profit available for appropriation, if
any, to Investment Reserve Account in accordance with RBI guidelines
after adjusting for income tax and appropriation to Statutory Reserve.
3.5 Non-performing investments are identified and provision is made as
per RBI guidelines.
3.6 Profit/Loss on sale of investmenl under the aforesaid three
categories is taken to the Profit & Loss Account. The profit on sale of
investment in HTM category, net of taxes and transfers to Statutory
Reserve is appropriated to Capital Reserves.
For all securities other than discounted instruments, weighted average
cost after adjusting the depreciation book is used to compute
profit/loss on sale. In case of discounted instruments the FIFO method
is used for computing profit/loss on sale.
3.7 Brokerage, fees, commission and broken period interest incurred at
the time of acquisition of securities, including money market
instruments, are recognized as expenses.
4. ADVANCES
4.1 In pursuance of guidelines issued by the RBI, advances are
classified as Standard, Sub-Standard, Doubtful and Loss Assets and are
stated net of the required provision made on such advances.
4.2 Provision for non-performing advances (NPAs) comprising sub-
standard, doubtful and loss assets is made in accordance with the RBI
guidelines which prescribes minimum provision levels and also
encourages banks to make a higher provision based on sound commercial
judgement. Non-performing advances are identified by periodic
appraisals of the loan portfolio by the management. In respect of
identified NPAs, provision is made based on theinherent risk assessed
for the various product categories. The provisioning done is at or
higher than the minimum prescribed under the RBI guidelines.
4.3 Advances are net of bills rediscounted, claims realised from ECGC,
provisions for non- performing advances, unrealized fees and unrealized
interest held in suspense account.
4.4 Credit facility/investment, where interest and/or installment of
principal has remained overdue for more than 90 days, is classified as
non- performing asset. However, in respect of Equated Monthly
Instalment (EMI) based advances those accounts where more than 3 EMIs
are overdue are classified as non-performing advances.
4.5 In case of non performing assets, recoveries effected are first
adjusted towards the principal amount.
5. FIXED ASSETS
Premises and other fixed assets are stated at historical cost (or
revalued amounts, as the case may be), less accumulated depreciation
and impairment losses, if any. Cost comprises the purchase price and
any attributable cost of bringing the asset to its working condition
for its Intended use. Appreciation, if any, on revaluation is credited
to Revaluation Reserve under Capital Reserves.
6. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an
independent valuer to reflect current market valuation. All land and
building owned by the Bank and used as branches or offices or godowns
are grouped under "Office Premises" in the fixed assets category.
7. DEPRECIATION
Depreciation on fixed assets, including leased assets and amortisation
of software, is charged over the estimated useful life of the fixed
assets or. a straight line basis at the rates and in the manner
prescribed in Schedule XIV of the Companies Act, 1956, except as
mentioned below:
Computer Hardware - 33.33% p.a.
- ATM-12.50% p.a.
Core Banking Software -12.50% p.a.
Application Software & System Development Expenditure - Depending upon
estimated useful life between 3-5 years.
Hard Furnishing - 25% p.a.
Improvements (Civil) to Leased Premises - over he contracted period.of
the lease,
Fixed Furniture in Leased Premises such as work-stations, etc. - over
the contracted period of the lease.
- Vehicle - 19% p.a. over 5 years with 5% residual value.
Assets purchased/sold during the year are depreciated on a pro-rata
basis, based on the actual number of days the asset has been put to
use.
Assets individually costing upto Rs. 5,000/- are depreciated fuily in
the year of purchase.
8. IMPAIRMENT OF ASSETS
The carrying amount of assets Is reviewed at each Balance Sheet date if
there is any indication of impairment based on internal/external
factors. An impairment loss is recognised wherever the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the assets net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted
to their present value at the weighted average cost of capital. After
impairment, depreciation is provided on the revised carrying amount of
the asset over remaining useful life.
9. RECOGNITION OF INCOME & EXPENDITURE
9.1 Revenue is recognised to the extent that it is probable that the
economic benefit will flow to the Bank and the revenue can be reliably
measured.
9.2 Items of Income and expenditure are generally accounted on accrual
basis, except as otherwise stated.
9.3 Interest income is recognised in Profit & Loss Account on accrual
basis, except in the case of non-performing assets where it is
recognised as per RBI norms.
9.4 Processing fees recovered on loans are recognised as income and
processing overheads on loans are expensed at the inception of the
loan.
9.5 Overdue rent on Safe Deposit Lockers is accounted for on
realisation.
9.6 Commission up to and including Rs. 1 lakh on bank guarantees
issued is accounted in the year of receipt.
10. FOREIGN EXCHANGE TRANSACTIONS
10.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and foreign currency at the date of the
transaction.
10.2 Conversion:
Foreign currency monetary items are reported using the closing rate
notified by Foreign Exchange Dealers Association of India (FEDAI), as
per the guidelines issued by the RBI.
10.3 Exchange differences:
Exchange difference arising on settlement of monetary items or on
reporting monetary items of the Bank at rates different from those at
which they were initially recorded during the year, or reported in
previous financial statements, are recognised as income or as expenses
in the year in which they arise. Non-monetary items which are carried
in terms of historical cost denominated in a foreign currency are
reported using the exchange rate at the date of the transaction and
non- monetary items which are carried at fair value or other similar
valuations denominated in a foreign currency are reported using
exchange rates that existed when the values were determined. æ ,æ
10.4 Outstanding forward exchange contracts, bills and foreign currency
loans are revalued on the Balance Sheet date at rates notified by FEDAI
and the resultant gain/loss on revaluation is included in the Profit
and Loss Account.
10.5 Contingent liabilities denominated in foreign currencies are
disclosed in Balance Sheet date at the rates notified by FEDAI.
10.6 Forward exchange contracts and other derivative contracts which
have overdue receivables which have remained unpaid over PO days or
more are classified as non-performing assets and provided for as per
the extant master circular on Prudential Norms on Income Recognition,
Asset Classification and Provisioning issued by the RBI.
11. RETIREMENT BENEFITS OF EMPLOYEES
11.1 Provision in respect of future liability for payment of gratuity
is made on the basis of actuarial valuation on projected unit credit
method made at the end of the year. Gratuity is funded with the
Gratuity Trust duly registered under the provisions of Income tax Act,
1961. Actuarial gains/ losses are immediately taken to Profit and Loss
Account and qre not deferred.
11.2 Retirement benefit in the form of provident fund is a defined
contribution scheme and the contributions are charged to the profit and
loss account of the year when the contributions to the fund are due.
There are no other obligations other than the contribution payable to
the fund.
12. TAXES ON INCOME
12.1 Tax expense comprises current and deferred tax. Current income tax
is measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act, 1961 enacted in India, Deferred
Income Tax 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.
12.2 Deferred tax is measured based on the tax rates and the tax. laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to taxes levied by same governing taxation laws.
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised. In
situations where the Bank has unabsorbed depreciation or carry forward
tax losses, all deferred tax assets are recognised only if there is
virtual certainty supported by convincing evidence that they can be
realized against future taxable profits.
12.3 At each Balance Sheet date the Bank re-assesses unrecognized
deferred tax assets. It recognises unrecognized deferred tax asset 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.
13. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS:
Provisions are recognised in terms of Accounting Standard-29 on
"Provisions, Contingent Liabilities and Contingent Assets" issued by
the ICAI, when there is a present legal or statutory obligation as a
result of past events leading to probable outflow of resources, where a
reliable estimate can be made to settle the same.
Contingent Liabilities are recognised only when there is a possible
obligation arising from past eventsdue to occurrence or non-occurrence
of one or more uncertain future events, not wholly within the control
of the Bank, or where any present obligation cannot be measured in
terms of future outflow or resources, or where a reliable estimate of
the obligation cannot be made. Obligations are assessed on an ongoing
basis and only those having a largely probable outflow of resources are
provided for.
Contingent Assets are not recognized in the financial statemt ns.
14. ACCOUNTING FOR DERIVATIVE CONTRACTS
Income from derivative transactions classified as hedge is recorded on
an accrual basis and these transactions are not marked to market.
Derivative transactions, which are not in the nature of hedge, are
marked to market as per the generally accepted practices prevalent in
the industry. Any resultant gain or loss is recognised in the Profit &
Loss Account.
15. EMPLOYEE SHARE BASED PAYMENTS
Measurement and disclosure of employee share-based employment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments issued by the Institute of
Chartered Accountants of India. The Bank measures compensation cost
relating to employee stock options using the intrinsic value method.
Compensation expense is amortised overthe vesting period of the option
on a straight line basis.
16. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
attributable taxes) by the weighted average number of equity shares
outstanding during the year,
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effect of dilutive potential equity shares.
17. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and ATMs, balances with
Reserve Bank of India, balances with other banks/institutions and money
at calland short notice (including effect of changes in exchange rates
on cash and cash equivalents in foreign currency).
18. LEASES
Leases where lessor effectively retains substantially all risks and
benefits of ownership of the leased item 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.
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