Accounting Policies of Suryoday Small Finance Bank Ltd. Company

Mar 31, 2025

3. Significant accounting policies (Contd.)

A. Investments
Classification:

In accordance with the RBI guidelines on investment
classification and valuation, investments are classified
on the date of purchase into "Available for Sale”
(''AFS''), "Fair Value Through Profit & Loss (FVTPL)/
Held for Trading” (''HFT’), and "Held to Maturity”
(''HTM'') categories (hereinafter called "categories”).
Subsequent shifting amongst the categories is done
in accordance with the RBI guidelines.

Under each of these categories, investments are
further classified under six groups (hereinafter
called "groups”) - Government Securities, Other
Approved Securities, Shares, Debentures and Bonds,
Investments in Subsidiaries / Joint Ventures and
Other Investments.

Purchase and sale transactions'' in central and state
government securities are recorded under ''Settlement
Date'' of accounting.

The Bank follows Settlement date accounting for
purchase and sale of investments in accordance with
RBI Guidelines.

Bank categorizes the investment portfolio under AFS
and FVTPL into three fair value hierarchies viz. Level
1, Level 2, and Level 3 as defined in the RBI Master
Direction - Classification, Valuation and Operation
of Investment Portfolio of Commercial Banks
(Directions), 2023.

Level 1: Level 1 inputs are quoted prices in active
markets for identical instruments that the bank can
access as on the measurement date.

Level 2: Level 2 inputs are other than quoted prices
included in Level 1, that are observable for the asset
or liability, either directly or indirectly.

Level 3: Level 3 inputs are unobservable inputs.

Basis of classification:

Investments which the Bank intends to hold till
maturity with the objective to collect the contractual
cash flows are classified as HTM securities The
contractual terms give rise to cash flows that are Solely
Payments of Principal and Interest (SPPI criterion) on
principal outstanding on the specified dates.

Investments which are acquired with the objective
that is achieved by both, collecting contractual cash
flows and selling securities are classified under AFS

category and meeting SPPI criteria. Also, provided
that on initial recognition, a bank may make an
irrevocable election to classify an equity instrument
that is not held with the objective of trading.

Fair Value through Profit and Loss (FVTPL): FVTPL is
a residual category, thus securities that do not qualify
for inclusion in HTM or AFS would be classified under
FVTPL. Held for Trading (HFT), which is a sub-category
of Fair Value through Profit and Loss (FVTPL).

Recognition and Measurement

• Initial Recognition

All investments are measured at fair value on
initial recognition.

In respect of government securities acquired through
auction (including devolvement), switch operations
and open market operations (OMO) conducted by the
RBI, the price at which the security is allotted shall be
the fair value for initial recognition purposes.

Brokerage, commission, etc. and broken period
interest on debts instruments are recognised in
Statement of profit or loss and are not included in the
cost of acquisition.

Day 1 Gain/loss on initial recognition: A day 1 gain
or loss arise on initial recognition of an investment,
due to the difference between the fair value and the
acquisition cost. Any Day 1 gain/ loss is recognised in
the Profit and Loss Account, under Schedule 14: ''Other
Income’ within the subhead ''Profit on revaluation of
investments'' or ''Loss on revaluation of investments.

Any Day 1 loss arising from Level 3 investments is
recognised immediately.

In the case of debt instruments (Level 3), the Day 1
gain shall be amortized on a straight-line basis up to
the maturity date (or earliest call date for perpetual
instruments), while for unquoted equity instruments,
the gain shall be set aside as a liability until the
security is listed or derecognised.

Subsequent measurement
HTM

Securities held in HTM is carried at cost and is not
marked to market (MTM) after initial recognition.

Any discount or premium on the securities under HTM
is amortised over the remaining life of the instrument.
The amortised amount is reflected in the financial
statements under item II ''Income on Investments''
of Schedule 13: ''Interest Earned'' with a contra in
Schedule 8:''Investments.

AFS

Any discount or premium on the acquisition of debt
securities under AFS is amortised over the remaining
life of the instrument. The amortised amount is
reflected in the financial statements under item II
''Income on Investments'' of Schedule 13: ''Interest
Earned'' with a contra in Schedule 8:''Investments''.

The valuation gains and losses across all performing
investments, irrespective of classification (i.e.,
Government securities, Other approved securities,
Bonds and Debentures, etc.), held under AFS is
aggregated. The net appreciation or depreciation
is directly credited or debited to a reserve named
AFS Reserve without routing through the Profit
& Loss Account.

In the case of equity instruments designated under
AFS at the time of initial recognition, any gain or loss
on sale of such investments shall not be transferred
from AFS-Reserve to the Profit and loss A/c.

FVTPL

The securities held in FVTPL is fair valued and the
net gain or loss arising on such valuation is directly
credited or debited to the Profit and Loss Account.
Securities that are classified under the HFT sub¬
category within FVTPL is fair valued on a daily basis
whereas other securities in FVTPL is fair valued at
least on a quarterly, if not on a more frequent basis.

Any discount or premium on the acquisition of
debt securities under FVTPL is amortised over the
remaining life of the instrument. The amortised
amount is reflected in the financial statements
under item II ''Income on Investments'' of Schedule
13: ''Interest Earned'' with a contra in Schedule
8:''Investments''.

Reclassification between categories

Reclassifications of investments between categories,
if any are considered in accordance with the extant
RBI guidelines with the approval of the Board of
Directors and prior approval of the Department of
Supervision (DoS), RBI:

If a bank is permitted to reclassify its investment
portfolio, it applies the reclassification prospectively
from the reclassification date. The reclassification
date is to be the first day of the first reporting period
following the supervisory permission allowing
reclassification of financial asset.

Following is the accounting treatment is to be as
given at the time of reclassification of investments
from one category to another category:

a) Reclassification from HTM to AFS is made
at fair value. The fair value measured at the
reclassification date is to be the revised carrying
value. Any gain or loss arising from a difference
between the revised carrying value and the
previous carrying value is to be recognised
in AFS-Reserve.

b) Reclassification from HTM to FVTPL is made
at fair value. The fair value measured at the
reclassification date is to be the revised carrying
value. Any gain or loss arising from a difference
between the revised carrying value and previous
carrying value of the investments is to be
recognised in the Profit and Loss Account under
Item (III): ''Profit on revaluation of investments''
under Schedule 14: ''Other Income''.

c) Reclassification from AFS to HTM is made at its
fair value at the reclassification date. However,
the cumulative gain/loss previously recognised in
the AFS-Reserve is to be withdrawn therefrom and
adjusted against the fair value of the investments
at the reclassification date to arrive at the revised
carrying value. Thus, the revised carrying value is
to be the same as if the bank had classified the
investment in HTM ab initio itself.

d) Transfer from AFS to FVTPL is made at fair
value and The cumulative gain or loss previously
recognised in AFS-Reserve is to be withdrawn
therefrom and recognized in the Profit and Loss
Account, under Item (III): ''Profit on revaluation of
investments'' under Schedule 14:''Other Income.

e) Transfer from FVTPL to HTM/AFS is made at
carrying value which represents fair value at the
reclassification date. Difference between the
book value after amortization and Fair value on
the reclassification date is to be booked under
P/L on Portfolio Shifting revaluation.

Disposal of Investments

Profit/Loss on sale of investments in HTM, AFS and
FVTPL is recognised in the Statement of profit or
Loss. The profit from sale of investment under HTM
category, net of taxes and transfer to statutory reserve
is appropriated from Statement of Profit and Loss to
"Capital Reserve” in accordance with the RBI Guidelines.

Upon sale or maturity of a debt instrument in AFS
category, the accumulated gain/ loss for that
security in the AFS-Reserve is transferred from the
AFS Reserve and recognized in the Profit and Loss
Account under item II Profit on sale of investments
under Schedule 14-Other Income.

In any financial year, the carrying value of investments
sold out of HTM does not exceed five per cent of
the opening carrying value of the HTM portfolio
(Except exclusions given in Chapter VII - "Sale of
Investment from HTM para 21 of Master Direction -
Classification, Valuation and Operation of Investment
Portfolio of Commercial Banks (Directions), 2023”.
Any sale beyond this threshold is require prior
approval from DoS, RBI.

Valuation

The fair value for the quoted securities are the prices
declared by the Financial Benchmarks India Private
Ltd. (FBIL) in accordance with RBI circular FMRD.
DIRD.7/14.03.025/2017-18 dated March 31, 2018,
as amended from time to time. For securities whose
prices are not published by FBIL, the fair value of
the quoted security is based upon quoted price as
available from the trades/ quotes on recognised
stock exchanges, reporting platforms or trading
platforms authorized by RBI/SEBI or prices declared
by the Fixed Income Money Market and Derivatives
Association of India (FIMMDA).

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.

Non-performing investments are identified and
depreciation / provision are made thereon based
on the RBI guidelines. The depreciation / provision
on such non-performing investments are not set
off against the appreciation in respect of other
performing securities. Interest on non-performing
investments is not recognised in the Statement of
Profit and Loss until received.

In accordance with the RBI guidelines, repurchase
and reverse repurchase transactions in government
securities including those conducted under the
Liquidity Adjustment Facility (''LAF'') and Marginal
Standing Facility (''MSF'') with RBI are accounted as
borrowing and lending transactions respectively.

Borrowing cost on repo transactions is accounted
for as interest expense and revenue on reverse repo
transactions is accounted for as interest income.

The valuation of other unquoted fixed income
securities (viz. State Government securities, other
approved securities, bonds and debentures)
and preference shares, is done with a mark-up

(reflecting associated credit and liquidity risk) over
the YTM rates for government securities published
by FIMMDA/FBIL.

Equity shares for which current quotations are not
available i.e., which are classified as illiquid or which
are not listed on a recognised exchange, the fair value
for the purposes of these directions is to be the break¬
up value (without considering ''revaluation reserves’, if
any) which is to be ascertained from the company’s
latest audited balance sheet. The date as on which
the latest balance sheet is drawn up does not precede
the date of valuation by more than 18 months. In case
the latest audited balance sheet is not available or is
more than 18 months old, the shares are to be valued
at H 1 per company.

Transition date accounting

Transition to the new guidelines of RBI

As on the date of transition, the Bank follows:

I. The securities under the earlier categories,
viz HTM, AFS and HFT are to be classified
under new categories HTM, AFS and FVTPL
(including FVTPL-HFT).

II. The balance in provision for depreciation,
as at March 31, 2024, is be reversed into the
General Reserve.

III. Amortisation of discounted securities of HTM
Portfolio (from last purchase date to March
31, 2024) is to be accounted through debit
the Investment ledger and credit the General
Reserve ledger.

IV. Securities in AFS and FVTPL portfolio are to be
transferred at market value. Also, the difference
between the book value as on March 31,
2024 and the market value is be accounted in
General Reserve.

Investment Fluctuation Reserve

The Bank creates an Investment Fluctuation Reserve
(IFR) until the amount of IFR is at least two per cent
of the AFS and FVTPL (including HFT) portfolio, on a
continuing basis, by transferring to the IFR an amount
not less than the lower of the following: i. Net profit on
sale of investments during the year. ii. Net profit for
the year, less mandatory appropriations.

The Bank is permitted to draw down the balance
available in IFR in excess of two percent of its AFS
and FVTPL (including HFT) portfolio, for credit to the
balance of profit/loss as disclosed in the profit and
loss account at the end of any accounting year.

Short Sale

The Bank undertakes short sale transactions in dated
central government securities in accordance with
RBI guidelines. The 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. The mark to-market loss is charged to profit
and loss account and gain, if any, is ignored as per
RBI guidelines.

B. Advances
Classification

Advances are classified as performing and non¬
performing advances (''NPAs’) as per the RBI guidelines
on Income Recognition and Asset Classification and
are stated net of specific provisions made towards
NPAs and inter-bank participation with risk. Further,
NPAs are classified into sub-standard, doubtful and
loss assets based on the criteria stipulated by the RBI.

The bank transfers advances through Inter- Bank
Participation arrangements with and without risk,
which are accounted for in accordance with the RBI
guidelines, as follows:

a) In the case of participation with risk, the
aggregate amount of participation transferred
out of the Bank is reduced from Advances; and
participations transferred in to the Bank are
classified under Advances.

b) In the case of participation without risk, the
aggregate amount of participation issued by
the Bank is classified under borrowings; and
where the bank is participating in, the aggregate
amount of participation is shown as due from
banks under Advances.

Provisioning

Provisions for NPAs are made for sub-standard,
doubtful assets and Loss at rates as prescribed by
the RBI guidelines or the policy of the Bank whichever
is higher. The bank has stipulated accelerated
provisioning based on past experience, evaluation of
securities, if any, and other related factors

Loans given under Emergency Credit Line Guarantee
Scheme (ECLGS) classified as NPA are not provided
for since these are fully guaranteed under the ECGLS
scheme of Government of India.

Loans covered by Credit Guarantee Fund for Micro
Units Scheme administered by National Credit
Guarantee Trustee Company Limited (CGFMU

Scheme) classified as NPA are provided to the extent
of portion not guaranteed under the CGFMU Scheme.

NPA accounts are written off in accordance with
RBI guidelines and Bank’s Policy post approval
from Board of Directors (BOD). Amounts recovered
against debts written-off are recognised in the Profit
and Loss account.

For restructured/rescheduled assets, provision
is made in accordance with guidelines issued by
RBI. The restructured accounts are classified in
accordance with RBI guidelines.

Provisions created against individual accounts as
per RBI guidelines are not netted in the individual
account. For presentation in financial statements,
provision created is netted against gross amount of
Advance. Provision held against an individual account
is adjusted against account balance at individual
level only at the time of write-off / settlement
of the account.

The Bank maintains a general provision on standard
advances at the rates prescribed by RBI. Provision
made against standard assets is included in
"Other liabilities & provisions and not netted off
against Advances.

In addition to the above, the Bank on a prudent basis
makes provisions on advances or exposures which
are not NPAs but has reasons to believe on the basis
of the extant environment or specific information
or basis regulatory guidance / instructions, of a
possible slippage of a specific advance or a group of
advances or exposures or potential exposures. These
are classified as contingent provisions and included
under other liabilities.

Floating Provision

Provisions made in excess of the Bank’s policy for
specific loan provisions for non-performing assets
and regulatory general provisions are categorised as
floating provisions. Creation of floating provisions is
considered by the Bank up to a level approved by the
BOD. In accordance with the RBI guidelines, floating
provisions are used up to a level approved by the BOD
and RBI only for contingencies under extraordinary
circumstances and for making specific provisions
for impaired accounts as per these guidelines or any
other regulatory guidelines as applicable. The floating
provision is netted-off from advances.

The Bank recognises the provision for unhedged
foreign currency exposure of its borrowers as per
regulatory guidelines stipulated by the RBI from

time to time and as per methodology prescribed.
The provisions are included in provision for standard
assets and reported under other liabilities.

C. Transfer and Servicing of Assets

The Bank transfers loans through securitisation
transactions in accordance with Master Direction -
Reserve Bank of India (Transfer of Loan Exposures)
Directions, 2021. The transferred loans are de¬
recognised, and gains/losses are accounted for, only
if the Bank surrenders the rights to benefits specified
in the underlying securitised loan contract.

In accordance with the RBI guidelines for securitisation
of standard assets, the profit/premium arising from
sell down/securitisation to be amortised over the life
of the transaction based on the method prescribed
in the guidelines and the loss, if any, arises in the
sell down/securitisation transaction, is recognised
upfront in the Profit or Loss Account.

The Bank transfers advances through inter-bank
participation with risk. In accordance with the RBI
guidelines, for participation with risk, the aggregate
amount of the participation issued by the Bank is
reduced from advances.

On sale of stressed assets, if the sale is at a price
below the net book value, the shortfall shall be
charged to the Profit and Loss Account and if the
sale is for a value higher than the net book value, the
excess shall be credited as profit to the Profit and
Loss Account in the year when the initial consideration
is received in cash and / or security receipts issued
by Securitisation company (''SC’) / Reconstruction
Company (''RC’).

In respect of stressed assets transferred to
Asset Reconstruction Company (ARC), where the
investment by the bank in security receipts (SRs)
backed by the assets sold by it is more than 10
percent of such SRs, provisions held on the SRs are
higher of the provisions required in terms of net asset
value declared by the SC / RC and provisions as per
the extant norms applicable to the underlying loans,
notionally treating the book value of these SRs as the
corresponding stressed loans assuming the loans
remained in the books of the Bank.

D. Priority Sector Lending Certificates

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 the
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. The Bank
accounts for the income and expense on upfront basis.

E. Foreign Currency Transactions
Initial Recognition:

Transactions in foreign currencies entered into by the
Bank are accounted at the exchange rates prevailing
on the date of the transaction or at rates that closely
approximate the rate at the date of the transaction.

Measurement at the Balance Sheet date

Foreign currency monetary items, if any, of the
Bank, outstanding at the balance sheet date are
restated at the rates prevailing at the year-end as
notified by Foreign Exchange Dealers Association of
India(''FEDAI’). Non-monetary items of the Bank are
carried at historical cost.

Contingent liabilities on account of foreign exchange
contracts, currency future contracts, guarantees,
letters of credit, acceptances and endorsements
are reported at closing rates of exchange notified by
FEDAI as at the Balance Sheet date.

Treatment of Exchange differences

Exchange differences arising on settlement /
restatement of foreign currency monetary assets and
liabilities of the Bank are recognised as income or
expense in the Profit and Loss Account.

F. Revenue Recognition

(i) Interest income is recognised in the Profit and
Loss Account on an accrual basis, except in the
case of non-performing assets is recognised
upon realisation as per income recognition and
asset classification norms of RBI.

(ii) Interest on advances transferred under
securitisation arrangements meeting the criteria
stipulated in para C above are not recognised
in Profit and Loss Account. The bank’s share
of the securitization income is recognised
on receipt basis.

(iii) Income on non-coupon bearing discounted
instruments is recognised over the tenor of the
instrument on a constant effective yield basis.

(iv) Loan processing fees including processing fees
on committed lines is accounted for upfront
when it becomes due.

(v) Interest income on deposits with banks and
financial institutions is recognized on a time
proportion basis taking into accounts the amount
outstanding and the implicit rate of interest.

(vi) Dividend is recognised as income when the right
to receive the dividend is established.

(vii) Profit or loss on sale of mutual fund units is
recognised on trade date.

(viii) All other fees are accounted for as and when
they become due.

G. Property, Plant and Equipment (PPE) (Fixed Assets)
and Depreciation

Tangible Assets

PPE are stated at cost less accumulated depreciation
/ amortization and impairment loss, if any. The cost
comprises purchase price and any attributable cost
of bringing the asset to its working condition for its
intended use. Any trade discounts and rebates are
deducted in arriving at the purchase price.

Subsequent expenditure on PPE is capitalised only
if such expenditure results in an increase in the
future benefits from such asset beyond its previously
assessed standard of performance.

Depreciation is charged over the estimated useful
life of the fixed asset on written down value basis
when the asset is available for use i.e. when it is
capable of operating in the manner intended by
management, considering residual value of 5% of
the cost.. Assets individually costing H 5,000 or less
are fully depreciated in the year of purchase. Assets
purchased / sold during the year are depreciated on a
pro-rata basis. Depreciation rate used by the Bank are
in line with those specified under Schedule II of the
Companies Act, 2013.

Leasehold Improvements: Improvements to leasehold
premises are amortised over the primary period of
lease or estimated useful life, whichever is lower.

An item of PPE is derecognised on disposal or when
no future economic benefits are expected from its use

or disposal. The gain or loss arising on derecognition
is recognised in the Profit and Loss Account.

Gains or losses arising from disposal or retirement
of PPE are measured as the difference between
the net disposal proceeds and the carrying amount
of the asset and are recognised net, within "Other
Income” as Profit/ (Loss) on sale of PPE, as the case
maybe, in the Profit and Loss Account in the year of
disposal or retirement.

PPE held for sale is valued at lower of their carrying
amount and net realisable value, any write-down is
recognised in the Profit and Loss

H. Intangible Assets

Intangible Assets acquired separately are measured
on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost
less accumulated amortization and accumulated
impairment losses, if any.

Intangible assets, primarily comprise of software,
goodwill, patents, trademarks, and copyrights are
amortized over a period of 60 months or license
period whichever is lower on a straight-line basis with
zero residual value.

Capital Work in Progress

Costs incurred towards acquisition of assets,
including expenses incurred prior to those assets
being put to use and directly attributable to bringing
them to their working condition are included under
"Capital Work in Progress”. Capital Work in Progress
including Software under development are stated at
the amount incurred up to the date of Balance Sheet.

I. Leases
Operating Lease

Leases, where the lessor effectively retains
substantially all the risks and benefits of ownership
for the leased term are classified as operating
leases in accordance with Accounting Standard 19
on Leases. The office premises are generally rented
on cancellable terms or renewable at the option of
both the parties. Computers and tablets are rented
on operating lease. Operating lease rentals are
recognised as an expense on straight-line basis over
the lease period in accordance with the AS 19 - Leases

J. Impairment

The carrying amounts of assets are reviewed at
each balance sheet date if there is any indication
of impairment based on internal / external factors.
An impairment loss is recognized in profit and loss

account 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 its
remaining useful life.

When there is indication that an impairment loss
recognised for an asset in earlier accounting periods
no longer exists or may have decreased, such
reversal of impairment loss is recognised in the Profit
and Loss Account, to the extent the amount was
previously charged to the Profit and Loss Account

K. Taxation

Tax expense comprises current and deferred tax

Current 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. "Current income tax relating to items recognised
directly in reserve is recognised in respective reserve
and not in Profit and Loss Account.”

Deferred Tax :

Deferred taxes reflect the impact of current year
timing differences between taxable income and
accounting income for the year and reversal of
timing differences of earlier years. Deferred income
tax relating to items recognised directly in reserve
is recognised in respective reserve and not in Profit
and Loss Account.”

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 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.

The carrying amount of deferred tax assets are
reviewed at each balance sheet date. The Bank writes-
down the carrying amount of a deferred tax asset to
the extent that it is no longer reasonably certain or

virtually certain, as the case may be, that sufficient
future taxable income will be available against which
deferred tax asset can be realised.

L. Earnings Per Share

Basic and diluted earnings per share are computed
in accordance with Accounting Standard 20 -
Earnings per share.

Basic earnings per share are calculated by dividing
the net profit or loss for the period attributable to
equity shareholders by the weighted average number
of equity shares outstanding during the period.

Diluted earnings per equity share reflect the potential
dilution that could occur if securities or other
contracts to issue equity shares were exercised or
converted to equity during the year. Diluted earnings
per equity share are computed using the weighted
average number of equity shares and potential
dilutive equity shares outstanding during the period
except where the results are anti-dilutive.

---

Mar 31, 2024

SCHEDULE 17 - BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES1. Background and nature of operations

Suryoday Small Finance Bank Limited (the ''Bank'' or ''Company'') started its banking operation in January 2017 pursuant to SFB Licence given by Reserve Bank of India (RBI). The Bank is included in the Second schedule to the Reserve Bank of India Act, 1934 vide Notification No. DBR. NBD. (SFB- Suryoday). No. 766/16.13.216/201718 dated 24 July 2017 and published in the Gazette of India (part III- Section 4) dated 2 September 2017. The Bank''s equity shares are listed on NSE and BSE. The Bank operates with 695 banking outlets as on March 31,2024.

The Bank is primarily engaged in extending micro credit to economically weaker women who are otherwise unable to access finance from the mainstream banking channels. The Bank broadly follows the Grameen model with suitable adaptations using the Joint Liability Groups (JLG) framework, where each member of the group guarantees the loan repayment of the other members of the group. The Bank also provides finance for mortgage loans, commercial vehicles, loans to micro, small and medium enterprises and loans to non-banking finance companies (NBFCs).

2. Basis of preparation of financial statements

The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and are in accordance with Generally Accepted Accounting Principles in India (''GAAP''), statutory requirements prescribed under the Third Schedule of the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time (RBI guidelines), Accounting Standards (''AS'') specified under Section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014, Companies (Accounts) Rules, 2021 and the Companies (Accounting Standards) Amendment Rules, 2016, in so far as they apply to banks.

Use of estimates

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

3. Significant accounting policies A. Investments Classification:

In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading” (''HFT''), "Available for Sale” (''AFS'') and "Held to Maturity” (''HTM'' or "Banking book”) categories (hereinafter called "categories”). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines.

Under each of these categories, investments are further classified under six groups (hereinafter called "groups”) - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments.

The Bank follows settlement date accounting for purchase and sale of investments except for Central & State government securities where settlement date method of accounting is followed in accordance with RBI Guidelines.

Basis of classification:

Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category.

Investmentswhich theBankintends to hold till maturity are classified as HTM securities. Investments which are not classified in either of the above categories are classified under AFS category.

Acquisition Cost and Broken Period Interest

Brokerage, commission and broken period interest on debts instruments are recognised in Profit and Loss Account and are not included in the cost of acquisition.

Disposal of Investments

Profit/loss on sale of investments under the aforesaid three categories is recognised in the Profit and Loss Account. Cost of investments is based on the weighted average cost method. The profit from sale of investment under HTM category, net of taxes and transfer to statutory reserve is appropriated from Profit and Loss Account to "Capital Reserve” in accordance with the RBI Guidelines.

Short Sale

The Bank undertakes short sale transactions in dated central government securities in accordance with RBI guidelines. The 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. The mark to-market loss is charged to profit and loss account and gain, if any, is ignored as per RBI guidelines.

Valuation

Investments classified under AFS and HFT categories are marked to market as per the RBI guidelines.

Traded investments are valued based on the trades / quotes on 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 (''FI MM DA'')/ Financial Benchmark India Private Limited (FBIL), periodically.

The market value of Central Government securities (G Sec) and state development Loans (SDL 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 FBIL.

The valuation of other unquoted fixed income securities (viz. other approved securities, bonds and debentures) and preference shares is done with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities published by FBIL.

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.

Net depreciation in the value, if any, compared to the acquisition cost, in any of the groups, is charged to the Profit and Loss Account. The net appreciation, if any, in any of the groups is not recognised except to the extent of depreciation already provided.

Investments classified under HTM category are carried at their acquisition cost and not marked to market. Any premium on acquisition is amortised over the remaining maturity period of the security on a constant yield-to-maturity basis. Such amortisation of premium is adjusted against interest income

under the head "Income from investments” as per the RBI guidelines.

Non-performing investments are identified, and depreciation / provision are made thereon based on the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss Account until received.

As per the RBI circular RBI/2017-18/147 DBR. No.BP BC.102/21.04.048/2017-18 dated April 2, 2018, to build up adequate reserves to protect against increase in yields in future, the Bank has created an Investment Fluctuation Reserve (IFR) to the extent of the lower of following: a) net profit on sale of investments during the year; b) net profit for the year less mandatory appropriations. As per the RBI circular, this reserve will be created until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis and where feasible this should be achieved within a period of three year.

Investment Reserve Account

In accordance with the RBI Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks, in case the provision on account of depreciation in the HFT and AFS categories is found to be in excess of the required amount, the excess is credited to the Profit and Loss Account and an equivalent amount net of taxes, if any, and adjusted for transfer to Statutory Reserve as applicable to such excess provision is appropriated to the Investment Reserve Account.

Repo and Reverse Repo Transactions

In accordance with the RBI guidelines, repurchase and reverse repurchase transactions in government securities including those conducted under the Liquidity Adjustment Facility (''LAF''), Marginal Standing Facility (''MSF'') and Standing Deposit Facility (''SDF'') with RBI are accounted as borrowing / lending transactions accordingly.

Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo transactions is accounted for as interest income.

B. Advances

Advances are classified as performing and nonperforming advances (''NPAs'') as per the RBI guidelines on Income Recognition and Asset Classification and are stated net of specific provisions made towards

NPAs and inter-bank participation with risk. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made for sub-standard and doubtful assets at rates as prescribed by the RBI. NPAs are identified by periodic appraisals of the loan portfolio by management. Loans given under Emergency Credit Line Guarantee Scheme (ECLGS) classified as NPA are provided as per Board approved policy on prudent basis.

NPA accounts are written off in accordance with RBI guidelines and Bank''s Policy post approval from Board of Directors (BOD). Amounts recovered against debts written-off are recognised in the Profit and Loss account.

For restructured/rescheduled assets, provision is made in accordance with guidelines issued by RBI. The restructured accounts are classified in accordance with RBI guidelines.

The Bank maintains a general provision on standard advances at the rates prescribed by RBI. Provision made against standard assets is included in "Other liabilities & provisions”.

Provisions made in excess of the Bank''s policy for specific loan provisions for non-performing assets and regulatory general provisions are categorised as floating provisions. Creation of floating provisions is considered by the Bank up to a level approved by the BOD. In accordance with the RBI guidelines, floating provisions are used up to a level approved by the BOD and RBI only for contingencies under extraordinary circumstances and for making specific provisions for impaired accounts as per these guidelines or any other regulatory guidelines as applicable. The floating provision is netted-off from advances.

The Bank recognises the provision for unhedged foreign currency exposure of its borrowers as per regulatory guidelines stipulated by the RBI from time to time and as per methodology prescribed. The provisions are included in provision for standard assets and reported under other liabilities.

C. Transfer and Servicing of Assets

The Bank transfers loans through securitisation transactions. The transferred loans are de-recognised, and gains/losses are accounted for, only if the Bank surrenders the rights to benefits specified in the underlying securitised loan contract.

In accordance with the RBI guidelines for securitisation of standard assets, the profit/premium arising from sell down/securitisation to be amortised over the life of the transaction based on the method prescribed in the guidelines and the loss, if any, arises in the sell down/ securitisation transaction, is recognised upfront in the Profit or Loss Account.

The Bank transfers advances through inter-bank participation with risk. In accordance with the RBI guidelines, for participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances.

D. Priority Sector Lending Certificates

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 the 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. The Bank amortises the income and expense on upfront basis.

E. Foreign Currency Transactions

(i) Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

(ii) Foreign currency monetary items are reported using the closing rate prevailing at the Balance Sheet date. 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.

All exchange differences are recognized as income or as expenses in the period in which they arise.

F. Revenue Recognition

(i) Interest income is recognised in the Profit and Loss Account on an accrual basis, except in the case of non-performing assets is recognised upon realisation as per income recognition and asset classification norms of RBI.

(ii) Income on non-coupon bearing discounted instruments is recognised over the tenor of the instrument on a constant effective yield basis.

(iii) Loan processing fees including processing fees on committed lines is accounted for upfront when it becomes due.

(iv) Interest income on deposits with banks and financial institutions is recognized on a time proportion basis taking into accounts the amount outstanding and the implicit rate of interest.

(v) Dividend is recognised as income when the right to receive the dividend is established.

(vi) Profit or loss on sale of mutual fund units is recognised on trade date.

(vii) All other fees are accounted for as and when they become due.

G. Fixed Assets and Depreciation

Tangible Assets

Fixed assets are stated at cost less accumulated depreciation / amortization and impairment loss, if any. The cost comprises purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.

Depreciation is charged over the estimated useful life of the fixed asset on written down value basis from the date asset is put to use considering residual value of 5% of the cost. Assets individually costing H 5,000 or less are fully depreciated in the year of purchase. Assets purchased / sold during the year are depreciated on a pro-rata basis for the actual number of days the assets have been put to use. Depreciation rate used by the Bank are in line with those specified under Schedule II of the Companies Act, 2013.

The details of useful life are as under

Class of Assets	Estimated useful life
Computers & Accessories	3 years
Office equipment	5 years
Premises	30 years
Furniture and fittings	10 years
Vehicle	8 years
Software	5 years

Leasehold Improvements: Improvements to leasehold premises are amortised over the primary period of lease or estimated useful life, whichever is lower.

H. Intangible Assets

Intangible assets, primarily comprise of goodwill, patents, trademarks, and copyrights are amortized over a period of 60 months or license period whichever is lower on a straight-line basis with zero residual value.

Intangible Assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any.

I. Leases

Operating Lease

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership for the leased term are classified as operating leases in accordance with Accounting Standard 19, Leases. The office premises are generally rented on cancellable terms or renewable at the option of both the parties. Computers and tablets are rented on operating lease.

J. Impairment

The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying 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 its remaining useful life.

K. Taxation

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 taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. 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.

The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Bank writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised.

L. Earnings Per Share

Basic and diluted earnings per share are computed in accordance with Accounting Standard 20 -

Earnings per share.

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.

Diluted earnings per equity share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted to equity during the year. Diluted earnings per equity share are computed using the weighted average number of equity shares and potential dilutive equity shares outstanding during the period except where the results are anti-dilutive.

M. Provisions, contingent liabilities and contingent assets

In accordance with AS 29, Provision, Contingent liabilities and Contingent Assets, the provision is recognised when the Bank has a present obligation as a result of past event, where it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

A disclosure of contingent liability is made when there is:

• a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the Bank; or

• 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. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

N. Cash and cash equivalents

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

O. Borrowing cost

Borrowing cost includes arranger fees, processing fees, stamp duty on issuance of debenture certificates and other associated transaction cost related to borrowing from banks and other financial institutions.

In accordance with Accounting Standard 16, borrowing costs are recognised upfront.

P. Post employment benefit plans

(i) Defined Contribution Plans

Retirement benefits in the form of provident fund and employee state insurance schemes are defined contribution schemes and the contributions are charged to the Profit and Loss Account for the year when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the respective funds.

(ii) Defined Benefit Plan

The Bank operates a defined benefit scheme for its employees, viz., gratuity scheme. The costs of providing benefits under this plan is determined on the basis of actuarial valuation at each year-end.

Separate actuarial valuation is carried out for each plan using the projected unit credit method. In accordance with the gratuity fund''s rules, actuarial valuation of gratuity liabilities is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff alteration as per projected unit credit method.

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year. Actuarial gains/losses are immediately taken to profit and loss account and are not deferred.

(iii) Provision for Leave availment is made in accordance with Accounting Standard 15 "Employee benefits".

Q. Employee Stock Compensation Cost

Employees (including senior executives) of the Bank receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions).

In accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the ICAI, the cost of equity-settled transaction is measured using the fair value method and recognized, together with a corresponding increase in the "Employees Stock options outstanding account” in reserves. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Bank''s best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the Profit and

Loss Account for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense.

R. Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013 and RBI approval in accordance with RBI/2006-07/132 DBOD.BP BC No. 31 / 21.04.018/ 2006-07.

S. Segment information

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

T. Corporate Social Responsibility (CSR)

Expenditure towards CSR, in accordance with Companies Act, 2013, is recognised in the Profit and Loss Account.

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Mar 31, 2023

Schedule 17 - Basis of preparation and significantaccounting policies

1. Background and nature of operations

Suryoday Small Finance Bank Limited (the ''Bank'' or ''Company'') started its banking operation in January 2017 pursuant to SFB Licence given by Reserve Bank of India (RBI). The Bank is included in the Second schedule to the Reserve Bank of India Act, 1934 vide Notification No. DBR.NBD. (SFB- Suryoday). No. 766/16.13.216/201718 dated 24 July 2017 and published in the Gazette of India (part III- Section 4) dated 2 September 2017. The Bank''s equity shares are listed on NSE and BSE. The Bank operates with 577 banking outlets as on March 31, 2023.

The Bank is primarily engaged in extending micro credit to economically weaker women who are otherwise unable to access finance from the mainstream banking channels. The Bank broadly follows the Grameen model with suitable adaptations using the Joint Liability Groups (JLG) framework, where each member of the group guarantees the loan repayment of the other members of the group. The Bank also provides finance for mortgage loans, commercial vehicles, loans to micro, small and medium enterprises and loans to non-banking finance companies (NBFCs).

2. Basis of preparation of financial statements

The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and are in accordance with Generally Accepted Accounting Principles in India (''GAAP''), statutory requirements prescribed under the Third Schedule of the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (''RBI'') from time to time (RBI guidelines), Accounting Standards (''AS'') specified under Section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Amendment Rules, 2016, in so far as they apply to banks.

Use of estimates

The preparation of financial statements in conformity with GAAP requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and

the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision in the accounting estimates is recognised prospectively in the current and future periods.

3. Significant accounting policies

A. Investments Classification:

In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'' or "Banking book") categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines.

Under each of these categories, investments are further classified under six groups (hereinafter called "groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments.

The Bank follows settlement date accounting for purchase and sale of investments except for Central & State government securities where settlement date method of accounting is followed in accordance with RBI Guidelines.

Basis of classification:

Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category.

Investments which the Bank intends to hold till maturity are classified as HTM securities. Investments which are not classified in either of the above categories are classified under AFS category.

Acquisition Cost and Broken Period Interest Brokerage, commission and broken period interest on debts instruments are recognised in Profit and Loss Account and are not included in the cost of acquisition.

Disposal of Investments

Profit/loss on sale of investments under the aforesaid three categories is recognised in the Profit and Loss Account. Cost of investments is based on the weighted average cost method. The profit from sale of investment under HTM category, net of taxes and transfer to statutory reserve is appropriated from Profit and Loss Account to "Capital Reserve" in accordance with the RBI Guidelines.

Short Sale

The Bank undertakes short sale transactions in dated central government securities in accordance with RBI guidelines. The 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. The mark to-market loss is charged to profit and loss account and gain, if any, is ignored as per RBI guidelines.

Valuation

Investments classified under AFS and HFT categories are marked to market as per the RBI guidelines.

Traded investments are valued based on the trades / quotes on 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'')/ Financial Benchmark India Private Limited (FBIL), periodically.

The market value of Central Government securities (G Sec) and state development Loans (SDL 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 FBIL.

The valuation of other unquoted fixed income securities (viz. other approved securities, bonds and debentures) and preference shares is done with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities published by FBIL.

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.

Net depreciation in the value, if any, compared to the acquisition cost, in any of the groups, is charged to the Profit and Loss Account. The net appreciation, if any, in any of the groups is not recognised except to the extent of depreciation already provided.

Investments classified under HTM category are carried at their acquisition cost and not marked to market. Any premium on acquisition is amortised over the remaining maturity period of the security on a constant yield-to-maturity basis. Such amortisation of premium is adjusted against interest income under the head "Income from investments" as per the RBI guidelines.

Non-performing investments are identified, and depreciation / provision are made thereon based on the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss Account until received.

As per the RBI circular RBI/2017-18/147 DBR. No.BP BC.102/21.04.048/2017-18 dated April 2, 2018, to build up adequate reserves to protect against increase in yields in future, the Bank has created an Investment Fluctuation Reserve (IFR) to the extent of the lower of following: a) net profit on sale of investments during the year; b) net profit for the year less mandatory appropriations. As per the RBI circular, this reserve will be created until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis and where feasible this should be achieved within a period of three year.

Investment Reserve Account

In accordance with the RBI Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks, in case the provision on account of depreciation in the HFT and AFS categories is found to be in excess of the required amount, the excess is credited to the Profit and Loss Account and an equivalent amount net of taxes, if any, and adjusted for transfer to Statutory Reserve as applicable to such excess provision is appropriated to the Investment Reserve Account.

Repo and Reverse Repo Transactions In accordance with the RBI guidelines, repurchase and reverse repurchase transactions in government securities including those conducted under the Liquidity Adjustment Facility (''LAF''), Marginal Standing Facility (''MSF'') and Standing Deposit Facility (''SDF'') with RBI are accounted as borrowing / lending transactions accordingly.

Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo transactions is accounted for as interest income.

B. Advances

Advances are classified as performing and non-performing advances (''NPAs'') as per the RBI guidelines on Income Recognition and Asset Classification and are stated net of specific provisions made towards NPAs and inter-bank participation with risk. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made for sub-standard and doubtful assets at rates as prescribed by the RBI. NPAs are identified by periodic appraisals of the loan portfolio by management. Loans given under Emergency Credit Line Guarantee Scheme (ECLGS) classified as NPA are not provided for since these are fully guaranteed under the ECGLS scheme of Government of India.

NPA accounts are written off in accordance with RBI guidelines and Bank''s Policy post approval from Board of Directors (BOD). Amounts recovered against debts written-off are recognised in the Profit and Loss account.

For restructured/rescheduled assets, provision is made in accordance with guidelines issued by RBI. The restructured accounts are classified in accordance with RBI guidelines.

The Bank maintains a general provision on standard advances at the rates prescribed by RBI. Provision made against standard assets is included in "Other liabilities & provisions".

I n addition to the above, the Bank on a prudent basis makes provisions on advances or exposures which are not NPAs but has reasons to believe on the basis of the extant environment or specific information or basis regulatory guidance / instructions, of a possible slippage of a specific advance or a group of advances or exposures or potential exposures. These are classified as contingent provisions and included under other liabilities.

Provisions made in excess of the Bank''s policy for specific loan provisions for non-performing assets and regulatory general provisions are categorised as floating provisions. Creation of floating provisions is considered by the Bank up to a level approved by the BOD. In accordance with the RBI guidelines, floating provisions are used up to a level approved by the BOD and RBI only for contingencies under extraordinary circumstances and for making specific provisions for impaired accounts as per these guidelines or any other regulatory guidelines as applicable. The floating provision is netted-off from advances.

The Bank recognises the provision for unhedged foreign currency exposure of its borrowers as per regulatory guidelines stipulated by the RBI from time to time and as per methodology prescribed. The provisions are included in provision for standard assets and reported under other liabilities.

C. Transfer and Servicing of Assets

The Bank transfers loans through securitisation transactions. The transferred loans are de-recognised, and gains/losses are accounted for, only if the Bank surrenders the rights to benefits specified in the underlying securitised loan contract.

In accordance with the RBI guidelines for securitisation of standard assets, the profit/premium arising from sell down/securitisation to be amortised over the life of the transaction based on the method prescribed in the guidelines and the loss, if any, arises in the sell down/ securitisation transaction, is recognised upfront in the Profit or Loss Account.

The Bank transfers advances through inter-bank participation with risk. In accordance with the RBI guidelines, for participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances.

D. Priority Sector Lending Certificates

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 the 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. The Bank amortises the income and expense on upfront basis.

E. Foreign Currency Transactions

(i) Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

(ii) Foreign currency monetary items are reported using the closing rate prevailing at the Balance Sheet date. 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.

All exchange differences are recognized as income or as expenses in the period in which they arise.

F. Revenue Recognition

(i) Interest income is recognised in the Profit and Loss Account on an accrual basis, except in the case of non-performing assets is recognised upon realisation as per income recognition and asset classification norms of RBI.

(ii) Income on non-coupon bearing discounted instruments is recognised over the tenor of the instrument on a constant effective yield basis.

(iii) Loan processing fees including processing fees on committed lines is accounted for upfront when it becomes due.

(iv) Interest income on deposits with banks and financial institutions is recognized on a time proportion basis taking into accounts the amount outstanding and the implicit rate of interest.

(v) Dividend is recognised as income when the right to receive the dividend is established.

(vi) Profit or loss on sale of mutual fund units is recognised on trade date.

(vii) All other fees are accounted for as and when they become due.

G. Fixed Assets and Depreciation

Tangible Assets

Fixed assets are stated at cost less accumulated

depreciation / amortization and impairment loss,

if any. The cost comprises purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.

Depreciation is charged over the estimated useful life of the fixed asset on written down value basis from the date asset is put to use considering residual value of 5% of the cost. Assets individually costing '' 5,000 or less are fully depreciated in the year of purchase. Assets purchased / sold during the year are depreciated on a pro-rata basis for the actual number of days the assets have been put to use. Depreciation rate used by the Bank are in line with those specified under Schedule II of the Companies Act, 2013.

The details of useful life are as under:

Class of Assets	Estimated useful life
Computers & Accessories	3 years
Office equipment	5 years
Premises	30 years
Furniture and fittings	10 years
Vehicle	8 years

Leasehold Improvements: Improvements to leasehold premises are amortised over the primary period of lease or estimated useful life, whichever is lower.

H. Intangible Assets

Intangible Assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any.

Intangible assets such as software are amortized over a period of 60 months or license period whichever is lower on a straight-line basis with zero residual value.

I. Leases Operating Lease

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership for the leased term are classified as operating leases in accordance with Accounting Standard 19, Leases. The office premises are generally rented on cancellable terms or renewable at the option of both the parties. Computers and tablets are rented on operating lease.

J. Impairment

The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying 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 its remaining useful life.

K. Taxation

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 taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. 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.

The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Bank writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised.

L. Earnings Per Share

Basic and diluted earnings per share are computed in accordance with Accounting Standard 20 -Earnings per share.

Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.

Diluted earnings per equity share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted to equity during the year. Diluted earnings per equity share are computed using the weighted average number of equity shares and potential dilutive equity shares outstanding during the period except where the results are anti-dilutive.

M. Provisions, contingent liabilities and contingent assets In accordance with AS 29, Provision, Contingent liabilities and Contingent Assets, the provision is recognised when the Bank has a present obligation as a result of past event, where it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

A disclosure of contingent liability is made when there is:

• a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the Bank; or

• 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. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

N. Cash and cash equivalents

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

O. Borrowing cost

Borrowing cost includes arranger fees, processing fees, stamp duty on issuance of debenture certificates and other associated transaction cost related to borrowing from banks and other financial institutions.

In accordance with Accounting Standard 16, borrowing costs are recognised upfront.

P. Retirement and other employee benefits

(i) Defined Contribution Plans

Retirement benefits in the form of provident fund and employee state insurance schemes are defined contribution schemes and the contributions are charged to the Profit and Loss Account for the year when the contributions to the respective funds are due. There are no other obligations other than the contribution payable to the respective funds.

(ii) Defined Benefit Plan

The Bank operates a defined benefit scheme for its employees, viz., gratuity scheme. The costs of providing benefits under this plan is determined on the basis of actuarial valuation at each year-end.

Separate actuarial valuation is carried out for each plan using the projected unit credit method. In accordance with the gratuity fund''s rules, actuarial valuation of gratuity liabilities is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff alteration as per projected unit credit method.

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year. Actuarial gains/ losses are immediately taken to profit and loss account and are not deferred.

(iii) Provision for Leave availment is made in accordance with Accounting Standard 15 "Employee benefits".

Q. Employee Stock Compensation Cost

Employees (including senior executives) of the Bank receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions).

In accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the ICAI, the cost of equity-settled transaction is measured using the fair value method and recognized, together with a corresponding increase in the "Employees Stock options outstanding account" in reserves. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Bank''s best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the Profit and Loss Account for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benefits expense.

R. Share issue expenses

Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013 and RBI approval in accordance with RBI/2006-07/132 DBOD.BP. BC No. 31 /

21.04.018/ 2006-07.

S. Segment information

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

T. Corporate Social Responsibility (CSR)

Expenditure towards CSR, in accordance with Companies Act, 2013, is recognised in the Profit and Loss Account.