Accounting Policies of Tamilnad Mercantile Bank Ltd. Company

Mar 31, 2025

SCHEDULE-17: SIGNIFICANT ACCOUNTING POLICIES

1. GENERAL
Overview

Tamilnad Mercantile Bank Limited (TMB or the Bank),
incorporated in Thoothukudi, India is a publicly held
Banking Company governed by the Banking Regulation
Act, 1949 and is engaged in providing a wide range of
banking & financial services involving retail, corporate
banking and para-banking activities in addition to
treasury and foreign exchange business.

Basis of preparation

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

Use of estimates

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

2. REVENUE RECOGNITION

Income and expenditure is generally accounted on
accrual basis except in the following cases:

a) In the case of NPAs, income is recognized on realization
basis, in terms of guidelines of Reserve Bank of India.
Where recovery is not adequate to upgrade the NPA
accounts by way of regularization, such recovery is
being appropriated towards interest in the first instance
and towards the principal / book values thereafter,
except in the case of suit filed accounts. In case of Non-

performing investments (NPIs), the same accounting
treatment as above is followed except otherwise agreed.

b) Dividend Income is recognised when right to receive
the dividend is established.

c) Income from sale of mutual fund products, locker
rent, insurance claims, commission on LCs, income
on auxiliary services and other services, overdue
charges on bills and commission on Government
business are accounted on cash / realization basis.

d) Income related to credit card is accounted on the
basis of the bills raised.

e) In the case of suit filed accounts, legal expenses are
charged to the profit and loss account. Similarly, at the time
of recovery of legal expenses, in respect of such suit filed
accounts, the amount recovered is accounted as income.

f) Funded Interest on Standard Restructured Advances
and Interest on FITL are accounted as per the
guidelines of Reserve Bank of India.

3. INVESTMENTS

Investments are accounted for in accordance with the
extant RBI guidelines on the Classification, Valuation and
Operation of Investment Portfolio.

Classification:

Classification of investments has been made as per the
guidelines of Reserve Bank of India.

The entire investment portfolio of the Bank is classified
under three categories viz.

i. "Held to Maturity"(HTM),

ii. "Available for sale"(AFS) and

iii. "Fair value through Profit & Loss" (FVTPL). Held
for trading (HFT) is a separate investment sub
category within FVTPL.

Basis of Classification:

Classification of Investment is decided at the time
of acquisition.

Held to Maturity (HTM):

Securities that fulfil the following conditions are
classified under HTM:

(i) The security is acquired with the intention and
objective of holding it to maturity to collect the
contractual cash flows;

(ii) the contractual terms of the security give rise to
cash flows that are solely payments of principal and
interest on principal outstanding (SPPI)

(iii) Investments in the securitization notes, other than the
equity tranche is classified under HTM if the underlying
pool of financial instruments meet the SPPI criteria.

Available for Sale (AFS):

Securities that meet the following conditions shall be

classified under AFS:

(i) The security is acquired with an objective that is
achieved by both collecting contractual cash flows
and selling securities.

(ii) the contractual terms of the security meet the ''SPPI
criterion, provided that on initial recognition, the
bank makes an irrevocable election to classify an
equity instrument under AFS.

(iii) AFS securities inter-alia include debt securities held for
asset liability management (ALM) purposes that meet
the SPPI criterion where the bank''s intent is flexible with
respect to holding to maturity or selling before maturity.

Fair Value through Profit and Loss (FVTPL):

(i) Securities that do not qualify for inclusion in HTM or
AFS shall be classified under FVTPL.

(ii) Held for Trading (HFT), is a sub-category of Fair
Value through Profit and Loss (FVTPL)

SUBSEQUENT MEASUREMENT OF INVESTMENTS

i) HTM

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

(b) Any discount or premium on the securities under
HTM is amortized over the remaining life of the
instrument. The amortized 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''.

ii) AFS

(a) The securities held in AFS shall be fair valued
at least on a quarterly basis. Any discount or
premium on the acquisition of debt securities
under AFS is amortized over the remaining life
of the instrument. The amortized 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''.

(b) 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 AFS Reserve
without routing through the Profit & Loss Account.

(c) Upon sale or maturity of a debt instrument in AFS
category, the accumulated gain/ loss for that
security in the AFS-Reserve shall be 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.

iii) FVTPL

(a) The securities held in FVTPL shall be fair valued
and the net gain or loss arising on securities
held in FVTPL on valuation is directly credited or
debited to the Profit and Loss Account.

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

RECLASSIFICATIONS BETWEEN CATEGORIES

Reclassification of investments between categories (viz.
HTM, AFS and FVTPL) is done only with prior approval of
the Board of Directors and the Department of Supervision
(DoS), RBI. The reclassification is applied prospectively
from reclassification date and the accounting treatment
is carried out as per RBI guidelines.

The investments are classified for the purpose of Balance
Sheet under six groups viz. (i) Government securities, (ii) Other
approved securities, (iii) Shares, (iv) Debentures and Bonds
and (v) Subsidiaries and/or Joint Ventures and (vi) Others.

a) INITIAL RECOGNITION OF INVESTMENTS

i) All investments are measured at fair value
on initial recognition, unless facts and
circumstances suggest that the fair value is
materially different from the acquisition cost.

ii) 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 is considered as fair value.

iii) any Day 1 gain/ loss for securities where inputs used
for valuation are those inputs which are quoted
prices, is recognized 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'', as the case may be.

iv) Any Day 1 loss (difference between acquisition
cost and the fair value at initial recognition where
the acquisition cost exceeds such fair value)
arising from Investment where inputs used for
valuation of investments are unobservable inputs,
is recognized immediately. However, any Day 1
gains (the difference between the fair value at
initial recognition and acquisition cost where
such fair value exceeds the acquisition cost)
on such investments is deferred. In the case of
debt instruments, the Day 1 gain is 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
is set aside as a liability until the security is listed
or derecognized.

Valuation:

Investments are valued periodically as per RBI
guidelines as follows:

a) Quoted Securities:

The quoted securities are valued at the prices
declared by the Financial Benchmarks India Private
Ltd. (FBIL). Securities for which prices are not published
by FBIL are valued at quoted price as available from
the trades/ quotes on recognized 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).

b) Unquoted SLR Securities:

(i) Treasury Bills is valued at carrying cost.

(ii) Unquoted Central / State Government
securities is valued on the basis of the
prices/ YTM rates published by the FIBIL.

(iii) Other approved securities is valued
applying the YTM method by marking them
up by 25 basis points above the yields
of the Central Government Securities of
equivalent maturity put out by FIBIL.

c) Unquoted Non-SLR securities:

i) Debentures/Bonds:

Unquoted debentures and bonds are valued
by applying the appropriate mark-up over the
YTM rates for Central Government Securities as
put out by FBIL/FIMMDA.

ii) Zero Coupon Bonds:

Zero Coupon Bonds are valued at market price
and in the absence of market value, the ZCBs is
marked to market with reference to the present
value of the ZCB.

iii) Equity Shares:

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, are valued at 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 shall 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
valued at Hi per company.

iv) Mutual Funds Units (MF Units):

(a) Investment in un-quoted MF units is valued
on the basis of the latest repurchase
price declared by the MF in respect
of each scheme.

(b) In case of funds with a lock-in period or
any other fund, where repurchase price/
market quote is not available, units are
valued at Net Asset Value (NAV) of the
scheme. If NAV is not available, these
shall be valued at cost, till the end of the
lock-in period.

v) Commercial Paper:

Commercial paper is valued at the carrying cost.

vi) Conversion of principal and unpaid interest into
debt, preference or equity shares. In cases of
conversion of principal and unpaid interest into
debt, preference or equity instruments bank
follows RBI guidelines issued from time to time.

i. Provisions for Non performing investments
are made as per RBI prudential norms.

Repurchase (REPO) transactions:

Repo and reverse Repo transactions are accounted in
accordance with the extant RBI guidelines. Securities
purchased / sold under Liquidity Adjustment Facility (LAF)
and Marginal Standby Facility (MSF) with RBI are debited
/ credited to Investment account and reversed on
maturity of the transaction. Interest expended / earned
thereon is accounted for as expenditure / revenue.

4. ADVANCES & PROVISIONS
Classification:

a) Advances are classified into Standard, Sub-standard,
Doubtful and Loss Assets and provisions for possible

losses on such advances are made as per prudential
norms / directions of the Board of Directors/directions
issued by Reserve Bank of India from time to time.

b) Advances stated in the balance sheet are net of
provisions, claims received from credit guarantee
institutions and recoveries pending appropriation
and held in sundry/suspense account. Interest
on non-performing advances is transferred to an
unrealized interest account and not recognized in
the Profit and Loss Account until received.

c) In case of loan accounts classified as NPA, such
accounts may be reclassified as Standard Asset if it
conforms to the guidelines prescribed by RBI.

Provisioning, Write Off & Recovery:

a) With regard to the Standard Advances, Provisions
are made as per extant RBI guidelines. In addition to
the specific provision made towards identified NPAs,
the bank also holds floating provision. Provisioning
on categorized assets are made as follows:

incidental expenditure incurred on the assets before they
are ready for intended use and Taxes and duties to the
extent not eligible for input credits if any.

Computer Software is capitalized along with computer
hardware and included under other fixed assets.

Carrying amount of fixed assets is reviewed at each
balance sheet date for indication of impairment.
Impairment loss if any, is recognised in the Profit and Loss
Account to the extent the carrying amount of an asset
exceeds its estimated recoverable value.

Subsequent expenditure incurred on the assets already
in use are capitalised only when it increases the future
benefits from such assets or their functioning capacity,
Capital work-in-progress includes cost of fixed assets
that are not ready for their intended use.

Depreciation:

Depreciation on fixed assets is provided over the estimated
useful life of fixed assets on a straight-line basis, in accordance
with estimated useful lives as specified in Schedule II to the
Companies Act, 2013, and reckoning the residual value at 5%
of the original cost of the asset except for the following:

b) Education loans are provided at 100% irrespective of
NPA asset classification.

c) Amounts guaranteed by NCGTC are excluded from
the scope of provisioning.

d) Reserve Bank of India has given methodology to
arrive at incremental provision towards Unhedged
Foreign Currency Exposure (UFCE). Accordingly,
the incremental provisioning for UFCE and capital
provisions are made as per RBI extant guidelines.

e) In terms of RBI guidelines, the NPAs are written-
off in accordance with the Bank''s policy. Amounts
recovered against bad debts written-off are
recognised in the profit and loss account.

5. FIXED ASSETS & DEPRECIATION

Fixed Assets:

Fixed assets are stated at cost less accumulated

depreciation and impairment, if any. Cost includes

In case of Assets purchased / sold during the year,
depreciation is provided on a pro-rata basis for the
actual number of days the asset has been capitalized.

Expenditure during construction / capital works pending
completion is shown at cost.

6. FOREIGN CURRENCY TRANSACTION

Monetary Assets and Liabilities, Forward Exchange
Contracts, Guarantees, Letters of Credit, Acceptances,
Endorsements and other obligations are evaluated at
the closing spot rates / forward rates as published by the
Foreign Exchange Dealers Association of India (FEDAI)
and in accordance with Accounting Standard 11.

Income and expenditure items are translated at the
exchange rates ruling on the respective dates of
the transaction.

Gain or loss on evaluation of outstanding monetary
assets / liabilities and Foreign Exchange Contracts are
taken to Profit and Loss Account.

7. EMPLOYEE BENEFITS

The bank is following Accounting Standard 15 (Revised
2005) "Employee Benefits" as under:

a) In respect of contributory plans viz - Provident
Fund and Contributory Pension Scheme, the bank
pays fixed contribution at pre-determined rates
to a separate entity, which invests in permitted
securities. The obligation of the bank is limited to
such fixed contribution.

b) In respect of Defined Benefit Plans, viz. Gratuity and
pension as well as for leave encashment, provisions
are made based on actuarial valuation as per
the guidelines.

c) The summarized position of Post-employment
benefits and long term employee benefits are
recognized in the profit and loss account and
balance sheet, as required in accordance with the
Accounting Standard-15.

d) The actuarial gain / loss is recognized in the profit
and loss account.

8. SEGMENT REPORTING

As per RBI guidelines on enhancement of disclosures
relating to segment reporting under AS-17, the reportable
segments have been divided into treasury, corporate /
wholesale, retail and other banking operations.

(a) The Bank recognizes the Business Segment as the
Primary Reporting Segment and Geographical
Segment as the Secondary Reporting Segment,
in accordance with the RBI guidelines and in
compliance with the Accounting Standard 17.

(b) Business Segment is classified into (i) Treasury
(ii) Corporate and Wholesale Banking (iii) Retail
Banking and (iv) Other Banking Operations.

(c) Geographical Segment consists only of the
Domestic Segment since the Bank does not have
any foreign branches.

9. LEASES

Leases where the lessor effectively retains substantially
all risks and benefits of ownership are classified as
Operating Leases. Operating Lease payments are
recognized as an expense in the profit and loss account
on a straight line basis over the lease term in accordance
with AS19 Leases

10. EARNINGS PER SHARE

The bank reports basic and diluted earnings per share
in accordance with applicable AS-20. For the year under
reference, both Basic and diluted earning per share
being the same, is computed by dividing the net profit
after tax by the weighted average number of equity
shares outstanding for the period

11. TAXES ON INCOME

a) Income tax expense is the aggregate amount of
current tax and deferred tax. Current taxes are
determined in accordance with the provisions of tax
laws prevailing in India. Deferred tax adjustments
comprise changes in the deferred tax assets or
liabilities during the period and Deferred Tax is
determined in terms of AS-22 issued by ICAI.

b) Deferred tax assets and liabilities are measured
using tax rates and tax laws that have been enacted
or substantially enacted prior to the balance
sheet date. Deferred tax assets and liabilities
are recognized on a prudent basis for future tax
consequences of timing differences by adoption
of Profit and Loss approach with their respective
tax bases. The impact of changes in the deferred
tax assets and liabilities is recognized in the profit
and loss account.

c) Deferred tax assets are recognized at each reporting
date, based upon management''s judgment as
to whether realization is considered reasonably
certain. Deferred tax assets are recognized on carry
forward of unabsorbed depreciation and tax losses
only if there is virtual certainty that such deferred tax
assets can be realized against future profits.

d) No withdrawal is made from the Special Reserve
created and maintained under the provisions of
Section 36(1)(viii) of the Income Tax Act, 1961.

12. IMPAIRMENT OF ASSETS

Impairment losses, if any, on fixed assets are recognized
in accordance with the AS-28 - ''impairment of assets''
and charged to profit and loss account.

13. NET PROFIT

The net profit is arrived at after provisions for:

a) direct taxes;

b) possible losses on standard assets, restructured
advances, NPAs and other contingencies;

c) depreciation / diminution on investments ;

d) employee retirement benefits and

e) Other usual and necessary provisions.

14. PROPOSED DIVIDEND

In terms of AS 4 - "Contingencies and Events occurring
after the Balance Sheet date", proposed dividend or
dividend declared after balance sheet date is not shown
as ''other liability'' in the Balance Sheet instead a note on

the same will be included in the financial only after the
approval of the shareholders.

15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand,
Balance with RBI, Balance with other Banks and Money at
Call at Short Notice including cash in ATM, Coin Vending
Machine and Cash Deposit Machine.

16. CASH FLOW STATEMENT

The Bank has adopted the respective Accounting
Standard prescribed under Companies (Accounting
Standard) Rules, 2021 and follows indirect method.

17. INTANGIBLE ASSETS

In respect of Intangible Assets, the Bank has adopted the
respective Accounting Standard (AS26)

18. CONTINGENCIES

Loss, if any from contingencies arising from claims,
litigation, assessment, fines, penalties etc are recorded

when it is probable that a liability has been incurred and
the amount can be reasonably estimated.

The Bank does not recognize a contingent liability but
discloses its existence in the financial statements.
Provisions are reviewed at each balance sheet date and
adjusted to reflect the current best estimate.

---

Mar 31, 2024

SCHEDULE-17: SIGNIFICANT ACCOUNTING POLICIES

1. GENERAL

Overview

Tamilnad Mercantile Bank Limited (TMB or the Bank), incorporated in Thoothukudi, India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking & financial services involving retail, corporate banking and para-banking activities in addition to treasury and foreign exchange business

Basis of preparation

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

Use of estimates

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

2. REVENUE RECOGNITION

Income and expenditure is generally accounted on accrual basis except in the following cases:

• In the case of NPAs, income is recognized on realization basis, in terms of guidelines of Reserve Bank of India. Where recovery is not adequate to upgrade the NPA accounts by way of regularization, such recovery is being appropriated

towards interest in the first instance and towards the principal/ book values thereafter, except in the case of suit filed accounts. In case of Non-performing investments (NPIs), the same accounting treatment as above is followed except otherwise agreed.

• Dividend Income is recognised when right to receive the dividend is established.

• Income from sale of mutual fund products, locker rent, insurance claims, commission on LCs, income on auxiliary services and other services, overdue charges on bills, commission on Government business and insurance business are accounted on cash/ realization basis.

• Income related to credit card is accounted on the basis of the bills raised.

• In the case of suit filed accounts, legal expenses are charged to the profit and loss account. Similarly, at the time of recovery of legal expenses, in respect of such suit filed accounts, the amount recovered is accounted as income.

• Funded Interest on Standard Restructured Advances and Interest on FITL are accounted as per the guidelines of Reserve Bank of India.

3. INVESTMENTS

Investments are accounted for in accordance with the extant RBI guidelines on investment Classification and Valuation and Operation of Investment Portfolio.

Classification:

Classification of investments has been made as per the guidelines of Reserve Bank of India.

The entire investment portfolio of the Bank is classified under three categories viz. "Held to Maturity"(HTM), "Available for sale"(AFS) and "Held for Trading"(HFT). Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT Category. Investments that the company intends to hold till maturity are classified under the HTM category or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

• Transfer between the categories - Reclassification of investments from one category to other, if done, is in accordance with RBI guidelines. Transfer of script from AFS / HFT Category to HTM category is made at book value or market value, whichever is lower.

• In case of transfer of securities from HTM to AFS/ HFT category, the investments held under HTM at a discount are transferred to AFS/ HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at amortized cost.

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

• The investments are classified for the purpose of Balance Sheet under six groups viz.

(i) Government securities, (ii) Other approved securities,

(iii) Shares, (iv) Debentures and Bonds and (v) Subsidiaries and/or Joint Ventures and (vi) Others.

Cost of Acquisition

• Brokerage/ commission received on subscriptions is reduced from the cost. Brokerage, commission, securities transaction tax, stamp duty etc. paid in connection with acquisition of investments are expensed upfront and excluded from cost. Broken period interest paid/ received on debt instruments is treated as interest expense/ income and is excluded from cost/ sale consideration.

• Investments classified under HTM category are carried at acquisition cost. Any premium on acquisition of government securities are amortized over the remaining maturity of security on a straight line basis. Such amortization of premium is adjusted against interest income under the head Income on Investment under Schedule 13 in Profit and Loss account. As per the RBI guidelines, discount on securities held under HTM category is not accrued and such securities are held at the acquisition cost till maturity. Any diminution other than temporary, in the value of investments in HTM category is provided for.

• The bank follows settlement date method of accounting for purchase/sale of investments, and weighted average cost method for determining cost and accounting of profit on sale of investments.

Valuation

Valuation of investments is done as follows :

• Investments held under "Held to Maturity" are valued at cost price. Wherever the cost price is more than the face value, the premium paid is amortized over the remaining period of maturity and the amortisation expenses is accounted on quarterly basis as per policy. In terms of the instructions of RBI, the excess of acquisition cost over face value of securities kept under "Held to Maturity" category is amortized up to the date of maturity and the amount amortized is deducted in Profit & Loss account Schedule 13 - Interest Earned, under item II - Income on Investments.

Profit on sale of securities under "Held to Maturity" category is initially taken to Profit & Loss account and then appropriated to Capital Reserve Account. The amount so appropriated would be net of taxes and the amount required to be transferred to statutory reserves. If there is a loss it is charged to Profit & Loss account.

• Investments classified under "Available for Sale" category are marked to market on quarterly basis. Shares held under "Available for sale" are marked to market on weekly basis. Scrip wise appreciation/ depreciation is segregated group-wise. The Net Depreciation category wise is charged to Profit & Loss account. The Net Appreciation in any category is ignored.

• Investments classified under "Held for Trading" category except shares are marked to market scrip-wise on daily basis. Shares held under "Held for Trading" are marked to market on weekly basis. The net depreciation group wise is charged to Profit and Loss account and the net appreciation is ignored.

• Investments received in lieu of restructured advances are valued in accordance with RBI guidelines.

Investments are valued periodically as per RBI guidelines as follows :

• Central/ State Government Securities are valued as per rates published by the Financial Benchmark India Pvt. Ltd. (FBIL).

• Debenture and Bonds have been valued with appropriate mark up over the Yield to Maturity (YTM) rates for Central Government Securities declared by Fixed Income Money Market & Derivatives Association of India (FIMMDA)/ FBIL.

• Quoted shares are valued at market rates quoted on National Stock Exchange (NSE) / Bombay Stock Exchange (BSE).

• Unquoted shares are valued at book value ascertained from the latest available Balance Sheet and in case the latest Balance Sheet is not available, the same is valued at Re.1 per company.

• Preference shares are valued at YTM, if dividend is received regularly. Where dividend is in arrears, appropriate depreciation is provided based on the number of years for which dividend is in arrears as per RBI guidelines.

• Mutual Fund units are valued at market rates/ NAV/ Repurchase price as applicable.

• Treasury bills, certificate of deposits and commercial papers are valued at carrying cost.

• Zero Coupon Bonds are valued in the books at carrying cost. In the absence of market value, the ZCBs are marked to market with reference to the present value of the ZCB.

• Provisions for Non performing investments are made as per RBI prudential norms.

Repurchase (REPO) transactions

Repo and reverse Repo transactions are accounted in accordance with the extant RBI guidelines. Securities purchased/ sold under Liquidity Adjustment Facility (LAF) and Marginal Standby Facility (MSF) with RBI are debited/ credited to Investment account and reversed on maturity of the transaction. Interest expended/ earned thereon is accounted for as expenditure/ revenue.

4. ADVANCES & PROVISIONS

Classification :

• Advances are classified into Standard, Sub-standard, Doubtful and Loss Assets and provisions for possible losses on such advances are made as per prudential norms/ directions of the Board of Directors/directions issued by Reserve Bank of India from time to time.

• Advances stated in the balance sheet are net of provisions, claims received from credit guarantee institutions and recoveries pending appropriation and held in sundry/ suspense account. Interest on non-performing advances is transferred to an unrealized interest account and not recognized in the Profit and Loss Account until received.

• In case of loan accounts classified as NPA, such accounts may be reclassified as Standard Asset if it conforms to the guidelines prescribed by RBI.

Provisioning, Write Off & Recovery

• With regard to the Standard Advances, Provisions are made as per extant RBI guidelines. In addition to the specific provision made towards identified NPAs, the bank also holds floating provision. Provisioning on categorized assets are made as follows.

• Advances disclosed are net of provisioning made for nonperforming assets, claims received from Credit Guarantee Agencies and floating provisions, provisioning on diminution in fair value of assets on standard restructured accounts.

• In terms of RBI guidelines, the NPAs are written-off in accordance with the Bank''s policy. Amounts recovered against bad debts written-off are recognised in the profit and loss account.

5. FIXED ASSETS & DEPRECIATION

Fixed Assets:

Fixed assets are stated at cost less accumulated depreciation and impairment, if any. Cost includes incidental expenditure incurred on the assets before they are ready for intended use and Taxes and duties to the extent not eligible for input credits if any.

Computer Software is capitalised along with computer hardware and included under other fixed assets.

Carrying amount of fixed assets is reviewed at each balance sheet date for indication of impairment. Impairment loss if any, is recognised in the Profit and Loss Account to the extent the carrying amount of an asset exceeds its estimated recoverable value.

Subsequent expenditure incurred on the assets already in use are capitalised only when it increases the future benefits from such assets or their functioning capacity, Capital work-in-progress includes cost of fixed assets that are not ready for their intended use.

Depreciation

Depreciation on fixed assets is provided over the estimated useful life of fixed assets on a straight-line basis, in accordance with estimated useful lives as specified in Schedule II to the Companies Act, 2013, and reckoning the residual value at 5% of the original cost of the asset except for the following:

• Education loans were provided at 100% irrespective of NPA asset classification.

• Reserve Bank of India has given methodology to arrive at incremental provision towards Unhedged Foreign Currency Exposure (UFCE). Accordingly, the incremental provisioning for UFCE and capital provisions are made as per RBI extant guidelines.

In case of Assets purchased / sold during the year, depreciation is provided on a pro-rata basis for the actual number of days the asset has been capitalized.

Expenditure during construction/ capital works pending completion is shown at cost.

6. FOREIGN CURRENCY TRANSACTION

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/ forward rates as published by the Foreign Exchange Dealers Association of India (FEDAI) and in accordance with Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

Gain or loss on evaluation of outstanding monetary assets/ liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

7. EMPLOYEE BENEFITS

The bank is following Accounting Standard 15 (Revised 2005) "Employee Benefits" as under :

• In respect of contributory plans viz - Provident Fund and Contributory Pension Scheme, the bank pays fixed contribution at pre-determined rates to a separate entity, which invests in permitted securities. The obligation of the bank is limited to such fixed contribution.

• In respect of Defined Benefit Plans, viz. Gratuity and pension as well as for leave encashment, provision has been made based on actuarial valuation as per the guidelines.

• The summarized position of Post-employment benefits and long term employee benefits have been recognized in the profit and loss account and balance sheet, as required in accordance with the Accounting Standard-15.

• The actuarial gain/ loss is recognized in the profit and loss account.

8. SEGMENT REPORTING

As per RBI guidelines on enhancement of disclosures relating to segment reporting under AS-17, the reportable segments have been divided into treasury, corporate / wholesale, retail banking operations.

• The Bank recognizes the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

• Business Segment is classified into (i) Treasury (ii) Corporate and Wholesale Banking (iii) Retail Banking and (iv) Other Banking Operations.

• Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

9. LEASES

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as Operating Leases. Operating Lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with AS19 Leases.

10. EARNINGS PER SHARE

The bank reports basic and diluted earnings per share in accordance with applicable AS-20. For the year under reference, both Basic and diluted earning per share being the same, is computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the period.

11. TAXES ON INCOME

• Income tax expense is the aggregate amount of current tax and deferred tax. Current taxes are determined in accordance with the provisions of tax laws prevailing in India. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the period and Deferred Tax is determined in terms of AS-22 issued by ICAI.

• Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted prior to the balance sheet date. Deferred tax assets and liabilities are recognized on a prudent basis for future tax consequences of timing differences by adoption of Profit and Loss approach with their respective tax bases. The impact of changes in the deferred tax assets and liabilities is recognized in the profit and loss account.

• Deferred tax assets are recognized at each reporting date, based upon management''s judgment as to whether realization is considered reasonably certain. Deferred tax assets are recognized on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty that such deferred tax assets can be realized against future profits.

• No withdrawal is made from the Special Reserve created and maintained under the provisions of Section 36(l)(viii) of the Income Tax Act, 1961.

12. IMPAIRMENT OF ASSETS

Impairment losses, if any, on fixed assets are recognized in accordance with the AS-28 - ''impairment of assets'' and charged to profit and loss account.

13. NET PROFIT

The net profit is arrived at after provisions for:

• Direct taxes

• Possible losses on standard assets, restructured advances, NPAs and other contingencies

• Depreciation/ diminution on investments

• Employee retirement benefits and

• Other usual and necessary provisions

14. PROPOSED DIVIDEND

In terms of AS 4 - "Contingencies and Events occurring after the Balance Sheet date", proposed dividend or dividend declared after balance sheet date is not shown as ''other liability'' in the Balance Sheet instead a note on the same will be included in the financial only after the approval of the shareholders.

15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand, Balance with RBI, Balance with other Banks and Money at Call at Short Notice including cash in ATM, Coin Vending Machine and Cash Deposit Machine.

16. CASH FLOW STATEMENT

The Bank has adopted the respective Accounting Standard prescribed under Companies (Accounting Standard) Rules, 2006 and follows indirect method.

17. INTANGIBLE ASSETS

In respect of Intangible Assets, the Bank has adopted the respective Accounting Standard (AS26).

18. CONTINGENCIES

Loss, if any from contingencies arising from claims, litigation, assessment, fines, penalties etc are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

The Bank does not recognize a contingent liability but discloses its existence in the financial statements. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

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Mar 31, 2023

1. GENERAL OVERVIEW

Tamilnad Mercantile Bank Limited (TMB or the Bank), incorporated in Thoothukudi, India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking & financial services involving retail, corporate banking and para-banking activities in addition to treasury and foreign exchange business.

BASIS OF PREPARATION

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

USE OF ESTIMATES

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

2. REVENUE RECOGNITION

Income and expenditure is generally accounted on accrual basis except in the following cases:.

a. In the case of NPAs, income is recognized on realization basis, in terms of guidelines of Reserve Bank of India. Where recovery is not adequate to upgrade the NPA accounts by way of regularization, such recovery is being appropriated towards interest in the first instance and towards the principal / book values thereafter, except in the case of suit filed accounts. In case of Non-performing investments (NPIs), the same accounting treatment as above is followed except otherwise agreed.

b. Dividend Income is recognised when right to receive the dividend is established.

c. Income from sale of mutual fund products, locker rent, insurance claims, commission on LCs, income on auxiliary services and other services, overdue charges on bills and commission on Government business are accounted on cash / realization basis.

d. Income related to credit card is accounted on the basis of the bills raised.

e. In the case of suit filed accounts, legal expenses are charged to the profit and loss account. Similarly, at the time of recovery of legal expenses, in respect of such suit filed accounts, the amount recovered is accounted as income.

f. Funded Interest on Standard Restructured Advances and Interest on FITL are accounted as per the guidelines of Reserve Bank of India.

3. INVESTMENTS

Investments are accounted for in accordance with the extant RBI guidelines on investment

classification and valuation.

Classification:

Classification of investments has been made as per the guidelines of Reserve Bank of India.

a. The entire investment portfolio of the Bank is classified under three categories viz. "Held to Maturity", "Available for sale" and "Held for Trading". Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT Category. Investments that the company intends to hold till maturity are classified under the HTM category or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.

b. Transfer between the categories - Reclassification of investments from one category to other, if done, is in accordance with RBI guidelines. Transfer of script from AFS / HFT Category to HTM category is made at book value or market value, whichever is lower.

c. I n case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS / HFT at amortized cost.

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

e. The investments are classified for the purpose of Balance Sheet under five groups viz. (i) Government securities, (ii) Other approved securities, (iii) Shares, (iv) Debentures and Bonds and (v) Others.

Cost of Acquisition:

Brokerage / commission received on subscriptions is reduced from the cost. Brokerage, commission, securities transaction tax, stamp duty etc. paid in connection with acquisition of investments are expensed upfront and excluded from cost. Broken period interest paid / received on debt instruments is treated as interest expense / income and is excluded from cost / sale consideration.

Valuation:

Valuation of investments is done as follows:

a. Investments held under "Held to Maturity" are valued at cost price. Wherever the cost price is more than the face value, the premium paid is amortized over the remaining period of maturity and the amortisation expenses is accounted on quarterly basis as per policy. In terms of the instructions of RBI, the excess of acquisition cost over face value of securities kept under "Held to Maturity" category is amortized up to the date of maturity and the amount amortized is deducted in Profit & Loss account Schedule 13 - Interest Earned, under item II - Income on Investments.

Profit on sale of securities under "Held to Maturity" category is initially taken to Profit & Loss account and then appropriated to Capital Reserve Account. The amount so appropriated would be net of taxes and the amount required to be transferred to statutory reserves. If there is a loss it is charged to Profit & Loss account.

b. Investments classified under "Available for Sale" category are marked to market on quarterly basis. Shares held under "Available for sale" are marked to market on weekly basis. Scrip wise appreciation / depreciation is segregated group-wise. The Net Depreciation category wise is charged to Profit & Loss account. The Net Appreciation in any category is ignored.

c. Investments classified under "Held for Trading" category except shares are marked to market scrip-wise on daily basis. Shares held under "Held for Trading" are marked to market on weekly basis. The net depreciation group wise is charged to Profit and Loss account and the net appreciation is ignored.

d. Investments received in lieu of restructured advances are valued in accordance with RBI guidelines.

e. Investments are valued periodically as per RBI guidlines as follows:

i. Central / State Government Securities are valued as per rates published by the Financial Benchmark India Pvt. Ltd. (FBIL).

ii. Debenture and Bonds have been valued with appropriate mark up over the YTM rates for Central Government Securities declared by FIMMDA/FBIL.

iii. Quoted shares are valued at market rates quoted on NSE / BSE.

iv. Unquoted shares are valued at book value ascertained from the latest available Balance Sheet and in case the latest Balance Sheet is not available, the same is valued at Re.1 per company.

v. Preference shares are valued at YTM, if dividend is received regularly. Where dividend is in arrears, appropriate depreciation is provided based on the number of years for which dividend is in arrears as per RBI guidelines.

vi. Mutual Fund units are valued at market rates / NAV / Repurchase price as applicable.

vii. Treasury bills, certificate of deposits and commercial papers are valued at carrying cost.

viii. Zero Coupon Bonds are valued in the books at carrying cost. In the absence of market value, the ZCBs are marked to market with reference to the present value of the ZCB.

ix. Provisions for Non performing investments are made as per RBI prudential norms. *

(*) Prudential norms: Securities guaranteed by the State Government where the principal / interest is due but not paid for a period of more than 90 days are treated as non performing investments and appropriate provision is made and interest in respect of such investments is recognized as income only on cash basis.

Repurchase (REPO) transactions:

Repo and reverse Repo transactions are accounted in accordance with the extant RBI guidelines. Securities purchased / sold under Liquidity Adjustment Facility (LAF) with RBI are debited / credited to Investment account and reversed on maturity of the transaction. Interest expended / earned thereon is accounted for as expenditure / revenue.

4. ADVANCES & PROVISIONS Classification:

Advances are classified into Standard, Sub-standard, Doubtful and Loss Assets and provisions for possible losses on such advances are made as per prudential norms / directions of the Board of Directors/directions issued by Reserve Bank of India from time to time.

In case of loan accounts classified as NPA, such accounts may be reclassified as Standard Asset if it confirms to the guidelines prescribed by RBI

Provisioning, Write Off & Recovery:

a. With regard to the Standard Advances, Provisions are made as per extant RBI guidelines. In addition to the specific provision made towards identified NPAs, the bank also holds floating provision. Provisioning on categorized assets are made as follows:

ASSET CLASSIFICATION	PROVISIONING
Sub-standard	Secured 25%
	Unsecured 25%
Doubtful 1	Secured 25%
	Unsecured 100%
Doubtful 2	Secured 40%
	Unsecured 100%
Doubtful 3	100% on outstanding
Loss	100% on outstanding
NCLT referred loans	As per RBI instruction

b. Education loans were provided at 100% in respect of NPA asset classification.

c. Reserve Bank of India has given methodology to arrive at Unhedged Foreign Currency Exposure (UFCE) and for introduction of incremental provision and capital requirements. Accordingly, the incremental provisioning for UFCE is made as per RBI extant guidelines.

d. Advances disclosed are net of provisioning made for non performing assets and floating provisions, provisioning on diminution in fair value of assets on restructured accounts.

e. I n terms of RBI guidelines, the NPAs are written-off in accordance with the Bank''s policy. Amounts recovered against bad debts written-off are recognised in the profit and loss account.

5. FIXED ASSETS & DEPRECIATION

Fixed Assets:

Fixed assets are stated at cost less accumulated depreciation and impairment, if any. Cost includes incidental expenditure incurred on the assets before they are ready for intended use and Taxes and duties to the extent not eligible for input credits if any.

Computer Software is capitalised along with computer hardware and included under other fixed assets.

Carrying amount of fixed assets is reviewed at each balance sheet date for indication of impairment. Impairment loss if any, is recognised in the Profit and Loss Account to the extent the carrying amount of an asset exceeds its estimated recoverable value.

Depreciation:

Depreciation on fixed assets is provided over the estimated useful life of fixed assets on a straightline basis, in accordance with estimated useful lives as specified in Schedule II to the Companies Act, 2013, and reckoning the residual value at 5% of the original cost of the asset except for the following:

CLASS OF ASSET	RATES OF DEPRECIATION PER ANNUM
Computer Hardware & Software	33.33%

In case of Assets purchased / sold during the year, depreciation is provided on a pro-rata basis for the actual number of days the asset has been capitalized.

Expenditure during construction / capital works pending completion is shown at cost.

6. FOREIGN CURRENCY TRANSACTION

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/ forward rates as published by the FEDAI and in accordance with Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

Gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

7. EMPLOYEE BENEFITS

The bank is following Accounting Standard 15 (Revised 2005) "Employee Benefits" as under:.

a. In respect of contributory plans viz-Provident Fund and Contributory Pension Scheme, the bank pays fixed contribution at pre-determined rates to a separate entity, which invests in permitted securities. The obligation of the bank is limited to such fixed contribution.

b. In respect of Defined Benefit Plans, viz. Gratuity and pension as well as for leave encashment, provision has been made based on actuarial valuation as per the guidelines.

c. The summarized position of Post-employment benefits and long term employee benefits have been recognized in the profit and loss account and balance sheet, as required in accordance with the Accounting Standard-15.

d. The actuarial gain/loss is recognized in the profit and loss account.

8. SEGMENT REPORTING

As per RBI guidelines on enhancement of disclosures relating to segment reporting under AS-17, the reportable segments have been divided into treasury, corporate/wholesale, retail banking operations.

a. The Bank recognizes the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

b. Business Segment is classified into (i) Treasury (ii) Corporate and Wholesale Banking (iii) Retail Banking and (iv) Other Banking Operations.

c. Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

9. LEASES

Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as Operating Leases. Operating Lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with AS19 Leases.

10. EARNINGS PER SHARE

The bank reports basic and diluted earnings per share in accordance with applicable AS-20. For the year under reference, both Basic and diluted earning per share being the same, is computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the period

11. TAXES ON INCOME

a. Income tax expense is the aggregate amount of current tax and deferred tax. Current taxes are determined in accordance with the provisions of tax laws prevailing in India. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the period and Deferred Tax is determined in terms of AS-22 issued by ICAI.

b. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted prior to the balance sheet date. Deferred tax assets and liabilities are recognized on a prudent basis for future tax consequences of timing differences by adoption of Profit and Loss approach with their respective tax bases. The impact of changes in the deferred tax assets and liabilities is recognized in the profit and loss account.

c. Deferred tax assets are recognized at each reporting date, based upon management''s judgment as to whether realization is considered reasonably certain. Deferred tax assets are recognized on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty that such deferred tax assets can be realized against future profits.

d. No withdrawal is made from the Special Reserve created and maintained under the provisions of Section 36(1)(viii) of the Income Tax Act, 1961.

12. IMPAIRMENT OF ASSETS

Impairment losses, if any, on fixed assets are recognized in accordance with the AS-28 -''impairment of assets'' and charged to profit and loss account.

13. NET PROFIT

The net profit is arrived at after provisions for:.

a. direct taxes;

b. possible losses on standard assets, restructured advances, NPAs and other contingencies;

c. depreciation/diminution on investments ;

d. employee retirement benefits and

e. Other usual and necessary provisions.

14. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand, Balance with RBI, Balance with other Banks and Money at Call at Short Notice including cash in ATM, Coin Vending Machine and Cash Deposit Machine.

15. CASH FLOW STATEMENT

The Bank has adopted the respective Accounting Standard prescribed under Companies (Accounting Standard) Rules, 2006 and follows indirect method.

16. INTANGIBLE ASSETS

The Bank has adopted the respective Accounting Standard prescribed under Companies (Accounting Standard) Rules, 2006 and follows indirect method.

17. CONTINGENCIES

Loss, if any from contingencies arising from claims, litigation, assessment, fines, penalties etc are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

The Bank does not recognize a contingent liability but discloses its existence in the financial statements. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

18. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

a. As per the Accounting Standard 29, the bank recognizes provisions only when it has a present obligation as a result of past event, it is probable that an outflow of resources is required to settle the obligation and when a reliable estimate of the amount can be made. The required disclosure for contingent liability is made on possible obligation that arises from past events, the existence of which depends on occurrence or non occurrence of future event not under control.

b. Contingent assets are not recognized in the financial statement since this may result in the recognition of income that may never be realized.