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Notes to Accounts of Vijaya Bank

Mar 31, 2018

1. Reconciliation of entries outstanding as on 31.03.2018 in the inter-branch and other accounts has been done. Matching of entries outstanding in inter-branch and inter-bank accounts including balances in drafts accounts, suspense accounts, GST, branch adjustment accounts, clearing transactions, funds transfers, balances pertaining to dividends / interest / refund orders paid / payable accounts, advances paid for acquisition of assets etc. is complete up to 31.03.2018. In the opinion of the Bank, consequential effect of the above on the revenue / assets / liabilities is not material.

2. In respect of certain premises having written down value of Rs.3.56 Crore (PY Rs.3.96 Crore) documentation / registration in favour of the bank are yet to be completed pending legal or other formalities.

3. In the case of un-audited branches, the returns / classification of advances as reported by the concerned branches/by the concurrent auditors have been adopted.

4. Claims pending and to be preferred with ECGCI Limited amounting to Rs.79.60 Crore (PY Rs.98.80 Crore) have been considered as realisable for the purpose of computing provisions.

5. No provision has been considered necessary by the Management in respect of certain disputed tax liabilities in view of the judgements in favour of the Bank. Provision for Income Tax act have been considered on the basis of legal opinion obtained.

6. As per Indian Banks’Association (IBA) communication vide letter no LEGAL/CIR Dtd. March 03rd 2015, Ministry of Company Affairs (MCA) has advised that provisions related to Corporate Social Responsibility (CSR) are not applicable to the nationalised banks, as they are not registered under the Companies Act.

7. During the year the bank has issued 11,10,22,997 equity shares of face value of Rs.10 each at a premium of Rs.53.05 per share aggregating to Rs.699,99.99 lakhs through Qualified Institutional Placement (QIP) for augmenting Bank’s Tier I Capital to support growth plans of the Bank and for other general corporate purposes. Further, during the year the bank has issued 19,42,79,628 equity shares of face value of Rs.10 each at a premium of Rs.55.73 per share aggregating to Rs.1277.00 Crore to the Government of India by way of preferential issue. Also during the year, Bank has redeemed Upper Tier II Series Bonds aggregating to Rs.300.00 Crores by exercising call option.

8. During the year Goods and Service Tax (GST) Act has been implemented and income are stated inclusive of GST in consistence with the accounting treatment of service tax.

9. In terms of RBI circular RBI/2015-16/366 FIDD.C0/Plan.BC.23/04.09.01/2015-16 dated April 7, 2016 Banks are allowed for issuance of Priority Sector Lending Certificates (PSLCs) and trade their Priority sector portfolios by selling/buying these certificates. During the year, the bank has purchased PSLCs (Agriculture Category) amounting to Rs.981.00 Crores and has not sold any PSLCs.

10. In terms of the guidelines issued by the Reserve Bank of India, the following disclosures are made:

Gross value of investments includes securities pledged with RBI under LAF Repo of Rs.3,435.00 Crore (PY Rs.300.00 Crore), MSF of Rs.Nil (PY Rs.Nil) and securities pledged with other market participants under Non-Standard Repo of Rs.97.67 Crore (PY Rs.6857.39 Crore) and CBLO of Rs.Nil (PY Rs.Nil) outstanding as on 31.03.2018.

*Includes provision of Rs.174.25 Crore (PY Rs.90.13 Crore) made on NPI.

**excluding RIDF Investments.

Note:

(1) *Total under column 3 should tally with the total of Investments included under the following categories in Schedule 8 to the balance sheet:

a) Shares

b) Debentures & Bonds

c) Subsidiaries/joint ventures

d) Others

(2) Amounts reported under columns 4, 5, 6 and 7 above may not be mutually exclusive.

(3) The column (6) “Unrated Securities” mainly include Special State Government securities of Rs.833.34 Crore, Central Govt. Securities issued as per Capital Infusion Plan of Rs.1,277 Crore,

Equity Shares of Rs.618.46 Crore, Venture Capital Rs.17.70 Crore, Mutual Fund Rs.5.00 Crore, Security Receipt of Rs.329.11 Crore and DISCOM bonds of Rs.447.73 Crore.

** Excludes the investment under RIDF of Rs.3,907.88 Crore outstanding as on Mar 31, 2018.

(iv) Sale and Transfer to/from HTM category

During the year the book value of securities sold under HTM category exceeds 5% of the book value of investments held on HTM category as at the beginning of the year. The details of HTM category on 31.03.2018 are furnished hereunder:

(vi) RBI circular DBR.No.BPBC.102/21.04.048/2017-18 dated April 2, 2018 grants the banks an option to spread provisioning for Mark to Market Losses (MTM Loss) on investments for the quarters ended December 31, 2017 and March 31, 2018, equally over the four quarters commencing with the quarter in which the loss is incurred. However, the Bank has not exercised the option and recognised the mark to market loss on investments in the quarter of incurrence.

(vii) Disclosures on risk exposure in derivatives

a) Qualitative Disclosure

Bank has put in place Board approved derivative policy for undertaking derivative transactions for hedging, trading and for catering to customer requirements as per RBI guidelines. The policy lays down the type, scope and usage with appropriate limits for derivative transactions. From the view point of operational efficiency and risk oversight the derivative desk is segregated into Front Office, Mid Office and Back office with clear segregation of functions.

p. In terms of directions of RBI vide letter no DBR.No.BP15199/21.04.048/2016-17 dt.23.06.2017 and DBR.No.BP.1926/21.04.048/2017-18 dt.28.08.2017 in respect of certain NPA accounts under Insolvency and Bankruptcy code (IBC), bank has fully provided the additional provision of Rs.14979 lakhs required to be provided by 31st March 2018 in respect of such accounts. In this regard RBI has reduced the provisioning requirement from 50% to 40 % vide circular number DBR.No.BP.8756/21.04.048/2017-18 dated 2nd April 2018. The bank, however, has not reduced the provision and maintained the provision as aforesaid.

q. In respect of advances under IBC, provision has been done considering the value of security as per available records in view of uncertainty involved in fair value which will be decided on resolution of the case in NCLT.

r. RBI vide its circular no DBR.N0.BP.BC.101/21.04.048/2017-18 dated 12th February 2018, has issued revised framework on Resolution of Stressed Assets. In pursuance to the revised framework the bank has classified the specific restructured accounts as non performing and accordingly made provision towards such stressed accounts of Rs.116.45 Crores.

s. In view of fraud detected during the year in certain banks, in respect of a Gems and Jewellery borrower Group, the Bank has classified certain accounts as non-performing and made an additional provision of Rs.27.38 Crores by way of abundant caution.

Assets and Liabilities are classified as per the guidelines issued by the Reserve Bank of India and compiled by the management and relied upon by the auditors.

* Figures are broadly net of provision.

** Borrowings in India.

(VI) Disclosure for investments under SDR :-

Pursuant to the master circular DBR.BPBC.No.101/21.04.132/2014-15 dated June 08, 2015, on Strategic Debt Restructuring Scheme, Point No. 7, and acquisition of shares under SDR mechanism is exempted from regulatory ceilings/restrictions on Capital Market Exposures, investment in Para-Banking activities and intra-group exposure.

Details of shares held under SDR mechanism and details of the same as on 31.03.2018 are as under:

The net funded exposure of the Bank in respect of foreign exchange transactions with each country is within 1% of the total assets of the Bank and hence no provision is required to be made as per the Reserve Bank of India Circular DBOD. BPBC.71/21.01.103/2002-03 dated 19.02.2003 read with DBOD. BPBC.96/21.04.103/2003-04 dated 17.06.2004.

11. Disclosure requirements as per Accounting Standards notified by the Ministry of Corporate Affairs under section 133 of Companies Act 2013 read rule 7 of Companies (Act) Rules 2014 where RBI has issued guidelines:

i) There were no material prior period income/ expenditure required to be disclosed as per AS -5.

ii) As per the past practice, the bank does not provide details for the gross amount of each class of depreciable asset as and related accumulated depreciation as required under AS-6.

iii) In terms of accounting policy No.8 of the Bank, some items are recognised on cash basis. However, the management is of the view that since the amount involved is not material, it does not require any disclosure under AS-9.

iv) The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week of the preceding month, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.

*includes part service cost of Rs.78.68 Crore

Actuarial assumptions relating to provisions for compensated absence are given below :

Interest rate :- 7.71% p.a

Salary inflation:-5.50% p.a

Mortality :- LICI 1994-96

Attrition rate :- 10 per thousand p.a

Formula :- projected unit credit method

vii) In view of fraud detected during the year in certain banks, in respect of Two Gems and Jewellery borrower Group, the Bank has classified those accounts as non-performing assets and made necessary prvisions.

# For the purpose of segment reporting in terms of AS-17 and as prescribed in RBI guidelines, the business of the Bank has been classified into four segments i.e., a) Treasury Operations (b) Corporate/ Wholesale Banking, (c) Retail Banking and (d)Other Banking Operations. Segmenting is based on the current policy of the bank.

# Since the Bank does not have any Overseas Branch, reporting under geographic segment is not applicable.

# Expenses wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue.

# Assets/liabilities wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue/segments assets ratio.

The above information has been compiled based on data available at Head Office.

ix) The Bank has identified the following as related party as per AS-18 on Related Party Disclosures -

a) Key Management Personnel :

a. Dr. Kishore Sansi (EX- M.D & CEO)-Part of the year

b. Shri B.S. Rama Rao (EX-ED)- Part of the year

c. Shri R. A. Sankara Narayanan (M.D & CEO)

d. Shri Nageswara Rao Y (Executive Director)

e. Shri Murali Ramaswami (Executive Director)

The transactions with Related Parties during the year are as under:

a) i) Remuneration paid to Key Management Personnel during the year

b) There has been no transaction with the relatives of the Key Management Personnel during the year.

c) Associates: NIL

x) Leases (AS -19)

a) Lease rent paid for operating leases are recognized as an expense in the Profit & Loss Account in the year to which it relates.

b) Future Lease Rent Payable for operating lease :

c) Future lease rents and escalation in the rent are determined on the basis of agreed terms.

d) At the expiry of initial lease term, generally the Bank has an option to extend the lease for a further pre-determined period.

e) The Bank does not have any financial lease.

xi) Earning Per Share (AS-20)

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on “Earnings per Share”. Basic earnings per share for the period is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year.

(xii) Accounting for Taxes on Income (AS-22)

The Bank has accounted for Taxes on Income in compliance with Accounting Standard 22 - “Accounting for Taxes on Income” issued by the ICAI. Accordingly, deferred tax assets and liabilities are recognised.

a) The components of deferred tax are as under:

In view of the application of ICDS (Income Computation and Disclosure Standards) from the year 2017-18, provisions of AS 22 in respect of DTL on Investments under HTM category are not applicable.

b) During the financial year 2017-18, the Bank has recognised DTA in respect of provision made in excess of deduction allowable u/s 36(i)(vii)(a) of the Income Tax Act.

c) Amount of provisions made for Income Tax during the year:

(xiii) In the opinion of the Management, there is no material impairment of any of the Fixed Assets of the Bank as per Accounting Standard 28 - Impairment of Assets.

d) During the current financial year RBI has levied penalty of Rs.93.61 lacs (Previous year Rs.18.31 lacs).

(iv) During the year 2017-18 the Bank had issued 453 Letters of Undertaking (LoU) amounting to USD 139107187.37 covering imports of goods into India. These Letters of Undertaking have been issued after due assessment of its financial impact on the Bank and with the approval of the competent authorities. As on the date of balance sheet 150 Letters of Undertaking amounting to USD 55495216.68 (approximately Rs.361.69 Crore @ USD 1 = Rs.65.175) are outstanding which, in the opinion of the management, will not have any significant impact on the Bank’s financial position.

(v) Provision coverage ratio (PCR): Provision Coverage ratio as of 31.03.2018 is 59.39% (previous year 58.15%) as per RBI guidelines. The Bank has achieved the PCR as envisaged in RBI circular DBOD. No.BPBC.87-21.048/2010-11 dt.21.04.2011.

12. Intra Group Exposure: -

a) Total Amount of Intra group Exposures: NIL

b) Total amount of top-20 intra group exposures: NIL

c) Percentage of intra group exposures to total exposure of the bank on borrowers/customers: NIL

d) Details of breach of limits on intra-group exposures and regulatory action thereon, if any: NIL

13. Un hedged Foreign Currency Exposure:

(To the extent bank has been able to ascertain from borrowers and as certified by bank and relied upon by auditors)

Incremental provisioning as on 31.03.2018: Rs.3.70 Crore Regulatory requirement for incremental capital: Rs.5.90 Crore

14 (b) Qualitative disclosures around LCR:

(a) The main drivers of their LCR results and the evolution of the contribution of inputs to the LCR’s calculation over time:

The main drivers of the LCR is HQLA, the involvement of healthy HQLA not only improve the LCR percentage but also increase the ability of the bank to meet the liquidity requirement upto 30 days.

(b) Intra-period changes as well as changes over time:

Not Applicable

(c) The composition of HQLA:

The composition of HQLA is divided into Level 1 Asset and Level 2A & Level 2B.

Level 1 Asset includes:

i. Cash including cash reserves in excess of required CRR.

ii. Government securities in excess of the minimum Statutory Liquidity Ratio (SLR) requirement.

iii. Within the mandatory Statutory Liquidity Ratio(SLR) requirement, Government securities to the extent allowed by Reserve Bank of India (RBI), under Marginal Standing Facility (MSF).

iv. Marketable securities issued or guaranteed by foreign sovereigns satisfying all the following conditions:-

(a) Assigned a 0% risk weight under the Basel II standardized approach for credit risk.

(b) Traded in large, deep and active repo or cash markets characterized by a low level of concentration and proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions.

(c) Not issued by a bank/financial institution/NBFC or any of its affiliated entities.

Level 2 assets (comprising Level 2A assets and Level 2B assets) can be included in the stock of liquid assets, subject to the requirement that they comprise no more than 40% of the overall stock of HQLAs after haircuts have been applied.

Level 2A and Level 2B assets would comprise of the following:

Level 2A Assets includes:

A minimum 15% haircut should be applied to the current market value of each Level 2A asset held in the stock. Level 2A assets are limited to the following:

1) Marketable securities representing claims on or claims guaranteed by sovereigns, Public Sector Entities (PSEs) or multilateral development banks that are assigned a 20% risk weight under the Basel II Standardised Approach for credit risk and provided that they are not issued by a bank/ financial institution/NBFC or any of its affiliated entities.

2) Corporate bonds, not issued by a bank/financial institution/NBFC or any of its affiliated entities, which have been rated AA- or above by an Eligible Credit Rating Agency.

3) Commercial Papers not issued by a bank / Primary dealers (PD)/financial institution or any of its affiliated entities, which have a short-term rating equivalent to the long-term rating of AA- or above by an Eligible Credit Rating Agency.

Level 2B Assets includes:

A minimum 50% haircut should be applied to the current market value of each Level 2B asset held in the stock. Further, Level 2B assets should comprise no more than 15% of the total stock of HQLA. They must also be included within the overall Level 2 assets. Level 2B assets are limited to the following:

i. Marketable securities representing claims on or claims guaranteed by sovereigns having risk weights higher than 20% but not higher than 50%, i.e., they should have a credit rating not lower than BBB- as per RBI Master Circular on ‘Basel III - Capital Regulations’.

ii. Common Equity Shares which satisfy all of the following conditions:

a) not issued by a bank/financial institution/NBFC or any of its affiliated entities;

b) included in NSE CNX Nifty index and/or S&P BSE Sensex index.

(d) Concentration of funding sources:

Amount to be received by RBI / Central banks.

(e) Derivative exposures and potential collateral calls:

Not Applicable

(f) Currency mismatch in the LCR:

Not Applicable

(g) A description of the degree of centralization of liquidity management and interaction between the group’s units and

The Fund Management desk in Treasury Management Department (TMD) is centralized liquidity management desk that manages the flow of funds between the two units.

(h) Other inflows and outflows in the LCR calculation that are not captured in the LCR common template but which the institution considers to be relevant for its liquidity profile.

Not Applicable

15. As per RBI circular no. DBR.N0.BP.BC.92/21.04.048/2015-16 dated April 18, 2016 on disclosures pertaining to Provisions for frauds is as follows:-

16. The bank has drawn down a sum of Rs. NIL/- (Previous year Rs. NIL) from General Reserve on account of payment of Lapsed Demand Drafts which were taken to general reserve earlier as per RBI approval.

17. Bank is not having adequate information in respect of Suppliers/Service providers covered under Micro, Small and Medium Enterprises Development Act, 2006. In view of this, information required to be disclosed u/s 22 of the said Act is not given.

18. Previous year’s figures have been re-grouped / re-classified / re-cast wherever necessary to conform to current year’s classification.

19. Cash flow has been prepared using Indirect method.


Mar 31, 2017

Note:

(1) *Total under column 3 should tally with the total of Investments included under the following categories in Schedule 8 to the balance sheet:

a) Shares

b) Debentures & Bonds

c) Subsidiaries/joint ventures

d) Others

(2) Amounts reported under columns 4, 5, 6 and 7 above may not be mutually exclusive.

(3) PSUs under private placement includes Special State Government Securities of '' 1178.62 Crore allotted in conversion of discom dues.

(4) The column (6) “Unrated Securities” mainly include Special State Government securities of '' 1414.98 Crore allotted in conversion of Discom dues, Equity shares of '' 344.39 Crore, Venture Capital '' 20.05 Crore, mutual fund '' 5.00 Crore, Security Receipt of '' 367.61 Crore and DISCOM bonds of '' 286.43 Crore.

** Excludes the investment under RIDF of '' 3,859.99 Crore outstanding as on March 31, 2017.

v) Disclosures on risk exposure in derivatives

a) Qualitative Disclosure

Bank has put in place Board approved derivative policy for undertaking derivative transactions for hedging, trading and for catering to customer requirements as per RBI guidelines. The policy lays down the type, scope and usage with appropriate limits for derivative transactions. From the view point of operational efficiency and risk oversight the derivative desk is segregated into Front Office, Mid Office and Back office with clear segregation of functions.

xvii) Provision coverage ratio (PCR): Provision Coverage ratio as of 31.03.2017 is 58.15 % (previous year 50.08%) as per RBI guidelines. The Bank has achieved the PCR as envisaged in RBI circular DBOD. No.BP.BC.87-21.048/2010-11 dt. 21.04.2011.

xviii) Unsecured advances: : The Bank has no unsecured advances wherein intangible securities have been taken as collateral securities.

xix) During the year 2016-17 the Bank had issued 518 Letters of Comfort (LoC) amounting to USD 312450542.90 covering imports of goods into India. These Letters of Comfort have been issued after due assessment of its financial impact on the Bank and with the approval of the competent authorities. As on the date of balance sheet 193 Letters of Comfort amounting to USD 123402405.50(approximately '' 800.26 Crore @ USD 1 = '' 64.85) are outstanding which, in the opinion of the management, will not have any significant impact on the Bank’s financial position.

8. Compliance with information to be disclosed under Accounting Standards notified by the Ministry of

Corporate Affairs under Companies(Accounting Standards) Rules, 2006:

i) There were no material prior period income/ expenditure required to be disclosed as per AS -5.

ii) As per the past practice, the bank does not provide details for the gross amount of each class of depreciable asset as and related accumulated depreciation as required under AS-6.

iii) In terms of accounting policy No.8 of the Bank, some items are recognised on cash basis. However, the management is of the view that since the amount involved is not material, it does not require any disclosure under AS-9.

iv) The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week of the preceding month, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.

v) The following information is disclosed under AS-15 - Employee benefits :-

Actuarial assumptions relating to provisions for compensated absence are given below :

Interest rate :- 7.50% p.a

Salary inflation:-5.50% p.a

Mortality :- LICI 1994-96

Attrition rate :- 10 per thousand p.a

Formula :- projected unit credit method

# For the purpose of segment reporting in terms of AS-17 and as prescribed in RBI guidelines, the business of the Bank has been classified into four segments i.e., a) Treasury Operations (b) Corporate/ Wholesale Banking, (c) Retail Banking and (d)Other Banking Operations. Segmenting is based on the current policy of the bank.

# Since the Bank does not have any Overseas branch, reporting under geographic segment is not applicable.

# Expenses wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue.

# Assets/liabilities wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue/segments assets ratio.

The above information has been compiled based on data available at Head Office.

viii) The Bank has identified the following as related party as per AS-18 on Related Party Disclosures -

a) Key Management Personnel :

a. Dr. Kishore Sansi, (M.D & CEO)

b. Shri. B. S. Rama Rao, (Executive Director)

c. Shri. Y Nageswara Rao (Executive Director)

The transactions with Related parties during the year are as under:

b) There has been no transaction with the relatives of the Key Management Personnel during the year.

c) Associates: NIL

ix) Leases (AS -19)

a) Lease rent paid for operating leases are recognized as an expense in the Profit & Loss Account in the year to which it relates.

b) Future Lease Rent Payable for operating lease :

c) Future lease rents and escalation in the rent are determined on the basis of agreed terms.

d) At the expiry of initial lease term, generally the Bank has an option to extend the lease for a further pre-determined period.

e) The Bank does not have any financial lease.

x) Earning Per Share (AS-20)

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on “Earnings per Share”. Basic earnings per share for the period is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year.

11. Intra Group Exposure: -

a) Total Amount of Intra group Exposures: NIL

b) Total amount of top-20 intra group exposures: NIL

c) Percentage of intra group exposures to total exposure of the bank on borrowers/customers: NIL

d) Details of breach of limits on intra-group exposures and regulatory action thereon, if any: NIL

12. Transfers to Depositor Education and awareness Fund (DEAF): -

(b) Qualitative disclosures around LCR:

(a) The main drivers of their LCR results and the evolution of the contribution of inputs to the LCR’s calculation over time;

The main drivers of the LCR is HQLA, the involvement of healthy HQLA not only improve the LCR percentage but also increase the ability of the bank to meet the liquidity requirement upto 30 days.

(b) Intra-period changes as well as changes over time;

Not Applicable

(c) The composition of HQLA;

The composition of HQLA is divided into Level 1 Asset and Level 2A & Level 2B.

Level 1 Asset includes:

i. Cash including cash reserves in excess of required CRR.

ii. Government securities in excess of the minimum Statutory Liquidity Ratio(SLR) requirement.

iii. Within the mandatory Statutory Liquidity Ratio(SLR) requirement, Government securities to the extent allowed by Reserve Bank of India (RBI), under Marginal Standing Facility (MSF).

iv. Marketable securities issued or guaranteed by foreign sovereigns satisfying all the following conditions:-

(a) Assigned a 0% risk weight under the Basel II standardized approach for credit risk;

(b) Traded in large, deep and active repo or cash markets characterised by a low level of concentration; and proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions.

(c) Not issued by a bank/financial institution/NBFC or any of its affiliated entities.

Level 2 assets (comprising Level 2A assets and Level 2B assets) can be included in the stock of liquid assets, subject to the requirement that they comprise no more than 40% of the overall stock of HQLAs after haircuts have been applied.

Level 2A and Level 2B assets would comprise of the following:

Level 2A Assets includes;

A minimum 15% haircut should be applied to the current market value of each Level 2A asset held in the stock. Level 2A assets are limited to the following:

1) Marketable securities representing claims on or claims guaranteed by sovereigns, Public Sector Entities (PSEs) or multilateral development banks that are assigned a 20% risk weight under the Basel II Standardised Approach for credit risk and provided that they are not issued by a bank/ financial institution/NBFC or any of its affiliated entities.

2) Corporate bonds, not issued by a bank/financial institution/NBFC or any of its affiliated entities, which have been rated AA- or above by an Eligible Credit Rating Agency.

3) Commercial Papers not issued by a bank/ Primary dealers (PD)/financial institution or any of its affiliated entities, which have a short-term rating equivalent to the long-term rating of AA- or above by an Eligible Credit Rating Agency.

Level 2B Assets includes:

A minimum 50% haircut should be applied to the current market value of each Level 2B asset held in the stock. Further, Level 2B assets should comprise no more than 15% of the total stock of HQLA. They must also be included within the overall Level 2 assets. Level 2B assets are limited to the following:

i. Marketable securities representing claims on or claims guaranteed by sovereigns having risk weights higher than 20% but not higher than 50%, i.e., they should have a credit rating not lower than BBB- as per RBI Master Circular on ‘Basel III - Capital Regulations’.

ii. Common Equity Shares which satisfy all of the following conditions:

a) not issued by a bank/financial institution/NBFC or any of its affiliated entities;

b) included in NSE CNX Nifty index and/or S&P BSE Sensex index.

c) Concentration of funding sources;

Amount to be received by RBI / Central banks.

(e) Derivative exposures and potential collateral calls;

Not Applicable

(f) Currency mismatch in the LCR;

Not Applicable

(g) A description of the degree of centralization of liquidity management and interaction between the group’s units; and

The Fund Management desk in Treasury Management Department (TMD) is centralized liquidity management desk that manages the flow of funds between the two units.

(h) Other inflows and outflows in the LCR calculation that are not captured in the LCR common template but which the institution considers to be relevant for its liquidity profile.

Not Applicable

16. The bank has drawn down a sum of Rs, NIL/- (Previous year Rs, NIL) from General Reserve on account of payment of Lapsed Demand Drafts which were taken to general reserve earlier as per RBI approval.

17. Bank is not having adequate information in respect of Suppliers/Service providers covered under Micro, Small and Medium Enterprises Development Act, 2006. In view of this, information required to be disclosed u/s 22 of the said Act is not given.

18. Implementation of INDAS:

The Bank is in the process of implementation of IND AS. The Bank is also availing services of external consultants for this purpose. Proforma financial statements for the half year ended Sep’16 have been compiled and submitted to RBI. The Bank is confident of complying with the timelines prescribed by RBI for implementation of INDAS.

19. Previous year’s figures have been re-grouped / re-classified / re-cast wherever necessary to conform to current year’s classification.

20. Cash flow has been prepared using Indirect method.


Mar 31, 2014

1) CONTINGENT LIABILITIES AND PROVISIONS:

1. A provision is recognised when there is an obligation as a result of past event if 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 their 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.

2. Transactions in Government securities and others which were pending for settlement on the balance sheet date are shown as off balance sheet items under contingent assets and liabilities head.

2) Cash and cash equivalents in the cash flow statement comprise cash and balances with RBI and balances with banks and money at call and short notice.

3) The Bank has followed the same accounting policies as in the previous year''s subject to regulatory Changes, if any.

1. Reconciliation of entries outstanding as on 31.03.2014 in the inter-branch and other accounts has been drawn. Matching of entries outstanding in inter-branch and inter-bank accounts including balances in drafts accounts, suspense accounts, branch adjustment accounts, clearing transactions, funds transfers, balances pertaining to dividends / interest / refund orders paid / payable accounts, advances paid for acquisition of assets, etc. is complete upto 31.12.2013 and is under progress for the remaining period. In the opinion of the Bank, consequential effect of the above on the revenue / assets / liabilities is not material.

2. In respect of certain premises acquired by the Bank having written down value of Rs.5.43 crore, (previous year Rs.6.03 crore) documentation / registration are yet to be completed pending legal or other formalities.

3. In the case of un-audited branches, the returns / classification of advances as reported by the concerned branches have been adopted.

4. Claims pending and to be preferred with ECGCI Limited amounting to Rs.205.73 crore (previous year Rs.17.36 crore) have been considered as realisable for the purpose of computing provisions.

5. No provision other than those made, have been considered necessary by the Management in respect of disputed tax liabilities in view of the judgements in favour of the Bank. Further, certain deductions have been considered while working out tax provisions in respect of some claims under Income Tax Act based on the legal opinions obtained.

RBI circular DBOD.BP/BC.No. 41/21.04.141/2013-14 dated Aug 23, 2013 on "Investment Portfolio of Banks - Classification, Valuation and Provisioning" interalia provides Banks an option to distribute the net depreciation on the entire Available for Sale (AFS) and Held for Trading (HFT) portfolios on each of the valuation dates in the current financial year 2013-14, in equal instalments. The Bank has fully provided for the depreciation on the AFS and HFT portfolios as on 31.03.2014.

i) Disclosures on risk exposure in derivatives

a) Qualitative Disclosure

Bank has put in place a comprehensive derivative policy for undertaking derivative transactions for hedging, trading and servicing customers'' purpose as per RBI guidelines duly approved by the Board. The policy lays down the type, scope and usage with appropriate limits for derivative transactions. From the view point of operational efficiency and risk oversight the Derivatives desk is segregated into Front Office, Mid Office and Back Office with clear segregation of portfolio. The derivative hedges are continuously monitored for effective performance as per laid down policy and corrective measures are taken for mitigating the risk.

d) In respect of the advances restructured under the Prudential Guidelines of the Reserve Bank of India dated 27th August 2008 and the subsequent clarifications / guidelines issued from time to time in this respect, the Bank has provided a sum of Rs.84.42 Crores (previous year Rs. 81.36 Crores) during the year as diminution in the fair value of advances on account of such restructuring which in the Bank''s opinion is considered adequate on such restructured advances. The full implementation of the conditions laid down for restructuring in the said Circular are being complied with.

PRUDENTIAL EXPOSURE CEILING: 15% 5% [subject to compliance of Conditions required under "Exceptional circumstances"] ; [Rs.1019.59 crores Rs.339.86 crores i.e., Rs.1359.45 crores from April 2013 to November 2013 ; and Rs.1073.25 crores Rs.357.75 crores i.e, Rs.1431.00 crores from December 2013 to March 2014 ]

The Board of Directors has accorded approval under the guidelines on "Prudential Exposure Norms", upon compliance of conditions relating to "Exceptional Circumstances" vide Board Resolution No.02/2013 dated 01.03.2013. However, there has been no utilization of the limit from June 2013 to February 2014 and the utilization during April 2013, May 2013 and March 2014 is within the Prudential Exposure Norms.

ii) Overseas Assets, NPAs and Revenue : NIL

iii) Provision coverage ratio (PCR): Provision Coverage ratio as of 31.03.2014 is 64.05% (previous year 68.31%) as per RBI guidelines. However, the Bank has achieved the PCR as envisaged in RBI circular DBOD. No.BP.BC.87-21.048/2010-11 dt.21.04.2011.

iv) Unsecured advances: The Bank has no unsecured advances wherein intangible securities have been taken as collateral securities.

v) During the year 2013 - 2014, the bank had issued 211 letters of comfort amounting to USD 13,07,85,850.77 covering import of goods into India. These letters of comfort have been issued after due assessment of its financial impact on the bank and with the approval of the competent authorities. As on the date of the balance sheet 81 letters of comfort amounting to USD 3,83,48,781.36 (approximately Rs.229.78 crores @ USD 1 = Rs.59.92) are outstanding which, in the opinion of the management, will not have any significant impact on the bank''s financial position.

vi) The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week of the preceding month, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.

vii) During the year 2010-11, the Reserve Bank of India has issued a circular no.DBOD.BP.BC.80/21.04.018/ 2010-11 on Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits - Prudential Regulatory Treatment, dated 9th February, 2011. In accordance with the provisions of the said Circular, Rs.596 crores identified in the year 2010-11 is being amortised over a period of five years. Accordingly, Rs.119 crores (representing one-fifth ofRs.596 crores) has been charged to the Profit and Loss Account. In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward is Rs.119 crores.

The above has resulted in decrease in the profit of the bank for the current year by Rs.119 crores and corresponding increase in accumulated profits of the Bank by Rs.119 crores with corresponding increase in the Current Assets of the Bank by the same amount.

viii) The Bank has identified the following as related party as per AS-18 on Related Party Disclosures

a) Key Management Personnel :

1) Shri H.S. Upendra Kamath, Chairman & Managing Director

2) Shri V Kannan, Chairman & Managing Director

3) Shri K.R. Shenoy, Executive Director

4) Shri B.S. Rama Rao, Executive Director

b) There has been no transaction with the relatives of the Key Management Personnel during the year.

ix) Leases (AS -19)

a) Lease rent paid for operating leases are recognized as an expense in the Profit & Loss Account in the year to which it relates.

b) Future Lease Rent Payable for operating lease :

c) Future lease rents and escalation in the rent are determined on the basis of agreed terms.

d) At the expiry of initial lease term, generally the Bank has an option to extend the lease for a further pre-determined period.

e) The Bank does not have any financial lease.

b) Pursuant to Reserve Bank of India''s (RBI''s) Circular No. DBOD No.BP.BC.77/21.04.018/2013-14 dated 20th December 2013, the Bank has created Deferred Tax Liability on the Special Reserve under section 36(1)(viii) of the Income-tax Act, 1961. As required by the said RBI Circular, the expenditure, amounting to Rs. 157. 62 crores due to the creation of DTL on Special Reserve as at March 31, 2013, not previously charged to the Profit and Loss Account, has now been adjusted directly from the accumulated profits as on 31.03.2013. Had this amount been charged to the Profit & Loss Account in accordance with the generally accepted accounting principles in India, the amount of Profit for year would have been lower to that extent.

ix) In the opinion of the Management, there is no material impairment of any of the Fixed Assets of the Bank as per Accounting Standard 28 - Impairment of Assets.

4. In Dec''13 the Bank has issued 5,89,34,464 equity shares of Rs.10 each to Government of India at a premium of Rs.32.42 per share on preferential basis. In the month of Feb''14, the Bank has converted the Perpetual Non- Cumulative Preference Share Capital ofRs.1200 crores held by Government of India into equity share capital at a premium of Rs. 29.39 Per share with face value ofRs.10/- each.

5. During the financial year 2013-14, bank has been subjected to a penalty of Rs.2 crore by RBI vide letter no. 735/ 27.01002/2013-14 dated 12th July 2013 issued under Section 46(4)(i) of the Banking Regulation Act 1949 for violation of its provision which was paid to RBI on 19.07.2013. Also penalty of Rs.2.26 crores was levied by RBI on account of shortage of cash in one of its currency chests which was paid on 11.03.2014.

6. The Bank noted excess interest charged in certain advance accounts. On prudential basis, the interest income has been reduced by Rs.7.00 crore.

7. The Bank has drawn down a sum of Rs.Nil/- (Previous year Rs.5025/-) from General Reserve on account of payment of Lapsed Demand Drafts which were taken to general reserve earlier as per RBI approval.

8. Bank is not having adequate information in respect of Suppliers/Service providers covered under Micro, Small and Medium Enterprises Development Act, 2006. In view of this, information required to be disclosed u/s 22 of the said Act is not given.

9. Previous year''s figures have been re-grouped / re-classified / re-cast wherever necessary to conform to current year''s classification.


Mar 31, 2013

1. Reconciliation of entries outstanding ason 31.03.2013 in the inter-branch and other accounts has been drawn. Matching of entries outstanding in inter-branch and inter-bank accounts including balances in drafts accounts, suspense accounts, branch adjustment accounts, clearing transactions, funds transfers, telegraphic transfers, balances pertaining to dividends / interest / refund orders paid / payable accounts, advances paid for acquisition of assets, etc. is complete upto 31.12.2012 and is under progress for the remaining period. In the opinion ofthe Bank, consequential effect of the above on the revenue / assets / liabilities is not material.

2. In respect of certain premises acquired by the Bank having written down value ofRs.6.03 crore, (previous yearRs.6.70 crore) documentation / registration are yet to be completed pending legal or other formalities.

3. In the case of un-audited branches, the returns / classification of advances as reported by the concerned branches have been adopted.

4. Claims pending and to be preferred with ECGCI Limited amounting to f 17.36 crore (previous yearRs.14.05 crore) have been considered as realisable for the purpose of computing provisions.

5. No provision other than those made, have been considered necessary by the Management in respect of disputed tax liabilities in view of the judgements in favour of the Bank. Further, certain deductions have been considered while working out tax provisions in respect of some claims under Income Tax Act based on the legal opinions obtained.

i) Disclosures on risk exposure in derivatives a) Qualitative Disclosure

Bank has put in place a comprehensive derivative policy for undertaking derivative transactions for hedging, trading and servicing customers'' purpose as per RBI guidelines duly approved by the Board. The policy lays down the type, scope and usage with appropriate limits for derivative transactions. From the view point of operational efficiency and risk oversight the Derivatives desk is segregated into Front Office, Mid Office and Back Office with clear segregation of portfolio. The derivative hedges are continuously monitored for effective performance as per laid down policy and corrective measures are taken for mitigating the risk.

a) In respect of the advances restructured under the Prudential Guidelines of the Reserve Bank of India dated 27th----- August 2008 and the subsequent clarifications / guidelines issued from time to time in this respect, the Bank has provided a sum ofRs.128.10 Crores (previous yearRs.46.74 Crores) as diminution in the fair value of advances on account of such restructuring which in the Bank''s opinion is considered adequate in view of revision in rate of interest on such restructured advances. The full implementation of the conditions laid down for restructuring in the said Circular are being complied with.

PRUDENTIAL EXPOSURE CEILING: 20%; [f 1341.56 crores]

Note: The exposure falls under "Infrastructure Category”, where permissible exposure level is 20% of Capital Funds of the Bank, under PE Guidelines of RBI. Out of the Balance Outstanding ofRs.1291.95 crore,Rs.11.80 crore pertains to the monthly interest debited for the month of March 2013. Out of total approved loan off 1465.00 crores, f 55.00 crore sanctioned on 02.03.2013 vide HLCC-192/2013 has not been availed as on 31.03.2013. The Exposure excluding interest off 11.80 crore debited for March 2013 works out toRs.1335.15 crore. Hence, the exposure has not exceeded the permissible level.

ii) The Bank has not made any financing for margin trading and also not securitised any assets during the year.

iii) Overseas Assets, NPAs and Revenue : NIL

iv) Provision coverage ratio (PCR): Coverage ratio as of 31.03.2013 is 68.31% (previous year 62.40%) as per RBI guidelines. However, the Bank has achieved the PCR as envisaged in RBI circular DBOD. No.BP.BC.87-21.048/2010-11 dt.21.04.2011.

v) Unsecured advances: The Bank has no unsecured advances wherein intangible securities have been taken as collateral securities.

During the year 2012 - 2013, the bank had issued 168 letters of comfort amounting to USD 7,50,23,952.53 covering import of goods into India. These letters of comfort have been issued after due assessment of its financial impact on the bank and with the approval of the competent authority. As on the date of the balance sheet 61 letters of comfort amounting to USD 2,41,62,535 (approximatelyRs.131.17 crores @ USD 1 = f 54.2850) are outstanding which, in the opinion ofthe management, will not have any significant impact on the bank''s financial position.

6. Compliance with information to be disclosed under Accounting Standards notified by the Ministry of Corporate Affairs under Companies(Accounting Standards) Rules, 2006:

i) There were no material prior period income/ expenditure required to be disclosed as per AS -5.

ii) In terms of accounting policy No.9 ofthe Bank, some items are recognised on cash basis. However, the management is of the view that since the amount involved is not material, it does not require any disclosure under AS-9.

iii) The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week of the preceding month, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.

During the year 2010-11, the Reserve Bank of India has issued a circular no.DBOD.BP.BC.80/21.04.018/2010-11 on Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits - Prudential Regulatory Treatment, dated 9th February, 2011. In accordance with the provisions ofthe said Circular, Rs. 596 crores identified in the year 2010-11 is being amortised over a period of five years. Accordingly, Rs. 119 crores (representing one-fifth of Rs. 596 crores) has been charged to the Profit and Loss Account. In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward is Rs. 238 crores.

The above has resulted in decrease in the profit of the bank for the current year by Rs. 119 crores and corresponding increase in accumulated profits ofthe Bank by Rs. 238 crores with corresponding increase in the Current Assets ofthe Bank by the same amount.

# For the purpose of segment reporting in terms of AS-17 and as prescribed in RBI guidelines, the business of the Bank has been classified into four segments i.e., a) Treasury Operations (b) Corporate/Wholesale Banking, (c) Retail Banking and (d)Other Banking Operations

# Since the Bank does not have any Overseas branch, reporting under geographic segment is not applicable.

# Expenses wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue.

# Assets/liabilities wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue/segments assets ratio.

The above information has been compiled based on data available at Head Office.

vii) The Bank has identified the following as related party as per AS-18 on Related Party Disclosures

a) Key Management Personnel :

1) Shri H.S. Upendra Kamath, Chairman & Managing Director

2) Smt Shubhalakshmi Panse, Executive Director

3) Shri K.R. Shenoy, Executive Director

ix) Accounting for Taxes on Income (AS-22)

The Bank has accounted for Taxes on Income in compliance with Accounting Standard 22 - "Accounting for Taxes on Income” issued by the ICAI. Accordingly, deferred tax assets and liabilities are recognised.

7. During the financial year2012-13, bank has not been subjected to any penalty for contravention or non- compliance with any requirement of the Banking Regulation Act, 1949, or any rules or conditions specified by the Reserve Bank of India in accordance with the said Act, except one instance during the financial year a penalty ofRs.50,000.00 was paid to RBI for SGL bouncing on 09.11.2012 on account of lending securities under Non-Standard repo.

8. Sale of Securities under HTM Category:

The Bank has sold and transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. As per the prudential guidelines of RBI, the 5% threshold referred above did not include onetime transfer of securities to/from HTM category and sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI.

The total Book Value and the Market Value of SLR securities held under HTM category as on 31.03.2013 is Rs. 20,199.27 Cr and Rs. 19,878.86 Cr respectively. The excess of book value over market value of SLR securities under HTM category forwhich provision is not made is Rs. 320.41 Cr as on Mar 31, 2013.

All SLR securities held under HTM have been valued based on the FIMMDA published prices as on Mar 31, 2013.

9. The bank has drawn down a sum of Rs. 5025/- (Previous year Rs. 249752/-) from General Reserve on account of payment of Lapsed Demand Drafts which were taken to general reserve earlier as per RBI approval.

10. Bank is not having adequate information in respect of Suppliers/Service providers covered under Micro, Small and- Medium Enterprises Development Act, 2006. In view of this, information required to be disclosed u/s 22 of the said Act is not given.

11. Previous year''s figures have been re-grouped / re-classified / re-cast wherever necessary to conform to current year''s classification.


Mar 31, 2012

1. Reconciliation of entries outstanding as on 31.03.2012 in the inter-branch and other accounts has been drawn. Matching of entries outstanding in inter-branch and inter-bank accounts including balances in drafts accounts, suspense accounts, branch adjustment accounts, clearing transactions, funds transfers, telegraphic transfers, balances pertaining to dividends / interest/ refund orders paid / payable accounts, advances paid for acquisition of assets, etc. is complete upto 31.12.2011 and is under progress for the remaining period. In the opinion of the Bank, consequential effect of the above on the revenue / assets / liabilities is not material.

2. In respect of certain premises acquired by the Bank having written down value of Rs 6.70 crore, (previous year Rs 7.44 crore) documentation / registration are yet to be completed pending legal or other formalities.

3. In the case of un-audited branches, the returns / classification of advances as reported by the concerned branches have been adopted.

4. Claims pending and to be preferred with ECGCI Limited amounting to Rs 14.05 crore (previous year Rs 53.78 crore) have been considered as realisable for the purpose of computing provisions.

5. No provision other than those made, have been considered necessary by the Management in respect of disputed tax liabilities in view of the judgements in favour of the Bank. Further, certain deductions have been considered while working out tax provisions in respect of some claims under Income Tax Act based on the legal opinions obtained.

Note: (1) *Total under column 3 should tally with the total of Investments included under the following categories in Schedule 8 to the balance sheet:

a. Shares

b. Debentures & Bonds

c. Subsidiaries/joint ventures

d. Others

(2) Amounts reported under columns 4, 5, 6 and 7 above may not be mutually exclusive.

** Includes the investment under RIDF of f 2477.70 Cr.

Note: (1) *Total under column 3 should tally with the total of Investments included under the following categories in Schedule 8 to the balance sheet:

a. Shares

b. Debentures & Bonds

c. Subsidiaries/joint ventures

d. Others

(2) Amounts reported under columns 4, 5, 6 and 7 above may not be mutually exclusive.

** Includes the investment under RIDF off 2141.01 Cr.

1) Interest Rate Swaps were undertaken for the purpose of hedging interest rate risk on assets/liabilities and for trading purpose.

2. The terms of swaps are to receive fixed interest rate against floating interest rate or vice versa.

3. The counterparties for the swaps are banks and the exposure with each bank is within the approved credit exposure limits.

i) Disclosures on risk exposure in derivatives a) Qualitative Disclosure

Bank has put in place a comprehensive derivative policy for undertaking derivative transactions for hedging, trading and servicing customers' purpose as per RBI guidelines duly approved by the Board. The policy lays down the type, scope and usage with appropriate limits for derivative transactions. From the view point of operational efficiency and risk oversight the Derivatives desk is segregated into Front Office, Mid Office and Back Office with clear segregation of portfolio. The derivative hedges are continuously monitored for effective performance as per laid down policy and corrective measures are taken for mitigating the risk.

a) In respect of the advances restructured under the Prudential Guidelines of the Reserve Bank of India dated 27th August 2008 and the subsequent clarifications / guidelines issued from time to time in this respect, the Bank has provided a sum of Rs 46.74 Crores (previous year Rs 7.31 Crores) as diminution in the fair value of advances on account of such restructuring which in the Bank's opinion is considered adequate in view of revision in rate of interest on such restructured advances. The full implementation of the conditions laid down for restructuring in the said Circular are being complied with.

Assets and Liabilities are classified as per the guidelines issued by the Reserve Bank of India, compiled by the management and relied upon by the auditors.

* Figures are broadly net of provision ** Borrowings in India

The net funded exposure of the Bank in respect of foreign exchange transactions with each country is within 1% of the total assets of the Bank and hence no provision is required to be made as per the Reserve Bank of India Circular DBOD. BP.BC.71/21.04.103/2002-03 dated 19.02.2003 read with DBOD.BP.BC.96/21.04.103/2003-04 dated 17.06.2004.

PRUDENTIAL EXPOSURE CEILING: 15% 5% [subject to compliance of Conditions required under "Exceptional circumstances"]; [Rs 939.50 Crores 313.17 crores; i.e., Rs 1252.67 crores]

The Board of Directors has accorded approval under the guidelines on "Prudential Exposure Norms", upon compliance of conditions relating to "Exceptional Circumstances".

Note: Out of total limit approved of Rs 1260.00 crores, some of the term loans to KPTCL are approved for laying new transmission lines, falling under "Infrastructure Category", where permissible exposure level is 20% of Capital Funds of the Bank, under PE Guidelines of RBI. However, as, not all the exposure to KPTCL is eligible to be classified under "Infrastructure Category", the same are reported as the guidelines of RBI on disclosure requirements

ii) The Bank has not made any financing for margin trading and also not securitised any assets during the year.

iii) Provision coverage ratio: Coverage ratio as of 31.03.2012 is 62.40% (previous year 63.69%) as per RBI guidelines. However, the Bank has achieved the PCR as envisaged in RBI circular DBOD. No.BP.BC.87-21.048/2010-11 dt.21.04.2011.

iv) Unsecured advances : The Bank has no unsecured advances wherein intangible securities have been taken as collateral securities.

During the year 2011 - 2012, the bank had issued 139 letters of comfort amounting to USD 91,527,882.65 covering import of goods into India. These letters of comfort have been issued after due assessment of its financial impact on the bank and with the approval of the competent authority. As on the date of the balance sheet 74 letters of comfort amounting to USD 51.02 million (approximately Rs 259.56 crores @ USD 1 = Rs 50.875) are outstanding which, in the opinion of the management, will not have any significant impact on the bank's financial position.

6. Compliance with information to be disclosed under Accounting Standards notified by the Ministry of Corporate Affairs under Companies(Accounting Standards) Rules, 2006:

i) There were no material prior period income/ expenditure required to be disclosed as per AS -5.

ii) In terms of accounting policy No.9 of the Bank, some items are recognised on cash basis. However, the management is of the view that since the amount involved is not material, it does not require any disclosure under AS-9.

iii) The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week of the preceding month, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.

iv) The following information is disclosed under AS-15.

During the year 2010-11, the Reserve Bank of India has issued a circular no.DBOD.BP.BC.80/21.04.018/2010-11 on Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits - Prudential Regulatory Treatment, dated 9th February, 2011. In accordance with the provisions of the said Circular, Rs.596 crores identified in the year 2010-11 is being amortised over a period of five years. Accordingly, Rs 119 crores (representing one-fifth of Rs 596 crores) has been charged to the Profit and Loss Account. In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward is Rs 357 crores.

The above has resulted in decrease in the profit of the bank for the current year by Rs 119 crores and corresponding increase in accumulated profits of the Bank by Rs 357 crores with corresponding increase in the Current Assets of the Bank by the same amount.

# For the purpose of segment reporting in terms of AS-17 and as prescribed in RBI guidelines, the business of the Bank has been classified into four segments i.e., a) Treasury Operations (b) Corporate/Wholesale Banking, (c) Retail Banking and (d)Other Banking Operations

# Since the Bank does not have any Overseas branch, reporting under geographic segment is not applicable.

# Expenses wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue.

# Assets/liabilities wherever directly related to segments have been accordingly allocated to segments and wherever not directly related have been allocated on the basis of segment revenue/segments assets ratio. The above information has been compiled based on data available at Head Office.

vii) The Bank has identified the following as related party as per AS-18 on Related Party

a) Key Management Personnel :

1) Shri H.S. Upendra Kamath, Chairman & Managing Director

2) Smt Shubhalakshmi Panse, Executive Director

viii) Earning Per Share(AS-20)

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on "Earnings per Share". Basic earnings per share for the period is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year.

ix) Accounting for Taxes on Income (AS-22)

The Bank has accounted for Taxes on Income in compliance with Accounting Standard 22 - "Accounting for Taxes on Income" issued by the ICAI. Accordingly, deferred tax assets and liabilities are recognised.

x) In the opinion of the Management, there is no material impairment of any of the Fixed Assets of the Bank as per Accounting Standard 28 - Impairment of Assets.

7. Reserve Bank of India has not imposed any penalty during the year.

Note: Floating provision has been utilised for reckoning the provision required in respect of substandard advances.

8. The bank has drawn down a sum of Rs 0.02 Crore from General Reserve on account of Lapsed Demand Drafts

9. Bank is not having adequate information in respect of Suppliers/Service providers covered under Micro, Small Medium Enterprises Development Act, 2006. In view of this, information required to be disclosed u/s 22 of the said Act is not given.

10. Previous year's figures have been re-grouped / re-classified / re-cast wherever necessary to conform to current year's classification.


Mar 31, 2011

1. Reconciliation of entries outstanding as on 31.03.2011 in the inter-branch and other accounts has been drawn. Matching of entries outstanding in inter-branch and inter-bank accounts including balances with foreign banks and Reserve Bank of India, drafts accounts, suspense accounts, branch adjustment accounts, clearing transactions, funds transfers, telegraphic transfers, balances pertaining to dividends / interest / refund orders paid / payable accounts, advances paid for acquisition of assets, etc. is complete upto 31.12.2010 and is under progress for the remaining period. In the opinion of the Bank, consequential effect of the above on the revenue / assets / liabilities is not material.

2. In respect of certain premises acquired by the Bank having written down value of Rs. 7.44 crore, (previous year Rs. 8.27 crore) documentation / registration are yet to be completed pending legal or other formalities.

3. In the case of un-audited branches, the returns / classification of advances as reported by the concerned branches have been adopted.

4. Claims pending and to be preferred with ECGCI Limited amounting to Rs. 53.78 crore (previous year Rs. 4.14 crore) have been considered as realisable for the purpose of computing provisions.

5. No provision has been considered necessary by the Management in respect of disputed tax liabilities in view of the judgements in favour of the Bank. Further, certain deductions have been considered while working out tax provisions in respect of some claims under Income Tax Act based on the legal opinions obtained.

vii) Disclosures on risk exposure in derivatives

a) Qualitative Disclosure

Bank has put in place a comprehensive derivative policy for undertaking derivative transactions for hedging, trading and servicing customers purpose as per RBI guidelines duly approved by the Board. The policy lays down the type, scope and usage with appropriate limits for derivative transactions. From the view point of operational efficiency and risk oversight the Derivatives desk is segregated into Front Office, Mid Office and Back Office with clear segregation of portfolio. The derivative hedges are continuously monitored for effective performance as per laid down policy and corrective measures are taken for mitigating the risk.

d) In respect of the advances restructured under the Prudential Guidelines of the Reserve Bank of India dated 27th August 2008 and the subsequent clarifications / guidelines issued from time to time in this respect, the Bank ha; provided a sum of Rs. 7.31 crore (previous year Rs. 13.65 crore) as diminution in the fair value of advances on account o such restructuring which in the Banks opinion is considered adequate in view of upward revision in rate of interest oi such restructured advances. The full implementation of the conditions laid down for restructuring in the said Circula are being complied with.

xiii) The Bank has not made any financing for margin trading and also not securitised any assets during the year.

xvii) Overseas Assets, NPAs and Revenue : NIL

xix) Provision coverage ratio: Coverage ratio as of 31.03.02011 is 63.69% (previous year 64.24%) as per RBI guidelines. However, the Bank has achieved the PCR as envisaged in RBI circular DBOD. No.BP.BC.87-21.048/2010-11 dt.21.04.2011

xx) Unsecured advances : The Bank has no unsecured advances wherein intangible securities have been taken as collateral securities.

During the year 2010 - 2011, the bank had issued 74 letters of comfort amounting to USD 2,220,619,739.72 covering import of goods into india. These letters of comfort have been issued after due assessment of its financial impact on the bank and with the approval of the competent authority. As on the date of the balance sheet 34 letters of comfort amounting to USD 24.06 million (approximately Rs. 108.39 crore @ USD 1 = Rs. 45.01) are outstanding which, in the opinion of the management, will not have any significant impact on the banks financial position

6. Compliance with Accounting Standards

i) There were no material prior period income/ expenditure required to be disclosed as per "AS -5".

ii) In terms of accounting policy No.9 of the bank, some items are recognised on cash basis. However, the management is of the view that since the amount involved is not material, it does not require any disclosure under "AS-9".

iii) The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week of the preceding month, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.

iv) The following information is disclosed in terms of Accounting Standards notified by Ministry of Corporate Affairs under the Companies (Accounting Standards) Rules, 2006.

During the year, the Bank reopened the pension option for such of its employees who had not opted for the pension scheme earlier. As a result of which in respect of 5559 number of employees in service, the Bank has incurred a liability of Rs. 473 crore.

Further, during the year, the limit of gratuity payable to the employees of the banks was also enhanced pursuant to the amendment to the Payment of Gratuity Act, 1972. As a result, the gratuity liability of the Bank has increased by Rs. 123 crore.

In terms of the requirements of the Accounting Standard (AS) 15, Employee Benefits, the entire amount of Rs. 596 crore is required to be charged to the Profit and Loss Account.

However, the Reserve Bank of India has issued a circular no.DBOD.BP.BC.80/21.04.018/2010-11 on Re-opening of Pension Option to Employees of Public Sector Banks and Enhancement in Gratuity Limits - Prudential Regulatory

Treatment, dated 9th February, 2011. In accordance with the provisions of the said Circular, the Bank would amortize the amount of Rs. 596 over a period of five years. Accordingly, Rs. 119 crore (representing one-fifth of Rs. 596 crore) has been charged to the Profit and Loss Account. In terms of the requirements of the aforesaid RBI circular, the balance amount carried forward ie., Rs.477 crore include any employees relating to separated / retired employees.

Had such a circular not been issued by RBI, the profit of the Bank would have been lower by Rs.477 crore pursuant to application of the requirement of AS-15

vii) The Bank has identified the following as related party as per AS-18 on Related Party Disclosures :

a) Key Management Personnel :

1) Shri Albert Tauro, Chairman & Managing Director

2) Smt Shubhalakshmi Panse, Executive Director

viii) Earning Per Share

The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on "Earnings per Share". Basic earnings per share for the period is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year.

ix) Accounting for Taxes on Income

The Bank has accounted for Taxes on Income in compliance with Accounting Standard 22 - "Accounting for Taxes on Income" issued by the ICAI. Accordingly, deferred tax assets and liabilities are recognised.

x) In the opinion of the Management, there is no material impairment of any of the Fixed Assets of the Bank as per Accounting Standard 28 - Impairment of Assets.

7. Reserve Bank of India has not imposed any penalty during the year

8. The bank has draw down a sum of Rs. 0.003 crore from General Reserve on account of Lapsed Demand Drafts.

9. Bank is not having adequate information in respect of Suppliers/Service providers covered under Micro, Small Medium Enterprises Development Act, 2006. In view of this, information required to be disclosed u/s 22 of the said Act is not given.

10. Previous years figures have been re-grouped / re-classified / re-cast wherever necessary to conform to current years classification.

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