Mar 31, 2023
17. Significant accounting policies and notes forming part of the accounts for the year ended March 31, 2023
YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also, the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation.
The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines and clarifications issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013 read together with Companies (Accounting Standards) Rules, 2021 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines.
The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The impact of any revision in these estimates is recognised prospectively from the period of change.
While India is emerging from COVID-19 pandemic, the extent to which any new wave of COVID-19 will impact the Bank''s results will depend on ongoing as well as future developments, inter-alia including, the impacts of actions of governments and other authorities to contain its spread or mitigate its impact.
Significant accounting policies17.4.1 Revenue recognition
Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.
⢠Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognized as per the prudential norms of the RBI. Penal Interest for covenant breach is recognized upon certainty of its realization. Late payment penalty on retail loans is recognized on cash basis.
⢠Dividend income is recognized when the right to receive payment is established.
⢠Commission on Guarantees and Letters of Credit (''LC'') issued by the Bank is recognized as income over the period of the Guarantee and LC respectively.
⢠Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.
⢠In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis.
⢠Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.
⢠Facility fees and loan processing fees are recognised when due and realizable.
⢠Other fees and commission are accounted for as and when they became due.
⢠Gain / loss on sell down of loans is recognised in line with the extant RBI guidelines"
Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DOR. MRG.42/21.04.141/2021-22 dated August 25, 2021.
The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorized as "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') or "Held to Maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) debentures and bonds (e) subsidiaries and/or joint ventures and (f) others.
Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines.
Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity and investment in equity shares of subsidiaries are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.
c) Transfer between categories
Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price/book value and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.
On transfer from HTM to AFS/HFT category, securities are immediately revalued and resultant depreciation, if any, is provided.
Transfer of investments from AFS to HFT or vice- a- versa (in exceptional circumstances and with the approval of the Board of Directors/ Asset Liability Committee (ALCO) /Investment Committee) is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.
Investments categorized under AFS and HFT categories are marked to market (MTM) on periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule
8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.
Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines.
Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of premium on investments in the HTM category is deducted from interest income in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Profit/loss on sale of investments in the ''Held to Maturity'' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve.
Equity investments in subsidiaries/joint ventures are classified under ''Held to Maturity''. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made.
Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.
Pass Through Certificates purchased for priority sector lending requirements are valued in accordance with RBI guidelines.
The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the recognized stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd.(FBIL).
The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA/FBIL.
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale which is categorized under HFT category and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognised in the Profit and Loss account.
Investments in unquoted Alternative Investment Funds (AIF)/Venture Capital Funds (VCF) are categorised, at the discretion of the Bank, under HTM category for an initial period of three years and valued at cost during this period. Such investments are transferred to the AFS category after the said period of three years. Investments in AFS category are valued at NAV shown by the AIF/VCF as per the financial statements. The VCF/AIFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF/AIF.
Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '' 1 per company, as per relevant RBI guidelines.
For stressed loans transferred to Asset Reconstruction Company (ARC) where the consideration in the form of security receipts is lower than the net book value (NBV) at the time of transfer, the shortfall is debited to the Profit and Loss Account and spread equally over the financial year. The realized profit, where the cash recovery exceeds the NBV of the stressed loans, the same is credited to Profit and Loss Account. For stressed loans where the consideration received was higher than the NBV at the time of transfer but the cash recovery is lower than the NBV, such excess amount is not reversed in the Profit and Loss Account and the Bank continues to carry forward the same as provision against the security receipts. In effect, the value of security receipts is reflected in a manner that the value of security receipts is not higher than the NBV of the loans transferred to ARC. The provisioning requirements is as per the extant RBI guidelines applied on each reporting date, taking into account the principle that there should be no provisioning arbitrage between the provisioning on security receipts vis-a-vis the provisioning requirements on the underlying stressed loans, had it stayed in the books.
Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.
Investment in listed instruments of Real Estate Investment Trust (REIT)/Infrastructure Investment Trust (INVIT) is valued at closing price on a recognized stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer.
Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.
Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN), Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability.
Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.
Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (''GOI'') is valued based on FBIL valuation.
Equity shares in the Bank''s demat account, acquired through exercise of pledge, is not accounted as investments. Upon sale of the pledged shares, the proceeds are utilized to offset the borrower''s liability.
Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss account until received in cash.
e) Profit/Loss on sale of Investments
Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.
f) Accounting for repos / reverse repos/targeted long-term repo operations (TLTRO)
Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.
In compliance with RBI circular RBI/2022-23/55 DOR.ACC.REC.No.37/21.04.018/2022-23 dated May 19, 2022, reverse repos with banks and other institutions having original tenors more than 14 days classified under Schedule 9 - Advances
g) Investment fluctuation reserve (IFR)
With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, advised all banks to create an IFR with effect from the FY 2018-19.
Transfer to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations; until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis.
17.4.3 Advances Accounting and classification
Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued, direct assignment and bills rediscounted.
Assets transferred through direct assignment of cash flows are de-recognised in the Balance Sheet when they are sold (true sale criteria being fully met with) and consideration is received by the Bank.
Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing advances are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. In relation to non-performing derivative contracts, as per the extant RBI guidelines, the Bank makes provision for the entire amount of overdue and future receivables relating to positive marked to market value of the said derivative contracts.
The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower''s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on RBI guidelines is not accounted as restructuring of loan. The RBI guidelines on ''Resolution Framework for COVID-19-related Stress'' provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured.
In respect of loans reported as fraud to RBI the entire amount is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been delay in reporting the fraud to the RBI or which are classified as loss accounts, the entire amount is provided immediately.
The Bank makes additional provisions as per RBI guidelines for the cases where viable resolution plan has not been implemented within timelines prescribed by RBI, from the date of default. These additional provisions are written back on satisfying the conditions for reversal as per RBI guidelines.
As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The general provision also includes provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Further, provision requirement under various Restructure scheme of RBI also forms part of general provision. Such provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''.
In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.
As per requirement of RBI guideline, any interest accrued and due if converted into a loan (i.e. Funded Interest Term Loan) then such income will be reversed and will be recognised on cash basis.
Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under Provisions and Contingencies.
In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines.
The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately High Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100%.
17.4.4 Transactions involving foreign exchange
Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.
Premia/discounts on foreign exchange swaps that are used to hedge risks arising from foreign currency assets and liabilities are amortized over the life of the swap.
Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using risk-free rates (''RFRs'')/SWAP curves of the respective currencies with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (''MTM'')) on a gross basis.
Financial conduct authority (''FCA'') of the United Kingdom has phased out London interbank offered rate (''LIBOR'') on December 2021, replacing it by Alternate Reference rate (''ARR''). Libor was used by the Bank as benchmark for funded as well as Non-funded exposure. Accordingly, MIFOR (derived with LIBOR and forward premium in forex markets) has also been replaced by Modified MIFOR.
RBI vide the press release CO.FMRD.DIRD.S39/14.02.001/2021-22 on July 08, 2021 has encouraged the Banks to cease entering into new financial contracts that has reference LIBOR/MIFOR as a benchmark and instead use widely accepted ARR. Bank has started offering new transaction based on ARR curve w.e.f January 1, 2022 except existing underlying transactions linked to LIBOR/MIFOR as permissible by the regulations.
In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.
Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations.
In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations.
Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit / loss is daily settled.
The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share". Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.
Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti-dilutive.
17.4.6 Accounting for derivative transactions
Derivative transactions comprises foreign exchange contracts, forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account.
Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.
Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings are designated as cash flow hedges (effective hedges) and are measured at fair value. The corresponding gain or loss is recognised as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.
The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''.
The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ''Other Income''.
Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange.
The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdue if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.
As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.
The Bilateral Netting of Qualified Financial Contracts Act, 2020 (the Act), has been notified by the Government of India and subsequent to this the RBI through circular dated March 30, 2021 allowed netting of the Qualified Financial Contracts (QFC). In respect of derivative contracts, the Bank has computed the exposure under the Current Exposure Method for counterparty credit risk capital computation based on the guidelines issued by RBI on "Bilateral Netting of Qualified Financial Contracts - Amendments to Prudential Guidelines" dated March 30, 2021 and subsequent amendments dated March 31, 2022 and August 11,2022 for eligible counterparties.
Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price including import duties and non -refundable purchase taxes, after deducting trade discounts and rebates and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets.
Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below:
Class of asset |
Useful life of Assets as per Companies Act, 2013 |
Useful life of Assets as per the Bank''s Accounting Policy |
Owned Premises |
60 years |
60 years |
Office equipment |
5 years |
5 years |
Computer hardware1 |
6 years |
3 years |
Computer software * |
6 years |
4 years |
Vehicles1 |
8 years |
5 years |
Furniture and Fixtures |
10 years |
10 years |
Leasehold improvements to premises |
- |
Over the lease period or 9 years whichever is less. |
*As per RBI Guidelines. |
1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013.
⢠Asset costing up to '' 5,000 are fully depreciated in the year of purchase.
⢠For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank.
⢠Improvements to leasehold assets are depreciated over the remaining period of lease.
⢠Reimbursement, if any, is recognised on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset.
⢠Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset.
⢠The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.
The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount.
17.4.10 Employee benefits Employee Stock Option Scheme (''ESOS'')
The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods.
Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. RBI, vide its clarification dated August 30, 2021 on Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff, advised banks that the fair value of share-linked instruments on the date of grant should be recognized as an expense for all instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after March 31,2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model is recognized as compensation expense over the vesting period.
Options granted till March 31,2021, the Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options.
The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation.
The Bank provides for gratuity, for all employees. The Gratuity is payable to an employee as per Payment of Gratuity Act. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on independent actuarial valuation.
The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognised in the Profit and Loss account.
All employees of the Bank are covered under the Employees Provident Fund, a defined contribution plan in which both the employee and the Bank contribute monthly. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.
The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme.
Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.
Tax expense comprises of current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income-tax Act, 1961 and the rules framed there under. Deferred taxes reflect the impact of timing differences between taxable income and accounting income for the current year and reversal of timing differences of earlier years and carry forward losses. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account.
Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. Deferred tax assets in case of unabsorbed depreciation/ losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Deferred tax assets are recognized and reassessed at each balance sheet date based upon management''s judgement and appropriately adjusted to reflect the amount that is reasonably certain to be realized.
17.4.13 Provisions and contingent assets/liabilities
In accordance with Accounting Standard-29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements.
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
17.4.14 Cash and Cash equivalents
Cash and cash equivalents include cash in hand, including foreign currency notes, balances with RBI, balances with other banks and money at call and short notice.
17.4.15 Corporate social responsibility
Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account.
17.4.16 Debit and credit cards reward points
The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.
Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.
The Bank imports bullion (gold and silver bars) on a consignment basis for selling to its customers. The imports are typically based on a request of the client and are settled based on a back to back price fixing with supplier and client. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in gold borrowing and lending and the interest paid/received thereon is classified as interest expense / income respectively.
Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.
The disclosure relating to segment information is in accordance with Accounting Standard-17, Segment Reporting and as per guidelines issued by RBI from time to time.
17.4.20 Priority Sector Lending Certificates (PSLC)
The Bank, in accordance with RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLCs. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLCs is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income'' and the same is amortised on a straight line basis over the life of the certificate.
17.5 Capital 17.5.1 Equity Issue
On December 13, 2022, the Bank issued 3,696,155,702 equity shares of face value '' 2 each fully paid up for cash on a preferential basis. During the year ended March 31, 2023, the Bank has issued 3,666,651 equity shares (Previous year: 47,000 equity shares) of face value of '' 2 each pursuant to the exercise of stock options by employees under the approved stock option schemes.
Movement in Share Capital
('' in million) |
||
Share Capital |
As at March 31, 2023 |
As at March 31, 2022 |
Opening Share Capital |
50,109.90 |
50,109.81 |
Addition due to exercise of Stock Option |
7.34 |
0.09 |
Addition due to shares issued on a preferential basis |
7,392.31 |
- |
Closing Share Capital |
57,509.55 |
50,109.90 |
The Bank has accreted '' 43,488.79 million net of estimated share issue expenses '' 98.70 million during the year ended March 31,2023 (Previous year: '' 0.54 million) towards share premium.
17.5.2 Share Warrants Subscription Money
On December 13, 2022, the Bank allotted a total of 2,559,761,818 share warrants convertible into equity shares of face value '' 2 each paid up to the extent of 25% of the issue price of '' 14.82 per share warrant on a preferential basis in an equal ratio to two marquee investors totaling to '' 9,483.92 million. Each Share Warrant is convertible to one fully paid equity share of the Bank, upon exercise of the option by paying the remaining 75% within 18 months of allotment.
During FY 2022-23 and FY 2021-22 the Bank has not declared any dividend on equity shares.
Profit on sale of investments in the Held to Maturity (HTM) category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ended March 31, 2023''31.67 million (Previous year: '' 108.31 million) was transferred to Capital Reserve. The above mentioned amount also includes profit on sale of immovable property net of taxes and transfer to statutory reserve, are transferred to capital reserve account '' 31.49 million.
The Bank has transferred '' 16.79 million to Investment Reserve (Previous year: '' 34.30 million) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.
17.5.6 Cash Flow Hedge Reserve
There was Nil utilization of Cash Flow Hedge Reserve during the financial year ended March 31, 2023 (Previous year: utilised '' 8.02 million).
17.5.7 Investment Fluctuation Reserve (IFR)
The Bank has transferred '' 2,358.76 million (net of applicable taxes and transfer to statutory reserve requirements) to Investment Fluctuation Reserve during the year ended March 31,2023 (Previous year: '' 1,347.89 million).
17.5.8 Employee Stock Option Plan (ESOP) Compensation Reserves
The Bank has transferred '' 216.26 million to ESOP Compensation Reserves during the year ended March 31, 2023 (Previous year: '' 82.42 million).
17.5.9 Transfer to Revenue and other Reserves
With respect to two accounts classified as fraud the Bank has transferred '' 1,279.58 million to Revenue and other Reserves on account of unamortised fraud provision in terms of RBI circular DOR.No.STR.REC.55/21.04.048/2021-22 dated October 1, 2021 (Previous year: for three borrower accounts, unamortised fraud provision amounting to '' 4,752.16 reversed in the current year).
17.5.10 Capital Adequacy Ratio
Capital Adequacy Ratio as per RBI guidelines as at March 31,2023 and March 31, 2022 are given below:
('' in million) |
||
Sr. Particulars No. |
As at March 31, 2023 |
As at March 31, 2022 |
i) Common Equity Tier 1 capital (CET 1) (net of deductions, if any) |
324,969.38 |
268,806.67 |
ii) Additional Tier 1 capital * |
- |
- |
iii) Tier 1 capital (i ii) |
324,969.38 |
268,806.67 |
iv) Tier 2 capital |
114,265.27 |
135,137.76 |
v) Total capital (Tier 1 Tier 2) |
439,234.65 |
403,944.44 |
vi) Total Risk Weighted Assets (RWAs) |
2,450,927.75 |
2,317,659.08 |
vii) CET 1 Ratio (CET 1 as a percentage of RWAs) |
13.3% |
11.6% |
viii) Tier 1 Ratio (Tier 1 capital as a percentage of RWAs) |
13.3% |
11.6% |
ix) Tier 2 Ratio (Tier 2 capital as a percentage of RWAs) |
4.7% |
5.8% |
x) Capital to Risk Weighted Assets Ratio (CRAR) (Total Capital as a percentage of RWAs) |
17.9% |
17.4% |
xi) Leverage Ratio |
7.7% |
7.0% |
xii) Percentage of the shareholding of Government of India |
Nil |
Nil |
xiii) Amount of paid-up equity capital raised during the year |
7,399.65 |
0.09 |
xiv) Amount of non-equity Tier 1 capital raised during the year |
Nil |
Nil |
xv) Amount of non-equity Tier 2 capital raised during the year |
Nil |
Nil |
* The Bank had issued Additional Tier-I capital of '' 2,800 million in Dec 2013, however the same has not been considered for regulatory capital for FY 2023 and FY 2022 basis guidance received from RBI. |
17.5.11 Tier I and Tier II Capital
During the financial year ended March 31, 2023 and March 31, 2022, the Bank has not issued any Tier I or Tier II instruments.
On March 5, 2020, Central Government in terms of Section 45 of the Banking Regulation Act, 1949 ("BR Act") imposed moratorium on the Bank. Reserve Bank of India (''RBI'') in exercise of its powers conferred under Section 36ACA of the BR Act superseded the then Board of Directors and appointed an Administrator to manage the affairs of the Bank w.e.f. March 5, 2020. Subsequently on March 13, 2020, through the ''YES BANK Limited Reconstruction Scheme, 2020'' ("the YES BANK Reconstruction Scheme"), the relevant authorities (i.e., Central Government in consultation with RBI) decided to "reconstitute" the Bank. Further, in terms of the YES BANK Reconstruction Scheme, the Administrator was to continue in office until the Board of Directors mentioned in the YES BANK Reconstruction Scheme assumed office, i.e., on March 26, 2020.
In light of the above, the Administrator, on behalf of the Bank, consequent to the invocation of Section 45 of the BR Act, and to protect the interest of the Bank and its depositors, was constrained to write down ('' 84,150 million) two tranches of the Additional Tier 1 Bonds ("AT-1 Bonds") issued in 2016 and 2017, in compliance with the contractual covenants and applicable RBI guidelines, on March 14, 2020.
Aggrieved by the said write down of AT-1 Bonds, AT-1 Bondholders filed various writ petition(s), civil suit(s), criminal and consumer complaint(s) across India challenging the decision of the Bank to write down the AT-1 Bonds since 2020. The same are pending adjudication, save and except the batch of writ petition(s) filed before the Hon''ble Bombay High Court and one writ petition before the Hon''ble Madras High Court (as mentioned below).
Judgment dated September 30, 2020 of the Hon''ble Madras High Court ("MHC"):
The RBI Master Circular on Basel III Capital Regulations, insofar as it relates to issuance and write down of AT-1 Bonds, was challenged before the Division Bench of the Hon''ble MHC in the Writ Petition titled Piyush Bokaria Vs. Reserve Bank of India and Ors., (being W.P. (Civil) 12586 of 2020). The Hon''ble MHC vide its judgment dated September 30, 2020 upheld the validity of the RBI Master Circular in relation to the AT-1 Bonds. Additionally, with respect to the aspect of writing down of AT-1 Bonds, the Hon''ble MHC observed that one of the features of AT-1 Bonds is that they can be written-down before the equity shares bear losses and considering that the Petitioners purchased the AT -1 Bonds in the secondary market, they cannot claim to be ignorant of the terms and conditions thereof. The Hon''ble MHC also noted the loss absorbency feature of the AT-1 Bonds and dismissed the Writ Petition.
Judgment dated January 20, 2023 of the Hon''ble Bombay High Court ("BHC"):
Multiple writ petition(s) were filed before the Hon''ble BHC challenging the write down of AT-1 Bonds and the stock exchange intimation dated March 14, 2020 made in relation to the write down. The Hon''ble BHC vide its judgment dated January 20, 2023 set aside the stock exchange intimation and decision of the Bank to write down the AT-1 Bonds ("Judgment"). At the request of the Bank, the Hon''ble BHC stayed the order for a period of 6 (six) weeks.
Proceedings before the Hon''ble Supreme Court of India ("Supreme Court"):
Aggrieved by the Judgment of the Hon''ble BHC, the Bank and the RBI filed separate Special Leave Petition(s) ("SLPs") before the Hon''ble Supreme Court challenging the Judgement of the Hon''ble BHC. On March 3, 2023, the Hon''ble Supreme Court issued notice and extended the stay granted by the Hon''ble BHC, subject to the final orders of the Hon''ble Supreme Court. The SLPs are pending hearing.
Further, the Central Government has also filed a separate SLP before the Hon''ble Supreme Court challenging the Judgement of the Hon''ble BHC.
Given that the write down of the AT-1 Bonds was in accordance with the relevant regulations and as RBI and Central Government ("relevant authorities" in terms of the RBI Master Circular) have also filed SLPs challenging the Judgement of Hon''ble BHC, the Bank has estimated that there should not be any material financial impact of the matter under litigation. Upon final verdict of the Hon''ble Supreme Court, financial impact, if any, on the results and/or other financial information shall be accounted for in future reporting periods.
Separately, Securities and Exchange Board of India ("SEBI") issued a Show Cause Notice dated October 28, 2020 to the Bank and other noticee(s) (ex-employees of the Bank) alleging violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Thereafter, SEBI vide its order dated April 12, 2021 imposed penalty of '' 250 million on the Bank under Section 15 HA of Securities and Exchange Board of India Act, 1992 for the alleged mis-selling of AT-1 Bonds in the secondary market. SEBI also imposed penalties on other noticee(s). Aggrieved by the above-mentioned SEBI order, the Bank and other noticee(s) preferred separate Appeal(s) before the Hon''ble Securities Appellate Tribunal, Mumbai ("SAT"). SAT heard the Appeal(s) and the effect and operation of the SEBI order dated April 12, 2021 has been stayed. The said Appeal(s) are pending final hearing.
17.5.12 Provisions and Contingencies
The breakup of provisions of the Bank for the year ended March 31,2023 and March 31, 2022 are given below:
('' in million) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Particulars |
For the year ended March 31, 2023 |
For the year ended March 31, 2022 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for taxation |
2,455.10 |
3,696.36 |
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Provision for non performing investments# |
24,087.38 |
7,903.78 |
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Provision for standard advances#
Mar 31, 2022
17. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 202217.1 Background YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21,2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also, the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation. The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines. The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The impact of any revision in these estimates is recognised prospectively from the period of change. The outbreak of the COVID-19 pandemic had led to a nation-wide lockdown in April-May 2020. This was followed by localised lockdowns in areas with a significant number of COVID-19 cases. In FY2022, India witnessed two more waves of the COVID-19 pandemic and the re-imposition of localised/regional lock-down measures in certain parts of the country. Currently, while the number of new COVID-19 cases have reduced significantly and the Government of India has withdrawn most of the COVID-19 related restrictions, however, the extent to which the COVID-19 pandemic will continue to impact the Bank''s results will depend on ongoing as well as future developments, which are uncertain. Significant Accounting Policies17.4.1 Revenue recognition Revenue is recognised to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. ⢠Interest income is recognised in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognised as per the prudential norms of the RBI. Penal Interest for covenant breach is recognised upon certainty of its realisation. Late payment penalty on retail loans is recognised on cash basis. ⢠Dividend income is recognised when the right to receive payment is established. ⢠Commission on Guarantees and Letters of Credit (''LC'') issued by the Bank is recognised as income over the period of the Guarantee and LC respectively. ⢠Income on non-coupon bearing discounted instruments is recognised over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognised over the tenor of the instrument on yield basis. ⢠In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis. ⢠Revenue from financial advisory services is recognised in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. ⢠Facility fees and loan processing fees are recognised when due and realisable. ⢠Other fees and commission are accounted for as and when they became due. Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DOR. MRG.42/21.04.141/2021 -22 dated August 25, 2021. The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorised as "Held for trading" (''HFT''), "Available for sale" (''AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines. Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. c) Transfer between categories Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price/book value and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortised cost. On transfer from HTM to AFS / HFT category, securities are immediately revalued and resultant depreciation, if any, is provided. Transfer of investments from AFS to HFT or vice- a- versa (in exceptional circumstances and with the approval of the Board of Directors/ ALCO/Investment Committee) is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. Investments categorised under AFS and HFT categories are marked to market (MTM) on periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognised in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortisation expense of premium on investments in the HTM category is deducted from interest income in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Profit/loss on sale of investments in the ''Held to Maturity'' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Equity investments in subsidiaries/joint ventures are classified under ''Held to Maturity''. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchased for priority sector lending requirements are valued in accordance with RBI guidelines. The market/fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the recognised stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd.(FBIL). The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA / FBIL. The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale which is categorised under HFT category and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit/Loss on settlement of the short position is recognised in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF. Quoted equity shares are valued at their closing price on a recognised stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '' 1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. In case of investment in Security Receipts on or after April 01, 2017 which are backed by more than 50% of the stressed assets sold by the bank or 10% of the stressed asset sold by the bank post April 01, 2018, provision for depreciation in value is made at higher of - provisioning rate required in terms of net assets value declared by Reconstruction Company(RC)/Securitisation Company(SC) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continue in the books of the Bank. All other investments in the Security Receipts are valued as per the NAV obtained from issuing RC / SC. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Investment in listed instruments of Real Estate Investment Trust (REIT)/Infrastructure Investment Trust (INVIT) is valued at closing price on a recognised stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer. Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN) , Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability. Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertiliser bonds, UDAY bonds etc. which are directly issued by Government of India (''GOI'') is valued based on FBIL valuation. Equity shares in the Banks demat account, acquired through exercise of pledge, is not accounted as investments. Upon sale of the pledged shares, the proceeds are utilised to offset the borrower''s liability. Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation/provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss account until received in cash. e) Profit/Loss on sale of Investments Profit/Loss on sale of Investments in the HTM category is recognised in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognised in the Profit and Loss account. f) Accounting for repos/ reverse repos/ targeted long-term repo operations (TLTRO) Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralised borrowing and lending transactions respectively in accordance with RBI Circular DOR.MRG.42/21.04.141/2021-22 dated August 25, 2021. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognised as interest income/expense over the period of transaction. g) Investment fluctuation reserve With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP.BC.102/21.04.048/2017-18 dated April 02, 2018, advised all banks to create an IFR with effect from the FY 2018-19. Transfer to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations; until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. Accounting and classification Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued, direct assignment and bills rediscounted. Assets transferred through direct assignment of cash flows are de-recognised in the Balance Sheet when they are sold (true sale criteria being fully met with) and consideration is received by the Bank. Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. In relation to non-performing derivative contracts, as per the extant RBI guidelines, the Bank makes provision for the entire amount of overdue and future receivables relating to positive marked to market value of the said derivative contracts. The Bank considers an account as restructured, where for economic or legal reasons relating to the borrower''s financial difficulty, the Bank grants concessions to the borrower, that the Bank would not otherwise consider. The moratorium granted to the borrowers based on RBI guidelines is not accounted as restructuring of loan. The RBI guidelines on ''Resolution Framework for COVID-19-related Stress'' provide a prudential framework for resolution plan of certain loans. The borrowers where resolution plan was implemented under these guidelines are classified as standard restructured. In respect of non-retail loans reported as fraud to RBI the entire amount, is provided for over a period not exceeding four quarters starting from the quarter in which fraud has been detected. In respect of non-retail loans where there has been delay in reporting the fraud to the RBI or which are classified as loss accounts, the entire amount is provided immediately. In case of fraud in retail accounts, the entire amount is provided immediately. The Bank makes additional provisions as per RBI guidelines for the cases where viable resolution plan has not been implemented within timelines prescribed by RBI, from the date of default. These additional provisions are written back on satisfying the conditions for reversal as per RBI guidelines. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The general provision also includes provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Further, provision requirement under various Restructure scheme of RBI also forms part of general provision. Such provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''. In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. As per requirement of RBI guideline, any interest accrued and due if converted into a loan (i.e. Funded Interest Term Loan) then such income will be reversed and will be recognised on cash basis. Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under Provisions and Contingencies. In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines. The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorised into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100%. 17.4.4 Transactions involving foreign exchange Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates. Premia/discounts on foreign exchange swaps that are used to hedge risks arising from foreign currency assets and liabilities are amortised over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using risk-free rates (''RFRs'')/SWAP curves of the respective currencies with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (''MTM'')) on a gross basis. Financial conduct authority (''FCA'') of the United Kingdom has phased out London interbank offered rate (''LIBOR'') on December 2021, replacing it by Alternate Reference rate (''ARR''). Libor was used by the Bank as benchmark for funded as well as Non-funded exposure. Accordingly, MIFOR (derived with LIBOR and forward premium in forex markets) has also been replaced by Modified MIFOR. RBI vide the press release CO.FMRD.DIRD.S39/14.02.001/2021-22 on July 08, 2021 has encouraged the Banks to cease entering into new financial contracts that has reference LIBOR/MIFOR as a benchmark and instead use widely accepted ARR. Bank has started offering new transaction based on ARR curve w.e.f Jan 1, 2022 except existing underlying transactions linked to LIBOR/MIFOR as permissible by the regulations. In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations. In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations. Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit/loss is daily set. The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share" notified under Section 133 of the Companies Act, 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares options outstanding during the period except where the results are anti-dilutive. 17.4.6 Accounting for derivative transactions Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealised gains/losses are recognised in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges (effective hedges) and are measured at fair value. The corresponding gain or loss is recognised as cash flow hedge reserve. Further to match profit/loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account. The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognised as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''. The amounts received/ paid on cancellation of option contracts are recognised as realised gains/ losses on options. Charges receivable/ payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognised as income/ expense on the date of cancellation/ termination under ''Other Income''. Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdue if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. The Bilateral Netting of Qualified Financial Contracts Act, 2020 (the Act), has been notified by the Government of India and subsequent to this the RBI through circular dated March 30, 2021 allowed netting of the Qualified Financial Contracts (QFC). The Bank shall work progressively on classification of multiple permissible transactions into a netting set which may result in reduction in capital requirement due to these transactions over the period. Fixed assets are stated at cost less accumulated depreciation, amortisation and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from/ of such assets. Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below: Class of asset Useful life of Assets as per Companies Act, 2013 Useful life of Assets as per Bank''s Accounting Policy Owned Premises 60 years 60 years Office equipment 5 years 5 years Computer hardware1 6 years 3 years Computer software * 6 years 4 years Vehicles1 8 years 5 years Furniture and Fixtures 10 years 10 years Leasehold improvements to premises - Over the lease period or 9 years whichever is less. ⢠As per RBI Guidelines. 1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013. ⢠Asset costing up to '' 5,000 are fully depreciated in the year of purchase. ⢠For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank. ⢠Improvements to leasehold assets are depreciated over the remaining period of lease. ⢠Reimbursement, if any, is recognised on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset. ⢠Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset. ⢠The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013. The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount. Employee Stock Option Scheme (''ESOS'') The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods. Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. RBI, vide its clarification dated August 30, 2021 on Guidelines on Compensation of Whole time Directors/ Chief Executive Officers/Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after March 31, 2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model is recognised as compensation expense over the vesting period. Options granted till March 31, 2021, the Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. The employees of the Bank are entitled to carry forward a part of their unavailed/unutilised leave subject to a maximum limit. The employees cannot encash unavailed/unutilised leave. The Bank provides for leave encashment /compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation. The Bank provides for gratuity, for all employees. The Gratuity is payable to an employee as per Payment of Gratuity Act. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognised in the Profit and Loss account. All employees of the Bank are covered under the Employees Provident Fund, a defined contribution plan in which both the employee and the Bank contribute monthly. Contribution to provident fund are recognised as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution. The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme. Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases. Tax expense comprises of current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income-tax Act, 1961 and the rules framed there under. Deferred taxes reflect the impact of timing differences between taxable income and accounting income for the current year and reversal of timing differences of earlier years and carry forward losses. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. Deferred tax assets in case of unabsorbed depreciation/ losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Deferred tax assets are recognized and reassessed at each balance sheet date based upon management''s judgement and appropriately adjusted to reflect the amount that is reasonably certain to be realized. 17.4.13 Provisions and contingent assets/liabilities In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognise a contingent liability but discloses its existence in the financial statements. Contingent assets are not recognised in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs. 17.4.14 Cash and Cash equivalents Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. 17.4.15 Corporate social responsibility Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account. 17.4.16 Debit and credit cards reward points The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends. Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities. The Bank imports bullion (gold and silver bars) on a consignment basis for selling to its customers. The imports are typically based on a request of the client and are settled based on a back to back price fixing with supplier and client. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in gold borrowing and lending and the interest paid/received thereon is classified as interest expense/income respectively. Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013. The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI. 17.4.20 Priority Sector Lending Certificates (PSLC) The Bank, in accordance with RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLCs. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLCs is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income'' and the same is amortised on a straight line basis over the life of the certificate. 17.4.21 Related Party Transactions The Bank has formulated a policy on dealing with Related Party Transactions in terms of the provisions of Section 188 of the Companies Act, 2013 and Regulation 23 of LODR Regulations, and the same is placed on the Banks website. 17.5 Capital 17.5.1 Equity Issue FY 2021-22 During FY 2021-22, the Bank has issued 47,000 equity shares of face value of ''2 each pursuant to the exercise of stock options by employees under the approved stock option schemes. On July 23, 2020, the Bank issued 12,504,433,750 equity shares of face value of ''2 each for cash pursuant to FPO aggregating to ''14,872 crore (Accreted ''12,371 crore as share premium net of share issue expenses). The Issue was made through book building process in accordance with regulation 129(1) of the SEBI ICDR Regulations. The Bank has issued ''Nil'' shares pursuant to the exercise of stock options. Movement in Share Capital (? in million) Share Capital As at March 31, 2022 As at March 31, 2021 Opening Share Capital 50,109.81 25,100.94 Addition due to exercise of Stock Option 0.09 - Addition due to shares issued for QIP / FPO - 25,008.87 Addition due to shares issued under Reconstruction scheme - - Closing Share Capital 50,109.90 50,109.81 During FY 2021-22, the Bank had not declared any dividend on equity shares. RBI vide circular dated April 22, 2021 allowed banks to pay dividend for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than fifty percent of the amount determined as per the dividend payout ratio prescribed in the RBI guidelines. However, during FY 2020-21, the Bank had reported a loss and as a consequence to that the Bank had not declared any dividend. Profit on sale of investments in the Held to Maturity (HTM) category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ''108.31 million (net of applicable taxes and transfer to statutory reserve requirements) (previous year: ''4,969.76 million) was transferred to Capital Reserve. The Bank has transferred '' 34.30 million to Investment Reserve (Previous year: '' 153.70 million) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account. 17.5.5 Cash Flow Hedge Reserve The Bank has utilised '' 8.02 million to Cash Flow Hedge Reserve (Previous year: utilised '' 32.84 million) on cross currency interest rate swaps which were used by the Bank to hedge its foreign currency borrowings has been expired and hence the Cash Flow Hedge Reserve has been nullified. 17.5.6 Investment Fluctuation Reserve (IFR) The Bank has transferred '' 1,347.89 million (net of applicable taxes and transfer to statutory reserve requirements) to Investment Fluctuation Reserve during the year ended March 31, 2022 (Previous year: '' ''Nil''). 17.5.7 Employee Stock Option Plan (ESOP) Compensation Reserves The Bank has transferred '' 82.42 million to ESOP Compensation Reserves during the year ended March 31, 2022 (Previous year: '' ''Nil''). 17.5.8 Transfer to Revenue and other Reserves With respect to three borrower accounts classified as fraud during Q4 FY22, the Bank has transferred '' 4,752.16 million to Revenue and other Reserves on account of unamortised fraud provision in terms of RBI circular DOR.No.STR. REC.55/21.04.048/2021 -22 dated October 01, 2021 during the year ended March 31, 2022 (Previous year: '' ''Nil''). 17.5.10 Tier I and Tier II Capital During the financial year ended March 31, 2022 and March 31, 2021, the Bank has not issued any Tier I or Tier II instruments. Write Down of AT1 Bonds The Bank issued Additional Tier 1 Bonds ("AT-1 Bonds") in three tranches (issued in the year 2013, 2016 and 2017) in compliance with the applicable laws/regulations. On March 05, 2020, RBI invoked Section 45 of the Banking Regulation Act, 1949 ("BR Act"), and imposed a moratorium on the Bank. Further, RBI in exercise of its powers conferred under Section 36ACA of the BR Act superseded the Board of Directors and appointed an Administrator to manage the affairs of the Bank. Clause 2.15 of Annex 16 of the Master Circular - Basel III Capital Regulations dated July 01, 2015 issued by the RBI, provides that "If the relevant authorities decide to reconstitute a bank or amalgamate a bank with any other bank under the Section 45 of the BR Act, such a bank will be deemed as non-viable or approaching non-viability and both the pre-specified trigger and the trigger at the point of non-viability for conversion/ write-down of AT1 instruments will be activated. Accordingly, the AT1 instruments will be converted/written-down before amalgamation/reconstitution in accordance with these rules." Accordingly, the Administrator, on behalf of the Bank was constrained to write down two tranches of the AT-1 Bonds, i.e. AT-1 Bonds issued in 2016 and 2017 in accordance with the RBI guidelines/regulations and the relevant provisions in the Information Memorandum(s) of the said AT-1 Bonds, to protect the interests of the Bank and its depositors. The Axis Trustee Services Limited (Trustee on behalf of the bondholders of AT 1 Bonds) and other bondholders filed various writ petition(s) and consumer complaint(s) across India challenging the decision of the Bank to write down the AT 1 Bonds. The same is pending adjudication. The Bank based on the legal opinion of its external independent legal counsel is of the view that the Bank''s decision to write down the AT 1 Bonds is in accordance with the contractual terms for issuance of AT 1 Bonds. Separately, Securities and Exchange Board of India ("SEBI") issued a Show Cause Notice dated October 28, 2020 to the Bank and other noticee(s) (ex-employees of the Bank) alleging violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Thereafter, SEBI vide its order dated April 12, 2021 imposed penalty of ''25 Crore on the Bank under Section 15 HA of Securities and Exchange Board of India Act, 1992 for the alleged mis-selling of AT-1 Bonds in the secondary market. SEBI also imposed penalties on other noticee(s). Aggrieved by the above-mentioned SEBI order, the Bank and other noticee(s) preferred separate Appeal(s) before the Hon''ble Securities Appellate Tribunal, Mumbai ("SAT"). SAT heard the Appeal(s) and the effect and operation of the SEBI order dated April 12, 2021 has been stayed. The said Appeal(s) are pending final hearing. Interest on Additional Tier I Capital (Unsecured, Non-Convertible, Tier I Subordinated Perpetual Bonds in the nature of Promissory Notes issued under Basel II guidelines) amounting to '' 84.0 million which was not cumulative was not paid by Bank during FY 2019-20 as the regulatory Capital Adequacy ratio of the Bank were lower than the minimum prudential requirement. However, post capital raise (FPO), the Bank exercised the call option with approval of RBI and repaid the Bonds along with interest for FY 2020-21. 17.5.11 Provisions and Contingencies The breakup of provisions of the Bank for the year ended March 31, 2022 and March 31, 2021 are given below: (? in million) Particulars For the year ended March 31, 2022 For the year ended March 31, 2021 Provision for taxation 3,696.36 (12,728.47) Provision for investments# 7,903.78 14,073.35 Provision for standard advances (251.53) 6,895.36 Provision made/write-off for non-performing advances# 7,185.19 70,447.66 Other Provisions1# (36.64) 2,417.18 TOTAL 18,497.17 81,105.07 #In compliance with the RBI circular dated August 30, 2021 (further updated on November 15, 2021), on Master Direction on Financial Statements-Presentation and Disclosures, the Bank has regrouped/reclassified provision for depreciation on investments, Foreign Currency Translation Reserve (FCTR) and bad debt recovery from written off accounts. Though there is no change in the net profit/loss for the previous periods, the previous period figures regrouped/reclassified wherever necessary to conform to current period classification. Other Provisions includes provision made against other assets.
Mar 31, 2021
Significant accounting policies and notes forming part of theaccounts for the year ended March 31,2021 BackgroundYES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21,2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21,2004. Also, the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation. Basis of preparationThe financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines. Assessment of Going Concern:The audit report for the Financial Year ended March 2020 was qualified on account of material uncertainty related to Going Concern. The opinion was predicted on a significant decline in Bank''s deposit base, credit downgrades resulting in partial prepayment of foreign currency debt linked to external credit rating, breaches in liquidity ratios and RBI mandated Capital ratios. During the current year, the Bank raised capital of ''150,000 million through FPO in July-20. As a consequence, Bank''s capital ratio stands at 17.5% as on Mar 31, 2021 as against a minimum requirement of 10.875%. Further, Bank has increased its deposit position by 54.7% to ''1,629,466 million while also improving the LCR well in excess of the minimum regulatory Given the capital raise, reinforced capital buffers, strong growth in deposit base, the Banks'' compliance with regulatory ratios and expanding customer & branch network, the audit report for FY 2020-21 is not modified Use of estimatesThe preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Due to outbreak of the COVID-19 pandemic, the country had witnessed lockdowns across India, imposed by the Indian government from March 2020. Subsequently, the national lockdown was lifted by the government, but regional lockdowns continue to be implemented in areas with a significant number of COVID-19 cases. The current second wave of Covid-19 pandemic, where the number of new cases has increased significantly in India, has resulted in re-imposition of localised/regional lockdown measures in various parts of the country. The extent to which the COVID- 19 pandemic will impact the Bank''s results will depend on ongoing as well as future developments, which are highly uncertain. However, management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. Significant accounting policiesCOVID The SARS-CoV-2 virus responsible for COVID-19 started spreading across the globe and India in March 2020, which has contributed to a significant decline and volatility in global and Indian financial markets and a significant decrease in global and local economic activities. Due to outbreak of the COVID-19 pandemic, the country had witnessed lockdowns across India, imposed by the Indian government from March 2020. Subsequently, the national lockdown was lifted by the government, but regional lockdowns continue to be implemented in areas with a significant number of COVID-19 cases. The current second wave of Covid-19 pandemic, where the number of new cases has increased significantly in India, has resulted in re-imposition of localised/regional lockdown measures in various parts of the country. RBI issued guidelines on COVID-19 Regulatory Packages under which, the Bank granted a moratorium of three months (further extended by three months) on the payment of all instalments and / or interest, as applicable, falling due between March 1, 2020 and August 31, 2020. For all such accounts where the moratorium was granted, the asset classification remained stand still during the moratorium period (i.e. the number of days past-due shall exclude the moratorium period for the purposes of asset classification under the Income Recognition, Asset Classification and Provisioning norms) and the same had been retained based on the overdue status as at February 29, 2020. The Supreme Court, in a public interest litigation (Gajendra Sharma Vs. Union of India & Anr), through its interim order dated September 3, 2020 had directed that accounts which were not declared as NPA till August 31, 2020 shall not be declared as NPA till further orders. Accordingly, the Bank did not classify relevant account which was not NPA as of August 31, 2020 as per the RBI IRAC norms, as NPA after August 31, 2020. The Bank had made contingency provision of ''2,683 crore till December 31, 2020. The interim order granted to not declare accounts as NPA stood vacated on March 23, 2021 vide the judgement of the Hon''ble SC in the matter of Small Scale Industrial Manufacturers Association vs. UOI & Ors. and other connected matters. Further in accordance with the instructions in paragraph 5 of the RBI circular dated April 07, 2021 issued in this connection, the Bank has classified such borrower accounts as per the extant IRAC norms with effect from September 1, 2020 and utilised the above contingency provisions towards provision on these accounts. During the FY 2020-21, the Bank in line with extant regulatory guidelines has offered the below: » Loan moratorium: Offered to all customer (whether opt-in or otherwise) on the payment of all instalments and / or interest, as applicable, falling due between March 1, 2020 and August 31,2020. » COVID - 19 Restructuring: As per Resolution Framework for COVID-19 related stress (RBI circular no. RBI/2020-21/16 DOR. No.BP.BC./3/21.04.048/2020-21 dated August 6, 2020) and Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances (RBI circular no. RBI/2020-21/17 DOR.NO.BP.BC/4/21.04.048/2020-21 dated August 6, 2020), the Bank has provided restructuring facility to eligible borrower in line with above mentioned RBI circulars. » NPA classification: Based on direction issued by the Hon''ble Supreme Court of India, Bank has not declared relevant borrower accounts as NPA till nine months ended December 31, 2020. Hon''ble Supreme Court of India has vacated the order and Bank has initiated reporting of NPA from Q4 FY 2020-21. » Interest on interest for loans upto ''2 crores: As per direction issued by Government of India, the Bank has reversed eligible interest amount and credited to customers and subsequently submitted claim to Government. The refund claim from the Government has been received by the Bank. Interest on interest for loans above ''2 crores: Based on direction issued by Hon''ble Supreme Court of India and further guidance from IBA, the Bank has reversed eligible penal interest / interest on interest charged to borrower during moratorium period i.e March 1, 2020 to August 31,2020. Same will be appropriately refunded to the borrower. Revenue recognitionRevenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. » Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets. Interest on non-performing assets is recognized as per the prudential norms of the RBI. Penal Interest for covenant breach is recognized upon certainty of its realization. » Dividend income is recognized when the right to receive payment is established. » Commission on Guarantees and Letters of Credit (''LC'') issued by the Bank is recognized as income over the period of the Guarantee and LC respectively. » Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. » In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis. » Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. » Facility fees and loan processing fees are recognised when due and realizable. » Other fees and commission are accounted for as and when they became due. InvestmentsClassification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBR.No.BP.BC.6/21.04.141/2015-16 dated 1July 2015. Accounting and ClassificationThe Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorized as "Held for trading" (''HFT''), "Available for sale" (''AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others Cost of acquisitionCosts such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines. Basis of classificationSecurities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. Transfer between categories Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost. Transfer of investments from AFS to HFT or vice- a- versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. ValuationInvestments categorized under AFS and HFT categories are marked to market (MTM) on periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP.BC.6/21.04.141/2015-16 dated 1 July 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Profit/loss on sale of investments in the ''Held to Maturity'' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Equity investments in subsidiaries/joint ventures are classified under ''Held to Maturity''. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made. Treasury Bills, CommercialPaper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchased for priority sector lending requirements are valued at Book Value in accordance with RBI guidelines. The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd.(FBIL). The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA/FBIL. The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale which is categorized under HFT category and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognised in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at ''1 per VCF. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at ''1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. In case of investment in Security Receipts on or after April 01, 2017 which are backed by more than 50% of the stressed assets sold by the bank or 10% of the stressed asset sold by the bank post April 01, 2018, provision for depreciation in value is made at higher of - provisioning rate required in terms of net assets value declared by Reconstruction Company(RC)/Securitization Company(SC) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continue in the books of the Bank. All other investments in the Security Receipts are valued as per the NAV obtained from issuing RC/SC. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/ net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Investment in listed instruments of Real Estate Investment Trust (REIT)/Infrastructure Investment Trust (INVIT) is valued at closing price on a recognized stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer. Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price , Bloomberg Generic price (BGN) , Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability. Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (''GOI'') is valued based on FBIL valuation. Equity shares in the Banks demat account, acquired through exercise of pledge, is not accounted as investments. Upon sale of the pledged shares, the proceeds are utilized to offset the borrower''s liability Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit and Loss account until received in cash. Profit/Loss on sale of InvestmentsProfit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account. Accounting for repos / reverse repos/targeted long-term repo operations (TLTRO)Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP.BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions. Investment fluctuation reserve With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, advised all banks to create an IFR with effect from the FY 2018-19. Transfer to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations; until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis.
AdvancesAccounting and classification Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued, direct assignment and bills rediscounted. Asset classification ProvisioningProvisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. » RBI issued guidelines on COVID-19 Regulatory Packages, under which, the Bank granted a moratorium of three months (further extended by three months) on the payment of all instalments and / or interest, as applicable, falling due between March 1, 2020 and August 31, 2020. For all such accounts where the moratorium was granted, the asset classification shall remain stand still during the moratorium period (i.e. the number of days past-due shall exclude the moratorium period for the purposes of asset classification under the Income Recognition, Asset Classification and Provisioning norms) and the same has been retained based on the overdue status as at February 29, 2020. Subsequently, based on direction issued by the Hon''ble Supreme Court of India, Bank has not declared relevant borrower account as NPA till nine months ended December 31,2020. Hon''ble Supreme Court of India has vacated the order and the Bank has initiated reporting of NPA from Q4 FY 2020-21. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. These also include provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Further, provision requirement under various Restructure scheme of RBI also forms part of general provision. Such provisions are included in Schedule 5 - ''Other liabilities & provisions - Others''. In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. As per requirement of RBI guideline, any interest accrued and due if converted into a loan (i.e. Funded Interest Term Loan) then such income will be reversed and will be recognised on cash basis. Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under other income. In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines. The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100%. Transactions involving foreign exchangeForeign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations are translated at the daily average closing rates and of nonintegral foreign operations (foreign branches) at the monthly average closing rates. Premia/discounts on foreign exchange swaps that are used to hedge risks arising from foreign currency assets and liabilities are amortized over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies with the resulting unrealised gain or loss being recognised in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (MTM)) on a gross basis. In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations. In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations. Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit / loss is daily set. 6 Earnings per shareThe Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share" notified under section 133 of the Companies Act 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares options outstanding during the period except where the results are anti-dilutive. 7 Accounting for derivative transactionsDerivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognised as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account. The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ''Other Income''. Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdue if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. The Bilateral Netting of Qualified Financial Contracts Act, 2020 (the Act), has been notified by the Government of India and subsequent to this the RBI through circular dated March 30, 2021 allowed netting of the Qualified Financial Contracts (QFC). The Bank shall work progressively on classification of multiple permissible transactions into a netting set which may result in reduction in capital requirement due to these transactions over the period > Fixed assetsFixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit /functioning capability from / of such assets. I DepreciationDepreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below-
*As per RBI Guidelines. 1Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013. » Assets costing up to ''5,000 are fully depreciated in the year of purchase. » For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank. » Improvements to leasehold assets are depreciated over the remaining period of lease » Reimbursement, if any, is recognised on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset » Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset » The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013. Impairment of assetsAssets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets. 1 Employee benefitsEmployee Stock Option Scheme (''ESOS'') The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods. Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. Compensated absenceThe employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation. GratuityThe Bank provides for gratuity, for all employees. The Gratuity is payable to an employee as per Payment of Gratuity Act. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognised in the Profit and Loss account. Provident fundAll employees of the Bank are covered under the Employees Provident Fund, a defined contribution plan in which both the employee and the Bank contribute monthly. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution. National Pension System (NPS)The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme. 12 LeasesLeases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases. 13 Income taxesTax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of timing differences between taxable income and accounting income for the current year and reversal of timing differences of earlier years and carry forward losses. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. Deferred tax assets in case of unabsorbed depreciation/ losses are recognized only if there is virtual certainty that such deferred tax asset can be realized against future taxable profits. Deferred tax assets are recognized and reassessed at each balance sheet date based upon management''s judgement and appropriately adjusted to reflect the amount that is reasonably certain to be realized. 18.5.14 Provisions and contingent assets/liabilitiesA contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements. In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs. 18.5.15 Cash and Cash equivalentsCash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. 18.5.16 Corporate social responsibilityExpenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account. 18.5.17 Debit and credit cards reward pointsThe Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends. Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities. 18.5.18 BullionThe Bank imports bullion (gold and silver bars) on a consignment basis for selling to its customers. The imports are typically based on a request of the client and are settled based on a back to back price fixing with supplier and client. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in gold borrowing and lending and the interest paid/received thereon is classified as interest expense / income respectively. 18.5.19 Share issue expensesShare issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013. 18.5.20 Segment informationThe disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI. 18.5.21 Priority Sector Lending Certificates (PSLC)The Bank, in accordance with RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''. 18.5.22 Related Party TransactionsThe Bank has formulated a policy on dealing with Related Party Transactions in terms of the provisions of Section 188 of the Companies Act, 2013 and Regulation 23 of LODR Regulations, and the same is placed on the Banks website. 18.6 Capital18.6.1 Equity Issue FY 2020-21On July 23, 2020, the Bank issued 12,504,433,750 equity shares of face value of ''2 each for cash pursuant to FPO aggregating to ''14,872 crore (Accreted ''12,371 crores as share premium net of share issue expenses). The Issue was made through book building process in accordance with regulation 129(1) of the SEBI ICDR Regulations.
During FY 2020-21, the Bank has issued ''Nil'' shares pursuant to the exercise of stock options (Previous year 4,384,174 shares issued aggregating to ''284.53 million). FY 2019-20 During the financial year ended March 31, 2020, the Bank has issued 231,055,018 equity shares of ''2 each for cash pursuant to a Qualified Institutions Placement (QIP) at ''83.55 aggregating to ''19,304.64 million. On March 13, 2020, the Government of India notified the "Yes Bank Ltd. Reconstruction Scheme, 2020" (Scheme). As per the Scheme, authorized capital has been increased from ''11,000 million to ''62,000 million. The State Bank of India (SBI) and other investors invested in the Bank at a price of ''10 per equity share of the Bank (''2 face value with a ''8 premium). As per the scheme, SBI is required to hold upto 49% with a minimum holding of 26% by SBI in the Bank (which is subject to a 3 year lock in). Other investors are subject to a 3 year lock in for 75% of the investments they make in the Bank under this Scheme. Existing investors (other than investors holding less than 100 shares) in YES Bank are also subject to a lock in for 75% of their holding as per this Scheme. Further, as per final reconstruction scheme of the Bank, Bank has issued 10,000 million equity shares at ''10 each aggregating to ''100,000.00 million and accreted ''79,550.00 million (net of share issue expenses of ''375.00 million) as premium.
18.6.2 Proposed Dividend The RBI through circular dated April 22, 2021 allowed banks to pay dividend on equity shares from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than fifty percent of the amount determined as per the dividend payout ratio prescribed in the RBI guidelines. However, during FY 2020-21, the Bank has reported loss and as consequence to that the Bank has not declared any dividend. The Reserve Bank of India (RBI), vide notification dated December 4, 2020, stated that in view of the ongoing stress and heightened uncertainty on account of COVID-19, banks should continue to conserve capital to support the economy and absorb losses. The notification also stated that in order to further strengthen the banks'' balance sheets, while at the same time support lending to the real economy, banks shall not make any dividend payment on equity shares from the profits pertaining to the financial year ended March 31,2020. 18.6.3 Capital Reserve Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ''4,969.76 million (net of applicable taxes only) (previous year: ''6,655.51 million) was transferred to Capital Reserve. 18.6.4 Investment ReserveThe Bank has transferred ''153.70 million to Investment Reserve (Previous year: ''147.23 million) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account. 18.6.5 Cash Flow Hedge ReserveThe Bank has credited ''32.84 million to Cash Flow Hedge Reserve (Previous year: debited ''15.53 million) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value. 18.6.6 Investment Fluctuation Reserve (IFR)The Bank has reported loss during the year ended March 31,2021, and hence the Bank has transferred ''Nil'' in IFR (Previous year: '' ''Nil''). 18.6.7 Capital Adequacy Ratio Capital Adequacy Ratio as per RBI guidelines as at March 31,2021 is given below:
18.6.8 Tier I and Tier II CapitalDuring the financial year ended March 31,2021 and March 31,2020, the Bank has not issued Tier I or Tier II instruments. Write Down of AT1 BondsIn March 2020, YES Bank Limited ("the Bank") was reconstructed pursuant to the provisions of Section 45 of the Banking Regulation Act, 1949 under the "YES Bank Reconstruction Scheme, 2020". As a consequence of the reconstruction, the Bank was deemed to be nonviable or approaching non-viability and both "the pre-specified trigger" and "the trigger at the point of non-viability" were activated. Accordingly, the Bank was constrained to write down Additional Tier 1 Bonds ("AT 1 Bonds") on March 14, 2020. The Axis Trustee Services Limited (Trustee on behalf of the bondholders of AT 1 Bonds) and other bondholders have filed various writ petition(s) and consumer complaint(s) across India challenging the decision of the Bank to write down AT 1 Bonds. A Transfer Petition has been preferred by the Bank to transfer all pending litigation(s) to Mumbai as per the jurisdictional clause in the Information Memorandum(s) for the issuance of AT 1 Bonds. The Bank, based on the legal opin
Mar 31, 2019
Schedules forming part of Financial Statements 18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2019 18.1 Background YES BANK Limited (the ''Bank'' or ''YES BANK'') is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (''RBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also the Bank has a branch at International Financial Services Centre (''IFSC'') at GIFT City, Gujarat (''IBU''). The Bank classifies transactions undertaken by IBU as overseas operation. 18.2 Basis of preparation The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines. 18.3 Use of estimates The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. 18.4 Significant accounting policies 18.4.1 Revenue recognition Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. A Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets and accounts under SDR / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized as per the prudential norms of the RBI. Penal Interest is recognized upon certainty of its realization. A Dividend income is recognized when the right to receive payment is established. A Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee. A Commission on Letters of Credit (''LC'') issued by the Bank is recognized as income at the time of issue of the LC. A Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight-line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. A In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis. A Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. A Facility fees and loan processing fees are recognized when due and realizable. A Other fees and commission are accounted for as and when they became due. 18.4.2 Investments Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 1, 2015. Accounting and Classification The Bank follows settlement date accounting for Investments. In compliance with RBI guidelines, all investments, are categorized as "Held for trading" (''HFT''), "Available for sale" (AFS'') or "Held to maturity" (''HTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (''Investments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. a) Cost of acquisition Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines. b) Basis of classification Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. c) Transfer between categories Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS /HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS /HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS / HFT at the amortized cost. Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. d) Valuation Investments categorized under AFS and HFT categories are Marked-to-Market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (''Investments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight-line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR. No.BP.BC.6/21.04.141/2015-16 dated July 1, 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchased for priority sector lending requirements are valued at Book Value in accordance with RBI guidelines. The market/fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the stock exchanges and for Subsidiary General Ledger (''SGL'') account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd. (FBIL). The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (''YTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA / FBIL. The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit /Loss on settlement of the short position is recognized in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs. 1 per VCF. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at Rs.1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. In case of investment in Security Receipts on or after April 1, 2017 which are backed by more than 50% of the stressed assets sold by the bank, provision for depreciation in value is made at higher of - provisioning rate required in terms of net assets value declared by Rreconstruction Company (RC)/ Securitization Company (SC) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continue in the books of the Bank. All other investments in the Security Receipts are valued as per the NAV obtained from issuing RC / SC. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Investment in listed instruments of Real Estate Investment Trust (REIT) / Infrastructure Investment Trust (INVIT) is valued at closing price on a recognized stock exchange with the higher volumes. In case the instruments were not traded on any stock exchange within 15 days prior to date of valuation, valuation is done based on the latest NAV (not older than 1 year) submitted by the valuer. Sovereign foreign currency bonds are valued using Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. Non-Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN), Last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability. Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (''GOT) is valued based on FBIL valuation. Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation/provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received. e) Profit/Loss on sale of Investments Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit there after is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account. f) Accounting for repos/reverse repos Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP.BC.6/21.04.141/2015-16 dated July 1, 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions. g) Investment fluctuation reserve With a view to building up of adequate reserves to protect against increase in yields, RBI through circular number RBI/2017-18/147 DBR.No.BP. BC.102/21.04.048/201 7-18 dated April 2, 2018, advised all banks to create an IFR with effect from the FY 2018-19. Transferred to IFR will be lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less mandatory appropriations, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. 18.4.3 Advances Accounting and classification Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted. Provisioning Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. These also include provision for stressed sector exposures and provision for incremental exposure of the banking system to a specified borrower beyond Normally Permitted Lending Limit (NPLL) in proportion to bank''s funded exposure to specified borrower. Such provisions are included in Schedule 5 -''Other liabilities & provisions - Others''. In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income. In case of loans sold to asset reconstruction company, if consideration is more than net book value, the Bank records the security receipts as investment at Net Book Value as per RBI guidelines. The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bank''s total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bank''s total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100% for exposures with contractual maturity greater than or equal to 180 days. In respect of short-term exposures with contractual maturity less than 180 days, 25% of the normal provision requirement is held. 18.4.4 Transactions involving foreign exchange Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates. Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (''FEDAI''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies with the resulting unrealized gain or loss being recognized in the Profit and Loss Account and correspondingly in other assets (representing positive Mark-to-Market) and in other liabilities (representing negative Mark-to-Market (MTM)) on a gross basis. In accordance with AS 11 ''The Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until the disposal of the net investment in the non-integral foreign operations. In accordance with the RBI clarification, the Bank does not recognise in the profit and loss account the proportionate exchange gains or losses held in the foreign currency translation reserve on repatriation of profits from overseas operations. Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of the respective future contracts on that day. While the daily settlement prices is computed on the basis of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contract or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit /loss is daily set. 18.4.5 Earnings per share The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share" notified under Section 133 of the Companies, Act 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares options outstanding during the period except where the results are anti dilutive. 18.4.6 Accounting for derivative transactions Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account. The Bank follows the option premium accounting framework prescribed by FEDAI SPL - circular dated December 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark-to-Market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ''Other Income''. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/expense on the date of cancellation/termination under ''Other Income''. Valuation of Interest Rate Futures (IRF) is carried out on the basis of the daily settlement price of each contract provided by the exchange. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on ''Prudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. 18.4.7 Fixed assets Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit/functioning capability from/of such assets. 18.4.8 Depreciation Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below -
*As per RBI Guidelines. 1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act 2013. A Assets costing up to Rs.5,000 are fully depreciated in the year of purchase. A For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank. A Improvements to leasehold assets are depreciated over the remaining period of lease A Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset A Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset A The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013. 18.4.9 Impairment of assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets. 18.4.10 Employee benefits Employee Stock Option Scheme (''ESOS'') The Employee Stock Option Scheme (''the Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within specified periods. Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. Compensated absence The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment/compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation. Gratuity The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account. Provident fund In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered The Bank has no liability for future provident fund benefits other than its annual contribution. In February 2019, the honorable Supreme Court of India in its judgment clarified that certain special allowances should be considered to measure obligations under Employees'' Provident Funds and Miscellaneous Provisions Act, 1952 (the PF Act). The Bank has been legally advised that there are interpretative challenges on the application of judgment retrospectively and as such does not consider there is any probable obligations for past periods. Due to imperative challenges, the Bank has not disclosed contingent liability amount for past liability. National Pension System (NPS) The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme. 18.4.11 Leases Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight-line basis over the lease term in accordance with Accounting Standard - 19, Leases. 18.4.12 Income taxes Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized. 18.4.13 Provisions and contingent assets/liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs. 18.4.14 Cash and Cash equivalent Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. 18.4.15 Corporate social responsibility Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account. 18.4.16 Debit and credit cards reward points The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends. Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities. 18.4.17 Bullion The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received thereon is classified as interest expense/income respectively. 18.4.18 Share issue expenses Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013. 18.4.19 Segment information The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI. 18.4.20 Priority Sector Lending Certificates (PSLC) The Bank, in accordance with RBI circular FIDD.CO.PIan. BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received from the sale of PSLCs is treated as ''Other Income''. 18.5 Capital 18.5.1.1 Equity Issue During the financial year ended March 31, 2019, the Bank has issued 12,065,794 shares pursuant to the exercise of stock option aggregating to Rs.953.47 million (previous year: Rs.1,378.65 million)
18.5.1.2 Proposed Dividend: The Board of Directors of the Bank has recommended a dividend of Rs.2 per equity share for approval by shareholders at the 15th Annual General Meeting. If approved, the total liability arising to the Bank would be Rs.5,582.01 million, including dividend tax (previous year: Rs.7,503.64 million). The actual dividend payout may however change due to equity shares options exercised by employees between the end of the financial year and the dividend declaration date. 18.5.1.3 Capital Reserve Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs.1,010.10 million (previous year: Rs. 659.65 million) was transferred to Capital Reserve. 18.5.1.investment Reserve The Bank has transferred Rs.6.71 million to Investment Reserve (previous year: Rs. Nil) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account. 18.5.1 .5 Cash Flow Hedge Reserve The Bank has credited Rs.218.73 million to Cash Flow Hedge Reserve (previous year: debited Rs. 83.92 million) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value. 18.5.1.6 Investment Fluctuation Reserve (IFR) During the year ended March 31, 2019, the Bank has transferred Rs. 539.07 million in IFR (previous year: Rs. Nil). 18.5.1.7 Capital Adequacy Ratio Capital Adequacy Ratio as per RBI guidelines as at March 31, 2019 is given below:
Mar 31, 2018
18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2018 18.1 BACKGROUND YES BANK Limited (the âBankâ or âYES BANKâ) is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (âRBIâ) on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. Also the Bank has a branch at International Financial Services Centre (âIFSCâ) at GIFT City, Gujarat (âIBUâ). The Bank classifies transactions undertaken by IBU as overseas operation. 18.2 BASIS OF PREPARATION The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, unless otherwise stated by RBI guidelines. 18.3    USE OF ESTIMATES The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. 18.4    SIGNIFICANT ACCOUNTING POLICIES 18.4.1 Revenue recognition Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. -    Interest income is recognized in the profit and loss account on accrual basis, except in the case of nonperforming assets and accounts under SDR/S4A. Interest on non-performing assets and accounts under SDR/S4A is recognized as per the prudential norms of the RBI. Penal Interest is recognized upon certainty of its realization. RBI has withdrawn the SDR and S4A schemes with effect from February 12, 2018. Accordingly, for cases where the SDR, change in management outside SDR or S4A schemes were not implemented at that date, asset classification and income recognition are done as per the extant RBI norms. -    Dividend income is recognized when the right to receive payment is established. -    Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee. -    Commission on Letters of Credit (âLCâ) issued by the Bank is recognized as income at the time of issue of the LC. -    Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. -    In case of Bonds and Pass Through Certificates (PTC), premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis. Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. Facility fees and loan processing fees are recognized when due and realizable. Other fees and commission are accounted for as and when they became due. 18.4.2 Investments Classification and valuation of the Bankâs investments are carried out in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated 1 July 2015. Accounting and Classification The Bank follows settlement date accounting for investments. In compliance with RBI guidelines, all investments, are categorized as âHeld for tradingâ (âHFTâ), âAvailable for saleâ (âAFSâ) or âHeld to maturityâ (âHTMâ) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (âInvestmentsâ) under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. a)    Cost of acquisition Costs such as brokerage pertaining to investments, paid at the time of acquisition and broken period interest are charged to the profit and loss account as per the RBI guidelines. b)    Basis of classification Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. c)    Transfer between categories Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS/HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS/HFT category, the investments held under HTM at a discount are transferred to AFS/HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost. Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. d) Valuation Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (âInvestmentsâ) is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under restructuring scheme is provided as per RBI guidelines. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP.BC.6/21.04.141/2015-16 dated 1 July 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchased for priority sector lending requirements are valued at Book Value in accordance with RBI guidelines. The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (âSGLâ) account transactions, the prices as periodically declared by Financial Benchmarks India Pvt. Ltd. (FBIL). The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FBIL. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (âYTMâ) rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA/FBIL. The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit/Loss on settlement of the short position is recognized in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '1 per VCF. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Sovereign foreign currency bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. Non- Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price, Bloomberg Generic price (BGN), last available CBBT pricing for the instrument or Proxy Bond Pricing from Bloomberg in the chronological order based on availability. Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price or Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (âGOIâ) is valued based on FBIL valuation. Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank additionally creates provision over and above the RBI guidelines. The depreciation/provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received. e)    Profit/Loss on sale of Investments Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account. f)    Accounting for repos/reverse repos Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. D B R. N o. B P. BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions. 18.4.3 Advances Accounting and classification Advances are classified as performing and nonperforming based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted. Provisioning Provisions in respect of non-performing advances are made based on managementâs assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of nonperforming advances are charged to the Profit and Loss account and included under Provisions and Contingencies. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. These also includes provision for stressed sector exposures. Such provisions are included in Schedule 5 - âOther liabilities & provisions - Othersâ. In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. Accounts are written-off in accordance with the Bankâs policies. Recoveries from bad debts written-off are recognised in the Profit and Loss account and included under other income. In case of loans sold to asset reconstruction company and consideration is more than net book value, the Bank records the security receipts at Net Book Value as per RBI guidelines. The Bank has in place a Country Risk management policy as part of its Board approved Credit policy, which is based on extant regulatory guidelines and addresses the identification, measurement, monitoring and reporting of country risk. Countries are categorized into seven risk categories, viz. Insignificant, Low Risk, Moderately Low Risk, Moderate Risk, Moderately Risk, High Risk and Very High Risk. The Bank calculates direct and indirect country risk in line with the policy requirements. Indirect exposure is reckoned at 50% of the exposure in case of countries where the net funded exposure exceeds 1% of the Bankâs total assets. Further, if the net funded exposure of the Bank in respect of each country exceeds 1% of the Bankâs total assets, provisioning is required to be made on exposure to such countries. Depending on the risk category of the country, provisioning is done on a graded scale ranging from 0.25% to 100% for exposures with contractual maturity greater than or equal to 180 days. In respect of short-term exposures with contractual maturity less than 180 days, 25% of the normal provision requirement is held. 18.4.4    Transactions involving foreign exchange Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative office) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates. Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealersâ Association of India (âFEDAIâ). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account. In accordance with AS 11 âThe Effects of changes in Foreign Exchange Ratesâ, contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS - 11. 18.4.5    Earnings per share The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, âEarnings per Shareâ notified under section 133 of the Companies Act 2013. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity share options outstanding during the period except where the results are anti dilutive. The shareholders of the Bank had approved the sub-division of each equity share having a face value of ? 10 into five equity shares having a face value of ? 2 each through postal ballot on September 8, 2017. The record date for the sub-division was September 22, 2017. All shares and per share information in the financial results are restated to reflect the effect of sub-division for the year ended March 31, 2017. 18.4.6. Accounting for derivative transactions Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated Dec 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under âOther Incomeâ. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under âOther Incomeâ. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Over dues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on âPrudential Norms for Off-balance Sheet Exposures of Banksâ a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account. 18.4.7    Fixed assets Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit/functioning capability from/of such assets. 18.4.8    Depreciation Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below- -    Assets costing up to '5,000 are fully depreciated in the year of purchase. * As per RBI Guidelines. 1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Ac t 2013. -    For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank. -    Improvements to leasehold assets are depreciated over the remaining period of lease. -    Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset. -    Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset. -    The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013. 18.4.9 Impairment of assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An assetâs recoverable amount is the higher of an assetâs net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets. 18.4.10 Employee benefits Employee Stock Option Scheme (âESOSâ) The Employee Stock Option Scheme (âthe Schemeâ) provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period. Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bankâs stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. Leave salary The employees of the Bank are entitled to carry forward a part of their unveiled/unutilized leave subject to a maximum limit. The employees cannot encash unveiled/unutilized leave. The Bank provides for leave encashment/compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization. Gratuity The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 daysâ eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account. Provident fund In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution. National Pension System (NPS) The NPS is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than the voluntary contribution made by employees who agree to contribute to the scheme. 18.4.11 Leases Leases where the less or effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases. 18.4.12    Income taxes Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized. 18.4.13    Provisions and contingent assets/ liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements. In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs. 18.4.14    Cash and Cash equivalent Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. 18.4.15    Corporate social responsibility Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account. 18.4.16    Debit and credit cards reward points The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends. Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities. 18.4.17    Bullion The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received thereon is classified as interest expense/income respectively. 18.4.18    Share issue expenses Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013. 18.4.19    Segment information The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI. 18.4.20    Priority Sector Lending Certificates (PSLC) The Bank in accordance with RBI circular FIDD.CO.Plan. BC.23/ 04.09.01/2015-16 dated April 7, 2016, trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an âExpenseâ and the fee received from the sale of PSLCs is treated as âOther Incomeâ. 18.5.1    Capital 18.5.1.1    Equity Issue On September 8, 2017, the shareholders of the Bank approved the sub-division of each equity share having a face value of ? 10 into five equity shares having a face value of ? 2 each through postal ballot. The record date for the sub-division was September 22, 2017. All shares and per share information in the financial results reflect the effect of such sub-division. During the financial year ended March 31, 2018, the Bank has issued 20,538,180 shares pursuant to the exercise of stock option aggregating to Rs,1,378.65 millions. During the financial year ended March 31, 2017, the Bank had issued 32,711,000 equity shares of Rs,10 each (163,555,000 shares of Rs,2 each) for cash pursuant to a Qualified Institutions Placement (QIP) at Rs,1,500 aggregating to Rs,49,066.50 millions. The Bank accreted Rs,48,239.39 millions (net of estimated share issue expenses of Rs,500 millions) as premium, on account of QIP. The actual share issue expenses adjusted against share premium was Rs,458.48 millions. The Bank also issued 32,43,172 shares (16,215,860 shares of Rs,2 each) pursuant to the exercise of stock option aggregating to Rs,1,010.12 millions. 18.5.1.2 Proposed Dividend: From the financial year ended March 31, 2017, the Bank has not accounted for proposed dividend as a liability in accordance with revised Accounting Standard (AS) 4 âContingencies and Events occurring after the Balance sheet dateâ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016. The Board of Directors of the Bank has recommended a dividend of '2.70 per equity share for approval by shareholders at the 14th Annual General Meeting. If approved, the total liability arising to the Bank would be Rs,7,496.43 millions, including dividend tax (previous year: Rs,6,605.48 millions). The actual dividend payout may however change due to equity share options exercised by employees between the end of the financial year and the dividend declaration date. 18.5.1.3    Capital Reserve Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs,659.65 millions (previous year: Rs,1,083.00 millions) was transferred to Capital Reserve. 18.5.1.4    Investment Reserve The Bank has transferred Rs, Nil to Investment Reserve (previous year: Rs, Nil) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account. 18.5.1.5    Cash Flow Hedge Reserve The Bank has debited Rs,83.92 millions to Cash Flow Hedge Reserve (previous year: Rs,160.14 millions) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value. RBI circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 grants banks an option to spread provisioning for mark to market losses on investments held in AFS and HFT for the quarters ended December 31, 2017 and March 31, 2018. The circular states that the provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss was incurred. The Bank has recognised the entire net mark to market loss on investments in the respective quarters and has not availed of the said option. *    Investments amounting to Rs,35,643 millions are exempted from applicability of RBI prudential limit for Unlisted Non-SLR securities. ** Includes a provision of Rs,400.16 millions held for non performing investments #    excludes investment in equity shares and units. Amounts reported under columns (a), (b), (c) and (d) above are not mutually exclusive Sales and transfers of securities to/from Held to Maturity (HTM) category The Bank has not sold or transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. The 5% threshold referred to above does not include onetime transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per extant RBI guidelines, shifting of securities explicitly permitted by the Reserve Bank from time to time, sale of securities or transfer to AFS/HFT consequent to the reduction of ceiling on SLR securities under HTM, sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and repurchase of Government securities by Government of India from banks as permitted by RBI. 18.5.5.4    Currency Futures The Bank had dealt in exchange traded currency forwards (Futures) during the financial year ended March 31, 2018 and March 31, 2017. As at March 31, 2018 and March 31, 2017 the open contracts on the exchange were Rs, Nil. 18.5.5.5    Disclosures on risk exposure in derivatives As per RBI Master circular DBR.BP.BC.No.23/21.04.018/2015-16 dated July 1, 2015, the following disclosures are being made with respect to risk exposure in derivatives of the Bank: a)    Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes including hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriate ness Policy, Hedging Policy and ALM policy. b)    Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (âRMCâ) and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof. c)    As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including suitability and appropriateness framework. The Bank has an internal reporting mechanism providing regular reports to the RMC as well as management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX and interest rates. d)    The Bank has an independent Middle Office and Market Risk functions, which are responsible for monitoring, measurement, and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives transactions, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank. e)    I n addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk. f)    The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (âMISâ) and control purposes and records the same in the books of accounts on a monthly basis. g)    For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and the ALCO monitors all outstanding hedges on a periodical basis. Further the Bankâs âHedging Policyâ has stipulated conditions to ensure that the Hedges entered into are effective. 1    Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures. 2    Trading portfolio including accrued interest. 3    Mark to Market for credit exposure includes accrued interest. 4    Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives. Â
Mar 31, 2017
18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2017 18.1 BACKGROUND YES BANK Limited (the âBank'' or âYES BANK'') is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the license to commence banking operations from the Reserve Bank of India (âRBI'') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. 18.2 BASIS OF PREPARATION The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, except in the case of interest income on non-performing assets (NPAs), loans under strategic debt restructuring (SDR) and Sustainable Structuring of Stressed Assets (S4A) scheme of RBI where it is recognized upon realization. 18.3 USE OF ESTIMATES The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. 18.4 SIGNIFICANT ACCOUNTING POLICIES 18.4.1 SIGNIFICANT CHANGES IN ACCOUNTING POLICY PROPOSED DIVIDEND: In terms of revised Accounting Standard (AS) 4 âContingencies and Events occurring after the Balance sheet date'' as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016, Bank has not accounted for proposed dividend as a liability as at March 31, 2017. Proposed Dividend was however accounted for as a liability as at March 31, 2016 in line with the existing accounting standard applicable at that time. The Board of Directors of the Bank has recommended a dividend of '' 12 per equity share for approval by shareholders at the 13th Annual General Meeting. If approved the total liability arising to the Bank would be '' 6,593.11 million, including dividend tax (previous year '' 5,061.52 million). The actual dividend payout may however change due to equity shares exercised by employees between the end of the financial year and the dividend declaration date. ACCOUNTING FOR CASH FLOW HEDGE RESERVE: The Bank has applied the Guidance Note on Accounting for Derivative Contracts (âGuidance Note'') issued by the Institute of Chartered Accountants of India effective from April 01, 2016 in respect of derivative contracts which are not covered by existing accounting standards or RBI guidelines. For the Bank, this impacts the accounting for cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges under the Guidance Note. The adoption of the Guidance Note resulted in the recognition of derivative assets of '' 52.83 million , derivative liabilities of '' 212.96 million and a cash flow hedge reserve of ('' 160.14) million as at March 31, 2017. The application of the Guidance Note has no impact on the net profit for the year ended March 31, 2017 as compared to the previous accounting policy followed by the Bank. 18.4.2 REVENUE RECOGNITION Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. - Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets and accounts under SDR / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized upon realization as per the prudential norms of the RBI. - Loan processing fee is recognized when it becomes due and realizable. - Dividend income is recognized when the right to receive payment is established. - Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee - Commission on Letters of Credit (âLC'') issued by the Bank is recognized as income at the time of issue of the LC. - Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. - I n case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis. - Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. - Other fees and commission income are recognized on accrual basis. 18.4.3 INVESTMENTS Classification and valuation of the Bank''s investments are carried out in accordance with RBI Circular DBR. No.BP.BC.6/21.04.141/2015-16 dated July 01, 2015 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2017-18/001/April 03, 2017. ACCOUNTING AND CLASSIFICATION Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as "Held for tradingâ (âHFT''), "Available for saleâ (âAFS'') or "Held to maturityâ (âHTM'') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (âInvestments'') under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. A) COST OF ACQUISITION Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account as per the RBI guidelines. B) BASIS OF CLASSIFICATION Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. C) TRANSFER BETWEEN CATEGORIES Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scripts from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost. Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. D) VALUATION Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (âInvestments'') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances/under Strategic Debt Restructuring (SDR) scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under SDR scheme is provided as per RBI guidelines. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 01, 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchase for priority sector lending requirements are valued at Book Value in accordance with FIMMDA guidelines FIMCIR/2017-18/001/April 03, 2017. The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (âSGL'') account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA. The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (âYTM'') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA. The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognized in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '' 1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (âGOI'') is valued based on FIMMDA valuation. Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank may additionally create provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received. E) PROFIT/LOSS ON SALE OF INVESTMENTS Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account. F) ACCOUNTING FOR REPOS / REVERSE REPOS Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP. BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions. 18.4.4 ADVANCES ACCOUNTING AND CLASSIFICATION Advances are classified as performing and nonperforming based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted. PROVISIONING Provisions in respect of non-performing advances are made based on management''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unheeded foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Bank. These provisions are included in Schedule 5 - âOther liabilities & provisions - Others''. Further to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures (other than for home country exposure). Countries are categorized into risk categories as per Export Credit Guarantee Corporation of India Ltd. (âECGC'') guidelines and provisioning is done in respect of that country where the net funded exposure is one percent or more of the Bank''s total assets. In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. Accounts are written-off in accordance with the Bank''s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income. In case of loans sold to asset reconstruction company and consideration is more than net book value, the Bank records the security receipts at Net Book Value as per RBI guidelines. 18.4.5 TRANSACTIONS INVOLVING FOREIGN EXCHANGE Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates. Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (âFEDAI''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account. In accordance with AS 11 âThe Effects of changes in Foreign Exchange Rates'', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS - 11. 18.4.6 EARNINGS PER SHARE The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Shareâ notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive. 18.4.7 ACCOUNTING FOR DERIVATIVE TRANSACTIONS Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly and the resultant unrealized gains/losses are recognized in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated December 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under âOther Income''. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under âOther Income''. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Over dues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on âPrudential Norms for Off-balance Sheet Exposures of Banks'' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account. 18.4.8 FIXED ASSETS Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefit /functioning capability from / of such assets. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''s recoverable amount is the higher of an asset''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. 18.4.9 DEPRECIATION Depreciation on fixed assets is provided on straight-line method, overestimated useful lives, as determined by the management, at the rates mentioned below- *As per RBI Guidelines. 1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013. - Assets costing up to '' 5,000 are fully depreciated in the year of purchase. - For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank. - Improvements to leasehold assets are depreciated over the remaining period of lease - Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset - Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset - The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013. 18.4.10 IMPAIRMENT OF ASSETS The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount. 18.4.11 EMPLOYEE BENEFITS EMPLOYEE STOCK OPTION SCHEME (âESOSâ) The Employee Stock Option Scheme (âthe Scheme'') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period. Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. LEAVE SALARY The employees of the Bank are entitled to carry forward a part of their unveiled/unutilized leave subject to a maximum limit. The employees cannot encash unveiled/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization. GRATUITY The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account. PROVIDENT FUND In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre-determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution. NEW PENSION SCHEME The National Pension System (NPS) is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than its annual contribution for the employees who agree to contribute to the scheme. 18.4.12 LEASES Leases where the less or effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases. 18.4.13 INCOME TAXES Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized. 18.4.14 PROVISIONS AND CONTINGENT ASSETS/LIABILITIES A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Bank does not recognize a contingent liability but discloses its existence in the financial statements In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs. 18.4.15 CASH AND CASH EQUIVALENT Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. 18.4.16 CORPORATE SOCIAL RESPONSIBILITY Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account. 18.4.17 DEBIT AND CREDIT CARDS REWARD POINTS The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends. Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities. 18.4.18 BULLION The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid / received thereon is classified as interest expense / income respectively. 18.4.19 SHARE ISSUE EXPENSES Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the C o m p a n i e s Act, 2013. 18.4.20 SEGMENT INFORMATION The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI. 18.4.21 PRIORITY SECTOR LENDING CERTIFICATES (PSLC) The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an âExpense'' and the fee received from the sale of PSLCs is treated as âOther Income''. 18.5.1 CAPITAL 18.5.1.1 EQUITY ISSUE During the financial year ended March 31, 2017, the Bank has issued 32,711,000 equity shares of '' 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at '' 1,500 per share aggregating to '' 49,066.50 million. The Bank accreted '' 48,239.39 million (net of share issue expenses of '' 500 million) as premium, on account of QIP. Provision on share issue expenses created by debiting to share premium account is on estimated basis. Adjustments, if any required, to share premium shall be made upon final settlement of these expenses. The Bank also issued 32,43,172 shares pursuant to the exercise of stock option aggregating to '' 1,010.12 million. During the financial year ended March 31, 2016, the Bank has issued 2,795,543 shares pursuant to the exercise of stock option aggregating to '' 739.51 million. 18.5.1.2 CAPITAL RESERVE Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year '' 1,083.00 million (previous year: '' 734.83 million) was transferred to Capital Reserve. 18.5.1.3 INVESTMENT RESERVE The Bank has transferred '' Nil to Investment Reserve (Previous year: '' Nil transferred to Investment Reserve) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account. 18.5.1.4 CASH FLOW HEDGE RESERVE The Bank has debited '' 160.14 million to Cash Flow Hedge Reserve (Previous year: '' Nil) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value. a) Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriate ness Policy, Hedging Policy and ALM policy. b) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (âRMC'') and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof. c) As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC as well as Top management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX, interest rates as well as credit risk, operational risk, reputational risk and legal risk. d) The Bank has an independent Middle Office and Market Risk, which are responsible for monitoring, measurement, and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank. e) I n addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk. f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (âMIS'') and control purposes and records the same in the books of accounts on a monthly basis. g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and ALCO monitors all outstanding hedges on a periodical basis. Further the Bank''s âHedging Policy'' has stipulated conditions to ensure that the Hedges entered into are effective. 1 Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures. 2 Trading portfolio including accrued interest. 3 Mark to Market for credit exposure includes accrued interest. 4 Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives.
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