FUTURE ANDHRA BANK Notes to Accounts

1. In terms of the Guidelines issued by the Reserve Bank of India
(RBI), the following disclosures are made:

1.2.3 During the year, the Bank has shifted Central/State Government
securities aggregating Rs. 0.00 crore (Rs.1437.54 crore) from
''''Available for Sale'''' (AFS) category/Held for Trading (HFT) category to
Held to Maturity (HTM) Category at lower of acquisition cost/book value
/ market value and booked a shifting loss of Rs. 0.00 crore (Rs.29.63
crore) to Profit and Loss Account. Bank also shifted Central/State
Government Securities aggregating to Rs. 6602.73 crore (Rs. 819.67
crore) from Held to Maturity (HTM) category to Available for Sale (AFS)
category and booked a shifting loss of Rs. 0.00 crore (Rs. 4.81 crore).
Bank also shifted investment of Rs. 55.02 crore (Rs.27.54 crore) in
Venture Capital funds from Held to Maturity (HTM) category to Available
for Sale (AFS) category and provided a depreciation of Rs.3.84 Crore
(Rs. 1.05 Crore).

1.2.4 The Bank has earned gross amount of Rs. 74.59 crore (Rs. 154.33
crore) as Profit on Sale of Securities in HTM category out of which an
amount of Rs. 36.58 crore (Rs. 76.40 crore), net of tax and amount
required to be transferred to Statutory Reserve, has been appropriated
to Capital Reserve account as per RBI guidelines.

1.3.3 Disclosures on risk exposure in derivatives

A) Qualitative Disclosures:

a) Structure and Organization for Management of risk in derivatives
trading:

i) In terms of Reserve Bank of India guidelines on Interest Rate Swaps
(IRS) and Forward Rate Agreements (FRA) the Bank has approved policies
and procedures, counter party exposure limits, delegation of powers,
accounting policy, policy for valuation, ISDA documentation, cut loss,
reporting etc., for Interest Rate Swaps and fixed a cap of Rs. 1500
crore for interest rate swaps (sub-limit of Rs. 500 crore for Trading
Book). Bank has conducted the derivative operations within the overall
framework of these guidelines.

ii) The Bank has approved policies and procedures, counter party
exposure limits, delegation of powers, accounting policy, ISDA
documentation, reporting etc., for undertaking forex derivatives in
various forms of currency swaps and various types of interest rates
swaps not specifically prohibited by Reserve Bank of India with the
corporate borrower customers, other banks and non-borrower customers to
be covered on back to back basis. Bank''''s policy also permits entering
into Plain Vanilla European Style Option to Bank''''s customers for
hedging / pricing their forward exposures on back to back basis, or for
hedging foreign currency exposures.

iii) Derivative contracts undertaken on back-to-back basis or for
hedging own foreign currency exposure are recorded at the rate
prevailing on the date of the contract and are reported at the closing
rates at the Balance Sheet date. The revenue in respect of these
transactions is recognized for the proportionate period till the expiry
of the contract. In respect of contracts done on back to back basis,
the revenue on early termination of the contract is recognized on
termination.

b) Scope and nature of risk measurement, risk reporting and risk
monitoring systems:

The position of all outstanding swaps, new swaps entered, swaps exited,
mark to market value of swaps etc., is being reviewed by the bank''''s
investment committee and Board at monthly intervals. Details of
transactions undertaken in IRS are also reported to Reserve Bank of
India on a fortnightly basis.

c) Policies for hedging and / or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigates:

Depending on the market opportunities a view on interest rate movement
is taken and acted upon. Though the settlement of swaps takes place on
due date/dates as per the terms of the swaps, the value monitoring is
carried out daily to know the impact of market changes on Swap Book.
When unfavorable market movements are unidirectional, swaps are exited
cutting loss. Cut loss limits, exit powers, reviewing authority etc.,
are prescribed.

d) Accounting policy for recording the hedge and non- hedge
transactions, recognition of income, premiums and discounts, valuation
of outstanding contracts, provisioning, collateral and credit risk
mitigation:

Detailed accounting policy and valuation policy are approved by Board.
Transactions for hedging purposes are accounted for on accrual basis
except the swap designated with an asset / liability that is carried at
lower of cost or market value. In that case, the swap is marked to
market, with the resultant gain or loss recorded as an adjustment to
the market value of designated asset or liability. On termination of
swap, gain or loss is recognized when the offsetting gain or loss is
recognized on the designated asset or liability. Any gain or loss on
the terminated swap was deferred and recognized over the shorter of the
remaining contractual life of the swap or the remaining life of the
asset / liability.

Trading transactions have to be marked to market with charges recorded
in the income statement. Income, expenditure, fee, gains or losses on
termination of swaps are all recorded as immediate income or expenses.

1.4.6 FLOATING AND ADDITIONAL PROVISIONS

a) Floating Provision of Rs.13.00 crore (Rs.13.00 crore) is held as at
31.03.2016 in respect of gross non performing advances over and above
the minimum prescribed as per guidelines issued by Reserve Bank of
India with a view to strengthening the financial position of the Bank.

b) The above floating provision is netted off from advances.

1.7.5 Unsecured advances: The amount of advances, for which intangible
securities, such as charge over the rights, licenses etc., have been
taken as security is NIL ( NIL) and the said advances have been
classified as unsecured forming part of Unsecured advances in Schedule
9 Item II-C. Such advances constitute NIL% (NIL%) of total unsecured
advances.

1.9 Penalties imposed by Reserve Bank of India

Monetary Penalty to the tune of Rs. NIL Crore (Rs.0.10 crore) has been
imposed by Reserve Bank of India under Section 46(4) of the Banking
Regulation Act, 1949.

2 Disclosures requirements as per Accounting Standards (AS) issued by
the Institute of Chartered Accountants of India where RBI has issued
guidelines in respect of disclosure items.

2.1 Accounting Standard 5 ?Net profit or loss for the period, prior
period items and changes in accounting policies

There is no material prior period item included in Profit and Loss
account which is required to be disclosed as per the Accounting
Standard issued by the Institute of Chartered Accountants of India read
with guidelines issued by Reserve Bank of India.

2.2 Accounting Standard 9 Revenue Recognition

As mentioned in Accounting Policy (2) of Schedule 17 certain items are
accounted on cash basis on account of statutory/regulatory requirements
and materiality.

2.3 ACCOUNTING STANDARD ?15 Employee Benefits

Bank has adopted Accounting Standard ? 15 (Revised) issued by the
Institute of Chartered Accountants of India with effect from 01.04.2007

2.3.1 Gratuity

Bank pays gratuity to employees who retire/resign from Bank''''s service
as per rules. The Bank makes contributions to the Trust, towards
funding this gratuity, payable every year. In accordance with the
gratuity fund''''s rules, actuarial valuation of gratuity is done every
year. Actuarial valuation of gratuity liability is calculated based on
certain assumptions regarding discount rate, salary growth, mortality
and staff attrition as per the projected unit credit actuarial method.

The gratuity payable to the employees is worked out by way of two
methodologies i.e., as per the Payment of Gratuity Act, 1972 and other
as per service rules and the employee will be entitled to get most
beneficial amount

2.3.2 Pension

Bank pays pension under a defined benefit plan covering the employees
who have opted for pension and also to the employees joining the bank''''s
service on or after 29.09.1995 but before 01.04.2010.The plan provides
for a pension on a monthly basis to these employees on their cessation
from the bank''''s service as provided for in Andhra Bank Employee Pension
Regulations. Pension Fund is managed by Andhra Bank Employees Pension
Fund Trust.

Employees who joined on or after 01.04.2010 are entitled to Defined
Contributory Pension scheme where under the scheme, employee will
contribute 10% of pay and eligible allowance with equivalent
contribution being made by the Bank and the same will be maintained as
per the guidelines issued by the Pension Fund Regulatory and
Development Authority from time to time.

2.3.3 Provident Fund

Bank is statutorily required to maintain a provident fund as a part of
its retirement benefits to the employees. The fund is administered by
a trust. Each employee contributes 10% of their basic salary and
eligible allowances and Bank contributes an equal amount to the fund in
respect of non-pension optees. The investment of the fund is made
according to the investment pattern prescribed by Government of India.

2.3.4 Leave Encashment

An employee is entitled to encash privilege leave standing to his/her
credit subject to a maximum of 240 days on the date of
superannuation/Voluntary Retirement/death and on resignation encashment
of privilege leave will be restricted to the tune of 50% of privilege
leave standing to the credit of the employee subject to a maximum of
120 days.

Actuarial valuation of leave encashment liability is done every year
and accordingly, Bank is contributing to the fund.

2.3.5 The summarized position of post-employment benefits and long term
employee benefits recognized in the Profit & Loss Account and Balance
Sheet as required in accordance with Accounting Standard ? 15 (Revised)
issued by the Institute of Chartered Accountants of India are as under:

2.4 Accounting Standard 17 Segment reporting (Compiled by the
management and relied upon by the auditors)

Note on Segment Results

i) As per guidelines of RBI on compliance with Accounting Standards
AS-17, Bank has adopted "Treasury Operations", "Corporate/Wholesale
Banking", "Retail Banking" and "Other Banking Operations" as Primary
business segments and "Domestic" Segment as secondary / geographic
segment.

(ii) Segment revenue represents revenue from external customers.

(iii) Results of various segments are arrived at in the proportion of
revenue of respective segments.

Geographic segments:-

The Bank does not have any branches outside India, the only reportable
geographical segment is of domestic operations, and hence no separate
disclosure is made.

2.5 Accounting Standard 18 Related party disclosures

Names of the Related Parties and their relationship with the Bank

(a) The Bank has identified the following persons to be the Key
Management Personnel as per the Accounting Standard

i) Sri Suresh N. Patel, Managing Director & CEO (From 02-11-2015)

ii) Sri C. VR. Rajendran, Chairman and Managing Director (Upto
30-04-2015)

iii) Sri S K Kalra, Executive Director

iv) Sri A.K. Rath, Executive Director

v) Sri K.K. Mishra, Executive Director (Upto 30-04-2014)

(b) Subsidiary

Andhra Bank Financial Services Ltd.,

(c ) Associate

Chaitanya Godavari Grameena Bank

(d) Joint Ventures

i) India First Life Insurance Company Ltd.,

ii) India International Bank (Malaysia) Bhd.

iii) ASREC India (P) Ltd.,

The transactions with the Subsidiary and Associate Banks have not been
disclosed in view of para 9 of the AS-18 on Related Party Disclosures,
which exempts State Controlled enterprises from making any disclosure
pertaining to their transactions with other related parties which are
also state controlled.

iv) Capital invested in Joint Ventures?

a) India International Bank (Malaysia) Bhd Rs.143.28 crore (Rs.143.28
crore)

b) ASREC India (P) Ltd. Rs. 28.40 crore (Rs.28.40 crore)

2.8 Accounting standard 24 Discontinuing operations:

During the financial year 2015-16, the bank has not discontinued the
operations of any of its branches, which resulted in shedding of
liability and realization of the assets and no decision to discontinue
an operation which will have the above effect has been fnalized.

2.9 Accounting Standard 28 Impairment of Assets :

The indications listed in paragraphs 8 to 10 of Accounting Standard
28?''''Impairment of Assets'''' (issued by the ICAI ) have been examined and
on such examination, it has been found that none of the indications are
present in the case of the bank. A formal estimate of the recoverable
amount has not been made, as there is no indication of a potential
impairment loss.

2.10 Accounting Standard 29 Provisions, contingent liabilities and
contingent assets

Contingent liabilities mentioned in Schedule 12 are dependent upon the
outcome of Court/arbitration/out of Court settlements, disposal of
appeals, the amount being called up, terms of contractual obligations,
devolvement and raising of demand by concerned parties as the case may
be.

3.3 DRAW DOWN FROM RESERVES:

Pursuant to Reserve Bank of India Circular No. RBI/2015- 16/376,
DBR.No.BP.BC.92/21.04.048/2015-16 dated April 18, 2016, Bank has drawn
Rs. 60.01 crore (Rs. Nil crore) from Revenue Reserve towards
unamortised portion of provision on accounts reported as fraud. The
drawn amount debited to Revenue Reserve will be reversed and complete
the provisioning by debiting Profit & Loss Account, in the subsequent
quarters of the next financial year 2016-17.

3.5. Disclosure of Letters of Comfort (LoC) issued by bank:

During the year ended 31.03.2016, 1147 (990) Letters of Comfort/ Letter
of Undertaking have been issued by the bank amounting to Rs. 2725.27
crore (Rs.2876.22 crore). The Letters of Comfort outstanding as on
31.03.2016 are amounting to Rs.1118.51 crore (Rs.1367.63 crore).

3.7 Bancassurance business

The Bank has received total Rs.23.49 crore (Rs.19.61 crore) as fee from
Bancassurance. It includes fees from Bancassurance Life Rs.11.57 crore
(Rs.9.16 crore) and Non-Life Rs.11.92 crore (Rs.10.45 crore).

3.8 Concentration of Deposits, Advances, Exposures and NPAs

3.13 Reconciliation of Inter Bank transactions have been done up to
31st March 2016.

3.14 Provision for Income Tax has been made on the basis of the
applicable laws and various judicial pronouncements available. In view
of judicial pronouncements in similar cases, no additional provision is
considered necessary towards disputed tax demands of Rs.1215.59 crore
(Rs.737.21 crore) upto assessment year 2013-14 for which assessments
are completed/appealed. Amounts paid by the bank/adjusted by the
department on account of the said disputed tax demands have been
included in tax paid in advance/tax deducted at source i.e. (item III
of Schedule 11 ? Other Assets) of the Balance Sheet.

3.15 The Bank has been claiming deduction under Section 36(1)(viii) of
the Income tax Act, 1961 in respect of the profits derived out of
eligible business as specified in the said section and has accordingly
transferred a sum of Rs. 200 crore (previous year Rs. 190 crore) to the
corresponding Special Reserve account maintained under the said section
and the same is shown under Item IV B of Schedule -2 "Reserves and
Surplus" of the Balance Sheet.

3.16 Credit Default Swaps: The Bank has not entered into Credit Default
Swaps during the current Financial Year (previous year NIL).

3.17.2 Total amount of intra-group exposures - Rs. 516 crore (Rs. 600
crore)

3.17.3 Total amount of top-20 intra-group exposures Rs. 516 crore (Rs.
600 crore)

3.17.4 Percentage of intra-group exposures to total exposure of the
bank on borrowers / customers is 0.26% (0.41%).

3.17.5 Details of breach of limits on intra-group exposures and
regulatory action thereon, if any. NIL

3.18 Transfers to Depositor Education and Awareness Fund (DEAF)
:Details of unclaimed liabilities where the amount due has been
transferred to DEAF reflected as "Contingent Liability - Others items
for which the bank is contingently liable" under Schedule 12 of the
Balance Sheet :

3.19 Unhedged Foreign Currency Exposure :

Bank has in place Board approved policy on "Hedging of Forex Currency
Exposures of the Borrowers" prepared in line with RBI guidelines. The
policy covers monitoring, reporting, reviewing and pricing mechanism of
Unhedged Forex Exposures of Borrowers. For computing aggregate forex
exposures of the borrowers Foreign currency loans/borrowings, Working
capital demand loan/term loan in foreign currency, External Commercial
Borrowings, Foreign Letter of Undertaking (LoU)/Letter of Comfort (LoC)
including buyers'''' credit, import letters of credit, Foreign Letter of
Guarantees/Foreign Stand by Letter of Credit/Deferred Payment
Guarantees issued in Foreign currency are considered.

The incremental provisions/Capital requirement is arrived by
considering likely loss & EBID of the borrowers as per RBI guidelines.
In respect of the Unhedged Foreign Currency Exposures, Incremental
provisions and capital requirements that are provided by the bank as on
31st March 2016 are given below.

Pursuant to Reserve Bank of India Circular No. RBI/2015-16/376,
DBR.No.BP.BC.92/21.04.048/2015-16 dated April 18, 2016, Bank has
debited Rs. 60.01 crore (Rs. Nil crore) from Revenue Reserve towards
unamortised portion of provision on accounts reported as fraud. The
drawn amount debited to Revenue Reserve will be reversed and complete
the provisioning by debiting Profit & Loss Account, in the subsequent
quarters of the next financial year 2016-17 3.22 Previous year figures
have been regrouped / reclassified /rearranged wherever necessary to
conform to current year''''s figures. Figures in the brackets indicate
figures of previous year.

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
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Disclaimer: There is no guarantee of profits or no exceptions from losses. The investment advice provided are solely the personal views of the research team. You are advised to rely on your own judgment while making investment / Trading decisions. Past performance is not an indicator of future returns. Investment is subject to market risks. You should read and understand the Risk Disclosure Documents before trading/Investing.

Disclosure: We, Dynamic Equities Private Limited are also engaged in Proprietory Trading apart from Client Business. In case of any complaints/grievances, clients may write to us at compliance@dynamiclevels.com

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