A-1.1.1 Disclosures on risk exposure in derivatives

(i) Qualitative Disclosure

The Treasury Policy of the bank lays down the types of financial derivative instruments, scope of usages, approval procedures and the limits like open position limits, stop loss limits and counter party exposure limits for undertaking derivative transactions. The Bank uses financial derivative transactions for hedging; it’s on or off balance sheet exposures as well as for market making. Basically, these products are used for hedging risk, reducing cost and increasing the yield in such transactions and for proprietary trading.

The types of risk to which the bank is exposed to are credit risk, market risk, country risk and operational risk. The Bank has risk management policies (approved by Board of Directors of the Bank), which is designed to measure the financial risks for transactions in the trading book on a regular basis, by way of MTM, Value at Risk (VaR) and PV01, and to set appropriate risk limits. These are monitored by means of reliable and up to date Management Information Systems by the Risk Management Department of the Bank from time to time who, in turn, appraises the risk profile to the Risk management Committee of Directors, which is presided over by the Bank’s Chairman and Managing Director.

The counter parties to the transactions are banks and corporate entities. The deals are done under approved exposure limits. The bank has adopted the current exposure method prescribed by Reserve Bank of India for measuring Credit Exposure on Derivative products as per which the bank sums the total replacement cost (obtained by mark to market of all its contracts with positive value i.e. when the bank has to receive money from the counter party) and an amount for potential future changes in credit exposure calculated on the basis of the total notional principal amount of the contract multiplied by the relevant credit conversion factors according to the residual maturity as detailed herein under:-

The hedge/ non-hedge (trading) transactions are recorded separately. Derivative contracts designated as hedges are not marked to market unless their underlying is marked to market. Derivative contracts classified as hedge and where underlying is not marked to market are recorded on accrual basis. Trading derivative positions are marked to market and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is ignored. Interest income/ expense on interest rate swaps are recognized on daily basis. Gains/ Losses on termination of the trading swaps are recorded on the termination date as income/expenditure.

A.1.1.2 Credit Default Swaps (CDS)

Valuation Methodology- As per RBI guidelines on CDS dated 23rd May, 2011 the banks are required to value their CDS contracts by using daily CDS curve published by FIMMDA Or any other proprietary model if it results in a more conservative valuation. Our Bank uses the FIMMDA curve for valuing our CDS positions, we do not use any internal proprietary model for CDS valuation. No CDS swaps have been entered into during the year.

A-1.2.1. Details of non-performing financial assets purchased/sold

A. Details of non-performing financial assets purchased:

B. Details of non-performing financial assets sold:

C. Non Performing Accounts sold to Securitization Companies

A-1.2.2 Amount of Unsecured advances

The amount of advances, for which intangible securities, such as charge over the rights, licenses, authority etc. have been taken as tangible security is Nil as per RBI Circular No. DBR.BRBC No.23/21.04.018/2015-16 dated 01st July 2015.

A-1.3 Miscellaneous

A-1.3.1 Amount of Provisions for Taxation during the year

A-1.3.2 Disclosure of penalties imposed by RBI / Overseas Regulators

During the year penalty of Rs.5,00,00,000/- was levied by Reserve Bank of India for FEMA violations related to Import of Goods & Services, penalty of Rs.40,51,869/- was levied by RBI for forged/soiled notes in currency chest.

Penalty of Rs.6,67,000/- was levied on Kenya subsidiary for violation under prudential guidelines for risk classification of Assets and provisioning and violation of prudential guidelines on outsourcing. Penalty of Rs.8,70,000/- was levied in OMAN territory due to delay in Euro Master Visa (EMV) up-gradation project. Rs.57,04,000/- was levied as penalty in Uganda subsidiary for not establishing an in country primary data center and Disaster Recovery Site.

A-1.3.3 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms)

A-1.4.1 Disclosures on Strategic Debt Restructuring Scheme (accounts which are currently under the stand-still period)

A-1.4.2 Disclosures on Change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period)

A-1.4.3Disclosures on Change in Ownership of Projects Under Implementation (accounts which are currently under the stand-still period)

A-2.1. Provision on Unhedged Foreign Currency Exposure-

The Bank has not prepared any policy with regard to Currency induced Credit Risk. However, the Bank is following regulatory guideline issued by the Reserve Bank of India.

As on 31.03.2017, the amount of bank’s credit exposure against Unhedged Foreign Currency Exposure of borrowers attracting 80 bps provisions was Rs. 6128.02 Crores. The additional RWA on this exposure is Rs. 921.38 crores against this additional minimum capital requirement is Rs. 94.44 crores.

A-2.2 Draw Down from Reserves

During the Financial Year 2016-17, there has been no draw down from the reserves.

A-3 Disclosure of complaints

I. Customer Complaints (Other than ATM)

* Out of these, all 302 nos. of complaints (Previous year 121 nos.) are pending for less than 30 days.

II. ATM Complaints

A-4. Status of Letters of Comfort

I Letters of Comfort (LOC’s) issued during the Current Financial Year

During the current financial year, the Bank has not issued any Letter of Comfort to meet the requirements of the overseas/domestic regulators while seeking their approval for establishing subsidiaries / opening of branches.

II Cumulative position of LOC’s outstanding as on 31.03.2017

The Bank has issued the following Letter of Comforts

(i) During financial year 2008-09 to meet the requirements of the overseas/ domestic regulators while seeking their approval for establishing subsidiaries/ opening of branches, the Letter of Comfort was issued to Reserve Bank of New Zealand for the Bank’s subsidiary in that country. As on 31.03.2017, the deposits of the Subsidiary are Rs.228.56 Crores and outside liabilities are Rs.3.36 Crores. However, the net worth of the Subsidiary as on 31.03.2017 is Rs.208.50 Crores and therefore it covers the entire deposits and outside liabilities.

(ii) During financial year 2010-11, the Bank has issued Letter of comfort to the Bank Negara Malaysia to the extent of the Bank’s 40% shareholding in the joint venture Bank - India International Bank (Malaysia) Bhd’ (IIBMB). As on 31.03.2017, the deposits of IiBmB are Rs.198.55 Crores and other liabilities are Rs.2.09 Crores i.e. total of Rs.200.65 Crores. The net worth of the Subsidiary as on 31.03.2017 is Rs.466.79 crores.

A-5.1 Qualitative Disclosure:

From 1st January 2015, the bank has implemented guidelines on Liquidity Coverage Ratio (LCR) of the Reserve Bank of India.

The LCR standard aims to ensure that a bank maintains an adequate level of unencumbered HQLAs that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. The LCR and monitoring tools are applicable for Indian banks initially w.e.f. 1st January 2015 at whole bank level only i.e. on a stand-alone basis including overseas operations through branches and subsequently at consolidated basis w.e.f. 1st January 2016 i.e. including domestic and overseas subsidiaries.

The LCR has two components:

(i) The value of the stock of high-quality liquid assets (HQLA) in stressed conditions -the numerator.

(ii) Total net cash outflows : The term “Total net cash outflows” is defined as “Total expected cash outflows” minus “Total expected cash inflows” in the specified stress scenario for the subsequent 30 calendar days (the stressed period).-the denominator.

LCR = Stock of High Quality Liquid Assets/Total Net Cash Outflows over the next 30 calendar days > = 100%

According to RBI, the LCR will be introduced in a phased manner starting with a minimum requirement of 60% from January 1,2015 and reaching minimum 100% on January 1, 2019.

As per the RBI guidelines dated 31st March 2015, the Bank has made LCR disclosure on solo basis for the financial year ending March 2016. In terms of extant guideline disclosure on consolidated basis is applicable to the Indian banking system from 1st January 2016 and onwards. As starting from January 2017, banks have to disclose LCR on daily average basis, the bank has computed LCR on daily average basis both for Solo and Consolidated Level for the quarter ended March 2017.

Composition of HQLA

Based on daily averages for the quarter ended March 2017, excess SLR securities constitute the highest portion of HQLA i.e 49.93% followed by Facility to Avail Liquidity for Liquidity Coverage Ratio which constitute 35.50% of HQLA. Level 1 Assets constitute 98.69% of HQLA against minimum 80% mandated by the Reserve Bank of India. Level 2 assets which are lower in quality as compared to level 1 asset as HQLA constitute 1.31% of total HQLA, against the maximum mandated level of 40% and 15% respectively.

Intra-period changes as well as changes over time:

The composition of excess SLR in total HQLA stands high due to demonetization impact, which resulted into accumulation of huge liquidity in form of deposit and was invested in excess SLR securities thereby increasing level of HQLA. The LCR was maximum at 195.28% as on January 2017, 149.46% in February 2017 and 150.91% in March 2017.

Concentration of funding sources

There has been no undue concentration of funding sources and no counterparty is significant in terms of concentration risk in sources of funds. No counterparty contributes more than 1% of the bank’s total liabilities. A significant counterparty is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the bank’s total liabilities.

Similarly no instrument/product constitutes more than 1% of the bank’s total liabilities. A "significant instrument/product" is defined as a single instrument/product of group of similar instruments/products which in aggregate amount to more than 1% of the bank’s total liabilities. Example of funding instruments/products - wholesale deposits, certificates of deposits, long term bonds, etc. Top 10 depositors of the bank on solo basis constitute 4.19 % of our total deposits.

Currency mismatch in the LCR:

Bank calculates currency wise LCR for all significant currencies. A significant currency is one where aggregate liabilities denominated in that currency amount to 5 per cent or more of the bank’s total liabilities viz USD, EURO, GBP and others.

The LCR for the significant foreign currencies is as under:

Description of the degree of centralization of liquidity management and interaction between the group’s units:

The liquidity management for the Bank on enterprise wide basis is the responsibility of the Board of Directors. Board of Directors has delegated its responsibilities to a Committee of the Board called as the "Risk Management Committee of Board”. The Committee is responsible for overseeing the inter linkages between different types of risk and its impact on liquidity.

Bank has Group ALM Policy which provides the broad guidelines under which all the entities within the Group operate in terms of liquidity and interest rate risk. The bank’s entities operating in foreign countries manage their operational liquidity or liquidity in the short-term on their own on an ongoing basis. The monitoring of liquidity and interest risk management of the overseas operations of the bank is being done by the Risk Management Department of the bank.

The guidelines of the Group ALM policy, unless otherwise specifically exempted, apply to overseas operations as well. All the legal entities of the bank i.e.-subsidiaries, joint ventures and associates manage their operational liquidity on an ongoing basis at their own according to their business models and liquidity requirement. As to the legal entities carrying out banking business, they have their own ALM Policy in line with the host country guidelines as well as RBI guidelines whichever is more stringent

B. Disclosure in terms of Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI).

B-1 AS-5 Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies

B-1.1 Bank is providing for employee benefits in accordance with the accounting standard (AS) -15 issued by ICAI. The same is calculated by actuarial valuation.

B-2 AS-15 Employee Benefits

B-2.1 The Bank has adopted the Accounting Standard (AS-15) issued by ICAI, effective from 07.12.2006. The standard has been revised and notified on 17.12.2007.

B-2.2 Gratuity

The Bank pays gratuity to employees who retire or resign from Bank’s service, after initial service period of five years. Accordingly, the Bank makes contributions to an in-house trust, towards funding this gratuity, payable every year. In accordance with the rule of Gratuity Fund, actuarial valuation of gratuity liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the Projected Unit credit actuarial method. The investment of the funds is made according to investment pattern prescribed by the Government of India.

The gratuity payable is worked out by way of three different schemes and the entitlement is based on what is most beneficial to employees.

B-2.3 Pension

B-2.3.1Bank pays pension, 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 29.9.1995 but before 01.04.2010. The plan provides for a pension on a monthly basis to these employees on their cessation from service of the Bank in terms of Bank of Baroda (Employees’) Pension Regulations, 1995. Employees covered under Bank of Baroda (Employees’) Pension Regulations, 1995 are not eligible for Bank’s contribution to Provident fund.

B-2.3.2 New Pension Scheme

In terms of Bipartite Settlement and Joint Note dated 27.04.2010 between IBA and Employees Organizations’ on extending another option for pension, employees joining the services of the Bank on or after 01.04.2010 are eligible for the Defined Contributory Pension Scheme, which was introduced by the Bank in terms of the Joint Note / Settlement dated 27.04.2010, similar to the one governed by the provisions of New Pension Scheme introduced for the employees of Central Government w.e.f. 01.01.2004 and as modified from time to time. Hence they are not eligible for becoming members of Bank’s Provident Fund Scheme and Pension Scheme. In respect of the employees of the Bank, who have joined the services of the Bank on or after 01.04.2010, deduction towards New Pension Scheme at the rate of 10% of the basic pay and dearness allowance from the salary with a matching contribution by the Bank is being made.

B-2.3 Provident Fund

The Bank is statutorily required to maintain a provident fund as a part of its retirement benefits to its employees who joined Bank’s service on or before 31.03.2010. This fund is administered by a trust managed by the Bank. Each employee contributes 10% of their basic salary and eligible allowances and the Bank contributes an equal amount to the fund. The investment of the fund is made according to investment pattern prescribed by the Government of India.

B-2.4 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.

However, on resignation, an employee is entitled to get encashment to the tune of 50% of the privilege leave standing to the credit subject to a maximum of 120 days.

B-2.5 Additional Retirement Benefit

The scheme for additional retirement benefit provides that an officer on Retirement/ Voluntary retirement/ Death shall be eligible for additional retirement benefit, provided the officers satisfy the conditions mentioned in BOB officer’s service regulations.

In the same manner, award staff member on Retirement/ Voluntary Retirement/ Death shall be eligible for additional retirement benefit, provided the staff member had completed thirty-years of service in Bank.

However, in case of dismissal, discharge, termination, compulsory retirement and resignation, additional retirement benefit shall not be payable irrespective of any number of years of service.

B-3 Related Party Disclosures (AS-18)

Names of the Related Parties and their relationship with the Bank:

(a) Subsidiaries

(i) BOB Capital Markets Limited

(ii) BOB Cards Limited

(iii) The Nainital Bank Limited

(iv) Baroda Global Shared Services Ltd

(v) Bank of Baroda (Kenya) Limited

(vi) Bank of Baroda (Uganda) Limited

(vii) Bank of Baroda (Guyana) Inc.

(viii) Bank of Baroda (UK) Limited

(ix) Bank of Baroda (Tanzania) Limited

(x) Baroda Capital Markets (Uganda) Limited.

(Subsidiary of Bank of Baroda Uganda Ltd.)

(xi) BOB Trinidad & Tobago Ltd.

(xii) Bank of Baroda (Ghana) Ltd.

(xiii) Bank of Baroda (New Zealand) Ltd.

(xiv) Bank of Baroda (Botswana) Limited

(b) Associates

(i) Baroda Uttar Pradesh Gramin Bank

(ii) Baroda Rajasthan Kshetriya Gramin Bank

(iii) Baroda Gujarat Gramin Bank

(iv) Baroda Pioneer Asset Management Company Limited

(v) Indo Zambia Bank Limited

(vi) Baroda Pioneer Trustee Company Private Limited

(c) Joint Ventures

(i) India First Life Insurance Company Limited

(ii) India International Bank (Malaysia) Bhd.

(iii) India Infradebt Limited

Keeping in line with para 9 of the (AS) -18 Related Party Disclosures issued by ICAI of The transactions with the Subsidiaries and Associate Banks have not been disclosed in view of para 9 of the (AS) -18 Related Party Disclosures issued by ICAI, which exempts state controlled enterprises from making any disclosure pertaining to transactions with other related state controlled enterprises. For other enterprises, no disclosure has been made as all the transactions are done in the ordinary course of business such as Fixed Deposits, interest thereon etc

B-4 AS-22 Accounting for Taxes on Income

The Bank has complied with the requirements of AS 22 on Accounting for Taxes on Income issued by ICAI and has accordingly revalued assets and liabilities @ 34.608% i.e. the rate as per enacted Finance Bill 2016. The net balance of deferred tax Asset as on 31st March 2017 amounting to Rs.4320.75 Crores consists of the following

* Rs. 540.73 crores out of past reserves and balance out of profit.

B-5 AS-24 Discontinuing operations

During the financial year 2016-17 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 has been finalized to discontinue an operation in its entirety, which will have the above effect.

B-6 AS-28 Impairment of Assets

In view of the absence of indication of material impairment within the meaning of clause 5 to clause 13 of AS 28 Impairment of Assets, no impairment of fixed assets is required in respect of current financial year.

B-7 AS-29 Provisions, Contingent Liabilities and Contingent Assets

B-7.1 Movement of provisions for Liabilities (excluding provisions for others)

As per the policy of the Bank, provision for the claims not been acknowledged as debt, has been provided for.

B-7.2 Contingent Liabilities

Such liabilities as mentioned at Serial No (I) to (VI) of Schedule 12 of Balance Sheet are dependent upon the outcome of court judgment / arbitration awards / out of court settlement/disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties respectively. No reimbursement is expected in such cases.

C. Other Notes to Accounts

C-1 Balancing of Books and Reconciliation

Initial matching of debit and credit outstanding entries in various heads of accounts included in Inter office Adjustments has been completed up to 31.03.2017, the reconciliation of which is in progress.

C-2 Capital Reserves

Capital Reserve includes appreciation arising on revaluation of immovable properties and amount subscribed by Government of India under the World Bank’s Scheme for Export Development Projects for small / medium scale industries.

C-3 Investments

C-3.1 In terms of RBI Guidelines, during the year, the bank has transferred a portion of Investment from “Available for Sale (AFS)” category to “Held to Maturity (HTM)” category and from HTM to AFS category. The resultant depreciation of ‘. 12.38 Crores (previous year ‘. 11.05 Crores) has been charged to the Profit & Loss Account.

C-3.2FCNR (B) Swap with RBI

RBI introduced US Dollar-Rupee concessional swap window for fresh FCNR (B), funds mobilized in any permitted currency for a minimum tenor of three years and above. In this window RBI offered a concessional rate of Swaps to banks only for fresh FCNR (B) deposits mobilized in any of the permitted currencies.

Bank has swapped USD 1,710 Million mobilized with RBI for the corresponding tenor. As the swaps done with RBI were at 3.5% as against the prevailing rate of around 8% there would have been a distortion in profits on the first year as well as on maturity date. To avoid this inherent distortion, and as prescribed by RBI, we have adopted the method of amortization of swap points to even out expenses throughout the tenor of swaps.

C-3.3Profit on sale of investment held under “Held to Maturity” category amounting to Rs. 720.99 crores, which has been transferred to Profit & Loss Account initially and thereafter an amount of Rs. 353.65 crores net of tax and transfer to statutory reserve has been appropriated to Capital Reserve.

C-4 Provision for Taxes

C-4.1 Provision for Taxes has been arrived at after due consideration of decisions of the appellate authorities and advice of counsels.

C-4.2 In terms of Income Computation and Disclosure Standards (ICDS) notified by CBDT which are effective from 01.04.2016 and the clarification issued by CBDT through FAQs, the FCTR balance as on 01.04.2016 pertaining to Exchange difference on monetary items of non-integral operations is required to be recognised in the income computation of the previous year relevant to AY2017-18 to the extent not recognised earlier. The balance in FCTR as on 01.04.2016 amounts to Rs. 2238.55 Crs. Based on legal opinion, bank has not considered the opening balance of FCTR for computing taxable income and consequently tax amounting to Rs. 774.71 Crs has not been provided for. Further this will not impact the profit for the year since deferred tax assets has not been recognised to that extent.

C-4.3 Tax paid in advance/tax deducted at source appearing under “other Assets” amounting to Rs.2857.69 (Previous year Rs.5360.77 Crores) is inclusive of Rs.2405.95 Crores (previous year Rs.3616.78 crores) which represents amount adjusted by the department / paid by the bank in respect of disputed tax demands for various assessment years. No provision is considered necessary in respect of the said demands, as in the bank’s view, duly supported by counsels opinion and/or judicial pronouncements, additions / disallowances made buy the assessing officer are not sustainable.

C-5 Premises

C-5.1 Execution of conveyance deeds is pending in respect of certain properties amounting to Rs.23.86 Crores (Previous Year Rs.64.97 Crores).

C-5.2 Premises include assets under construction/ acquisition amounting to Rs.371.70 Crores (Previous Year Rs.336.09 Crores).

C-6 BOB Fiscal Services Limited (BOBFSL), erstwhile wholly owned subsidiary of Bank of Baroda (BOB), had passed a special resolution for voluntary winding up of the Company on 24.09.1990 and the Liquidator was appointed for the same.

BOBFSL had entered into an agreement with BOB pursuant to which entire assets and liabilities of BOBFSL were transferred to BOB as a going concern / as sale in liquidation of the entire business w.e.f. 28.2.1991. As the Company could not be liquidated due to pending legal cases, a decision to merge BOBFSL with BOB was taken in the Annual General Meeting of BOBFSL held on 30th March 2007.

The Board of Directors of BOB has approved the merger of BOBFSL with BOB in its Board meeting on 28.01.2009 and authorized the Management to file necessary petition for merger of BOBFSL with BOB before the Bombay High Court.

C-7 Based on RBI’s clarification that the repatriation of accumulated profits shall not be considered as disposal or partial disposal of interest in non-integral foreign operations, the bank has not recognized exchange gain of Rs.193.36 crore as income arising on repatriation of funds from foreign offices during the year. In the previous year, the bank had recognized an amount of Rs.302.97 crores in the profit and loss account being the proportionate exchange gain in FCTR on repatriation of profits from overseas operations. In the opinion of the management, the circular is not retrospective in nature and has applied the same from financial year 2016-17 onwards and hence no adjustment has been made in respect of previous year.

C-8 As per the RBI notification vide RBI/2016-17/283 dated April18, 2017 banks are required to disclose the divergence in the asset classification and provisioning if the additional provisioning requirements assessed by RBI exceeds 15% of published net profit after tax or additional Gross NPAs identified by RBI exceed 15% of published incremental Gross NPA during reference period.

In this regard, no separate disclosure is made as the divergence is not beyond the above mentioned criteria.

C-9 The Bank has made provision @ 20% on the Secured Sub-standard Advance as against the Regulatory requirement of 15%. However on unsecured sub standard advances, the bank has made provision @ 25% as per regulatory requirement.

C-10 The Reserve Bank of India (RBI) vide DBR.BRBC. No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks needs to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. In terms of the requirement stipulated vide said circular, the Bank has submitted proforma Ind-AS financial statements to the RBI for the half year ended 30thSeptember 2016.

C-11 Figures of previous year have been regrouped/ rearranged wherever necessary, so as to make them comparable with those of the current period

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.

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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