1) BASIS OF PREPARATION:
The financial statements are prepared following the going concern concept, on historical cost basis unless otherwise stated and conform, in all material aspects, to the Generally Accepted Accounting Principles (GAAP) in India, which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI), Accounting Standards (AS), pronouncements issued by The Institute of Chartered Accountants of India (ICAI), Banking Regulation Act, 1949 and accounting practices prevalent in the banking industry in India. In respect of foreign offices/branches, statutory provisions and accounting practices prevailing in the respective foreign countries are complied with, except as specified elsewhere.
2) USE OF ESTIMATES:
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as of date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. However, actual results can differ from estimates. Any revision to accounting estimates is recognised prospectively in current and future periods.
3) REVENUE RECOGNITION:
(a) Income/Expenditure is recognised on accrual basis, unless otherwise stated. In respect of foreign offices, income/expenditure is recognised as per local laws/ standards of host country.
(b) Interest income is recognised on time proportion basis except interest on Non-performing Assets and accounts coverd under SDR/S4A, which is recognised on realisation, in terms of the RBI guidelines.
(c) Commission on issue of Bank Guarantee and Letter of Credit is recognised over the tenure of BG/LC.
(d) All other Commission and Exchange, Brokerage, Fees and other charges are recognised as income on realisation.
(e) Income (other than interest) on investments in “Held to Maturity” category acquired at a discount to the face value, is recognised as follows:
1. On Interest bearing securities, it is recognised only at the time of sale/redemption.
2. On zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.
(f) Profit or loss on sale of investments is recognised in the Profit and Loss account. As per RBI guidelines, in case of profit on sale of investments under ‘Held to Maturity’ category, an equivalent amount, net of taxes and amount required to be transferred to Statutory Reserves, is appropriated to ‘Capital Reserve Account’.
(g) Dividend is recognised when the right to receive the dividend is established.
(h) Interest on Income-tax refund is recognised in the year of passing of assessment order.
(i) The recoveries made from NPA accounts are appropriated first towards unrealised interest/income debited to borrowers accounts, expenditure/out of pocket expenses incurred, then principal dues and lastly towards uncharged interest.
(a) Advances are classified into “Performing” and “Non Performing Advances” (NPAs) in accordance with the applicable regulatory guidelines.
(b) NPAs are further classified into Sub-Standard, Doubtful and Loss Assets in terms of applicable regulatory guidelines.
(c) In respect of domestic branches, Provisions in respect of NPAs are made at the rates given as under:
(d) In respect of foreign branches, classification of advances as NPAs and provision in respect of NPAs is made as per the regulatory requirements prevailing at the respective foreign countries or as per guidelines applicable to domestic branches, whichever is stringent.
(e) Provisions in respect of NPAs, unrealised interest, ECGC claims settled, etc., are deducted from total advances to arrive at net advances as per RBI norms.
(f) In respect of Rescheduled/Restructured advances, provision is made for the diminution in the fair value of restructured advances measured in present value terms as per RBI guidelines. The said provision is reduced to arrive at Net advances.
(g) In case of financial assets sold to Asset Reconstruction Company (ARC) / Securitisation Company (SC), if the sale is at a price higher than the Net Book Value (NBV), the surplus is retained and utilised to meet the shortfall/loss on account of sale of other financial assets to SC/ARC. If the sale is at a price below the net book value (NBV), (i.e.outstanding less provision held) the shortfall is to be debited to the Profit and Loss account. However, if surplus is available, such shortfall will be absorbed in the surplus. Any such shortfall arising due to sale of NPA on or after 26/02/2014 will be amortised over a period of two years if not absorbed in the surplus.
Excess provision arising out of sale of NPAs are reversed only when the cash received (by way of initial consideration only/or redemption of SRs/PTC) is higher than the net book value (NBV) of the asset. Reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset.
(h) Provision for Standard assets, including restructured advances classified as standard, is made in accordance with RBI guidelines. In respect of foreign branches provision for Standard Assets is made as per the regulatory requirements prevailing at the respective foreign countries or as per guidelines applicable to domestic branches, whichever is stringent.
(i) Provision for net funded country exposures (direct/ indirect) is made on a graded scale in accordance with the RBI guidelines.
5) FLOATING PROVISION:
The bank has a policy for creation and utilisation of floating provisions. The quantum of floating provisions to be created is assessed at the end of each financial year. The floating provisions are utilised only for contingencies under extraordinary circumstances specified in the policy with prior permission of Reserve Bank of India or on being specifically permitted by Reserve Bank of India for specific purposes.
6) DEBIT/CREDIT CARD REWARD POINTS:
Provision for reward points in relation to the debit cards is provided for on actuarial estimates and Provision for Reward Points on Credit cards is made based on the accumulated outstanding points.
A. Transactions in Government Securities are recognised on Settlement Date and all other Investments are recognised on trade date.
B. Investments are categorised under ‘Held to Maturity’, ‘Held for Trading’ and ‘Available for Sale’ categories as per RBI guidelines. For the purpose of disclosure of investments in India, these are classified, in accordance with RBI guidelines & Banking Regulation Act, 1949, under six classification viz. a) Government Securities, b) Other Approved Securities, c) Shares, d) Debentures and Bonds, e) Investment in Subsidiaries and Associates and f) Others. In respect of investments outside India, these are classified, in accordance with RBI guidelines, under three categories viz. Government Securities (including local authorities), Subsidiaries/ Joint Ventures abroad and Other Investments.
(a) Basis of categorisation
Categorisation of an investment is done at the time of its acquisition.
i) Held to Maturity
These comprise investments that the Bank intends to hold till maturity. Investments in subsidiaries, joint ventures and associates are also categorised under Held to Maturity.
ii) Held for Trading
This comprise investments acquired with the intention to trade by taking advantage of short term price/interest rate movements. These are intended to be traded within 90 days from the date of purchase.
iii) Available for Sale
This comprise investments which do not fall under “Held to Maturity” or “Held for Trading” classification.
(b) Acquisition Cost of Investment
i) Brokerage, commission, securities transaction tax etc. paid on acquisition of equity investments are included in cost.
ii) Brokerage, commission, broken period interest paid/ received on debt investments is treated as income/expense and is excluded from cost/ sale consideration.
iii) Brokerage and Commission received on subscription of investments is credited to Profit and Loss Account.
iv) Cost of investments is determined at weighted average cost method.
(c) Method of valuation
Investments in India are valued in accordance with the RBI guidelines and investments held at foreign branches are valued at lower of the value as per the statutory provisions prevailing at the respective foreign countries or as per RBI guidelines issued from time to time.
Treasury Bills and Commercial Papers are valued at carrying cost.
i) Held to Maturity
1 Investments included in this category are carried at their acquisition cost, net of amortisation, if any. The excess of acquisition cost, if any, over the face value is amortised over the remaining period to maturity using constant yield method. Such amortisation of premium is adjusted against income under the head “interest on investments”.
2 Investments in subsidiaries, joint ventures and associates (both in India and abroad) are valued at historical cost except for investments in Regional Rural Banks, which are valued at carrying cost (i.e. book value). A provision is made for diminution, other than temporary, for each investment individually.
ii) Held for Trading / Available for Sale
1 Investments under these categories are individually valued at the market price or fair value determined as per Regulatory guidelines and only the net depreciation in each classification for each category is provided for and net appreciation is ignored. On provision for depreciation, the book value of the individual securities remains unchanged after marking to market.
2 For the purpose of valuation of quoted investments in “Held for Trading” and “Available for Sale” categories, the market rates / quotes on the Stock Exchanges, the rates declared by Primary Dealers Association of India (PDAI) / Fixed Income Money Market and Derivatives Association (FIMMDA) are used. Investments for which such rates/quotes are not available are valued as per norms laid down by RBI, which are as under:
(d) Transfer of Securities between Categories
The transfer of securities between categories is carried out at the least of acquisition cost / book value/ market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for.
(e) Non performing Investments (NPIs) and valuation thereof
1 Investments are classified as performing and nonperforming, based on the guidelines issued by the RBI in case of domestic offices and respective regulators in case of foreign offices.
2 In respect of non performing investments, income is not recognised and provision is made for depreciation in value of such securities as per RBI guidelines.
(f) Repo / Reverse Repo
The securities sold and purchased under Repo/ Reverse repo are accounted as Collateralised lending and borrowing transactions. However, securities are transferred as in case of normal outright sale/ purchase transactions and such movement of securities is reflected using the Repo/ Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo Account is classified as Borrowings and balance in Reverse Repo account is classified as Balance with Banks and Money at Call & Short Notice.
The Bank presently deals in Forex Forward Contracts, interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency Interest Rate Swaps, Forward Rate Agreements and Interest Rate Futures. Currency Derivatives dealt with by the Bank are Options, Currency Swaps and Currency Futures. Based on RBI guidelines, Derivatives are valued as under:
(a) The hedge/non hedge (market making) transactions are recorded separately.
(b) Income/expenditure on hedging derivatives are accounted on accrual basis.
(c) Forex forward contracts are Marked to market and the resultant gains and losses are recognized in the profit and loss account.
(d) Interest Rate Derivatives and currency derivatives other than exchange traded derivatives for trading purpose are marked to market and the resulting losses, if any, are recognised in the Profit & Loss account. Net Profit if any, is ignored.
(e) Exchange Traded Derivatives entered into for trading purposes are valued at prevailing market rates based on rates given by the Exchange and the resultant gains and losses are recognized in the Profit and Loss Account.
(f) Gains/ losses on termination of the trading swaps are recorded on the termination date as income/ expenditure. Any gain/loss on termination of hedging swaps are deferred and recognised over the shorter of the remaining contractual life of the swap or the remaining life of the designated assets/liabilities.
(g) Option fees/premium is amortised over the tenor of the option contract.
9) FIXED ASSETS:
(a) Fixed assets are stated at historic cost, except in the case of assets which have been revalued, which is stated at revalued amount. The appreciation on revaluation is credited to Revaluation Reserve.
(b) Cost includes cost of purchase and all expenditure such as site preparation, installation costs, professional fees etc. incurred on the asset before it is put to use or capable of put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefits from such assets or their functioning capability.
(c) Cost of premises includes cost of land, both freehold and leasehold.
10) DEPRECIATION ON FIXED ASSETS:
a) Depreciation on assets is charged on the Straight Line Method at the rates determined by the Bank, on the basis estimated useful use of respective assets except in respect of computers and computer software not forming integral part of hardware, where it is calculated on Straight Line Method, at the rates prescribed by RBI.
b) In respect of additions/sale, depreciation is provided on proportionate basis (except for computer software not forming integral part of hardware, where it is fully depreciated in the year of acquisition) for the number of days the assets have been put to use during the year.
c) Depreciation on the revalued portion of assets is adjusted against the Revaluation Reserve.
d) Premium on leasehold properties is amortised over the period of lease.
e) Where the cost of land and building cannot be separately ascertained, depreciation is provided on the composite cost, at the rate applicable to buildings.
f) Depreciation on fixed assets outside India is provided based on Straight Line Method, except at the centres where the rates/method have been prescribed by the local statutory authorities.
g) Depreciation on assets is provided at the following rates:
h) 5% residual value has been kept for all the assets except for the assets with estimated useful life less than 5 years (e.g. Computers, computer software and Cycles), where the entire cost of the assets is amortised over the useful life.
11) TRANSACTIONS INVOLVING FOREIGN EXCHANGE:
Transactions involving foreign exchange are accounted for in accordance with AS 11, “The Effect of Changes in Foreign Exchange Rates” read circular extant RBI guidelines:
a) Translation in respect of Integral Foreign operations:
Foreign currency transactions of Indian branches have been classified as integral foreign operations and foreign currency transactions of such operations are translated as under:
i) Foreign currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency on the daily closing rate as available from Cogencis/ Reuters page.
ii) Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing spot rates.
iii) Foreign currency non-monetary items, which are carried in terms of historical cost, are reported using the exchange rate at the date of the transaction.
iv) Contingent liabilities denominated in foreign currency are reported using the FEDAI closing spot rates.
v) Outstanding foreign exchange spot and forward contracts held for trading are revalued at the exchange rates notified by FEDAI for specified maturities, and the resulting notional profit or loss is recognised in the Profit and Loss account.
vi) Outstanding Foreign exchange forward contracts which are not intended for trading are valued at the closing spot rate as advised by FEDAI. The premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.
vii) Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognised as income or as expense in the period in which they arise.
viii) Gains/Losses on account of changes in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognised in the Profit and Loss account.
b) Translation in respect of Non-Integral Foreign operations:
Transactions and balances of foreign branches are classified as non-integral foreign operations and their financial statements are translated as follows:
i) Assets and Liabilities (monetary and nonmonetary as well as contingent liabilities) are translated at the closing rates notified by FEDAI.
ii) Income and expenses are translated at the quarterly average closing rates notified by FEDAI.
iii) All resulting exchange differences are accumulated in a separate account ‘Foreign Currency Translation Reserve’ till the disposal of the net investments by the bank in the respective foreign branches.
iv) The Assets and Liabilities of foreign offices in foreign currency (other than local currency of the foreign offices) are translated into local currency using spot rates applicable to that country.
12) EMPLOYEE BENEFITS:
i. Short Term Employee Benefit:
The undiscounted amount of short-term employee benefits, such as medical benefits etc. which are expected to be paid in exchange for the services rendered by employees are recognised during the period when the employee renders the service.
ii. Post Employment Benefit:
A. Defined Benefit Plan:-
The Bank provides gratuity to all eligible employees. The benefit is in the form of lumpsum payments to vested employees on retirement, on death while in employment, or on termination of employment, for an amount equivalent to 15 days basic salary payable for each completed year of service, subject to a maximum prescribed as per The Payment of Gratuity Act 1972 or BOI (Employee) Gratuity Regulation whichever is higher. Vesting occurs upon completion of five years of service. The Bank makes periodic contributions to a fund administered by trustees based on an independent actuarial valuation carried out annually.
The Bank provides pension to all eligible employees. The benefit is in the form of monthly payments as per rules and payments to vested employees on retirement, on death while in employment, or on termination of employment. Vesting occurs at different stages as per rules. The Bank makes monthly contribution to the pension fund at 10% of pay in terms of BOI (Employees) Pension regulations. The pension liability is reckoned based on an independent actuarial valuation carried out annually and Bank makes such additional contributions periodically to the Fund as may be required to secure payment of the benefits under the pension regulations.
B. Defined Contribution Plan:
a) Provident Fund:
The Bank operates a Provident Fund scheme. All eligible employees are entitled to receive benefits under the Bank’s Provident Fund scheme. The Bank contributes monthly at a determined rate (currently 10% of employee’s basic pay plus eligible allowance). These contributions are remitted to a trust established for this purpose and are charged to Profit and Loss Account. The bank recognises such annual contributions as an expense in the year to which it relates.
All Employees of the bank, who have joined from 1st April, 2010 are eligible for contributory pension. Such employees contribute monthly at a predetermined rate to the pension scheme. The bank also contributes monthly at a predetermined rate to the said pension scheme. Bank recognises its contribution to such scheme as expenses in the year to which it relates. The contributions are remitted to National Pension System Trust. The obligation of bank is limited to such predetermined contribution.
iii. Other Long term Employee Benefit:
a) Leave encashment benefit, which is a defined benefit obligation, is provided for on the basis of an actuarial valuation in accordance with AS 15 - Employee Benefits.
b) Other employee benefits such as Leave Fare Concession, Milestone award, resettlement benefits, Sick leave etc. which are defined benefit obligations are provided for on the basis of an actuarial valuation in accordance with AS 15 - Employee Benefits.
c) In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are valued and accounted for as per laws prevailing in the respective territories.
13) EARNINGS PER SHARE:
Basic and Diluted earnings per equity share are reported in accordance with AS-20 “Earnings per share”. Basic earnings per equity share are computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the period.
Diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the end of the period.
14) TAXES ON INCOME:
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Bank. The current tax expense and deferred tax expense are determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - “Accounting for Taxes on Income” respectively after taking into account taxes paid at the foreign offices, which are based on the tax laws of respective jurisdictions.
Deferred Tax adjustments comprise changes in the deferred tax assets or liabilities during the year. Deferred tax assets and liabilities are recognised by considering the impact of timing differences between taxable income and accounting income for the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted 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 recognised and re-assessed at each reporting date, based upon management’s judgment as to whether their realisation is considered as reasonably certain. Deferred Tax Assets are recognised on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realised against future taxable income.
15) IMPAIRMENT OF ASSETS:
Impairment losses, if any on Fixed Assets (including revalued assets) are recognised and charged to Profit and Loss account in accordance with AS-28 “Impairment of Assets”.However, an impairment loss on a revalued asset is recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset.
16) PROVISIONS, CONTINGENT LIABLITIES AND CONTINGENT ASSETS:
As per AS-29 “Provisions, Contingent Liabilities and Contingent Assets”, the Bank recognises provisions only when it has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made. Contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefit is remote.
Contingent Assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.
17) SHARE ISSUE EXPENSES:
Share issue expenses are charged to the Profit and Loss Account in the year of issue of shares