1. During the year, the Bank has made preferential allotment of 23,81,42,640 Equity Shares of Rs.10 each in accordance with the regulation 76(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the details of which are as under:
During the year, the Bank has received Rs.1,500 from the Government of India and Rs.221.92 from the Life Insurance Corporation of India towards share application money for subscription to equity shares on preferential basis. The same is treated as CET 1 capital for CRAR purpose in accordance with RBI letter No.DBR. No.BP.11083/21.01.002/2016-17 dated 22nd March, 2017.
2. Balancing of Subsidiary Ledger Accounts, confirmation/ reconciliation of balances with foreign branches, Inter-office accounts, NOSTRO Accounts, Suspense, Drafts Payable, Clearing Difference, etc. is in progress on an on-going basis. In the opinion of the management, the overall impact on the financial statements, if any, of pending final clearance/ adjustment of the above, is not likely to be significant.
3. During the year under Audit there is no change in accounting policies as those followed in the preceding financial year except in respect of depreciation on fixed assets. Earlier, the Bank was charging depreciation on all fixed assets (other than Computer & Computer Software) as per written down method at the rate determined by the bank which has now been changed to Straight Line Method (SLM) based on the estimated useful life of Fixed assets. Due to such change the excess depreciation, amounting to Rs.313.17 has been written back and credited to Profit & Loss Account during the year.
4. In view of the losses incurred by the Bank, RBI has permitted the Bank to make payment of interest on Additional Tier I Perpetual Basel III Compliant Bonds by debiting the Revenue Reserve. Accordingly, during the year, the Bank has reversed the provision of Rs.177.81 made towards interest payable till 31st March, 2016 by crediting the same to interest expended and an amount equivalent to such provision has been transferred from the Revenue Reserve. Further, Interest expended of Rs.413.22 for the year ended 31st March, 2017 has also been debited to Revenue Reserve.
5. The following information is disclosed in terms of guidelines issued by RBI:
Pursuant to RBI circular No DBR. NO.BP.13018/21.04.048/2015-16 dated 1st March 2016, the bank has considered revaluation reserve, foreign currency translation reserve and deferred tax assets in calculation of Capital Adequacy Ratio as on 31st March 2017.
Government Securities (Face Value) amounting to Rs.4,441.61 (previous year Rs.15,064.56) are kept as margin with RBI, CCIL, Clearing Houses and Exchanges towards margins/security settlement.
During the year the Bank has sold 18% stake in Star Union Dai-ichi Life Insurance Limited, Joint Venture, for Rs.540 and earned profit of Rs.495 (net of tax Rs.323.69). Post sale the Bank’s share has reduced to 28.96% as on 31.03.2017. Further, Rs.20.10 and Rs.6.84 were invested in Bank of India (Tanzania) Ltd. and BOI Axa Investment Managers Pvt. Ltd., respectively, subsidiaries of the Bank. However, Bank’s share in the Equity capital (i.e. 100% and 51% respectively) has remained constant pursuant to such additional investment.
During the year ended 31st March, 2017, the Bank has earned a profit of Rs.5.84 under buyback of 50,000 shares by BOI Shareholding Limited, a wholly owned subsidiary. Post buyback the investment has reduced to Rs.6.65 as on 31.03.2017 (previous year Rs.8.86).
5.1.1. Sale and transfers of securities to/from HTM Category:
During the year ended March 31, 2017, the aggregate book value of investment sold from, and transferred to/from, HTM category was in excess of 5% of the book value of HTM category at the beginning of the year.
The market value of investments (excluding investments in Non SLR bonds) under HTM category as on March 31, 2017 was Rs.81,714.81 which was higher than the book valueas of that date. In accordance with the RBI guidelines, sale from, and transfer to/ from, HTM category excludes:
- One-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year with approval of the Board of Directors;
- Sales to the RBI under pre-announced open market operation auctions;
- Repurchase of Government securities.
5.1.2 Disclosures on risk exposure in derivatives
i. Qualitative Disclosure
The Bank enters into derivative contracts such as interest rate derivatives, currency swaps and currency options to hedge on balance sheet assets and liabilities or to meet client requirements as well as for trading purpose as per policy approved by the Board. These products are used for hedging risk, reducing cost and increasing the yield. In such transactions, the types of risks to which the bank is exposed to, are credit risk, market risk, operational risk etc.
Risk management is an integral part of bank’s business management. Bank has risk management policies designed to identify and analyse risks, to set appropriate risk limits and to monitor these risks and limits on an on-going basis by means of reliable and up to date management information systems. The risk management policies and major control limits are approved by the Board of Directors and they are monitored and reviewed regularly. The organization of the Bank is conducive to managing risks. There is sufficient awareness of the risks and the size of exposure of the trading activities in derivative operations.
The Bank has a Risk Management Committee of Directors presided over by the Managing Director& CEO.
The hedge/non hedge (market making) transactions are recorded separately. Income/expenditure on hedging derivatives is accounted on accrual basis.
Forex forward contracts are marked to market and the resultant gains and losses are recognized in the profit and loss account.
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.
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 & Loss account.
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.
Option fees/premium is amortised over the tenor of the option contract.
Bank has a proper system of submitting periodical reports to Senior and Top Management and Board as well as regulatory authorities as required by RBI and/or as per operational requirements. Bank has clearly spelt derivative guidelines on various aspects approved by the Board of Director. The derivative transactions are subject to concurrent, internal, statutory and regulatory audits.
The counter parties to the transactions are banks, primary dealers 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 Exposures arising on account of interest rate and foreign exchange derivative transactions. Current exposure method is the sum of current credit exposure and potential future exposure of these contracts.
The current credit exposure is the sum of positive mark to market value of these contracts i.e. when the Bank has to receive money from the counter party.
Potential future credit exposure is determined by multiplying the notional principal amount of these contracts irrespective of whether the contract has zero, positive or negative mark to market value by the relevant add-on factors as under according to the nature and residual maturity of the instrument.
While computing the credit exposure, “sold options” are excluded wherever the entire premium/fee or any other form of income is received / realized.
As per the extant RBI guidelines, credit exposures computed as per the current Mark to Market value of the contracts, also attracts provisioning requirement as applicable to the loan assets in the “Standard” category, of the concerned counterparty. At present, the provision is to be maintained at 0.4% of the risk weighted assets. The Bank makes the requisite provision as aforesaid in the books.
6. Disclosure requirements as per Accounting Standards (AS) where RBI has issued guidelines in respect of disclosure items for Notes to Accounts:
6.1 Accounting Standard 9 - Revenue recognition
Certain items of income are recognised on realisation basis as per Accounting Policy no. 3 of Schedule 17: Significant Accounting Policies. However, the said income is not considered to be material.
6.2. Accounting Standard 18 - Related Party Transactions (As compiled by the management and relied upon by the Auditors):
I) List of Related Parties:
a. Key Managerial Personnel :
Managing Director & CEO : Shri Melwyn O. Rego Executive Directors :
Shri B.P. Sharma (Up to 31.07.2016)
Shri Ravindra P. Marathe (Up to 26.09.2016)
Shri R.A.Sankara Narayanan Shri NeelamDamodaran (w.e.f 16.02.2017)
Shri Atanu Kumar Das (w.e.f. 17.02.2017)
a. BOI Shareholding Ltd.
b. BOI AXA Investment Managers Private Limited
c. BOI AXA Trustee Services Private Limited
d. BOI Merchant Bankers Ltd.
e. PT Bank of India Indonesia Tbk
f. Bank of India (Tanzania) Limited
g. Bank of India (New Zealand) Limited
h. Bank of India (Uganda) Limited
i. Bank of India (Botswana) Limited
a. STCI Finance Limited
b. ASREC (India) Limited
c. Indo-Zambia Bank Limited
d. 4 Regional Rural Banks sponsored by the Bank
i. Gramin Bank of Aryavart (Formerly known as Aryavart Kshetriya Gramin Bank)
ii. Jharkand Gramin Bank;
iii. Narmada Jhabua Gramin Bank
iv. Vidharbha Konkan Gramin Bank
e. Joint Venture:
a. Star Union Dai-Ichi Life Insurance Co. Ltd.
The transactions with the subsidiaries and regional rural banks, being state controlled, have not been disclosed in view of Para 9 of AS-18 on Related party disclosure issued by ICAI exempting ‘State controlled enterprises’ from making any disclosure pertaining to their transactions with other related parties which are also ‘State Controlled Enterprises’.
6.3. Accounting Standard 19 - Lease Financing
The contractual maturities of the Bank’s investment in lease financing and its components, which are included in advances, are set out below:
7.1 Drawdown from Reserves
In terms of RBI Circular Ref. DBOD. No. BP.BC.38/21.06.201/2014-15 dated September 1, 2014 on ‘Implementation of Basel III Capital Regulations in India -Amendments’ read with RBI Circular Ref. DBR. No. BP.BC.71/21.06.201/2015-16 dated January 14, 2016 on "Master Circular-Basel III Capital Regulations -Clarification’ Bank has made a drawdown of Rs.591.03 from Revenue Reserve towards interest of Additional Tier-I Perpetual Basel III Compliant bonds.
Further, in terms of RBI Circular Ref. DBR.No.BP. BC.92/21.04.048/2015-16 dated April 18, 2016 on Provisioning pertaining to Fraud Accounts, Bank has debited ‘other reserves’ by Rs.65.19, being an amount remaining un-provided at the end of the financial year after considering the provision already made for the fraud during the quarters, by debiting the Profit & Loss account.
7.2 Disclosure of Letters of CoToort (LoCs) issued by bank for Subsidiaries (As compiled by the management)
During current year, the bank has not issued any letter of coToorts on behalf of Subsidiaries.
During the year 2011-12 the bank has issued an undertaking to the governor, Bank of Botswana in respect of its wholly owned subsidiary, Bank of India (Botswana) Ltd to meet its financial commitments if they fall due.
During the year 2010-11 the bank issued parental guarantee in favour of Royal Bank of New Zealand for its wholly owned subsidiary, BOI(New Zealand) Ltd. to meet its financial obligations, if they fall due.
As on 31.03.2017, no financial obligations have arisen on the above commitments.
7.3 Provisioning Coverage Ratio (PCR)
The Provisioning to Gross Non-Performing Assets of the Bank as on 31st March 2017 is 61.47% (Previous year:51.14%).
7.4 Fees, remuneration received from Bancassurance business:
7.5 Concentration of Deposits, Advances, Exposures and NPAs
7.6 Disclosure relating to Securitisation
The Bank has not floated any Special purpose Vehicle (SPV) during the Financial Year 2016-17.
7.7 Credit Default Swaps
The bank has not dealt with any Credit Default Swap.
The bank has duly approved policies by the Board on Capital and Provisioning Requirement for exposures to entities with unhedged foreign currency exposure which is based on RBI circular No.DB0D.No.BP.BC.85/21.06.200/2013-14 dated January 15, 2014 and clarifications received vide RBI Circular No. DB0D.No.BP.BC.116/21.06.200/2013-14 dated June 03, 2014.
Accordingly, it is envisaged that the Bank monitors UFCE on a monthly interval and provisioning and capital requirements on a quarterly basis. As on 31.03.2017, based on available data and declaration from the borrowers, wherever received, the Bank has created total provision of Rs.57.75 (Previous Year Rs.73.58). The additional RWA on this exposure is Rs.1082.37 (Previous Year Rs.1287.83), as against this additional minimum capital requirement is Rs.110.94 (Previous Year Rs.115.90).
Qualitative disclosures with regard to LCR
W.e.f. 1st January 2015, the Bank has implemented guidelines on Liquidity Coverage Ratio (LCR) as directed by Reserve Bank of India.
The LCR standard aims to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLA) 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. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 under a severe liquidity stress scenario.
High Quality Liquid Assets (HQLA)
Total net cash outflows over the next 30 calendar days
- HQLA comprises of level 1 and level 2 assets, in other words these are cash or near to cash items which can be easily used/discounted in the market in case of need.
- Net cash outflows are excess of total inflows over total outflows under stressed situation as defined by BCBS/ RBI. While arriving at the net cash outflow, the inflows are taken with pre-defined hair-cuts and the outflows are taken at pre-defined run-off factors.
- In case stressed inflows are more than the stressed outflows, 25% of total outflows shall be taken as total net cash outflows to arrive at the LCR.
- With effect from 01.01.2015, Banks are required to maintain minimum 60% LCR on an ongoing basis as given below:
Main Drivers of LCR: The main drivers of the LCR are adequacy of High Quality Liquid Assets (HQLA) and lower net cash outflow on account of higher funding sources from retail customers. Sufficient stock of HQLA helped the Bank to maintain adequate LCR.
Composition of HQLA: The composition of High Quality Liquid Assets (HQLA) mainly consists of cash balances, excess SLR, excess CRR and FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio).
Concentration of funding sources: Majority of Bank’s funding sources are from retail customers,therefore the stressed outflows are comparatively lower. However, in absence of any non-callable option for term deposits, the Bank has considered almost all deposits under outflow section as per RBI guidelines. Bank also does not have funding concentration from any significant counterparty. A significant counterparty is defined as a single counterparty or group of connected or affiliated counter parties accounting in aggregate for more than 1% of the bank’s total liabilities.
Derivative Exposures and potential collateral calls: Bank has very little exposure in derivative business which is not very significant.
Currency mismatch in the LCR: In terms of RBI guidelines, 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. In our case, USD is the only significant currency. Therefore, Bank also calculates LCR in USD currency.
Description of the degree of centralization of liquidity management and interaction between the group’s units:
The liquidity management of the Bank at enterprise level is a Board level function and a separate sub-committee of the Board (R.Com.) keeps close watch on that. The periodical monitoring of the liquidity management is being monitored by the ALCO on regular intervals. The entire liquidity management process of the Bank is being governed by ALM Policy of the Bank.
The liquidity management for domestic operations is the central function, being managed at Head Office level. The overseas liquidity management is being handled at each centre, jurisdiction wise to keep close monitoring and control and also to comply with the local regulatory requirements as well. International Division of the Bank keeps watch on the overseas liquidity position and the overall liquidity monitoring is done at Head Office level centrally.
Other inflows and outflows in the LCR calculation that are not captured in the LCR common template but which the institution considers to be relevant for its liquidity profile:
No such items as per our notice.
8. Other Notes
a) Income Tax:
(i) Claims against the Bank not acknowledged as debt under contingent liabilities (Schedule 12) include disputed income tax/interest tax liabilities of Rs.555.42 (previous year Rs.555.07) for which no provision is considered necessary based on various judicial decisions in respect of past assessments on such disputes. Payments/adjustments against the said disputed dues are included under Other Assets (Schedule 11).
(ii) Provision for income tax for the year is arrived at after due consideration of the provisions of the applicable tax laws and relevant judicial decisions on certain disputed issues.
(iii) Income Computation and Disclosure Standards (ICDS) as notified u/s 145(2) of the Income Tax Act, 1961 on 29th September 2016, are applicable for the financial year ended on 31st March, 2017 and accordingly tax provisions and deferred tax for the financial year 2016-17 have been computed after considering its impact.
b) Movement of Reward Points for 2016-17:
c) Disclosure regarding frauds:
d) In compliance with the RBI Guidelines in respect of “Scheme for Stressed Assets-Revision”, in respect of Standard Facilities under Strategic Debt Restructuring (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A), the bank has during the year ended 31st March, 2017 reversed an amount of Rs.114.43 being unrealised interest in such accounts.
e) During the year the Bank has invoked Sustainable Structuring of Stressed Assets (S4A) in Two borrower accounts (Standard as on 31st March, 2017) having aggregate outstanding of Rs.272.80 as on 31st March, 2017. The required provision will be reckoned by the Bank only upon implementation of the S4A scheme.
f) During the year, in case of one Borrower declared as fraud, an amount of Rs.65.40 has been provided, in terms of RBI circular DBR.No.BP.BC.83/21.04.048/2014-15 dated April 01, 2015 and DBR.No.BP.BC.92/21.04.048/2015-16 dated April 18, 2016. The remaining un-provided as on 31st March, 2017 is Rs.65.19 has been drawn from Revenue Reserve.
g) In compliance with RBI directives, accounts shown under Annex - III of Asset Quality Review (AQR) wherein restructuring was failed due to performance issues or non-fulfilment of certain conditions and necessary provisions was held in those accounts in terms of RBI directives, have been reviewed as on 31st March, 2017 and has now being classified and provision has been made as per the IRAC norms. Incremental provision of Rs.83.22 which was made in terms of RBI directives have been reversed on 31st March, 2017 w.r.t. those accounts which remained standard as on 31st March, 2017.
h) Other Income for the year includes gain of Rs.495.00 on sale of 18% stake held by the Bank in the Joint Venture namely Star Union Dai-ichi Life Insurance Company Limited and Rs.188.13 from sale of investment in CIBIL.
i) In accordance with RBI guidelines, Bank has shifted securities from HTM to AFS category during the year. The book value of securities shifted was Rs.13854.96.
j) Profit on sale of Investments held under “Held to Maturity” category amounting to Rs.1146.70 (previous year Rs.243.86) has been taken to the Profit & Loss Account and thereafter an amount Rs.749.85 (previous year Rs.159.47) has been appropriated to the Capital Reserve, net of taxes and transfer to Statutory Reserve under section 17 of the Banking Regulation Act, 1949.
k) The Bank has received 3 Investor complaints during the quarter ended 31st March, 2017 which have been disposed-off. There are no pending investor complaints at the beginning or end of the quarter.
l) Previous year’s figures have been regrouped/rearranged, wherever considered necessary.