SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN PREPARING FINANCIAL STATEMENTS
 (a) Basis of Preparation
The accounts are prepared under the historical cost convention and conform to the statutory provisions and prevailing practices except as otherwise stated.
(b) Use of Estimates
The preparation of financial statements requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, expenses, income and disclosure of contingent liabilities as at the date at the financial statements. Management believes that these estimates and assumptions are reasonable and prudent. However, actual results could differ from estimates. Any revision to accounting estimates is recognized in current and future periods.
 Foreign Currency Translation / Conversion of Foreign Currencies
2.1 Foreign currency monetary items are initially recorded at a notional rate. Foreign currency monetary items are restated at the rate published by Foreign Exchange Dealers'''' Association of India (FeDAI) at the end of each quarter. Exchange difference arising on restatement of such items at the quarterly rates is recognized in, Profit and Loss Account.
2.2 Transactions and balances of foreign branches are classified as non-integral foreign operations. Such transactions and balances are consolidated, by the bank on a quarterly basis.
Assets and Liabilities (both monetary and non-monetary as well as contingent liabilities) are translated at the closing spot rate of exchange announced by Foreign Exchange Dealers'''' Association of India (FEDAI) as at the end of each quarter. Income and Expenditure items of the foreign branches are translated at the quarterly average rate published by FEDAl in accordance with Accounting Standards (AS) 11-“The effect of Changes in Foreign Exchange rates” issued by the Institute of Chartered Accountants of India (ICAI) and as per the guidelines of Reserve Bank of India (RBI) regarding the compliance of the said standard. The resultant exchange gain / loss is credited / debited to Foreign Currency Translation Reserve.
2.3 Forward Exchange Contracts
Premium or discount arising at the inception of all forward exchange contracts are amortized as expense or income over the life of the contact. Profit / Losses arising on cancellation of forward exchange contracts, together with unamortized premium or discount, if any, is recognized on the date of termination. Exchange differences on such contracts are recognized in the Profit & Loss account in the reporting period in which the exchange rates change.
2.4 Contingent liability in respect of outstanding forward exchange contracts, guarantees, acceptances, endorsements and other obligations are stated in the balance sheet at the closing rates published by FEDAI.
3.1 Classification of Investments is made as per the guidelines of the RBI. The entire investment portfolio of the bank is classified under three categories viz. ''''Held to Maturity'''' (HTM), ''''Available for Sale'''' (AFS) and ''''Held for Trading'''' (HFT). Such classification is decided at the time of acquisition of securities.
Investments are disclosed in the Balance Sheet under six classifications viz: (a) Government securities (b) Other approved securities (c) Shares (d) Debentures & Bonds (e) Subsidiaries and Joint Ventures & Associates and (f) Others.
3.2 In determining the acquisition cost of investment:
(a) Cost such as brokerage, commission etc. relating to securities at the time of purchase are charged to Profit & Loss Account.
(b) Broken period interest on debt instruments up to the date of acquisition / disposal is treated as revenue.
3.3 The valuation of investments is done in accordance with the guidelines issued by the RBI as under:
a) HELD TO MATURITY
Investments under Held to Maturity category are carried at acquisition cost, net of amortization, if any. The excess of acquisition cost, if any, over the face value is amortized over the remaining period of maturity.
Investments in Subsidiaries and Joint Ventures & Associates are valued at carrying cost. Any diminution in the value other than temporary in nature is fully provided for.
Investment in sponsored Regional Rural Banks (RRB) and other Trustee shares are valued at carrying cost.
Investment in units of Venture Capital Funds (VCFs) made after 23.08.2006 are classified under HTM category for initial period of three years and valued at cost.
b) AVAILABLE FOR SALE
Investments classified under this category are mark to market on quarterly basis and valued as per Reserve Bank of India guidelines at the market rates available on the last day of each quarter (Balance Sheet date) from trades / quotes on the stock exchanges, prices / yields declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Unquoted securities are also valued as per the Reserve Bank of India guidelines.
The net depreciation under each category/ classification is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after these are valued at mark to market basis.
Units of Venture Capital Funds (VCF) transferred from HTM category after a period of three years (Refer paragraph 3.3(a)) are valued at NAV as per the audited financial statements of Venture Capital Funds. In case such audited financial statements are not available continuously for 18 months as on the date of valuation, units are valued at Re. 1 per VCF.
c) HELD FOR TRADING
Investments classified under this category are valued at rates based on market quotations, price/yields declared by FIMMDA on a weekly basis.
The net depreciation under each security held is fully provided for whereas the net appreciation, if any, is ignored. The book value of the individual securities does not undergo any change after marked to market.
3.4. Transfer of scripts from one category to another is carried on the following basis:
(a) HTM to AFS / HFT category at acquisition price / book value. In case the investments under HTM category are placed at premium originally the transfer is made at amortized cost.
(b) AFS / HFT to HTM category at lower of the book value or market value.
(c) AFS to HFT category or vice versa, at the carrying value. The accumulated depreciation, if any, to be transferred to the provision for depreciation against HFT securities and vice versa.
3.5 Non performing Investments Security Receipts issued by Securitization / Reconstruction Company (SC / RC) in respect of financial assets sold by the Bank to the SC / RC are valued at the lower of the redemption value of the Security Receipt and the Net Book Value of the financial asset. The investment is carried in the books at the price determined as above until its sale or realization and on such sale or realization, loss or gain is dealt with as below:
(a) If sale is at a price below Net Book Value (NBV), the short fall is recognized as per Reserve Bank of India guidelines.
(b) If the sale is for a value higher than NBV, the excess provision is not reversed but utilized to meet shortfall / loss on account of sale of other financial assets to SC / RC.
3.6 Securities included in any of three categories where interest / principal is in arrears for a specified period, are classified as Non-performing Investment. Interest Income on such securities is not reckoned and appropriate depreciation/ provision in value of investments is made. Deprecation in respect of such Non Performing Investments is not set off against appreciation in other performing securities.
3.7 Profit on sale of investments
Profit on sale of investments in respect of “Available for Sale” and “Held for Trading” categories is recognized in Profit & Loss account.
Profit on sale of Investments in respect of “Held to Maturity” category is first taken to the Profit & Loss Account and an equivalent amount of Profit is appropriated to the Capital Reserve (net of taxes and amount required to be transferred to Statutory Reserve).
Loss on sale of Investments in all the three categories is recognized in Profit & Loss Account.
3.8 Accounting for Repo / Reverse Repo and Liquidity Adjustment Facility (LAF)
Securities sold / purchased with an agreement to repurchase / resale on the agreed terms under Repo / Reverse Repo including LAF with RBI are recognized as Borrowing/Lending.
 Derivative Contracts
The Bank deals in Interest Rate Swaps and Currency Derivatives. The Interest Rate Derivatives dealt by the Bank are Rupee Interest Rate Swaps, Cross Currency Interest Rate Swaps and Forward Rate Agreements. Currency derivatives dealt by the Bank are Options and Currency Swaps. Such derivative contracts are valued as under:
a) Derivative contracts dealt for trading are valued on mark to market basis, net depreciation is recognized while net appreciation is ignored.
b) Derivative contacts undertaken for hedging are:
i. Derivative contracts designated as hedges are not marked to market unless their underlying asset is marked to market.
ii. Income / Expenditure is recognized on accrual basis for Hedging swaps.
5.1 Advances are classified as performing and non-performing assets in accordance with the prudential norms issued by RBI.
5.2 Advances are classified into Standard, Sub Standard, Doubtful and Loss assets borrower wise.
5.3 Provisions for domestic advances are made for performing / non-performing advances in accordance with the RBI Guidelines.
5.4 Provisions for performing / non-performing advances with foreign branches are made as per regulations of host country or according to the norms prescribed by RBI, whichever is more stringent.
5.5 Advances stated in the Balance Sheet are net of provisions made for Non Performing Assets, claims received from Credit Guarantee Institutions and rediscount.
5.6 Partial recoveries in Non Performing Advances are apportioned first towards charges and interest, thereafter towards principal with the exception of non performing advances involving compromise settlements / “Loan Past Due” advances, the recoveries are first adjusted towards principal.
5.7 In case of financial assets sold to SC / RC, the valuation, income recognition is being done as per RBI guidelines.
 Fixed Assets
6.1 The premises of the Bank include freehold and leasehold properties. All the Fixed Assets are capitalized based on the date of put to use.
6.2 Premises and other Fixed Assets are stated at historical cost except wherever revalued. The appreciation on revaluation, if any, is credited to the ''''Revaluation Reserve'''' Account. Depreciation / Amortization attributable to the enhanced value is transferred from Revaluation Reserve to the credit of Depreciation in the Profit and Loss Account.
7.1 Fixed Assets are depreciated under Straight line Method at the rates determined by the management on the basis of estimated useful life of the respective assets except for the Computers where as per the guidelines of RBI, depreciation is charged under straight line method at 33.33%.
7.2 5 percent residual value has been kept for all the assets except for the assets with estimated useful life of 3 years or 5 years (E.g. computer, Servers and ATMs etc) where the entire cost of the asset is amortized over the useful life
7.3 Depreciation on fixed assets in the year of capitalization is charged for the full year if the asset is used for more than 180 days during that financial year; else it is provided at 50 percent of the applicable rate. No depreciation is provided for in the year of sale / disposal.
7.4 Premium paid on leasehold properties is charged off over the lease period.
7.5 In respect of fixed assets held at foreign offices, depreciation is provided as per the regulations / norms of the respective countries.
 Impairment of Assets
An assessment is made at each balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for.
 Revenue Recognition
9.1 Income and expenditure are generally accounted on accrual basis, except the following:
a) Interest on Non-Performing advances and non performing investments is recognized on receipt basis as per norms laid down by Reserve Bank of India.
b) Interest on overdue bills, Commission (other than Government business), Exchange, Brokerage and rent on lockers are accounted on realization.
c) Dividend Income is recognized when the right to receive the same is established.
d) In case of suit filed accounts, related legal and other expenses incurred are charged to Profit & Loss Account and on recovery the same are accounted as Income.
 Employee Benefits
10.1 Defined Contribution Plans
Defined Contribution Plans such as Provident / Pension fund are recognized as an expense and charged to Profit & Loss account.
10.2 Defined Benefit Plans
a) Gratuity: The employee Gratuity Fund Scheme is funded by the Bank and managed by a separate trust who in turn manages their funds as per guidelines. The present value of the Bank''''s obligation under Gratuity is recognized on actuarial basis as at the year end and the fair value of the Plan assets is reduced from the gross obligation to recognize the obligation on a net basis.
b) Pension: The employee Pension Fund Scheme is funded by the Bank and managed by a separate trust. The present value of the Banks obligations under Pension is recognized on the basis as at the year end and the fair value of the Plan assets is reduced from the gross obligation to recognize the obligation on a net basis.
10.3 The privilege leave is considered as a long term benefit and is recognized based on independent actuarial valuation on ''''Projected Unit Credit method'''' at each Balance Sheet date.
 Provision for Taxation
a) Provision for tax is made for both Current and Deferred Taxes.
b) Deferred Tax assets and Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and laws that have been enacted or substantively enacted as of the balance sheet date.
c) Deferred tax assets are not recognized unless there is virtual certainty that sufficient future taxable income would be available against which such deferred tax assets can be recognized.
 Net Profit
12.1 Provisions, Contingent Liabilities and Contingent Assets
I. In conformity with AS 29, “Provisions, Contingent Liabilities & Contingent Assets” issued by the Institute of Chartered Accountants of India, the bank recognizes provision only when:
a) It has a present obligation as a result of past event.
b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and
c) When a reliable estimate of the amount of the obligation can be made.
II. No provision is recognized
a) For any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the bank.
b) Where it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or
c) When a reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent liabilities. These are assessed at regular intervals and only that part of the obligation for which the outflow of resources embodying economic benefits is probable is provided for, except in the extremely rare circumstances where no reliable estimate can be made.