The Federal Bank Limited (''''the Bank'''') was incorporated in 1931 as Travancore Federal Bank Limited to cater to the banking needs of Travancore Province. It embarked on a phase of sustained growth under the leadership of Late K.P. Hormis. The Bank has a network of 1273 branches / offices in India and provides retail and corporate banking, para banking activities such as debit card, third party product distribution etc., treasury and foreign exchange business. The bank is governed by the Banking Regulation Act, 1949 and other applicable Acts / Regulations. The Bank''''s shares are listed on BSE Limited and National Stock Exchange of India Limited. The GDRs issued by the Bank in 2006 have been listed on London Stock Exchange. The bank had set up an International Financial Service Centre (IFSC) Banking unit (IBU) in Gujarat International Finance Tec-City (GIFT City) in line with global financial centres of Singapore and Dubai. IBU at Gift city is equivalent to an Offshore Banking unit, for all regulatory purposes.
2. Basis of preparation
The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (“Indian GAAP”), the circulars and guidelines issued by the Reserve Bank of India (''''RBI'''') from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (“the Act”) and the relevant provisions of the Act, as applicable and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except in the case of interest income on Non- Performing Assets (NPAs) and loans under Scheme for Sustainable Structuring of Stressed Assets (S4A) and Strategic Debt restructuring (SDR) scheme of RBI where it is recognised upon realisation as per RBI guidelines. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year.
3. Use of estimates
The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.
4. Disclosures requirement as per RBI''''s Master Circular on Disclosure in Financial Statements
Amounts in notes forming part of the financial statements for the year ended 31st March, 2017 are denominated in Rupees Crore to conform to extant RBI guidelines.
4.1. Capital Adequacy Ratio
The Bank computes Capital Adequacy Ratio as per Basel III Capital Regulations issued by RBI, which became applicable to the Bank with effect from April 1, 2013.
Under Basel III Capital Regulations, on an on-going basis, the Bank has to maintain a Minimum Total Capital (MTC) of 10.25% (Previous Year 9.625%) including Capital Conversion Buffer (CCB) at 1.25% (Previous Year 0.625%), of the total risk weighted assets (RWA). Out of the MTC, at least 6.75% (Previous Year 6.125%), shall be from Common Equity Tier 1 (CET1)capital and at least 8.25% (Previous Year 7.625%) from Tier 1 capital ,including 1.25% (Previous Year 0.625%) towards CCB. The capital adequacy ratio of the Bank is set out below:
4.2.1. a) Investments under HTM (excluding specified investments as per RBI norms) account for 19.78% (Previous year 20.72%) of demand and time liabilities as at the end of March 2017 as against permitted ceiling of 20.50% (Previous Year: 21.50%) stipulated by RBI.
b) In respect of securities held under HTM category premium of Rs.47.65Crore (Previous year: Rs.35.34 Crore) has been amortised during the year and debited under interest received on Government securities.
c) Profit on sale of securities from HTM category amounting to Rs.134.26Crore(Previous year:Rs.12.92 Crore) has been taken to Profit and Loss Account. During the year, the Bank had appropriated Rs.65.85Crore(Previous year Rs.6.34 Crore), [net of taxes and transfer to statutory reserve] to the Capital Reserve, being the gain on sale of HTM Investments in accordance with RBI guidelines.
d) During the year ended 31st March, 2017 the bank had withdrawn Rs.14.49Crore (Previous year: Rs.8.21 Crore) [net of applicable taxes and transfer to statutory reserve] from Investment Reserve Account on provision for depreciation on Investments, debited to Profit and Loss account.
4.2.2. Sale and transfers to/ from HTM Category
During the current year, the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of investments held in HTM category at the beginning of the year.
Disclosure in respect of Outstanding Interest Rate Swaps (IRS) and Forward Rate Agreement (FRA)
4.3.1. Disclosure on Risk exposure in Derivatives Qualitative disclosures:
(a) Structure and organization for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or Mitigating risk and strategies and processes for monitoring the continuing effectiveness of Hedges/ mitigants:
Derivatives are financial instruments whose characteristics are derived from an underlying asset like interest rates, exchange rates or indices. The Bank undertakes over the counter and exchange traded derivative transactions for Balance Sheet management and also for proprietary trading/market making. Bank offers derivative products to the customers to enable them to hedge their exposure within the prevalent regulatory guidelines.
Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR etc) in over the counter/exchange traded derivatives. The Bank also undertakes transactions in Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks primarily credit, market, operational, legal, and reputation. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.
The derivative transactions are governed by the Investment, forex and derivative policy and market risk management policy of the Bank as well as by the extant RBI guidelines. Various operational/risk limits are set up and actual exposures are monitored vis-a-vis the limits allocated. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. Risk limits are in place for risk parameters viz. Value at Risk (VaR), Stop Loss, PVBP. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically.
The Treasury front office enters into derivative transaction with customers and interbank counterparties. The Bank has an independent back office and mid office as per regulatory guidelines. The MTM position of the derivative portfolio is monitored on a regular basis. The impact on derivative portfolio on account of the probable market movements are assessed on regular basis. The risk profile of the outstanding portfolio is reviewed by the Board at regular intervals. The current outstanding under the derivatives portfolio were executed for trading purposes.
(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, Premiums and discounts, valuation of outstanding contracts Bank deals in derivatives for hedging G-Sec or foreign currency assets/liabilities subject to the prevailing regulatory guidelines. Transactions for hedging and trading are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter.
Transactions related to foreign exchange forward, Interest rate Future/IRS/Currency future are marked to market every month and the MTM is accounted in the books.
(c) Collateral Security
We have provided Sufficient Collateral Security to Central counter Parties and Exchanges wherever Applicable
As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks/Primary Dealers (PDs) etc. For deals with Corporate Clients, appropriate collateral security/margin etc. is stipulated wherever considered necessary.
(d) Credit Risk Mitigation
Most of the deals have been contracted with Banks/ Major PDs and no default risk is anticipated on the deals with them.
- The notional principal amount of forward exchange contracts classified as Hedging and Trading outstanding as on March 31,2017 amounted to Rs.3003.98 Crore (Previous year Rs.1589.18 Crore) and Rs.13452.78 Crore (Previous year Rs.12652.94 Crore) respectively. For the hedging contract, at 31st March, 2017 the marked to market position was asset Rs.54.81 crores and liability of Rs.110.23 crores. For the trading contract, at 31st March, 2017 the marked to market position was asset Rs.360.06 crores and liability of Rs.292.43 crores (Previous year net MTM Rs.21.15 Crore). Credit exposure on forward exchange contracts at March 31, 2017 was Rs.893.33 Crore (Previous year Rs.227.76 Crore).
- The notional principal amounts of derivatives reflect the volume of transactions outstanding as at the Balance Sheet date and do not represent the amounts at risk.
- Interest rate derivative represents interest rate swaps.
- The bank has computed the maximum and minimum of PV01 for the year based on the balances as at the end of every month.
- In respect of derivative contracts, the bank evaluates the credit exposure arising there from, in line with RBI guidelines. Credit exposure has been computed using the current exposure method which is the sum of :
a) The current replacement cost (Marked to Market value including accruals of the contract) or zero whichever is higher.
b) The Potential Future Exposure (PFE) is a product of the notional principal amount of the contract and a factor that is based on the grid of credit conversion factor prescribed in RBI Guidelines, which is applied on the basis of the residual maturity and the type of contract.
4.4.1 Divergence in Asset classification and Provisioning for NPAs
The divergence observed by RBI for the Financial year 2015-16 in respect of the Bank''''s asset classification and provisioning under the extant prudential norms on income recognition, asset classification and provisioning is insignificant and hence the disclosure as required under RBI Circular DBR.BP.BC.No.63/21.04.018/2016-17 dated April 18, 2017 on ''''Divergence in the asset classification and provisioning'''', is not required to be made.
4.5. Asset Liability Management
A maturity pattern of certain items of assets and liabilities at 31 March, 2017 and 31 March, 2016 is set out below:
4.6.1. During the year ended 31 March, 2017 and 31 March, 2016, the Bank''''s credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by RBI.
4.6.2 During the year ended 31March, 2017 and 31 March, 2016 there are no unsecured advances for which intangible securities such as charge over the rights, licences, authority etc. has been taken as collateral by the Bank.
5. Disclosure requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for ''''Notes to Accounts''''
5.1. Employee Benefits (AS 15)
a) Defined Contribution Plan Provident Fund
Employees, who have not opted for pension plan are eligible to get benefits from provident fund, which is a defined contribution plan. Aggregate contributions along with interest thereon are paid on retirement, death, incapacitation or termination of employment. Both the employee and the Bank contribute a specified percentage of the salary to the Federal Bank Employees ''''Provident Fund. The Bank has no obligation other than the monthly contribution.
The Bank recognised Rs.0.47Crore (Previous Year: Rs.0.79 Crore) for provident fund contribution in the Profit and Loss Account.
New Pension Scheme
As per the industry level settlement dated 27th April, 2010, employees who joined the services of the Bank on or after 1st April, 2010 are not eligible for the existing pension scheme whereas they will be eligible for Defined Contributory Pension Scheme (DCPS) in line with the New Pension Scheme introduced for employees of Central Government. Employee shall contribute 10% of their Basic Pay and Dearness Allowance towards DCPS and the Bank will also make a matching contribution. There is no separate Provident Fund for employees joining on or after 01/04/2010.
The Bank recognized Rs.21.64 Crore (Previous year: Rs.18.95 Crore) for DCPS contribution in the Profit and Loss Account
b) Defined benefit plan Gratuity
The Bank provides for Gratuity, a defined benefit retirement plan (the “Gratuity Plan”) covering the eligible employees. The Gratuity Plan provides a lump sum payment to vested employees on retirement, death, incapacitation or termination of employment, of an amount based on the respective employees'''' salary and the tenure of employment. Vesting occurs upon completion of five years of service as per Payment of Gratuity Act, 1972 and its amendment with effect from 24th May, 2010 or as per the provisions of the Federal Bank Employees'''' Gratuity Trust Fund Rules / Bi-partite Award provisions. Liabilities with regard to the Gratuity Plan are determined by Actuarial valuation as on the Balance Sheet date, based upon which, the Bank contributes all the ascertained liabilities to the Federal Bank Employees'''' Gratuity Trust Fund (the “Trust”). Trustees administer contributions made to the Trust and contributions are invested in specific investments as permitted by law.
Superannuation / Pension
The Bank provides for monthly pension, a defined benefit retirement plan (the “pension plan”) covering eligible employees. The pension plan provides a monthly pension after retirement of the employees till death and to the family after the death of the pensioner. The monthly pension is based on the respective employees'''' salary and the tenure of employment. Vesting occurs upon completion of ten years of service. The Bank pays the monthly pension by purchasing annuities from Life Insurance Corporation of India (LIC). Liabilities with regard to the pension plan are determined by actuarial valuation as on the Balance Sheet date, based upon which, the Bank contributes all the ascertained liabilities to the Federal Bank (Employees'''') Pension Fund (the “Trust”). Trustees administer contributions made to the Trust and contributions are invested in specific investments as permitted by law.
The following table as furnished by Actuary sets out the funded status of gratuity / pension plan and the amount recognized in the Bank''''s financial statements as at March 31, 2017.
5.2. Segment Reporting (AS 17)
A. Business Segments
Business of the Bank is divided into four segments viz. Treasury, Corporate or Wholesale Banking, Retail Banking and other banking operations. The principal activities of these segments and income and expenses structure are as follows:
Treasury operations include trading and investments in Government and corporate debt instruments, equity and mutual funds, derivative trading and foreign exchange operations on proprietary account and for customers.
The income of this segment primarily consists of earnings from the investment portfolio of the bank, gains and losses on trading operations. The principal expense of the segment consists of interest expense on funds borrowed/utilized and other allocated overheads.
This segment provides loans and other banking services to Corporate and other clients where value of individual exposure to the Clients exceeds Rs.5 Crore as defined by RBI. Revenue of this segment consists of interest and fees earned on loans to such customers and charges and fees earned from other banking services. Expenses of this segment primarily consist of interest expense on funds utilized and allocated overheads
Retail banking constitutes lending and other banking services to individuals/small business customers, other than corporate/wholesale banking customers, identified on the basis of RBI guidelines.
Revenue of this segment consists of interest earned on loans made to such customers and charges /fees carried from other banking services to them. The principal expenses of the segment consist of interest expenses on funds borrowed and other expenses.
Other Banking Operations
This segment includes para banking activities like third party product distribution and other banking transactions, not covered under any of the above segments. The income from such services and associated costs are disclosed in this segment.
The following table sets forth, for the periods indicated, the business segment results:
6.1. Draw Down from Reserves
The Bank has drawn down Rs.14.49 Crore from Investment Reserve Account (Previous Year Rs.8.21 crore) in accordance with the provisions of RBI guidelines on ''''Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks''''.
6.2. Letter of Comfort
The Bank has not issued any letters of comfort (LoC) on behalf of its subsidiaries during the year ended 31st March, 2017 and 31st March, 2016.
6.3 The Provision coverage ratio of the bank as on 31 March, 2017, computed in terms of the RBI Guidelines was 72.67 % (Previous Year 72.05%).
6.4. Sponsored SPVs
The Bank has not sponsored any special purpose vehicle which is required to be consolidated in the consolidated financial statements as per accounting norms as at 31 March 2017 and 31 March 2016.
6.5 Disclosures on Remuneration
i) Qualitative disclosures
a) Information relating to the composition and mandate of the Nomination, Remuneration, Compensation and Ethics Committee (or Remuneration Committee in short):
The Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank, on behalf of the Board. This committee works in coordination with Risk Management Committee of the Bank, in order to achieve effective alignment between risk and remuneration.As on 31 March, 2017, the remuneration committee of the Board comprises of the following Independent Directors:
- Sri.K M Chandrasekhar
- CA Nilesh Shivji Vikamsey
- Sri.Dilip Gena Sadarangani
The above committee of the Board functions with the following objectives:
a) To review the Compensation package for the MD and CEO and Executive Directors and recommend revisions for Board approval
b) To consider and approve issuance and allotment of ESOS shares to MD/EDs and employees of the Bank.
c) To develop and implement an effective compensation policy, as per RBI guidelines
b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy.
The compensation payable to MD & CEO, EDs and Senior Executives is divided into fixed and variable components. The fixed compensation is determined based on the industry standards, the exposure, skill sets, talent and qualification attained by the official over his/her career span etc. Approval from RBI is obtained to decide fixed compensation for MD & CEO and EDs.
The variable compensation for MD & CEO and senior executives (Non - IBA package i.e. CGM and above) are determined based on Bank''''s performance and Key Performance Areas (KPA) set for the official. KPAs contain targets on risk adjusted metrics such as Risk Adjusted Return on Capital (RAROC), Risk Adjusted Return on Risk Adjusted Capital (RARORAC), in addition to target on NPAs.
The objectives of the remuneration policy are four fold:
- To align compensation with prudent risk taken
- To drive sustainable performance in the Bank
- To ensure financial stability of the Bank; and
- To attract and retain talent
c) Description of the ways in which current and future risks are taken into account in the remuneration processes.
For the purpose of effectively aligning compensation structure with risk outcomes, the functionaries in the Bank are arranged under the following four categories
- MD & CEO / ED
- Senior Executives (Non IBA package)
- Senior Executives (On IBA package)
- Other members of staff (on IBA package)
Limit on variable pay
The variable compensation offered to an official would not exceed 70% of the total fixed compensation
Severance pay and guaranteed bonus
Severance pay (other than gratuity or terminal entitlements or as entitled by statute) is not paid to any official of the Bank Sign on bonus or joining bonus is limited to the first year and is paid only as Employee stock options
No compensation scheme or insurance facility would be provided by the Bank to employees to hedge their compensation structure to offset the risk alignment mechanism (deferral pay and clawback arrangements) embedded in their compensation arrangement
Compensation Recovery policy
A claw back arrangement or a compensation recovery policy is provided, which will entail the Bank to recover proportionate amount of variable compensation paid to the above functionaries on account of an act or decision taken by the official which has brought forth a negative contribution to the bank at a prospective stage. The claw back arrangement would be valid for a period of three years from the date of payment of variable compensation.
Committees to mitigate risks caused by an individual decision
In order to further balance the impact of market or credit risks caused to the Bank by an individual decision taken by a senior level executive, MD & CEO or ED, the bank has constituted various committees to take decisions on various aspects:
- Credit limits are sanctioned by committees at different levels.
- Investment decisions of the Bank are taken and monitored by Investment committee and there is an upper limit in treasury dealings where individual decisions can be taken.
- Interest rates on asset and liability products for different buckets are decided and monitored by the Asset Liability Committee of the Board (ALCO). Banks'''' exposure to liquidity risk are also monitored by ALCO.
Integrated Risk Management Department (IRMD)
In order to effectively govern the compensation structure, IRMD would assist the Remuneration Committee of the Board to monitor, review and control various risks and balance prudent risk taking with the compensation paid out to top executives and other employees.
Compensation of risk control staff
The total fixed and variable compensation paid out to the employees of IRMD are independent of business parameters and rendering of effective support to the Remuneration Committee of the Board. The variable compensation component (Performance Linked Incentive or PLI) will be subjected to a minimum and greater proportion of compensation will be fixed in nature to ensure autonomy and independence from business goals
d) Linkage of performance during a performance measurement period with levels of remuneration.
The Bank''''s performance is charted based on the revenue point index / performance scorecard which takes into account various financial indicators like revenue earned, cost deployed, and profit earned, NPA position and other intangible factors like leadership and employee development. Variable pay is paid purely based on performance and is measured through Score cards for MD& CEO /EDs. The score card provides a mix of financial and non-financial, quantitative and qualitative metrics.
Compensation paid to Senior executives and other staff members on IBA package
The compensation paid to other officials that include Award staff, Officers coming under Scale I to III and Senior executives coming under Scale IV to VII is fixed based on the periodic industry level settlements with Indian Banks Association. The variable compensation paid to these functionaries is based on the Performance Linked incentive scheme which has been formulated on the basis of performance parameters set in Performance Management System
e) Bank''''s policy on deferral and vesting of variable remuneration and criteria for adjusting deferred remuneration before vesting and after vesting.
Deferred compensation and Performance Linkage
In the event variable compensation paid to MD & CEO, ED and Senior Executives (Non-IBA) exceeds more than 50% of the fixed compensation for the year on account of high level of Bank''''s performance, 60% of the variable pay so entitled to the official will be deferred for payment over a period of 3 years. The amount is parked in an escrow account and the payment will be made in the ratio of 20:30:50 over a period of three years, i.e.
- 20 % of the deferred compensation will be paid in the first year
- 30% of the deferred compensation in the second year; and
- 50 % of the deferred compensation in the third year
Clawback and deferral arrangements
The provisions of clawback and deferral arrangements are applicable to the referred functionaries and all employees in the event their variable compensation exceeds 50 % of their fixed emoluments
f) Description of the different forms of variable remuneration
Bank uses an optimum mix of cash, ESOPS and variable PLI to decide the compensation of employees in all categories. The distribution of ESOPS and variable PLI are higher in top levels and is linked with their performance measurements taken from Scorecards. This is done to align the compensation of senior staff with their performance, risk and responsibility taken in higher assignments. The Officers in Scale I-III as well as Award staff come under the purview of IBA package that is as per the Industry wide settlements. Variable compensation, ESOP, is linked with seniority in these levels.
6.6 Securitisation Transactions
The Bank has not done any securitisation transactions during the year ended 31 March, 2017 and 31 March, 2016.
6.7 Transfers to Depositor Education and Awareness Fund (DEAF)
In accordance with the guidelines issued by the RBI, the Bank transfers the amount to the credit of any account which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years to the DEAF. Details of amounts transferred to DEAF are set out below:
6.8 Unhedged Foreign Currency Exposure
The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency exposures and encouraging them to hedge the unhedged portion. The policy framework also articulates the methodologies for ascertaining the amount of unhedged foreign currency exposures, estimating the extent of likely loss, estimating the riskiness of the unhedged position and making appropriate provisions and capital charge as per extant RBI guidelines. In line with the policy, assessment of unhedged foreign currency exposure is a part of credit appraisal while proposing limits or at the review stage. Further, the bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank maintains incremental provisions and additional capital for the unhedged foreign currency exposures of its borrowers in line with the extant RBI guidelines. The Bank has maintained Rs.5.27 Crore (Previous year Rs.10.05 Crore) as provision and Rs.2.21 Crore (Previous year Rs.4.66 Crore) as additional capital for computation of capital adequacy Ratio on account of the unhedged foreign currency exposures of borrowers as at March 31, 2017.
7.1 A. Issue of Bonus Shares
During the year ended March 31, 2016 the Bank had issued Bonus Shares in the Ratio of 1:1 for Shares held as on the record date of July 9, 2015. Pursuant to the above 85,79,45,206 fully paid up Equity Shares had been allotted by the bank as bonus shares and One Global Depositary share (GDS) had been issued as bonus for every GDS held to the existing holders as on the record date. Consequently, as per the extant ESOS 2010 Scheme bonus options had been provided to the existing ESOS option holders and the exercise price had been adjusted accordingly. The earnings per share have been adjusted for Previous year in accordance with Accounting Standard 20, Earnings per share.
B. Subscribed and paid up capital includes:
(i) 16,590 shares of Rs.2/- each (Previous Year 16,590 shares of Rs.2/- each) issued for consideration other than cash.
(ii) 3,12,05,861 underlying equity shares of Rs.2/- each (Previous Year 2,80,49,968 equity shares of Rs.2/- each) held by custodian on behalf of holders of Global Depository Receipts (GDRs).
(iii) 50,98,570 ESOS shares of Rs.2/- per share (Previous Year 57,61,133 shares of Rs.2/- Per share) allotted under ESOS 2010.
(iv) 85,79,45,206 bonus shares were issued in the ratio of 1:1 during Financial Year 2015-16.
C.The following allotments are kept pending following orders from various courts
i) Allotment of 6,530 shares of Rs.2/- each (Previous year 6,530 shares of Rs.2/- each) pertaining to the Right issue of 1993 issued at premium of Rs.5/- per share
ii) 2,62,100 shares of Rs.2/- each (Previous year 2,62,100 shares of Rs.2/- per share) pertaining to the Rights issue of 1996 issued at a premium of Rs.28/- per Share
iii) 10,80,415 equity shares of Rs.2/- each (Previous year 10,80,415 shares of Rs.2/- per share), at a premium of Rs.48/- per share pertaining to Rights issue of 2007
Issue of certificates/credit in demat account in respect of the following Bonus issues are kept in abeyance consequent to injunction orders from various courts.
a) 4,09,170 shares of Rs.2/- each (Previous year 4,09,170 shares of Rs.2/- each) out of the Bonus issue of 2004 and
b) 6,15,755 bonus shares of Rs.2/- each (Previous year 6,15,755 bonus shares of Rs.2/- each), out of the Bonus issue of 2015.
D. Employee Stock Option Scheme (“ESOS”):
i) Shareholders of the bank had approved Employee Stock Option Scheme (ESOS) through postal ballot, the result of which was announced on December 24, 2010, enabling the Board and/or the “Compensation Committee” to grant such number of equity shares, including options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the bank granted the following options:
As per SEBI guidelines the accounting for ESOS can be done either under the ''''Intrinsic value basis'''' or ''''Fair value basis''''.The Compensation Committee in their meeting dated 10th May, 2012 decided to adopt ''''Intrinsic value method'''' for accounting of ESOS, in terms of the power vested on them as per the resolution of EGM dated 24 December, 2010.
The exercise price of the options granted is the same as the market price on the date prior to grant date and hence there is no intrinsic value for the options, which has to be amortized over the vesting period, other than 3,00,000 Options granted during the year at an exercise price lower than the Market price.
If “Fair Value Method” had been adopted based on “Black-Scholes pricing model” for pricing and accounting of options, net profit would be lower by Rs.9.12 Crore (Previous Year: Rs.19.83Crore)
The modified basic and diluted earnings per share for the year, had the Bank followed Fair Value Method of accounting for ESOS compensation cost would be Rs.4.78 and Rs.4.72 (Previous Year: Rs.2.65 and Rs.2.63) respectively,
ii) Dividend paid on shares issued on exercise of stock option
The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March 2017, if approved at the ensuing Annual General Meeting.
iii) Dividend (Including tax/cess thereon) appropriation of Rs.0.02 Crore represent dividend for Financial Year 2015-16 on the shares issued under Employee Stock Options Scheme before the record date, as per shareholders'''' approval.
E. Proposed Dividend and Tax on Proposed Dividend
In terms of revised Accounting Standard (AS) 4 “Contingencies and Events occurring after the Balance sheet date” as notified by the Ministry of Corporate affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend (including tax) aggregating to Rs.186.75 Crore from the statement of Profit and loss account for the year ended March 31, 2017, also the same has not been shown as an Other Liabilities.
7.2. Operating Leases:
Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms. During the year an amount of Rs.131.49 Crore (Previous year: Rs.127.58 Crore) was charged to Profit and loss account.
7.3 Description of contingent liabilities:
a) Claims against the Bank not acknowledged as debts
These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.
b) Liability on account of forward exchange and derivative contracts
The Bank enters into Forward exchange contracts on its own account and on behalf of its customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate.
c) Guarantees given on behalf of constituents
As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.
d) Acceptances, endorsements and other obligations
These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''''s customers that are accepted or endorsed by the Bank.
e) Other items for which the bank is contingently liable
Includes Capital commitments and amount transferred to RBI under the Depositor Education and Awareness Fund (DEAF)
Refer schedule 12 for amounts relating to contingent liability.
7.4 Provisioning Pertaining to Fraud Accounts
The Bank has reported 68cases (Previous year:65 cases) of fraud in the Financial year ended 31 March, 2017amounting to Rs.259.19 Crore (Previous Year: Rs.82.07 Crore) and has provided for the same in the books of account. Bank does not have any unamortised loss in this regard as of March 31, 2017.
7.5 Inter-bank participation with risk sharing
The aggregate amount of participation purchased by the Bank, shown as advances as per regulatory guidelines, outstanding as of March 31, 2017 was Rs.1981.27 Crore (Previous Year: Rs.1254.98).
The aggregate amount of the participation issued by the Bank, reduced from advances as per regulatory guidelines, outstanding as of March 31, 2017 was Rs.150.00 Crore(Previous Year: Rs.NIL).
7.6 Factoring Exposure
The factoring exposure of the Bank as on March 31, 2017 is Rs.1055.67 Crore (Previous Year: Rs.NIL)
7.7 Provision for Long Term contracts
The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the bank has reviewed and recorded adequate provision as required under any Law/Accounting Standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.
The Bank has spent of 1.34 %of its average net profit for the last three financial years as part of its CSR activities for the year ended March 31, 2017. As a responsible Bank, it has approached the mandatory requirements of CSR spend positively by utilising the reporting year to lay a foundation on which to build and scale future projects and partnerships. The Bank is currently in the process of evaluating strategic avenues for CSR expenditure in order to deliver maximum impact. In the years to come, the Bank will further strengthen its processes as per requirement.
7.8 Investor education and protection fund
There has been no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Bank.
7.9 Disclosure on Specified Bank Notes:
The Bank believes that the MCA notification G.S.R. 308(E) dated March 30, 2017 regarding holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 is not applicable to banking companies.
7.10 Small and Micro Industries
Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2ndOctober, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.
7.11 The figures for the year ended March 31, 2016 were audited by previous statutory auditors.
7.12 Figures for the previous year have been regrouped and reclassified, wherever necessary to conform to current year''''s presentation.