The financial statements have been prepared on historical cost basis and conform, in all material aspects, to Generally Accepted Accounting Principles (GAAP) in India unless otherwise stated encompassing applicable statutory provisions, regulatory norms prescribed by Reserve Bank of India (RBI), circulars and guidelines issued by the Reserve Bank of India (‘RBI'''') from time to time, Banking Regulation Act 1949, Accounting Standards (AS) and pronouncements issued by The Institute of Chartered Accountants of India (ICAI) and prevailing practices in Banking industry in India.
In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with except as specified elsewhere.
The financial statements have been prepared on going concern basis with accrual concept and in accordance with the accounting policies and practices consistently followed unless otherwise stated
2. Use of Estimates
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as on 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.
Future results could differ from these estimates.
Difference between the actual results and estimates is recognized in the period in which the results are known / materialized.
Any revision to the accounting estimates is recognized prospectively in the current and future periods unless otherwise stated.
3. REVENUE RECOGNITION
3.1 Income & expenditure (other than items referred to in paragraph 3.5) are generally accounted for on accrual basis.
3.2 Income from Non- Performing Assets (NPAs), comprising of advances, and investments, is recognized upon realization, as per the prudential norms prescribed by the RBI/ respective country regulators in the case of foreign offices (hereafter collectively referred to as Regulatory Authorities).
3.3 Recoveries in NPA accounts (irrespective of the mode / status / stage of recovery actions) are appropriated in the following order of priority : -
a) Expenditure/out of pocket expenses incurred for recovery (earlier recorded in memorandum dues);
b) Principal irregularities i.e. NPA outstanding in the account.
c) Towards the interest irregularities/accrued interest.
3.4 The sale of NPA is accounted as per guidelines prescribed by RBI and as disclosed under Para 5.4.
3.5 Commission (excluding on Government Business), interest on overdue bills, exchange, locker rent, income from merchant banking transactions and Income on Rupee Derivatives designated as “Trading” are accounted for on realization and insurance claims are accounted for on settlement.
3.6 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 for as such.
3.7 Income from interest on refund of income tax is accounted for in the year the order is passed by the concerned authority.
3.8 Lease payments including cost escalation for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term in accordance with the AS 19 (Leases) issued by ICAI.
3.9 Provision for Reward Points on Debit/Credit cards is made based on the accumulated outstanding points in each category.
3.10 Interest on unpaid and unclaimed matured term deposits is accounted for at savings bank rate.
3.11 Dividend is accounted for as and when the right to receive the dividend is established.
4.1 The transactions in Securities are recorded on “Settlement Date”.
4.2 Investments are classified into six categories as stipulated in form A of the third schedule to the Banking Regulation Act, 1949.
4.3 Investments have been categorized into "Held to Maturity", "Available for Sale" and "Held for Trading" in terms of RBI guidelines as under:
(a) Securities acquired by the Bank with an intention to hold till maturity are classified under "Held to Maturity".
(b) The securities acquired by the Bank with an intention to trade by taking advantages of short-term price/ interest rate movements are classified under “Held for Trading”.
(c) The securities, which do not fall within the above two categories, are classified under "Available for Sale"
4.4 Investments in subsidiaries, joint ventures and associates are classified as HTM.
4.5 Transfer of securities from one category to another is carried out at the lower of acquisition cost/ book value/ market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for.
However, transfer of securities from HTM category to AFS category is carried out on book value. After transfer, these securities are immediately revalued and resultant depreciation, if any, is provided.
An investment is classified as HTM, HFT or AFS at the time of its purchase and subsequent shifting amongst categories is done in conformity with regulatory guidelines.
4.6 In determining acquisition cost of an investment
a. Brokerage / commission received on subscription is deducted from the cost of securities.
b. Brokerage, commission, Securities Transaction Tax (STT) etc. paid in connection with acquisition of securities are treated as revenue expenses upfront and excluded from cost.
c. Interest accrued up to the date of acquisition/sale of securities i.e. broken — period interest is excluded from the acquisition cost/sale consideration and the same is accounted in interest accrued but not due account.
d. Cost is determined on the weighted average cost method for all categories of investments.
4.7 Investments are valued as per RBI/ FIMMDA guidelines, on the following basis:
Held to Maturity
i) Investments under "Held to Maturity "category are carried at acquisition cost.
Wherever the book value is higher than the face value/ redemption value, the premium is amortized over the remaining period to maturity on straight line basis. Such amortization of premium is reflected in Interest Earned under the head “ Income on investments” as a deduction.
ii) Investments in subsidiaries/joint ventures/associates are valued at carrying cost less diminution, other than temporary in nature for each investment individually.
iii) Investments in sponsored regional rural banks are valued at carrying cost.
iv) Investment in Venture Capital is valued at carrying cost.
v) Equity shares held in HTM category are valued at carrying cost.
The above valuation in category of Available for Sale and Held for Trading is done scrip wise on quarterly basis and depreciation/appreciation is aggregated for each classification. Net depreciation for each classification, if any, is provided for while net appreciation is ignored. On provision for depreciation, the book value of the individual security remains unchanged after marking to market.
4.8 Investments are subject to appropriate provisioning/ de-recognition of income, in line with the prudential norms of Reserve Bank of India for NPI classification. The depreciation/provision in respect of non-performing securities is not set off against the appreciation in respect of the other performing securities. For NPI in preference share, debentures and bonds, in addition to valuation as above, further provision is made on Sub-standard and Doubtful assets as per NPA provisioning norms.
If any credit facility availed by an entity is NPA in the books of the Bank, investment in any of the securities issued by the same entity would also be treated as NPI and vice versa. However, in respect of NPI preference share where the dividend is not paid, the corresponding credit facility is not treated as NPA.
4.9 Profit or loss on sale of investments in any category is taken to Profit and Loss account but, in case of profit on sale of investments in "Held to Maturity" category, an equivalent amount (net of taxes and amount required to be transferred to Statutory Reserve) is appropriated to "Capital Reserve Account"
4.10 Securities repurchased/resold under buy back arrangement are accounted for at original cost.
4.11 The securities sold and purchased under Repo/Reverse Repo are accounted as Collateralized lending and borrowing transactions. However, securities are transferred as in the 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 under schedule 4 (Borrowings) and balance in Reverse Repo Account is classified under Schedule7 (Balance with Banks and Money at Call & Short Notice).The same is also applicable to LAF with RBI.
4.12 The derivatives transactions are undertaken for trading or hedging purposes. Trading transactions are marked to market. As per RBI guidelines, different categories of swaps are valued as under: -
Interest rate swaps which hedge interest bearing asset or liability are accounted for on accrual basis except the swaps designated with an asset or liability that are carried at market value or lower of cost in the financial statement.
Gain or losses on the termination of swaps are recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset/ liabilities.
Trading swap transactions are marked to market with changes recorded in the financial statements.
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.
4.13 Foreign currency options
Foreign currency options written by the bank with a back-to-back contract with another bank are not marked to market since there is no market risk.
Premium received is held as a liability and transferred to the Profit and Loss Account on maturity/cancellation.
5. LOANS / ADVANCES AND PROVISIONS THEREON:
5.1 Advances are classified as performing and nonperforming assets; provisions are made in accordance with prudential norms prescribed by RBI.
5.1 (a) Advances are classified : Standard, Sub Standard, Doubtful and Loss assets borrower wise.
5.1 (b) Advances are stated net of specific loan loss provisions, provision for diminution in fair value of restructured advances.
5.2 In respect of foreign offices, the classification of loans and advances and provisions for NPAs are made as per the local regulations or as per the norms of RBI, whichever is more stringent.
Loans and advances held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant RBI guidelines, are classified as NPAs to the extent of amount outstanding in the host country.
5.3 Financial Assets sold are recognized as under:
(a) For Sale of financial assets sold to SCs/RCs
(i) If the sale to SCs/RCs is at a price below the Net Book Value (NBV), (i.e. Book Value less provisions held), the shortfall should be debited to the Profit & Loss account of that year. Bank can also use countercyclical / floating provisions for meeting the shortfall on sale of NPAs i.e when the sale is at a price below the NBV.
However, for assets sold on or after 26.02.2014 and up to 31.03.2016, as incentive for early sale of NPAs, bank can spread over any shortfall, if the sale value is lower than the NBV, over a period of two years. However, assets sold from 01.04.2016 to 31.03.2017, shortfall is to be amortized over a period of only four quarters from the quarter, in which the sale took place.
(ii) If the sale is for a value higher than the NBV, Bank can reverse the excess provision on sale of NPAs to its profit and loss account in the year, the amounts are received. However, Bank can reverse excess provision (when the sale is for a value higher than the NBV) arising out of sale of NPAs, only when the cash received (by way of initial consideration and/ or redemption of SRs/PTCs) is higher than the NBV of the asset. Further, reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset.
(b) For Sale of financial assets sold to Other Banks/NBFCs/ FIs etc.
(i) In case the sale is at a price below the Net Book Value (NBV) i.e. Book Value less provision held, the shortfall should be debited to the Profit & Loss A/c of that year.
(ii) In case the sale is for a value higher than the Net Book Value (NBV) i.e. Book Value less provision held, the excess provision shall not be reversed but will be utilized to meet the shortfall/loss on account of sale of other NPAs.
The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower''''s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance / securities, which would generally include, among others, alteration of repayment period / repayable amount / the amount of installments / rate of interest (due to reasons other than competitive reasons). Restructured accounts are classified as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made.
5.4 For restructured/rescheduled advances, provisions are made in accordance with guidelines issued by RBI.
In respect of non-performing loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
5.5 In addition to the specific provision on NPAs, general provisions are also made for standard assets as per extant RBI Guidelines. These provisions are reflected in Schedule 5 of the Balance Sheet under the head “Other Liabilities & Provisions - Others” and are not considered for arriving at the Net NPAs.
5.6 In accordance with RBI guidelines, accelerated provision is made on non-performing advances which were not earlier reported by the Bank as Special Mention Account under “SMA-2” category to Central Repository of Information on Large Credits (CRILC). Accelerated provision is also made on non-performing advances which are erstwhile SMA-2 accounts with Aggregate Exposure (AE) '''' 1,000 million or above and Joint Lenders'''' Forum (JLF) is not formed or they fail to agree upon a common Corrective Action Plan (CAP) within the stipulated time frame.
Amounts recovered against debts written-off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognized in the profit and loss account.
5.7 Provision for Country Exposure:
In addition to the specific provisions held according to the asset classification status, provisions are also made for individual country exposures (other than the home country). Countries are categorized into seven risk categories, namely, insignificant, low, moderately Low, moderate, moderately high, high & very high and provisioning made as per extant RBI guidelines. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposures. The provision is reflected in Schedule 5 of the Balance Sheet under the “Other liabilities & Provisions - Others”.
5.8 An additional provision of 2% ( in addition to country risk provision that is applicable to all overseas exposures) against standard assets representing all exposures to step down subsidiaries of Indian Corporate has been made to cover the additional risk arising from complexity in the structure, location of different intermediary entities in different jurisdictions exposing the Indian Company, and hence the Bank, to a greater political and regulatory risk. (As per RBI Cir.No. RBI/2015.16/279 DBR.IBD.BC No. 68/23.37.001/2015-16 dated 31.12.2015).
6. FIXED ASSETS
6.1 Fixed assets are stated at historical cost less accumulated depreciation/amortization, wherever applicable, except those premises, which have been revalued. The appreciation on revaluation is credited to revaluation reserve and incremental depreciation attributable to the revalued amount is deducted there from.
6.2 Software is capitalized and clubbed under Intangible assets.
6.3 Cost includes cost of purchase and all expenditure such as site preparation, installation costs and professional fees incurred on the asset till the time of capitalization. Subsequent expenditure/s incurred on the assets are capitalized only when it increases the future benefits from such assets or their functioning capability.
A. Depreciation on assets (including land where value is not separable) is provided on straight-line method based on estimated life of the asset, except in respect of computers where it is calculated on the straight-line method, at the rates prescribed by RBI.
C. Depreciation on fresh additions to assets other than bank''''s own premises is provided from the month in which the assets are put to use and in the case of assets sold/ disposed off during the year, up to the month preceding the month in which it is sold/ disposed off.
D. The depreciation on bank''''s own premises existing at the close of the year is charged for full year. The construction cost is depreciated only when the building is complete in all respects. Where the cost of land and building cannot be separately ascertained, depreciation is provided on the composite cost, at the rate applicable to buildings.
E. In respect of leasehold premises, the lease premium, if any, is amortized over the period of lease and the lease rent is charged in the respective year(s).