18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2017
YES BANK Limited (the ‘Bank'''' or ‘YES BANK'''') is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the license to commence banking operations from the Reserve Bank of India (‘RBI'''') on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004.
18.2 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 guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, except in the case of interest income on non-performing assets (NPAs), loans under strategic debt restructuring (SDR) and Sustainable Structuring of Stressed Assets (S4A) scheme of RBI where it is recognized upon realization.
18.3 USE OF ESTIMATES
The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during 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. Any revision to accounting estimates is recognized prospectively in current and future periods.
18.4 SIGNIFICANT ACCOUNTING POLICIES
18.4.1 SIGNIFICANT CHANGES IN ACCOUNTING POLICY
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, dated March 30, 2016, Bank has not accounted for proposed dividend as a liability as at March 31, 2017. Proposed Dividend was however accounted for as a liability as at March 31, 2016 in line with the existing accounting standard applicable at that time.
The Board of Directors of the Bank has recommended a dividend of '''' 12 per equity share for approval by shareholders at the 13th Annual General Meeting. If approved the total liability arising to the Bank would be '''' 6,593.11 million, including dividend tax (previous year '''' 5,061.52 million). The actual dividend payout may however change due to equity shares exercised by employees between the end of the financial year and the dividend declaration date.
ACCOUNTING FOR CASH FLOW HEDGE RESERVE:
The Bank has applied the Guidance Note on Accounting for Derivative Contracts (‘Guidance Note'''') issued by the Institute of Chartered Accountants of India effective from April 01, 2016 in respect of derivative contracts which are not covered by existing accounting standards or RBI guidelines. For the Bank, this impacts the accounting for cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges under the Guidance
Note. The adoption of the Guidance Note resulted in the recognition of derivative assets of '''' 52.83 million , derivative liabilities of '''' 212.96 million and a cash flow hedge reserve of ('''' 160.14) million as at March 31, 2017. The application of the Guidance Note has no impact on the net profit for the year ended March 31, 2017 as compared to the previous accounting policy followed by the Bank.
18.4.2 REVENUE RECOGNITION
Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured.
- Interest income is recognized in the profit and loss account on accrual basis, except in the case of non-performing assets and accounts under SDR / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized upon realization as per the prudential norms of the RBI.
- Loan processing fee is recognized when it becomes due and realizable.
- Dividend income is recognized when the right to receive payment is established.
- Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee
- Commission on Letters of Credit (‘LC'''') issued by the Bank is recognized as income at the time of issue of the LC.
- Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis.
- I n case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis.
- Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered.
- Other fees and commission income are recognized on accrual basis.
Classification and valuation of the Bank''''s investments are carried out in accordance with RBI Circular DBR. No.BP.BC.6/21.04.141/2015-16 dated July 01, 2015 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2017-18/001/April 03, 2017.
ACCOUNTING AND CLASSIFICATION Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as "Held for trading” (‘HFT''''), "Available for sale” (‘AFS'''') or "Held to maturity” (‘HTM'''') at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (‘Investments'''') under six groups (a) government securities
(b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and
A) COST OF ACQUISITION
Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account as per the RBI guidelines.
B) BASIS OF CLASSIFICATION
Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category.
C) TRANSFER BETWEEN CATEGORIES Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scripts from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost.
Transfer of investments from AFS to HFT or vice-a-versa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another.
Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 (‘Investments'''') is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.
Investments received in lieu of restructured advances/under Strategic Debt Restructuring (SDR) scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under SDR scheme is provided as per RBI guidelines.
Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 01, 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.
Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost.
Pass Through Certificates purchase for priority sector lending requirements are valued at Book Value in accordance with FIMMDA guidelines FIMCIR/2017-18/001/April 03, 2017.
The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (‘SGL'''') account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA.
The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (‘YTM'''') rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA.
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognized in the Profit and Loss account.
Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '''' 1 per VCF.
Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at '''' 1 per company, as per relevant RBI guidelines.
At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date.
Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme.
Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability.
Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability.
Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India (‘GOI'''') is valued based on FIMMDA valuation.
Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank may additionally create provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received.
E) PROFIT/LOSS ON SALE OF INVESTMENTS Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account.
F) ACCOUNTING FOR REPOS / REVERSE REPOS
Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP. BC.6/21.04.141/2015-16 dated 1 July 2015. The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction.
Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions.
ACCOUNTING AND CLASSIFICATION Advances are classified as performing and nonperforming based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted.
Provisions in respect of non-performing advances are made based on management''''s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines.
The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of non-performing advances are charged to the Profit and Loss account and included under Provisions and Contingencies.
As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unheeded foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Bank. These provisions are included in Schedule 5 - ‘Other liabilities & provisions - Others''''.
Further to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures (other than for home country exposure). Countries are categorized into risk categories as per Export Credit Guarantee Corporation of India Ltd. (‘ECGC'''') guidelines and provisioning is done in respect of that country where the net funded exposure is one percent or more of the Bank''''s total assets.
In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines.
Accounts are written-off in accordance with the Bank''''s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income.
In case of loans sold to asset reconstruction company and consideration is more than net book value, the Bank records the security receipts at Net Book Value as per RBI guidelines.
18.4.5 TRANSACTIONS INVOLVING FOREIGN EXCHANGE
Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates.
Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap.
Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers'''' Association of India (‘FEDAI''''). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account.
In accordance with AS 11 ‘The Effects of changes in Foreign Exchange Rates'''', contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date.
Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS - 11.
18.4.6 EARNINGS PER SHARE
The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, "Earnings per Share” notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period.
Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.
18.4.7 ACCOUNTING FOR DERIVATIVE TRANSACTIONS
Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly and the resultant unrealized gains/losses are recognized in the profit and loss account.
Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability.
The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated December 14, 2007. Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under ‘Other Income''''.
The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ‘Other Income''''.
The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Over dues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines.
As per the RBI guidelines on ‘Prudential Norms for Off-balance Sheet Exposures of Banks'''' a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions.
Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account.
18.4.8 FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefit /functioning capability from / of such assets.
Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset''''s recoverable amount is the higher of an asset''''s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Depreciation on fixed assets is provided on straight-line method, overestimated useful lives, as determined by the management, at the rates mentioned below-
*As per RBI Guidelines.
1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013.
- Assets costing up to '''' 5,000 are fully depreciated in the year of purchase.
- For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.
- Improvements to leasehold assets are depreciated over the remaining period of lease
- Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset
- Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset
- The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, 2013.
18.4.10 IMPAIRMENT OF ASSETS
The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount.
18.4.11 EMPLOYEE BENEFITS
EMPLOYEE STOCK OPTION SCHEME (‘ESOS’)
The Employee Stock Option Scheme (‘the Scheme'''') provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period.
Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank''''s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method.
The employees of the Bank are entitled to carry forward a part of their unveiled/unutilized leave subject to a maximum limit. The employees cannot encash unveiled/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization.
The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days'''' eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation.
The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account.
In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre-determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution.
NEW PENSION SCHEME
The National Pension System (NPS) is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than its annual contribution for the employees who agree to contribute to the scheme.
Leases where the less or effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases.
18.4.13 INCOME TAXES
Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date.
Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.
18.4.14 PROVISIONS AND CONTINGENT ASSETS/LIABILITIES
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Bank does not recognize a contingent liability but discloses its existence in the financial statements
In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.
Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.
18.4.15 CASH AND CASH EQUIVALENT
Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.
18.4.16 CORPORATE SOCIAL RESPONSIBILITY
Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account.
18.4.17 DEBIT AND CREDIT CARDS REWARD POINTS
The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends.
Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities.
The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid / received thereon is classified as interest expense / income respectively.
18.4.19 SHARE ISSUE EXPENSES
Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the C o m p a n i e s Act, 2013.
18.4.20 SEGMENT INFORMATION
The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI.
18.4.21 PRIORITY SECTOR LENDING CERTIFICATES (PSLC)
The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ‘Expense'''' and the fee received from the sale of PSLCs is treated as ‘Other Income''''.
18.104.22.168 EQUITY ISSUE
During the financial year ended March 31, 2017, the Bank has issued 32,711,000 equity shares of '''' 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at '''' 1,500 per share aggregating to '''' 49,066.50 million. The Bank accreted '''' 48,239.39 million (net of share issue expenses of '''' 500 million) as premium, on account of QIP. Provision on share issue expenses created by debiting to share premium account is on estimated basis. Adjustments, if any required, to share premium shall be made upon final settlement of these expenses. The Bank also issued 32,43,172 shares pursuant to the exercise of stock option aggregating to '''' 1,010.12 million.
During the financial year ended March 31, 2016, the Bank has issued 2,795,543 shares pursuant to the exercise of stock option aggregating to '''' 739.51 million.
22.214.171.124 CAPITAL RESERVE
Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year '''' 1,083.00 million (previous year: '''' 734.83 million) was transferred to Capital Reserve.
126.96.36.199 INVESTMENT RESERVE
The Bank has transferred '''' Nil to Investment Reserve (Previous year: '''' Nil transferred to Investment Reserve) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account.
188.8.131.52 CASH FLOW HEDGE RESERVE
The Bank has debited '''' 160.14 million to Cash Flow Hedge Reserve (Previous year: '''' Nil) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value.
a) Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriate ness Policy, Hedging Policy and ALM policy.
b) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (‘RMC'''') and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof.
c) As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC as well as Top management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX, interest rates as well as credit risk, operational risk, reputational risk and legal risk.
d) The Bank has an independent Middle Office and Market Risk, which are responsible for monitoring, measurement, and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank.
e) I n addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk.
f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (‘MIS'''') and control purposes and records the same in the books of accounts on a monthly basis.
g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and ALCO monitors all outstanding hedges on a periodical basis. Further the Bank''''s ‘Hedging Policy'''' has stipulated conditions to ensure that the Hedges entered into are effective.
1 Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures.
2 Trading portfolio including accrued interest.
3 Mark to Market for credit exposure includes accrued interest.
4 Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives.