KOTAK BANK Accounting Policy

SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES A BACKGROUND


In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"). It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Retail Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat which is India''''s first global financial and IT services hub designed on the lines of global financial centre’s.


B BASIS OF PREPARATION


The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 of the Companies Act, 2013 read with Paragraph 7 of the Companies (Accounts) Rules, 2014 and other relevant provisions of the Companies Act, 2013 ("the 2013 act") and the Companies (Accounting Standards) Amendment Rules 2016 in so far as they apply to banks and the guidelines issued by RBI.


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 of the date of the financial statements and the reported income and expenses during the reporting period. The Bank''''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.


C.1 CHANGE IN ACCOUNTING POLICY


Accounting for Proposed Dividend


As per the requirements of pre-revised AS 4 - ''''Contingencies and Events Occurring after the balance sheet date'''', the Bank used to create a liability for dividend proposed/ declared after the balance sheet date if dividend related to periods covered by the financial statements. As per AS 4 (Revised), with effect from April 2016, the Bank is not required to provide for dividend proposed/ declared after the balance sheet date.


Had the Bank continued with creation of provision for proposed dividend, its surplus in the Profit and Loss Account would have been lower by Rs, 132.94 crore and other liabilities would have been higher by Rs, 132.94 crore ( including dividend distribution tax of Rs, 22.94 crore).


C.2 SIGNIFICANT ACCOUNTING POLICIES 1 Investments Classification:


In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''''HFT''''), "Available for Sale" (''''AFS'''') and "Held to Maturity" (''''HTM'''') categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided.


Under each of these categories, investments are further classified under six groups (hereinafter called "groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.


The Bank follows ''''Settlement Date'''' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''''Trade Date'''' accounting is followed.


Basis of classification:


Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category.


Acquisition Cost:


The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognized in Profit and Loss Account.


Disposal of investments:


- Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognized in the Profit and Loss Account.


- Investments classified as HTM - Profit on sale or redemption of investments is recognized in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognized in the Profit and Loss Account.


Valuation:


The valuation of investments is performed in accordance with the RBI guidelines as follows:


a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortized over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.


b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognized in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.


c) The market or fair value of quoted investments included in the ''''AFS'''' and ''''HFT'''' categories is measured with respect to the market price of the scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared by Primary Dealers Association of India (''''PDAI'''') jointly with Fixed Income Money Market and Derivatives Association of India (''''FIMMDA'''') as at the year end.


d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.


e) Units of mutual funds are valued at the latest net asset value declared by the mutual fund.


f) Investments in subsidiaries / joint ventures (as defined by RBI) are categorized as HTM and assessed for impairment to determine other than temporary diminution, if any, in accordance with RBI guidelines.


g) Market value of investments where current quotations are not available, are determined as per the norms prescribed by the RBI as under:


- In case of unquoted bonds, debentures and preference shares where interest I dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA is adopted for this purpose;


- In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognized in the Profit and Loss Account until received;


- Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at '''' 1 per investee company;


- Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '''' 1 per VCF Investment in unquoted VCF after 23rd August, 2006 are categorized under HTM category for the initial period of three years and valued at cost as per RBI guidelines;


h) Non-performing investments are identified and valued based on the RBI guidelines.


i) Repurchase and reverse repurchase transactions - Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are accounted as collateralized borrowing and lending transactions respectively. The difference between the consideration amount of the first leg and the second leg of the repo is recognized as interest income or interest expense over the period of the transaction.

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
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