1.1 The accompanying fnancial statements have been prepared under the
historical cost convention and they conform to Generally Accepted
Accounting Principles (GAAP) in India, which comprise the statutory
provisions, guidelines of regulatory authorities and Reserve Bank of
India (RBI), Accounting Standards and guidance notes issued by the
Institute of Chartered Accountants of India (ICAI) and the practices
prevalent in the banking industry in India.
1.2 The preparation of fnancial statements requires the management to
make estimates and assumptions considered in the reported amount of
assets and liabilities (including contingent liabilities) as of the
date of the fnancial statements and the reported income and expenses
during the reporting period. Management believes that the estimates
used in the preparation of the fnancial statements are prudent and
reasonable. Future results could difer from estimates.
2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE
2.1 Foreign Currency transactions are recorded at the exchange rates
prevailing on the date of the respective transactions.
2.2 Monetary assets and liabilities denominated in Foreign Currencies
are translated at the Foreign Exchange Dealers Association of India
(FEDAI) closing spot rates prevailing on the Balance Sheet date.
2.3 Guarantees / Standby Letters of Credit, Letters of Credit, Forward
Rate Agreements, Foreign Currency Options and Forward Exchange
Contracts are translated at FEDAI closing spot rates as on the Balance
2.4 a) Each outstanding forward exchange contract (Other than those
mentioned in para 2.4 c) is subject to revaluation process separately.
2.4 b) The revaluation rate for each outstanding contract is derived by
maturity date-wise arithmetic interpolation. The diference between
revalued and the contracted amount is arrived at and its Present Value
is calculated using maturity date wise arithmetic interpolation of
MIFOR rate. The proft or loss is recognized on the above basis.
2.4 c) FCNB swaps with RBI and swaps done for arbitrage
are not subject to marked to market valuation. The premium or discount
arising at the inception of such forward exchange contracts is
amortised as expense or income over the life of the contract.
2.5 Premium received / paid on outstanding currency options are
accounted for as per FEDAI guidelines.
2.6 Gains/Losses on account of change in exchange rates of open
position in currency futures trades are settled with the exchange
clearing house on daily basis and such gains/losses are recognized in
proft and loss account.
3. INVESTMENTS ? Domestic
Investments are accounted for in accordance with the extant regulatory
Investments are classifed into three categories namely: Held to
Maturity, Available for Sale and Held for Trading. Investments are
further classifed into the following six groups in the balance sheet:
(i) Government Securities, (ii) Other Approved Securities, (iii)
Shares, (iv) Debentures and Bonds, (v) Subsidiaries / Joint Ventures
and (vi) Others (CPs, Mutual Funds, Units, etc.)
3.2 Basis of Classifcation
Investments that the Bank intends to hold till maturity are classifed
as Held to Maturity.
Investments that are held principally for resale within 90 days from
the date of purchase are classifed as Held for Trading.
Investments that are not classifed in the above two categories are
classifed as Available for Sale.
An investment is classifed as "Held to Maturity", "Available for Sale"
or "Held for Trading" at the time of its purchase and subsequent shift
amongst categories is done in conformity with Regulatory Guidelines.
3.3 Valuations and Accounting
i. In determining the cost of an investment:
c. Brokerage / commission received on subscription is reduced from the
d. Brokerage / commission etc., paid in connection with the acquisition
of investments is charged to revenue and not included in cost.
e. Broken period interest paid / received on debt instruments is
treated as interest expended / income and is not included in cost /
f. Cost is determined on the weighted average cost method.
g. Transfer of scrips from AFS /HFT category to HTM category is made at
the lower of book value or market value. In cases where the market
value is less than the book value, the provision against depreciation
held against this security is adjusted to reduce the book value to the
market value and the security is transferred at the market value.
Transfer of scrips from HTM to AFS/HFT category is done at the
acquisition price/book value. After transfer, these securities are
immediately revalued and resultant depreciation, if any, is provided.
ii. Held to Maturity categories:
Each security is carried at acquisition cost or at amortized cost, if
acquired at a premium over the face value. Any premium on acquisition
is amortized over the remaining maturity period of the security on
constant yield basis. Such amortization of premium is adjusted against
income under the head "Interest on investments".
iii. Available for Sale and Held for Trading categories:
a. The value of investments held under the Available For Sale category
is determined as per Reserve bank of India guidelines as under:
- Central Government Securities: Marked to market on the basis of
prices declared for the purpose of valuation jointly by Fixed Income
Money Market and Derivatives Association of India (FIMMDA) and Primary
Dealers Association of India (PDAI).
- State Government Securities and Other Trustee Securities: Marked to
market on the basis of prices derived out of the yield for respective
maturities declared for the purpose of valuation jointly by FIMMDA and
- Shares: Wherever Stock Exchange quotations are available valuation is
done as per lower of the quotations in Bombay Stock Exchange or
National Stock Exchange. Wherever current quotations are not available
and in respect of unquoted shares (i) Valuation is as per Book Value
(without considering Revaluation Reserves, if any) ascertained from the
latest Balance Sheet of the Company (which is not more than one year
prior to the date of valuation) (ii) In case the latest Balance Sheet
is not available, the
shares are valued at Re.1.00 per Company.
- Bonds & Debentures: Valued on the YTM method for the respective
maturity and rating put out by FIMMDA and PDAI.
- Mutual Fund Units: Investment in quoted MF Units should be valued as
per Stock Exchange quotations.
- Investment in un-quoted MF Units is to be value on the basis of the
latest re- purchase price declared by the MF in respect of each
particular scheme. In case of funds with a lock in period, where
re-purchase price/market quote is not available, units are valued at
Net Asset Value (NAV). If NAV is not available, then these are valued
at cost, till the end of lock in period.
- Treasury Bills, Certifcates of Deposits and Commercial Papers are
valued at carrying cost.
- Preference Shares are valued at lower of market value determined on
YTM basis and its redemption value.
b. Each security in the above two categories is revalued at the market
price or fair value determined as per Regulatory Guidelines and only
the net depreciation of each group for each category is provided for
and net appreciation is ignored. On provision for depreciation, the
book value of the individual securities remains unchanged after marking
iv. Security receipts issued by an Asset Reconstruction Company (ARC)
are valued in accordance with the guidelines applicable for Non-SLR
v. Investments are classifed as performing and non- performing based on
the following guidelines issued by the RBI.
a. Interest / Installment (including maturity proceeds) is due and
remains unpaid for more than 90 days.
b. The above would apply mutatis mutandis to preference shares where
the fxed dividend is not paid.
c. In the case of equity shares, in the event of the investment in the
share of any company is valued at Rs.1.00 per company on account of the
non- availability of the latest balance sheet, those equity shares
would be reckoned as NPI.
d. If any credit facility availed by the issuer is NPA in the books of
the Bank, investment in any of the securities, including preference
shares issued by the same issuer is also treated as NPI and vice versa.
However, if the preference shares alone are classifed as NPI, the
investment in any of the other performing securities
issued by the same issuer is not classifed as NPI and any performing
credit facilities granted to that borrower is not treated as NPA.
e. The investments in debentures / bonds, which are deemed to be in
the nature of advance, are also subjected to NPI norms as applicable to
f. The Bank has adopted the Uniform Accounting Procedure prescribed by
the RBI for accounting of Repo and Reverse Repo transactions.
3.4 Non-Performing Investments
All such securities where repayment of principal or interest not
serviced within 90 days from the due date are classifed as
Non-performing Investments, except securities guaranteed by the Central
Government, which is, treated as performing investments notwithstanding
arrears of principal / interest payments. In respect of investments
classifed as Non-performing, appropriate provisions are made for the
depreciation in the value. The depreciation requirement in respect of
these securities is not set of against appreciation in respect of other
4.1 The Bank enters into derivative contracts, such as foreign currency
options, interest rate swaps, currency swaps, and cross currency
interest rate swaps and forward rate agreements in order to hedge on-
balance sheet/of-balance sheet assets and liabilities or for trading
purposes. The swap contracts entered to hedge on-balance sheet assets
and liabilities are structured in such a way that they bear an opposite
and ofsetting impact with the underlying on-balance sheet items. The
impact of such derivative instruments is correlated with the movement
of the underlying assets and accounted in accordance with the
principles of hedge accounting.
4.2 Derivative contracts classifed as hedge are recorded on accrual
basis. Hedge contracts are not marked to market unless the underlying
Assets / Liabilities are also marked to market.
4.3 Except as mentioned above, all other derivative contracts are
marked to market as per the generally accepted practices prevalent in
the industry. In respect of derivative contracts that are marked to
market, changes in the market value are recognized in the proft and
loss account in the period of change. Any receivable under derivatives
contracts, which remain overdue for more than 90 days, are reversed
through proft and loss account.
4.4 Option premium paid or received is recorded in proft and loss
account at the expiry of the option. The Balance in the premium
received on options sold and premium paid on options bought have been
considered to arrive at Mark to Market value for forex Over the Counter
4.5 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 Proft and Loss
4.6 Interest Rate Swaps and Forward Rate Agreements
a. When a hedge becomes naked in part or full owing to shrinking
portfolio, and if allowed to continue till maturity, it is marked to
market at regular intervals.
b. The periodical net cash fows arising out of Interest Rate Swaps in
domestic currency are booked as income/ expenditure.
c. The periodical net cash fows arising out of Interest Rate Swaps in
foreign currency are booked as income / expenditure and form part of
the exchange position in Forex transactions.
d. Gain / Loss arising out of swap transactions in respect of Tier I /
II bonds, is computed separately. Losses, if any, are fully provided
for. Gains on reset or sale is recognized as Income and appropriated to
Special Reserve net of taxes and mandatory transfer to statutory
5.1 All advances have been classifed under four categories i.e., (i)
Standard Assets (ii) Sub-Standard Assets (iii) Doubtful Assets and (iv)
Loss Assets as per RBI directives / guidelines.
5.2 Advances shown in the Balance Sheet are net of:
a. Provision made on Non-Performing Assets (NPA)
b. Uncollected Interest Income in respect of NPA
c. Bills rediscounted with IDBI / SIDBI
d. Claims received
e. Diminution in fair value of Restructured Assets
f. Technical write-of
g. Inter-Bank Participations with Risk sharing
5.3 Provision on advances have been made in accordance with RBI
guidelines / directives as under:
d. For Standard Assets:
(i) 0.25% on direct advance to agriculture and SME sectors
(ii) Advances to commercial real estate.
a. 0.75% on Advances to Commercial Real Estate - Residence Housing
b. 1.00% on advances to Commercial Real Estate - Others.
(iii) 2% on Teaser Home Loans. Provisioning on these assets would be
reverted to @ 0.40% after 1 year from the date on which the rates are
reset at higher rates, if the accounts remain "standard"
(iv) For Restructured accounts classifed as standard advances provision
is made at a higher provision in the frst two years from the date of
restructuring. In cases of moratorium on payment of interest/principal
after restructuring, such advances will attract the prescribed higher
provision for the period covering moratorium and two years thereafter.
(v) Restructured accounts classifed as non-performing advances, when
upgraded to standard category provision will attract a higher provision
in the frst year from the date of upgradation.
In respect of new restructured standard accounts with efect from June
1, 2013, provision is made at 5% and in respect of restructured
standard accounts as on May 31, 2013, the provision is increased from
2.75 per cent in a phased manner as under:
Rs.3.50 per cent - with efect from March 31, 2014 (spread over the four
quarters of 2013-14)
Rs.4.25 per cent - with efect from March 31, 2015 (spread over the four
quarters of 2014-15)
Rs.5.00 per cent - with efect from March 31, 2016 (spread over the four
quarters of 2015-16)
(vi) 0.40% on all other advances
(b) For all Non-Performing Assets (NPA):
(i) Sub-Standard Assets:
(a) A general provision of 15%
(b) Additional provision:
1. Additional provision of 10% exposures, which are unsecured ab-initio
(where realizable value of security is not more than 10% ab-initio)
that is a total of 25% of outstanding.
2. In respect of Infrastructure lending where safe guards such as
Escrow accounts are available, additional provision of 5% for
exposures, which are unsecured ab-initio (where realizable value of
security is not more than 10% ab-initio) ie, a total 20% of
(ii) Doubtful assets at 25%, 40% or 100% of the
secured portion based on the number of years the account remained as
''''Doubtful Asset'''' and at 100% of the unsecured portion of the
outstanding after netting retainable amount of the guarantee cover
under the scheme of Export Credit and Guarantee Corporation
(ECGC)/Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE), wherever applicable and
(iii) Loss Assets at 100%.
5.4 Restructuring of Advances: In respect of
restructured accounts, where the outstanding is Rs.1.00 crore and
above, the erosion in the fair value of the advance is computed as the
diference between the fair value of the loan before and after
Fair value of the loan before restructuring is computed as the present
value of cash fows representing the interest at the existing rate
charged on the advance before restructuring and the principal,
discounted at a rate equal to the Bank''''s BPLR or Base rate (which ever
is applicable to the Borrower) as on the date of restructuring plus the
appropriate term premium and credit risk premium for the borrower
category on the date of restructuring. Fair value of the loan after
restructuring is computed as the present value of cash fows
representing the interest at the rate charged on the advance on
restructuring and the principal, discounted at a rate equal to the
Bank''''s BPLR or Base rate (which ever is applicable to the Borrower) as
on the date of restructuring plus the appropriate term premium and
credit risk premium for the borrower category on the date of
In respect of restructured accounts, where the outstanding is less than
Rs.1.00 crore, the amount of diminution in the Fair value has been
computed at 5% of the outstanding.
On a review, RBI vide their notifcation DBR.NO.BP.
BC.27/21.04.048/2015- 16 dated 02.07.2015, has been decided that a rate
equal to the actual interest rate charged to the borrower before
restructuring may be used to discount the future cash fows for the
purpose of determining the Diminution in Fair Value of loans on
5.5 In cases where the existing credit facilities to a borrower carry
diferent rates of interest, the weighted average interest rate (with
share of each credit facility in the total outstanding of the borrower
as on the date of restructuring being used as weights); may be used as
the discounting rate. This discount rate may be used to discount both
the pre-restructuring cash fows as well as the post- restructuring cash
In the case of suit fled accounts, legal expenses are charged to Proft
& Loss account and credited to revenue expenditure, when recovered.
5.6 Financial assets sold to Asset Reconstruction Company (ARC) /
Securitisation Company (SC) are recognized as under:
(a) (i) When fnancial assets are sold to SC/RC, on transfer of the
same, will be removed from the Bank''''s books.
(ii) in the case the sale is at a price lower than the net book value
(NBV), (Book Value less provision), the shortfall is charged to the
Proft and Loss account. Counter cycling/foating provisions can be used
for meeting any shortfall on sale of NPAs i.e., when the sale price is
lower than the Net Book Value (NBV). In case the asset sold on or after
February 26, 2014 and up to 31st March, 2016 any shortfall, can spread
over, for the period of 2 years. This facility of spreading over the
shortfall will be subject to necessary disclosures in the Notes to
account in the Annual Financial Statements of the Bank.
(iii) The excess provision on sale of NPAs, may be reversed, if the
sale is for value higher than NBV to Proft to Loss Account in the year
the amounts are received. Excess provision can be reversed, 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 Net Book
Value (NBV) of the Asset. Reversal of excess provision will be limited
to the extent to which cash received exceeds the NBV of the assets.
With regard to assets sold before February, 26 2014, the quantum of
excess provision reversed to the Proft and Loss account on account of
sale of NPAs shall be disclosed in the fnancial statement of the Bank
under "Notes to Accounts".
Interest on deposits, with provision for re-investment of interest, is
capitalized for every completed quarter and shown as principal.
7. FIXED ASSETS & DEPRECIATION
7.1 Premises and other fxed assets have been accounted for at
historical cost. Pending registration, the land and buildings acquired
by the Bank are capitalized, based on letters of allotment / agreement
and the physical possession.
7.2 (a) Cost of furnishing items like curtains (including stitching
charges) / carpets / mattresses and pillows irrespective of cost,
(b) Cost of replacement of Batteries for UPS / Inverters irrespective
of cost and
(c) Other individual items costing Rs.1000 or less are charged to proft
and loss account in the year of purchase.
7.3 Depreciation on premises and other fxed assets including system
software is provided for on Straight Line Method based on the useful
life of the assets at the rates given below
7.4 Depreciation is charged on the basis of number
of days put to use on a proportionate basis except in the case of Non
integral software, which is depreciated fully in the frst year of use
irrespective of number of days put in to use. In the fnal year of
depreciation a book value of Rupee 1 is left in the books, i.e the book
value of any assets will not be zero at any point of time till it is
discarded by the Branch / Bank.
7.5 In respect of Leasehold Properties, the lease premium is amortized
over the period of the lease.
8. EMPLOYEE BENEFITS
8.1 Short Term Employee benefts:
Amount of short-term employee benefts, such as casual leave and medical
benefts, expected to be paid in exchange for the services rendered by
employees is recognized during the period when the employee renders the
8.2 Post Employment benefts:
i. Defned Contribution Plan
The Bank operates a Provident Fund scheme, which is a defned
contribution plan. All eligible employees are entitled to receive
benefts under the Bank''''s Provident Fund scheme. Bank contributes
monthly at a determined rate (currently 10% of employee''''s basic pay
plus eligible allowance). These contributions are made to a fund set up
by the Bank and administered by a Board of Trustees. The Bank has no
liability for future provident fund benefts other than its annual
contribution, and recognizes such contributions as an expense in the
year to which they relate.
ii. Defned Beneft Plan
a. The Bank operates gratuity, pension and resettlement schemes, which
are defned beneft plans.
b. The Bank provides for gratuity to all eligible employees. The
beneft is in the form of lump sum payments to vested employees on
superannuation, on death while in employment or on termination of
employment. The rate of gratuity payable to an employee is 15 days
based on the rate of wages / salary last drawn by the employee as per
the Payment of Gratuity Act, 1972 for every completed year of service.
Gratuity is payable to an employee on the termination of his employment
after he has rendered continuous service for a period of not less than
5 years (on retirement, resignation, except death & disablement). To be
eligible under SBT (Payment of Gratuity to Employees) Regulations, 1972
minimum service required is 10 years. The Bank makes annual
contribution to the Fund administered by the Board of Trustees based on
independent actuarial valuation carried out annually. The maximum
amount payable as per the Payment of Gratuity Act, 1972 is Rs.10.00
lakhs. The amount payable to the employees will be higher of the amount
calculated as per SBT (Payment of Gratuity to Employees) Regulations or
Payment of Gratuity Act, 1972, subject to deduction of Income Tax on
amount in excess of Rs.10.00 lakhs.
c. The Bank provides for pension to all eligible employees who have
opted for pension and joined the services of the Bank on or before 31st
March 2010. The beneft is in the form of monthly payments as per rules
and regular payments to vested employees on retirement, on death while
in employment, or on termination of employment. Vesting occurs at
diferent stages as per rules. The Bank makes annual contributions to
fund administered by Board of Trustees based on an independent external
actuarial valuation carried out annually.
d. The cost of providing defned benefts is determined using the
projected unit credit method with actuarial valuations being carried
out at each balance sheet date. Actuarial gains / losses are
immediately recognized in the statement of proft and loss and are not
e. The bank has exercised the option of recognizing the transitional
liability on adoption of Accounting Standard 15 (2005) for its defned
beneft schemes against revenue and other reserves.
f. Defned Contributory Pension Scheme: Employees, joining services of
the Bank on or after 1st April 2010 are eligible for Defned
Contributory Pension Scheme in line with the New Pension Scheme
introduced for employees of Central Government.
g. The additional liability on account of reopening of pension option
for serving employees who had not opted for pension earlier as well as
the enhancement in gratuity limits is being amortized over a period of
fve years beginning with the fnancial year ending March 31, 2011 as per
the RBI notifcation.
h. The additional liability on account of reopening of
pension option for retired employees who had not
opted for pension earlier as well as the enhancement in gratuity limit
is being charged to the proft and loss account.
iii. Other Long Term Employee benefts:
(a) All eligible employees of the bank are eligible to encash certain
portion of their earned leave while in employment or on retirement, on
death or on termination of employment, subject to a maximum amount.
This is paid by the Bank as and when the liability arises.
(b) The cost of providing other long-term benefts is determined using
the projected unit credit method with actuarial valuations being
carried out at each balance sheet date. Past service cost is
immediately recognized in the statement of proft and loss and is not
9. PROVISION FOR TAXATION
a. Income tax expense is the aggregate amount of current tax, deferred
tax and wealth tax. Current year taxes are determined in accordance
with the prevailing tax rates and tax laws. Deferred tax adjustments
comprise of changes in the deferred tax assets or liabilities during
b. Deferred tax assets and liabilities are recognized on a prudent
basis for the future tax consequences of timing diferences arising
between the carrying values of assets and liabilities and their
respective tax basis and carry forward losses. Deferred tax assets and
liabilities are measured using tax rates and tax laws that have been
enacted or subsequently enacted prior to the balance sheet date. The
impact of changes in the deferred tax assets and liabilities is
recognized in the proft and loss account.
c. Deferred tax assets are recognized and reassessed at each reporting
date, in accordance with Accounting Standard 22 and based upon
Management"s judgment as to whether realization is considered certain.
Deferred tax assets are recognized only if there is virtual certainty
that such deferred tax assets can be realized against future taxable
10. REVENUE RECOGNITION
10.1 Income: Interest and other income are recognized on accrual basis
except for the following, which are recognized on cash basis:
a. Income from Non performing assets (NPAs), projects under
implementation with time over run and government guaranteed accounts
where interest is not received regularly, is recognized upon
realization as per RBI prudential norms.
b. Dividend is accounted on accrual basis where the right to receive
the dividend is established.
c. Locker Rent;
d. Exchange on demand bills purchased / commission on bills sent for
e. Interest on Overdue bills on realization basis;
f. Income on cross selling products and management fee;
g. Interest on application money for Investments;
h. Insurance claims;
i. Funded interest on restructured accounts represented by FITL;
j. Proft on sale / redemption of HTM securities is recognized as income
and appropriated to Capital Reserve net of taxes and mandatory transfer
to statutory reserves;
k. Income (other than interest) on investments in "Held to Maturity"
category acquired at a discount to the face value, is recognized as
a) On interest bearing securities, it is recognized only at the time of
b) On zero-coupon securities, it is accounted for over the balance
tenor of the security on a constant yield basis.
l. Commission on Letter of Credits/ Bank Guarantees except Deferred
10.2 Adjustment in respect of recoveries made in NPA accounts ? the
recoveries made are appropriated in the order of Charges, Interest and
then to Principal in live NPA and in respect of protested bills
accounts, the recoveries made are appropriated in the order of
Principal, Charges and then to unrealized Interest.
10.3 Income from interest on refund of income tax is accounted for in
the year the assessment order is passed by the concerned authority.
10.4 Expenditure: Revenue expenditure is accounted for on accrual
11. NET PROFIT
The net proft disclosed in the Proft and Loss account is arrived at,
after making provisions for the following:
a. Provision for taxes on Income including Deferred Tax and Wealth
b. Provision for Non-performing Advances and / or Investments,
c. Provision on Standard Assets,
d. Interest sacrifce on restructured accounts,
e. Depreciation on Investments,
f. Transfers to contingencies and
g. Other usual and necessary provisions.
12. IMPAIRMENT OF ASSETS
Impairment loss, if any, on Fixed Assets is recognized in accordance
with the Accounting Standard 28 issued in this regard by the Institute
of Chartered Accountants of India.
13. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
1. 1. In conformity with Accounting Standard 29, "Provisions,
Contingent Liabilities and Contingent Assets", the Bank recognizes
provisions only when it has a present obligation as a result of a past
is probable that an out fow of resources embodying economic benefts
will be required to settle the obligations, and when a reliable
estimate of the amount of the obligation can be made.
2. No provision required for
i. any possible obligation that arises from past events and the
existence of which will be confrmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Bank; or
ii. any present obligation that arises from past events but is not
a. it is not probable that an outfow of resources embodying economic
benefts will be required to settle the obligation; or
b. a reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are
assessed at regular intervals and only that part of the obligation for
which an outfow of resources embodying economic benefts is probable, is
provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
3. Contingent Assets are not recognized in the fnancial Statements.