In accordance with the RBI guidelines, investments are classified at
the date of purchase as:
- Held for Trading (''H FT'');
- Available for Sale (''AFS''); and
- Held to Maturity (''HTM'').
Investments that are held principally for sale within a short period
are classified as HFT securities. 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 that the Bank intends to hold till maturity are classified
under the HTM category.
All other investments are classified as AFS securities.
However, for disclosure in the Balance Sheet, investments in India are
classified under six categories - Government Securities, Other approved
securities, Shares, Debentures and Bonds, Investment in
Subsidiaries/Joint Ventures and Others.
Investments made outside India are classified under three categories -
Government Securities, Subsidiaries and/or Joint Ventures abroad and
Transfer of security between categories
Transfer of security between categories of investments is accounted as
per the RBI guidelines.
Costs including brokerage, commission pertaining to investments, paid
at the time of acquisition, are charged to the Profit and Loss Account.
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost
Investments classified under the HTM category are carried at
acquisition cost unless it is more than the face value, in which case
the premium is amortised over the period remaining to maturity. In
terms of RBI guidelines, discount on securities held under HTM category
is not accrued and such securities are held at the acquisition cost
Investments classified under the AFS and HFT categories are marked to
market. The market/fair value 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 or prices
declared by Primary Dealers Association of India (''PDAI'') jointly with
Fixed Income Money Market and Derivatives Association of India
(''FIMMDA''), periodically. Net depreciation, if any, within each
category of each investment classification is recognised in the Profit
and Loss Account. The net appreciation if any, under each category of
each investment classification is ignored. The book value of individual
securities is not changed consequent to the periodic valuation of
Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate
of Deposits being discounted instruments, are valued at carrying cost.
Units of mutual funds are valued at the latest repurchase price/net
asset value declared by the mutual fund.
Market value of investments where current quotations are not available,
is determined as per the norms prescribed by the RBI as under:
- in case of unquoted bonds, debentures and preference shares where
interest/dividend is received regularly (i.e. not overdue beyond 90
days), the market price is derived based on the YTM 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 categories and credit ratings
along with residual maturity issued by FIMMDA is adopted for this
- 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 RBI;
- 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 Rs.1
- 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
Rs.1 per VCF. Investment in unquoted VCF after 23 August, 2006 are
categorised under HTM category for the initial period of three years
and valued at cost as per RBI guidelines;
- investments in Credit Linked Notes (''CLNs''), are valued based on
current quotations where the same are available. In the absence of
quotes, the same are valued based on internal valuation methodology
using appropriate mark-up and other estimates such as price of the
underlying Foreign Currency Convertible Bond (''FCCB''), rating category
of the CLN etc. and
- security receipts are valued as per the NAV obtained from the issuing
Reconstruction Company/Securitisation Company.
Investments in subsidiaries/joint ventures are categorised as HTM and
assessed for impairment to determine permanent diminution, if any, in
accordance with the RBI guidelines.
Realised gains on investments under the HTM category are recognised in
the Profit and Loss Account and subsequently appropriated to Capital
Reserve account in accordance with the RBI guidelines. Losses are
recognised in the Profit and Loss Account.
All investments are accounted for on settlement date except investments
in equity shares which are accounted for on trade date as the corporate
actions are effected in equity on the trade date.
Repurchase and reverse repurchase transactions
Repurchase and reverse repurchase transactions [excluding those
conducted under the Liquid Adjustment Facility (''LAF'') with RBI] are
accounted as collateralised borrowing and lending respectively. Such
transactions done under LAF are accounted as outright sale and outright
purchase respectively. However, depreciation in their value, if any,
compared to their original cost, is recognised in the Profit and Loss
Policy for Short Sale
In accordance with RBI guidelines, the Bank undertakes short sale
transactions in Central Government dated securities. The short
positions are reflected in ''Securities Short Sold (''SSS'') A/c'',
specifically created for this purpose. Such short positions are
categorised under HFT category. These positions are marked-to-market
along with the other securities under HFT portfolio and the resultant
mark-to-market gains/losses are accounted for as per the relevant RBI
guidelines for valuation of investments discussed earlier.
Advances are classified into performing and non-performing advances
(''NPAs'') as per the RBI guidelines and are stated net of specific
provisions made towards NPAs and floating provisions. Further, NPAs are
classified into sub-standard, doubtful and loss assets based on the
criteria stipulated by the RBI. Provisions for NPAs are made for
sub-standard and doubtful assets at rates as prescribed by the RBI with
the exception for agriculture advances and schematic retail advances.
In respect of schematic retail advances, provisions are made in terms
of a bucket-wise policy upon reaching specified stages of delinquency
(90 days or more of delinquency) under each type of loan, which
satisfies the RBI prudential norms on provisioning. Provisions in
respect of agriculture advances classified into sub-standard and
doubtful assets are made at rates which are higher than those
prescribed by the RBI.
In addition to the above, the Bank on a prudential basis, makes
provision for expected losses against advances or other exposures to
specific assets/industry/sector either on a case-by-case basis or for a
group of assets, based on specific information or general economic
environment. These are classified as contingent provision and included
under Schedule 5 - Other Liabilities in the Balance Sheet.
Loss assets and unsecured portion of doubtful assets are
provided/written off as per the extant RBI guidelines. NPAs are
identified by periodic appraisals of the loan portfolio by the
Amounts recovered against debts written off are recognised in the
Profit and Loss account.
For restructured/rescheduled assets, provision is made in accordance
with the guidelines issued by RBI, which requires the diminution in the
fair value of the assets to be provided at the time of restructuring.
A general provision @ 0.25% in case of direct advances to agricultural
and SME sectors, 1% in respect of advances classified as commercial
real estate, 2% in respect of housing loans at teaser rates, 2.75%
(previous year 2%) in respect of certain class of restructured assets
and 0.40% for all other advances is made as prescribed by the RBI. In
case of overseas branches, general provision on standard advances is
maintained at the higher of the levels stipulated by the respective
overseas regulator or RBI.
Under its home loan portfolio, the Bank offers housing loans with
certain features involving waiver of Equated Monthly Installments
(''EMIs'') of a specific period subject to fulfilment of a set of
conditions by the borrower. The Bank makes provision on an estimated
basis against the probable loss that could be incurred in future on
account of waivers to eligible borrowers in respect of such loans. This
provision is classified under Schedule 5 - Other Liabilities in the
1.3 Country risk
In addition to the provisions required to be held according to the
asset classification status, provisions are held for individual country
exposure (other than for home country as per the RBI guidelines). The
countries are categorised into seven risk categories namely
insignificant, low, moderate, high, very high, restricted and
off-credit and provision is made on exposures exceeding 180 days on a
graded scale ranging from 0.25% to 100%. For exposures with contractual
maturity of less than 180 days, 25% of the normal provision requirement
is held. 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 exposure.
The Bank enters into purchase/sale of corporate and retail loans
through direct assignment/Special Purpose Vehicle (''SPV''). In most
cases, post securtisation, the Bank continues to service the loans
transferred to the assignee/SPV. The Bank also provides credit
enhancement in the form of cash collaterals and/or by subordination of
cash flows to Senior Pass Through Certificate (''PTC'') holders. In
respect of credit enhancements provided or recourse obligations
(projected delinquencies, future servicing etc.) accepted by the Bank,
appropriate provision/disclosure is made at the time of sale in
accordance with AS 29, Provisions, Contingent Liabilities and
Contingent Assets as notified under the Companies (Accounting
Standards) Rules, 2006.
In accordance with RBI guidelines of 7 May 2012, on ''Guidelines on
Securitisation of Standard Assets'', gain on securtisation transaction
is recognised over the period of the underlying securities issued by
the SPV as prescribed under RBI guidelines. Loss on securtisation is
immediately debited to the Profit and Loss Account.
1.5 Foreign currency transactions
In respect of domestic operations, transactions denominated in foreign
currencies are accounted for at the rates prevailing on the date of the
transaction. Monetary foreign currency assets and liabilities are
translated at the Balance Sheet date at rates notified by Foreign
Exchange Dealers Association of India (''FEDAI''). All profits/losses
resulting from year end revaluations are recognised in the Profit and
Financial statements of foreign branches classified as non-integral
foreign operations are translated as follows:
- Assets and liabilities (both monetary and non-monetary as well as
contingent liabilities) are translated at closing rates notified by
FEDAI at the year end.
- Income and expenses are translated at the rates prevailing on the
date of the transactions.
- All resulting exchange differences are accumulated in a separate
''Foreign Currency Translation Reserve'' till the disposal of the net
Outstanding forward exchange contracts (excluding currency swaps
undertaken to hedge foreign currency assets/ liabilities and funding
swaps which are not revalued) and spot exchange contracts are revalued
at year end exchange rates notified by FEDAI for specified maturities
and at interpolated rates for contract of interim maturities. The
resulting gains or losses on revaluation are included in the Profit and
Loss Account in accordance with RBI/FEDAI guidelines. The forward
exchange contracts of longer maturities where exchange rates are not
notified by FEDAI are revalued at the forward exchange rates implied by
the swap curves in respective currencies. The resultant gains or losses
are recognised in the Profit and Loss Account.
Premium/discount on currency swaps undertaken to hedge foreign currency
assets and liabilities and funding swaps is recognised as interest
income/expense and is amortised on a pro-rata basis over the underlying
Contingent liabilities on account of foreign exchange
contracts/options, guarantees, acceptances, endorsements and other
obligations denominated in foreign currencies are disclosed at closing
rates of exchange notified by FEDAI.
1.6 Derivative transactions
Derivative transactions comprise of forward contracts, swaps and
options which are disclosed as contingent liabilities. The forwards,
swaps and options are categorised as trading or hedge transactions.
Trading derivative contracts are revalued at the Balance Sheet date
with the resulting unrealised gain or loss being recognised in the
Profit and Loss Account and correspondingly in other assets or other
liabilities respectively. For hedge transactions, the Bank identifies
the hedged item (asset or liability) at the inception of transaction
itself. The effectiveness is ascertained at the time of inception of
the hedge and periodically thereafter. Hedge swaps are accounted for on
accrual basis except in case of swaps designated with an asset or
liability that is carried at market value or lower of cost or market
value in the financial statements. In such cases the swaps are marked
to market with the resulting gain or loss recorded as an adjustment to
the market value of designated asset or liability. The premium on
option contracts is accounted for as per FEDAI guidelines. Pursuant to
the RBI guidelines any receivables under derivative contracts
comprising of crystallised receivables as well as positive Mark to
Market (MTM) in respect of future receivables which remain overdue for
more than 90 days are reversed through the Profit and Loss account and
are held in separate Suspense account.
Currency futures contracts are marked to market using daily settlement
price on a trading day, which is the closing price of the respective
futures contracts on that day. While the daily settlement price is
computed based on the last half an hour weighted average price of such
contract, the final settlement price is taken as the RBI reference rate
on the last trading day of the futures contract or as may be specified
by the relevant authority from time to time. All open positions are
marked to market based on the settlement price and the resultant marked
to market profit/loss is daily settled with the exchange.
Valuation of Exchange Traded Currency Options (ETCO) is carried out on
the basis of the daily settlement price of each individual option
provided by the exchange.
1.7 Revenue recognition
Interest income is recognised on an accrual basis except interest
income on non-performing assets, which is recognised on receipt in
accordance with AS-9, Revenue Recognition as notified under the
Companies (Accounting Standards) Rules, 2006 and the RBI guidelines.
Fees and commission income is recognised when due, except for guarantee
commission which is recognised pro-rata over the period of the
Arrangership/syndication fee is accounted for on completion of the
agreed service and when right to receive is established.
Dividend is accounted on an accrual basis when the right to receive the
dividend is established.
Gain/loss on sell down of loans and advances through direct assignment
is recognised at the time of sale.
Gain or loss arising on sale of NPAs is accounted as per the guidelines
prescribed by the RBI, which require provisions to be made for any
deficit (where sale price is lower than the net book value), while
surplus (where sale price is higher than the net book value) is
1.8 Fixed assets and depreciation
Fixed assets are carried at cost of acquisition less accumulated
depreciation and impairment, if any. Cost includes freight, duties,
taxes and incidental expenses related to the acquisition and
installation of the asset.
Capital work-in-progress includes cost of fixed assets that are not
ready for their intended use and also includes advances paid to acquire
Depreciation is provided on the straight-line method from the date of
addition. The rates of depreciation prescribed in Schedule XIV to the
Companies Act, 1956 are considered as the minimum rates. If the
Management''s estimate of the useful life of a fixed asset at the time
of acquisition of the asset or of the remaining useful life on a
subsequent review is shorter, then depreciation is provided at a higher
rate based on the Management''s estimate of the useful life/remaining
useful life. Pursuant to this policy, depreciation has been provided
using the following estimated useful lives:
All fixed assets individually costing less than Rs.5,000 are fully
depreciated in the year of installation.
Depreciation on assets sold during the year is recognised on a pro-rata
basis to the Profit and Loss Account till the date of sale.
The carrying amounts of assets are reviewed at each Balance Sheet date
to ascertain if there is any indication of impairment based on
internal/external factors. An impairment loss is recognised wherever
the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is the greater of the asset''s net selling price and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value at the weighted average
cost of capital. After impairment, depreciation is provided on the
revised carrying amount of the asset over its remaining useful life.
Profit on sale of premises is appropriated to Capital Reserve Account
in accordance with RBI instructions.
1.9 Lease transactions
Assets given on operating lease are capitalised at cost. Rentals
received by the Bank are recognised in the Profit and Loss Account on
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership over the lease term are classified as
operating lease. Lease payments for assets taken on operating lease are
recognised as an expense in the Profit and Loss Account on a
straight-line basis over the lease term.
1.10 Retirement and other employee benefits Provident Fund
Retirement benefit in the form of provident fund is a defined benefit
plan wherein the contributions are charged to the Profit and Loss
Account of the year when the contributions to the fund are due.
Further, an actuarial valuation is conducted by an independent actuary
to determine the deficiency, if any, in the interest payable on the
contributions as compared to the interest liability as per the
The Bank contributes towards gratuity fund (defined benefit retirement
plan) administered by various insurers for eligible employees. Under
this scheme, the settlement obligations remain with the Bank, although
various insurers administer the scheme and determine the contribution
premium required to be paid by the Bank. The plan provides a lump sum
payment to vested employees at retirement or termination of employment
based on the respective employee''s salary and the years of employment
with the Bank. Liability with regard to gratuity fund is accrued based
on actuarial valuation conducted by an independent actuary using the
Projected Unit Credit Method as at 31 March each year. In respect of
employees at overseas branches (other than expats) liability with
regard to gratuity is provided on the basis of a prescribed method as
per local laws, wherever applicable.
Short term compensated absences are provided for based on estimates.
The Bank provides leave encashment benefit (long term), which is a
defined benefit scheme based on actuarial valuation conducted by an
independent actuary. The actuarial valuation is carried out as per the
Projected Unit Credit Method as at 31 March each year.
Employees of the Bank are entitled to receive retirement benefits under
the Bank''s Superannuation scheme either under a cash-out option through
salary or under a defined contribution plan. Through the defined
contribution plan, the Bank contributes annually a specified sum of 10%
of the employee''s eligible annual basic salary to LIC, which undertakes
to pay the lumpsum and annuity benefit payments pursuant to the scheme.
Superannuation contributions are recognised in the Profit and Loss
Account in the period in which they accrue.
Actuarial gains/losses are immediately taken to the Profit and Loss
Account and are not deferred.
1.11 Debit/Credit card reward points
The Bank estimates the probable redemption of debit and credit card
reward points using an actuarial method at the Balance Sheet date by
employing an independent actuary. Provision for the said reward points
is then made based on the actuarial valuation report as furnished by
the said independent actuary.
Income tax expense is the aggregate amount of current tax and deferred
tax charge. Current year taxes are determined in accordance with the
Income tax Act, 1961. 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
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the taxes on income levied by same governing
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised. The
impact of changes in the deferred tax assets and liabilities is
recognised in the Profit and Loss Account.
Deferred tax assets are recognised and reassessed at each reporting
date, based upon the Management''s judgement as to whether realisation
is considered as reasonably certain. Deferred tax assets are recognised
on carry forward of unabsorbed depreciation and tax losses only if
there is virtual certainty that such deferred tax asset can be realised
against future profits.
1.13 Share issue expenses
Share issue expenses are adjusted from Share Premium Account in terms
of Section 78 of the Companies Act, 1956.
1.14 Earnings per share
The Bank reports basic and diluted earnings per share in accordance
with AS-20, Earnings per Share, as notified by the Companies
(Accounting Standards) Rules, 2006. Basic earnings per share is
computed by dividing the net profit after tax by the weighted average
number of equity shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue equity shares were
exercised or converted during the year. Diluted earnings per share is
computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding at the year end.
1.15 Employee stock option scheme
The 2001 Employee Stock Option Scheme (''the Scheme'') provides for grant
of stock options on equity shares of the Bank to employees and
Directors of the Bank and its subsidiaries. The Scheme is in accordance
with the Securities and Exchange Board of India (SEBI) (Employees Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The
Bank follows the intrinsic value method to account for its stock based
employee compensation plans as per the Guidance Note on ''Accounting for
Employee Share-based Payments'' issued by the ICAI. Options are granted
at an exercise price, which is equal to/less than the fair market price
of the underlying equity shares. The excess of such fair market price
over the exercise price of the options as at the grant date is
recognised as a deferred compensation cost and amortised on a
straight-line basis over the vesting period of such options.
The fair market price is the latest available closing price, prior to
the date of grant, on the stock exchange on which the shares of the
Bank are listed. If the shares are listed on more than one stock
exchange, then the stock exchange where there is highest trading volume
on the said date is considered.
1.16 Provisions, contingent liabilities and contingent assets
A provision is recognised when the Bank has a present obligation as a
result of past event where it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the Balance Sheet date. These are reviewed at
each Balance Sheet date and adjusted to reflect the current best
A disclosure of contingent liability is made when there is:
- a possible obligation arising from a past event, the existence of
which will be confirmed by occurrence or non occurrence of one or more
uncertain future events not within the control of the Bank; or
- a present obligation arising from a past event which is not
recognised as it is not probable that an outflow of resources will be
required to settle the obligation or a reliable estimate of the amount
of the obligation cannot be made.
When there is a possible obligation or a present obligation in respect
of which the likelihood of outflow of resources is remote, no provision
or disclosure is made.
Contingent assets are not recognised 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 recognised in the period in which the