1 Background
Axis Bank Limited (the Bank) was incorporated in 1993 and provides a
complete suite of corporate and retail banking products.
2 Basis of preparation
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting, and
comply with the generally accepted accounting principles, statutory
requirements prescribed under the Banking Regulation Act, 1949, the
circulars and guidelines issued by the Reserve Bank of India (RBI)
from time to time and the Accounting Standards notified under the
Companies (Accounting Standards) Rules, 2006, to the extent applicable
and current practices prevailing within the banking industry in India.
3 Use of estimates
The preparation of the financial statements in conformity with the
generally accepted accounting principles requires the Management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses and disclosure of
contingent liabilities at the date of the financial statements. Actual
results could differ from those estimates. The Management believes that
the estimates used in the preparation of the financial statements are
prudent and reasonable. Any revisions to the accounting estimates are
recognised prospectively in the current and future periods.
4 Changes in accounting estimates
4.1 Change in estimated useful life of fixed assets
During the year, the Bank has revised the estimated useful lifes of the
following types of fixed assets:
- Modems, scanners, routers, hubs and switches from 10 years to 5 years
- Video conferencing equipment and printers from 10 years to 3 years
- Racks/cabinets for IT equipment from 16 years to 5 years
- Owned premises from 20 years to 61 years
As a result of tie aforesaid revisions, the net depreciation charge for
the year is higher by ^16.22 crores with a corresponding decrease in
the net block of fixed assets.
4.2 Change in estimate of lease term for operating leases
During the current year, the Bank has revised its estimate of lease
term in the case of assets taken on operating leases to include the
secondary period of the lease involving further payment of lease
rentals based on continuation of the lease at the option of the Bank,
as against the primary lease period as considered hitherto. As a result
the operating expenses for the year are higher by Rs.93.04 crores with a
consequent reduction to the profit before tax.
5.1 Investments
Classification
In accordance with the RBI guidelines, investments are classified at
the date of purchase as:
- Held for Trading (HFT);
- 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
Others.
Transfer of security between categories
Transfer of security between categories of investments is accounted as
per the RBI guidelines.
Acquisition cost
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
method.
Valuation
Investments classified under the HTM category are carried at
acquisition cost. Any premium on acquisition over face value is
amortised on a constant yield to maturity basis over the remaining
period 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 till maturity.
Investments classified under the AFS and HFT categories are marked to
market. The market/fair value of quoted investments included in the
Available for Sale and Held for Trading categories is the market
price of the scrip as available from the trades/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), 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
investments.
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:
- market value of unquoted Government Securities is derived based on
the Prices/Yield to Maturity (YTM) rate for Government Securities of
equivalent maturity as notified by FIMMDA jointly with the PDAI at
periodic intervals;
- in case of Central Government Securities, which do not qualify for
SLR requirement, the market price is derived by adding the appropriate
mark up to the Base Yield Curve of Central Government Securities as
notified by FIMMDA;
- market value of unquoted State Government Securities is derived by
adding the appropriate mark up above the Base Yield Curve of the
Central Government Securities of equivalent maturity as notified by the
FIMMD/V PDAI at periodic intervals;
- in case of unquoted bonds, debentures and preference shares where
interest/dividend is received regularly, the market price is derived
based on the YTM for Government Securities as notified 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 purpose;
- in case of preference shares where dividend is not received
regularly, the price derived on the basis of YTM is discounted in
accordance with the RBI guidelines;
- in case of bonds and debentures (including PTCs) where interest is
not received regularly, 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 companys latest Balance Sheet. In case the
latest Balance Sheet is not available, the shares are valued at Re. 1
per 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 Re.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; and
- 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.
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 Liquidity 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
Account.
5.2 Advances
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.
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
Management.
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 and 0.40%
for all other advances is made as prescribed by the RBI.
5.3 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). 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.
5.4 Securtisation
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.
Gain on securtisation transaction is recognized over the period of the
underlying securities issued by the SPV. Loss on securtisation is
immediately debited to the Profit and Loss Account.
5.5 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
Loss Account.
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
investments.
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
swap period.
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.
5.6 Derivative transactions
Derivative transactions comprise of forward contracts, swaps and
options which are disclosed as contingent liabilities. The forwards,
swaps and options are segregated 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 derivative transactions
are accounted for pursuant to the principles of hedge accounting. The
premium on option contracts is accounted for as per FEDAI guidelines.
Pursuant to the RBI guidelines any receivables under derivatives
contracts which remain overdue for more than 90 days are reversed
through the Profit and Loss Account and are held in a separate Suspense
Account.
5.7 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 Accounting Standard 9 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
guarantee.
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
ignored.
Arrangership/syndication fee is accounted for on completion of the
agreed service and when right to receive is established.
5.8 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
fixed assets.
Depreciation (including on assets given on operating lease) 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 Managements 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 Managements
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 ^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 assets 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.
5.9 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
accrual basis.
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.
5.10 Retiremen t and other employee benefits
Provident Fund
Retirement benefit in the form of provident fund is a defined
contribution scheme and the contributions are charged to the Profit and
Loss Account of the year when the contributions to the fund are due.
There are no other obligations other than the contribution payable to
the trust.
Gratuity
The Bank contributes towards gratuity fund (defined benefit retirement
plan) administered by the Life Insurance Corporation of India CLIO),
Metlife Insurance Company Limited (Metlife), HDFC Standard Life
Insurance Company Limited (HDFC Life) and ICICI Prudential Life
Insurance Company Limited (ICICI Pru) for eligible employees. Under
this scheme, the settlement obligations remain with the Bank, although
UC/Metlife/HDFC Life/ICICI Pru 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 employees 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.
Leave Encashment
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.
Superannuation
Employees of the Bank are entitled to receive retirement benefits under
the Banks 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 employees 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.
5.11 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.
5.12 Taxation
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
years.
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
taxation laws.
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
recognized in the Profit and Loss Account.
Deferred tax assets are recognized and reassessed at each reporting
date, based upon the Managements 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.
5.13 Share issue expenses
Share issue expenses are adjusted from share premium account.
5.14 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.
5.15 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.
5.16 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
estimates.
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
change occurs.
18 Notes forming part of the financial statements for the year ended 31
March, 2011
(Currency: In Indian Rupees)
1 On 17 November, 2010, the Board of Directors of the Bank approved the
acquisition of certain businesses
undertaken by Enam Securities Private Limited (ESPL) through its
wholly-owned subsidiary, Axis Securities and Sales Limited (ASSL), by
way of a demerger. It is envisaged that these businesses will be
transferred to ASSL, pursuant to a Scheme of Arrangement, as may be
approved by the relevant High Courts under Sections 391 to 394 and
other relevant provisions of the Companies Act, 1956 and subject to
receipt of necessary requisite approvals. The appointed date for the
purpose of the Demerger under the Scheme shall be 1 April, 2010. The
valuation of the ESPL business was assessed at 72,067 crores and in
consideration for the demerger, the Bank will issue shares in the ratio
of 5.7 equity shares of the Bank (aggregating 13,782,600 equity shares)
of the face value of 710 each for every 1 equity share (aggregating
2,418,000 equity shares) of 710 each held by the shareholders of ESPL.
2.1.2 In terms of its guidelines for implementation of the new capital
adequacy framework issued on 27 April, 2007, RBI
directed banks with overseas branches to migrate to the revised
framework for capital computation (under Basel II) - with effect from
31 March, 2008. The minimum capital to be maintained by banks under the
Revised Framework is subject to a prudential floor of 80% of the
capital requirement under Basel I.
2.1.3 The Bank has not raised any hybrid capital during the years ended
31 March, 2011 and 31 March, 2010.
# Working funds represent average of total assets as reported to RBI in
Form X under Section 27 of the Banking Regulation Act, 1949 during the
year
* Net Customer assets include advances and credit substitutes
** Productivity ratios are based on average employee numbers for the
year
2.1.5 The provisioning coverage ratio of the Bank computed in terms of
the RBI guidelines as on 31 March, 2011 was 80.90% (previous year
72.38%).
2.1.13 There are no advances as on 31 March, 2011 (previous year: Nil)
for which intangible securities has been taken as collateral by the
Bank.
2.1.17 During the years ended 31 March, 2011 and 31 March, 2010 there
were no Non-Performing Financial Assets Purchased or Sold (excluding
accounts previously written off) by the Bank.
2.1.26 Disclosure on risk exposure in Derivatives
Qualitative disclosures:
(a) Structure and organisation for management of risk in derivatives
trading, the scope and nature of risk measurement, risk reporting and
risk monitoring systems and strategies and processes for monitoring the
continuing effectiveness of hedges/mitigants:
Derivatives are financial instruments whose characteristics are derived
from an underlying asset, or from interest and exchange rates or
indices. The Bank undertakes derivative transactions for Balance Sheet
management and also for proprietary trading/market making whereby the
Bank offers derivative products to the customers to enable them to
hedge their earnings risks within the prevalent regulatory guidelines.
Proprietary trading includes Interest Rate Futures and Rupee Interest
Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK),
Currency Futures and Currency Options for USD/INR pair (both OTC and
exchange traded). The Bank also undertakes transactions in Cross
Currency Swaps, Principal Only Swaps,
Coupon Only Swaps, and Long Term Forex Contracts (LTFX) for hedging its
Balance Sheet and also offers them to its customers. These transactions
expose the Bank to various risks, primarily credit, market and
operational risk. The Bank has adopted the following mechanism for
managing risks arising out of the derivative transactions.
There is a functional separation between the Treasury Front Office,
Risk and Treasury Back Office to undertake derivative transactions. The
derivative transactions are originated by Treasury Front Office, which
ensures compliance with the trade origination requirements as per the
Banks policy and the RBI guidelines. The Market Risk Group within the
Banks Risk Department independently identifies, measures and monitors
the market risks associated with derivative transactions and appraises
the Asset Liability Management Committee (ALCO) and the Risk Management
Committee of the Board (RMC) on the compliance with the risk limits.
The Treasury Back Office undertakes activities such as confirmation,
settlement, ISDA documentation, accounting and other MIS reporting.
The derivative transactions are governed by the derivative policy,
hedging policy and the suitability and appropriateness policy of the
Bank as well as by the extant RBI guidelines. The Bank has also put in
place a detailed process flow for customer derivative transactions for
effective management of operational risk/ reputation risk.
Various risk limits are set up and actual exposures are monitored
vis-a-vis the limits. These limits are set up taking into account
market volatility, business strategy and management experience. Risk
limits are in place for risk parameters viz. PV01, VaR, stop loss,
Delta, Gamma and Vega. Actual positions are monitored against these
limits on a daily basis and breaches, if any, are reported promptly.
Risk assessment of the portfolio is undertaken periodically. The Bank
ensures that the Gross PV01 (Price value of a basis point) position
arising out of all non-option rupee derivative contracts are within
0.25% of net worth of the Bank as on Balance Sheet date.
Hedging transactions are undertaken by the Bank to protect the
variability in the fair value or the cash flow of the underlying
Balance Sheet item. These deals are accounted on an accrual basis
except the swap designated with an asset/liability that is carried at
market value or lower of cost or market value. In that case, the swap
is marked to market with the resulting gain or loss recorded as an
adjustment to the market value of designated asset or liability. These
transactions are tested for hedge effectiveness and in case any
transaction fails the test, the same is re-designated as a trading deal
with the approval of the competent authority and appropriate accounting
treatment is followed.
(b) Accounting policy for recording hedge and non-hedge transactions,
recognition of income, premiums and discounts, valuation of outstanding
contracts
The Hedging Policy approved by the Risk Management Committee of the
Board (RMC) governs the use of derivatives for hedging purpose. Subject
to the prevailing RBI guidelines, the Bank deals in derivatives for
hedging fixed rate and floating rate coupon or foreign currency
assets/liabilities. Transactions for hedging and market making purposes
are recorded separately. For hedge transactions, the Bank identifies
the hedged item (asset or liability) at the inception of the
transaction itself. The effectiveness is ascertained at the time of
inception of the hedge and periodically thereafter. Hedge derivative
transactions are accounted for in accordance with the hedge accounting
principles. Derivatives for market making purpose are marked to market
and the resulting gain/loss is recorded in the Profit and Loss Account.
The premium on option contracts is accounted for as per Foreign
Exchange Dealers Association of India (FEDAI) guidelines. Derivative
transactions are covered under International Swaps and Derivatives
Association (ISDA) master agreements with respective counterparties.
The exposure on account of derivative transactions is computed as per
the RBI guidelines and is marked against the credit limits approved for
the respective counterparties.
(c) Provisioning, collateral and credit risk mitigation
Derivative transactions comprise of swaps and options which are
disclosed as contingent liabilities. The swaps/ options are segregated
as trading or hedging. Trading swaps/options 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. Hedged swaps are accounted
for as per the RBI guidelines. Pursuant to the RBI guidelines, any
receivables under derivatives contracts, which remain overdue for more
than 90 days, are reversed through the Profit and Loss Account and are
held in a separate suspense account.
Collateral requirements for derivative transactions are laid down as
part of credit sanction terms on a case by case basis. Such collateral
requirements are determined, based on usual credit appraisal process.
The Bank retains the right to terminate transactions as a risk
mitigation measure in certain cases.
The credit risk in respect of customer derivative transactions is
sought to be mitigated through a laid down policy on sanction of Loan
Equivalent Risk (LER) limits, monitoring mechanism for LER limits and
trigger events for escalation/margin calls/termination.
2.1.27 No penalty/strictures have been imposed on the Bank during the
year or in the previous year by the Reserve Bank of India.
2.1.30 Draw Down from Reserves
During the year, the Bank has made a draw down out of the investment
reserve account towards depreciation in investments in AFS and HFT
categories in terms of the RBI guidelines.
2.1.31 Letter of Comfort
The Bank has not issued any Letter of Comfort (LoC) on behalf of its
subsidiaries.
2.1.33 The Bank has not sponsored any special purpose vehicle which is
required to be consolidated in the consolidated financial statements as
per accounting norms.
2.2 Other disclosures
2.2.1 During the year, the Bank has appropriated Rs.4.76 crores (previous
year Rs.223.92 crores), net of taxes and transfer to statutory reserve to
Capital Reserve, being the gain on sale of HTM investments in
accordance with the RBI guidelines.
2.2.3 Employee Stock Options Scheme (the Scheme)
In February 2001, pursuant to the approval of the shareholders at the
Extraordinary General Meeting, the Bank approved an Employee Stock
Option Scheme. Under the Scheme, the Bank is authorised to issue upto
13,000,000 equity shares to eligible employees. Eligible employees are
granted an option to purchase shares subject to vesting conditions. The
options vest in a graded manner over 3 years. The options can be
exercised within 3 years from the date of the vesting. Further, over
the period June 2004 to June 2010, pursuant to the approval of the
shareholders at Annual General Meetings, the Bank approved an ESOP
scheme for additional options aggregating 27,517,400. Within the
overall ceiling of 40,517,400 stock options approved for grant by the
shareholders as stated earlier, the Bank is also authorised to issue
options to employees and directors of the subsidiary companies.
33,707,690 options have been granted under the Scheme till the previous
year ended 31 March, 2010.
On 20 April, 2010, the Bank granted 2,723,500 stock options (each
option representing entitlement to one equity share of the Bank) to its
employees and the MD & CEO. These options can be exercised at a price
of Rs.1,159.30 per option. Further, on 7 and 8 June, 2010, the Bank also
granted 10,000 and 181,700 stock options (each option representing
entitlement to one equity share of the Bank) to an employee (on joining
the Bank) and employees of Axis Asset Management Company Limited, a
subsidiary of the Bank respectively. These options can be exercised at
a price of Rs.1,245.45 and Rs.1,214.80 per option respectively.
2.2.4 Dividend paid on shares issued on exercise of stock options
The Bank may allot shares between the Balance Sheet date and record
date for the declaration of dividend pursuant to the exercise of any
employee stock options. These shares will be eligible for full dividend
for the year ended 31 March, 2011, if approved at the ensuing Annual
General Meeting. Dividend relating to these shares has not been
recorded in the current year.
Appropriation to proposed dividend during the year ended 31 March, 2011
includes dividend of Rs.2.47 crores (previous year Rs.0.51 crores) paid
pursuant to exercise of 1,766,860 employee stock options after the
previous year end and record date for declaration of dividend for the
year ended 31 March, 2010.
Revenues of the Treasury segment primarily consist of fees and gains or
losses from trading operations and interest income on the investment
portfolio. The principal expenses of the segment consist of interest
expense on funds borrowed from external sources and other internal
segments, premises expenses, personnel costs, other direct overheads
and allocated expenses.
Revenues of the CorporateAA/holesale Banking segment consist of
interest and fees earned on loans given to customers falling under this
segment and fees arising from transaction services and merchant banking
activities such as syndication and debenture trusteeship. Revenues of
the Retail Banking segment are derived from interest earned on loans
classified under this segment and fees for banking and advisory
services, ATM interchange fees and cards products. Expenses of the
CorporateAVholesale Banking and Retail Banking segments primarily
comprise interest expense on deposits and funds borrowed from other
internal segments, infrastructure and premises expenses for operating
the branch network and other delivery channels, personnel costs, other
direct overheads and allocated expenses.
Segment income includes earnings from external customers and from funds
transferred to the other segments. Segment result includes revenue as
reduced by interest expense and operating expenses and provisions, if
any, for that segment. Segment-wise income and expenses include certain
allocations. Inter segment interest income and interest expense
represent the transfer price received from and paid to the Central
Funding Unit (CFU) respectively. For this purpose, the funds transfer
pricing mechanism presently followed by the Bank, which is based on
historical matched maturity and market-linked benchmarks, has been
used. Operating expenses other than those directly attributable to
segments are allocated to the segments based on an activity-based
costing methodology. All activities in the Bank are segregated
segment-wise and allocated to the respective segment.
2.2.6 Related party disclosure
The related parties of the Bank are broadly classified as:
a) Promoters
The Bank has identified the following entities as its Promoters.
- Administrator of the Specified Undertaking of the Unit Trust of India
(UTI-1)
- Life Insurance Corporation of India (LIC)
- General Insurance Corporation and four Government-owned general
insurance companies - New India Assurance Co. Ltd., National Insurance
Co. Ltd., United India Insurance Co. Ltd. and The Oriental Insurance
Co. Ltd.
b) Key Management Personnel
- Mrs. Shikha Sharma (Managing Director & Chief Executive Officer)
- Mr. M. M. Agrawal (Erstwhile Deputy Managing Director) upto 31
August, 2010
- Mr. Sisir Kumar Chakrabarti (Deputy Managing Director) with effect
from 27 September, 2010
c) Relatives of Key Management Personnel
Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha
Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis
Bharadwaj, Dr. Reena Bharadwaj, Mrs. Bharti Agrawal, Mr. Vedprakash
Agrawal, Mrs. Gayatri Devi Agrawal, Mr. Amit M. Agrawal, Mrs. Rinki
Agrawal, Master Kaustubh Agrawal, Ms. Prashasti Agrawal, Mr. Anand
Agrawal, Mr. Praveen Agrawal, Mrs. Rekha Agrawal, Mrs. Renu Agrawal,
Mrs. Meenu Agrawal, Mrs. Swapna Chakraborty, Mrs. Shikha Bhattacharya,
Ms. Shila Chakraborty, Mr. Hirendra Nath Chakraborty, Mr. Rajat
Chakraborty, Mrs. Devikalpa Chakraborty (Kundu), Master Ahan
Chakraborty, Mr. Nabakumar Chakraborty, Mr. Prabir Chakraborty, Mrs.
Minati Chakraborty, Mrs. Krishna Chakraborty, Mrs. Sipra Chakraborty,
Mr. AsimKumar Chakraborty, Mr. Arunabha Bhattacharya
d) Subsidiary Companies
- Axis Securities and Sales Limited
- Axis Private Equity Limited
- Axis Trustee Services Limited
- Axis Asset Management Company Limited
- Axis Mutual Fund Trustee Limited
- Axis U.K. Limited
e) Associate
- Bussan Auto Finance India Private Limited
The above investment does not fall within the definition of a Joint
Venture as per AS 27, Financial Reporting of Interest in Joint
Ventures, notified under the Companies (Accounting Standards) Rules,
2006, and the said accounting standard is thus not applicable. However,
pursuant to RBI guidelines, the Bank has classified the same as
investment in joint ventures in the Balance Sheet. Such investment has
been accounted as an Associate from the current year in line with AS
23, Accounting for Investment in Associates in Consolidated Financial
Statements notified under the Companies (Accounting Standards) Rules,
2006. Based on RBI guidelines, details of transactions with Associates
are not disclosed since there is only one entity/party in this
category.
2.2.7 Leases
Disclosure in respect of assets given on operating lease
The Bank has not given any assets on operating lease.
Disclosure in respect of assets taken on operating lease
Operating lease comprises leasing of office premises/ATMs, staff
quarters, electronic data capturing machines and IT equipment.
2.2.10 Employee Benefits
Provident Fund
The contribution to the employees provident fund amounted to Rs.41.83
crores (previous year Rs.37.10 crores) for the year.
The rules of the Banks Provident Fund administered by a Trust require
that if the Board of Trustees are unable to pay interest at the rate
declared for Employees Provident Fund by the Government under para 60
of the Employees Provident Fund Scheme, 1952 for the reason that the
return on investment is less or for any other reason, then the
deficiency shall be made good by the Bank. Having regard to the assets
of the Fund and the return on the investments, the Bank does not expect
any deficiency in the foreseeable future. There has also been no such
deficiency since the inception of the Fund.
Superannuation
The Bank contributed Rs.10.17 crores (previous year Rs.9.67 crores) to the
employees superannuation plan for the year.
Leave Encashment
The Bank charged an amount of Rs.70.65 crores (previous year Rs.36.52
crores) towards leave encashment for the year.
Gratuity
The following tables summarise the components of net benefit expenses
recognised in the Profit and Loss Account and funded status and amounts
recognised in the Balance Sheet for the Gratuity benefit plan.
2.2.11 Provisions and contingencies
a) Movement in provision for frauds included under other liabilities is
set out below:
|