1 a) On 17 November, 2010, the Board of Directors of the Bank had
approved the acquisition of certain financial services businesses
undertaken by Enam Securities Private Limited (ESPL) directly and
through its wholly owned subsidiaries, by Axis Securities and Sales
Limited (ASSL), a wholly owned subsidiary of the Bank by way of a
demerger. However, pursuant to conditions prescribed by the Reserve
Bank of India, certain modifications have been carried out to the
demerger structure in terms of a revised Scheme of Arrangement under
Sections 391- 394 and other relevant provisions of the Companies Act,
1956. Accordingly, the acquisition will now comprise of (a) a demerger
of the financial services businesses from ESPL to the Bank, in
consideration of which the Bank will issue shares to the shareholders
of ESPL, and (b) immediately upon completion of the demerger under the
Scheme, a simultaneous sale of the financial services businesses will
be undertaken from the Bank to ASSL for a cash consideration, with both
the aforesaid steps occurring simultaneously. The Reserve Bank of India
has on 30 March, 2012, conveyed its no objection to the Scheme.
Further, on 27 April, 2012, the Board of Directors of the Bank have
approved the reassessment of the valuation of the ESPL business at
Rs1,396 crores and consequently, in consideration for the demerger of
the financial services business of ESPL, the Bank will issue shares in
the ratio of 5 equity shares of the Bank (aggregating 12,090,000 equity
shares) of the face value of Rs10 each for every 1 equity share
(aggregating 2,418,000 equity shares) of Rs10 each held by the
shareholders of ESPL. The sale of the financial services businesses
will be simultaneously undertaken from the Bank to ASSL for a cash
consideration of Rs274 crores only. The appointed date under the Scheme
is 1 April, 2010, and the parties shall proceed with filing the Revised
Scheme and other necessary documents with the relevant High Courts and
other regulatory authorities for their approvals.
b) The Board of Directors of the Bank have, on 27 April, 2012, approved
a proposal to induct Schroder Singapore Holdings Private Limited, a
wholly owned subsidiary of Schroders plc, as a 25% shareholder in Axis
Asset Management Company Ltd., a wholly owned subsidiary of the Bank.
The transaction is subject to regulatory approvals.
2.1.1 The Bank has not raised any hybrid capital during the years ended
31 March, 2012 and 31 March, 2011.
# 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
* Net Customer assets include advances and credit substitutes
** Productivity ratios are based on average employee numbers for the
2.1.2 The provisioning coverage ratio of the Bank computed in terms of
the RBI guidelines as on 31 March, 2012 was 80.91% (previous year
** Asset classification as on the date of reference to CDR/date of
application for Non-CDR cases
# Amount subjected to restructuring determined as on the date of
approval of restructuring proposal
** Asset classification as on the date of reference to CDR/date of
application for Non-CDR cases
# Amount subjected to restructuring determined as on the date of
approval of restructuring proposal
2.1.3 There are no advances as on 31 March, 2012 (previous year: Nil)
for which intangible securities have been taken as collateral by the
* Excludes 71 accounts already written-off from books amounting to
Rs277.73 crores (Previous year 50 accounts amounting to Rs244.31 crores)
2.1.4 During the years ended 31 March, 2012 and 31 March, 2011 there
were no Non-Performing Financial Assets Purchased or Sold (excluding
accounts previously written off) by the Bank.
* Exposure includes credit exposure (funded and non-funded), derivative
exposure and investment exposure (including underwriting and similar
2.1.5 During the year, the Bank''s credit exposure to single borrower
and group borrowers was within the prudential exposure limits
prescribed by RBI.
During the year ended 31 March, 2011, the Bank''s credit exposure to
single borrower was within the prudential exposure limits prescribed by
RBI except in 2 cases, where the single borrower limit was exceeded
upto an additional exposure of 5%, the details of which are set out
# the excess of the limit of Rs4,227.72 crores over the original
exposure ceiling was approved by the Committee of Directors. However,
the excess of the exposure as on 31 March, 2011 over the limit approved
by the Committee is subject to ratification of the Committee.
@ the excess of the limit of Rs3,563.85 crores over the original
exposure ceiling is subject to ratification by the Committee of
During the year ended 31 March, 2011, the Bank''s credit exposure to
group borrowers was within the prudential exposure limits prescribed by
2.1.6 Disclosure on risk exposure in Derivatives Qualitative
(a) Structure and organisation for management of risk in derivatives
trading, the scope and nature of risk measurement, risk reporting and
risk monitoring systems, policies for hedging and/or mitigating risk
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 over the counter and Exchange Traded
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, Currency Futures
and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR,
MIFOR and INBMK), 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
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
Bank''s policy and the RBI guidelines. The Market Risk Group within the
Bank''s 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,
market risk management 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
The Hedging Policy approved by the 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 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
(c) Provisioning, collateral and credit risk mitigation
Derivative transactions comprise of swaps and options which are
disclosed as contingent liabilities. The swaps are categorised as
trading or hedging and all the options are categorised as the trading
book. 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
(crystallised receivables as well as positive MTM) 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
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.
Pursuant to RBI guidelines, the Bank has started dealing in Exchange
Traded Currency Options. The outstanding notional principal amount of
these derivatives as at 31 March, 2012 was Rs542.91 crores (previous
year Rs995.42 crores) and the mark-to-market value was Rs5.67 crores
(previous year Rs5.44 crores)
2.1.7 During the year ended 31 March, 2012, RBI levied a penalty of
Rs0.15 crores on the Bank for non-compliance of certain instructions
relating to derivative transactions. The Bank has paid the penalty of
Rs0.15 crores on 5 May, 2011.
No penalty/strictures have been imposed on the Bank in the previous
year by the RBI.
2.1.8 Draw Down from Reserves
The Bank has not undertaken any draw down from reserves during the
year. During the year ended 31 March, 2011, the Bank made a draw down
out of the investment reserves account towards depreciation in
investments in AFS and HFT categories in terms of RBI guidelines.
2.1.9 a) During the year ended 31 March, 2011, an amount of Rs338.85
crores being 10% of the net profit for that year was transferred to the
general reserve in terms of the provisions of the Transfer of Profits
to Reserve Rules under the Companies Act, 1956. During the current
year, the Bank has been advised by RBI that in respect of transfer of
profits to reserve fund, the Bank should be guided by the provisions of
Section 17(1) of the Banking Regulation Act, 1949 relating to transfer
to Statutory Reserve. Accordingly, no appropriation is proposed to be
made to the general reserve for the current year.
b) During the current year, pursuant to receipt of final installment
from the Government of India under the Agricultural Debt Waiver and
Debt Relief Scheme, 2008, an amount of Rs0.85 crores being the provision
held for loss in present value terms on the claim amount, has been
transferred to the General Reserve in accordance with RBI guidelines.
2.1.10 Letter of Comfort
The Bank has not issued any Letter of Comfort (LoC) on behalf of its
2.1.11 The Bank has not sponsored any special purpose vehicle which is
required to be consolidated in the consolidated financial statements as
per accounting norms.
2.1.12 During the current year, the value of sales/transfers of
securities to/from HTM category (excluding one-time transfer of
securities and sales to RBI under OMO auctions) was within 5% of the
book value of investments held in HTM category at the beginning of the
2.2 Other disclosures
2.2.1 During the year, the Bank has appropriated Rs38.22 crores
(previous year Rs4.76 crores), net of taxes and transfer to statutory
reserve to the Capital Reserve, being the gain on sale of HTM
investments in accordance with RBI guidelines. As advised by the RBI
during the year, the Bank has also appropriated Rs13.68 crores, net of
taxes and transfer to statutory reserve, being the profit earned on
sale of premises to the Capital Reserve.
2.2.2 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.
36,622,890 options have been granted under the Scheme till the previous
year ended 31 March, 2011.
On 22 April, 2011, the Bank granted 3,096,500 stock options (each
option representing entitlement to one equity share of the Bank) to its
employees including the MD & CEO and 172,200 stock options to employees
of Axis Asset Management Company Limited, a subsidiary of the Bank.
These options can be exercised at a price of Rs1,447.55 per option.
Volatility is the measure of the amount by which a price has fluctuated
or is expected to fluctuate during a period. The measure of volatility
used in the Black-Scholes options pricing model is the annualised
standard deviation of the continuously compounded rates of return on
the stock over a period of time. For calculating volatility, the daily
volatility of the stock prices on the National Stock Exchange, over a
period prior to the date of grant, corresponding with the expected life
of the options has been considered.
The weighted average fair value of options granted during the year
ended 31 March, 2012 is Rs559.31 (previous year Rs485.98).
2.2.3 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, 2012, 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, 2012
includes dividend of Rs1.88 crores (previous year Rs2.47 crores) paid
pursuant to exercise of 1,153,890 employee stock options after the
previous year end but before the record date for declaration of
dividend for the year ended 31 March, 2011.
2.2.4 Segmental reporting
The business of the Bank is divided into four segments: Treasury,
Retail Banking, Corporate/Wholesale Banking and Other Banking Business.
These segments have been identified based on the RBI''s revised
guidelines on Segment Reporting issued on 18 April, 2007 vide Circular
No. DBOD.No.BP.BC.81/21.04.018/2006-07. The principal activities of
these segments are as under.
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 Corporate/Wholesale 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
Corporate/Wholesale 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.
2.2.5 Related party disclosure
The related parties of the Bank are broadly classified as:
The Bank has identified the following entities as its Promoters.
- Administrator of the Specified Undertaking of the Unit Trust of
- 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
b) Key Management Personnel
- Mrs. Shikha Sharma (Managing Director & Chief Executive Officer)
- Mr. Sisir Kumar Chakrabarti (Deputy Managing Director) upto 30
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. Swapna 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, Mrs. Shikha Bhattacharya, Ms. Shila
Chakraborty, Mr. Asim Kumar 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
- 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 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.
Details of transactions with Axis Mutual Fund and Axis Infrastructure
Fund-I, the funds floated by Axis Asset Management Company Ltd. and
Axis Private Equity Ltd., the Bank''s wholly owned subsidiaries have not
been disclosed since these entities do not qualify as Related Parties
as defined under the Accounting Standard 18, Related Party Disclosure,
as notified under the Companies (Accounting Standards) Rules, 2006 and
as per RBI guidelines.
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.
The Bank has sub-leased certain of its properties taken on lease.
There are no provisions relating to contingent rent.
The terms of renewal/purchase options and escalation clauses are those
normally prevalent in similar agreements. There are no undue
restrictions or onerous clauses in the agreements.
2.2.7 Employee Benefits Provident Fund
The contribution to the employee''s provident fund amounted to Rs67.88
crores (previous year Rs41.83 crores) for the year.
The rules of the Bank''s 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. Based on an actuarial
valuation conducted by an independent actuary, there is no deficiency
as at the Balance Sheet date. The principal assumptions used by the
actuary are as under.
The Bank contributed Rs13.89 crores (previous year Rs10.17 crores) to the
employees'' superannuation plan for the year.
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.
The estimates of future salary increases considered in actuarial
valuation take account of inflation, seniority, promotion and other
The expected rate of return on plan assets is based on the average
long-term rate of return expected on investments of the Fund during the
estimated term of the obligations.
As the contribution expected to be paid to the plan during the annual
period beginning after the balance sheet date is based on various
internal/external factors, a best estimate of the contribution is not
The above information is as certified by the actuary and relied upon by
2.2.8 Small and Micro Industries
Under the Micro, Small and Medium Enterprises Development Act, 2006
which came into force from 2 October, 2006, certain disclosures are
required to be made relating to Micro, Small and Medium enterprises.
There have been no reported cases of delays in payments to micro and
small enterprises or of interest payments due to delays in such
payments. The above is based on the information available with the Bank
which has been relied upon by the auditors.
2.2.9 Description of contingent liabilities:
a) Claims against the Bank not acknowledged as debts
These represent claims filed against the Bank in the normal course of
business relating to various legal cases currently in progress. These
also include demands raised by income tax and other statutory
authorities and disputed by the Bank.
b) Liability on account of forward exchange and derivative contracts
The Bank enters into foreign exchange contracts, currency
options/swaps, interest rate/currency futures and forward rate
agreements on its own account and for customers. Forward exchange
contracts are commitments to buy or sell foreign currency at a future
date at the contracted rate. Currency swaps are commitments to exchange
cash flows by way of interest/principal in two currencies, based on
ruling spot rates. Interest rate swaps are commitments to exchange
fixed and floating interest rate cash flows. Interest rate futures are
standardised, exchange-traded contracts that represent a pledge to
undertake a certain interest rate transaction at a specified price, on
a specified future date. Forward rate agreements are agreements to pay
or receive a certain sum based on a differential interest rate on a
notional amount for an agreed period. A foreign currency option is an
agreement between two parties in which one grants to the other the
right to buy or sell a specified amount of currency at a specific price
within a specified time period or at a specified future time. An
Exchange Traded Currency Option contract is a standardized foreign
exchange derivative contract, which gives the owner the right, but not
the obligation, to exchange money denominated in one currency into
another currency at a pre-agreed exchange rate on a specified date on
the date of expiry. Currency Futures contract is a standardized,
exchange-traded contract, to buy or sell a certain underlying currency
at a certain date in the future, at a specified price.
c) Guarantees given on behalf of constituents
As a part of its banking activities, the Bank issues guarantees on
behalf of its customers to enhance their credit standing. Guarantees
represent irrevocable assurances that the Bank will make payments in
the event of the customer failing to fulfill its financial or
d) Acceptances, endorsements and other obligations
These include documentary credit issued by the Bank on behalf of its
customers and bills drawn by the Bank''s customers that are accepted or
endorsed by the Bank.
e) Other items
Other items represent outstanding amount of bills rediscounted by the
Bank, estimated amount of contracts remaining to be executed on capital
account and commitments towards underwriting and investment in equity
through bids under Initial Public Offering (IPO) of corporates as at
the year end.
2.2.10 Previous year figures have been regrouped and reclassified,
where necessary to conform to current year''s presentation.