Axis Bank

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, unless
 otherwise stated, and comply with generally accepted accounting
 principles, statutory requirements prescribed under the Banking
 Regulation Act, 1949, circulars and guidelines issued by the Reserve
 Bank of India (RBI) from time to time and Notified accounting
 standard by 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
 generally accepted accounting principles, requires 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. Management believes that the
 estimates used in the preparation of the financial statements are
 prudent and reasonable. Any revisions to the accounting estimates are
 recognized prospectively in the current and future periods.
 
 4 No penalty/strictures have been imposed on the Bank during the
 year by the Reserve Bank of India.
 
 5 Draw Down from Reserves
 
 The Bank has not undertaken any draw down of reserves during the year.
 
 6 Letter of Comfort
 
 The Bank has not issued any Letter of Comfort (LoC) on behalf of its
 subsidiaries.
 
 7 Other disclosures
 
 7.1 During the year, the Bank has appropriated Rs. 146.72 crores
 (previous year Rs. 26.84 crores) to Capital Reserve, being the gain on
 sale of HTM investments in accordance with RBI guidelines.
 
 7.2 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 authorized 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, in June
 2004, June 2006 and June 2008, pursuant to the approval of the
 shareholders at Annual General Meeting, the Bank approved an ESOP
 scheme for additional 10,000,000,4,800,000 and 7,970,000 options
 respectively.
 
 26,616,345 options have been granted under the Scheme till the previous
 year ended 31 March 2008.
 
 On 21 April 2008, the Bank granted 2,677,355 stock options (each option
 representing entitlement to one equity share of the Bank) to its
 employees and the Chairman & CEO. These options can be exercised at a
 price of Rs.824.40 per option.
 
 The Bank has not recorded any compensation cost on options granted
 during the current year ended 31 March 2009 and the previous year ended
 31 March 2008, as the exercise price was more than or equal to the
 quoted market price of underlying equity shares on the grant date.
 
 The Bank recorded a compensation cost of Rs. 1.39 crores on options
 granted during the year ended 31 March 2002, Rs. 1.99 crores on options
 granted during the year ended 31 March 2004, Rs. 24.21 crores on
 options granted during the year ended 31 March 2005, based on the
 excess of the quoted market price of the underlying equity shares as of
 the date of the grant over the exercise price. The compensation cost is
 amortized over the vesting period.
 
 7.3 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 2009, 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 2009
 includes dividend of Rs. 0.50 crores (previous year Rs. 0.54 crores)
 paid pursuant to exercise of 709,251 employee stock options after the
 previous year end and record date for declaration of dividend for the
 year ended 31 March 2008.
 
 7.4 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 RBIs 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.
 
 Segment         Principal Activities
 
 Treasury        Treasury operations include investments in sovereign 
                 and corporate debt, equity and mutual funds, trading
                 operations, derivative trading and foreign exchange 
                 operations on the proprietary account and for customers 
                 and central funding.
 
 Retail Banking  Constitutes lending to individuals/small businesses 
                 subject to the orientation, product and granularity 
                 criterion and also includes low value individual 
                 exposures not exceeding the threshold limit of 
                 Rs. 5 crores as defined by RBI. Retail Banking 
                 activities also include liability products, card 
                 services, internet banking, ATM services, depository, 
                 financial advisory services and NRI services.
 
 Corporate/      Includes corporate relationships not included 
                 under Retail Banking, corporate advisory
 Wholesale 
 Banking         services, placements and syndication, management of 
                 public issue, project appraisals,capital market 
                 related services and cash management services.
 
 Other Banking 
 Business        All banking transactions not covered under any of the 
                 above three segments.
 
 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.
 
 Geographical segment disclosure is not required to be made since the
 operations from foreign branches are less than the prescribed norms.
 
 7.5 Employee Benefits
 
 Provident Fund
 
 The contribution to the employees provident fund amounted to Rs. 29.70
 crores for the year ended 31 March 2009 (previous year Rs. 21.02
 crores).
 
 Superannuation
 
 The Bank contributed Rs. 8.77 crores to the employees superannuation
 plan for the year ended 31 March 2009 (previous year Rs. 7.47 crores).
 
 Leave Encashment
 
 The Bank charged an amount of Rs. 45.12 crores as liability for leave
 encashment for the year ended 31 March 2009 (previous year Rs. 28.11
 crores).
 
 Gratuity
 
 The following tables summarize the components of net benefit expenses
 recognized in the profit and loss account and funded status and amounts
 recognized in the balance sheet for the Gratuity benefit plan.
 
 7.6 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 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
 standardized, 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.
 
 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
 performance obligations.
 
 d) Acceptances, endorsements and other obligations
 
 These include documentary credit issued by the Bank on behalf of its
 customers and bills drawn by the Banks 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.
 
 8 Previous year figures have been regrouped and reclassified,
 where necessary to conform to current years presentation.