1) ACCOUNTING CONVENTION:
The financial statements are prepared following the going concern
concept, on historical cost basis unless otherwise stated and conform
to the Generally Accepted Accounting Principles (GAAP) in India, which
encompasses applicable statutory provisions, regulatory norms
prescribed by the Reserve Bank of India (RBI), Accounting Standards
(AS) and pronouncements issued by The Institute of Chartered
Accountants of India (ICAI) and accounting practices prevalent in the
banking industry in India. In respect of foreign offices/ branches,
statutory provisions and accounting practices prevailing in the
respective foreign countries are complied with, except as specified
The preparation of financial statements requires the management to make
estimates and assumptions considered in the reported amount of assets
and liabilities (including contingent liabilities) as of date of the
financial statements and the reported income and expenses for the
reporting period. Management believes that the estimates used in the
preparation of the financial statements are prudent and reasonable.
2) REVENUE RECOGNITION:
(a) Income/Expenditure is generally accounted for on accrual basis,
unless otherwise stated.
(b) Income on Non-performing Assets (NPAs) is recognised on
realisation, in terms of the RBI guidelines. The recoveries made from
NPA accounts are appropriated first towards unrealised interest/income,
principal dues and thereafter towards uncharged interest.
(c) Exchange Commission, Brokerage, Dividend Income, Commission on
Government Business, Commission on Third Party Products, fee from
syndication and other charges are accounted for on realisation.
(d) Interest on Income-tax refunds is accounted for on receipt of
(a) In terms of guidelines issued by the RBI, advances to borrowers are
classified into Performing or Non- Performing assets based
on recovery of principal/ interest. NPAs are further classified as
Sub-Standard, Doubtful and Loss Assets.
(b) Provision for Standard assets is made as per RBI guidelines.
(c) Provision in respect of NPAs is made as under:
(d) In respect of advances at foreign offices/branches, provision is
made as per the statutory requirements prevailing at the respective
foreign countries, or as per RBI guidelines, whichever is higher.
(e) Provisions in respect of NPAs, unrealised interest, ECGC claims
settled, etc., are deducted from total advances to arrive at net
advances as per RBI norms.
(f) In respect of Rescheduled/Restructured accounts, provision is made
for the sacrifice of interest/diminution in the value of restructured
advances measured in present value terms as per RBI guidelines. The
said provision is reduced to arrive at Net advances.
(g) In case of financial assets sold to Asset Reconstruction Company
(ARC) / Securitisation Company (SC), if the sale is at a price below
the net book value (NBV), the shortfall is debited to the Profit and
Loss account. If the sale value is higher than the NBV, the surplus
provision is retained to meet the shortfall/loss on account of sale of
other financial assets to SC/ARC.
Investments are classified under 'Held to Maturity', 'Held for
Trading' and 'Available for Sale' categories as per RBI guidelines.
In conformity with the requirements in Form A of the Third Schedule to
the Banking Regulation Act, 1949, these are classified under six groups
- Government Securities, Other Approved Securities, Shares, Debentures
and Bonds, Investments in Subsidiaries/Joint Ventures and Other
A) Basis of classification
Classification of an investment is normally done at the time of its
i) Held to Maturity
These comprise investments the Bank intends to hold till maturity.
ii) Held for Trading
Investments acquired with the intention to trade within 90 days from
the date of purchase are classified under this head.
iii) Available for Sale
Investments which are not classified either as Held to Maturity
or as Held for Trading are classified under this head.
B) Method of valuation
Investments are valued in accordance with the RBI guidelines.
Accordingly, the Bank follows Settlement Date for accounting of
investment (in Government securities) transactions.
i) Held to Maturity
Investments included in this category are carried at their acquisition
cost. Premium, if any, paid on acquisition is amortised using constant
yield method over the remaining period of maturity.
ii) Held for Trading / Available for Sale
a) Investments under these categories are valued scrip-wise.
Appreciation / depreciation is aggregated for each class of securities
and net depreciation as per applicable norms is recognised in the
Profit and Loss account, whereas net appreciation is ignored.
b) For the purpose of valuation of quoted investments in Held for
Trading and Available for Sale categories, the market rates /
quotes on the Stock Exchanges, the rates declared by Primary Dealers
Association of India (PDAI) / Fixed Income Money Market and Derivatives
Association (FIMMDA) are used. Investments for which such rates/quotes
are not available are valued as per norms laid down by RBI, which are
iii) Held at Foreign Branches
Investments held at foreign branches are carried at lower of the value
as per the statutory provisions prevailing at the respective foreign
countries or as per RBI guidelines issued from time to time.
iv) Investment in subsidiaries, joint ventures and associates (both in
India and abroad) are valued at acquisition cost less diminution, other
than temporary in nature.
C) Transfer of Securities between Categories
The transfer of securities between categories specified in 4 A (i) to
(iii) above are carried out at the lower of acquisition cost / book
value /market value on the date of transfer. The depreciation, if any,
on such transfer is fully provided for.
D) Acquisition Cost of Investment
i) Brokerage, commission, securities transaction tax etc. paid on
acquisition of Equity investments are included in cost.
ii) Brokerage, commission, broken period interest paid/ received on
debt instruments is treated as income/ expense and is excluded from
iii) Brokerage and Commission received on subscription of investments
is credited to Profit and Loss Account.
iv) Cost of Investments is determined at weighted average cost method.
v) Treasury bills and Commercial Papers are valued at carrying cost.
E) Profit or loss on sale of investment
Profit or loss on sale of investments in any category is taken to
Profit and Loss account. However, in case of profit on sale of
investments under 'Held to Maturity' category, an equivalent amount
net of taxes and amount required to be transferred to Statutory
Reserves is appropriated to 'Capital Reserve Account'.
F) Provisioning and income recognition - Non performing Investments
In respect of non performing investments, income is not recognised and
provision is made for depreciation in value of such securities as per
G) Repo / Reverse Repo
The Bank has adopted the Accounting Procedure prescribed by the RBI for
accounting of Repo and Reverse Repo transactions [other than
transactions under the Liquidity Adjustment Facility (LAF) with the
RBI]. The economic essence of repo transactions, viz., borrowing
(lending) of funds by selling (purchasing) securities is reflected in
the books of repo participants, by accounting the same as
collateralized lending and borrowing transaction, with an agreement to
repurchase, on the agreed terms. Costs and revenues are accounted for
as interest expenditure / income, as the case may be. Balance in Repo/
Reverse Repo Account is adjusted against the balance in the Investment
Account. Securities purchased/sold under LAF with RBI are debited/
credited to Investment Account and reversed on maturity of the
transaction. Interest expended / earned thereon is accounted for as
expenditure / revenue.
The Bank presently deals in interest rate and currency derivatives. The
interest rate derivatives dealt with by the Bank are Rupee Interest
Rate Swaps, Foreign Currency Interest Rate Swaps, Forward Rate
Agreements and Interest Rate Futures. Currency Derivatives dealt with
by the Bank are Options, Currency Swaps and Currency Futures.
Based on RBI guidelines, Derivatives are valued as under:
The hedge/non hedge (market making) transactions are recorded
Hedging derivatives are accounted on accrual basis.
Trading derivative positions are marked to market (MTM) and the
resulting losses, if any, are recognised in the Profit & Loss Account.
Profit, if any, is ignored. Income and Expenditure relating to interest
rate swaps are recognised on the settlement date. Gains/ losses on
termination of the trading swaps are recorded on the termination date
as income/ expenditure. Any gain/loss on termination of swap is
deferred and recognized over the shorter of the remaining contractual
life of the swap or the remaining life of the designated assets/
5) FIXED ASSETS:
(a) Fixed assets are stated at historic cost, except in the case of
assets which have been revalued. The appreciation on revaluation is
credited to Revaluation Reserve.
(b) Cost of premises includes cost of land, both freehold and
6) DEPRECIATION ON FIXED ASSETS:
(a) Depreciation on assets is charged on the Written Down Value at the
rates determined by the Bank, except in respect of computers where it
is calculated on the Straight Line Method, at the rates prescribed by
(b) In respect of additions, depreciation is provided for the full
year, irrespective of the date on which the assets were put to use
whereas, depreciation is not provided in the year of sale/ disposal of
(c) Depreciation on the revalued portion of assets is adjusted against
the Revaluation Reserve.
(d) Where the cost of land and building cannot be separately
ascertained, depreciation is provided on the composite cost, at the
rate applicable to buildings.
(e) Premium paid on leasehold land is amortised over the period of
(f) Depreciation on assets in respect of domestic operations are
provided as under:
(g) Depreciation on fixed assets outside India is provided as per the
regulatory requirements/or prevailing practices of the respective
7) TRANSACTIONS INVOLVING FOREIGN EXCHANGE:
Transactions involving foreign exchange are accounted for in accordance
with AS 11, The Effect of Changes in Foreign Exchange Rates.
a) Translation in respect of Integral Foreign operations:
Foreign currency transactions of Indian branches have been classified
as integral foreign operations.
i) The transactions are initially recorded on weekly average closing
rate as advised by Foreign exchange dealers association of India(FEDAI)
ii) Monetary Foreign currency assets and liabilities are translated at
the closing rates notified by FEDAI at the year end.
iii) Acceptances, endorsements, other obligations and guarantees in
foreign currencies are carried at the closing rates notified by FEDAI
at the year end
iv) Foreign Currency Assets and Liabilities are translated at the
closing spot rates notified by FEDAI at the end of each week.
v) The resulting exchange differences are recognized as income or
expenses and are accounted through Profit and Loss account.
b) Translation in respect of Non-Integral Foreign operations:
Transactions and balances of foreign branches are classified as
non-integral foreign operations and their financial statements are
translated as follows:
i) Assets and Liabilities (both monetary and non-monetary as well as
contingent liabilities) are translated at the closing rates notified by
FEDAI at the year end.
ii) Income and expenses are translated at the quarterly average closing
rates notified by FEDAI at the end of respective quarter.
iii) All resulting exchange differences are accumulated in a separate
account 'Foreign Currency Translation Reserve' till the disposal of
the net investments in the respective foreign branches.
c) Forward Exchange Contracts:
In accordance with the guidelines of FEDAI and the provisions of AS-11,
outstanding forward exchange contracts in each currency are revalued at
the Balance Sheet date at the corresponding forward rates for the
residual maturity of the contract. The difference between revalued
amount and the contracted amount is recognized as profit or loss, as
the case may be.
Gains/Losses on account of changes in exchange rates of open position
in currency futures trades are settled with the exchange clearing house
on daily basis and such gains/losses are recognised in the Profit and
8) EMPLOYEE BENEFITS:
a) Provident Fund
Provident fund is a defined contribution scheme as the bank pays fixed
contribution at predetermined rates. The obligation of the bank is
limited to such fixed contribution. The contributions are charged to
Profit and Loss Account.
Gratuity liability is a defined benefit obligation and is provided for
on the basis of an actuarial valuation made at the end of the financial
year in accordance with AS 15 Employee benefits. The scheme is
funded by the bank and is managed by a separate trust.
Pension liability for employees who have joined the Bank up to
31.03.2010 and opted for pension is a defined benefit obligation, which
is provided for on the basis of an actuarial valuation made at the end
of the financial year in accordance with AS 15. The scheme is funded by
the bank and is managed by a separate trust.
Pension liability for employees who have joined the Bank on or after
01.04.2010 is under a defined contribution scheme. Bank pays fixed
contribution at pre determined rate and the obligation of the bank is
limited to such fixed contribution. The scheme is funded by the bank
and is managed by a separate trust.
d) Leave encashment
Leave encashment benefits which are a defined benefit obligation is
provided for on the basis of an actuarial valuation made at the end of
the financial year in accordance with AS 15.
e) Other employee benefits
Other employee benefits such as Leave Fare Concession, Milestone,
resettlement benefits, etc which are defined benefit obligations are
provided for on the basis of an actuarial valuation made at the end of
the financial year in accordance with AS 15.
9) LEASED ASSETS:
Lease Income is recognised based on the Internal Rate of Return method
over the primary period of the lease and is accounted for in accordance
with AS 19 Accounting for Leases.
10) EARNINGS PER SHARE:
Basic and Diluted earnings per equity share are reported in accordance
with AS 20 Earnings per share. Basic earnings per equity share
are computed by dividing net profit after tax by the weighted average
number of equity shares outstanding for the period. Diluted earnings
per equity share are computed using the weighted average number of
equity shares and dilutive potential equity shares outstanding during
11) TAXES ON INCOME:
Income Tax comprises the current tax provision and net change in
deferred tax assets or liabilities during the year, in accordance with
AS 22 Accounting for Taxes on Income. Deferred Tax is recognised
subject to consideration of prudence in respect of items of income and
expenses those arise at one point of time and are capable of reversal
in one or more subsequent years. Deferred tax assets and liabilities
are measured using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date.
12) IMPAIRMENT OF ASSETS:
Impairment losses, if any on Fixed Assets (including revalued assets)
are recognised and charged to Profit and Loss account in accordance
with AS 28 Impairment of Assets.
13) PROVISIONS, CONTINGENT LIABLITIES AND CONTINGENT ASSETS:
As per AS 29 Provisions, Contingent Liabilities and Contingent
Assets, the Bank recognises provisions only when it has a present
obligation as a result of a past event and it is probable that an
outflow of resources embodying economic benefits will be required to
settle the obligation and when a reliable estimate of the amount of the
obligation can be made. Contingent liability is disclosed unless the
possibility of an outflow of resources embodying economic benefit is
remote. Contingent Assets are not recognized in the financial
statements since this may result in the recognition of income that may
never be realised.