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Moneycontrol.com India | Accounting Policy > Banks - Public Sector > Accounting Policy followed by Bank Of India - BSE: 532149, NSE: BANKINDIA
Bank Of India
BSE: 532149|NSE: BANKINDIA|ISIN: INE084A01016|SECTOR: Banks - Public Sector
Apr 17, 13:30
3.35 (1.57%)
VOLUME 425,060
Apr 17, 17:00
6.35 (2.98%)
VOLUME 6,368,765
Mar 12
Accounting Policy Year : Mar '13

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 elsewhere.

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.


(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 assessment order.


(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 Investments.

A) Basis of classification

Classification of an investment is normally done at the time of its acquisition:

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 as under:

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 cost/sale consideration.

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 (NPIs)

In respect of non performing investments, income is not recognised and provision is made for depreciation in value of such securities as per RBI guidelines.

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.

H) Derivative

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 separately.

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/ liabilities.


(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 leasehold.


(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 RBI

(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 an asset

(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 lease.

(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 country.


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 Loss account.


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.

b) Gratuity

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.

c) Pension

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.


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.


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 the period.


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.


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.


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.

Source : Dion Global Solutions Limited
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