1. Background
 
 Centurion Bank of Punjab Limited (`CBoP' or `the Bank') is a private
 sector bank offering a wide spectrum of retail, small & medium
 enterprise and corporate banking products and services. The Bank was
 incorporated on June 30, 1994 as Centurion Bank Limited. Subsequently,
 the Bank merged with Bank of Punjab Limited with effect from October 1,
 2005 vide Reserve Bank of India (`RBI') approval letter dated September
 24, 2005. As a result, the name of the Bank was changed to Centurion
 Bank of Punjab Limited with effect from October 17, 2005 on receipt of
 requisite approvals.
 
 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 RBI from
 time to time, the Accounting Standards (`AS') issued by the Institute
 of Chartered Accountants of India (`ICAI') 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. Any revision to the accounting
 estimates is recognized prospectively in the current and future
 periods.
 
 4. Significant accounting policies
 
 4.1 Investments
 
 Classification and acquisition
 
 In compliance with the RBI guidelines, investments are classified at
 the date of acquisition as:
 
 * Held for Trading (`HFT');
 * Available for Sale (`AFS'); and
 * Held to Maturity (`HTM').
 
 The cost of acquisition recorded in the investment account excludes
 broken period interest. Investments that are held principally for
 resale within a short period are classified as HFT securities. As per
 RBI guidelines, HFT securities, which remain unsold for a period of 90
 days are reclassified as AFS securities as on that date.
 
 Investments not exceeding 25% of total investments, which the Bank
 intends to hold till maturity, are classified as HTM securities. As
 permitted by RBI, the Bank may exceed the limit of 25% of total
 investments provided the excess comprises only of those securities
 which are eligible for complying with the Statutory Liquidity Ratio
 (`SLR') i.e.  SLR securities and the total SLR securities held in HTM
 category is not more than 25% of its demand and time liabilities as on
 the effective date. The effective date means the last Friday of the
 preceding fortnight for computation of the aforesaid - limit. In
 computing the investment ceiling for HTM portfolio for the aforesaid
 purpose, debentures and bonds, which are in the nature of advances are
 excluded.  All other investments are classified as AFS securities.
 
 However, for disclosure in the balance sheet, investments are
 classified under six categories - Government securities, Other approved
 securities, Shares, Debentures and Bonds, Subsidiaries and/or Joint
 Ventures and Others.
 
 Transfer of security between categories
 
 Transfer of security between categories of investments is accounted for
 at the acquisition cost/book value/ market value as on the date of
 transfer, whichever is lower, and the depreciation, if any, on such
 transfer is recognized in the profit and loss account.
 
 Valuation
 
 Investments classified under the HTM category are carried at
 acquisition cost. Any premium on acquisition over face value is
 amortized on a straight-line basis over the remaining period to
 maturity.
 
 Investments classified under the HFT and AFS category are marked to
 market on a monthly and quarterly basis respectively. Net depreciation,
 if any, within each category of investments is recognized in the profit
 and loss account. The net appreciation if any, under each
 classification is ignored, except to the extent of depreciation
 previously provided. The book value of individual securities is not
 changed consequent to the periodic valuation of investments.
 
 Treasury Bills are valued at carrying cost.
 
 Units of mutual funds and securitisation receipts are valued at lower
 of cost and net asset value.
 
 Market values of investments classified in the HFT and AFS categories,
 where current quotations are not available are 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 Fixed Income Money Market and
 Derivatives Association of India (`FIMMDA') jointly with the Primary
 Dealers Association of India (`PDAI') at periodic intervals;
 
 * market value of unquoted State Government securities is derived by
 applying the YTM method by marking it up by 25 basis points above the
 yields of the Central Government Securities of equivalent maturity
 notified by the FIMMDA/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 various
 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 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 company's latest balance sheet (which is not
 more than one year prior to the date of valuation). In case the latest
 balance sheet is not available, the shares are valued at Re.1/- per
 company; and
 
 * Subordinated Pass Through Certificates held by the Bank in respect of
 its securitised portfolios are carried at cost as reduced by
 delinquency losses.
 
 Repurchase and reverse Repurchase transactions
 
 Repurchase and reverse repurchase transactions are accounted as
 outright sale and outright purchase respectively. The difference
 between the clean price of the first leg and clean price of the second
 leg is recognized as interest income/expense over the period of the
 transaction. However, depreciation in their value, if any, compared to
 their original cost, is recognized in the profit and loss account.
 
 4.2  Advances
 
 Advances are classified into performing and non-performing advances
 (NPAs) based on RBI guidelines and are stated net of floating
 provisions, specific provisions, interest in suspense for
 non-performing advances and claims received from Export Credit
 Guarantee Corporation.
 
 Specific provisions for NPAs are made for sub-standard, doubtful and
 loss assets as per the provisioning levels prescribed by the RBI
 guidelines. However, in case of retail loans (excluding mortgages) and
 certain other loans, the Bank follows an accelerated provisioning
 policy based on delinquency levels (90 days or more of delinquency) of
 the portfolio subject to minimum RBI guidelines.
 
 At the year end, the Bank assessed the delinquency levels on its retail
 loans and revised its estimate of accelerated provisioning on two
 wheeler loans, personal loans, car loans and commercial
 vehicles/construction equipment loans. Had the Bank continued to follow
 the earlier accelerated basis of provisioning, the provision on retail
 loans would have been higher by Rs.2,602 lacs and consequently Profit
 before tax and Profit after tax for the year ended March 31, 2007 would
 have been lower by Rs.2,602 lacs and Rs.1,726 lacs respectively.
 Further, Reserves & Surplus as at March 31, 2007 would have been lower
 by Rs.1,726 lacs.
 
 A general provision @ 0.25% to 2.00% is made on various categories of
 standard assets as prescribed by the RBI. Pursuant to the change in the
 provisioning requirement for certain categories of standard assets from
 0.40% to 2.00% as notified by RBI, the Bank made an additional
 provision of Rs.1,975 lacs during the year ended March 31, 2007.
 
 4.3 Foreign currency transactions
 
 Transactions denominated in foreign currencies are recorded at the
 rates prevailing on the date of the transactions. Exchange differences
 arising on foreign currency transactions settled during the year are
 recognized in the profit and loss account of the year.  Assets and
 liabilities denominated in foreign currencies as at the balance sheet
 date are restated at the closing rates notified by Foreign Exchange
 Dealers Association of India (`FEDAI') and resultant exchange
 differences are recognized in the profit and loss account.
 
 Forward exchange contracts intended for trading or speculation and
 outstanding at the balance sheet date, are re-valued at the year-end
 forward rates for the residual maturity period and the resultant gains
 and losses are accounted in the profit and loss account. Such forward
 rates are derived from the year-end forward rates notified by FEDAI.
 
 The premium/discount on other forward contracts is amortised to the
 profit and loss account over the contract period.
 
 Contingent liabilities denominated in foreign currencies (including
 foreign exchange contracts) are disclosed at closing rates of exchange
 notified by FEDAI.  During the current year, in order to comply with
 the provisions of AS 11 - `The effects of changes in foreign exchange
 rates', the Bank has changed its policy to disclose contingent
 liabilities on outstanding foreign exchange contracts as at the Balance
 Sheet date at the closing rates of exchange notified by FEDAI instead
 of contracted rates of exchange as was followed in the previous year.
 Had the Bank followed the earlier accounting policy, the contingent
 liability on account of outstanding foreign exchange contracts as at
 March 31, 2007 would have been higher by Rs.16,285 lacs.  There is no
 impact on the profit and loss account due to this change in policy.
 
 4.4 Derivative transactions
 
 Derivative transactions comprise of swaps and options which are
 disclosed as contingent liabilities. The swaps/ options are segregated
 as trading or hedge transactions.  Trading swaps/options are revalued
 at the balance sheet date with the resulting unrealized gain or loss
 being recognized in the profit and loss account and correspondingly in
 Other Assets or Other Liabilities respectively. Hedged swaps/options
 are accounted for on an accrual basis.
 
 4.5 Fixed assets and depreciation
 
 Fixed Assets are carried at cost less accumulated depreciation as
 adjusted for impairment, if any, in terms of Accounting Standard-28 on
 Impairment of assets.
 
 In respect of assets for own use, depreciation is provided from the
 date of addition on Straight Line Method (SLM) basis at the rates
 specified in Schedule XIV to the Companies Act, 1956 except for the
 following assets where depreciation is provided at rates which are
 higher than those specified in Schedule XIV to the Companies Act, 1956:
 
 Automated Teller Machines             10.00% p.a.
 Computer Hardware                     33.33% p.a.
 Application Software                  20.00% p.a.
 Vehicles                              20.00% p.a.
 Mobile phones                         50.00% p.a.
 Point of Sale Terminal                10.00% p.a.
 Internet kiosks                       20.00% p.a.
 
 All fixed assets individually costing less than Rs.5,000/- are fully
 depreciated in the year of capitalisation.
 
 Depreciation on assets sold during the year is recognized on a pro-rata
 basis to the profit & loss account till the date of sale.
 
 The Bank assesses at each balance sheet date whether there is any
 indication that an asset may be impaired.  If any such indication
 exists, the Bank estimates the recoverable amount of the asset. If such
 recoverable amount of the asset or the recoverable amount of the cash
 generating unit to which the asset belongs, is less than its carrying
 amount, the carrying amount is reduced to its recoverable amount. The
 reduction is treated as an impairment loss and is recognized in the
 profit and loss account. If at the balance sheet date there is an
 indication that a previously assessed impairment loss no longer exists,
 the recoverable amount is reassessed and the asset is reflected at the
 recoverable amount subject to a maximum of depreciable historical cost.
 
 4.6 Lease transactions
 
 Assets given on lease prior to April 1, 2001 have been accounted for in
 accordance with the Guidance Note issued by the ICAI. No assets were
 given on lease after April 1, 2001.
 
 In respect of these assets, depreciation is provided on written down
 value method at rates specified in Schedule XIV of the Companies Act,
 1956, except for assets of the erstwhile Bank of Punjab, where
 depreciation is provided over the lease period. Lease equalisation and
 lease terminal adjustment are accounted in accordance with the Guidance
 Note issued by the ICAI. Provisions on non-performing leased assets
 are made as per RBI guidelines.
 
 Assets taken on lease after April 1, 2001 are accounted for in
 accordance with the Accounting Standard-19 (AS-19) `Accounting for
 Leases' issued by the ICAI and assets taken on lease prior to April 1,
 2001 were accounted for in accordance with the Guidance Note issued by
 the ICAI.
 
 Lease payments for assets taken on operating lease are recognised in
 the profit and loss account over the lease term.
 
 4.7 Staff retirement benefits
 
 Based on the announcement of the ICAI, the Bank has opted to defer the
 implementation of the revised Accounting Standard - 15 on Employee
 Benefits to the year commencing from April 1, 2007.
 
 (a) Provident fund
 
 The Bank contributes to recognized provident fund which is a defined
 contribution scheme. The contributions are accounted for on an accrual
 basis and recognized in the Profit and Loss Account.
 
 (b) Gratuity
 
 The Bank provides for the gratuity liability which is a defined benefit
 scheme based on actuarial valuation at the balance sheet date carried
 out by an independent actuary. The Bank has taken a policy under the
 Employees Group Gratuity Scheme of the Life Insurance Corporation of
 India (`LIC') for its employees, in order to fund this liability
 through annual contribution as intimated by LIC.
 
 (c) Superannuation
 
 The superannuation scheme of the Bank which is a defined contribution
 scheme is applicable to certain categories of employees, who had joined
 the services prior to October 1, 2005, and is managed and administered
 by the LIC. The Bank on an annual basis contributes a specified
 percentage of the eligible employees' annual basic salary to the LIC
 which undertakes to pay the lumpsum and annuity benefits payments in
 accordance with the scheme. Superannuation contributions are accounted
 for in the period in which they accrue.
 
 (d) Leave encashment
 
 Leave encashment entitlement which is a defined benefit scheme is
 provided for based on actuarial valuation at the balance sheet date
 conducted by an independent actuary.
 
 4.8 Revenue recognition
 
 Income is recognised on accrual basis except for income on
 non-performing assets including Lease and Hire purchase assets which is
 recognised on realisation basis as per RBI guidelines. Commission on
 guarantees is recognised as income over the period of the guarantees.
 However, commission on Letters of Credit and fees on loans are
 recognised at the inception of the transactions.
 
 Income from distribution of life insurance products is recognised on
 receipt of confirmation of business from the insurance company.
 
 In case of assets covered by consent decrees, receipts are first
 adjusted against principal amounts outstanding.  Thereafter, any
 further receipts are recognised as income.
 
 Income on lease/hire purchase finance is recognised on the following
 basis:
 
 * Income from assets given on lease prior to April 1, 2001 is
 recognised on the basis of interest rate implicit in such leases in
 accordance with the guidance note issued by the ICAI. No asset has been
 given on lease after April 1, 2001.
 
 * Income from loan cum hypothecation/hire purchase finance is
 recognised on the basis of interest rate implicit in these
 transactions.
 
 4.9 Taxation
 
 Income tax comprises the current tax, Fringe Benefit Tax (i.e. amount
 of tax for the period, determined in accordance with the Income Tax
 Act, 1961 and the rules framed thereunder) and the deferred tax charge
 or credit reflecting the tax effects of timing differences between
 accounting income and taxable income for the year.
 
 The deferred tax charge or credit and the corresponding deferred tax
 liabilities or assets are recognised using the tax rates that have been
 enacted or substantially enacted at the balance sheet date. Deferred
 tax assets are recognised only to the extent there is reasonable
 certainty that the assets can be realised in future.  However, where
 there is unabsorbed depreciation or carried forward loss under
 taxation laws, deferred tax assets are recognised only if there is
 virtual certainty of realisation of such assets.
 
 Deferred tax assets are reviewed at each balance sheet date and
 appropriately adjusted to reflect the amount that is
 reasonably/virtually certain to be realised.
 
 4.10 Share and debenture issue expenses
 
 Share and debenture issue expenses are adjusted from securities premium
 account.
 
 4.11 Earnings per share
 
 The Bank reports basic and diluted earnings per share in accordance
 with AS 20 - `Earnings per Share' issued by the ICAI. 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 year end.
 
 4.12 Employee stock option plan
 
 The Bank has two Employee Stock Option Plans (`ESOPs') viz Key ESOP for
 key employees and General ESOP for all permanent employees of the Bank
 and directors as may be decided by the Remuneration Committee. The
 Plans are in accordance with the Securities and Exchange Board of India
 (SEBI) (Employees Stock Option Scheme and Employee Stock Purchase
 Scheme) Guidelines, 1999. 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 recognized as a deferred
 compensation cost and amortized on a straight-line basis over the
 vesting period of such options.
 
 4.13 Provisions, contingent liabilities and contingent assets
 
 The Bank creates a provision when there is a present obligation as a
 result of past events that probably require an outflow of resources
 embodying economic benefits to settle the obligation and a reliable
 estimate can be made of the amount of such obligation. 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 recognized
 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.
 
 Provisions are reviewed at each balance sheet date and adjusted to
 reflect the current best estimate. If it is no longer probable that an
 outflow of resources would be required to settle the obligation, the
 provision is reversed.
 
 Contingent assets are not recognized 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 recognized in the period in which the
 change occurs.