Background
 
 Dhanlaxmi Bank Limited was incorporated in November 1927 atThrissur, in
 Kerala by a group of ambitious entrepreneurs.  Dhanlaxmi bank is a
 publicly held banking company engaged in providing a wide range of
 banking and financial services including commercial banking and
 treasury operations. Dhanlaxmi bank is a banking company governed by
 The Banking Regulation Act, 1949. It became a scheduled commercial bank
 in 1977.
 
 Basis of preparation of financial statements
 
 The financial statements have been prepared and presented under the
 historical cost convention and accrual basis of accounting, unless
 otherwise stated and in compliance 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, Accounting Standards issued by
 the Institute of Chartered Accountants of India and notified by the
 Companies Accounting Standard Rules, 2006, to the extent applicable and
 in compliance of the current practices prevailing within the banking
 industry in India.
 
 The preparation of financial statements requires the management to make
 estimates and assumptions considered In the reported amounts of assets
 and liabilities (including contingent liabilities) as of the date of
 the financial statements and the reported income and expense for the
 reporting period. Management believes that the estimates used in the
 preparation of the financial statements are prudent and reasonable.
 Future results may differ from these estimates. Any revision in the
 accounting estimates is recognized prospectively in the current and
 future periods.
 
 PRINCIPAL ACCOUNTING POLICIES
 
 1.  Revenue recognition
 
 - Items of income and expenditure are accounted for on accrual basis,
 except as stated hereunder :
 
 - Interest on loans and advances is recognized on accrual basis other
 than on those stipulated in RBIs prudential norms on income
 recognition, asset classification and provisioning relating to NPAs
 where the income is recognized on realization.
 
 - Rent on safe deposit lockers, dividends, depository participant
 business etc are accounted for on cash basis. Discount on bills is
 recognized upfront except where the tenure exceeds one year.
 
 - Loan processing fee is accounted for upfront when it becomes due.
 
 - Commission received on guarantees issued is amortised on a
 straight-line basis over the period of the guarantee.
 
 - Interest on Income tax refunds is accounted in the year in which the
 same is determined.
 
 - In respect of accounts covered under one time settlement, the
 recoveries are adjusted against book balance and the net balance is
 written off.
 
 - Income accounted for in the preceding year and remaining unrealized
 is de-recognised in respect of advances classified as NPA during the
 year. Interest on NPA is transferred to interest suspense account and
 recognised in Profit and Loss Account when realized
 
 - In respect of sale of Assets under securitization, the Bank has
 followed RBI guidelines as under:
 
 - Sale price received shall be duly accounted for and shall be
 apportioned to each asset on the basis of respective valuations given
 to the asset.
 
 - If the sale price is below Net Book Value (i.e. Outstanding book
 balance less interest suspense and provisions held) {Net NPA}, then
 short fall should be debited to profit and loss account.
 
 - If sale value is higher than the Net NPA balance, then excess
 provisions shall not be reversed would be utilized to meet the
 shortfall/loss on account of sale of other non performing Assets.
 
 - At the end of each reporting year, security receipts issued by the
 asset reconstruction company are valued in accordance with the
 guidelines applicable to such instruments, prescribed by RBI from time
 to time. Accordingly, in cases where the cash flows from security
 receipts are limited to the actual realization of the financial assets
 assigned to the instruments in the concerned scheme, the Bank reckons
 the net asset value obtained from the asset reconstruction company from
 time to time, for valuation of such investments at each reporting year
 end. The cash consideration received in respect of accounts written off
 shall be credited to Profit and Loss Account and the value of Security
 Receipts shall be classified under investments and the corresponding
 provision shall be retained.
 
 2.  Investments
 
 Investments are accounted for in accordance with the extant RBI
 guidelines on investment classification and valuation as mentioned
 below :
 
 a) Classification:
 
 Investments in Government, other approved securities, shares,
 debentures, bonds and other securities are categorized into (a) Held to
 Maturity (b) Held for Trading and (c) Available for Sale in terms of
 RBI guidelines.
 
 b) Basis of Classification :
 
 Investments that are held principally for resale within 90 days from
 the date of purchase are classified under Held for Trading category.
 
 Investments which the Bank intends to hold till maturity are classified
 as Held to Maturity securities.
 
 Investments which are not classified in the above categories are
 classified under Available for Sale category.
 
 c) Acquisition Cost:
 
 In determining acquisition cost of an investment:
 
 - Brokerage, Commission, etc. paid at the time of acquisition, are
 charged to revenue.
 
 - Broken period interest (the amount of interest from the previous
 interest payment date till the date of purchase/sale of instruments) on
 debt instruments is treated as a revenue item.
 
 - Cost of investments is based on the weighted average cost method
 
 d) Valuation of Investments is done as under:
 
 - Held to Maturity: Held to Maturity securities are carried at their
 acquisition cost or at amortised cost, if acquired at a premium over
 the face value. Any premium over the face value of fixed rate and
 floating rate securities acquired is amortised over the remaining
 period to maturity on a constant yield basis.
 
 - Available for Sale and Held for Trading securities are valued
 periodically as per RBI guidelines.  Quoted investments are valued
 based on the trades/quotes on the recognized stock exchanges,
 subsidiary general ledger account transactions, price list of RBI or
 prices declared by Primary Dealers Association of India jointly with
 Fixed Income Money Market and Derivatives Association (FIMMDA),
 periodically.
 
 The market/fair value of unquoted government securities which are in
 the nature of Statutory Liquidity Ratio (SLR) securities included in
 the Available for Sale and Held for Trading categories is as per
 the rates published by FIMMDA. The valuation of other unquoted fixed
 income securities wherever linked to the Yield-to-Maturity (YTM) rates,
 is computed with a mark-up (reflecting associated credit risk) over the
 YTM rates for government securities published by FIMMDA.
 
 Unquoted equity shares are valued at the break-up value, if the latest
 balance sheet is available, or at Rs. 1, as per RBI guidelines.
 Securities are valued scrip-wise and depreciation/appreciation is
 aggregated for each category. Net appreciation in each category, if
 any, being unrealised, is ignored, while net depreciation is provided
 for.
 
 Investment valuation norms for various categories are as given in table
 below :
 
 Particulars          Valuation Norms
 
 Central Government 
 Securities           Prices published by PDAI/FIMMDA
 
 State Government 
 Securities           At YTM published by PPAI/FIMMDA
 
 Other Approved 
 Securities           YTM published by PDAI/FIMMDA duly adjusted as
                      per RBI guidelines
 
 Bonds, Debentures 
 and Preference 
 Shares               As per rates/methodologies 
                      prescribed by FIMMDA
 
 Equity Shares        Valued at book value as per the 
                      latest Balance Sheet. Where Balance Sheets 
                      are not available, at Rs. 1 /- per Company
 
 Units of Mutual 
 Fund                 Re-purchase price / NAV declared by the Mutual
                      Fund as at the close of the year 
 
 Other securities     As per guidelines prescribed by RBI
 
 Non-performing investments are identified and depreciation/provision is
 made thereon based on the RBI guidelines. The depreciation/provision is
 not set off against the appreciation in respect of other performing
 securities. Interest on non-performing investments is not recognised in
 the Profit or Loss Account until received.
 
 e) Sale of Investments:
 
 Profit on sale of investments in the Held to Maturity category is
 credited to the profit and loss account and is thereafter appropriated
 (ne of applicable taxes and statutory reserve requirements) to Capital
 Reserve. Profit on sale of investments in Available for Sale and
 Held for Trading categories is credited to profit and loss account.
 
 The shifting of securities from one category to another is done with
 the approval of the Board as per RBI guidelines. The shifting is
 effected at acquisition cost/ book/market value on the date of
 transfer, whichever is the least and the depreciation if any at the
 time of shifting is fully provided for.
 
 f) Repo and Reverse Repo Transactions:
 
 In a repo transaction, the bank borrows monies against pledge of
 securities. The book value of the securities pledged is credited to the
 investment account. Borrowing costs on repo transactions are accounted
 for as interest expense. In respect of repo transactions outstanding at
 the balance sheet date, the difference between the sale price and book
 value, if the former is lower than the latter, is provided as a loss in
 the income statement.
 
 In a reverse repo transaction, the bank lends monies against incoming
 pledge of securities. The securities purchased are debited to the
 investment account at the market price on the date of the transaction.
 Revenues thereon are accounted as interest income.
 
 In respect of repo transactions under Liquidity Adjustment Facility
 with RBI (LAF), monies borrowed from RBI are credited to investment
 account and reversed on maturity of the transaction. Costs thereon are
 accounted for as interest expense. In respect of reverse repo
 transactions under LAF, monies paid to RBI are debited to investment
 account and reversed on maturity of the transaction.  Revenues thereon
 are accounted as interest income.
 
 3.  Advances
 
 Advances are classified as performing and non-performing based on the
 Reserve Bank of India guidelines and further into Standard,
 Sub-Standard, Doubtful and Loss Assets and are stated net of bills
 rediscounted, specific provisions, floating provisions, interest in
 suspense for non-performing advances and claims received from Export
 Credit Guarantee Corporation.
 
 Specific loan loss provisions in respect of non-performing advances
 (NPAs) are made based on managements assessment of the degree of
 impairment of wholesale and retail advances, subject to the minimum
 provisioning level prescribed in the RBI guidelines.
 
 The Bank maintains general provision for standard assets at levels
 stipulated by RBI from time to time.  Provision for standard assets is
 included under Other Liabilities. Provisions made in excess of these
 regulatory levels or provisions which are not made with respect to
 specific non-performing assets are categorised as floating provisions.
 
 The Bank considers a restructured account as one where the Bank, for
 economic or legal reasons relating to the borrowers financial
 difficulty, grants to the borrower concessions that the Bank would not
 otherwise consider. Restructuring would normally involve modification
 of terms of the advance/securities, which would generally include,
 among others, alteration of repayment period/ repayable amount/ the
 amount of installments/ rate of interest (due to reasons other than
 competitive reasons). Restructured accounts are reported as such by the
 Bank only upon approval and Implementation of the restructuring
 package.  Necessary provision for diminution In the fair value of a
 restructured account Is made.
 
 The Bank buys loans through the direct assignment route. In respect of
 direct assignment, where the purchase consideration is higher than the
 principal amount of the portfolio, the resultant additional upfront
 amount Is classified under Other assets which will be amortised
 during the life of such loans. Other assets are accounted at the deal
 value.
 
 4.  Fixed assets and depreciation
 
 Fixed assets, except those revalued, are stated at cost less
 accumulated depreciation. Cost includes cost of purchase and all
 expenditure like site preparation, installation costs, professional
 fees and other expenses incurred on the asset before it is ready to
 use. Subsequent expenditure incurred on assets put to use is
 capitalized only when it increases the futures benefit/ functioning
 capability from/ of such assets.
 
 Software is capitalized where it is reasonably estimated that the
 software has an enduring useful life.  Software is amortized over its
 estimated useful life, which is generally five years
 
 For assets purchased and sold during the year, depreciation is provided
 on a pro rata basis by the Bank.
 
 5.  Impairment of Assets
 
 The Bank assesses at each balance sheet date whether there is any
 indication that an asset may be impaired, Impairment of loss, if any,
 is provided in the Profit and Loss Account to the extent the carrying
 amount of assets exceeds their estimated recoverable amount.
 
 6.  Transactions involving foreign exchange
 
 - Monetary assets and liabilities are translated at the exchange rates
 prevailing at the close of the year as advised by Foreign Exchange
 Dealers Association of India (FEDAI) and the resulting net gain/loss
 is recognized in the revenue account.
 
 - Profit or loss on outstanding forward foreign currency contracts are
 accounted for at the exchange rates prevailing at the close of the year
 as per FEDAI/RBI guidelines. The resulting profit or loss is included
 in the Profit and Loss Account.
 
 - Income and expenditure items are accounted at the exchange rates
 ruling on the date of transaction.
 
 - Contingent liabilities in respect of outstanding forward foreign
 currency exchange contracts, guarantees and letters of credit are
 stated at the exchange rates prevailing at the close of the year.
 
 - Premium/discount on hedge swaps are recognized as interest
 income/expenses and are recognized/ amortised over the period of the
 transactions.
 
 7.  Employee Stock Option Scheme
 
 Dhanlaxmi Bank Limited Employees Stock Option Scheme 2009 (ESOP
 Scheme) provides for the grant of equity shares of the Bank to its
 eligible employees and Directors in the whole time employment of the
 Bank. The Scheme provides that employees are granted an option to
 acquire equity shares of the Bank that vests in a graded manner. The
 options may be exercised within a specified period. The Bank follows
 the intrinsic value method to account for its stock-based employees
 compensation plans. Compensation cost is measured as the excess, if
 any, of the fair market price of the underlying stock over the exercise
 price on the grant date. The fair market price is the latest closing
 price, immediately prior to the date of the Board of Directors meeting
 in which the options are granted, on the stock exchange on which the
 shares of the Bank are listed. In this regard the Bank has complied
 with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase
 Scheme) guidelines, 1999.
 
 8.  Employee Benefit
 
 The defined employee benefit schemes are as under :-
 
 - Provident Fund
 
 The contribution as required by the statute is made to the Staff
 Provident Fund Trust of the bank and is debited to the Profit and Loss
 Account. The obligation of the Bank is limited to such contribution.
 
 - Gratuity
 
 The Bank has a defined benefit gratuity plan for Officers and Workmen.
 Every Officer/workman who has rendered continuous services of five
 years or more is eligible for Gratuity on superannuation, resignation,
 termination, disablement or on death. The scheme is funded by the bank
 and is managed by a separate staff trust. The liability for the same is
 recognized on the basis of actuarial valuation.
 
 - Pension
 
 The bank has a defined benefit pension Plan. The plan applies to those
 employees of the bank who were on the Bank payroll as on September 29,
 1995, having opted for the pension scheme and to all workmen joining,
 thereafter. The scheme is managed by a simple separate trust and the
 liability for the same is recognized on the basis of actuarial
 valuation.
 
 9.  Lease Accounting
 
 Lease payments for assets taken on operating lease are recognized in
 the Profit and Loss Account over the lease term in accordance with the
 Accounting Standard - 19, Leases, issued by the Institute of Chartered
 Accountants of India.
 
 10.  Income tax
 
 Income tax expense comprises current tax provision, the net change in
 the deferred tax asset or liability in the year. Deferred tax assets
 and liabilities are recognised for the future tax consequences of
 timing differences between the carrying values of assets and
 liabilities and their respective tax bases, and operating loss carry
 forwards. Deferred tax assets and liabilities are measured using the
 enacted or substantially enacted tax rates at the balance sheet date.
 
 Deferred tax assets are recognized only to the extent there is
 reasonable certainty that the assets can be realized in future. In case
 of unabsorbed depreciation or carried forward loss under taxation laws,
 
 deferred tax assets are recognized only if there is virtual certainty
 of realization 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 realized.
 
 11.  Accounting for provisions, contingent liabilities and contingent
 assets
 
 In accordance with Accounting Standard - 29, Provisions, Contingent
 Liabilities and Contingent Assets, issued by the Institute of Chartered
 Accountants of India, the Bank recognises provisions when it has a
 present obligation as a result of a past event 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.
 
 Provisions are determined based on management estimate required to
 settle the obligation at the balance sheet date, supplemented by
 experience of similar transactions. These are reviewed at each balance
 sheet date and adjusted to reflect the current management estimates. In
 cases where the available information indicates that the loss on the
 contingency is reasonably possible but the amount of loss cannot be
 reasonably estimated, a disclosure is made in the financial statements.
 
 Contingent Assets, if any, are not recognised in the financial
 statements since this may result in the recognition of income that may
 never be realized.
 
 12.  Earnings per share
 
 The Bank reports basic and diluted earnings per equity share in
 accordance with AS-20, Earnings per Share, issued by the Institute of
 Chartered Accountants of India. Basic earnings per equity share have
 been computed by dividing net profit for the year by the weighted
 average number of equity shares outstanding for the period. 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 equity share have been
 computed using the weighted average number of equity shares and
 dilutive potential equity shares outstanding during the period except
 where the results are anti dilutive.
 
 13.  Segment reporting
 
 The Bank has recognized Business segments as primary reporting segment
 and Geographical segments as secondary segment in line with RBI
 guidelines on compliance with Accounting Standard-17, Segment Reporting
 issued by the Institute of Chartered Accountants of India.
 
 Primary Segments : Business segments
 
 a) Treasury Operations : Includes the entire investment portfolio of
 the bank.
 
 b) Corporate/Wholesale Banking : Includes all advances to trusts,
 partnership firms, companies and statutory bodies which are not
 included under Retail Banking
 
 c) Retail Banking : The exposure upto Rs. 5 Crores to individual, HUB
 Partnership firm. Trust, Private Ltd.  Companies, Public Ltd.
 Companies, Co-operative Societies etc. or to a small business is
 covered under retail banking. Small business is one where average of
 last three years annual turnover (actual for existing and projected for
 new entities) is less than Rs. 50 crores.
 
 d) Other banking business operations: Includes all other Banking
 operations not covered under Treasury, Wholesale Banking and Retail
 banking Segments. Other banking business is the residual category.
 
 Secondary Segments: Geographical segments
 
 Since the Bank is having domestic operations only, no reporting arises
 under this segment.