Federal Bank

1.  Reconciliation
 
 The reconciliation of outstanding entries in inter branch/office
 transactions has been drawn up as on 31 March, 2009 and steps for
 adjustments/elimination of outstanding entries are in progress. In the
 opinion of the Bank, consequential effect will not be material.
 
 2.2 Investments
 
 2.2.1a) Investments under HTM (excluding specified investments as per
 RBI norms) account for 20.23% of demand and time liabilities as at the
 end of March 2009 as against permitted ceiling of 25% stipulated by
 RBI.
 
 b) In respect of securities held under HTM category premium of Rs.
 17.35 crore (previous year Rs. 15.68 crore) has been amortised during
 the year and debited under interest received on government securities.
 
 c) Profit on sale of securities from HTM category amounting to Rs.
 60.08 crore (previous year
 
 Rs. 55.91 crore) has been taken to Profit and Loss Account and a sum of
 Rs. 29.75 crore (previous year Rs. 27.68 crore) being net of taxes and
 transfer to statutory reserve of such profit, appropriated to Capital
 Reserve.
 
 d) In respect of investment of Rs. 117 crore in associate/joint venture
 IDBI Fortis Life Insurance
 
 Company Limited, the diminution in value is considered temporary.
 
 2.3.3 Disclosure on Risk exposure in Derivatives Qualitative
 Disclosures
 
 Structure, organization, scope and nature of management of risk in
 derivatives etc
 
 The organizational structure consists of Treasury Department which is
 segregated into three functional areas, i.e., front office, mid office
 and back office. Derivative deals are executed for hedging and market
 making.
 
 The risk in the derivatives is monitored by regularly assessing Marked
 to Market Position (MTM) of the entire portfolio and the impact on
 account of the probable market movements. Various risk limits have been
 put in place under different segments of the derivatives, as approved
 by Board. The risk profile of the outstanding portfolio is reviewed by
 Board at regular intervals. For own Balance Sheet management, hedging
 policies are devised to mitigate risks, lower borrowing costs and
 enhance yields. The current outstanding under the derivatives portfolio
 were executed for trading only.
 
 Accounting:
 
 Board Approved Accounting Policies as per RBI guidelines have been
 adopted. The hedge swaps are accounted for like a hedge of the asset or
 liability. The hedge swaps are accounted on accrual basis except where
 swaps for hedging marked to market asset/liability. Such hedge swaps
 are
 
 marked to market on a monthly basis and the gain/losses are recorded as
 an adjustment to the designated asset/liability. The non hedge swaps
 are marked to market every month and the MTM losses in the basket are
 accounted in the books while MTM profits are ignored.
 
 Collateral Security:
 
 As per market practice, no collateral security is insisted on for the
 contracts with counter parties like Banks/PDs etc. For deals with
 Corporate Clients, appropriate collateral security/margin etc.  are
 stipulated wherever considered necessary.
 
 Credit Risk Mitigation:
 
 Most of the deals have been contracted with Banks/ Major PDs and no
 default risk is anticipated on the deals with them. In the case of
 deals with corporate clients, the outstanding positions are closely
 monitored for the default risks and appropriate measures are initiated.
 
 2.3.4 Details of financial assets sold to Securitisation/Reconstruction
 Company for Asset reconstruction NIL
 
 2.3.5 Details of non-performing financial assets purchased/sold NIL
 
 2.3.6 Country Risk (As compiled by the Management)
 
 The net funded exposure of the Bank in respect of foreign exchange
 transactions with each country is within 1% of the total assets of the
 Bank and hence no provision is required to be made in respect of
 country risk as per the RBI circular DBOD.BP.BC.96/21.04.103/2003-04
 dated 17 June 2004.
 
 3.  Fixed Assets
 
 i. During the year 1995-96, the appreciation of Rs. 9.65 crore in the
 value of land and buildings consequent upon revaluation by approved
 valuers was credited to Capital Reserve. Depreciation for the year on
 the net addition to value on such revaluation of assets at Rs. 0.26
 crore (previous year Rs. 0.27 crore) has been transferred from Capital
 Reserve to Profit & Loss Account. There has been no revaluation of
 assets during this year.
 
 ii. Land and premises include flats Rs. 0.37crore (previous year Rs.
 6.61 crore), written down value Rs. 0.21 crore (previous year Rs. 5.24
 crore), taken possession of and being used by the Bank, for which
 documentation/registration formalities are to be completed.
 
 iii. Safe & Furniture includes cost of software relating to Core
 Banking solution of Rs. 15.26 crore (previous year Rs. 11.61 crore)
 with written down value of Rs. 6.04 crore (previous year Rs. 8.54
 crore)
 
 4 Pending finalisation of wage agreement a provision of Rs. 61 crore
 (previous year Rs. 12 crore) has been made towards the revision in
 employee costs and other benefits on the basis of the estimate of the
 management, which includes Rs. 9.30 crore relating to previous year.
 
 5 The Bank has implemented Agricultural Debt waiver and Debt Relief
 Scheme notified by the Government of India. In accordance with the
 scheme an amount of Rs. 106.23 crores has been waived. Preliminary
 
 claim of Rs. 105.69 crores has been preferred with RBI, against which
 the Bank has received the first instalment amounting to Rs. 43.33
 crores and the balance amount due is included under advances.  Further
 an amount of Rs. 4.88 crore has been subjected to debt relief
 receivable from Government included under other assets.
 
 6 Disclosure in terms of Accounting Standard
 
 6.1 There are no material prior period income/expenditure requiring
 disclosure under AS 5 Net profit or loss for the period, prior period
 and Extra ordinary item and charges in Accounting policies .  issued by
 the Institute of Chartered Accountants of India
 
 6.2 Employee Benefits (AS 15)
 
 Payments to and provision for employees include provision made during
 the year towards pension, gratuity and leave encashment etc in
 accordance with Revised Accounting Standard (AS) -15, the transitional
 liability upto 31.03.2006 having already been debited in full to the
 profit and loss account of the said previous year.
 
 (a) Defined Contribution Plan
 
 Provident Fund
 
 Eligible employees (employees not opted for pension plan) receive
 benefits from a provident fund, which is a defined contribution plan.
 Aggregate contributions along with interest thereon are paid at
 retirement, death, incapacitation or termination of employment. Both
 the employee and the Bank make monthly contributions to the Federal
 Bank Employees Provident Fund equal to a specified percentage of the
 covered employees salary. The Bank has no other obligation than the
 monthly contribution.
 
 The Bank recognized Rs. 6.99 Crore (Previous year Rs. 6.59 crore) for
 provident fund contribution in the Profit and Loss account
 
 (b) Defined benefit plan
 
 1) Gratuity
 
 The Bank provides for gratuity, a defined benefit retirement plan (the
 Gratuity Plan) covering eligible employees. The Gratuity Plan
 provides a lump sum payment to vested employees at retirement, death,
 incapacitation or termination of employment, of an amount based on the
 respective employees salary and the tenure of employment. Vesting
 occurs upon completion of five years of service as per Payment of
 Gratuity Act, 1972 or as per the provisions of the Federal Bank
 Employees Gratuity Trust Fund Rules/Award. Liabilities with regard to
 the Gratuity Plan are determined by actuarial valuation as of the
 Balance Sheet date, based upon which, the company contributes all the
 ascertained liabilities to the Federal Bank Employees Gratuity Trust
 Fund (the Trust). Trustees administer contributions made to the Trust
 and contributions are invested in specific investments as permitted by
 law.
 
 2) Superannuation/ Pension
 
 tpThe Bank provides for monthly pension, a defined benefit retirement
 plan (the Pension Plan) covering eligible employees. The Pension Plan
 provides a monthly pension after retirement of the employees till death
 and to the family after the death of the pensioner. The monthly pension
 is based on the respective employees salary and the tenure of
 employment. Vesting occurs upon completion of ten years of service. The
 bank pays the monthly pension by purchasing annuities from Life
 Insurance Corporation of India (LIC). Liabilities with regard to the
 Pension Plan are
 
 determined by actuarial valuation as of the Balance Sheet date, based
 upon which, the company contributes all the ascertained liabilities to
 the Federal Bank (Employees) Pension Fund (the Trust). Trustees
 administer contributions made to the Trust and contributions are
 invested in specific investments as permitted by law.
 
 The following table as furnished by actuary sets out the funded status
 of gratuity/pension plan and the amounts recognized in the Banks
 financial statements as at March 31, 2009.
 
 (c) Leave encashment
 
 The employees of the Bank are entitled to compensated absence. The
 employees can carry forward a portion of the unutilized accrued
 compensated absence and utilize it in future periods or receive cash
 compensation at retirement or termination of employment for the
 unutilized accrued compensated absence for a maximum of 240 days. The
 Bank records an obligation for compensated absences in
 
 the period in which the employee renders the services that increase
 this entitlement. The Bank measures the expected cost of compensated
 absence as the additional amount that the Bank expects to pay as a
 result of the unused entitlement that has accumulated at the Balance
 Sheet date based on actuarial valuations.
 
 (d) Sick Leave/Leave Travel Concession/Unavailed Casual Leave.
 
 A sum of Rs. 19.33 crore has been provided towards the above
 liabilities in accordance with AS 15 (Revised) based on actuarial
 valuation.
 
 6.3 Related Party Disclosures
 
 The following are the significant transactions with related parties
 during the year ended 31 March 2009
 
 Name of the Party Nature of Relationship
 
 IDBI Fortis Life Insurance Company Limited Associate/Joint Venture
 
 Fed Bank Financial Services Limited Subsidiary
 
 Shri. M. Venugopalan Key Management Personnel
 
 Shri. K.S. Harshan Key Management Personnel
 
 Shri. P.R. Kalyana Raman Key Management Personnel
 
 7.4.0 There are no dues to micro and small enterprises as at 31 March
 2009. This disclosure is based on the records available with the Bank.
 
 7.4.1 The Bank has not issued letters of comfort during the year.
 
 7.4.2 The Bank has noi made any draw down of reserves during the year.