HDFC Bank Limited (''HDFC Bank'' or ''the Bank''), incorporated in
Mumbai, India is a publicly held banking company engaged in providing a
wide range of banking and financial services including commercial
banking and treasury operations. HDFC Bank is a banking company
governed by the Banking Regulation Act, 1949. The Bank has overseas
branch operations in Bahrain and Hong Kong.
B BASIS OF PREPARATION
The financial statements have been prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and are in accordance with Generally Accepted
Accounting Principles in India (''GAAP''), 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 (''AS'') issued by the Institute of
Chartered Accountants of India (''ICAI'') and notified by the Companies
Accounting Standard Rules, 2006 to the extent applicable and current
practices prevailing within the banking industry in India.
Use of estimates :
The preparation of financial statements in conformity with GAAP
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 expenses for the reporting period. Management
believes that the estimates used in the preparation of the financial
statements are prudent and reasonable. Future results could differ from
these estimates. Any revision in the accounting estimates is recognised
prospectively in the current and future periods.
C PRINCIPAL ACCOUNTING POLICIES
In accordance with the RBI guidelines on investment classification and
valuation, Investments are classified on the date of purchase into
Held for Trading (''HFT''), Available for Sale (''AFS'')
and Held to Maturity (''HTM'') categories (hereinafter called
categories). Subsequent shifting amongst the categories is done
in accordance with the RBI guidelines. Under each of these categories,
investments are further classified under six groups (hereinafter called
groups) - Government Securities, Other Approved Securities,
Shares, Debentures and Bonds, Investments in Subsidiaries / Joint
ventures and Other Investments.
The Bank follows ''Settlement Date'' accounting for recording purchase
and sale of transactions in securities except in case of equity shares
where ''Trade Date'' accounting is followed.
Basis of classification :
Investments that are held principally for resale within 90 days from
the date of purchase are classified under Held for Trading
Investments which the Bank intends to hold till maturity are classified
as HTM securities. Investments in the equity of subsidiaries / joint
ventures are categorised as HTM in accordance with the RBI guidelines.
Investments which are not classified in the above categories are
classified under AFS category.
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 on debt instruments is treated as a revenue
- Cost of investments is based on the weighted average cost method.
Disposal of investments :
Profit / loss on sale of investments under the aforesaid three
categories is taken to the Statement of Profit and Loss. The profit
from sale of investment under HTM category, net of taxes and transfers
to statutory reserve is appropriated from Statement of Profit and Loss
to Capital Reserve in accordance with the RBI Guidelines.
Short sale :
In accordance with RBI guidelines, the Bank undertakes short sale
transactions in central government dated securities. The short position
is reflected as the amount received on sale and is classified under
''Other Liabilities''. The short position is marked to market and
loss, if any, is charged to the Statement of Profit and Loss while
gain, if any, is not recognised. Profit / loss on settlement of the
short position is taken to Statement of Profit and Loss.
Investments classified under AFS category and HFT category are marked
to market as per the RBI guidelines.
Traded investments are valued based on the trades / quotes on the
recognised stock exchanges, price list of RBI or prices declared by
Primary Dealers Association of India (''PDAI'') jointly with Fixed
Income Money Market and Derivatives Association (''FIMMDA''),
The market value of unquoted government securities which qualify for
determining the Statutory Liquidity Ratio (''SLR'') included in the AFS
and HFT categories is computed as per the Yield-to-Maturity (''YTM'')
rates published by FIMMDA.
The valuation of other unquoted fixed income securities (viz. State
government securities, Other approved securities, Bonds and debentures)
wherever linked to the YTM rates, is computed with a mark-up
(reflecting associated credit and liquidity risk) over the YTM rates
for government securities published by FIMMDA. Special bonds such as
Oil bonds, Fertiliser bonds etc. which are directly issued by
Government of India (''GOI'') that do not qualify for SLR are also
valued by applying the mark up above the corresponding yield on GOI
securities. Unquoted equity shares are valued at the break-up value, if
the latest Balance Sheet is available or at Rs 1 as per the RBI
guidelines. Units of mutual funds are valued at the latest repurchase
price / net asset value declared by the mutual fund. Treasury bills,
commercial papers and certificate of deposits being discounted
instruments, are valued at carrying cost.
Net depreciation, if any, in any of the six groups, is charged to the
Statement of Profit and Loss. The net appreciation, if any, in any of
the six groups is not recognised except to the extent of depreciation
already provided. The book value of individual securities is not
changed after the valuation of investments.
Investments classified under HTM category are carried at their
acquisition cost and not marked to market. Any premium on acquisition
is amortized over the remaining maturity period of the security on a
constant yield to maturity basis. Such amortisation of premium is
adjusted against interest income under the head Income from
investments as per the RBI guidelines. Any diminution, other than
temporary, in the value of investments in subsidiaries / joint ventures
is provided for.
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 Statement of Profit and Loss until received.
Repo and reverse repo transactions :
In accordance with the RBI guidelines repo and reverse repo
transactions in government securities and corporate debt securities
(excluding transactions conducted under Liquidity Adjustment Facility
(''LAF'') and Marginal Standby Facility (''MSF'') with RBI) are
reflected as borrowing and lending transactions respectively. Borrowing
cost on repo transactions is accounted as interest expense and revenue
on reverse repo transactions is accounted as interest income.
In respect of repo transactions under LAF and MSF with RBI, amount
borrowed from RBI is 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,
amount lent to RBI is debited to investment account and reversed on
maturity of the transaction. Revenues thereon are accounted as interest
Advances are classified as performing and non-performing based on the
RBI guidelines and are stated net of bills rediscounted, specific
provisions, interest in suspense for non-performing advances, claims
received from Export Credit Guarantee Corporation, provisions for
funded interest term loan classified as NPA and provisions in lieu of
diminution in the fair value of restructured assets. Interest on
non-performing advances is transferred to an interest suspense account
and not recognised in the Statement of Profit and Loss until received.
Specific loan loss provisions in respect of non-performing advances are
made based on management''s assessment of the degree of impairment of
wholesale and retail advances, subject to the minimum provisioning
level prescribed by the RBI. The specific provision levels for retail
non-performing assets are also based on the nature of product and
The Bank maintains general provision for standard assets including
credit exposures computed as per the current marked to market value of
interest rate and foreign exchange derivative contracts and gold at
levels stipulated by RBI from time to time. Provision for standard
assets held by the Bank is not reversed. In the case of overseas
branches, general provision on standard advances is maintained at the
higher of the levels stipulated by the respective overseas regulator or
RBI. Provision for standard assets is included under Schedule 5 -
Other Liabilities. Provisions made in excess of these regulatory
requirements or provisions which are not made with respect to specific
non-performing assets are categorised as floating provisions. Creation
of further floating provisions is considered by the Bank up to a level
approved by the Board of Directors. Floating provisions are not
reversed by credit to Statement of Profit and Loss and can be used only
for contingencies under extraordinary circumstances for making specific
provisions towards impaired accounts after obtaining Board approval and
with prior permission of RBI. Floating provisions have been included
under Schedule 5 - Other Liabilities
In accordance with the RBI guidelines, the Bank makes provision for the
entire amount of overdue and future receivables relating to positive
marked to market value of non-performing derivative contracts.
Further to the provisions required to be held according to the asset
classification status, provisions are held for individual country
exposures (other than for home country exposure). Countries are
categorised into risk categories as per Export Credit Guarantee
Corporation of India Ltd. (''ECGC'') guidelines and provisioning is
done in respect of that country where the net funded exposure is one
percent or more of the Bank''s total assets.
In addition to the above, the Bank on a prudential basis makes
provisions on advances or exposures which are not NPAs, but has reasons
to believe on the basis of the extant environment or specific
information, the possible slippage of a specific advance or a group of
advances or exposures or potential exposures. These are classified as
contingent provisions and included under Schedule 5 - Other
The Bank considers a restructured account as one where the Bank, for
economic or legal reasons relating to the borrower''s 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 classified 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. Restructuring of an account is done at a
3 Securitisation and transfer of assets
The Bank securitises out its receivables to Special Purpose Vehicles
(''SPVs'') in securitisation transactions. Such securitised-out
receivables are de-recognised in the Balance Sheet when they are sold
(true sale criteria being fully met with) and consideration is received
by the Bank. Sales / transfers that do not meet these criteria for
surrender of control are accounted for as secured borrowings.
In respect of receivable pools securitised-out, the Bank provides
liquidity and credit enhancements, as specified by the rating agencies,
in the form of cash collaterals / guarantees and / or by subordination
of cash flows. The Bank also acts as a servicing agent for receivable
The RBI issued guidelines on securitisation of standard assets vide its
circular dated February 1, 2006. Pursuant to these guidelines, the Bank
amortises any profit / premium arising on account of sale of
receivables over the life of the securities sold out while any loss
arising on account of sale of receivables is recognised in the
Statement of Profit and Loss for the period in which the sale occurs.
The Bank also enters into securitised-out transactions through the
direct assignment route, which are similar to asset-backed
securitisation transactions through the SPV route, except that such
portfolios of receivables are assigned directly to the purchaser and
are not represented by Pass through Certificates (''PTCs''). The Bank
amortises any profit / premium arising on account of sale of
receivables through the direct assignment route over the tenure of the
loans sold out while any loss arising on account of sale of receivables
is recognised in the Statement of Profit and Loss for the period in
which the sale occurs.
The Bank transfers advances through inter-bank participation with and
without risk. In accordance with the RBI guidelines, in the case of
participation with risk, the aggregate amount of the participation
issued by the Bank is reduced from advances and where the Bank is
participating, the aggregate amount of the participation is classified
under advances. In the case of participation without risk, the
aggregate amount of participation issued by the Bank is classified
under borrowings and where the Bank is participating, the aggregate
amount of participation is shown as due from banks under advances.
In accordance with RBI guidelines on sale of non-performing advances,
if the sale is at a price below the net book value (i.e., book value
less provisions held), the shortfall is debited to the Statement of
Profit and Loss. If the sale is for a value higher than the net book
value, the excess provision is not reversed but is utilised to meet the
shortfall / loss on account of sale of other non-performing advances.
The Bank also invests in PTCs and buys loans through the direct
assignment route. These are accounted for at the deal value. The PTCs
are classified as investments and loan assignments are classified as
4 Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation as
adjusted for impairment, if any. Cost includes cost of purchase and all
expenditure like site preparation, installation costs and professional
fees incurred on the asset before it is ready to use. Subsequent
expenditure incurred on assets put to use is capitalised only when it
increases the future benefit / functioning capability from / of such
Improvements to lease hold premises are charged off over the remaining
primary period of lease.
Items (excluding staff assets) costing less than Rs 5,000 and point of
sale terminals are fully depreciated in the year of purchase.
All other assets are depreciated as per the rates specified in Schedule
XIV of the Companies Act, 1956.
For assets purchased and sold during the year, depreciation is provided
on pro-rata basis by the Bank.
The Bank undertakes assessment of the useful life of an asset at
periodic intervals taking into account changes in environment, changes
in technology, the utility and efficacy of the asset in use, etc.
Whenever there is a revision of the estimated useful life of an asset,
the unamortized depreciable amount is charged over the revised
remaining useful life of the said asset.
5 Impairment of assets
The Bank assesses at each Balance Sheet date whether there is any
indication that an asset may be impaired. Impairment loss, if any, is
provided in the Statement of Profit and Loss to the extent the carrying
amount of assets exceeds their estimated recoverable amount.
6 Transactions involving foreign exchange
Foreign currency income and expenditure items of domestic operations
are translated at the exchange rates prevailing on the date of the
transaction. Income and expenditure items of integral foreign
operations (representative offices) are translated at the weekly
average closing rates and of non-integral foreign operations (foreign
branches) at the monthly average closing rates.
Foreign currency monetary items of domestic and integral foreign
operations are translated at the closing exchange rates notified by
Foreign Exchange Dealers'' Association of India (''FEDAI'') at the
Balance Sheet date and the resulting net valuation profit or loss
arising due to a net open position in any foreign currency is
recognised in the Statement of Profit and Loss.
Both monetary and non-monetary foreign currency assets and liabilities
of non-integral foreign operations are translated at closing exchange
rates notified by FEDAI at the balance sheet date and the resulting
profit / loss arising from exchange differences are accumulated in the
Foreign Currency Translation Account until the disposal of the net
investment in the non-integral foreign operations.
Foreign exchange spot and forward contracts outstanding as at the
balance sheet date and held for trading, are revalued at the closing
spot and forward rates respectively as notified by FEDAI and at
interpolated rates for contracts of interim maturities. The contracts
for longer maturities i.e. greater than one year are revalued using
Mumbai Interbank Forward Offer Rate (''MIFOR'') and USD LIBOR (London
Interbank Offered Rate) rates for USD-INR currency pair. For other
currency pairs, the forward points (as published by FEDAI) are
extrapolated. The resulting profit or loss on valuation is recognised
in the Statement of Profit and Loss.
Foreign exchange forward contracts not intended for trading, that are
entered into to establish the amount of reporting currency required or
available at the settlement date of a transaction, and are outstanding
at the Balance Sheet date, are effectively valued at the closing spot
rate. The premia or discount arising at the inception of such forward
exchange contract is amortized as expense or income over the life of
Currency futures contracts are marked to market daily using settlement
price on a trading day, which is the closing price of the respective
futures contracts on that day. While the daily settlement price is
computed on the basis of the last half an hour weighted average price
of such contract, the final settlement price is taken as the RBI
reference rate on the last trading day of the futures contract or as
may be specified by the relevant authority from time to time. All open
positions are marked to market based on the settlement price and the
resultant marked to market profit / loss is daily settled with the
Contingent liabilities on account of foreign exchange contracts,
currency future contracts, guarantees, letters of credit, acceptances
and endorsements are reported at closing rates of exchange notified by
FEDAI at the Balance Sheet date.
7 Derivative contracts
The Bank recognises all derivative contracts (other than those
designated as hedges) at the fair value, on the date on which the
derivative contracts are entered into and are re-measured at fair value
as at the Balance Sheet or reporting dates. Derivatives are classified
as assets when the fair value is positive (positive marked to market
value) or as liabilities when the fair value is negative (negative
marked to market value). Changes in the fair value of derivatives
other than those designated as hedges are recognised in the Statement
of Profit and Loss.
Derivative contracts designated as hedges are not marked to market
unless their underlying transaction is marked to market. In respect of
derivative contracts that are marked to market, changes in the market
value are recognised in the Statement of Profit and Loss in the
relevant period. Gains or losses arising from hedge ineffectiveness, if
any, are recognised in the Statement of Profit and Loss.
Contingent liabilities on account of derivative contracts denominated
in foreign currencies are reported at closing rates of exchange
notified by FEDAI at the Balance Sheet date.
8 Revenue and expense recognition
Interest income is recognised in the Statement of Profit and Loss on an
accrual basis, except in the case of non-performing assets where it is
recognised upon realisation as per RBI norms.
Interest income is recognised net of commission paid to sales agents
(net of non-volume based subvented income from dealers, agents and
manufacturers) - (hereafter called net commission) for
originating fixed tenor retail loans. Net commission paid to sales
agents for originating other retail loans is expensed in the year in
which it is incurred.
Interest income on investments in PTCs and loans bought out through the
direct assignment route is recognised at their effective interest rate.
Income on non-coupon bearing discounted instruments is recognised over
the tenor of the instrument on a constant effective yield basis.
Loan processing fee is recognised as income when due. Syndication /
arranger fee is recognised as income when a significant act / milestone
Dividend on equity shares, preference shares and on mutual fund units
is recognised as income when the right to receive the dividend is
Guarantee commission, commission on letter of credit, annual locker
rent fees and annual fees for credit cards are recognised on a straight
line basis over the period of contract. Other fees and commission
income are recognised when due, except in cases where the Bank is
uncertain of ultimate collection.
9 Employee benefits
Employee Stock Option Scheme (''ESOS'')
The Employee Stock Option Scheme (''the Scheme'') provides for the
grant of equity shares of the Bank to its employees. 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 employee compensation plans.
Compensation cost is measured by the excess, if any, of the fair market
price of the underlying stock over the exercise price on the grant date
as determined under the option plan. The fair market price is the
latest available closing price, prior to the date of grant, on the
stock exchange on which the shares of the Bank are listed. Compensation
cost, if any is amortised over the vesting period.
The Bank provides for gratuity to all employees. The benefit is in the
form of lump sum payments to vested employees on resignation,
retirement, death while in employment or on termination of employment
of an amount equivalent to 15 days basic salary payable for each
completed year of service. Vesting occurs upon completion of five years
of service. The Bank makes contributions to funds administered by
trustees and managed by insurance companies for amounts notified by the
said insurance companies. In respect of erstwhile Lord Krishna Bank
(''eLKB'') employees, the Bank makes contribution to a fund set up by
eLKB and administered by the board of trustees. The defined gratuity
benefit plans are valued by an independent actuary as at the Balance
Sheet date using the projected unit credit method as per the
requirement of AS-15 (Revised 2005), Employee benefits, to determine
the present value of the defined benefit obligation and the related
service costs. Under this method, the determination is based on
actuarial calculations, which include assumptions about demographics,
early retirement, salary increases and interest rates. Actuarial gain
or loss is recognised in the Statement of Profit and Loss.
Employees of the Bank, above a prescribed grade, are entitled to
receive retirement benefits under the Bank''s Superannuation Fund. The
Bank contributes a sum equivalent to 13% of the employee''s eligible
annual basic salary (15% for the Managing Director, Executive Directors
and for certain eligible erstwhile Centurion Bank of Punjab (''eCBoP'')
staff) to insurance companies, which administer the fund. The Bank has
no liability for future superannuation fund benefits other than its
contribution, and recognises such contributions as an expense in the
year incurred, as such contribution is in the nature of defined
In accordance with law, all employees of the Bank are entitled to
receive benefits under the provident fund. The Bank contributes an
amount, on a monthly basis, at a determined rate (currently 12% of
employee''s basic salary). Of this, the Bank contributes an amount of
8.33% of employee''s basic salary upto a maximum salary level of Rs
6,500/- per month to the Pension Scheme administered by the Regional
Provident Fund Commissioner (''RPFC''). The balance amount is
contributed to a fund set up by the Bank and administered by a board of
trustees. In respect of eCBoP employees, employer''s and employee''s
share of contribution to Provident Fund till March 2009, was
administered by RPFC and from April 2009 onwards, the same is
transferred to the fund set up by the Bank and administered by a board
of trustees. In respect of eLKB employees, the Bank contributes to a
fund set up by eLKB and administered by the board of trustees. The Bank
recognises such contributions as an expense in the year in which it is
incurred. Interest payable to the members of the trust shall not be
lower than the statutory rate of interest declared by the central
government under the Employees Provident Funds and Miscellaneous
Provisions Act 1952 and shortfall, if any, shall be made good by the
Bank. The guidance note on implementing AS-15 (revised 2005), Employee
Benefits, states that benefits involving employer established provident
funds, which requires interest shortfalls to be provided, are to be
considered as defined benefit plans. Actuarial valuation of this
Provident Fund interest shortfall has been done as per the guidance
note issued during the year in this respect by the Actuary Society of
India and provision towards this liability has been made.
The overseas branches make contributions to the respective relevant
government scheme calculated as a percentage of the employees''
salaries. The Bank''s obligations are limited to these contributions,
which are expensed when due, as such contribution is in the nature of
Leave encashment / compensated absences
The Bank does not have a policy of encashing unavailed leave for its
employees, except for certain eLKB employees under Indian Banks''
Association (''IBA'') structure. The Bank provides for leave encashment
/ compensated absences based on an independent actuarial valuation at
the Balance Sheet date, which includes assumptions about demographics,
early retirement, salary increases, interest rates and leave
In respect of pension payable to certain eLKB employees under IBA
structure, which is a defined benefit scheme, the Bank contributes 10%
of basic salary to a pension fund set up by the Bank and administered
by the board of trustees and balance amount is provided based on
actuarial valuation at the Balance Sheet date conducted by an
In respect of certain eLKB employees who had moved to a Cost to Company
(''CTC'') driven compensation structure and have completed less than 15
years of service, the contribution which was made uptill then, is
maintained as a fund and will be converted into annuity on separation
after a lock-in-period of two years. For this category of employees,
liability stands frozen and no additional provision would be required
except for interest as applicable to Provident Fund, which has been
In respect of the employees who moved to a CTC structure and had
completed service of more than 15 years, pension would be paid on
separation based on salary applicable as on date of movement to CTC
structure and provision is made based on actuarial valuation at the
Balance Sheet date conducted by an independent actuary.
10 Debit and credit cards reward points
The Bank estimates the probable redemption of debit and credit card
reward points and cost per point using an actuarial method by employing
an independent actuary. Provision for the said reward points is then
made based on the actuarial valuation report as furnished by the said
The Bank imports bullion including precious metal bars on a consignment
basis for selling to its wholesale and retail customers. The imports
are typically on a back-to-back basis and are priced to the customer
based on an estimated price quoted by the supplier. The Bank earns a
fee on such wholesale bullion transactions. The fee is classified under
The Bank also sells bullion to its retail customers. The difference
between the sale price to customers and actual price quoted by supplier
is also reflected under commission income.
The Bank also borrows and lends gold, which is treated as borrowing /
lending as the case may be with the interest paid / received classified
as interest expense / income.
12 Lease accounting
Lease payments including cost escalation for assets taken on operating
lease are recognised in the Statement of Profit and Loss over the lease
term in accordance with the AS-19, Leases, issued by the ICAI.
13 Income tax
Income tax expense comprises current tax provision (i.e. the amount of
tax for the period determined in accordance with the Income Tax Act,
1961 and the rules framed there under) and 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 carried forward, if any.
Deferred tax assets and liabilities are measured using the enacted or
substantively enacted tax rates 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. In case
of 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.
14 Earnings per share
The Bank reports basic and diluted earnings per equity share in
accordance with AS-20, Earnings Per Share, issued by the ICAI. Basic
earnings per equity share has been computed by dividing net profit for
the year attributable to equity shareholders 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 are computed using
the weighted average number of equity shares and dilutive potential
equity shares outstanding during the period except where the results
15 Segment information - basis of preparation
The disclosure relating to segmental classification conforms to the
guidelines issued by RBI. Business segments have been identified and
reported taking into account, the target customer profile, the nature
of products and services, the differing risks and returns, the
organisation structure, the internal business reporting system and the
guidelines prescribed by RBI. The Bank operates in the following
The treasury segment primarily consists of net interest earnings from
the Bank''s investment portfolio, money market borrowing and lending,
gains or losses on investment operations and on account of trading in
foreign exchange and derivative contracts.
(b) Retail banking
The retail banking segment serves retail customers through a branch
network and other delivery channels.
This segment raises deposits from customers and provides loans and
other services with the help of specialist product groups to such
customers. Exposures are classified under retail banking taking into
account the status of the borrower (orientation criterion), the nature
of product, granularity of the exposure and the quantum thereof.
Revenues of the retail banking segment are derived from interest earned
on retail loans, net of commission (net of subvention received) paid to
sales agents and interest earned from other segments for surplus funds
placed with those segments, fees from services rendered, foreign
exchange earnings on retail products etc. Expenses of this segment
primarily comprise interest expense on deposits, infrastructure and
premises expenses for operating the branch network and other delivery
channels, personnel costs, other direct overheads and allocated
expenses of specialist product groups, processing units and support
(c) Wholesale banking
The wholesale banking segment provides loans, non-fund facilities and
transaction services to large corporates, emerging corporates, public
sector units, government bodies, financial institutions and medium
scale enterprises. Revenues of the wholesale banking segment consist
of interest earned on loans made to customers, interest / fees earned
on the cash float arising from transaction services, earnings from
trade services and other non-fund facilities and also earnings from
foreign exchange and derivatives transactions on behalf of customers.
The principal expenses of the segment consist of interest expense on
funds borrowed from external sources and other internal segments,
premises expenses, personnel costs, other direct overheads and
allocated expenses of delivery channels, specialist product groups,
processing units and support groups.
(d) Other banking business
This segment includes income from para banking activities such as
credit cards, debit cards, third party product distribution, primary
dealership business and the associated costs.
All items which are reckoned at an enterprise level are classified
under this segment. This includes capital and reserves, debt classified
as Tier I or Tier II capital and other unallocable assets and
liabilities such as deferred tax, prepaid expenses, etc.
Segment revenue includes earnings from external customers plus earnings
from funds transferred to other segments. Segment result includes
revenue less interest expense less operating expense and provisions, if
any, for that segment. Segment-wise income and expenses include certain
allocations. Interest income is charged by a segment that provides
funding to another segment, based on yields benchmarked to an
internally approved yield curve or at a certain agreed transfer price
rate. Transaction charges are levied by the retail-banking segment to
the wholesale banking segment for the use by its customers of the
retail banking segment''s branch network or other delivery channels.
Such transaction costs are determined on a cost plus basis. Segment
capital employed represents the net assets in that segment.
Since the Bank does not have material earnings emanating outside India,
the Bank is considered to operate in only the domestic segment.
16 Accounting for provisions, contingent liabilities and contingent
In accordance with AS-29, Provisions, Contingent Liabilities and
Contingent Assets, issued by the ICAI, 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 realised.
17 Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with RBI,
balances with other banks and money at call and short notice.