A BACKGROUND
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 recognized
prospectively in the current and future periods.
C PRINCIPAL ACCOUNTING POLICIES
1 Investments
Classification :
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” category.
Investments which the Bank intends to hold till maturity are classified
as HTM securities. Investments in the equity of subsidiaries are
categorized as “Held to Maturity” in accordance with the RBI
guidelines.
Investments which are not classified in the above categories are
classified under “Available for Sale” 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
item.
- 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 are taken to the Profit and Loss Account. The profit from
sale of investment under Held to Maturity category, net of taxes and
transfers to statutory reserve is appropriated from Profit and Loss
Account to “Capital Reserve”.
Valuation :
Investments classified under Available for Sale category and Held for
Trading category are marked to market as per the RBI guidelines.
Traded investments are valued based on the trades / quotes on the
recognized 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’), periodically.
The market value of unquoted government securities which are in the
nature of Statutory Liquidity Ratio (‘SLR’) securities included in the
AFS and HFT categories is 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 carry SLR
status 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, except for
Treasury Bills classified under Held for Trading category.
Net depreciation, if any, in any of the six groups, is charged to the
Profit and Loss Account. 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 Held to Maturity 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 amortization 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 Profit or Loss Account until received.
Repo and Reverse Repo Transactions :
In accordance with the RBI guidelines under reference RBI/2009-2010/356
IDMD/4135/11.08.43/2009-10 dated March 23, 2010, effective April 1,
2010 Repo and Reverse Repo transactions in government securities and
corporate debt securities (excluding transactions conducted under
Liquidity Adjustment Facility (‘LAF’) with RBI) are reflected as
borrowing and lending transactions respectively. These transactions
were hitherto recorded under investments as sales and purchases
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 with RBI, 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 lent to RBI
are debited to investment account and reversed on maturity of the
transaction. Revenues thereon are accounted as interest income.
2 Advances
Classification :
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. Floating
provisions have been included under Schedule 5 - “Other Liabilities”
which were hitherto netted from Advances. Interest on non-performing
advances is transferred to an interest suspense account and not
recognised in the Profit and Loss Account until received.
Provisioning :
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 in the RBI guidelines. The specific provision levels
for retail non-performing assets are also based on the nature of
product and delinquency levels.
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 is included under Schedule 5 - “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. Creation of further floating
provisions are considered by the Bank up to a level approved by the
Board of Directors of the Bank. Floating provisions are not reversed by
credit to Profit and Loss Account and can be used only for
contingencies under extraordinary circumstances for making specific
provisions in impaired accounts after obtaining Board approval and with
prior permission of RBI.
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 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. Restructuring of an account is done at a
borrower level.
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 prudential basis makes provisions
on advances or exposures which are not NPAs, but have 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 Liabilities”.
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 etc., to senior Pass Through Certificates (‘PTCs’). The
Bank also acts as a servicing agent for receivable pools
securitised-out.
The RBI issued guidelines on securitization of standard assets vide its
circular dated February 1, 2006 under reference no. DBOD No.
BP.BC.60/21.04.048/2005-06. Pursuant to these guidelines, the Bank
amortizes 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 recognized in the Profit
and Loss Account 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 PTCs. The Bank amortizes 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 recognized in the Profit and Loss
Account for the period in which the sale occurs.
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 Profit and Loss
Account. 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.
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 capitalized only when it
increases the future benefit / functioning capability from / of such
assets.
Depreciation is charged over the estimated useful life of the fixed
asset on a straight-line basis. The rates of depreciation for certain
key fixed assets, which are not lower than the rates prescribed in
Schedule XIV of the Companies Act, 1956 are given below :
¦ Owned Premises at 1.63% per annum
¦ Improvements to lease hold premises are charged off over the
remaining primary period of lease
¦ VSATs at 10% per annum
¦ ATMs at 10% per annum
¦ Office equipments at 16.21% per annum
¦ Computers at 33.33% per annum
¦ Motor cars at 25% per annum
¦ Software and System development expenditure at 20% per annum
¦ Assets at residences of executives of the Bank at 25% per annum
¦ Items (excluding staff assets) costing less than - 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 Profit and Loss Account 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, and income and expenditure items of integral foreign
operations (representative offices) are translated at the weekly
average closing rates and non-integral foreign operations (foreign
branches) are translated 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 included in the
Profit and Loss Account.
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 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
MIFOR and USD LIBOR rates for USD-INR currency pair. For other currency
pairs, the forward points (as published by FEDAI) are extrapolated. The
resulting forward valuation profit or loss is included in the Profit
and Loss Account.
Foreign exchange forward contracts, which are not intended for trading
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 the contract.
Currency futures contracts are daily marked to market using daily
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
exchange.
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 recognizes 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 net fair value is positive (positive marked to
market value) or as liabilities when the net fair value is negative
(negative marked to market value). Changes in the fair value of
derivatives other than those designated as hedges are included in the
Profit and Loss Account.
Derivative contracts designated as hedges are not marked to market
unless their underlying is marked to market. In respect of derivative
contracts that are marked to market, changes in the market value are
recognized in the Profit and Loss Account in the relevant period. Gains
or losses arising from hedge ineffectiveness, if any, are recognised in
the Profit and Loss Account.
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 Profit and Loss Account on an
accrual basis, except in the case of non-performing assets where it is
recognized upon realization as per RBI norms.
Interest income is 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 and instruments
which carry a premia on redemption is recognised over the tenor of the
instrument on a constant effective yield basis.
Dividend on equity shares, preference shares and on mutual fund units
is recognised as income when the right to receive the dividend is
established.
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 is 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. Compensation cost, if any is
amortised over the vesting period.
Gratuity
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 recognized in the Profit and Loss Account.
Superannuation
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 recognizes such contributions as an expense in the
year incurred, as such contribution is in the nature of defined
contribution.
Provident fund
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.
The Bank has no liability for future provident fund benefits other than
its contribution. 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 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
recognizes such contributions as an expense in the year 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. Pending the issuance of the guidance note in this
respect by the Actuary Society of India, the Bank’s consulting actuary
has expressed an inability to reliably measure the provident fund
liabilities. Accordingly the Bank is unable to exhibit the related
information.
The overseas branches makes contributions to the 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 defined
contribution.
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
utilisation.
Pension
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
independent actuary.
In respect of employees who have moved to a Cost to Company (‘CTC’)
driven compensation structure and have completed services up to 15
years as on the date of movement to CTC structure, contribution made
till the date of movement to CTC structure and with additional one-time
contribution of 10% of Bank contribution accumulation as on the date of
movement to CTC, made for employees (who have completed more than 10
years but less than 15 years) will be maintained as a fund and will be
converted into annuity on separation after a lock-in-period of two
years. Hence for this category of employees, liability stands frozen
and no additional provision would be required except for interest at
par as applicable to Provident Fund, which has been provided for. In
respect of the employees who accepted the offer and have completed
services for more than 15 years, pension would be paid on separation
based on salary applicable as on date of movement to CTC 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
independent actuary.
11 Bullion
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
commission income.
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 recognized in the Profit and Loss Account 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 carry forwards. Deferred
tax assets and liabilities are measured using the enacted or
substantively 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.
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 is 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.
15 Segment Information - Basis of preparation
The segmental classification to the respective segments conforms to the
guidelines issued by RBI vide DBOD. No. BP.BC.81/21.01.018/2006-07
dated April 18, 2007. 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
organization structure, the internal business reporting system and the
guidelines prescribed by RBI. The Bank operates in the following
segments :
(a) Treasury
The treasury segment primarily consists of net interest earnings from
the Bank’s investments 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 makes loans and
provides 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
groups.
(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 earned on the
cash float arising from transaction services, fees from such
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.
(e) Unallocated
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, Employee Stock Options (Grants)
Outstanding and other unallocable assets and liabilities.
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.
Geographic Segments
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
Assets
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 realized.
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.
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