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HDFC Bank

BSE: 500180|NSE: HDFCBANK|ISIN: INE040A01026|SECTOR: Banks - Private Sector
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Mar 15
Accounting Policy Year : Mar '16
A BACKGROUND
 
 HDFC Bank Limited (''HDFC Bank'' or ''the Bank''), incorporated in Mumbai,
 India is a publicly held banking company engaged in providing a range
 of banking and financial services including retail banking, wholesale
 banking and treasury operations.  The Bank is governed by the Banking
 Regulation Act, 1949 and the Companies Act, 2013. The Bank has overseas
 branch operations in Bahrain, Hong Kong and Dubai. The financial
 accounting systems of the Bank are centralised and, therefore,
 accounting returns are not required to be submitted by branches of the
 Bank.
 
 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'') specified under Section 133 of the
 Companies Act, 2013, in so far as they apply to banks 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. Actual 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
 
 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.
 
 Purchase and sale transactions in securities are recorded under
 ''Settlement Date'' of accounting, except in the 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 HFT category.  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 either of the above categories
 are classified under AFS category.
 
 Acquisition cost:
 
 - Brokerage, commission, etc. and broken period interest on debt
 instruments are recognised in the Statement of Profit and Loss and are
 not included in the cost of acquisition.
 
 Disposal of investments:
 
 - Profit / Loss on sale of investments under the aforesaid three
 categories is recognised in the Statement of Profit and Loss. Cost of
 investments is based on the weighted average cost method. The profit
 from sale of investment under HTM category, net of taxes and transfer
 to statutory reserve is appropriated from Statement of Profit and Loss
 to Capital Reserve in accordance with the RBI Guidelines.
 
 Short sale:
 
 The Bank undertakes short sale transactions in Central Government dated
 securities in accordance with RBI guidelines.  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
 ignored. Profit / Loss on settlement of the short position is
 recognised in the Statement of Profit and Loss.
 
 Valuation:
 
 Investments classified under AFS and HFT categories 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''), periodically.
 
 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)
 and preference shares, is done 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, fertilizer 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 and stated at
 acquisition cost.
 
 Security receipts are valued as per the net asset value provided by the
 issuing Asset Reconstruction Company from time to time.
 
 Net depreciation in the value, if any, compared to the acquisition
 cost, 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
 valuation of investments includes securities under repo transactions.
 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 amortised 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
 are made thereon based on the RBI guidelines.  The depreciation /
 provision on such non-performing investments are 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 for as interest expense and revenue on
 reverse repo transactions are accounted for 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 for 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 non-performing advances 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.
 
 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 by the RBI.
 
 The specific provision levels for retail non-performing assets are also
 based on the nature of product and delinquency levels.  Specific loan
 loss provisions in respect of non-performing advances are charged to
 the Statement of Profit and Loss and included under Provisions and
 Contingencies.
 
 In accordance with RBI guidelines, accelerated provision is made on
 non-performing advances which were not earlier reported by the Bank as
 Special Mention Account under SMA-2 category to Central Repository of
 Information on Large Credits (CRILC). Accelerated provision is also
 made on non-performing advances which are erstwhile SMA-2 accounts with
 Aggregate Exposure (AE) Rs, 1,000 million or above and Joint Lenders''
 Forum (JLF) is not formed or they fail to agree upon a common
 Corrective Action Plan (CAP) within the stipulated time frame.
 
 Accounts are written-off in accordance with the Bank''s policies.
 Recoveries from bad debts written-off are recognised in the Statement
 of Profit and Loss and included under other income.
 
 In relation to non-performing derivative contracts, as per the extant
 RBI guidelines, the Bank makes provision for the entire amount of
 overdue and future receivables relating to positive marked to market
 value of the said derivative contracts.
 
 The Bank maintains general provision for standard assets including
 credit exposures computed as per the current marked to market values of
 interest rate and foreign exchange derivative contracts, and gold in
 accordance with the guidelines and at levels stipulated by RBI from
 time to time. 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. In accordance with RBI
 guidelines, provision is made against standard assets representing all
 exposures to the wholly owned step down subsidiaries of the overseas
 subsidiaries of Indian companies, sanctioned / renewed after December
 31, 2015. Provision for standard assets is included under other
 liabilities.
 
 Provisions made in excess of the Bank''s policy for specific loan loss
 provisions for non-performing assets and regulatory general provisions
 are categorised as floating provisions. Creation of floating provisions
 is considered by the Bank up to a level approved by the Board of
 Directors. In accordance with the RBI guidelines, floating provisions
 are used up to a level approved by the Board only for contingencies
 under extraordinary circumstances and for making specific provisions
 for impaired accounts as per these guidelines or any regulatory
 guidance / instructions. Floating provisions have been included under
 other liabilities.
 
 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 or basis regulatory guidance / instructions, 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 other liabilities.
 
 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 and classification thereof is as per the
 extant RBI guidelines. Restructuring of an account is done at a
 borrower level.
 
 3 Securitisation and transfer of assets
 
 The Bank securitises out its receivables, subject to the Minimum
 Holding Period (''MHP'') criteria and the Minimum Retention Requirements
 (''MRR'') of RBI, 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, not exceeding 20% of the total
 securitised instruments, in line with RBI guidelines. The Bank also
 acts as a servicing agent for receivable pools securitised-out.
 
 The Bank also enters into transactions for transfer of standard assets
 through the direct assignment of cash flows, 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''), subject to the RBI prescribed MHP criteria and the MRR. The
 RBI issued addendum guidelines on securitisation of standard assets
 vide its circular dated May 7, 2012. Accordingly, the Bank does not
 provide liquidity or credit enhancements on the direct assignment
 transactions undertaken subsequent to these guidelines.
 
 Pursuant to these guidelines, the Bank amortises any profit received in
 cash for every individual securitisation or direct assignment
 transaction. This amortisation is calculated as the maximum of either
 of the three parameters stated below:
 
 - the losses incurred on the portfolio, including marked to market
 losses in case of securitisation transactions, specific provisions, if
 any, and direct write-offs made on the MRR and any other exposures to
 the securitisation transaction (other than credit enhancing interest
 only strip); or
 
 - the amount of unamortised cash profit at the beginning of the year
 multiplied by the amount of principal amortised during the year as a
 proportion to the amount of unamortised principal at the beginning of
 the year; or
 
 - the amount of unamortised cash profit at the beginning of the year
 divided by residual maturity of the securitisation or the direct
 assignment transaction.
 
 In relation to securitisation transactions undertaken prior to the
 aforementioned RBI guidelines, including those undertaken through the
 direct assignment route, the Bank continues to amortise the profit /
 premium that arose on account of sale of receivables over the life of
 the securities sold, in accordance with the RBI guidelines on
 securitisation of standard assets issued vide its circular dated
 February 1, 2006.
 
 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 in
 accordance with the said RBI guidelines.
 
 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 charged 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 RBI issued new guidelines on sale of non-performing advances on
 February 26, 2014.  In accordance with these guidelines, if the sale of
 non-performing advances is at a price below the net book value, the
 shortfall is charged to the Statement of Profit and Loss spread over a
 period of two years. If the sale is for a value higher than the net
 book value, the excess provision is credited to the Statement of Profit
 and Loss in the year the amounts are received.
 
 The Bank invests in PTCs issued by other SPVs. These are accounted for
 at the deal value and are classified as investments.  The Bank also
 buys loans through the direct assignment route which are classified as
 advances. These are carried at acquisition cost unless it is more than
 the face value, in which case the premium is amortised based on
 Effective Interest Rate (EIR) method.
 
 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
 assets.
 
 - Improvements to lease hold premises are charged off over the
 remaining primary period of lease.
 
 - Software and system development expenditure is depreciated over a
 period of 5 years.
 
 - Point of sale terminals are fully depreciated in the year of
 purchase.
 
 - For assets purchased and sold during the year, depreciation is
 provided on pro-rata basis by the Bank.
 
 - Whenever there is a revision of the estimated useful life of an
 asset, the unamortised depreciable amount is charged over the revised
 remaining useful life of the said asset.
 
 - Profit on sale of immovable property net of taxes and transfer to
 statutory reserve, are transferred to capital reserve account.
 
 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'') as 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 remittance or the disposal
 of the net investment in the non-integral foreign operations in
 accordance with AS - 11, The Effects of Changes in Foreign Exchange
 Rates.
 
 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 USD-INR
 rate for valuation of contracts having longer maturities i.e.  greater
 than one year, is implied from MIFOR and LIBOR curves. For other
 currency pairs, the forward points (for rates / tenors not published by
 FEDAI) are obtained from Reuters for valuation of the FX deals. As
 directed by FEDAI to consider P&L on present value basis, the forward
 profit or loss on the deals are discounted till the valuation date
 using the discounting yields. The resulting profit or loss on valuation
 is recognised in the Statement of Profit and Loss. Foreign exchange
 contracts 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).
 
 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 amortised as expense or income over the life of
 the contract.
 
 Currency future contracts are marked to market daily using settlement
 price on a trading day, which is the closing price of the respective
 future 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 future 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 as at the Balance Sheet date.
 
 7 Derivative contracts
 
 The Bank recognises all derivative contracts (other than those
 designated as hedges) at 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. The Bank identifies the hedged item (asset or
 liability) at the inception of the transaction itself. Hedge
 effectiveness is ascertained at the time of the inception of the hedge
 and periodically thereafter. 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 as at the Balance Sheet date.
 
 8 Revenue 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 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
 is completed.
 
 Gain / loss on sell down of loans is recognised in line with the extant
 RBI guidelines.
 
 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 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 options to acquire equity shares of the Bank to its employees. The
 options granted to employees vest in a graded manner and these may be
 exercised by the employees 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 market price of the underlying stock over
 the exercise price as determined under the option plan. The market
 price is the closing price on the stock exchange where there is highest
 trading volume on the working day immediately preceding the date of
 grant. Compensation cost, if any is amortised over the vesting period.
 
 Gratuity:
 
 The Bank provides for gratuity to all employees. The benefit vests upon
 completion of five years of service and is in the form of lump sum
 payment to 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. 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, 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.
 
 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 whole time 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
 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 equal
 to 8.33% of employee''s basic salary up to a maximum salary level of
 Rs,15,000/- 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 the
 Board of Trustees. In respect of eLKB employees, the Bank contributes
 to a fund set up by eLKB and administered by a 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, Employee Benefits, states that
 benefits involving employer established provident funds, which require
 interest shortfalls to be provided, are to be considered as defined
 benefit plans. Actuarial valuation of this Provident Fund interest
 shortfall is done as per the guidance note issued in this respect by
 The Institute of Actuaries of India (IAI) and provision towards this
 liability is made.
 
 The overseas branches of the Bank makes contribution 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
 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 the balance amount is provided based on
 actuarial valuation as at the Balance Sheet date conducted by an
 independent actuary.
 
 In respect of certain eLKB employees who had moved to a Cost to Company
 (''CTC'') driven compensation structure and had completed less than 15
 years of service, the contribution which was made until 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 is required except
 for interest as applicable to Provident Fund, which is provided for.
 
 In respect of certain eLKB 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 the date of movement to CTC
 structure. Provision thereto is made based on actuarial valuation as 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, which includes assumptions such as mortality,
 redemption and spends.  Provisions for liabilities on said reward
 points are made based on the actuarial valuation report as furnished by
 the said independent actuary and included in other liabilities.
 
 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 paid to the
 supplier is recorded under commission income.
 
 The Bank also deals in bullion on a borrowing and lending basis and the
 interest paid / received thereon is classified as interest expense /
 income respectively.
 
 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 on a straight-line basis in accordance with the AS-19, Leases.
 
 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, the rules framed there under and considering the material
 principles set out in Income Computation and Disclosure Standards) and
 the net change in the deferred tax asset or liability during 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 as at the
 Balance Sheet date.
 
 Current tax assets and liabilities and deferred tax assets and
 liabilities are off-set when they relate to income taxes levied by the
 same taxation authority, when the Bank has a legal right to off-set and
 when the Bank intends to settle on a net basis.
 
 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. 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 to equity
 during the year. Diluted earnings per equity share are computed using
 the weighted average number of equity shares and the dilutive potential
 equity shares outstanding during the period except where the results
 are anti-dilutive.
 
 15 Share issue expenses
 
 Share issue expenses are adjusted from Share Premium Account in terms
 of Section 52 of the Companies Act, 2013.
 
 16 Segment information
 
 The disclosure relating to segment information is in accordance with
 AS-17, Segment Reporting and as per guidelines issued by RBI.
 
 17 Accounting for provisions, contingent liabilities and contingent
 assets
 
 In accordance with AS-29, Provisions, Contingent Liabilities and
 Contingent Assets, 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.
 
 A disclosure of contingent liability is made when there is:
 
 - a possible obligation arising from a past event, the existence of
 which will be confirmed by the occurrence or non- occurrence of one or
 more uncertain future events not within the control of the Bank; or
 
 - a present obligation arising from a past event which is not
 recognised as it is not probable that an outflow of resources will be
 required to settle the obligation or a reliable estimate of the amount
 of the obligation cannot be made.
 
 When there is a possible obligation or a present obligation in respect
 of which the likelihood of outflow of resources is remote, no provision
 or disclosure is made.
 
 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.
 
 Onerous contracts
 
 Provisions for onerous contracts are recognised when the expected
 benefits to be derived by the Bank from a contract are lower than the
 unavoidable costs of meeting the future obligations under the contract.
 The provision is measured at the present value of the lower of the
 expected cost of terminating the contract and the expected net cost of
 continuing with the contract. Before a provision is established, the
 Bank recognises any impairment loss on the assets associated with that
 contract.
 
 18 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.
 
 19 Corporate social responsibility
 
 Expenditure towards corporate social responsibility, in accordance with
 Companies Act, 2013, are recognised in the Statement of Profit and
 Loss.
Source :
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