1. Basis of Preparation
1.1 The financial statements have been prepared under the historical
cost convention unless otherwise stated. They conform to Generally
Accepted Accounting Principles (GAAP) in India, which comprises
statutory provisions, regulatory / Reserve Bank of India (RBI)
guidelines, Accounting Standards / Guidance Notes issued by the
Institute of Chartered Accountants of India (ICAI) and practices
prevalent in the banking industry in India. In respect of foreign
offices, statutory provisions and practices prevailing in respective
foreign countries are complied with.
Use of Estimates
1.2 The preparation of financial statements requires the Management to
make estimates and assumptions which are considered in the reported
amounts of assets and liabilities (including Contingent Liabilities) as
of the date of the financial statements and reported income and expense
for the reporting period. Management believes that the estimates used
in the preparation of the financial statements are prudent and
reasonable. Future results could differ from these estimates.
2. Revenue Recognition and Expense Accounting
2.1 Income is recognized on accrual basis on performing assets and on
realization basis in respect of non-performing assets as per the
prudential norms prescribed by Reserve Bank of India. Recovery in non
performing assets is first appropriated towards interest and the
balance, if any, towards principal, except in the case of Suit Filed
Accounts and accounts under One Time Settlement, where it would be
appropriated towards principal.
2.2 Interest on Bills purchased/Mortgage Backed Securities, Commission
(except on Letter of Credit / Letter of Guarantee/Government Business),
Exchange, Locker Rent and Dividend are accounted for on realization
2.3 Income from consignment sale of precious metals is accounted for as
Other Income after the sale is complete.
2.4 Expenditure is accounted for on accrual basis, unless otherwise
2.5 In case of matured overdue Term Deposits, interest is accounted for
as and when deposits are renewed. In respect of Inoperative Savings
Bank Accounts, unclaimed Savings Bank accounts and unclaimed Term
Deposits, interest is accrued as per RBI guidelines.
2.6 Legal expenses in respect of Suit Filed Accounts are charged to
Profit and Loss Account. Such amount when recovered is treated as
2.7 In respect of foreign branches, Income and Expenditure are
recognized / accounted for as per local laws of the respective
3. Foreign Currency Transactions
3.1 Accounting for transactions involving foreign exchange is done in
accordance with Accounting Standard (AS) 11, The Effects of Changes
in Foreign Exchange Rates, issued by The Institute of Chartered
Accountants of India.
3.2 Transaction in respect of Treasury (Foreign):
a) Foreign Currency transactions except foreign currency deposits and
lending are recorded on initial recognition in the reporting currency
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency on the date of
transaction. Foreign Currency deposits and lendings are initially
accounted at the then prevailing FEDAI weekly average rate.
b) Closing Balances in NOSTRO and ACU Dollar accounts are stated at
closing rates. All foreign currency deposits and lendings including
contingent liabilities are stated at the FEDAI weekly average rate
applicable for the last week of each quarter. Other assets, liabilities
and outstanding forward contracts denominated in foreign currencies are
stated at the rates on the date of transaction.
c) The resultant profit or loss on revaluation of all assets,
liabilities and outstanding forward exchange contracts including
contingent liabilities at year-end exchange rates advised by FEDAI is
taken to revenue with corresponding net adjustments to Other
Liabilities and Provisions/Other Asset Account except in case
of NOSTRO and ACU Dollar accounts where the accounts stand adjusted at
the closing rates.
d) Income and expenditure items are translated at the exchange rates
ruling on the date of incorporating the transaction in the books of
3.3 Translation in respect of overseas branches:
a) As stipulated in Accounting Standard 11, all overseas branches are
treated as Non Integral Operations.
b) Assets and Liabilities (including contingent liabilities) are
translated at the closing spot rates notified by FEDAI at the end of
c) Income and Expenses are translated at quarterly average rate
notified by FEDAI at the end of each quarter.
d) The resulting exchange differences are not recognized as income or
expense for the period but accumulated in a separate account Foreign
Currency Translation Reserve till the disposal of the net
4.1 Investments in India are classified into Held for Trading,
Available for Sale and Held to Maturity categories in line
with the guidelines from Reserve Bank of India. Disclosures of
Investments are made under six classifications viz.,
a) Government Securities
b) Other Approved securities including those issued by local bodies,
d) Bonds & Debentures,
e) Subsidiaries /Joint Ventures,
f) Units of Mutual Funds and Others.
4.2 Interest on Investments, where interest/principal is in arrears for
more than 90 days and income from Units of Mutual Funds, is recognized
on realisation basis as per prudential norms.
4.3 Valuation of Investments is done in accordance with the guidelines
issued by Reserve Bank of India as under:
4.3.1.Individual securities under Held for Trading and
Available for Sale categories are marked to market at quarterly
intervals. Central Government securities are valued at market rates
declared by FIMMDA. Securities of State Government, other Approved
Securities and Bonds & Debentures are valued as per the yield curve,
credit spread rating-wise and other methodologies suggested by FIMMDA.
Quoted equity shares are valued at market rates, Unquoted equity shares
and units of Venture Capital Funds are valued at book value / NAV
ascertained from the latest available balance sheets, otherwise the
same are valued at Re.1/- per company / Fund.
Treasury Bills, Commercial Papers and Certificate of Deposits are
valued at carrying cost. Units held in Mutual fund schemes are valued
at Market Price or Repurchase price or Net Asset Value in that order
depending on availability.
Valuation of Preference shares is made on YTM basis with appropriate
markup over the YTM rates for Central Government Securities put out by
the PDAI / FIMMDA periodically.
Based on the above valuations under each of the six classifications,
net depreciation, if any, is provided for and net appreciation, if any,
is ignored. Though the book value of individual securities would not
undergo any change due to valuation, in the books of account, the
investments are stated net of depreciation in the balance sheet.
4.3.2.Held to Maturity: Such investments are carried at
acquisition cost/amortised cost. The excess, if any, of acquisition
cost over the face value of each security is amortised on an effective
interest rate method, over the remaining period of maturity.
Investments in subsidiaries, associates and sponsored institutions and
units of Venture capital funds are valued at carrying cost.
4.4 Investments are subject to appropriate provisioning / de
-recognition of income, in line with the prudential norms prescribed by
Reserve Bank of India for NPA classification. Bonds and Debentures in
the nature of advances are also subject to usual prudential norms and
accordingly provisions are made, wherever applicable.
4.5 Profit/Loss on sale of Investments in any category is taken to
Profit and Loss account. In case of profit on sale of investments in
Held to Maturity category, profit net of taxes is appropriated to
Capital Reserve Account.
4.6 Broken period interest, Incentive / Front-end fees, brokerage,
commission etc. received on acquisition of securities are taken to
Profit and Loss account.
4.7 Repo / Reverse Repo transactions are accounted as per RBI
4.8 Investments held by overseas branches are classified and valued as
per guidelines issued by respective overseas Regulatory Authorities.
5.1 Advances in India have been classified as ''Standard'',
''Sub-standard'', ''Doubtful'' and ''Loss assets'' and provisions
for losses on such advances are made as per prudential norms issued by
Reserve Bank of India from time to time. In case of overseas branches,
the classification and provision is made based on the respective
country''s regulations or as per norms of Reserve Bank of India
whichever is higher.
5.2 Advances are stated net of provisions except general provisions for
6.1 The Bank enters into Derivative Contracts in order to hedge
interest bearing assets/ liabilities, and for trading purposes.
6.2 In respect of derivative contracts which are entered for hedging
purposes, the net amount receivable / payable is recognized on accrual
basis. Gains or losses on termination on such contracts are deferred
and recognized over the remaining contractual life of the derivatives
or the remaining life of the assets / liabilities, whichever is
earlier. Such derivative contracts are marked to market and the
resultant gain or loss is not recognized, except where the derivative
contract is designated with an asset/ liability which is also marked to
market, in which case, the resulting gain or loss is recorded as an
adjustment to the market value of the underlying asset/ liability.
6.3 Derivative contracts entered for trading purposes are marked to
market as per the generally accepted practices prevalent in the
industry and the changes in the market value are recognized in the
profit and loss account. Income and expenses relating to these
contracts are recognized on the settlement date. Gain or losses on
termination of the trading derivative contracts are recorded as income
7. Fixed Assets
7.1 Fixed Assets except revalued premises are stated at historical
7.2 Depreciation is provided on straight-line method at the rates
considered appropriate by the Management as under:
Electrical Installations, Vehicles & Office Equipments 20% Computers 33
Fire Extinguishers 100%
Depreciation on revalued portion of the fixed assets is withdrawn from
revaluation reserve and credited to profit and loss account.
7.3 Depreciation is provided for the full year irrespective of the date
of acquisition / revaluation.
7.4 Depreciation is provided on Land and Building as a whole where
separate costs are not ascertainable.
7.5 In respect of leasehold properties, premium is amortised over the
period of lease.
7.6 Depreciation on Fixed Assets of foreign branches is provided as per
the applicable laws/practices of the respective countries.
8. Staff Benefits
8.1 Contribution to Provident Fund is charged to Profit and Loss
8.2 Provision for gratuity and pension liability is made on actuarial
basis and contributed to approved Gratuity and Pension Fund. Provision
for encashment of accumulated leave payable on retirement or otherwise
is based on actuarial valuation at the year-end. However, additional
liability accrued during the year on account of Re-opening of pension
option and enhancement of Gratuity limit is being amortised over a
period of five years.
8.3 In respect of overseas branches gratuity is accounted for as per
laws prevailing in the respective countries.
9. Tax on Income
This comprises provision for current tax and deferred tax charge or
credit (reflecting the tax effects of timing differences between
accounting income & taxable income for the period) as determined in
accordance with Accounting Standard 22 of ICAI, Accounting for taxes on
income. Deferred tax is recognized subject to consideration of prudence
in respect of items of income and expenses those arise at one point of
time and are capable of reversal in one or more subsequent periods.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
timing differences are expected to be reversed. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
the income statement in the period of enactment of the change.
10. Earning per Share
The Bank reports basic and diluted earnings per equity share in
accordance with Accounting Standard - 20, Earnings Per Share, issued by
The Institute of Char- tered Accountants of India. Basic earnings per
equity share has been computed by dividing net profit for the year by
the weighted average number of equity shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue equity shares
were exercised or converted during the year. Diluted earnings per
equity share have been computed using the weighted average number of
equity shares and dilutive potential equity shares outstanding during
the period except where the results are anti-dilutive.
11. 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 exceed their estimated recoverable amount.
12. Accounting for Provisions, Contingent Liabilities and Contingent
In accordance with Accounting Standard 29, Provisions, Contingent
Liabilities and Contingent Assets, issued by the Institute of Chartered
Accountants of India, the Bank recognizes 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 ore 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.