Reconciliation of Inter Bank and Inter Branch transactions has been
completed up to 31.3.2013 and steps for elimination of outstanding
entries are in progress. The management does not anticipate any
material consequential effect on reconciliation / elimination of
2.1 In accordance with the Reserve Bank of India (RBI) guidelines, the
Investments Portfolio of the Bank (domestic) has been classified into
three categories, as given below: -
2.2 SLR Securities under Held to Maturity accounted for 22.92%
(previous year 22.54%) of Bank''s Demand and Time liabilities as at the
end of March 2013, as against the ceiling of 25% stipulated by RBI.
2.3 In respect of Held to Maturity category of Investments, premium of
Rs.57.52 crore was amortised during the year (Previous year Rs.52.53
2.4 Securities of face value for Rs.450 crore (previous year Rs.300
crore) towards Settlement Guarantee Fund and securities for Rs.8455
crore (previous year Rs.8455 crore) towards collateral for borrowing
under Collateralised Borrowing and Lending Obligations have been kept
with Clearing Corporation of India Limited. We have placed securities
of face value Rs.3700 crore with RBI for intraday borrowing. We have
also placed securities to the extent of Rs.11050 crore with RBI for our
borrowing under the LAF window. Besides, a sum of Rs.15 crore (previous
year Rs.10 crore) have been lodged with NSCCL towards Currency
Derivatives Segment and Rs. 15 crore (previous year Rs. 10 crore) with
CCIL towards Default Fund for forex operations.
2.5 Shares under Investments in India in Regional Rural Banks is
Rs.222.04 crore (Previous year Rs.36.24 crore) includes amount towards
share capital Deposits and Rs.184.75 crore towards Application money
pending allotment of shares.
2.6 The Bank sold Government Securities from HTM category during the
year, both outright and under RBI''s Open Market Operations(OMO). The
total notified amount of buy back was Rs.138000 crore. The extent of
sale by the Bank was Rs.4430 crore, book value (BV) and earned a profit
of Rs.34.55 crore. The Bank has also sold Government Securities (other
than OMO), to the extent of Rs.1875 crore (BV) (within 5%, prescribed
limit of RBI) and booked a profit of Rs.71.10 crore.
3.1 The Classification for advances and provisions for possible loss
has been made as per prudential norms issued by Reserve Bank of India.
3.2 Claims pending settlement and claims yet to be lodged with
Guarantee Institutions identified by the branches have been considered
for provisioning requirements on the basis that such claims are valid
3.3 In assessing the realisability of certain advances, the estimated
value of security, Central Government guarantees etc. have been
considered for the purpose of asset classification and income
3.4 The classification of advances, as certified by the Branch Managers
have been incorporated, in respect of unaudited branches.
3.5 In compliance with RBI guidelines, Bank maintained a Counter
Cyclical Provisioning Buffer of Rs.811.06 crore as at 31.3.2013.
3.6 During the financial year full provision of Rs.227.47 crore
computed at branch level as per IRAC norms, on secured portion of
certain advances under doubtful category amounting to Rs. 1938.76 crore
has been set off for partial write-off of these advances at Central
Office, The total outstanding of these advances is Rs.2520.77 crore out
of which the amount written off is Rs.871.15 crore.
4. Fixed Assets
4.1 During the year 2008-09, certain land and buildings in India, were
revalued through approved valuers and Rs.1123.55 crore added to the
carrying value of assets on account of such revaluation.
4.2 Profit on Sale of Assets for Rs.0.82 crore (previous year Rs.1.18
crore), has been appropriated to Capital Reserve.
5. Rupee Interest Rate Swap
An amount of Rs.3.83 crore (previous year Rs.5.92 crore) is held kept
on deferred income on account of gains on termination of Rupee Interest
Rate Swaps taken for hedging and would be recognized over the remaining
contractual life of swap or life of the assets/liabilities, whichever
6. Capital and Reserves:
6.1 During the financial year, in March 2013, Bank raised equity share
capital of Rs.999.99 crore (previous year Rs.1743.63 crore) including
share premium of Rs.872.90 crore (previous year Rs.1565.38 crore) by
way of preferential allotment of 12,70,97,102 equity shares to
Government of India (previous year 14,73,11,388 equity shares to
Government of India and 3,09,37,467 equity shares to LIC and its
various schemes aggregating to 17,82,48,855 equity shares) at a premium
of Rs.68.68 per equity share (previous year Rs.87.82 per equity share).
Pursuant to the above the shareholding of the Government of India has
increased from 69.62% to 73.80%.
6.2 The Bank has not raised Tier II capital during the current year or
in the previous year.
7.1 Taking into consideration the decisions of Appellate Authorities,
judicial pronouncements and the opinion of tax experts, no provision is
considered necessary in respect of disputed and other demands of income
tax aggregating Rs.1208.42 crore (previous year Rs.592.32 crore).
7.2 Tax expense for the year is Rs.180.25 crore (Previous year
8. Unamortised Pension and Gratuity Liability
On the reopening of pension to employees of Public Sector Banks and
enhancement of Gratuity limits, the Bank incurred a liability of
Rs.1005.21 crore in 2010-11. In terms of requirement of Accounting
Standard (AS 15) Employee Benefits, the entire amount of Rs.1005.21
crore is required to be charged to Profit and Loss Account.
In terms of Reserve Bank of India circular No.DBOD.BP.BC.80/
21.04.018/2010-11, on Reopening of Pension Option to employees of
Public Sector Banks and enhancement in Gratuity limits - Prudential
Regulatory Treatment, dated 09.02.2011, Bank would amortise the amount
of Rs.1005.21 crore over a period of 5 years from 31.3.2011.
Accordingly, Rs.201.04 crore (previous year Rs.201.04 crore) has been
charged to Profit and Loss Account for the year 2012-13 and the balance
amount of Rs.402.09 crore has been carried over. Had the RBI not
issued such a circular, the Revenue Reserves of the Bank would have
been lower by Rs.402.09 crore pursuant to application of the
requirements of AS-15.
9. Information relating to vendors registered under Micro, Small and
Medium Enterprises Development Act, 2006 and from whom goods and
services have been procured by the Bank, is being ascertained.
In accordance with the guidelines issued by Reserve Bank of India vide
Master Circular dated 2.7.2012, the following additional disclosures
10.1 DISCLOSURES ON RISK EXPOSURE IN DERIVATIVES
10.1.1 Qualitative Disclosure
The Bank uses Interest Rate Swaps (IRS), Currency Swaps and Options for
hedging purpose to mitigate interest rate risk and currency risk in
banking book. The Bank also offers these products to corporate clients
to enable them to manage their own currency and interest rate risk.
Such transactions are entered only with Clients and Banks having
agreements in place.
a) The Risk Management Policy of the Bank allows using of derivative
products to hedge the risk in Interest/ Exchange rates that arise on
account of overseas borrowing/ FCNR(B) portfolio/ the asset liability
mis- match, for funding overseas branches etc., and also to offer
derivative products on back- to- back basis to customers.
b) The Bank has a system of evaluating the derivatives exposures
separately and placing appropriate credit lines for execution of
derivative transactions duly reckoning the Net Worth and security
backing of individual clients.
c) The Bank has set in place appropriate control systems to assess the
risks associated in using derivatives as hedge instruments and proper
risk reporting systems are in place to monitor all aspects relating to
derivative transactions. The Derivative transactions were undertaken
only with banks and counterparties well within their respective
exposure limit approved by appropriate credit sanctioning authorities
for each counter party.
d) The Bank has set necessary limits in place for using derivatives and
its position is continuously monitored.
e) The Bank has a system of continuous monitoring and appraisal of
resultant exposures across the administrative hierarchy for initiation
of necessary follow up actions.
f) Derivatives are used by the Bank to hedge the Bank''s Balance sheet
and offered to select corporate clients on back-to-back basis. In
respect of hedge transactions the value and maturity of hedges has not
exceeded that of the underlying exposure. In respect of back-to-back
transactions the transactions with clients are fully matched with
counter party Bank transactions and there is no uncovered exposure.
g) The income from such derivatives are amortized and taken to Profit
and Loss Account on accrual basis over the life of the contract. In
case of early termination of swaps undertaken for Balance Sheet
management, income on account of such gains would be recognized over
the remaining contractual life of the swap or life of the
assets/liabilities whichever is lower. In case of early termination of
derivatives undertaken for customers on a back- to- back basis, income
on account of such things will be recognized on termination.
h) All the hedge transactions are accounted on accrual basis.
Valuations of the outstanding contracts are done on Mark to Market
basis. The Bank has duly approved Risk Management and Accounting
procedures for dealing in Derivatives.
i) The derivative transactions are conducted in accordance with the
extant guidelines of Reserve Bank of India.
The Bank uses Rupee Interest Rate Swaps (IRS) for hedging purpose to
mitigate interest rate risk in Govt. Securities and to reduce the cost
of Subordinated Debt and term deposits. In addition, the Bank also
enters into rupee interest rate swaps for trading purposes as per the
policy duly approved by the Board. Swap transactions are entered only
with Banks having ISDA agreements in place.
a) The Bank has put in place an appropriate structure and organization
for management of risk, which includes treasury department, Asset
Liability Management Committee and Risk Management Committee of the
b) Derivative transactions carry Market Risk (arising from adverse
movement in interest rates), Credit risk (arising from probable counter
party failure), Liquidity risk (arising from failure to meet funding
requirements or execute the transaction at a reasonable price),
Operational risk, Regulatory risk and Reputation risk. The Bank has
laid down policies, set in place appropriate control systems to assess
the risks associated in using derivatives and proper risk reporting and
mitigation systems are in place to monitor all risks relating to
derivative transactions. The IRS transactions were undertaken with only
Banks as counter party and well within the exposure limit approved by
the Board of Bank for each counter party.
c) Derivatives are used by the Bank for trading and hedging. The Bank
has an approved policy in force for derivatives and has set necessary
limits for the use of derivatives and the position is continuously
monitored. The value and maturity of the hedges which are used only as
back to back or to hedge Bank''s Balance Sheet has not exceeded that of
the underlying exposure.
d) The accounting policy for derivatives has been drawn up in
accordance with RBI guidelines, as disclosed in Schedule 17-Significant
Accounting Policies (Policy No.6)
11.1.1 Provision Coverage Ratio
The Provision Coverage Ratio (PCR) computed as per the RBI guidelines
stood at 58.89% as on 31.3.2013 (67.68% as on 31.3.2012).
12.1 De tails of Single Borrower Limit (SBL), Group Borrower Limit
(GBL) exceeded by the Bank:
As per RBI guidelines and terms of Loan Policy Document of our Bank for
2012-13, the permissible level of Single Borrower exposure limit is
Rs.2640.45 crore (15% of Capital funds) and Rs.7041.20 crore for Group
Borrower limit (40% of Capital funds). SBL and GBL in case of overseas
branches is USD 40 Mio and USD 60 Mio respectively.
During the year 2009-10, the Bank has issued a Letter of Comfort (LOC)
undertaking to maintain a minimum CRAR of 12% in respect of Bangkok
branch and to arrange to convert retained earnings to capital funds
and/ or infuse further capital in order to restore the CRAR to a
minimum of 12% subject to approval from RBI.
In the worst case scenario of the entire textile exposure of the branch
becoming NPA, we may have to make additional provision to the extent of
THB235.186 mio being unsecured portion of standard textile advances.
The additional provisions have to be made from retained earnings. The
existing retained earnings of the branch as on 31.03.2013 are at
THB315.287 mio. Hence if this contingency arises, there would be no
additional capital to be remitted as existing reserves are adequate to
cover the unsecured amount.
During the year 2010-11, the Bank has issued a letter of comfort
favoring Bank Negara Malaysia. The Bank in association with other JV
partners will provide support to India International Bank (Malaysia)
Bhd in funding, business and other matters as and when required and
ensure that it complies with the requirements of the Malaysian Laws,
Regulations and Policies in the conduct of its business operations and
The financial impact for the letter of undertaking issued to Bank
Negara Malaysia is remittance of our share of 35% of the paid up
capital of MYR310 mio ie. MYR108.500 mio. Our Bank has so remitted
INR186,30,62,371/- towards the capital of MYR108.500 mio.
13. DISCLOSURES IN TERMS OF ACCOUNTING STANDARDS
13.1 Accounting Standard 9 - Revenue Recognition
Revenue has been recognized as described in item No. 2 of Significant
Accounting Policies - Schedule 17.
13.2 Accounting Standard 15 - Employee Benefits
i) The Bank has adopted Accounting Standard 15 (Revised) Employees
Benefits issued by the Institute of Chartered Accountants of India,
with effect from 1st April 2007.
ii) The summarized position of Post-employment benefits and long term
employee benefits recognized in the Profit & Loss Account and Balance
Sheet as required in accordance with Accounting Standard-15 (Revised)
are as under:
The estimates of future salary increases, considered in actuarial
valuation, take into account actual return on plan assets, inflation,
seniority, promotion and other relevant factors, such as supply and
demand in employee market.
In respect of overseas branches, disclosures if any, required for
Employee Benefit Schemes are not made in the absence of information.
(b) The financial assumptions considered for the calculations are as
Discount Rate: - The discount rate has been chosen by reference to
market yield on Government bonds as on the date of valuation. (Balance
sheet dated 31.3.2013)
Expected Rate of Return: In case of Pension the expected rate of return
is taken on the basis of yield on Government bonds. In case of
gratuity, the actual return has been taken.
Salary Increase: On the basis of past data.
(c) Bank''s best estimate expected to be paid in the next Financial Year
for Gratuity is 160 crore.
13.3 Accounting Standard 17 - Segment Reporting
The Bank has adopted Reserve Bank of India''s revised guidelines issued
in April 2007 on Segment Reporting in terms of which the reportable
segments have been divided into Treasury, Corporate/Wholesale Banking,
Retail Banking and Other Banking Operations.
13.4 Accounting Standard 21 - Consolidated Financial Statements (CFS)
As there is no subsidiary, no consolidated financial statement is
13.5 Accounting Standard 22: Accounting for Taxes on Income
The Bank has accounted for reversal of Deferred Tax Liability of
Rs.399.33 crore during the year (Previous year accounting of DTL of
Rs.330.16 crore). The Bank has outstanding net Deferred Tax Liability
of Rs.230.49 crore (Previous year Rs.628.96 crore). The breakup of
deferred tax assets and liabilities into major items is given below:
13.6 Accounting Standard 26 - Intangible Assets
The application software in use in the Bank has been developed in-house
and has evolved over a period of time. Hence, the costs of software is
essentially part of Bank''s operational expenses like wages etc. and as
such are charged to the respective heads of expenditure in the Profit
and Loss Account.
13.7 Accounting Standard 27 - Financial Reporting of Interests in Joint
Our Bank (with 35% share) has floated a Joint Venture at Malaysia along
with Bank of Baroda (40%) and Andhra Bank (25%). Bank Negara, the
Central Bank of Malaysia, issued the license to the Joint Venture on
16.04.2010. The Joint Venture was incorporated at Malaysia on
13.08.2010 by name INDIA INTERNATIONAL BANK (MALAYSIA) BHD (IIBM).
IIBM has an Authorised Capital of MYR500 Mio. The Joint Venture''s
Assigned Capital is MYR310 Mio. Our Bank''s share in the Assigned up
Capital is 35% - MYR108.50 Mio.
As on 31.3.2013, Bank has paid Rs.186.31 crore towards 10850000 shares
of MYR10 each aggregating to MYR108.50 Mio. The Joint Venture has
commenced operations on 11.7.2012.
13.8 Accounting Standard 28 - Impairment of Assets
Fixed Assets owned by the Bank are treated as ''Corporate Assets'' and
are not ''Cash Generating Units'' as defined by AS28 issued by ICAI. In
the opinion of the Management, there is no impairment of any of the
Fixed Assets of the Bank.
13.9 Accounting Standard 29 - Provision for Contingent Liabilities and
The guidelines issued by the Institute of Chartered Accountant of India
in this respect have been incorporated at the appropriate places.
14 Comparative Figures
Previous year''s figures have been regrouped / rearranged wherever