1.1 The accompanying financial statements have been prepared under the
historical cost convention, except where otherwise stated, and in
accordance with the accounting standards referred to in Section 211(3C)
of the Companies Act, 1956, and notified by the Companies (Accounting
Standards) Rules, 2006, read with guidelines issued by the Reserve Bank
of India (''RBI'') and conform to the statutory provisions and practices
prevailing within the banking industry in India.
1.2 The preparation of the financial statements, in conformity with
generally accepted accounting principles in India requires management
to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, expenses and disclosure of contingent
liabilities on the date of the financial statements. Management believes
that the estimates and assumptions used in the preparation of the
financial statements are prudent and reasonable. Any revision to
accounting estimates is recognised prospectively in current and future
2) Transactions involving Foreign Exchange:
2.1 Monetary assets and liabilities denominated in foreign currency are
translated at the Balance Sheet date at the exchange rates notified by
the Foreign Exchange Dealers'' Association of India (''FEDAI'') and
the resulting gains or losses are recognised in the Profit and Loss
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction; and non-monetary items which are
carried at fair value or other similar valuation denominated in a
foreign currency are reported using the exchange rates that existed
when the values were determined.
2.2 All Foreign Exchange contracts outstanding at the Balance Sheet
date are re-valued at the rates of exchange notified by the FEDAI for
specified maturities and the resulting gains or losses are recognised
in the Profit and Loss account.
2.3 The Swap Cost arising on account of foreign currency swap contracts
to convert foreign currency funded liabilities into rupee liabilities
is charged to the Profit and Loss account as ''Interest - Others'' by
amortizing over the underlying swap period.
2.4 Income and Expenditure items are translated at the rates of
exchange prevailing on the date of the transaction.
2.5 Contingent liability at the Balance Sheet date on account of
outstanding forward foreign exchange contracts, guarantees,
acceptances, endorsements and other obligations denominated in foreign
currency is stated at the closing rates of exchange notified by FEDAI.
The significant accounting policies in accordance with RBI guidelines
are as follows:
3.1 Categorisation of Investments :
In accordance with the guidelines issued by RBI, the Bank classifies
its investment portfolio on the date of purchase into the following
i) ''Held to Maturity'' (HTM) - Securities acquired by the Bank with
the intention to hold till maturity.
ii) ''Held for Trading'' (HFT) - Securities acquired by the Bank with
the intention to trade.
iii) ''Available for Sale'' (AFS) - Securities which do not fall
within the above two categories are classified as ''Available for Sale''.
Subsequent shifting amongst the categories is done in accordance with
3.2 Classification of Investments:
For the purpose of disclosure in the Balance Sheet, investments are
classified under six groups as required under RBI guidelines -
Government Securities, Other Approved Securities, Shares, Debentures
and Bonds, Investments in Subsidiaries / Joint Ventures and Other
3.3 Valuation of Investments:
(i) ''Held to Maturity'' - These investments are carried at their
acquisition cost. Any premium on acquisition of debt securities is
amortised over the balance period to maturity. The amortised amount is
deducted from Interest earned - Income on investments (Item II of
Schedule 13). The book value of security is reduced to the extent of
amount amortised during the relevant accounting period. Diminution
other than temporary, if any, in the value of such investments is
determined and provided for on each investment individually.
(ii) ''Held for Trading'' - Each security in this category is
re-valued at the market price or fair value and the resultant
depreciation of each security is charged to the Profit and Loss
account. Appreciation, if any, is ignored. Market value of government
securities is determined on the basis of the prices / Yield to Maturity
(YTM) published by RBI or the prices / YTM periodically declared by
Primary Dealers Association of India (PDAI) jointly with Fixed Income
Money Market and Derivatives Association (FIMMDA) for valuation.
(iii) ''Available for Sale'' - Each security in this category is
re-valued at the market price or fair value and the resultant
depreciation of each security in this category is charged to the Profit
and Loss account and appreciation, if any, is ignored.
Market value of government securities (excluding treasury bills) is
determined on the basis of the price list published by RBI or the
prices periodically declared by PDAI jointly with FIMMDA for valuation.
In case of unquoted government securities, market price or fair value
is determined as per the rates published by FIMMDA.
Market value of other debt securities is determined based on the yield
curve and spreads provided by FIMMDA.
Quoted equity shares are valued at cost or the closing quotes on a
recognised stock exchange, whichever is lower. Unquoted equity shares
are valued at their break-up value or at Rs 1 per company where the
latest Balance Sheet is not available.
Treasury bills are valued at carrying cost, which includes discount
amortised over the period to maturity.
Units of mutual funds are valued at the lower of cost and Net Asset
Value (NAV) provided by the respective mutual funds.
(iv) Investments in equity shares held as long-term investments by
erstwhile Induslnd Enterprises & Finance Ltd. and Ashok Leyland Finance
Ltd. (since merged with the Bank) are valued at cost and classified as
part of HTM category. Provision towards diminution in the value of such
long-term investments is made only if the diminution in value is not
temporary in the opinion of management.
(v) Security Receipts (SR) are valued at the lower of redemption value
of the security or the NAV obtained from Securitization Company /
(vi) Settlement Date accounting method is followed for recording
purchase and sale of transactions in Government securities.
(vii) Broken period interest on debt instruments is treated as a
revenue item. Brokerage, commission, etc. pertaining to investments,
paid at the time of acquisition is charged to the Profit and Loss
(viii) Provision for non-performing investments is made in conformity
with the RBI guidelines.
(ix) In line with the RBI guidelines on uniform accounting methodology,
with effect from April 1, 2010, Repurchase (Repo) /Reverse Repurchase
(Reverse Repo) transactions (except transactions under Liquidity
Adjustment Facility (LAF) with RBI) are accounted for as Borrowing /
Lending respectively. On completion of the second leg of the Repo /
Reverse Repo transaction, the difference between the consideration
amounts is reckoned as Interest Expenditure / Income. Amounts
outstanding in Repo / Reverse Repo account as at the Balance Sheet date
is shown as part of Borrowings / Money at Call and at Short Notice
respectively, and the accrued expenditure / income till the Balance
Sheet date is taken to the Profit and Loss account. Outstanding Repo
transactions are marked to market as per the investment classification
of the security.
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.
(x) Profit in respect of investments sold from HTM category is
included in Profit on Sale of Investments and an equivalent amount (net
of taxes if any, and transfer to Statutory Reserves as applicable to
such profits) is transferred out of Profit and Loss Appropriation
account to Capital Reserve account.
(xi) In the event, provisions created on account of depreciation in the
''AFS'' or ''HFT'' categories are found to be in excess of the
required amount in any year, the excess is credited to the Profit and
Loss account and an equivalent amount (net of taxes, if any and net of
transfer to Statutory Reserves as applicable to such excess provision)
is appropriated to an Investment Reserve account (IRA). The balance in
IRA account is considered as Tier II Capital within the overall ceiling
of 1.25% of total Risk Weighted Assets prescribed for General
Provisions / Loss reserves.
The balance in IRA account is used to meet provision on account of
depreciation in AFS and HFT categories by transferring an equivalent
amount to the Profit and Loss account as and when required.
Derivative contracts are designated as hedging or trading and accounted
for as follows:
(i) The hedging contracts comprise of Forward Rate Agreements, Interest
Rate Swaps and Currency Swaps undertaken to hedge interest rate risk on
certain assets and liabilities. The net Interest Receivable / Payable
is accounted on an accrual basis over the life of the swaps. However,
where the hedge is designated with an asset or liability that is
carried at market value or lower of cost and market value in the
financial statements, then the hedging instruments is also marked to
market with the resulting gain or loss recorded as an adjustment to the
market value of designated assets or liabilities.
(ii) The trading contracts comprise of proprietary trading in interest
rate swaps and currency futures. The gain / loss arising on unwinding
or termination of the contracts, is accounted for in the Profit and
Loss account. Trading contracts outstanding as at the Balance Sheet
date are re-valued at their fair value and resulting gains / losses are
recognised in the Profit and Loss account.
(iii) Gains or losses on the termination of hedge swaps is deferred and
recognised over the shorter of the remaining contractual life of the
hedge swap or the remaining life of the underlying asset/liability.
(iv) Premium paid and received on currency options is accounted
up-front in the Profit and Loss account as all options are undertaken
on a back-to-back basis.
(v) Provisioning of overdue customer receivable on derivative
contracts, if any, is made as per RBI guidelines.
(vi) In accordance with the Prudential Norms for Off-Balance Sheet
Exposures issued by RBI, provisioning against outstanding credit
exposure as at the Balance Sheet date is made, as is applicable to the
assets of the concerned counterparties under ''standard'' category.
Credit exposures are computed as per the current marked to market value
of the contract arising on account of interest rate and foreign
exchange derivative transactions.
5.1 Advances are classified as per RBI guidelines into standard,
sub-standard, doubtful and loss assets after considering subsequent
recoveries to date.
5.2 Provision for non-performing assets is made in conformity with RBI
5.3 In accordance with RBI guidelines, general provision on standard
assets is made as under:
a) At 1% of standard advances to Commercial Real Estate Sector;
b) At 0.25% of standard direct advances to SME and Agriculture; and
c) At 0.40% of the balance outstanding standard advance.
5.4 Advances are disclosed in the Balance Sheet, net of provisions and
interest suspended for non-performing advances. Provision made against
standard assets is included in ''Other Liabilities and Provisions''.
5.5 Advances include the Bank''s participation in / contributions to
Pass Through Certificates (PTCs) and / or to the asset-backed
assignment of loan assets of other banks / financial institutions where
the Bank has participated on risk-sharing basis.
5.6 Advances exclude derecognised securitised advances, inter-bank
participation and bills rediscounted.
5.7 Amounts recovered against bad debts written off in earlier years
are recognised in the Profit and Loss account.
5.8 Provision no longer considered necessary in context of the current
status of the borrower as a performing asset, are written back to the
Profit and Loss account to the extent such provisions were charged to
the Profit and Loss account.
5.9 Restructured / rescheduled accounts:
In case of restructured / rescheduled accounts provision is made for the
sacrifice against erosion / diminution in fair value of restructured
loans, in accordance with RBI guidelines.
The erosion in fair value of the advances is computed as the difference
between fair value of the loan before and after restructuring.
Fair value of the loan before restructuring is computed as the present
value of cash flows representing the interest at the existing rate
charged on the advance before restructuring and the principal,
discounted at a rate equal to the Bank''s Benchmark Prime Lending Rate
(BPLR) / Base Rate as on the date of restructuring plus the appropriate
term premium and credit risk premium for the borrower category on the
date of restructuring.
Fair value of the loan after restructuring is computed as the present
value of cash flows representing the interest at the rate charged on
the advance on restructuring and the principal, discounted at a rate
equal to Bank''s BPLR / Base Rate as on the date of restructuring plus
the appropriate term premium and credit risk premium for the borrower
category on the date of restructuring.
The diminution in the fair value is re-computed on each Balance Sheet
date till satisfactory completion of all repayment obligations and full
repayment of the outstanding in the account, so as to capture the
changes in the fair value on account of changes in BPLR / Base Rate,
term premium and the credit category of the borrower. The shortfall /
excess provision held is either charged / credited to the Profit and
Loss account respectively.
The restructured accounts have been classified in accordance with RBI
guidelines, including special dispensation wherever allowed.
6) Securitisation Transactions and bilateral assignments:
6.1 The Bank transfers loans through securitisation transactions. The
Bank transfers its loan receivables both through Bilateral Direct
Assignment route as well as transfer to Special Purpose Vehicles
(''SPV'') in securitisation transactions.
6.2 The securitization transactions are without recourse to the Bank.
The transferred loans and such securitised-out receivables are
de-recognized in the Balance Sheet as and when these are sold (true
sale criteria being fully met) and the consideration has been received
by the Bank. Gains / losses are recognised only if the Bank surrenders
the rights to the benefits specified in the loan contracts.
6.3 In respect of certain transactions, the Bank provides credit
enhancements in the form of cash collaterals / guarantee and / or by
subordination of cash flows to senior Pass Through Certificates (PTC).
Retained interest and subordinated PTCs are disclosed under
Advances in the Balance Sheet.
6.4 Recognition of gain or loss arising out of Securitisation of
In terms of RBI guidelines, profit / premium arising on account of sale
of standard assets, being the difference between the sale consideration
and book value, is amortised over the life of the securities issued by
the Special Purpose Vehicles (''SPV'').
Any loss arising on account of the sale is recognized in the Profit and
Loss account in the period in which the sale occurs.
7) Fixed Assets and depreciation:
7.1 Fixed assets (including assets given on operating lease) have been
stated at cost (except in the case of premises which were re-valued
based on values determined by approved valuers) less accumulated
depreciation and impairment, if any. Cost includes incidental
expenditure incurred on the assets before they are ready for intended
use. The carrying amount of Fixed Assets is reviewed at each Balance
Sheet date to determine if there are any indications of impairment
based on internal / external factors.
7.2 The appreciation on revaluation is credited to Revaluation Reserve.
Depreciation relating to revaluation is adjusted against the
7.3 Depreciation has been provided pro rata for the period of use, on
Straight Line Method at such rates that are reflective of
management''s estimate of the useful life of the related Fixed Assets.
These rates are as prescribed under Schedule XIV to the Companies Act,
1956, except in respect of the following where the rates adopted are
higher than the prescribed rates:
(a) Computers at 33.33% p.a.
(b) Furniture and Fixtures at 10% p.a.
(c) Electrical Installations at 10% p.a.
(d) Other Office Equipment at 10% p.a.
(e) Vehicles at 20% p.a.
Taking into account various criteria such as changes in technology,
changes in business environment, utility and efficacy of an asset class
to meet with intended user needs, etc., the useful life of an asset
class is periodically assessed. Whenever there is a revision in the
estimated useful life of an asset, the unamortised depreciable amount
is charged over the revised remaining useful life of the said asset.
7.4 The Bank reviews at each Balance Sheet date whether there is any
indication of impairment in an asset. In case of impaired assets, the
impairment loss i.e. the amount by which the carrying amount of the
asset exceeds its recoverable value is charged to the Profit and Loss
account to the extent the carrying amount of assets exceeds their
estimated recoverable amount.
8) Revenue Recognition:
8.1 Income by way of interest and discount on performing assets is
recognised on accrual basis and on non-performing assets; the same is
recognised on realisation.
8.2 Interest on Government securities, debentures and other fixed
income securities is recognised on accrual basis. Income on discounted
instruments is recognised over the tenor of the instrument on a
8.3 Dividend income is accounted on accrual basis when the right to
receive dividend is established.
8.4 Commission (except for commission on Deferred Payment Guarantees
which is recognised on accrual basis), Exchange and Brokerage are
recognised on a transaction date and net off directly attributable
8.5 Lease income and service charges earned on the Consumer Finance
Advances are recognised on accrual basis.
8.6 Income from distribution of third party products is recognised on
the basis of business booked.
9) Operating Leases:
Lease rental obligations in respect of assets taken on operating lease
are charged to the Profit and Loss account on a straight-line basis
over the lease term. Initial direct costs are charged to the Profit and
Assets given under leases in respect of which all the risks and
benefits of ownership are effectively retained by the Bank are
classified as operating leases. Lease rentals received under operating
leases are recognized in the Profit and Loss account on accrual basis
as per contracts.
10) Employee Benefits:
10.1 Payment obligations under the Group Gratuity scheme are managed
through purchase of appropriate insurance policies. The Gratuity scheme
of the Bank is a defined benefit scheme and the expense for the year is
recognized on the basis of actuarial valuation as at the Balance Sheet
date. The present value of the obligation under such benefit plan is
determined based on independent actuarial valuation using the Projected
Unit Credit Method which recognizes each period of service that give
rise to additional unit of employee benefit entitlement and measures
each unit separately to build up the final obligation.
10.2 Provident Fund contributions are made under trusts separately
established for the purpose and the scheme administered by Regional
Provident Fund Commissioner (RPFC), as applicable. The rate at which
the annual interest is payable to the beneficiaries by the trusts is
being administered by the government. The Bank has an obligation to
make good the shortfall, if any, between the return from the
investments of the trusts and the notified interest rates. Actuarial
valuation of this Provident Fund Interest shortfall has been done as
per the guidance note issued during the year in this respect by the
Actuary Society of India (ASI) and the provision towards this liability
has been made.
10.3 Provision for compensated absences has been made on the basis of
actuarial valuation as at the Balance Sheet date. The actuarial
valuation is carried out as per the projected unit credit method.
10.4 The Bank has applied the intrinsic value method to account for the
compensation cost of ESOP granted to the employees of the Bank.
Intrinsic value is the amount by which the quoted market price of the
underlying shares on the grant date exceeds the exercise price of the
options. Accordingly, the compensation cost is amortized over the
11) Segment Reporting:
In accordance with the guidelines issued by RBI, the Bank has adopted
Segment Reporting as under:
1. Treasury includes all investment portfolio; Profit / Loss on Sale
of Investments, Profit / Loss on foreign exchange transactions,
equities, income from derivatives and money market operations. The
expenses of this segment consist of interest expenses on funds borrowed
from external sources as well as internal sources and depreciation /
amortisation of premium on Held to Maturity category investments.
2. Corporate / Wholesale Banking includes lending to and deposits from
corporate customers and identified earnings and expenses of the
3. Retail Banking includes lending to and deposits from retail
customers and identified earnings and expenses of the segment.
4. Other Banking Operations includes all other operations not covered
under Treasury, Corporate / Wholesale Banking and Retail Banking.
Unallocated includes Capital and Reserves, Employee Stock Options
(Grants) Outstanding and other unallocable assets and liabilities.
12) Debit and Credit Card reward points liability:
The liability towards Credit Card reward points is based on an
actuarial valuation and liability towards Debit Card reward points is
computed on the basis of management estimates considering past trends.
13.1 The Bank imports bullion including precious metal bars on a
consignment basis for selling to its customers. The imports are on a
back-to-back basis and are priced to the customer based on the
prevailing price quoted by the supplier and the local levies related to
the consignment like customs duty etc. The income earned is included in
13.2 The Bank also sells gold coins to its customers. The difference
between the sale price to customers and purchase price quoted is
reflected under commission income.
Tax expenses comprise of current and deferred taxes. Current income tax
is measured at the amount expected to be paid to the tax authorities in
accordance with the Income Tax Act, 1961. Deferred income taxes reflect
the impact of current year timing differences between taxable income
and accounting income for the year and reversal of timing differences
of earlier years. Deferred tax is measured based on the tax rates and
the tax laws enacted or substantively enacted at the Balance Sheet
date. Deferred tax assets are recognised only to the extent that there
is reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
Unrecognized deferred tax assets of earlier years are re-assessed and
recognised to the extent that it has become reasonably certain that
future taxable income will be available against which such deferred tax
assets can be realized.
15) Earnings per Share:
Earnings per share are calculated by dividing the Net Profit or Loss
for the period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the period. Diluted
earnings per equity share are computed using the weighted average
number of equity shares and dilutive potential equity shares
outstanding as at end of the year.
16) Provisions, contingent liabilities and contingent assets:
A provision is recognised when there is an obligation as a result of
past event, and it is probable that an outflow of resources will be
required to settle the obligation, and in respect of which a reliable
estimate can be made. Provisions are not discounted to their present
value and are determined based on best estimate required to settle the
obligation at the Balance Sheet date. These are reviewed at each
Balance Sheet date and adjusted to reflect the current best 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 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
recognized 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 are not recognized in the financial statements.
However, contingent assets are assessed continually and if it is
virtually certain that an inflow of economic benefits will arise, the
assets and related income are recognized in the period in which the
17) Cash and Cash equivalents:
Cash and cash equivalents in the cash flow statement comprise Cash in
Hand and Balances with RBI and Balances with Banks and Money at Call
and Short Notice.