1. Capital Adequacy Ratio:
The Bank computes Capital Adequacy Ratio as per RBI guidelines. The
prudential norms laid down by RBI, for capital adequacy under Basel I
framework (Basel I) require the Bank to maintain a Capital to Risk
weighted Assets Ratio at a minimum of 9%, covering credit risk and
market risk. As per RBI directions, the Bank has migrated to the New
Capital Adequacy Framework (Basel II) with effect from March 31, 2009.
Under the Basel II guidelines, the Bank is required to maintain Capital
to Risk weighted Assets Ratio, at a minimum of 9% on an on-going basis
covering, credit risk, market risk and operational risk. Further, the
minimum capital to be maintained by the Bank is subjected to a
prudential floor which is the higher of :
(a) Minimum capital to be maintained under the New Capital Adequacy
Framework (Basel II); and
(b) 80% of the minimum capital to be maintained under Basel I
guidelines
3.2 Exchange Traded Interest Rate Derivatives:
The Bank has not undertaken exchange traded interest rate derivative
transactions during the year.
3.3 Disclosures on Risk Exposure in Derivatives
The Risk Management Department of the Bank is responsible for
measuring, reporting and monitoring risk arising from Derivatives
transactions. Risk Management Department functions independent of the
Treasury. The risk management methods generally applied are
quantitative like Value at Risk, PV01, stop-loss limits, counterparty
limits, deal sizes and overnight positions.
The Risk Management function undertakes the following activities:
- Monitors daily derivatives operations against the set out policies
and limits
- Reviews daily profitability, product-wise, and activity reports for
derivatives operations
- Reports MIS and exceptions to the Top Management on a daily basis
- Ensures monitoring of effectiveness of derivative deals identified as
hedges against the terms of the hedging instruments and underlying
hedged risk.
Bank undertakes derivative transactions for hedging of customers
exposure, hedging the Banks exposure and for trading purposes wherever
permitted by RBI.
Derivative trades are done both for the Banks balance sheet hedging
requirements and also for the customer hedging requirements. The
Customers use these products offered to hedge their forex and interest
rate exposure. All the trades with customers are covered on a
back-to-back basis with other market makers.
The Derivatives policy, approved by Board of Directors, define the
framework for carrying out the derivatives business and lays down
policies and processes adopted to measure, monitor and report risk
arising from derivative transactions. Derivatives Policy provides :
- Appropriate risk limits for different derivatives products
- Authority for review of limit breaches and to take appropriate
actions.
Derivatives policy prescribes ‘Product Suitability and Customer
Appropriateness policy which is used to classify the clients depending
on their understanding of the derivative products.
Contents
* During the tenor of the hedge minimum PV01 was 15.15 lacs
Note 1: Based on the PV01 of the outstanding derivatives as at March
31, 2011.
Note 2: Based on the absolute value of PV01 of the derivatives
outstanding during the year. Derivative contracts that are
“back-to-back” have not been included herein.
Note 3: Mark to Market positions above includes interest accrued on the
swaps.
Note 4: Forward Exchange Contracts are not included in the Currency
derivates above.
Note 5: There were no outstanding currency futures as on March 31,
2011.
Foreign Currency exposure not hedged by derivative instruments (Net
Open Position) as on March 31, 2011 is Rs. (5.69) crores (previous
year Rs. (0.20) crores).
4. Asset Quality:
4.5 During the year, there has been no purchase / sale of
non-performing financial assets from /to other banks.
4.6 During the year, there was no securitization transaction pertaining
to Standard Advances (previous year Nil).
4.7 Provision on Standard Assets :
Provision towards Standard Assets has not been netted off from Advances
but included in ‘Other Liabilities and Provisions – Others in Schedule
5.
5. Business ratios:
Note:
(1) Working funds are calculated at the average of working funds as per
the Banks monthly returns (Form X) filed with the RBI.
(2) Business per employee (deposits plus gross advances) is computed
excluding Inter-bank deposits.
(3) Returns on Assets are computed with reference to average working
funds.
7.4 Single borrower limit and Group Borrower Limit:
During the year the Bank has not exceeded the prudential credit
exposure limit in respect of Single Borrower and Group Borrowers.
7.5 Unsecured advances
The Bank has not extended any project advances where the collateral is
an intangible asset such as a charge over rights, licences,
authorizations etc. As such, the Unsecured Advances of Rs. 3,714.28
crores (previous year Rs. 2,837.18 crores) as given in Schedule 9B(iii)
are without any collateral or security.
9. Miscellaneous:
9.2 Disclosure of penalties imposed by RBI :
The Reserve Bank of India has not imposed any penalty on the Bank u/s
46(4) of the Banking Regulation Act, 1949.
9.3 Fixed Assets:
Cost of premises includes Rs. 4.09 crores (previous year RS. 4.09
crores) in respect of properties for which execution of documents and
registration formalities are in progress. Of these properties, the
Bank has not obtained full possession of one property having WDV of
Rs. 1.78 crores (previous year Rs. 1.81 crores) and has filed a suit
for the same.
9.4 Changes in Accounting Estimates – Revision of estimated useful life
of fixed assets
With effect from January 1, 2011, the estimated useful life of
Furniture and Fixtures has been revised to 10 years from 15 years,
Electrical Installation and Other Office Equipment to 10 years from 20
years, and Vehicles to 5 years from 10 years. Consequent to this
revision, the depreciation charged to Profit and Loss account during
the year is higher by Rs. 12.66 crores with a corresponding decrease in
the carrying amount of Other Fixed Assets under Schedule 10 as at the
Balance Sheet date.
9.5 Other Assets:
Other assets include stock of gold on consignment basis of Rs. 10.96
crores (previous year Rs. 13.05 crores) and Net Deferred Tax Assets Rs.
47.88 crores (previous year Rs. 23.38 crores).
9.6 Other Liabilities and Provisions:
Other Liabilities – Others include credit balances in nostro accounts
aggregating Rs. 66.86 crores (previous year Rs. 86.74 crores).
9.7 Contingent Liabilities:
Claims against the Bank not acknowledged as debts comprise tax demands
in respect of which the Bank is in appeal of Rs. 49.64 crores (previous
year Rs. 151.41 crores) and the cases sub-judice Rs. 159.96 crores
(previous year Rs. 145.92 crores). The above are based on the
managements estimate, and no significant liability is expected to
arise out of the same.
9.8 Other Income
9.8.2 Miscellaneous income includes recovery from bad debts written off
Rs. 20.95 crores (previous year Rs. 22.23 crores), lease rentals Rs.
2.47 crores (previous year Rs. 19.68 crores) and others (processing
charges, cheque return charges and depository services charges, etc.)
Rs. 238.71 crores (previous year Rs. 153.62 crores).
9.9 The Bank does not have any Overseas branches and hence the
disclosure regarding total assets, NPAs and revenue is not applicable.
9.10 The Bank does not have any Off-balance Sheet SPVs (which are
required to be consolidated as per accounting standards).
10. Employee Stock Option Scheme (“ESOS”):
The shareholders of the Bank had approved Employee Stock Option Scheme
(ESOS) on September 18, 2007, enabling the Board and /or the
Compensation Committee to grant such number of Options of the Bank not
exceeding 7% of the aggregate number of issued and paid up equity
shares of the Bank, in line with the guidelines of the Securities &
Exchange Board of India (SEBI). The options shall vest at the
discretion of the Compensation Committee, but within a maximum period
of five years from the date of grant of option. The exercise price for
each grant shall be decided by the Compensation Committee, which would
normally be based on the latest available closing price. Upon vesting,
the options shall have to be exercised within a maximum period of five
years. The ESOS scheme is equity settled where the employees will
receive one equity share per option.
Recognition of expense
The Bank follows the intrinsic value method to account for its ESOS in
accordance with the Guidance Note on “Accounting for Employee
Share-based Payments” issued by the ICAI. Excess of fair market price
over the exercise price of an option as at the grant date is recognized
as a deferred compensation cost and amortized on a straight-line basis
over the vesting period of such options. The fair market price is the
latest available closing price, prior to the date of the meeting of
Board of Directors, in which options are granted, on the stock exchange
on which the shares of the Bank are listed. Since shares are listed in
more than one stock exchange, the stock exchange where the Banks
shares have been traded highest on the said date is considered.
Fair value methodology:
Expected volatility is a measure of the amount by which the equity
share price is expected to fluctuate during a period. The measure of
volatility used in Black-Scholes option pricing model is the annualized
standard deviation of the continuously compounded rates of return on
the share over a period of time. Expected volatility has been computed
by considering the historical data on daily volatility in the closing
equity share price on NSE, over a prior period equivalent to the
expected life of the options, till the date of the grant.
Bank has charged Rs. 6.48 crores to P&L being the intrinsic value of
stock options granted for the year ended March 31, 2011. Had the Bank
adopted the Black-Scholes model based fair valuation, compensation cost
for the year ended March 31, 2011, would have increased by Rs. 25.20
crores and the proforma profit after tax would have been lower
correspondingly. On a proforma basis, the basic and diluted earnings
per share would have been Rs. 12.58 and Rs. 12.32 respectively.
The weighted average fair value of options granted during the year
ended March 31, 2011 is Rs. 126.87.
11. Disclosures - Accounting Standards :
11.1 Net Profit or Loss for the period, prior period items and changes
in accounting policies (AS-5):
There has been no material change in Accounting Policies adopted during
the year ended March 31, 2011, from those followed for the year ended
March 31, 2010.
11.2 Employee Benefits (AS-15):
Gratuity:
The benefit of Gratuity is funded defined benefit plan. For this
purpose the company has obtained two qualifying insurance policies from
LIC of India and Aviva Life Insurance Company India Limited. The
following table summarises the components of net expenses recognized in
the profit and loss account and funded status and amounts recognized in
the balance sheet, on the basis of actuarial valuation :
Leave Encashment :
The Company provides benefits to its employees under the Leave
Encashment pay plan, which is a non- contributory defined benefit plan.
The employees of the company during the tenure of their employment are
entitled to carry forward unutilized balance of Privilege Leave upto
180 days.
Provision for Leave Encashment has been made in the accounts on the
basis of actuarial valuation as at the balance sheet date.
11.3 Segment Reporting (AS-17):
The Bank operates in four business segments, viz. Treasury, Corporate /
Wholesale Banking, Retail Banking and Other Banking Operations. There
are no significant residual operations carried by the Bank.
Geographic Segments:
The business operations of the Bank are largely concentrated in India.
Activities outside India are restricted to resource mobilization in the
international markets. Since the Bank does not have material earnings
emanating from foreign operations, the Bank is considered to operate
only in domestic segment.
11.4 Related party transactions (AS-18):
The following is the information on transactions with related parties:
Key Management Personnel:
Mr. Romesh Sobti, Managing Director
Associates: IndusInd Information Technology Limited
IndusInd Marketing and Financial Services
Private Limited
IBL Services & Solutions Private Limited
Subsidiaries : ALF Insurance Services Private Limited
11.7 Consolidated Financial Statements – Subsidiary(AS 21):
ALF Insurance Services Pvt. Ltd., subsidiary of the Bank, could not
commence operations. Consequent to the resolution of Board of
Directors, the process of winding up of the said company has since been
initiated. Accordingly, no consolidated financial statements have been
drawn up as per AS-21 “Consolidated Financial Statements”.
11.8 Taxation (AS 22):
(a). Provision for tax has been made after considering contingency
provision as admissible deduction.
11.9 In the opinion of the Bank there is no impairment of its fixed
Assets to any material extent as at March 31, 2010, requiring
recognition in terms of Accounting Standard 28.
12.3 Letters of Comfort
Bank has not issued any letter of comfort during the year.
13. The Bank does not carry any floating provision in the books.
14. The Micro, Small and Medium Enterprises Development Act, 2006 that
came into force from October 2, 2006, provides for certain disclosures
in respect of Micro, Small and Medium enterprises. There have been no
reported cases of delays in payments to micro and small enterprises or
interest payments due to delays in such payments
15. Previous years figures have been regrouped/ reclassified wherever
necessary.
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