ING Vysya Bank

1. Balancing of books and reconciliation
 
 The Bank has completed its inter branch reconciliation. The reconciling
 items have been identified and elimination of reconciling items is in
 progress. Appropriate adjustments have been incorporated in the
 financial statements to reflect completion of reconciliation for the
 purpose of presentation.
 
 Routine matching of select general ledger control account balances with
 subsidiary ledgers is in progress at few branches and is expected to be
 completed in due course with no financial statement impact as on 31
 March 2009.
 
 1.1 Employee stock option scheme
 
 ESOS 2002
 
 The employee stock option scheme (“ESOS 2002” or “the scheme”) of the
 Bank was approved by Board of Directors in their meeting dated 23 July
 2001 and by the shareholders at the Annual General Meeting held on 29
 September 2001. A total of 500,000 equity shares of Rs.10 each were
 earmarked under the scheme to be allotted during the period (extended
 or otherwise) in which the scheme was in force. These options will vest
 over a period of five years from the date of grant i.e. 20% at the end
 of each year from the date of grant. The vesting of options is linked
 to performance criteria and guidelines approved by the compensation
 committee of the Bank. Consequent to the rights issue of the Bank
 during the financial year 2005-2006, appropriate adjustments were made
 to the number of outstanding options and initially fixed exercise
 price. ESOS 2002 was discontinued by the Bank in the Annual General
 Meeting held on 22 September 2005. No further options have been granted
 under this scheme.
 
 The weighted average exercise price for the options exercised during
 the year is Rs. 91.49 (Previous Year - Rs. 90.47)
 
 ESOS 2005
 
 The employee stock option scheme (“ESOS 2005” or “the scheme”) of the
 Bank was approved by the Board of Directors in their meeting dated 27
 July 2005 and by shareholders at the Annual General Meeting held on 22
 September 2005. A total of 893,264 equity shares of Rs.10 each were
 earmarked under the scheme to be allotted during the period (extended
 or otherwise) in which the scheme is in force. These options will vest
 over a period of four years from the date of grant i.e. 25% at the end
 of each year from the date of grant. The vesting of options is linked
 to performance criteria and guidelines approved by the compensation
 committee of the Bank. The board level committee in their meeting dated
 25 October 2007 approved the grant of options under ESOS 2005 loyalty
 options scheme.
 
 ESOS 2007
 
 The employee stock option scheme (“ESOS 2007” or “the scheme”) of the
 Bank was approved by the Board of Directors in their meeting dated 7
 March 2007 and by the shareholders through postal ballot meeting held
 on 11 May 2007. A total of 78,00,000 equity shares of Rs. 10 each were
 earmarked under the scheme to be allotted during the period (extended
 or otherwise) in which the scheme is in force. These options will vest
 over a period of three years from the date of grant i.e, 40% in 1st
 year; 30% in 2nd year and 30% in 3rd year at the end of each year from
 the date of grant. The vesting of options is linked to performance
 criteria and guidelines approved by the compensation committee of the
 Bank.
 
 Total employee compensation cost recognised in Profit and Loss Account
 for the year ended 31 March 2009 is Rs. 21,184 thousands. (Previous
 Year Rs. 17,762 thousands).
 
 All options under each scheme when exercised, are settled through issue
 of equity shares.
 
 The Bank follows the intrinsic method for valuing the stock options.
 The difference between Employee Compensation Cost computed based on
 such intrinsic value and Employee Compensation Cost that shall have
 been recognised if fair value of options had been used is explained
 below:
 
 As required under Securities and Exchange Board of India (Employee
 Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,
 1999, a certificate issued by auditors of the Bank indicating that the
 Schemes have been implemented in accordance with these guidelines and
 in accordance with the resolution of the Bank in General Meeting will
 be placed at the Annual General Meeting of the shareholders.
 
 1.2 Accounting Standard (AS) 15 Revised on Employee benefits
 
 Gratuity, Pension and Leave Benefit plans
 
 The Bank has defined benefit plans in respect of Gratuity, Pension and
 Leave Encashment. The Gratuity and Pension schemes are funded out of
 Trust fund set up for this purpose separately.
 
 The following tables summarize the components of net benefit expense
 recognized in the profit and loss account and the funded status and
 amount recognized in the balance sheet for the respective plans.
 
 1.3 Fixed assets
 
 1.3.1 Capital work in progress
 
 The Capital work in progress (Premises) of Rs.1,279,533 thousands
 (Previous year Rs.1,111,632 thousands) includes Rs.  1,014,513
 thousands (Previous year Rs.1,052,463 thousands) towards the lease
 premium paid to Mumbai Metropolitan Regional Development Authority
 (MMRDA) in connection with the lease of land. The Bank has entered into
 an agreement to lease with MMRDA, however lease agreement with MMRDA
 will be executed at a later date upon completion of the construction
 and obtaining other necessary approvals.
 
 1.3.2 Exchange Traded Interest Rate Derivatives, Forward Rate
 Agreements & Currency Swaps
 
 No Exchange Traded Interest Rate Derivatives, Forward Rate Agreements
 and Currency Swaps were entered during the year ended 31 March 2009
 (Previous year: NIL)
 
 1.3.3 Risk exposure on derivatives
 
 The Bank currently deals in various derivative products, i.e., Rupee
 and Foreign Currency Interest Rate Swaps, Currency Swaps, Forward Rate
 Agreement, Currency and Cross Currency options. These products are
 offered to the Bank’s customers to enable them to manage their exposure
 towards movement in foreign exchange rates or in Indian / foreign
 currency interest rates. The Bank also enters into these derivative
 contracts (i) to cover its own exposures resulting either from the
 customer transactions or own foreign currency assets and liabilities or
 (ii) as trading positions.
 
 The derivative contracts, as above, expose the Bank to risks such as
 credit risk and market risk. Credit risk implies probable financial
 loss the Bank may ultimately incur, if the counter parties fail to meet
 their obligations. Market risk deals with the probable loss the Bank
 may ultimately incur as a result of movements in exchange rates,
 benchmark interest rates, credit spreads etc., to the extent that the
 exposures are not fully covered by the Bank on a back-to-back basis or
 as hedge positions.
 
 The Bank has established an organization structure to manage these
 risks that operates independent of investment and trading activities.
 Management of these risks is governed by respective policies approved
 by the Board of Directors.  While expanding relationship-banking
 activities, the Bank has put in place a credit policy by defining the
 internal risk controls. The policy incorporates the guidelines issued
 by the RBI from time to time and envisages methodologies of
 
 identification, quantification of risk on the basis of Loan Equivalent
 Factor, risk rating and mitigation of the credit concentration risk by
 stipulating counterparty wise as well as product wise exposure ceiling.
 ISDA agreements are entered into with counterparties. The Bank has
 evolved a similar policy for managing market risks through specific
 product mandates, limits on book sizes, stop loss limits, Value at Risk
 limits (VaR), Event Risk Analysis, counter party limits etc.
 
 The Bank has also set up an Asset-Liability Management Committee
 (“ALCO”) and a Risk Management Review Committee (“RMRC”), which monitor
 the risk on an integrated basis. The market risk and credit risk
 management teams monitor compliance with the policies on a continuous
 basis and there is a clearly defined procedure of reporting and
 ratification of any limit breaches for derivative products.
 
 1.4 Related Party Transactions
 
 List of related parties
 
 Related parties where control exists
 ING Vysya Financial Services Limited
 - wholly owned subsidiary of theBank.
 
 Related parties with significant influence and with whom there are
 transactions during the year
 
 ING Bank N.V. and its branches
 ING Vysya Bank Staff Provident Fund
 ING Vysya Bank Staff Gratuity Fund
 ING Vysya Bank Superannuation Fund
 ING Vysya Bank (Employees) Pension Fund
 
 Key Management Personnel – Vaughn Richtor
 
 The above list does not include the related parties, which are having
 transactions with the Bank by way of deposit accounts.
 
 1.5 Segment Reporting:
 
 Segment Information – Basis of preparation
 
 As per the guidelines issued by RBI vide
 DBOD.No.BP.BC.81/21.01.018/2006-07 dated April 18, 2007, the
 classification of exposures to the respective segments is now being
 followed. The business segments have been identified and reported based
 on the organization structure, the nature of products and services, the
 internal business reporting system and the guidelines prescribed by
 RBI. The Bank operates in the following segments:
 
 (a) Treasury
 
 The treasury segment includes the net interest earnings on investments
 of the bank in sovereign bonds, corporate debt, mutual funds etc,
 income from trading, income from derivative and foreign exchange
 operations and the central funding unit.
 
 (b) Retail Banking
 
 The retail banking segment constitutes the business with individuals
 and small businesses through the branch network and other delivery
 channels like ATM, Internet banking etc. This segment raises deposits
 from customers, makes loans and provides fee based services to such
 customers. Exposures are classified under retail banking broadly taking
 into account the orientation criterion, the nature of product and
 exposures which are not exceeding Rs. 5 crores. Revenue of the retail
 banking segment includes interest earned on retail loans, fees and
 commissions for banking and advisory services, ATM Fees etc. Expenses
 of this segment primarily comprise the interest expense on the retail
 deposits, personnel costs, premises and infrastructure expenses of the
 branch network and other delivery channels, other direct overheads and
 allocated expenses.
 
 (c) Wholesale Banking
 
 The wholesale banking segment provides loans and transaction services
 to large corporate, emerging corporate, institutional customers and
 those not classified under Retail. Revenue of the wholesale banking
 segment includes interest and fees earned on loans to customers falling
 under this segment, fees from trade finance activities and cash
 management services, advisory fees and income from foreign exchange and
 derivatives transactions. The principal expenses of the segment consist
 of personnel costs, other direct overheads and allocated expenses.
 
 (d) Other Banking Operations
 
 All Banking operations that are not covered under the above three
 segments.
 
 (e) Unallocated
 
 All items of which cannot be allocated to any of the above are
 classified under this segment. This also includes capital and reserves,
 debt classifying as tier I or tier II capital and other unallocable
 assets and liabilities.
 
 Segment revenue includes earnings from external customers plus earnings
 from funds transferred to other segments.  Segment result includes
 revenue reduced by interest expense, operating expenses and provisions,
 if any, for that segment. Inter-segment revenue represents the transfer
 price paid/received by the central funding unit. For this purpose the
 present internal funds transfer pricing mechanism has been followed
 which calculates the charge based on yields benchmarked to an
 internally developed yield curve, which broadly tracks certain agreed
 market benchmark rates.  Segment-wise income and expenses include
 certain allocations. The Retail banking and Wholesale banking segments
 allocate costs among them for the use of branch network etc. Operating
 costs of the common/shared segments are allocated based on agreed
 methodology which estimate the services rendered by them to the above
 four segments.
 
 Geographic Segments
 
 The Bank operates in one geographical segment i.e. Domestic.