A.  BACKGROUND
 
 The Karur Vysya Bank Limited, incorporated in Karur, India is a
 publicly held Banking company engaged in providing a wide range of
 banking and financial services including commercial banking and
 treasury operations. It is a banking company governed by the Banking
 Regulation Act, 1949.
 
 B.  BASIS OF PREPARATION
 
 The financial statements are prepared following the going concern
 concept, on historical cost basis and conform to the Generally Accepted
 Accounting Principles, (GAAP) in India which encompasses applicable
 statutory provisions, regulatory norms prescribed by the Reserve Bank
 of India (RBI) from time to time, notified Accounting Standards (AS)
 issued under the Companies (Accounting Standards) Rules, 2006 to the
 extent applicable and current practices prevailing in the banking
 industry in India.
 
 Use of Estimates:
 
 The preparation of the financial statements require management to make
 estimates and assumptions that affect the reported amounts of assets
 and liabilities including contingent liabilities as of the date of the
 financial statement and the reported income and expenses during the
 reported period. The Management believes that the estimates and
 assumptions used in the preparation of the financial statements are
 prudent and reasonable. Actual results could differ from these
 estimates. The differences, if any between estimates and actual will be
 dealt appropriately in future periods.
 
 C.  PRINCIPAL ACCOUNTING POLICIES
 
 1.  Foreign Exchange Transactions
 
 Monetary Assets and Liabilities in Foreign Currencies, Outstanding
 Forward Contracts and Spot and Forward Positions are translated at the
 Exchange Rates prevailing at the yearend as notified by FEDAI and the
 resultant Profit/ Loss is recognised in the Profit and Loss Account.
 
 Income and expenditure items are translated at the exchange rates
 ruling on the respective dates of the transaction.
 
 Guarantees, Letters of Credit, Acceptances, Endorsements and other
 obligations in foreign currencies are translated at Standard Mid Rates
 notified by FEDAI at the year-end.
 
 2.  Investments
 
 Investments are categorized into three categories - (i) Held to
 Maturity, (ii) Held for Trading and (iii) Available for sale, with sub-
 classification under each category viz., (i) Government Securities,
 (ii) Other Approved Securities,
 
 (iii) Shares, (iv) Debentures & Bonds, (v) Subsidiary and Joint
 Ventures and (vi) Others - Units of Mutual Funds, Certificate of
 Deposits etc., in accordance with the guidelines issued by Reserve Bank
 of India.
 
 The category under which the investments would be classified is decided
 at the time of acquisition
 
 Shifting of securities among the categories are accounted at the least
 of the acquisition cost / book value / market price prevailing on the
 date of shifting and depreciation, if any, on such shifting is fully
 provided for.
 
 Investments classified under HTM category are carried at acquisition
 cost except in cases where the acquisition cost is higher than the face
 value, in which case the premium is amortized over the remaining period
 to maturity.
 
 Investments classified under HFT and AFS categories are marked to
 market at regular intervals and net depreciation within each
 sub-classification is recognized and provided for, while net
 appreciation is ignored.
 
 The Bank follows the method of calculating and accounting of profit on
 sale of investments under weighted average cost method.
 
 3.  Derivatives
 
 Interest rate swaps pertaining to trading position and which are
 outstanding as on Balance Sheet date are marked to market and net
 appreciation is ignored and net depreciation is recognized in the
 Profit & Loss Account.  Foreign Currency Options and Swaps are
 accounted in accordance with the guidelines issued by FEDAI.
 
 4.  Advances
 
 Advances are classified as Performing and Non- performing Assets and
 provisions are made as per the prudential norms prescribed by Reserve
 Bank of India.  Advances stated in the Balance Sheet are net of
 provisions, claims received from credit guarantee institutions etc.
 
 5.  Fixed Assets
 
 Premises and other fixed assets are accounted for at historical cost as
 reduced by depreciation written off.
 
 6.  Depreciation
 
 Fixed Assets except Computers are depreciated under Written Down Value
 Method at the rates specified in the schedule XIV of the Companies Act,
 1956. Depreciation on Computers, including software, is charged at
 33.33% on Straight Line Method as per the guidelines of the Reserve
 Bank of India. Depreciation on assets purchased and sold during the
 year is provided on pro rata basis.
 
 7.  Revenue / Expense Recognition
 
 Income and Expenditure are generally accounted on accrual basis.
 
 Interest income on all advances other than non-performing assets is
 recognized on accrual basis. In respect of non- performing assets, the
 interest income is recognized on cash basis.
 
 Commission (including commission received on insurance business),
 exchange, brokerage and locker rent are accounted on cash basis.
 
 Interest Income on Tax Refund is accounted on Receipt basis,
 
 8.  Employee Benefits
 
 In accordance with Accounting Standard 15 issued under the Companies
 (Accounting Standards) Rules, 2006, Provision for Gratuity, Pension and
 other defined employee benefits are made on accrual basis as per
 Actuarial valuation done at the year-end and short term benefits are
 accounted for as and when the liability becomes due.
 
 Options granted under Employee Stock Option Scheme (ESOS) are valued
 and accounted for using Intrinsic Value Method.
 
 9.  Segment Reporting
 
 The Bank recognises the Business Segment as the Primary Reporting
 Segment and Geographical Segment as the Secondary Reporting Segment, in
 accordance with the RBI guidelines and in compliance with the
 Accounting Standard 17.
 
 Business Segment is classified into (a) Treasury (b) Corporate and
 Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.
 
 10.  Earnings per Share
 
 Earnings per share are calculated by dividing the net profit or loss
 for the year attributable to the equity share holders by the weighted
 average number of equity shares outstanding during the year.
 
 Diluted Earnings per equity share are computed by using the weighted
 average number of equity shares and dilutive potential equity share
 outstanding as at the year end.
 
 11.  Income-tax
 
 Tax expenses comprise current and deferred taxes.  Provision for
 current Income tax is made after due consideration of the judicial
 pronouncements and legal opinion.
 
 Deferred income taxes recognizes timing differences between taxable
 income and accounting income that originate in one period and are
 capable of reversal in one or more subsequent periods. Deferred Tax
 Assets are recognized in the books of account to the extent of their
 future reversibility. Deferred Tax Liabilities are recognized fully in
 the year of accrual
 
 Deferred tax is measured based on the tax rates and the tax laws
 enacted or substantively enacted at the Balance Sheet date.
 
 12.  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 exceeds their estimated recoverable amount.
 
 13.  Provisions and Contingent Liabilities
 
 A provision is recognised when there is an obligation as a result of
 past event, 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 the best estimate required to settle
 the obligation as at the balance sheet date. These are reviewed at each
 balance sheet date and adjusted to reflect the current best estimates.
 
 In case 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.
 
 Contingent Assets are not recognized since this may result in the
 recognition of income that may never be realized.
 
 14.  Net Profit
 
 The net profit disclosed in the Profit and Loss Account is after
 providing for:
 
 Provision for Taxes,
 
 Provision for Standard Assets and Non Performing Assets,
 
 Provision for Depreciation on investments, and
 
 Other usual and necessary provisions