1.  BASIS OF PREPARATION:
 
 The financial statements have been prepared on the historical cost
 basis and conform, in all material aspects, to Generally Accepted
 Accounting Principles (GAAP) in India which encompasses applicable
 statutory provisions, regulatory norms prescribed by Reserve Bank of
 India (RBI), Accounting Standards (AS) and pronouncements issued by The
 Institute of Chartered Accountants of India (ICAI) and prevailing
 practices in Banking industry in India.
 
 
 2.  METHOD OF ACCOUNTING:
 
 The Financial Statements have been prepared on the going concern basis
 with accrual concept and in accordance with the accounting policies and
 practices consistently followed unless otherwise stated.
 
 3.  FIXED ASSETS
 
 3.1 Fixed assets are stated at historical cost except those premises,
 which have been revalued. The appreciation on revaluation is credited
 to revaluation reserve and incremental depreciation attributable to the
 revalued amount is deducted therefrom.
 
 3.2 a) Depreciation on assets (including land where value is not
 separable) are provided on straight-line method based on estimated life
 of the asset.
 
 c) Assets taken over from erstwhile New Bank of India and Nedungadi
 Bank Ltd. are depreciated based on their estimated life based on broad
 groups / categories instead of individual assets.
 
 d) Depreciation on additions to assets is provided from the month in
 which the asset is put to use and in case of assets sold/disposed of
 during the year, upto the month preceding the month in which it is
 sold/disposed of.
 
 4.  ADVANCES
 
 4.1 Advances are classified as performing and non-performing assets;
 provisions are made in accordance with prudential norms prescribed by
 RBI.
 
 4.2 Advances are stated net of provisions in respect of non- performing
 assets.
 
 4.3 Offices outside India / Offshore Banking Units:
 
 a) Advances are classified under categories in line with those of
 Indian Offices.
 
 b) Provisions in respect of advances are made as per the local law
 requirements or as per the norms of RBI, whichever is higher.
 
 4.4. Financial Assets sold are recognized as under:
 
 a) In case the sale is at a price lower than the Net Book Value (NBV)
 the shortfall is charged to the Profit and Loss Account.
 
 b) In case the sale is at a price higher than the NBV, the surplus
 provision is retained to meet shortfall/loss on account of sale of
 other non-performing financial assets.
 
 4.5 For restructured/rescheduled advances, provisions are made in
 accordance with guidelines issued by RBI.
 
 5.  INVESTMENTS
 
 5.1 Investments are classified into six categories as stipulated in
 form A of the third schedule to the Banking Regulation Act, 1949.
 
 5.2 Investments have been categorized into “Held to Maturity”,
 “Available for Sale” and “Held for Trading” in terms of RBI guidelines.
 Securities acquired by the Bank with an intention to hold till maturity
 is classified under “Held to Maturity”.
 
 5.3 The securities acquired by the Bank with an intention to trade by
 taking advantage of short-term price/ interest rate movements are
 classified under “Held for Trading”.
 
 5.4 The securities, which do not fall within the above two categories,
 are classified under “Available for Sale”.
 
 5.5 Transfer of securities from one category to another is carried out
 at the lower of acquisition cost/ book value/ market value on the date
 of transfer. The depreciation, if any, on such transfer is fully
 provided for.
 
 5.6 In determining acquisition cost of an investment
 
 a) Brokerage / commission received on subscription is deducted from the
 cost of securities.
 
 b) Brokerage, commission etc. paid in connection with acquisition of
 securities are treated as revenue expenses.
 
 c) Interest accrued up to the date of acquisition of securities i.e.
 broken - period interest is excluded from the acquisition cost and the
 same is accounted in interest accrued but not due account.
 
 5.7 Investments are valued as per RBI/ FIMMDA guidelines, on the
 following basis:
 
 Held to Maturity
 
 i) Investments under “ Held to Maturity “ category are carried at
 acquisition cost. Wherever the book value is higher than the face
 value/redemption value, the premium is amortized over the remaining
 period to maturity.
 
 ii) Investments in subsidiaries/joint ventures/associates are valued at
 carrying cost less diminution, other than temporary, in nature.
 
 iii) Investments in sponsored regional rural banks are valued at
 carrying cost.
 
 iv) Investment in venture capital is valued at carrying cost.
 
 Available for Sale and Held for Trading
 
 a) Govt. Securities
 
 I.  Central Govt. Securities      At market prices/YTM as
                                   published by Fixed Income Money 
                                   Market And Derivatives 
                                   Association of India (FIMMDA)
 
 II.  State Govt. Securities       On appropriate yield to
                                   maturity basis as per FIMMDA/RBI 
                                   guidelines.
 
 b) Securities guaranteed by       On appropriate yield to 
 Central/State Government,         maturity basis as per 
 PSU Bonds (not in the             FIMMDA/RBI guidelines 
 nature of advances)
 
 c) Treasury Bills                 At carrying cost
 
 d) Equity shares                  At market price, if quoted,
                                   otherwise at break up value of 
                                   the Shares as per latest 
                                   Balance Sheet(not more than 
                                   one year old), otherwise at 
                                   Re.1 per company
 
 e) Preference shares              At market price, if quoted
                                   or on appropriate yield to 
                                   maturity basis not exceeding 
                                   redemption value as per 
                                   RBI/FIMMDA guidelines.
 
 f) Bonds and debentures (not      At market price, if quoted, 
 in the nature of advances)        or on appropriate yield to
                                   maturity basis as per RBI/ 
                                   FIMMDA guidelines.
 
 g) Units of mutual funds          As per stock exchange
                                   quotation, if quoted; at 
                                   repurchase price/NAV, if 
                                   unquoted
 
 h) Commercial paper               At carrying cost
 
 i) Certificate of Deposits        At carrying cost.
 
 j) Security receipts of ARCIL     At net asset value of the
                                   asset as declared by ARCIL
 
 k) Venture Capital Funds          At net asset value (NAV)
                                   declared by the VCF
 
 l) Other Investments              At carrying cost less
                                   diminution in value
 
 The above valuation in category of Available for Sale and Held for
 Trading are done scrip wise and depreciation / appreciation is
 aggregated for each classification. Net depreciation for each
 classification if any is provided for while net appreciation is
 ignored.
 
 5.8 Investments are subject to appropriate provisioning/ de-
 recognition of income, in line with the prudential norms of Reserve
 Bank of India for NPI classification. The depreciation/ provision in
 respect of non-performing securities is not set off against the
 appreciation in respect of the other performing securities.
 
 5.9 Profit or loss on sale of investments in any category is taken to
 Profit and Loss account but, in case of profit on sale of investments
 in “Held to Maturity” category, an equivalent amount is appropriated to
 “Capital Reserve Account”.
 
 5.10 Securities repurchased/resold under buy back arrangement are
 accounted for at original cost.
 
 5.11 The derivatives transactions are undertaken for trading or hedging
 purposes. Trading transactions are marked to market.  As per RBI
 guidelines, different category of swaps are valued as under: -
 
 Hedge Swaps
 
 Interest rate swaps which hedges interest bearing asset or liability is
 accounted for on accrual basis except the swap designated with an asset
 or liability that is carried at market value or lower of cost in the
 financial statement.
 
 Gain or losses on the termination of swaps are recognized over the
 shorter of the remaining contractual life of the swap or the remaining
 life of the asset/liabilities.
 
 Trading Swaps
 
 Trading swap transactions are marked to market with changes recorded in
 the financial statements.
 
 5.12 Foreign currency options
 
 Foreign currency options written by the bank with a back- to-back
 contract with another bank is not marked to market since there is no
 market risk.
 
 Premium received is held as a liability and transferred to the Profit
 and Loss Account on maturity/cancellation.
 
 6.  TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS & BALANCES:
 
 a) Except advances of erstwhile London branches which are accounted for
 at the exchange rate prevailing on the date of parking in India, all
 other monetary assets and liabilities, guarantees, acceptances,
 endorsements and other obligations are translated in Indian Rupee
 equivalent at the exchange rates prevailing at the end of the year as
 per Foreign Exchange Dealers’ Association of India (FEDAI) guidelines.
 
 b) Non-monetary items other than fixed assets are translated at
 exchange rate prevailing on the date of transaction.
 
 c) Forward exchange contracts are translated at the year end rates
 notified by FEDAI and the resultant Gain/loss on evaluation is taken to
 profit & Loss Account.
 
 d) Income and expenditure items are accounted for at the exchange rate
 prevailing on the date of transaction.
 
 e) Offices outside India / Offshore Banking Units:
 
 (i) Operations of foreign branches and off shore banking unit are
 classified as “Non-integral foreign operations” and operations of
 representative offices abroad are classified as “integral foreign
 operations”.
 
 (ii) Foreign currency transactions of integral foreign operations and
 non-integral foreign operations are accounted for as prescribed by
 AS-11.
 
 (iii) Exchange Fluctuation on Profit / loss of non-integral operations
 are credited /debited to exchange fluctuation reserve.
 
 7.  TAXES ON INCOME
 
 Current tax is determined on the amount of tax payable in respect of
 taxable income for the year and accordingly provision for tax is made.
 
 The deferred tax charge or credit is recognized using the tax rates
 that have been enacted or substantially enacted by the Balance Sheet
 date. In terms of Accounting Standard 22 issued by ICAI, provision for
 deferred tax liability is made on the basis of review at each Balance
 Sheet date and deferred tax assets are recognized only if there is
 virtual certainty of realization of such assets in future. Deferred tax
 
 assets/ liabilities are reviewed at each Balance Sheet date based on
 developments during the year.
 
 8.  EMPLOYMENT BENEFITS
 
 - PROVIDENT FUND:
 
 Provident fund is a defined contribution scheme as the Bank pays fixed
 contribution at pre-determined rates. The obligation of the Bank is
 limited to such fixed contribution. The contributions are charged to
 Profit &
 
 Loss A/c.
 
 - GRATUITY:
 
 Gratuity liability is a defined benefit obligation and is provided for
 on the basis of an actuarial valuation made at the end of the financial
 year. The scheme is funded by the bank and is managed by a separate
 trust.
 
 - PENSION:
 
 Pension liability is a defined benefit obligation and is provided for
 on the basis of an actuarial valuation made at the end of the financial
 year. The scheme is funded by the bank and is managed by a separate
 trust.
 
 - COMPENSATED ABSENCES:
 
 Accumulating compensated absences such as Privilege Leave (PL) and Sick
 Leave (including un-availed casual leave) is provided for based on
 actuarial valuation.
 
 - OTHER EMPLOYEE BENEFITS:
 
 Other Employee benefits such as Leave Fare Concession (LFC), Silver
 jubilee award, Medical Benefits etc. are provided for based on
 actuarial valuation.
 
 In respect of overseas branches and offices, the benefits in respect of
 employees other than those on deputation are accounted for as per laws
 prevailing in the respective countries.
 
 9.  IMPAIRMENT OF ASSETS
 
 Impairment loss, if any, is recognised in accordance with the
 accounting standard issued in this regard by ICAI and impairment loss
 on any revalued asset is treated as a revaluation decrease.
 
 10.  REVENUE RECOGNITION
 
 10.1 Income / expenditure (other than items referred to in paragraph
 10.4) is generally accounted for on accrual basis.
 
 10.2 Income on non-performing assets is recognized on realisation as
 per RBI guidelines.
 
 10.3 Recovery in non-performing advances is appropriated first towards
 recorded interest and thereafter towards (i) arrears of instalments in
 term loans and (ii) principal irregularity in other accounts. However,
 recovery in suit filed (including accounts where recovery is under
 SARFEASI Act), decreed accounts and compromise
 
 cases is first appropriated towards principal or as per terms of
 decree/settlement.
 
 10.4 Commission (excluding on Government Business), interest on overdue
 bills, exchange, locker rent, income from merchant banking
 transactions, dividend income and insurance claims are accounted for on
 realization/settlement.
 
 10.5 Income from interest on refund of income tax is accounted for in
 the year the order is passed by the concerned authority.
 
 11.  OTHERS
 
 Interest on unpaid and unclaimed matured term deposits are accounted
 for at savings bank rate. Interest differential on matured term deposit
 for overdue period is accounted for as and when such deposits are
 renewed as per bank’s rule.