BASIS OF PREPARATION
The financial statements have been prepared and presented under
historical cost convention on accrual basis of accounting unless
otherwise stated and comply with Generally accepted accounting
principles, statutory requirements prescribed under Banking
Regulation Act, 1949, circulars and guidelines issued by Reserve Bank
of India from time to time and notified accounting standards by
companies (Accounting Standards) Rules, 2006 to the extent applicable
and current practices in Banking Industry in India.
2. Foreign Exchange Transactions
2.1 All the Monetary assets and liabilities in foreign currencies are
translated in Indian rupees at the ex- change rates prevailing at the
Balance Sheet date as notified by Foreign Exchange Dealers Association
of India (FEDAI). The resultant gain / loss is accounted for in the
Profit & Loss account.
2.2 The outstanding foreign exchange contracts are stated at the
prevailing exchange rate on the date of commitment. Profit or loss on
such contracts is accounted for as per rates advised by FEDAI and in
accordance with FEDAI guidelines and provisions of para 38 of AS-11.
2.3 Items of Income and expenditure relating to foreign exchange
transactions are recorded at exchange rates prevailing on the date of
2.4 Contingent liabilities on account of acceptances, endorsements and
other obligations including guarantees & letter of credits in foreign
currencies are valued as per rates published by FEDAI except Bills for
Collection which are accounted for at the notional rates at the time of
3.1 Classification and valuation of investments are made in accordance
with the prudential norms prescribed by Reserve Bank of India read with
clarifications / directions given by RBI.
3.2 The entire investment portfolio is classified into three
categories, viz, Held to Maturity, Available for Sale and Held for
Trading in line with the guidelines / directions of Reserve Bank of
India. Disclosure of the investments under the three categories
mentioned above is made under six classifications viz.,
i. Government Securities
ii. Other approved securities
v. Subsidiaries / Joint Ventures and
3.3 Basis Of Classification:
i. Investments that the Bank intends to hold till maturity are
classified as Held to Maturity.
ii. Investments that are held principally for resale within 90 Days
from the date of purchase are classified as Held for Trading.
iii. Investments which are not classified in the above two categories,
are classified as Available for Sale.
iv. An investment is classified under the above three categories at
the time of its purchase. Shifting of securities from one category to
another is done with the approval of the Board normally once in a year.
Shifting is effected at the lower of acquisition cost / book value /
market value on the date of transfer and the depreciation, if any, on
such shifting is fully provided for and the book value of securities is
3.4 Securities under ''Held to Maturity'' are stated at acquisition costs
unless such costs are higher than the face value, in which case the
premium is amortized over the remaining period of maturity. Such
amortization is shown under Income on Investments- Schedule 13 item
II. In case, the cost is less than the redemption value, the difference
being the unrealized gain, is ignored. Any diminution in value of
investments in subsidiaries and joint venture, other than temporary
in nature, is provided for each investment individually
3.5 Securities under ''Available for sale'' are valued scrip wise and
depreciation/ appreciation is segregated category wise. While net
appreciation is ignored, net depreciation under each category is
3.6 Securities under ''Held for Trading'' are valued at market price and
the net depreciation under each category is provided for and the net
appreciation, if any, is ignored.
3.7 Cost of investment is based on the weighted average cost method
3.8 The ''market value'' for the purpose of valuation of investments
included in the ''Available for Sale'' and ''Held for Trading'' categories
is the market price of the scrip as available from the trades/quotes on
the stock exchanges, price list of RBI, prices declared by Primary
Dealers Association of India (PDAI) jointly with the Fixed Income Money
Market and Derivatives Association of India (FIMMDA).
3.9 In determining acquisition cost of investments:
a. Incentive received on subscription is deducted from the cost of
b. Brokerage / commission/ stamp duty paid in connection with
acquisition of securities are treated as revenue expenditure;
c. Broken period interest, if any, paid on acquisition of investment
is debited to profit & loss account. Broken period interest received
on sale of securities is recognized as Interest Income.
3.10 Profit/ Loss on sale of investments is taken to profit and loss
account. However, in case of profit on sale of investments in ''Held to
Maturity'' category, an equivalent amount of profit is appropriated to
3.11 Non Performing Investments
In respect of Non-Performing Securities, income is not recognized and
appropriate provision is made for depreciation in the value of such
securities as per Reserve Bank of India guidelines.
4.1 Advances are classified into Performing and Non-Performing
assets and provisions are made as per the prudential norms prescribed
by the Reserve Bank of India. However, the Bank has made higher
provisions for sub-standard and doubtful category as follows:
Revised Rates of Provisioning for Non-Performing Assets w.e.f
18.05.2011 are as under:
*/ Unsecured exposure is defined as an exposure where the realizable
value of the security, as assessed by the bank/ approved valuers/
Reserve Bank''s Inspecting Officers, is not more than 10 per cent,
ab-initio, of the outstanding exposure.
The revised provisioning norms will have prospective effect on the
fresh slippage (i.e. accounts which slip into NPA category on or after
01.01.2011) and further deterioration in the existing NPAs. However,
the provisions already made in any existing NPA account as on
31.12.2010 will not be reduced/reversed.
4.2 Advances are stated net of de-recognized interest and provisions/
Technical write off made in respect of non- performing advances. Claims
received from DICGC/ CGTMSE/ ECGC are not reduced from such advances
till adjusted/ technically written-off whereas part recovery in all NPA
accounts is reduced from advances.
4.3 Provisions on standard advances are made and are included under
Other Liabilities and Provisions as per RBI''s guidelines.
4.4 For restructured/ rescheduled advances, provisions are made in
accordance with the guidelines issued by RBI
5. Floating Provisions
In accordance with the RBI guidelines, the bank has an approved policy
for creation and utilization of floating provisions separately for
advances and investments. The quantum of floating provisions to be
created would be assessed, at, the end of each financial year. The
floating provisions would be utilized only for contingencies under
extra ordinary circumstances specified in the policy with prior
permission of Reserve Bank of India.
6 Fixed Assets
6.1 Premises and other Fixed Assets are stated at historical
cost/revalued amount. In respect of premises, where segregation is not
possible between land and superstructure, are considered in the value
of super- structure.
6.2 Premises taken on perpetual lease are considered as freehold
premises and are not amortized.
7 Depreciation on Fixed Assets
7.1 Depreciation is provided for on -
7.1.1 Computers at 33.33%, on straight-line method; additions are
depreciated for the full year irrespective of the date of addition as
per RBI guidelines.
7.1.2 Other Fixed assets on written down value method at the rates
prescribed by the Income Tax Act 1961; additions effected before 30th
September are depreciated for full year and additions effected
thereafter are depreciated for half year.
7.1.3 Cost of premises is taken composite, wherever it is not possible
to segregate the cost of land from the cost of the superstructure.
7.2 No depreciation is provided on assets sold/disposed of during the
7.3 Amount equivalent to depreciation attributable to revalued portion
of the assets is transferred from Revaluation Reserve Account to the
Profit & Loss Account.
8 Revenue Recognition
8.1 Income and expenditure are accounted for on accrual basis unless
8.2 Income on non-performing assets is recognized on realization basis
in accordance with the prudential norms prescribed by Reserve Bank of
8.3 Partial recovery in non-performing assets is appropriated first
towards principal and thereafter towards interest.
8.4 Income on guarantees and letters of credit issued, locker rent,
income from merchant banking transactions, money transfer services,
dividend on shares, Interest on refund of income tax, commission on
credit card, interest on overdue bills, processing fee, Government
business including distribution of pension and income from units of
mutual fund products and income from ATM operations are accounted for
on receipt basis.
8.5 Rebate on compromised accounts is accounted for at the time of full
and final adjustment of the account.
8.6 Interest on overdue Term Deposits is provided at the rate of
interest applicable to Savings Bank Deposits.
8.7 Liability in respect of incremental lease rent on renewal of lease
agreement is accounted for at the time of renewal of the lease.
8.8 Bond Issue Expenses incurred in connection with raising Tier-II
Capital are treated as Deferred Revenue Expenditure to be written off
over a period of five years.
8.9 Share Issue Expenses are adjusted against the Share Premium Account
9 Staff Retirement Benefits
9.1 Annual contribution to Gratuity Fund, Pension Fund and Leave
Encashment Fund are provided for on the basis of an actuarial
9.2 Transitional liability relating to Pension Fund and Sick Leave
determined as per actuarial valuation is writ- ten off over a period of
five years commencing from 2007-08 in terms of Revised Accounting
Standard 15 (AS-15) as against remaining seven years out of ten years
as approved by Reserve Bank of India vide its letter no. DBOD.BP.No.
271/21.01.002/2005-06 dated 23.08.2005.
9.3 The additional liability on account of re-opening of pension option
for existing employees who had not opted for pension earlier as well as
amendment in the ''Payment of Gratuity Act, 1972'' enhancing the gratuity
limit to Rs.10 lacs as per Actuarial Valuation is amortized over a
period of five years commencing from the FY 2010-11 in terms of RBI
Circular DBOD No.BP.BC.80/ 21.04.018/2010-11 dated February 9, 2011.
The unamortized expenditure carried forward does not include any amount
relating to separated/ retired employees.
9.4 The Employees joining on or after 01.04.2010 are being covered
under the New Pension Scheme.
10 Taxes on Income
10.1 Current Income Tax is measured at the amount expected to be paid
considering the applicable tax rates and favorable judicial
pronouncement/ legal opinions.
10.2 In accordance with AS-22 Deferred Tax comprising of tax effect of
timing differences between taxable and accounting income for the
period, is recognized keeping in view the consideration of prudence in
respect of Deferred Tax Assets/Liabilities.