General
 
 The South Indian Bank Limited (SIB) was incorporated on January 29,
 1929 at Trichur as a private Limited Company and was later converted
 into a Public Limited Company on August 11, 1939. SIB has a net work of
 637 branches in India and provides retail and corporate banking, para
 banking activities such as debit card, third party product
 distribution, in addition to Treasury and Foreign Exchange Business.
 SIB is governed by Banking Regulation Act, 1949 and other applicable
 Acts / Regulations. Its shares are listed in leading stock exchanges in
 India.
 
 1.  Basis of Preparation
 
 Financial Transactions are recorded, prepared and presented under the
 historical cost convention and accrual basis of accounting, unless
 otherwise stated and comply with generally accepted accounting
 principles, statutory requirements prescribed under the Banking
 Regulation Act, 1949, circulars and guidelines issued by the Reserve
 Bank of India (RBI) from time to time, Accounting Standards (AS)
 issued by the Institute of Chartered Accountants of India (ICAI) and
 notified by the Companies Accounting Standard Rules, 2006 to the extent
 applicable and current practices prevailing within the banking industry
 in India.
 
 The preparation of financial statements requires the management to make
 estimates and assumptions in 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
 reporting period. Management believes that the estimates and
 assumptions used in preparation of the financial statements are prudent
 and reasonable. Actual results could differ from these estimates.
 
 2.  Revenue Recognition
 
 a) Interest income from loans, advances and investments (including
 deposits placed with banks and other institutions) are recognised over
 the period of the loans, advances and investments on accrual basis.
 However interest accrued and other dues in the nature of non interest
 income (example: inspection/valuation charges)
 
 relating to Advances/ Investments, classified as Non performing
 Advances/Investments under RBI guidelines, are recognised only on
 realization.
 
 b) Dividend on investments in shares and units of mutual funds are
 accounted on accrual basis when the Banks right to receive the
 dividend is established.
 
 c) Insurance claims and locker rent are accounted on receipt basis, due
 to the uncertainty of collection.
 
 d) Commission income on issuance of Bank Guarantee / Letter of Credit
 is recognised over the period of the underlying liability.
 
 e) Processing fee/ upfront fee, handling charges or income of similar
 nature collected at the time of sanctioning or renewal of loan/
 facility is recognised in the year of receipt without spreading it over
 the period of loan/ facility.
 
 f) All other amounts collected from customers as Non interest income or
 recovery of expenses towards provision of various services / facilities
 are accounted / recognised on receipt basis.
 
 3.  Investments 
 
 A) Classification
 
 a) In accordance with the RBI guidelines, investments are categorized
 into Held for Trading, Available for Sale and Held to Maturity
 and further classified under five groups, viz. Government Securities,
 Other Approved Securities, Shares, Debentures & Bonds and other
 investments for the purposes of disclosure in the Balance Sheet.
 
 b) Investments which are held for sale within 90 days from the date of
 purchase are classified as Held for Trading.
 
 c) Investments which the bank intends to hold till maturity are
 classified as Held to Maturity.
 
 d) Investments which are not classified in either of the above two
 categories are classified as Available for Sale.
 
 B) Valuation
 
 The cost of investments is determined on the weighted average basis.
 Broken period interest on debt instruments is treated as a revenue
 item. The transaction cost, including brokerage, commission etc. paid
 at the time of acquisition of investments are charged to revenue.
 
 The valuation of investments is made in accordance with the RBI
 Guidelines:
 
 a.  Held for Trading/Available for Sale – Each security in this
 category is valued at the market price or fair value and the net
 depreciation of each group is recognised in the Profit and Loss
 account. Net appreciation, if any, is ignored.
 
 The market value of investments where current quotations are not
 available is determined as per the norms prescribed by RBI.
 
 b.  Held to Maturity – These are carried at their acquisition cost. Any
 premium on acquisition of debt instruments is amortized over the
 remaining maturity of the security.  Any diminution, other than
 temporary, in the value of such securities is provided for.
 
 c.  Repurchase and reverse repurchase transactions – These are
 accounted as outright sale and outright purchase respectively. The
 difference between the clean price of the first leg and the clean price
 of the second leg is recognised as interest income / interest expense
 over the period of the transaction. However, depreciation in their
 value, if any, compared to their original cost, is provided for.
 
 d.  In respect of securities included in any of the three categories of
 investments where interest / principal is in arrears, for more than 90
 days, income is not reckoned and appropriate provision for the
 depreciation in the value of the investments is made, as per prudential
 norms applicable to non- performing investments. Debentures / Bonds in
 the nature of advances are subjected
 
 to usual prudential norms applicable to advances.
 
 C) Transfer Between Categories
 
 Transfer between categories is done at the lower of the acquisition
 cost / book value / market value on the date of the transfer and the
 depreciation, if any, on such transfer is fully provided for.
 
 D) Profit or Loss on sale / Redemption of Investments
 
 a.  Held for Trading and Available for Sale – Profit or loss on sale /
 redemption is included in the Profit and Loss account.
 
 b.  Held to Maturity – Profit or loss on sale / redemption of
 investments is included in the Profit and Loss account. In case of
 profits, the same is appropriated to Capital Reserve after adjustments
 for tax and transfer to statutory reserve.
 
 E) Repo and Reverse Repo Transactions
 
 In respect of Repo transactions under Liquidity Adjustment Facility
 (LAF) with RBI, monies borrowed from RBI are credited to investment
 account and reversed on maturity of the transaction. Costs thereon are
 accounted for as interest expense. In respect of reverse Repo
 transactions under LAF, monies paid to RBI are debited to investment
 account and reversed on maturity of the transaction. Revenues thereon
 are accounted as interest income.
 
 4.  Advances
 
 A) Valuation / Measurement
 
 a) Advances are classified into Standard, Sub-standard, Doubtful and
 Loss assets in accordance with the Reserve Bank of India guidelines and
 are stated net of provisions made towards non performing advances.
 
 b) Provision for non performing advances comprising Sub-standard,
 Doubtful and Loss assets is made in accordance with the Reserve Bank of
 India guidelines. In addition, the Bank adopts an approach to
 provisioning that is based on past experience, evaluation of security
 and other related factors.
 
 B) Recording / presentation
 
 a) Provisions created against individual accounts as per RBI guidelines
 are not netted in the individual account. For presentation in financial
 statements, provision created is netted against gross amount of advance
 without adjusting the same at individual account level. Provision held
 against an individual account is adjusted against individual accounts
 balance only at the time of write off / settlement of the account.
 
 5.  Fixed Assets
 
 a) The Fixed Assets (other than those, which are revalued) are stated
 at historical cost less depreciation.
 
 b) The revalued assets are stated at the revalued amount less
 depreciation. The appreciation in value consequent to revaluation is
 credited to Asset Revaluation Reserve. Depreciation on assets revalued
 is charged on written down values including the additions made on
 revaluation, and an equivalent amount towards the additional
 depreciation provided on revaluation, is transferred from the Asset
 Revaluation Reserve to profit and loss account.
 
 c) Depreciation on fixed assets other than computers is provided on
 written down value method, at the rates specified in Schedule XIV of
 the Companies Act, 1956. Computers are depreciated at 33.33% on
 straight-line method as per RBI Guidelines.
 
 d) Amount expended towards acquisition of Softwares are fully written
 off in the year of acquisition itself. Annual Licence fee/ Maintenance
 Charges, if any, are accounted on accrual basis.
 
 6.  Transactions involving foreign exchange
 
 a) Monetary assets and liabilities, guarantees, acceptances,
 endorsements and other obligations are translated to Indian Rupee
 equivalent at the exchange rates notified by FEDAI as on the Balance
 Sheet date.
 
 b) Forward Exchange contracts are translated to Indian Rupee equivalent
 at the exchange rate prevailing on the date of commitments. Gain/
 Losses on outstanding forward exchange contracts are taken to revenue
 as per the FEDAI guidelines.
 
 c) Income and Expenditure in foreign currency are accounted for at the
 exchange rate prevailing on the date of transaction.
 
 7.  Employee benefits
 
 The liability on employee benefits are recognised in accordance with
 Accounting Standard 15 (revised) specified in Companies (Accounting
 Standards) Rules, 2006.
 
 a) Provident Fund:
 
 The contribution made by the Bank to The South Indian Bank Ltd
 Employees Provident Fund, administered by the trustees is charged to
 Profit & Loss account.
 
 b) Pension Fund:
 
 The contribution towards The South Indian Bank Ltd Employees Pension
 Fund, managed by trustees, is determined on actuarial basis on
 projected unit credit method as on the Balance Sheet date and is
 recognised in the accounts.  However, the liability arising on account
 of re- opening of pension option to existing employees who had joined
 prior to 29th September 1995 and not exercised the option earlier, is
 amortised over a period of five years as permitted by the Reserve Bank
 of India.
 
 Employees who had joined the services of the Bank with effect from
 April 01, 2010 are covered under defined contributory pension scheme
 (DCPS). In respect of such employees the bank contributes 10% of the
 Basic Pay plus Dearness Allowance and the expenditure thereof is
 charged to Profit & Loss account.
 
 c) Gratuity:
 
 The Bank makes annual contribution to The South Indian Bank Ltd
 Employees Gratuity Trust Fund administered and managed by the
 trustees. The net present value of the Banks obligation towards the
 same is actuarially determined based on the projected unit credit
 method as at the balance sheet date. However, the liability arising on
 account of enhancement in gratuity limit pursuant to the amendment to
 the Payment of Gratuity Act, 1972, w.e.f. 24th May 2010 is amortised
 over a period of five years as permitted by the Reserve Bank of India.
 
 d) Compensation for absence on Privilege / Sick / Casual Leave:
 
 The employees of the Bank are entitled to compensated absence on
 account of privilege / sick / casual leave as per the leave rules. The
 Bank measures the long term expected cost of compensated absence as a
 result of the unused entitlement that has accumulated at the balance
 sheet date based on actuarial valuation and such costs are recognised
 in the accounts.
 
 e) Employees Stock Option Scheme (ESOS):
 
 The Bank has formulated Employee Stock Option Scheme (ESOS) in
 accordance with Securities and Exchange Board of India (Employee Stock
 Option Scheme) Guidelines, 1999. The Scheme provides for grant of
 options to Employees of the Bank to acquire Equity Shares of the Bank
 that vest in a graded manner and that to be exercised within a
 specified period. In accordance with the SEBI Guidelines and the
 guidance note on Accounting for Employee Share based payments issued
 by the ICAI, the
 
 excess of the market price of the share preceding the date of grant of
 the option under ESOS over the exercise price of the option is
 amortised on a straight line basis over the vesting period.
 
 8.  Segment Reporting
 
 Business Segments have been identified and reported taking into
 account, the target customer profile, the nature of product and
 services, the differing risks and returns, the organization structure,
 the internal business reporting system and guidelines issued by RBI
 vide notification dated April 18, 2007. The Bank operates in the
 following business segments;
 
 a) Treasury
 
 The treasury services segment primarily consists of interest earnings
 on investments portfolio of the Bank, gains or losses on investment
 operations and earnings from foreign exchange business. The principal
 expenses of the segment consist of interest expense on funds borrowed
 and other expenses.
 
 b) Corporate / Wholesale Banking
 
 The Corporate / Wholesale Banking segment provides loans and other
 banking services to corporate segment identifed on the basis of RBI
 guidelines. Revenues of this segment consist of interest earned on
 Loans made to Corporate customers and the charges / fees earned from
 other banking services. The principal expenses of the segment consist
 of interest expense on funds borrowed and other expenses.
 
 c) Retail Banking
 
 The Retail Banking segment provides loans and other banking services to
 non corporate customers identified on the basis of RBI guidelines.
 Revenues of this segment consist of interest earned on Loans made to
 non corporate customers and the charges / fees earned from other
 banking services. The principal expenses of the segment consist of
 interest expense on funds borrowed and other expenses.
 
 d) Other Banking Operations
 
 This segment includes income from para banking
 
 activities such as debit cards, third party product distribution and
 associated costs.
 
 Geographic Segment
 
 The Bank operates only in India.
 
 9.  Earnings Per Share (EPS)
 
 The Bank reports Basic and Diluted Earnings per Equity Share in
 accordance with Accounting Standard 20, specified in Companies
 (Accounting Standards) Rules, 2006. Basic EPS has been computed by
 dividing Net Profit for the year by the weighted average number of
 Equity Shares outstanding for the period. Diluted EPS has been computed
 using the weighted average number of Equity Shares and dilutive
 potential equity shares outstanding as on the Balance Sheet date except
 where the results are anti dilutive.
 
 10.  Taxes on Income
 
 The income tax expense comprises current tax and deferred tax. Current
 tax is measured at the amount expected to be paid in respect of taxable
 income for the year in accordance with the Income Tax Act.  Deferred
 tax assets and liabilities are recognised for the future tax
 consequences of timing differences being the difference between the
 taxable income and the accounting income that originate in one period
 and are capable of reversal in one or more subsequent periods. Deferred
 tax asset is recognised subject to prudence and judgment that
 realization is more likely than not. Deferred tax assets and
 liabilities are measured using tax rates and tax laws that have been
 enacted or substantially enacted before the balance sheet date. Changes
 in deferred tax assets / liabilities on account of changes in enacted
 tax rates are given effect to in the profit and loss account in the
 period of the change.
 
 11.  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
 realizable amount.
 
 12.  Accounting for Provisions, Contingent Liabilities and Contingent
 Assets
 
 In accordance with Accounting Standard 29, Provisions, Contingent
 Liabilities and Contingent Assets specified in Companies (Accounting
 Standards) Rules, 2006, the Bank recognizes provisions when it has a
 present obligation as a result of a past event, it is probable that an
 outflow of resources embodying economic benefits will be required to
 settle the obligation and when a reliable estimate of the amount of the
 obligation can be made.
 
 Provisions are determined based on management estimate required to
 settle the obligation at the balance sheet date, supplemented by
 experience of similar transactions. These are reviewed at each balance
 sheet date and adjusted to refect the current management estimates. In
 cases where the available information indicates that the loss on the
 contingency is reasonably possible but the amount of loss can not be
 reasonably estimated, a disclosure is made in the financial statements.
 
 Contingent assets, if any, are not recognized in the financial
 statements since this may result in the recognition of Income that may
 never be realized.
 
 13.  Net Profit
 
 Net Profit is arrived at after provisions for contingencies, which
 include Provision for: 
 
 i) Depreciation on Investments;
 
 ii) Standard Assets and Non-Performing Advances and Investments; 
 
 iii) Taxation in accordance with statutory requirements.
 
 11.  Asset quality
 
 Percentage of net NPAs to net advances works out to 0.29% (0.39% as on
 31.03.2010). Provision coverage ratio as on 31.03.2011 is 73.64%.
 
 Provision for Non-Performing Advances and unrealised interest thereon
 are deducted from various categories of advances on a proportionate
 basis except the Provision for Standard Assets, which is included under
 Other Liabilities.
 
 21.  Derivatives
 
 The bank uses forward exchange contracts to hedge against its foreign
 currency exposures relating to the underlying transactions and firm
 commitments. The bank has not entered into any derivative instruments
 for trading / speculative purposes either in Foreign Exchange or
 domestic treasury operations.
 
 23. (b) Disputed Tax for earlier years
 
 The following deductions under the Income Tax Act, 1961 are considered
 in computing the income chargeable to tax
 
 (i) Bad Debts written off u/s 36 (1) (vii) pertaining to non rural
 branches.
 
 (ii) Provision for Bad and Doubtful debts u/s 36(1)(viia) subject to
 limits prescribed under the Act.
 
 The above deductions are disputed by the Income Tax Department before
 the Supreme Court through Special Leave Petition (SLP). Further, the
 earlier decision of Division Bench of Kerala High Court in favour of
 the Bank, have been reversed by the Full Bench of the Kerala High Court
 during the year and the matter is pending before the Supreme Court. The
 total estimated liability on account of this dispute and other disputed
 tax demands under section 14A of the Income Tax Act amounting to Rs.
 116.05 Crore (excluding interest, if any), has been disclosed as
 contingent liability (refer Schedule 12). The management believes that
 the outcome of these appeals is likely to be in favour of the Bank and
 accordingly no provision is considered necessary at this stage.
 
 24.  Penalties Levied by the Reserve Bank of India
 
 No penalties were levied by the Reserve Bank of India during the
 financial years ended March 31, 2011 and March 31, 2010.
 
 27.  Reconciliation
 
 Identification of items pending adjustment in inter branch accounts
 (including Extension counters), demand drafts paid and payable,
 sundries, inter bank and clearing have been completed upto March 31,
 2011. Elimination of pending items in the above is in progress and in
 the opinion of the management, its consequential impact in the accounts
 will not be material.