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South Indian Bank

BSE: 532218|NSE: SOUTHBANK|ISIN: INE683A01023|SECTOR: Banks - Private Sector
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Notes to Accounts Year End : Mar '15
 The South Indian Bank Limited (Rs.SIBRs. or the Rs.BankRs.) was
 incorporated on January 29, 1929 at Thrissur as a private limited
 company and was later converted into a public limited company on August
 11, 1939. SIB has a network of 842 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
 Bombay Stock Exchange and National Stock Exchange. The bank has
 de-listed its shares from the Cochin Stock Exchange during the year.
                                            As at         As at
                                     March 31, 2015   March 31,2014
                                     Rs.(''000)         Rs.(''000) 
 (Refer Schedule 17(11))
 I. Claims against the Bank not acknowledged as debts:
 (i) Service Tax disputes                 211,117        21,600
 (ii) Others                               71,606        62,542
 II. Liability on account of outstanding Forward
 Exchange Contracts1                  249,159,994   169,284,431
 III. Guarantees given on behalf of 
 constituents in India                 14,795,637    11,746,807
 IV Acceptances, endorsements and 
 other obligations                      7,522,969    10,234,262
 V. Other items for which the bank is contingently liable:
 (i) Capital Commitments                   17,580          -
 (ii) Transfers to Depositor Education 
 and Awareness Fund (DEAF)                421,800          -
 TOTAL                                272,200,703   191,349,642
 1 Represents notional amount
 2. 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. Bank does not have any Forward Rate
 Agreement or Interest Rate Swaps.
 Item (ii) above includes Rs.82.07 crores in respect of sale of certain
 non-performing financial assets for which, the Bank has, in terms of
 RBI Circular DBOD.BP.BC.No.9/21.04.048/2014-15 on Prudential norms on
 income recognition, asset classification and provisioning pertaining to
 advances dated July 1, 2014 spread the net short fall in recovery of
 net book value of Rs. 8.32 crores included in item (v) above, over a
 period of two years. Consequently an amount of Rs. 1.66 crores has been
 charged to the profit and loss account during the year ended March 31,
 2015 and the unamortized balance as at March 31,2015 amounts to Rs. 6.66
 crores. The shortfall in respect of sale of standard financial assets
 amounting to Rs. 29.42 crores has been debited to the profit and loss
 3. Penalties levied by the Reserve Bank of India
 The penalty imposed by RBI during the year ended March 31, 2015 was
 Rs.52,550/- (Previous year Rs.47,830/-)
 4. Draw Down from Reserves
 a) In accordance with the requirements of Schedule II of the Companies
 Act, 2013, the Bank has re-assessed the useful lives of the fixed
 assets and an amount of Rs.9.38 crores (net of taxes) has been drawn from
 the Revenue and Other Reserve in respect of assets whose useful life is
 nil as at April 1, 2014.
 b) In accordance with Reserve Bank of India guidelines vide circular
 No. DBOD. No. BP BC. 77/ 21.04.018/ 2013-14 dated December 20, 2013,
 the Bank has created Deferred Tax Liability amounting to Rs.20.49 crore
 during the previous year on the Special Reserve under Section 36 (i)
 (viii) of Income Tax Act. Out of the total DTL created an amount of
 Rs.14.71 crore pertaining to the Special Reserve outstanding as at March
 31,2013 has been drawn from the General Reserve as permitted.
 c) During the previous year, in accordance with the exemption from the
 provisions of Section 13 of Banking Regulation Act, 1949 granted vide
 Central Government Notification No. S.O.214 (E) dated January 21,2014,
 the bank had appropriated an amount of Rs.4.49 crore from Share Premium
 Account towards expenditure incurred in connection with Qualified
 Institutional Placement Issue as per the provisions of Section 78 of
 the Companies Act, 1956. There is no such transfer in the current year.
 1. Fixed Assets
 Premises of the Bank were revalued as on March 31, 2011 in accordance
 with the policy formulated by the Bank based on RBI guidelines by
 professionally qualified independent valuers empanelled by the Bank
 using the indices based on current market price. The written down value
 of the premises has been increased from Rs.192.31 crore to Rs.326.18 crore
 and the resultant appreciation in the value amounting to Rs. 133.87 crore
 has been credited to revaluation reserve during 2010-11.
 The software capitalized under Fixed Asset (Net of depreciation) was
 Rs.13.34 crores. (PY Nil) as at March 31, 2015.
 5. Related party disclosure:
 a. Key Management Personnel
 Sri V. G. Mathew, Managing Director & Chief Executive Officer.
 (01.10.2014 to 31.03.2015) Dr. V. A. Joseph, Managing Director & Chief
 Executive Officer. (01.04.2014 to 30.09.2014) Sri C. P. Gireesh, Chief
 Financial Officer (01.04.2014 to 31.03.2015)
 Sri Jimmy Mathew, Company Secretary (01.04.2014 to 31.03.2015)
 6. Employee Benefits
 a) Retirement Benefits
 The bank has recognized the following amounts in the Profit and Loss
 account towards employee benefits as under:
 The employee benefits on account of pension, gratuity and Leave have
 been ascertained on actuarial valuation in accordance with Accounting
 Standard - 15 (revised).
 During the year ended 31.03.201 1, the Bank had re-opened the pension
 option for those employees who had joined the Bank prior to 29th
 September 1995 and had not opted for the pension scheme earlier.
 Consequently, 2217 employees had exercised their option for the pension
 scheme and the bank has incurred an extra liability of Rs.135.13 crore.
 Further, during the year ended 31.03.201 1, the limit of gratuity
 payable to the employees of the bank was also enhanced from Rs.3.50 Lakhs
 to Rs.10.00 Lakhs, pursuant to the amendment to the Payment of Gratuity
 Act, 1972. As a result, the gratuity liability of the Bank has
 increased by Rs. 21.40 crore. The extra cost of pension and gratuity to
 employees works out to Rs.156.53 crore.
 In terms of the requirements of the Accounting Standard (AS) 15,
 Employee Benefits, the entire amount of Rs.156.53 crore is required to be
 charged to the Profit and Loss account for the year ended 31.03.201 1.
 However, in accordance with the circular issued by Reserve Bank of
 India vide reference number DBOD.BP.BC.80/21.04.018/2010-11 dated
 February 9, 2011, and made applicable to our bank vide DBOD No.BP.
 BC.15896/21.04.018/2010-11 dated April 8, 2011, the Bank would amortize
 the amount of Rs.156.53 crore over a period of five years. During the
 current year 2014-15, bank has amortized an amount of Rs.22.49 crore
 (Rs.20.41 crore towards pension and Rs.2.08 towards gratuity) to complete
 the amortization. Had the above circular been not issued by the RBI,
 Net profit of the Bank for the year would have been higher by Rs.14.85
 crore pursuant to the application of AS 15.
 9. Tier II Bonds
 Lower Tier II Bonds outstanding as at March 31,2015 (included under
 Schedule 14 Borrowings) is Rs.200.00 crore (Previous Year Rs. 200.00
 Amount reckoned for Tier II Capital as per RBI guidelines is Rs.200.00
 crore (Previous Year Rs.200.00 crore).
 10. Disclosures on Remuneration
 a) Information relating to the composition and mandate of the
 Remuneration Committee.
 The remuneration committee of the Board consists of three members of
 which one member from Risk Management Committee of the Board facilitate
 effective governance of compensation.
 The roles and responsibilities of the Compensation & Remuneration
 Committee are as follows:
 - To oversee the framing, review and implementation of Bank''s overall
 compensation structure and related polices on remuneration packages
 payable to all employees and the WTDs / MD & CEO including performance
 linked incentives, perquisites, stock option scheme etc., with a view
 to attract, motivate and retain employees and review compensation
 levels vis-a-vis other Banks and the industry in general.
 - The CRC works in close coordination with the Risk Management
 Committee of the Bank, in order to achieve effective alignment between
 remuneration and risks. The CRC also ensures that the cost / income
 ratio of the Bank supports the remuneration package consistent with
 maintenance of sound capital adequacy ratio.
 - With respect to the performance linked incentive schemes, the CRC is
 empowered to:
 (i) Draw up terms and conditions and approve the changes, if any, to
 the performance linked incentive schemes;
 (ii) Moderate the scheme on an ongoing basis depending upon the
 circumstances and link the same with the recommendations of Audit
 (iii) Coordinate the progress of growth of business vis -a- vis the
 business parameters laid down by the Board and Audit Committee and
 effect such improvements in the scheme as are considered necessary;
 (iv) On completion of the year, finalize the criteria of allotment of
 marks to ensure objectivity / equity.
 - The CRC also functions as the Compensation Committee as prescribed
 under the SEBI (Employee Stock Option Scheme and Employee Stock
 Purchase Scheme) Guidelines, 1999 and is empowered to formulate
 detailed terms and conditions of the scheme, administer, supervise the
 same and to allot shares in compliance with the guidelines and other
 applicable laws.
 - To obtain necessary clearances and approvals from regulatory
 authorities, appoint merchant bankers and do such other things as may
 be necessary in respect of the Employees Stock Option Scheme.
 - To oversee the administration of employee benefits, such as,
 provident fund, pension fund, gratuity, compensation for absence on
 privilege / sick / casual leave etc., which are recognized in
 accordance with Accounting Standard 15 (revised) notified under Section
 133 of the Companies Act, 2013 read with Rule 7 of Companies (Accounts)
 Rules, 2014.
 - The CRC may suggest amendments to any stock option plans or incentive
 plans, provided that all amendments to such plans shall be subject to
 consideration and approval of the Board.
 - Any other matters regarding remuneration to WTDs / MD & CEO and other
 staffs of the Bank as and when permitted by the Board.
 - To conduct the annual review of the Compensation Policy.
 - To fulfill such other powers and duties as may be delegated to it by
 the Board.
 b) Information relating to the design and structure of remuneration
 processes and the key features and objectives of remuneration policy.
 The Bank has formed the compensation policy based on the Reserve Bank
 of India guidelines vide its Circular No. DBOD.
 No.BC.72/29.67.001/2011-12 dt. January 13, 2012.
 The fixed remuneration and other allowances including retirement
 benefits of all subordinate, clerical and officers up to the rank of
 General Manager (Scale VII) is governed by the industry level wage
 settlement under Indian Banks Association (IBA) pattern. In respect of
 officers above the cadre of General Manager, the fixed remuneration is
 fixed by Board / Committee.
 Further, the compensation structure for the Whole Time Directors (WTDs)
 / Managing Director & Chief Executive Officers (MD & CEO) of the bank
 are subject to approval of Reserve Bank of India in terms of Section 35
 B of the Banking Regulation Act, 1949. The payment of compensation also
 requires approval of the shareholders of the Bank in the General
 Meeting pursuant to clause 95 of Articles of Association of the Bank
 read with Section 197 of the Companies Act, 2013.
 c) Description of the ways in which current and future risks are taken
 into account in the remuneration processes. It should include the
 nature and type of the key measures used to take account of these
 The Board of Directors through the CRC shall exercise oversight and
 effective governance over the framing and implementation of the
 Compensation Policy. Human Resource Management under the guidance of MD
 & CEO shall administer the compensation and Benefit structure in line
 with the best suited practices and statutory requirements as
 d) Description of the ways in which the bank seeks to link performance
 during a performance measurement period with levels of remuneration.
 The factors taken in to account for the annual review and revision in
 the variable pay and performance bonus are:
 - The performance of the Bank
 - The performance of the business unit
 - Individual performance of the employee
 - Other risk perceptions and economic considerations.
 Further, the Bank has not identified any employee as risk taker for
 the purpose of variable pay under this compensation policy.
 e) A discussion of the bankRs.s policy on deferral and vesting of
 variable remuneration and a discussion of the bankRs.s policy and
 criteria for adjusting deferred remuneration before vesting and after
 - Where the variable pay constitutes a substantial portion of the fixed
 pay, i.e., 50% or more, an appropriate portion of the variable pay,
 i.e., 40% will be deferred for over a period of 3 years.
 - In case of deferral arrangements of variable pay, the deferral period
 shall not be less than three years. Compensation payable under deferral
 arrangements shall vest no faster than on a pro rata basis.
 - The Board may adopt principles similar to that enunciated for WTDs /
 CEOs, as appropriate, for variable pay-timing, mRs.alus / clawback,
 guaranteed bonus and hedging.
 - Employee Stock Option Scheme / Employee Stock Option Plan as may be
 framed by the Board from time to time in conformity with relevant
 statutory provisions and SEBI guidelines as applicable will be excluded
 from the components of variable pay.
 f) Description of the different forms of variable remuneration (i.e.,
 cash, shares, ESOPs and other forms) that the bank utilizes and the
 rationale for using these different forms.
 - Variable pay means the compensation as fixed by the Board on
 recommendation of the Committee, which is based on the performance
 appraisal of an employee in that role, that is, how well they
 accomplish their goals. It may be paid as:
 I. Performance Linked Incentives to those employees who are eligible
 for incentives.
 II. Exgratia for other employees who are not eligible for Performance
 linked Incentives.
 III. Bonus for those staff members who are eligible for bonus under the
 Payment of Bonus Act, 1965
 IV. Any other incentives, by whatever name called having the features
 similar to the above.
 12. Credit Default Swaps: The bank has not taken any credit default
 swaps during the year and the balance outstanding as at March 31, 2015
 is nil.
 NO Contingent liability Brief Description
 1 Claims not acknowledged as debts This includes liability on account
 of Service tax, and other legal cases filed against the bank. The bank
 is a party to various legal proceedings in the ordinary course of
 business and these are contested by the Bank and are therefore
 subjudice. The bank does not expect the outcome of these proceedings to
 have a material adverse impact on the bankRs.s financial position.
 2 Liability on account of outstanding The bank enters into foreign
 exchange contracts with interbank participants on its own forward
 contracts account and for its customers. Forward exchange contracts are
 commitments to buy or sell foreign currency at a future date at the
 contract rate.
 3 Guarantees on behalf of constituents As a part of banking activities,
 the Bank issues Letter of Guarantees on behalf of its in India
 customers. Guarantees generally represent irrevocable assurances that
 the bank will make payments in the event of customer failing to fulfill
 its financial or performance obligations.
 4 Acceptances, endorsements and As a part of banking activities, the
 Bank issues documentary credit on behalf of its other obligations
 customers. Documentary credits such as letters of obligations,
 enhancing the credit standing of the customers of the bank which
 generally represent irrevocable assurances that the bank will make
 payments in the event of customer failing to fulfill its financial
 5 Other items for which the bank is These include amounts which may
 become payable in respect of capital commitments.  contingently liable
 * Also refer schedule - 12
 17. Unhedged Foreign Currency Exposure :
 The Bank has in place a policy on managing credit risk arising out of
 unhedged foreign currency exposures of its borrowers. The objective of
 this policy is to maximize the hedging on foreign currency exposures of
 borrowers by reviewing their foreign currency product portfolio and
 encouraging them to hedge the unhedged portion. In line with the
 policy, assessment of unhedged foreign currency exposure is a part of
 assessment of borrowers and is undertaken while proposing limits or at
 the review stage.
 Further, the Bank reviews the unhedged foreign currency exposure across
 its portfolio on a periodic basis. The Bank also maintains incremental
 provision towards the unhedged foreign currency exposures of its
 borrowers in line with the extant RBI guidelines. The Bank has
 maintained provision of Rs.15.12crores (PY Nil) and additional capital of
 Rs.17.10 crores (PY Nil) on account of Unhedged Foreign Currency Exposure
 of its borrowers as at March 31,2015.
 19. Qualitative Disclosure around LCR
 The Bank measures and monitors the LCR in line with the Reserve Bank of
 IndiaRs.s circular dated June 9, 2014 on Basel III Framework on
 Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk
 Monitoring Tools and LCR Disclosure Standards. The LCR guidelines aim
 to ensure that a bank maintains an adequate level of unencumbered High
 Quality Liquid Assets (HQLAs) that can be converted into cash to meet
 its liquidity needs for a 30 calendar day time horizon under a
 significantly severe liquidity stress scenario. At a minimum, the stock
 of liquid assets should enable the bank to survive until day 30 of the
 stress scenario, by which time it is assumed that appropriate
 corrective actions can be taken. Banks are required to maintain High
 Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by
 January 1, 2019.  However, with a view to provide transition time, the
 guidelines mandate a minimum requirement of 60% w.e.f. January 1, 2015
 and a step up of 10% every year to reach the minimum requirement of
 100% by January 1, 2019. The adequacy in the LCR maintenance is an
 outcome of a conscious strategy of the Bank towards complying with LCR
 mandate ahead of the stipulated time lines. The monthly average LCR of
 the bank for the quarter ended March 2015 is 107.06%.
 The Bank has been maintaining HQLA primarily in the form of SLR
 investments over and above mandatory requirement, regulatory
 dispensation allowed upto 2% of NDTL in the form of borrowing limit
 available through Marginal Standing Facility (MSF) and 5% of NDTL as
 Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR).
 Level 1 asset contributes to 98.27% of the total high quality liquid
 assets of the bank of which the major contribution is from the
 Government securities.
 The principal components of the estimated cash out flows which could
 arise in next 30 days are retail deposits (47.15%) and unsecured
 wholesale funding (28.84%). The bank intends to fund the short term
 cash outflows from extremely liquid Government securities and funding
 for estimated cash outflows considered in LCR computation substantially
 flows from this source.
 Bank has only forward contract as derivative exposure. The bank is
 managing its liquidity from the centralized fund management cell
 attached to Treasury Department, Mumbai.
 20. Figures of the previous year have been regrouped to confirm to the
 current year presentation wherever necessary.
Source : Dion Global Solutions Limited
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