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South Indian Bank
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« Mar 13
Notes to Accounts Year End : Mar '14
1.  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.
 
 2.  Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL)
 exceeded by the bank
 
 During the year the bank had sanctioned credit limits, with the
 approval of the Board, to the following borrowers which were in excess
 of prudential exposure limits as indicated hereunder.
 
 3.  Penalties levied by the Reserve Bank of India
 
 The penalty imposed by RBI during the year ended March 31, 2014 was
 Rs.47,830 (Previous year Nil)
 
 4.  Provisions and Contingencies debited to Profit and Loss Account (Rs.
 in Crore)
 
 Break up of ''Provisions and Contingencies''                (Rs. in Crore)
 shown under the head Expenditure in Profit 
 and Loss Account                                31.03.2014   31.03.2013
 
 Provision for NPA/NPIs                              136.92       131.90
 
 Provision for taxes (Net)*                          242.41       182.97
 
 Deferred Tax (Net)                                 (20.97)      (29.38)
 
 Provision for Standard Assets                        31.09        32.49
 
 Provision for Restructured Advances                   9.70        18.63
 
 Provision for depreciation in the value of 
 investments                                        (28.47)        11.23
 
 Others                                                6.]6       (1.53)
 
 TOTAL                                               376.84       346.31
 
 * Includes Wealth Tax Rs.0.03 Crore (Rs.0.02 Crore).
 
 5.   Draw Down from Reserves
 
 a) 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 current year on the Special Reserve under Section 36 (1)
 (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.
 
 b) In accordance with the exemption from the provisions of Section 13
 of Banking Regulation Act, 1949 granted vide Central Government
 Notification No. S.0.214 (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 QIP Issue as per the
 provisions of Section 78 of the Companies Act, 1956.
 
 B.  OTHER DISCLOSURES
 
 1.  Fixed Assets
 
 Premises of the Bank were revalued as on 31.03.2011 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.
 
 Note: In FY 2012-13, the Board of Directors of the Bank passed a
 resolution to not withdraw any amount in the future from the Special
 Reserve created under Section 36(1)(Viii) of the Income Tax Act 1961.
 Accordingly, the Bank treated the tax difference arising on account of
 the special reserve as a permanent difference and reversed the deferred
 tax liability previously created in March 31, 2012 in respect of such
 Special Reserve.
 
 Pursuant to a Notification No. DBOD. No. BP.BC.77 / 21.04.018 / 2013-14
 dated December 20, 2013 issued by the Reserve Bank of India, all banks
 are now required to create deferred tax liability in respect of the
 Special Reserve created under Section 36(1)(Viii) of the Income Tax Act
 1961 on a prudent basis. Accordingly, the Bank has created a deferred
 tax liability of Rs.20.49 Crores as at March 31, 2014. Out of this
 amount, an amount of Rs.14.71 Crores which pertains to periods prior to
 March 31, 2013 has been debited to the general reserve and the amount
 of Rs.5.78 Crores which pertains to the year ended March 31, 2014 has
 been debited to the profit and loss account in accordance with the
 accounting treatment prescribed by the Reserve Bank of India through
 the above notification. Had the Bank debited the opening deferred tax
 liability for financial years up to March 31, 2013 to the profit and
 loss account in accordance with accounting principles generally
 accepted in India, the profit after tax of the Bank for the year ended
 March 31, 2014 would have been lower by Rs.14.71 Crores.
 
 6.  Related Party Disclosure:
 
 a.  Key Management Personnel
 
 Dr. V. A. Joseph, Managing Director & Chief Executive Officer.
 
 b.  Gross Remuneration paid Rs.79.24 Lakhs (Previous year Gross Rs.70.40
 Lakhs).
 
 Note: The remuneration to the key managerial personnel does not include
 the provisions made for gratuity and leave benefits as they are
 determined on an actuarial basis for the bank as a whole.
 
 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 31.03.2011, 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 31.03.2011, 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 31.03.2011.
 However, in accordance with the Circular issued by Reserve Bank of
 India vide reference number DBOD.BPBC.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 2013-14, bank has amortized an amount of Rs.28.23
 Crore (Rs.24.72 Crore towards pension and Rs.3.51 Crore towards gratuity)
 and balance unamortized amount to be carried forward as on 31.03.2014
 is Rs.22.49 Crore. Had the above circular been not issued by the RBI, Net
 Profit of the Bank for the year would have been higher by Rs.18.63 Crore
 pursuant to the application of AS 15 and the reserve would have been
 lower by Rs.22.49 Crore.
 
 h) Compensation for absence on Privilege / Sick / Casual Leave
 
 The charge on account of compensation for privilege / sick / casual
 leave has been actuarially determined and a charge of Rs.11.52 Crore
 (Previous year Rs.10.97 Crore) has been debited to Profit and Loss
 account.
 
 7.  The Bank has not received any intimation from Suppliers regarding
 their status under the Micro, Small and Medium Enterprises Development
 Act, 2006 and hence disclosures, if any, relating to amounts unpaid as
 at the year-end together with interest paid / payable as required under
 the said Act have not been given.
 
 8.  Tier II Bonds
 
 Lower Tier II Bonds outstanding as at March 31, 2014 is Rs.200.00 Crore
 (Previous Year Rs.265.00 Crore).  Amount reckoned for Tier II Capital as
 per RBI guidelines is Rs.200.00 Crore (Previous Year Rs.200.00 Crore).
 
 9.  Disclosures on Remuneration
 
 (a) Information relating to the composition and mandate of the
 Remuneration Committee.
 
 The Board of Directors of Bank through the Compensation and
 Remuneration Committee (CRC) of the Board oversee the framing, review
 and implementation of compensation policy. The CRC comprise 4
 independent directors including the non-executive chairman.
 
 CRC of the Bank as on March 31, 2014 is having the following
 independent directors:
 
 - Mr. Amitabha Guha, Chairman
 
 - Mr. Paul Chalissery
 
 - Mr. Mohan E. Alapatt
 
 - Dr. John Joseph Alapatt
 
 The roles and responsibilities of the CRC 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:
 
 a) Draw up terms and conditions and approve the changes, if any, to the
 performance linked incentive schemes;
 
 b) Moderate the scheme on an ongoing basis depending upon the
 circumstances and link the same with the recommendations of Audit
 Committee;
 
 c) 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;
 
 d) 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) specified in the
 Companies (Accounting Standards) Rules, 2006.
 
 - 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 dtd. 13/01 /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 (MDSCEO)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 the Section 309 (1) of the Companies Act, 1956.
 
 (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
 risks.
 
 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
 applicable.
 
 (d) Description of the ways in which the bank seeks to link performance
 during a performance measurement period with levels of remuneration and
 a discussion of the bank''s policy on deferral and vesting of variable
 remuneration and a discussion of the bank''s policy and criteria for
 adjusting deferred remuneration before vesting and after vesting.
 
 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) 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.  Ex-gratia 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.
 
 - 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, malus/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.
 
 10.  Credit Default Swaps: NIL.
 
 11.  Description of contingent liabilities
 
 Sl.  Contingent liability *     Brief Description
 No.
 
 1.  Claims not acknowledged as This includes liability on account of
                                Service tax, and other legal cases 
                                filed against the bank. The 
     debts
                                bank is a party to various legal 
                                proceedings in the ordinary course of
                                business and these are
                                contested by the Bank and are therefore
                                sub judice. The bank does not
                                expect the outcome of these proceedings
                                to have a material adverse
                                impact on the bank''s financial position.
 
 2.  Liability on account of    The bank enters into foreign exchange
                                contracts with inter-bank participants 
                                on its own account 
     outstanding forward 
     contracts                  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    As a part of banking activities, the Bank
                                issues Letter of Guarantees on behalf of
                                its customers, 
     constituents in India      Guarantees generally represent 
                                irrevocable assurances that the
                                bank will make payments in the
                                event of customer failing to fulfil 
                                its financial or performance
                                obligations.
 
 4.  Acceptances, endorsements 
    and                         As a part of banking activities, the
                                Bank issues documentary credit on 
                                behalf of its customers,
    other obligations           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 fulfil its financial 
                                obligations.
 
 5.  Other items for which the 
     bank                       These include amounts which may
                                become payable in respect of capital 
                                commitments, 
    is contingently liable
 
 * Also refer Schedule - 12
 
 12.  Figures of the previous year have been regrouped to confirm to the
 current year presentation wherever necessary.
 
 
 SCHEDULE 13 - CONTINGENT LIABILITIES
 
 I.  Claims against the Bank not acknowledged as debts:
 
 (i) Service Tax disputes                             21,600      21,600
 
 (ii) Others                                          62,542      65,830
 
 II.  Liability on account of outstanding Forward
 
 Exchange Contracts1                              169,284,431 72,584,035
 
 III. Guarantees given on behalf of 
      constituents in India                        11,746,807 25,339,493
 
 IV. Acceptances, endorsements and 
     other obligations                             10,234,262  7,538,973
 
 V.  Other items for which the bank is 
     contingently liable:
 
 Capital Commitments -                                 -         283,700
 
                  TOTAL                          191,349,642 105,833,631
Source : Dion Global Solutions Limited
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