A. Basis of Preparation
The Bank''s financial statements are prepared under the historical cost
convention, on the accrual basis of accounting, unless otherwise stated
and conform in all material aspects to Generally Accepted Accounting
Principles (GAAP) in India, which comprise applicable statutory
provisions, regulatory norms/guidelines prescribed by Reserve Bank of
India (RBI), Accounting Standards issued by the Institute of Chartered
Accountants of India (ICAI), and the practices prevalent in the banking
industry in India.
B. Use of Estimates
The preparation of financial statements requires the management to make
estimates and assumptions considered in the reported amount of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. Management believes that the estimates used in
the preparation of the financial statements are prudent and reasonable.
Future results could differ from these estimates.
C. Significant Accounting Policies
1. Revenue recognition
1.1 Income and expenditure are accounted on accrual basis, except
otherwise stated. In respect of banks'' foreign offices, income is
recognised as per the local laws of the country in which the respective
foreign office is located.
1.2 Interest income is recognised in the Profit and Loss Account as it
accrues except (i) income from non- performing assets (NPAs),
comprising of advances, leases and investments, which is recognised
upon realisation, as per the prudential norms prescribed by the RBI/
respective country regulators in case of foreign offices (hereafter
collectively referred to as Regulatory Authorities), (ii) interest on
application money on investments, (iii) overdue interest on investments
and bills discounted, (iv) Income on Rupee Derivatives designated as
1.3 Profit or loss on sale of investments is recognised in the Profit
and Loss Account, however, the profit on sale of investments in the
''Held to Maturity'' category is appropriated net of applicable taxes and
amount required to be transferred to statutory reserve to ''Capital
1.4 Income from finance leases is calculated by applying the interest
rate implicit in the lease to the net investment outstanding in the
lease, over the primary lease period. Leases effective from April 1,
2001 are accounted as advances at an amount equal to the net investment
in the lease. The lease rentals are apportioned between principal and
finance income based on a pattern reflecting a constant periodic return
on the net investment outstanding in respect of finance leases. The
principal amount is utilized for reduction in balance of net investment
in lease and finance income is reported as interest income.
1.5 Income (other than interest) on investments in Held to Maturity
(HTM) category acquired at a discount to the face value, is recognised
as follows :
a. On Interest bearing securities, it is recognised only at the time
of sale/ redemption.
b. On zero-coupon securities, it is accounted for over the balance
tenor of the security on a constant yield basis.
1.6 Dividend is accounted on an accrual basis where the right to
receive the dividend is established.
1.7 All other commission and fee incomes are recognised on their
realisation except for (i) Guarantee commission on deferred payment
guarantees, which is spread over the period of the guarantee and (ii)
Commission on Government Business, which is recognised as it accrues.
1.8 One time Insurance Premium paid under Special Home Loan Scheme
(December 2008 to June 2009) is amortised over average loan period of
The transactions in Government Securities are recorded on Trade Date
up to 31.12.2010 and on Settlement Date with effect from 01.01.2011.
Investments other than Government Securities are recorded on Trade
Investments are classified into three categories, viz. Held to
Maturity (HTM), Available for Sale (AFS) and Held for Trading (HFT)
2.2 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 as Held to Maturity, Available for
Sale or Held for Trading at the time of its purchase and subsequent
shifting amongst categories is done in conformity with regulatory
v. Investments in subsidiaries, joint ventures and associates are
classified as Held to Maturity.
i. In determining the acquisition cost of an investment:
(a) Brokerage/commission received on subscriptions is reduced from the
(b) Brokerage, commission, securities transaction tax etc. paid in
connection with acquisition of investments are expensed upfront and
excluded from cost.
(c) Broken period interest paid / received on debt instruments is
treated as interest expense/income and is excluded from cost/ sale
(d) Cost is determined on the weighted average cost method for
investments under AFS and HFT category and on FIFO basis (first in
first out) for investments under HTM category.
ii. The transfer of a security amongst the above three categories is
accounted for at the least of acquisition cost/book value/market value
on the date of transfer, and the depreciation, if any, on such transfer
is fully provided for.
iii. Treasury Bills and Commercial Papers are valued at carrying cost.
iv. Held to Maturity category: Investments under Held to Maturity
category are carried at acquisition cost unless it is more than the
face value, in which case the premium is amortised over the period
remaining maturity on constant yield basis. Such amortisation of
premium is adjusted against income under the head interest on
investments. Investments in subsidiaries, joint ventures and
associates (both in India and abroad) are valued at historical cost
except for investments in Regional Rural Banks, which are valued at
carrying cost (i.e book value). A provision is made for diminution,
other than temporary, for each investment individually.
v. Available for Sale and Held for Trading categories:
Investments held under AFS and HFT categories are individually revalued
at the market price or fair value determined as per Regulatory
guidelines, and only the net depreciation of each group for each
category is provided for and net appreciation, is ignored. On provision
for depreciation, the book value of the individual securities remains
unchanged after marking to market.
vi. Security receipts issued by an asset reconstruction company (ARC)
are valued in accordance with the guidelines applicable to non-SLR
instruments. Accordingly, in cases where the security receipts issued
by the ARC are limited to the actual realisation of the financial
assets assigned to the instruments in the concerned scheme, the Net
Asset Value, obtained from the ARC, is reckoned for valuation of such
vii. Investments are classified as performing and non-performing, based
on the guidelines issued by the RBI in case of domestic offices and
respective regulators in case of foreign offices. Investments of
domestic offices become non- performing where:
(a) Interest/installment (including maturity proceeds) is due and
remains unpaid for more than 90 days.
(b) In the case of equity shares, in the event the investment in the
shares of any company is valued at Rs1 per company on account of the non
availability of the latest balance sheet, those equity shares would be
reckoned as NPI.
(c) If any credit facility availed by the issuer is NPA in the books of
the bank, investment in any of the securities issued by the same issuer
would also be treated as NPI and vice versa.
(d) The above would apply mutatis-mutandis to preference shares where
the fixed dividend is not paid.
(e) The investments in debentures/bonds, which are deemed to be in the
nature of advance, are also subjected to NPI norms as applicable to
(f) In respect of foreign offices, provisions for non performing
investments are made as per the local regulations or as per the norms
of RBI, whichever is higher.
viii. Accounting for Repo/ reverse repo transactions (other than
transactions under the Liquidity Adjustment Facility (LAF) with the
(a) The securities sold and purchased under Repo/ Reverse repo are
accounted as Collateralized lending and borrowing transactions. However
securities are transferred as in case of normal outright sale/ purchase
transactions and such movement of securities is reflected using the
Repo/ Reverse Repo Accounts and Contra entries. The above entries are
reversed on the date of maturity. Costs and revenues are accounted as
interest expenditure/income, as the case may be. Balance in Repo A/c is
classified under schedule 4 (Borrowings) and balance in Reverse Repo
A/c is classified under schedule 7 (Balance with Banks and Money at
Call & Short Notice).
(b) Securities purchased / sold under LAF with RBI are debited /
credited to Investment Account and reversed on maturity of the
transaction. Interest expended / earned thereon is accounted for as
expenditure / revenue.
3. Loans / Advances and Provisions thereon
3.1 Loans and Advances are classified as performing and non-performing,
based on the guidelines issued by RBI.
Loan assets become non-performing assets (NPAs) where:
i. In respect of term loans, interest and/or instalment of principal
remains overdue for a period of more than 90 days;
ii. In respect of Overdraft or Cash Credit advances, the account
remains out of order, i.e. if the outstanding balance exceeds the
sanctioned limit/drawing power continuously for a period of 90 days, or
if there are no credits continuously for 90 days as on the date of
balance-sheet, or if the credits are not adequate to cover the interest
due during the same period;
iii. In respect of bills purchased/discounted, the bill remains overdue
for a period of more than 90 days;
iv. In respect of agricultural advances for short duration crops,
where the instalment of principal or interest remains overdue for two
v. In respect of agricultural advances for long duration crops, where
the principal or interest remains overdue for one crop season.
3.2 NPAs are classified into sub-standard, doubtful and loss assets,
based on the following criteria stipulated by RBI:
i. Sub-standard: A loan asset that has remained non-performing for a
period less than or equal to 12 months.
ii. Doubtful: A loan asset that has remained in the sub-standard
category for a period of 12 months.
iii. Loss: A loan asset where loss has been identified but the amount
has not been fully written off.
3.3 Provisions are made for NPAs as per the extant guidelines
prescribed by the regulatory authorities, subject to minimum provisions
as prescribed below:
i. A general provision of 15%
ii. Additional provision of 10% for exposures which are unsecured
ab-initio (i.e. where realisable value of security is not more than 10
iii. Unsecured Exposure in respect of infrastructure loan accounts
where certain safeguards such as escrow accounts are available - 20%
- Secured portion: i. Upto one year - 25%
ii. One to three years - 40%
iii. More than three years - 100%
- Unsecured portion 100%
Loss Assets: 100%
3.4 In respect of foreign offices, classification of loans and advances
and provisions for non performing advances are made as per the local
regulations or as per the norms of RBI, whichever is more stringent.
3.5 The sale of NPAs is accounted as per guidelines prescribed by RBI.
If the sale is at a price below net book value, the shortfall is
debited to the profit and loss account, and in case of sale for a value
higher than net book value, the excess provision is retained and
utilised to meet the shortfall / loss on sale of other financial
assets. Net book value is outstandings as reduced by specific
provisions held and ECGC claims received.
3.6 Advances are net of specific loan loss provisions, unrealised
interest, ECGC claims received and bills rediscounted.
3.7 For restructured/rescheduled assets, provisions are made in
accordance with the guidelines issued by RBI, which require that the
difference between the fair value of the loan before and after
restructuring is provided for, in addition to provision for NPAs. The
provision for diminution in fair value and interest sacrifice, arising
out of the above, is reduced from advances.
3.8 In the case of loan accounts classified as NPAs, an account may be
reclassified as a performing asset if it conforms to the guidelines
prescribed by the regulators.
3.9 Amounts recovered against debts written off in earlier years are
recognised as revenue.
3.10 In addition to the specific provision on NPAs, general provisions
are also made for standard assets. These provisions are reflected in
Schedule 5 of the balance sheet under the head Other Liabilities &
Provisions - Others and are not considered for arriving at Net NPAs.
4. Floating Provisions
The bank has a policy for creation and utilisation of floating
provisions separately for advances, investments and general purpose.
The quantum of floating provisions to be created is assessed at the end
of each financial year. The floating provisions are utilised only for
contingencies under extra ordinary circumstances specified in the
policy with prior permission of Reserve Bank of India.
5. Provision for Country Exposure
In addition to the specific provisions held according to the asset
classification status, provisions are held for individual country
exposures (other than the home country). Countries are categorised into
seven risk categories namely, insignificant, low, moderate, high, very
high, restricted and off-credit and provisioning made as per extant RBI
guidelines. If the country exposure (net) of the bank in respect of
each country does not exceed 1% of the total funded assets, no
provision is maintained on such country exposures. The provision is
reflected in schedule 5 of the balance sheet under the head Other
liabilities & Provisions - Others.
6.1 The Bank enters into derivative contracts, such as foreign currency
options, interest rate swaps, currency swaps, and cross currency
interest rate swaps and forward rate agreements in order to hedge
on-balance sheet/off-balance sheet assets and liabilities or for
trading purposes. The swap contracts entered to hedge on-balance sheet
assets and liabilities are structured in such a way that they bear an
opposite and off setting impact with the underlying on-balance sheet
items. The impact of such derivative instruments is correlated with
the movement of the underlying assets and accounted in accordance with
the principles of hedge accounting.
6.2 Derivative contracts classified as hedge are recorded on accrual
basis. Hedge contracts are not marked to market unless the underlying
Assets / Liabilities are also marked to market.
6.3 Except as mentioned above, all other derivative contracts are
marked to market as per the generally accepted practices prevalent in
the industry. In respect of derivative contracts that are marked to
market, changes in the market value are recognised in the profit and
loss account in the period of change. Any receivable under derivatives
contracts, which remain overdue for more than 90 days, are reversed
through profit and loss account to Suspense A/c Crystallised
Receivables. In cases where the derivative contracts provide for more
settlement in future and if the derivative contract is not terminated
on the overdue receivables remaining unpaid for 90 days, the positive
MTM pertaining to future receivables is also reversed from Profit and
Loss Account to Suspense A/c - Positive MTM.
6.4 Option premium paid or received is recorded in profit and loss
account at the expiry of the option. The Balance in the premium
received on options sold and premium paid on options bought have been
considered to arrive at Mark to Market value for forex Over the Counter
6.5 Exchange Traded Derivatives entered into for trading purposes are
valued at prevailing market rates based on rates given by the Exchange
and the resultant gains and losses are recognized in the Profit and
7. Fixed Assets and Depreciation
7.1 Fixed assets are carried at cost less accumulated depreciation.
7.2 Cost includes cost of purchase and all expenditure such as site
preparation, installation costs and professional fees incurred on the
asset before it is put to use. Subsequent expenditure incurred on
assets put to use is capitalised only when it increases the future
benefits from such assets or their functioning capability.
7.4 In respect of assets acquired during the year for domestic
operations, depreciation is charged for half a year in respect of
assets used for upto 180 days and for the full year in respect of
assets used for more than 180 days, except depreciation on computers
and software, which is charged for the full year irrespective of the
period for which the asset was put to use.
7.5 Items costing less than Rs1,000 each are charged off in the year of
7.6 In respect of leasehold premises, the lease premium, if any, is
amortised over the period of lease and the lease rent is charged in the
7.7 In respect of assets given on lease by the Bank on or before 31st
March 2001, the value of the assets given on lease is disclosed as
Leased Assets under fixed assets, and the difference between the annual
lease charge (capital recovery) and the depreciation is taken to Lease
7.8 In respect of fixed assets held at foreign offices, depreciation is
provided as per the regulations /norms of the respective countries.
The asset classification and provisioning norms applicable to advances,
as laid down in Para 3 above, are applied to financial leases also.
9. Impairment of Assets
Fixed Assets are reviewed for impairment whenever events or changes in
circumstances warrant that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net
discounted cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognised
is measured by the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
10. Effect of changes in the foreign exchange rate
10.1 Foreign Currency Transactions
i. Foreign currency transactions are recorded on initial recognition
in the reporting currency by applying to the foreign currency amount
the exchange rate between the reporting currency and the foreign
currency on the date of transaction.
ii. Foreign currency monetary items are reported using the Foreign
Exchange Dealers Association of India (FEDAI) closing spot/forward
iii. Foreign currency non-monetary items, which are carried in terms at
historical cost, are reported using the exchange rate at the date of
iv. Contingent liabilities denominated in foreign currency are
reported using the FEDAI closing spot rates.
v. Outstanding foreign exchange spot and forward contracts held for
trading are revalued at the exchange rates notified by FEDAI for
specified maturities, and the resulting profit or loss is recognised in
the Profit and Loss account.
vi. Foreign exchange forward contracts which are not intended for
trading and are outstanding at the balance sheet date, are valued at
the closing spot rate. The premium or discount arising at the inception
of such a forward exchange contract is amortised as expense or income
over the life of the contract.
vii. Exchange differences arising on the settlement of monetary items
at rates different from those at which they were initially recorded are
recognised as income or as expense in the period in which they arise.
viii. Gains / Losses on account of changes in exchange rates of open
position in currency futures trades are settled with the exchange
clearing house on daily basis and such gains / losses are recognised in
the profit and loss account.
10.2 Foreign Operations
Foreign Branches of the Bank and Offshore Banking Units have been
classified as Non-integral Operations and Representative Offices have
been classified as Integral Operations.
a. Non-integral Operations:
i. Both monetary and non-monetary foreign currency assets and
liabilities including contingent liabilities of non-integral foreign
operations are translated at closing exchange rates notified by FEDAI
at the balance sheet date.
ii. Income and expenditure of non-integral foreign operations are
translated at quarterly average closing rates.
iii. Exchange differences arising on net investment in non-integral
foreign operations are accumulated in Foreign Currency Translation
Reserve until the disposal of the net investment.
iv. The Assets and Liabilities of foreign offices in foreign currency
(other than local currency of the foreign offices) are translated into
local currency using spot rates applicable to that country.
b. Integral Operations:
i. Foreign currency transactions are recorded on initial recognition
in the reporting currency by applying to the foreign currency amount
the exchange rate between the reporting currency and the foreign
currency on the date of transaction.
ii. Monetary foreign currency assets and liabilities of integral
foreign operations are translated at closing exchange rates notified by
FEDAI at the balance sheet date and the resulting profit/loss is
included in the profit and loss account.
iii. Foreign currency non-monetary items which are carried in terms of
historical cost are reported using the exchange rate at the date of the
11. Employee Benefits:
11.1 Short Term Employee Benefits:
The undiscounted amount of short-term employee benefits, such as
medical benefits, casual leave etc. which are expected to be paid in
exchange for the services rendered by employees are recognised during
the period when the employee renders the service.
11.2 Post Employment Benefits:
i. Defined Benefit Plan
a. The Bank operates a Provident Fund scheme. All eligible employees
are entitled to receive benefits under the Bank''s Provident Fund
scheme. The Bank contributes monthly at a determined rate (currently
10% of employee''s basic pay plus eligible allowance). These
contributions are remitted to a trust established for this purpose and
are charged to Profit and Loss Account. The bank recognises such annual
contributions as an expense in the year to which it relates.
b. The bank operates gratuity and pension schemes which are defined
c. The Bank provides for gratuity to all eligible employees. The
benefit is in the form of lump sum payments to vested employees on
retirement, on death while in employment, or on termination of
employment, for an amount equivalent to 15 days of basic salary payable
for each completed year of service, subject to a maximum amount of Rs10
lacs. Vesting occurs upon completion of five years of service. The
Bank makes annual contributions to a fund administered by trustees
based on an independent external actuarial valuation carried out
d. The Bank provides for pension to all eligible employees. The
benefit is in the form of monthly payments as per rules and regular
payments to vested employees on retirement, on death while in
employment, or on termination of employment. Vesting occurs at
different stages as per rules. The Bank makes annual contribution to
the pension fund at 10% of salary in terms of SBI Pension Fund Rules.
The pension liability is reckoned based on an independent actuarial
valuation carried out annually and Bank makes such additional
contributions to the Fund as may be required to secure payment of the
benefits under the pension regulations.
e. The cost of providing defined benefits is determined using the
projected unit credit method, with actuarial valuations being carried
out at each balance sheet date. Actuarial gains/losses are immediately
recognised in the statement of profit and loss and are not deferred.
ii. Defined Contribution Plans
The bank operates a new pension scheme (NPS) for all officers /
employees joining the Bank on or after 1st August, 2010, which is a
defined contribution plan, such new joinees not being entitled to
become members of the existing SBI Pension Scheme. As per the scheme,
the covered employees contribute 10% of their basic pay plus dearness
allowance to the scheme together with a matching contribution from the
Bank. Pending completion of registration procedures, these
contributions are retained as deposits in the bank and earn interest at
the same rate as that of the current account of Provident Fund balance.
The bank recognises such annual contributions and interest as an
expense in the year to which they relate.
iii. Other Long Term Employee benefits:
a. All eligible employees of the bank are eligible for compensated
absences, silver jubilee award, leave travel concession, retirement
award and resettlement allowance. The costs of such long term employee
benefits are internally funded by the Bank.
b. The cost of providing other long term benefits is determined using
the projected unit credit method with actuarial valuations being
carried out at each balance sheet date. Past service cost is
immediately recognised in the statement of profit and loss and is not
11.3 Employee benefits relating to employees employed at foreign
offices are valued and accounted for as per the respective local
12. Taxes on income
12.1 Income tax expense is the aggregate amount of current tax and
deferred tax. Current taxes are determined in accordance with the
provisions of Accounting Standard 22 and tax laws prevailing in India
after taking into account taxes of foreign offices, which are based on
the tax laws of respective jurisdiction. Deferred tax adjustments
comprise of changes in the deferred tax assets or liabilities during
12.2 Deferred tax assets and liabilities are measured using tax rates
and tax laws that have been enacted or substantially enacted prior to
the balance sheet date. Deferred tax assets and liabilities are
recognised on a prudent basis for the future tax consequences of timing
differences arising between the carrying values of assets and
liabilities and their respective tax bases, and carry forward losses.
The impact of changes in the deferred tax assets and liabilities is
recognised in the profit and loss account.
12.3 Deferred tax assets are recognised and reassessed at each
reporting date, based upon management''s judgement as to whether
realisation is considered reasonably certain. Deferred tax assets are
recognised on carry forward of unabsorbed depreciation and tax losses
only if there is virtual certainty that such deferred tax assets can be
realised against future profits.
13. Earnings per Share
13.1 The Bank reports basic and diluted earnings per share in
accordance with AS 20 -''Earnings per Share'' issued by the ICAI. Basic
earnings per share are computed by dividing the net profit after tax by
the weighted average number of equity shares outstanding for the year.
13.2 Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue equity shares
were exercised or converted during the year. Diluted earnings per share
are computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding at year end.
14. Provisions, Contingent Liabilities and Contingent Assets
14.1 In conformity with AS 29, Provisions, Contingent Liabilities and
Contingent Assets, issued by the Institute of Chartered Accountants of
India, the Bank recognises provisions only 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.
14.2 No provision is recognised for
i. any possible obligation that arises from past events and the
existence of which will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within
the control of the Bank; or
ii. any present obligation that arises from past events but is not
a. it is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation; or
b. a reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are
assessed at regular intervals and only that part of the obligation for
which an outflow of resources embodying economic benefits is probable,
is provided for, except in the extremely rare circumstances where no
reliable estimate can be made.
14.3 Contingent Assets are not recognised in the financial statements.
15. Special Reserves
Revenue and Other Reserves include Special Reserve created under
Section 36 (1) (viii) of the Income Tax Act, 1961. The Board of
Directors of the Bank has passed a resolution approving creation of the
reserve and confirming that it has no intention to make withdrawal from
the Special Reserve.
16. Share Issue Expenses
Share issue expenses are charged to the Share Premium Account.
* a. Includes Rs1,000 crores of bonds raised by erstwhile State Bank of
Indore (SBIN) merged with SBI on 26th August 2010.
b. Includes Rs6,497 crores raised vide Public Issue of Bonds in October
2010 and February 2011 ** Includes Rs165 crores of Bonds raised by
erstwhile State Bank of Indore (e SBIN) merged with SBI on 26th August
# Includes Rs2,000 crores raised during the F.Y. 2009-10, of which Rs550
crores invested by SBI Employee Pension Fund, not reckoned for the
purpose of Tier I Capital as per RBI instructions.