1 BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH / BANK
TRANSACTIONS:
i) Confrmation / reconciliation of balances with foreign and other
banks has been obtained /carried out except in a few cases and
reconciliation is in progress.
ii) Adjustment of outstanding entries in Suspense Accounts, Sundry
Deposits, Clearing Adjustments and various inter-branch/offce accounts
is in progress. Reconciliation of Central Offce Accounts maintained by
branches has been completed up to 31st March 2011.
iii) Pending fnal clearance of (i) and (ii) above, the overall impact,
if any, on the accounts, in the opinion of the management will not be
signifcant.
2 INVESTMENTS
i) As per RBI guidelines, an amount of Rs. 61.20 crore (previous year Rs.
100.09 crore), being an amount equivalent to the Profit on sale of Held
to Maturity category securities is transferred to Capital Reserve
Account.
ii) In respect of Held to Maturity category, as stated in signifcant
Accounting Policy No.3, the excess of acquisition cost over face value
of the securities amortised during the year amounted to Rs. 79.06 crore
(previous year Rs. 96.21 crore).
iii) Total investments made in shares, convertible debentures and units
of equity linked mutual funds / venture capital funds and also advances
against shares aggregate to Rs. 1362.33 crore (previous year Rs. 1289.39
crore).
3 FIXED ASSETS
Documentation formalities are yet to be completed in respect of fve
immovable properties held by the Bank at written down value of Rs. 6.50
crores (previous year Rs. 6.84 crores) in respect of which steps have
already been initiated. Land and Buildings revalued as on 31st
March,1995 at fair market value as determined by an approved valuer,
have further been revalued as on 30th November, 2007 at fair market
value by approved value Rs. The resultant increase in value thereof on
such revaluations amounting to Rs. 456.59 crore as on 31st March, 1995
and Rs. 1,290.68 crore as on 30th November, 2007 have been credited to
Revaluation Reserve and depreciation amounting to Rs. 42.06 crore
(previous year Rs. 69.94 crore) attributable thereto has been deducted
there from.
4 FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL
During the year, the Bank has raised additional funds ranking for Tier
- II capital by way of issue of Upper Tier II Bonds of Rs. 500 crores
(previous year: Upper Tier II Bonds of Rs. 200 crore, Perpetual Bonds of
Rs. 240 crore and sub-ordinated Bonds of Rs. 1000 crore) and the amount is
refected under Borrowings in Schedule 4 of the Balance Sheet.
During the year bank has allotted 11,10,00,000 Perpetual Non-cumulative
Preference Shares (PNCPS) of Rs. 10/- each to Govt. of India, carrying
annual foating coupon benchmarked to Repo rate with a spread of 100
bps. to be readjusted annually based on the prevailing Repo rate on the
relevant date.
During the year, the bank has allotted on preferential basis
1,92,14,515 equity shares of Rs. 10/- each at a premium of Rs. 344.94, to
Govt. of India. Consequently the Government share holding has increased
from 55.43% to 57.06%.
5 PROVISION ON STANDARD ADVANCES
As per RBI guidelines, provision for Standard Advances and credit risk
exposure on derivatives amounts to Rs. 663.77 crore (previous year Rs.
516.06 crore). For certain category of standard advances such as loans
for consumer durables, educational loans, loans through credit cards
and other personal loans, additional provision of 2% amounting to Rs.
76.07 crore (previous year Rs. 52.38 crore) over and above the statutory
requirement has been made.
6.3.3 Disclosures on risk exposures in derivatives
A. QUALITATIVE DISCLOSURE:
a) The Bank deals in two groups of derivative transactions within the
framework of RBI guidelines.
i) Over the Counter Derivatives
ii) Exchange Traded Derivatives
The Bank deals in Forward Rate Agreement, Interest Rate Swaps, Cross
Currency Swap, and Currency Options in Over the Counter Derivatives
group.
In Exchange Traded Derivatives Group, the Bank trades in Currency
Futures and Interest Rate Futures. The Bank is Trading & clearing
member with three Exchanges viz. National Stock Exchange (NSE), United
Stock Exchange (USE) & MCX- SX Stock Exchange (MCX-SX), on their
Currency Derivative segment, as permitted by Reserve Bank of India. The
Bank carries out proprietary trading as well as trading on behalf of
its customers in currency futures on these exchanges. The Bank has set
up the necessary infrastructure for Front, Mid and Back offce
operations. Daily Mark to Market (MTM) and Margin obligations are
settled with the exchanges as per guidelines issued by the Regulator
Bank trades in Interest Rate Futures on National Stock Exchange. The
bank has necessary infrastructure for Front, Mid and Back offce
operations in place. Daily Mark to Market (MTM) and Margin obligations
are settled with the exchanges as per guidelines issued by The
Regulator
The Bank undertakes derivative transactions for proprietary
trading/market making, hedging own balance sheet and for offering to
customers, who use them for hedging their risks within the prevalent
regulations. Proprietary trading/market making positions are taken in
Rupee Interest Rate Swap, Currency Futures and Interest Rate Futures.
While derivative instruments present immense opportunity for making a
quantum leap in non-interest income and also for hedging market risk,
it exposes the Bank to various risks. The Bank has adopted the
following mechanism for managing different risks arising out of
derivative transactions.
In terms of the structure, operations in the Treasury Branch are
segregated into following three functional areas, which are provided
with trained Officers with necessary systems support and their
responsibilities are clearly defned.
I) Front Offce—Dealing Room. Ensures Compliance with trade origination
requirements as per Banks policy and RBI guidelines.
II) Mid-Offce---Risk Management, Accounting Policies and Management.
III) Back Offce- Settlement, Reconciliation, Accounting.
Mid Offce monitors transactions in the trading book and excesses, if
any, are reported to Risk management Department for necessary action.
Mid Offce also measures the financial risk for transactions in the
trading book on a daily basis, by way of Mark to Market. Daily Mark to
Market position is reported to Risk Management Department, for onward
reporting of the risk profle to the Directors Committee on the Assets
and Liability Management.
In case of corporate clients transactions are concluded only after the
inherent credit exposures are quantifed and approved in terms of
approval process laid down in the Treasury Policy for customer
appropriateness and suitability. The necessary documents like ISDA
agreements are duly executed. The bank has adopted Current Exposure
Method for monitoring credit exposures.
b) Treasury Policy of the Bank lays down the types of financial
derivative instruments, scope of usages, and approval process as also
the limits like the open position limits, deal size limits, stop loss
limits and counterpart exposure limit for trading in approved
instruments.
Various Risk Limits are set up and actual exposures are monitored
vis-à-vis the limits.
These limits are set up taking in to account market volatility,
business strategy and management experience. Risk limits are in place
for risk parameters viz. PV01, stop loss, counterparty credit exposure.
Actual positions are measured against these limits periodically and
breaches if any are reported promptly. The Bank ensures that the Gross
PV01 position arising out of all non option derivative contracts is
within the 0.25% of net worth of the Bank.
c) The Bank also uses financial derivative transactions for hedging its
own Balance Sheet Exposures. Treasury Policy of the Bank spells out
approval process for hedging the exposures. The hedge transactions are
monitored on a regular basis. The notional Profit or loss calculated on
Mark to Market basis, PV01 and VaR on these deals are reported to the
Assets Liability Committee (ALCO) every month. Hedge effectiveness is
the degree to which changes in the fair value or cash flows of the
hedged items that are attributed to a hedged risk are offset by changes
in the fair value or cash flows of the hedging instruments. This
exercise is carried out periodically to ensure hedge effectiveness.
d) The hedged/un-hedged transactions are recorded separately. The
hedged transactions are accounted for on accrual basis. All trading
contracts are mark- to-market and resultant gross gain or loss is
recorded in income statement.
In case of Option contracts, guidelines issued by FEDAI from time to
time for recognition of income, premium, and discount are being
followed.
To mitigate the credit risk, Bank has policy in place to sanction
limits to counterparty Banks and Counterparty clients. Bank adopts
Current Exposure method for monitoring counterparty exposure
periodically. While sanctioning derivative limit, the competent
authority may stipulate condition of obtaining collaterals/margin as
deemed appropriate. The derivative limit is reviewed periodically
along with other credit limits.
The customer related derivative transactions are covered with
counterparty banks, on back-to-back basis for identical amount and
tenure and the bank does not carry any market risk.
6.7.6 Advances secured by intangible securities : Nil
Advances backed by Annuity under Build Operate Transfer (BOT) model and
toll collection rights have been considered secured as per RBI circular
DBOD.BP.BC.96/08.12.014/2009-10 dated 23 April 2010
7.2 Disclosure of Penalties imposed by RBI. : Nil
8 Disclosure Requirements as per Accounting Standards where RBI has
issued guidelines in respect of disclosure items for Notes to
Account:
8.1 Accounting Standard 5 – Net Profit or Loss for the period, prior
period items and changes in accounting policies.
There were no material prior period Income/Expenditure requiring
disclosure under AS–5.
8.2 Accounting Standard 9 - Revenue Recognition.
Income items recognized on cash basis were not material and hence no
disclosure under AS – 9 has been made.
8.3.3 AS-15 (revised 2005) Employee benefits states benefits involving
employer established provident funds, which require interest shortfall
to be provided, are to be considered as defned beneft plans. Pending
determination of liability in view of issues in making reasonable
actuarial assumptions, effect in this respect has not been ascertained.
Accordingly, other related disclosures in this respect have not been
made and Rs. 22.88 crore (previous year Rs. 30.55 crore) has been
recognized as an expense towards provident fund scheme and have been
included in payments to and provisions for employees under operating
expenses.
8.3.4 In accordance with RBI circular no.DBOD.BP.BC.80 / 21.04.018/
2010-11 dated 09.02.2011 one-ffth of the additional pension fund
liability of Rs. 338.04 crore towards serving employees, who have
exercised second option and 100% of such liability of Rs. 375.65 crore
towards retired / separated employees aggregating to Rs. 713.69 crore has
been charged to Profit & Loss account this year, with Rs. 1352.17 crore
carried forward to be charged over the next 4 years.
8.3.5 In addition one ffth of the additional gratuity liability which
arose on enhancement of Gratuity limit from Rs. 3.50 lacs to Rs. 10 lacs
amounting to Rs. 65 crore has also been charged to the Profit and Loss
account with the balance of Rs. 260 crore being carried forward to be
charged over the next 4 years.
i) The Bank operates in four segments viz., Treasury, Retail,
Non-Retail and Para Banking. These segments have been identifed in line
with AS-17 on segment reporting after considering the nature and risk
profle of the products and services, the target customer profles, the
organizational structure and the internal reporting system of the bank.
The bank has disclosed the business segment as primary segment. The
revenue and other parameters prescribed in AS-17 of foreign branch for
the period are within the threshold limits as stipulated under AS-17
and hence the bank has only one reportable geographical segment.
ii) Segment wise income, expenditure, assets and liabilities which are
not directly allocable have been allocated to the reportable segments
based on assumptions considered appropriate.
8.5 Accounting Standard 18 – Related Party Disclosures.
8.5.1 The Bank has identifed the following persons to be the Key
Management Personnel as per AS – 18 on Related Party Disclosures:
8.5.1.1 List of Related Parties:
a) The Bank has identifed the following persons to be the Key
Management Personnel as per AS – 18 on Related Party Disclosures:
i. Shri M. V. Nair, Chairman & Managing Director
ii. Shri S. C. Kalia, Executive Director
iii. Shri S. Raman, Executive Director (till 31.08.2010)
iv. Shri S. S. Mundra, Executive Director (from 01.09.2010)
b) Subsidiaries:
Union KBC Asset Management Company Private Ltd. Union KBC Trustee
Company Private Ltd.
c) Joint Ventures:
Star Union Dai-Ichi Life Insurance Company Ltd.
d) Associates:
Two Regional Rural Banks sponsored by the Parent Bank viz., Kashi Gomti
Samyut Gramin Bank and Rewa Sidhi Gramin Bank.
8.8 Accounting Standard 28
In the opinion of the Management, there is no indication for impairment
during the year with regard to the assets to which Accounting Standard
28 applies.
8.9 Contingent liabilities referred to in Schedule-12 at S.No.(i) to
(vi) are dependent upon, the outcome of court/arbitration/out of court
settlement, the amount being called up, terms of contractual
obligations, devolvement and raising of demand by parties concerned,
disposal of appeals respectively.
9 Provisions & Contingencies:
(Break up of Provision & Contingencies shown under the head in Profit
& Loss)
(Rs. in crore)
2010-11 2009-10
Provision / (Reversal) for Depreciation
on Investment 26.65 (117.34)
Provision towards NPA 1187.69 698.92
Provision towards Standard Assets 148.54 20.95
Provision made towards Income Tax
(IT)/Deferred tax liability (DTL) 873.45 758.00
Other Provision and Contingencies:
- Shifting Loss 82.94 46.76
- Restructured Advances 1.63 95.21
- Others -95.86 81.89
TOTAL 2223.04 1584.39
10 Floating Provisions
(Rs. in crore)
Particulars 2010-11 2009-10
i) Opening Balance in the foating provisions 697.00 539.50
ii) Floating provisions made during the
accounting year 46.00 157.50
iii) Amount of drawdown made during the
accounting year 0 0
iv) Closing balance in the foating provision
account 743.00 697.00
11 Draw Down from Reserves
The Bank has not made any drawdown from the reserves during the year.
12 Provision Coverage Ratio (PCR)
Provision Coverage Ratio as on 31.03.2011 is 67.58%. Any excess
provision held over the stipulated Provision Coverage Ratio (PCR) would
be held under Countercyclical Provisioning Buffer account as per the
extant RBI guidelines.
13 The figures of the previous year have been regrouped / rearranged
wherever considered necessary. |