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0.95 (0.42%)
0.95 (0.42%) | Notes to Accounts | Year End : Mar '12 |
1 BALANCING OF BOOKS, RECONCILIATION OF INTER BRANCH /BANK TRANSACTIONS i) Confirmation / reconciliation of balances with Foreign Banks and other Banks has been obtained /carried out. ii) Adjustment of outstanding entries in Suspense Accounts, Sundry Deposits, Clearing Adjustments, Bank Reconciliation Statements and various inter- branch/office accounts is in progress. Reconciliation of Central Office Accounts maintained by branches has been completed up to 31st March, 2012. iii) Pending final clearance of (i) and (ii) above, the overall impact, if any, on the accounts, in the opinion of the management will not be significant. 2 INVESTMENTS i) As per RBI guidelines, an amount of Rs 83.15 Crore (previous year Rs 61.20 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 Significant Accounting Policy No.3 (ii)(a), the excess of acquisition cost over face value of the securities amortized during the year amounted to Rs 76.43 crore (previous year Rs 79.06 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 1379.55 crore (previous year Rs 1362.33 crore). * Investment of Rs19.16 crores in subsidiaries and Joint ventures in Schedule 8 to Balance Sheet includes the Bank''s investment in shares of Regional Rural Banks which are SLR investments. ** Unrated & unlisted securities disclosed includes only Ratings and Listing of securities required as per Master Circular Dated 01.7.2011 issued by RBI. 3.1.1 Sale and transfers to/from HTM Category The Bank has not made sales and transfers to/from HTM category during the financial year 2011-12 exceeding 5 per cent of the book of investments held in HTM category at the beginning of the year. During the year 2011-12, the Bank has carried out one time transfer of securities to/from HTM category with the approval of Board of Directors at the beginning of the year aggregating to Rs 3190.32 crore and Rs 3114.36 crores being face value and book value respectively. The Bank has sold to Reserve Bank of India under pre announced OMO auctions having book value of Rs 1339.47 crore. Apart from the above one time transfer of securities and sales to RBI under OMO auction, the Bank has not sold any securities from its HTM category. Note I. Interest rate swaps in Indian Rupees were undertaken for hedging Tier II Bonds, Term Loans and Term Deposits. II. The Bank has entered into Floating to Fixed or Fixed to Floating Interest Rate Swap transactions for trading during the year. III. All underlyings for hedge transactions are on accrual basis. 3.2.1 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 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 office operations. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators. The Bank trades in Interest Rate Futures on National Stock Exchange. The Bank has necessary infrastructure for Front, Mid and Back office operations in place. Daily Mark to Market (MTM) and Margin obligations are settled with the exchanges as per guidelines issued by the Regulators. 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 defined. I) Front Office - Dealing Room. Ensures Compliance with trade origination requirements as per the Bank''s policy and RBI guidelines. II) Mid-Office - Risk Management, Accounting Policies and Management III) Back Office - Settlement, Reconciliation, Accounting. Mid Office monitors transactions in the trading book and excesses, if any, are reported to Risk Management Department for necessary action. Mid Office 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 profile 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 quantified 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-a-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, the Bank has policy in place to sanction limits to Counterparty the banks and Counterparty clients. The 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. 3.3.1 Disclosure of Penalties imposed by RBI. : Nil 4 Disclosure Requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for Notes to Account. 4.1 Accounting Standard 5 - Net Profit or Loss for the period, prior period items and changes in accounting policies. There was no material prior period Income/Expenditure requiring disclosure under AS-5. 4.2 Accounting Standard 9 - Revenue Recognition. Income items recognized on cash basis were not material and hence no disclosure under AS - 9 has been made. 4.3 Accounting Standard 15 - Employee Benefits : 4.3.1 The Bank has accounted for employee benefits as per Accounting Standards issued by the Institute of Chartered Accountants of India, as per actuarial valuation report for the year ended March 31, 2012. The disclosure is as under: i) The Bank operates in four segments viz., Treasury, Retail, Corporate / Wholesale and Other Banking Operations. These segments have been identified in line with AS-17 on segment reporting after considering the nature and risk profile of the products and services, the target customer profiles, 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. 4.4 Accounting Standard 18 - Related Party Disclosures. 4.4.1 The Bank has identified the following persons to be the Key Management Personnel as per AS - 18 on Related Party Disclosures: 4.4.1.1 List of Related Parties: a) The Bank has identified 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 (Upto 31.08.2011) iii. Shri S. S. Mundra, Executive Director iv Shri S.K.Jain, Executive Director ( from 01.09.2011) 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. # Includes performance based incentives of Rs 6.00 lacs and Rs 8.00 lacs paid to the Chairman and Managing Director and Executive Directors of the Bank respectively during the previous year. 4.5 Earning per Share - Accounting Standard - 20 The Bank reports basic earnings per equity share in accordance with Accounting Standard 20 on Earning per Share. Basic Earning per Share is computed by dividing net profit after tax by the weighted average number of equity shares outstanding during the year. 4.6 Accounting Standard 22 - Accounting for Taxes on Income The Bank has accounted for Income Tax in compliance with AS 22 on Accounting for Taxes on Income. Accordingly, Deferred Tax Assets and Liabilities are recognized. Tax effect on the components of Deferred Tax Assets and Deferred Tax Liabilities as on 31st March 2012 are as under: 4.7 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. 4.8 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. 5.1 Draw Down from Reserves The Bank has not made any drawdown from the reserves during the year. 5.2 Provision Coverage Ratio (PCR) Provision Coverage Ratio as on 31.03.2012 is 62.22%. 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. 5.3 Unamortized Pension and Gratuity Liabilities 5.3.1 In accordance with RBI circular no.DBOD.BP.BC.80 / 21.04.018/ 2010-11 dated 09.02.2011 one-fifth of the additional pension fund liability of Rs 338.04 crore towards serving employees, who have exercised second option has been charged to Profit & Loss account in 2011-12, with Rs 1014.13 crore carried forward to be charged over the next 3 years. 5.3.2 In addition one fifth 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 in 2011-12 with the balance of Rs 195.00 crore being carried forward to be charged over the next 3 years. 5.3.3 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 defined benefit 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 7.16 crores (previous year Rs 22.88 crore) has been recognized as an expense towards provident fund scheme and included in payments to and provisions for employees under operating expenses. 6 FIXED ASSETS Documentation formalities are yet to be completed in respect of five immovable properties held by the Bank at written down value of Rs 6.17 crores (previous year Rs 6.50 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 valuers. 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 40.01 crore (previous year Rs 42.06 crore) attributable thereto has been deducted there from. 7 FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL During the year, the Bank has allotted on preferential basis 26216620 equity shares of Rs 10/ - each at a premium of Rs 238.05 per share to Life Insurance Corporation of India aggregating to Rs 650.30 crores. Consequently the Government share holding has decreased from 57.06%.to 54.35%. 8 PROVISION ON STANDARD ADVANCES As per RBI guidelines, provision for Standard Advances and credit risk exposure on derivatives amounts to Rs 899.13 crore ( previous year 663.77 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 56.74 crores (previous year Rs 76.07 crore) over and above the statutory requirement has been made. 9 The figures of the previous year have been regrouped / rearranged wherever considered necessary. |
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| Source : Dion Global Solutions Limited | |
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