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.