Union Bank of India

1.  HOUSEKEEPING
 
 i) Confirmation / reconciliation of balances with foreign and other
 banks has generally been obtained / carried out except in a few cases.
 
 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 2009.
 
 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. 217.08 crore (previous year
 Rs.141.86 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 amortised during the year amounted to Rs.
 111.55 crore (previous year Rs.145.71 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.951.07 crore (previous year Rs.831.88
 crore).
 
 3.  FIXED ASSETS
 
 Documentation formalities are yet to be completed in respect of certain
 immovable properties held by the Bank at written down value of Rs. 7.20
 crore in respect of which steps have already been initiated (previous
 year Rs.7.57 crore). 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.1290.68 crore as on 30th November, 2007 have been credited to
 Revaluation Reserve and depreciation amounting to Rs.38.42 crore
 (previous year Rs.22.87 crore) attributable thereto has been deducted
 there from.
 
 4.  INCOME TAX
 
 The Bank considers that provision for Income tax held in its accounts
 is adequate on the following basis:
 
 Provision for income tax for the year is arrived at after due
 consideration of the various judicial decisions on certain disputed
 issues. Pending determination of final liability in respect of such
 disputed issues, an adhoc provision of Rs.53 Crore (Previous year - Rs.
 40 crore) has been made during the year.
 
 Disputed taxes paid net of provision amount to Rs. 493 crore (previous
 year Rs.593 crore)for which the provision is not considered necessary
 based on various judicial decisions and past assessments on such
 disputed issues. Management does not envisage any liability in respect
 of the disputed issues.
 
 5.  FUNDS RAISED RANKING FOR TIER I AND TIER II CAPITAL
 
 During the year, the Bank has raised additional funds ranking for Tier
 - I and Tier -II capital by way of issue of Perpetual Bonds of Rs.340
 crore and subordinated Bonds of Rs. 800 crore respectively (Perpetual
 Bonds of Rs.200 crore and sub-ordinated Bonds of Rs.400.00 crore in the
 previous year) and the amount is reflected under Other Liabilities and
 Provisions in Schedule 5 of the Balance Sheet.
 
 6.  PROVISION ON STANDARD ADVANCES
 
 Provision for Standard Advances and credit risk exposure on derivatives
 at 0.40% in India and at 1% for advances in Hong Kong Branch amounts to
 Rs. 495.11 crore (previous year Rs. 415.00 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.39.61 crore over and above the
 statutory requirement of 0.40% has been made.
 
 7. Disclosures on risk exposures in derivatives
 
 A.  QUALITATIVE DISCLOSURE:
 
 Operations in the Treasury Branch are segregated into three functional
 areas, i.e., Front Office, Mid Office and Back Office, equipped with
 necessary infrastructure and trained officers, whose responsibilities
 are well defined.
 
 The Treasury Policy of the Bank clearly lays down the types of
 financial derivative instruments, scope of usages, approval process as
 also the limits like the open position limits, deal size limits and
 stop loss limits for trading in approved instruments.
 
 The Mid Office monitors the transactions in the trading book and any
 excesses noticed are reported to the Risk management Department for
 necessary action. The Mid Office also measures the financial risks for
 the transactions in the trading book on a daily basis, by way of
 calculating MTM positions. Daily MTM position is reported to Risk
 Management Department, who, in turn, appraises the risk profile to the
 Directors Committee on the assets and liability management.
 
 The Bank ensures that the transactions with the corporate clients are
 undertaken only after the inherent credit exposures are quantified and
 approved in terms of the approval process laid down in the Treasury
 Policy for customer appropriateness and suitability and necessary
 documents like ISDA agreements etc., are duly executed. The bank has
 adopted Current Exposure Method for monitoring the credit exposures.
 
 The Bank also uses financial derivative transactions for hedging it’s
 on or off Balance Sheet exposures. The Treasury Policy of the Bank
 spells out the approval process for hedging the exposures. The hedge
 transactions are monitored on a regular basis and the notional profits
 or losses are calculated on MTM basis, PV01 and VAR on these deals are
 reported to the ALCO every month.
 
 The hedged/Non-hedged transactions are recorded separately. The hedged
 transactions are accounted for on accrual basis. All trading contracts
 are marked-to-market and resultant gross loss is accounted for,
 ignoring the gain on a prudence basis.
 
 In case of Option contracts, guidelines issued by FEDAI from time to
 time for recognition of income, premium and discount are being
 followed.
 
 While sanctioning the limit, the competent authority may stipulate
 condition of obtaining collaterals/margin as deemed appropriate. The
 derivative limits are reviewed periodically alongwith other credit
 limits.
 
 The customer related derivative transactions for Notional value of Rs
 2620.39 crores are covered with counterparty banks, on back-to-back
 basis for identical amount and tenure and the bank does not have any
 market risk.
 
 During the year, the Bank has become Trading & Clearing member of 3
 Currency Futures Exchanges namely National Stock Exchange (NSE), Bombay
 Stock Exchange (BSE) & MCX- SX Stock Exchange (MCX-SX) as permitted by
 Reserve Bank of India.  The Bank started proprietary trading as well as
 trading on behalf of 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.
 
 8.  Disclosure as per Accounting Standards issued by Institute of
 Chartered Accountants of India (ICAI):
 
 8.1 There were no material prior period Income / Expenditure requiring
 disclosure under AS - 5 on Net Profit or Loss for the Period, Prior
 Period and Extraordinary items and changes in Accounting Policies.
 
 8.2 Income items recognized on cash basis were neither material nor
 require disclosure under AS - 9 on Revenue Recognition.
 
 8.3 The following information is disclosed in terms of Accounting
 Standards issued by the Institute of Chartered Accountants of India.
 
 8.4 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. R. S.
 Reddy, Executive Director. (till 02.08.2008) iii.  Shri. T.Y. Prabhu,
 Executive Director.  iv.  Shri. S. Raman, Executive Director. (from
 15.10.2008)
 
 8.5 The bank carries on distribution of life insurance products of
 “Star Union Dai-ichi Life Insurance Company Limited” in which it holds
 23 % of the shares as strategic investment by contributing Rs. 2.30
 crore (Previous Year Rs. 2.30 crores).
 
 8.6 Earnings Per Share – Accounting Standard - 20
 
 The Bank reports basic earnings per equity share in accordance with
 Accounting Standard 20 on “Earnings 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.
 
 8.7 (a) 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.
 
 (b) Refer Schedule-12 on contingent liabilities: Such liabilities at
 S.No.(i),(ii),(iii),(iv), (v) and (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.  Penalties imposed on the bank by Reserve Bank of India: Nil
 
 10.  Draw Down from Reserve
 
 The bank has not made any draw down from the reserves during the year.
 
 14.  Wage Revision
 
 Pending finalization of the wage agreement, an adhoc provision of Rs.
 173.00 crore (previous year 20.00 crore) towards the revision in
 employee cost / benefits has been made for the year 2008 – 09.
 
 11.  In line with the Reserve Bank of India guidelines, the bank has
 implemented the Agricultural Debt Waiver and Debt Relief Scheme, 2008
 and an amount of Rs. 744.47 crore had been waived for which preliminary
 claim was preferred with RBI in the month of October 2008 against which
 the bank has received the first instalment amounting to Rs.  305.23
 crore. Pending certification of the claims by the statutory central
 auditors, provision to the extent of Rs. 8.81 crore has been made in
 the accounts.
 
 12.  The figures of the previous year have been regrouped / rearranged
 wherever considered necessary.