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.