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
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
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
* 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.
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
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
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
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
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
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
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:
22.214.171.124 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)
Union KBC Asset Management Company Private Ltd.
Union KBC Trustee Company Private Ltd.
c) Joint Ventures:
Star Union Dai-Ichi Life Insurance Company Ltd.
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
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
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
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
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.