1.  BASIS OF PREPARATION OF FINANCIAL STATEMENTS
 
 The accompanying financial statements are prepared on historical cost
 basis, except as otherwise stated, following the Going Concern
 concept and conform to the generally accepted accounting practices in
 India, applicable statutory provisions, regulatory norms prescribed by
 the Reserve Bank of India (RBI), applicable mandatory Accounting
 Standards (AS) / Guidance Notes / pronouncements issued by the
 Institute of Chartered Accountants of India (ICAI) and prevailing
 practices in the banking industry.
 
 2.  USE OF ESTIMATES
 
 The preparation of financial statements requires the management to make
 estimates and assumptions for considering in the reported assets and
 liabilities (including contingent liabilities) as on the date of
 financial statements and the income and expenses for the reporting
 period.  Management believes that the estimates used in the preparation
 of the financial statements are prudent and reasonable.
 
 3.  RECOGNITION OF INCOME AND EXPENDITURE
 
 3.1 The Revenues and Expenses are accounted for on accrual basis unless
 otherwise stated.
 
 3.2 Income from Performing Assets is recognized on accrual basis and
 income from Non-Performing Assets (NPAs) is accounted for on
 realization. The amount realized / recovered during the year is
 appropriated first to income on Sub-standard Assets. Amounts realized
 /recovered in Doubtful and Loss Assets and Suit Filed and Decreed
 Accounts are first appropriated against outstanding balances.
 
 3.3 Unrealized income on advances, classified as NPA, is reversed.
 
 3.4 Income from Commission (except on Government Transactions and
 Bancassurance), exchange, brokerage, claims, locker rent and dividend
 on shares are accounted for on cash basis.
 
 3.5 Performance linked incentive to whole time directors is accounted
 for on cash basis.
 
 4.  TRANSACTIONS INVOLVING FOREIGN EXCHANGE
 
 4.1. Monetary Assets and Liabilities, excluding outstanding Forward
 Exchange Contracts in each currency, are revalued at the Balance Sheet
 date at closing spot rates announced by the Foreign Exchange Dealers
 Association of India (FEDAI). Outstanding forward exchange contracts
 are revalued at the forward rates announced by FEDAI. The difference
 between the revalued amount and the contracted amount is recognized as
 profit or loss, as the case may be.
 
 4.2. Income and expenditure items are recorded at the exchange rates
 prevailing on the date of transaction.
 
 4.3. Acceptances, endorsements and other obligations including
 guarantees are carried at the closing spot rates announced by FEDAI.
 
 4.4. Representative Office of the Bank has been classified as
 ''Integral Foreign Operation'' in accordance with AS-11 on The
 Effects of Changes in Foreign Exchange Rates.
 
 4.5. Foreign currency transactions relating to ''Integral Foreign
 Operation'' are recorded on initial recognition in the reporting
 currency by applying to the foreign currency amount, the exchange rate
 between the reporting currency and the foreign currency on the date of
 transaction.
 
 4.6. Foreign currency non-monetary items that are carried in terms of
 historical costs are reported using the exchange rates on the dates of
 transactions.
 
 5.  INVESTMENTS
 
 5.1 For the purpose of disclosure in the Financial Statements, the
 investments are classified into six categories as stipulated in Form A
 of the third schedule to the Banking Regulation Act, 1949 as under:
 
 a) Government Securities
 
 b) Other approved securities
 
 c) Shares
 
 d) Debentures and Bonds
 
 e) Subsidiaries/Joint Ventures
 
 f) Others
 
 5.2 The Investment portfolio of the Bank is categorized, in accordance
 with the RBI guidelines, into:
 
 a) Held to Maturity comprising Investments acquired with an
 intention to hold till maturity;
 
 b) Held for Trading comprising Investments acquired with an
 intention to trade;
 
 c) Available for Sale comprising Investments not covered by (a)
 and (b) above.
 
 5.3 In determining acquisition cost of an investment:
 
 (a) Brokerage, Commission and Incentives received on subscription to
 securities, are deducted from the cost of securities;
 
 (b) Brokerage, Commission etc. paid in connection with acquisition of
 securities are treated as revenue expenses;
 
 (c) Interest accrued upto the date of acquisition/ sale of securities
 i.e., broken period interest is credited/ charged to Profit and Loss
 Account.
 
 5.4. Investments are valued as per RBI/ Fixed Income Money Market &
 Derivatives Association (FIMMDA) guidelines, on the following basis:
 
 a) Held to Maturity (HTM)
 
 I) Investments under HTM category are carried at acquisition
 cost. Wherever the book value is higher than the face value/redemption
 value, the premium is amortized over the remaining period to maturity.
 
 ii) Investments in Rural Infrastructure Development Fund, Short Term
 Co-operative Rural Credit Refinance Fund, Medium Small Micro Enterprise
 Refinance Fund - Small Industries Development Bank of India Limited,
 Medium Small Micro Enterprise Risk Capital Fund - Small Industries
 Development Bank of India Limited, Rural Housing Development
 Fund-National Housing Bank Limited, Micro Finance Development and
 Equity Fund - National Agricultural and Rural Development Bank Limited
 (classified as shares) are valued at carrying cost.
 
 iii) Investments in sponsored Regional Rural Banks are valued at
 carrying cost.
 
 iv) Investments in venture capital is valued at carrying cost.
 
 b) Held for Trading and Available for Sale
 
 5.5. Shifting of securities from and to HFT category is done in
 accordance with RBI guidelines with the approval of Board ofDirectors.
 
 5.6. The individual scrips in the HFT and AFS category are
 marked to market at monthly or at more frequent intervals, if required.
 Under each category net depreciation, if any, is provided for while net
 appreciation, if any, is ignored.
 
 5.7. Income from Zero Coupon Bonds, being the difference between cost
 and face value, is recognized on a time proportion basis.
 
 5.8. Profit or Loss on sale of investments in any category is taken to
 Profit and Loss Account. In case of profit on sale of Investments in
 HTM category, an equivalent amount is appropriated to Capital
 Reserve Account at the end of the year. For calculating the surplus
 / deficit on sale of securities, weighted average method is adopted.
 
 5.9. For the purpose of calculating holding period in case of HFT
 category, First In First Out (FIFO) method is applied.
 
 5.10.  Investments are subject to appropriate provisioning/ de-
 recognition of income, in line with the prudential norms of RBI for
 Non Performing Investment (NPI) Classification. The
 depreciation/provision in respect of non-performing securities is not
 set off against the appreciation in respect of the other performing
 securities in accordance with RBI guidelines.
 
 6.  FINANCIAL ASSETS SOLD TO ASSETS RECONSTRUCTION COMPANY (ARC)/
 SECURITIZATION COMPANY
 
 6.1. In the case offinancial assets sold to ARC / SC, ifthe sale is for
 a value higher than the Net Book Value (NBV), the excess provision is
 not reversed but utilized for meeting any shortfall on account of sale
 of other financial assets to ARC/SC. If the sale is at a price below
 the NBV the shortfall after adjusting the available surplus if any, is
 debited to the Profit and Loss Account.
 
 6.2 The sale of financial assets to ARC/SC is recognized in the books
 of the Bank at lower of either redemption value of the Security
 Receipts issued by the Trust created by the ARC/SC for such sale or the
 net value of such financial assets.
 
 6.3 The Security Receipts are classified as Non-SLR Investment in the
 books of the Bank and accordingly the valuation, classification and
 other norms prescribed by RBI in respect of Non-SLR Securities are
 applicable.
 
 6.4 In case of written off Assets sold to ARC/ SC, the cash proceeds
 are recognized as income.
 
 7.  ADVANCES
 
 7.1. Advances are classified as Performing / Non-Performing Assets and
 provisions thereon are made in conformity with the prudential norms
 prescribed by RBI.
 
 7.2. Non-performing assets are stated net of provisions! and claims
 received from credit guarantee institutions.
 
 7.3 Provision held for performing assets is shown under the head [Other
 Liabilities and Provisions''.
 
 7.4. Restructuring of Advances and provisioning thereof have been made
 as per RBI guidelines.
 
 8.  FIXED ASSETS AND DEPRECIATION
 
 8.1. Premises (including leasehold), other fixed assets and Capital
 work in progress are stated at historical cost. In case of revaluation,
 the same are stated at the revalued amount and the appreciation is
 credited to Revaluation Reserve.
 
 8.2 Leasehold assets are amortized over the period of lease.
 
 8.3. Depreciation on assets other than computers and Automated Teller
 Machines (ATMs) is provided for under written down value method, in the
 manner and as per the rates prescribed under Schedule XIV to the
 Companies Act, 1956 after rounding off to next absolute number.
 Depreciation on the revalued portion of the assets is adjusted from
 Revaluation Reserve.
 
 8.4. Depreciation on computers, ATMs and amortization of software are
 accounted for on straight-line method @ 33.33% on pro rata basis from
 the date of acquisition as per RBI guidelines.
 
 8.5. Impairment Losses, if any, on Fixed Assets (including revalued
 assets) are recognized in accordance with AS -28 on Impairment of
 Assets.
 
 9.  ACCOUNTING FOR GOVERNMENT GRANTS
 
 In accordance with AS - 12 Government Grants/subsidies received is
 presented in the Balance Sheet by showing the Grant/Subsidy as a
 deduction from the Gross Value of the assets concerned in arriving at
 the book value. The grant/subsidy is recognized in the Profit & Loss
 Account over the useful life of the depreciable assets by way of
 reduced depreciation charged.
 
 Government Grant subsidies received, of revenue nature, is recognized
 in the Profit & Loss Account by reducing the related cost if received
 during the same financial year otherwise, the same is shown under
 Other Income if received after the close ofthe relevant financial
 year.
 
 10.  EMPLOYEE BENEFITS
 
 10.1 Employee Benefits are recognized in accordance with AS - 15 on
 Employee Benefits.
 
 10.2 Short term employee benefits namely Leave Fare Concession and
 Medical Aid are measured at cost.
 
 10.3 Long term employee benefits and post retirement benefits namely
 gratuity, pension and leave encashment are measured on a discounted
 basis under the Projected Unit Credit Method on the basis of annual
 third party actuarial valuations.
 
 10.4 In respect of employees who have opted for Provident Fund Scheme,
 matching contribution is made to a recognized Trust. For others who
 have opted for Pension Scheme, contribution to Pension Fund is based on
 actuarial valuation.
 
 10.5 Long Term employee benefits recognized in the Balance Sheet
 represent the present value of the obligation as adjusted for
 unrecognized past service cost, if any, and as reduced by the fair
 value of plan assets, wherever applicable and actuarial gain / loss to
 the extent recognized in Profit and Loss Account.
 
 10.6 The transitional liability in respect of long term employee
 benefits, including pension benefits, is recognized as an expense on
 straight line basis over a period of five years.
 
 10.7 In terms of RBI circular, expenditure on Re-opening of Pension
 option to employees of Public Sector Banks and enhancement of Gratuity
 limits - Prudential Regulatory Treatment is being amortized over a
 period of five years.
 
 11.  TAXATION
 
 Provision for tax is made for both current and deferred taxes in
 accordance with AS - 22 on Accounting for Taxes on Income.
 
 12.  PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
 
 In accordance with AS-29 on Provisions Contingent Liabilities and
 Contingent Assets, the Bank recognizes:
 
 a) Provisions only when it has a present obligation as a result of a
 past event and it is probable that an outflow of resources embodying
 economic benefits will be required to settle the obligation and when a
 reliable estimate ofthe amount ofthe obligation can be made.
 
 b) Contingent Liability is recognized/disclosed when a possible
 obligation from a past event, the existence of which is confirmed by
 the occurrence/non occurrence of one or more uncertain future events
 not wholly within the control of bank. Contingent Liability is also
 recognized/disclosed when there is a present obligation from past
 events but is not recognized because of a remote possibility of outflow
 of resources embodying the economic benefits to settle the obligation
 or a reliable estimate of the amount of the obligation cannot be made
 
 c) Contingent Assets are not recognized in the Financial Statements
 
 13.  NET PROFIT
 
 The Net Profit is arrived at after accounting for the following:
 
 a) Provision for Taxation.
 
 b) Provision on Standard Assets.
 
 c) Provision for NPAs and Depreciation on investments as per prudential
 norms of RBI.