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Indian Bank

BSE: 532814|NSE: INDIANB|ISIN: INE562A01011|SECTOR: Banks - Public Sector
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Notes to Accounts Year End : Mar '19

1. INVESTMENTS

1.1. In accordance with the RBI guidelines, the Bank’s domestic investment portfolio has been classified into three categories. The figures as at 31.03.19 are given hereunder:

1.1.2 Sale and Transfers to/from HTM Category:

The value of sales and transfers of securities to / from HTM category did not exceed 5 per cent of the book value of investments held in HTM category at the beginning of the year as per RBI guidelines.

- Profit on account of sale of securities from HTM category amounting to Rs. 83.60 crores (previous year Rs. 71.70 crores) has been taken to Profit and Loss Account and thereafter an amount of Rs. 41.00 crores (previous year Rs. 35.20 crores) was transferred to Capital Reserve Account (net of taxes and the amount required to be transferred to statutory reserves).

- Shifting of securities

(i) In the beginning of the year, the Bank shifted

SLR Securities for Book Value of Rs. 2432.02 crores which has resulted in no additional provision & Non-SLR VCF Securities for Book Value ofRs. 4.69 crores with a depreciation provision ofRs. 0.10 cr from HTM category to AFS category and SLR Securities for Book Value ofRs. 7262.27 crores from AFS category to HTM category which has resulted in adjustment of provision held against depreciation forRs. 535.73 crores to reduce the book value to the market value.

(ii) In case of securities classified under HTM category, if acquisition cost is more than the face value, the premium is amortized over the remaining period to maturity. For the Financial Year 2018-19, a sum of Rs.97.18 crore (previous year Rs.108.64 crore) has been amortized and the same is reflected as a deduction from ‘Income on Investments’.

2. DERIVATIVES

2.1 Forward RateAgreements / Interest Rate Swaps (IRS)

The Bank has not entered into Derivative contracts of the nature of Forward Rate Agreements/Interest Rate Swaps (IRS) to hedge on balance sheet assets during the financial year 2018-19

2.2 Disclosures on Risk Exposure in Derivatives

2.2.1 Qualitative Disclosures:

Bank’s policy permits hedging of asset as well as liability using IRS. The hedging transactions are to be accounted on an accrual basis. Swaps, which hedge interest bearing asset / liability, are accounted for as the asset or liability hedged. Outstanding swap contracts are marked to market.

All swap deals shall be based on the guidelines of International Swaps Dealers’Association. Bank has adequate control systems and also internal approvals prior to concluding transactions. There exists a clear functional segregation between (i) trading (Dealing) (ii) back office (settlement, monitoring and control) and (iii) accounting sections.

In the derivatives segment, the bank’s policy permits doing proprietary trading in Overnight Index Swaps (OIS). The activities in this segment are governed by the Derivatives Policy approved by the Bank’s Board.

The gain or loss in OIS transactions is booked in the Profit and Loss account on the maturity or unwinding of the deal whichever is earlier. For the purpose of valuation of outstanding OIS deals, the fair value of the total swap is computed on the basis of the amount that would be receivable or payable on termination of the swap as on the balance sheet date. Losses arising there from, if any, are fully provided for while the profits, if any, are ignored.

Exchange traded FX Derivatives i.e. Currency Futures, are valued atthe Exchange determined prices and the resultant gains and losses are recognized in the Profit and Loss account.

2.2.2 Quantitative Disclosures

The Bank is active in the following products under derivatives:-

- Overnight Index Swaps (OIS)

- Currency Futures

The outstanding OIS position as on 31st March 2019 was Rs.25.00 crores (previous year Rs. 50.00 crores). Outstanding position in Currency futures as on 31.03.2019 is Rs. NIL crores and previous year was Rs. 620.93 crores

3.1.1 MSME DISCLOSURE

RBI vide Circular no DBR.No.BP.BC.108/21.04.048/2017-18 dated June 6,2018 permitted banks to continue the exposure to MSME borrowers to be classified as standard assets where the dues between September 1, 2017 and December31, 2018 are paid notlater than 180 days or less from their respective original due dates. Accordingly, the Bank has retained advances ofRs. 38.29 crore as standard asset as on March 31,2019. In accordance with the provisions of the circular, the Bank has not recognized Interest income ofRs. 1.86 crore and is maintaining a standard asset provision ofRs. 1.91 crore @ 5% as on March 31,2019 in respect of such accounts.

In addition to the above, based on RBI Circular DBR No: BP.BC 18/21.04.048/2018-19 dated January 1, 2019 the Bank has restructured MSME accounts as detailed below:

Bank has treated these accounts as standard assets as on 31.03.2019 and maintained provision on such Standard asset @ 5.25% amounting to Rs. 47.20 crore.

COUNTRY RISK MANAGEMENT:

The Bank has analyzed its net funded exposure to various countries as on 31.03.2019 and such exposure to countries other than Singapore is well within the stipulation of 1% of the total assets of the Bank. In respect of Singapore, which is classified under “Insignificant” risk category by ECGC Ltd, a provision of Rs. 4.32 Cr ( Previous year Rs. 3.07 Cr for ‘Insignificant’ risk category) is available.

4.1 Details of Single Borrower Limit (SBL), Group Borrower Limit (GBL) if any, exceeded by the Bank

4.2 Unsecured Advances

Out of the total unsecured advances, advances secured by intangible securities such as rights, licenses, authority, etc. charged to the bank as collateral in respect of projects (including infrastructure projects) is NIL. Estimated total value of such intangible collateral is NIL

The disputed income tax demand paid as at 31.03.2019 was Rs. 4348.52 Crores (previous year Rs. 3286.77 Crores). The same has also been included under contingent liabilities ofRs. 5704.41 Crores (previous yearRs. 4031.84 Crores) relating to disputed tax matters as at 31.03.2019. No provision is considered necessary for the said disputed demands on account of judicial pronouncements and favorable decisions in Banks’ own case.

5 Disclosure of Penalties imposed by RBI

During the yearRBI has imposed penalty ofRs. 9.07lakhs (114entries) (Previous Year ending 2017-18 ? 9.88 lakhs-84 entries) for shortages, forgeries in soiled notes remittances and delayed/wrong reporting in ICCOMS/non adherence to RBI guidelines by the currency Chest operations.

Reserve Bank of India imposed a penalty of Rs. 4 Crore on the Bank for non-compliance of directions issued vide RBI circular DBS.(CO).CSITE/4493/31.01.015/2017-18 dated 20.02.2018 on “Time bound Implementation & strengthening of SWIFT - related operstional controls”. The Bank has paid the penalty in line with RBI directions. A detailed note has been placed to the board of Directors on the above. ALLRBI directions on SWIFT related operational controls have been complied with.

5.1 Fixed Assets

5.1.1 The premises of the Bank include land and are stated at revalued amount. The Bank revalued its premises in the financial year 2018-19 at fair market value determined by the approved external valuers. There is an increase ofRs. 555.14 Crore in the amount of revaluation of premises, which has been credited to “Revaluation Reserve Account”. For the year 2018-19, depreciation amounting to Rs. 85.34 crores (Previous YearRs. 82.08 crore) was charged under expenditure and depreciation on revalued portion amounting to Rs. 81.55 Crore (previous year Rs. 78.98 crore) is adjusted against the “Revaluation Reserve account’. As per AS 10 Standard, depreciation on revalued assets amounting to Rs. 81.55 crores was also charged under expenditure for the year 2018-19. The same was adjusted against Revaluation Reserve to the credit of Revenue Reserve A/c.

5.1.2 Premises include 4 properties costing Rs. 3.59 crores (Previous year 4 properties costing Rs.3.59 crores) having revalued book value, net of depreciation atRs. 49.22 Crore (Previous yearRs. 52.28 crore) for which registration formalities are pending.

6.1 Property, Plant and Equipment (AS-10)

During the year, the depreciation on revalued portion of the fixed assets is charged to profit and loss account as against charge to revaluation reserves during the previous financial years to comply with the change in Accounting Standard (AS-10). This has the effect of increase in the expenses by Rs. 81.55 crore and lowering the net profit by Rs. 81.55 crore.

6.2 EMPLOYEE BENEFITS(AS15)

6.2.1 Defined Contribution Plans:

Provident fund is a statutory obligation and in the case of Contributory Provident Fund Optees, the Bank pays fixed contribution at pre-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit and Loss Account. The fund is managed by Indian Bank Staff Provident Fund Trust. During the financial year 2018-19, the Bank has contributed Rs. 0.70 crores (previous yearRs. 0.81 crore).

New Pension Scheme (NPS) is applicable to employees who joined bank on or after 01.04.2010 and it is a defined contribution scheme. Under NPS the Bank pays fixed contribution at pre determined rate and the obligation of the Bank is limited to such fixed contribution. The contribution is charged to Profit and Loss Account. During the financial year 2018-19, the Bank has contributed Rs. 49.71 crores (previous yearRs. 45.95 crores).

6.2.2 Defined Benefit Plans:

The summarized position of Post-employment benefits and long term employee benefits recognised in the Profit & Loss Account and Balance Sheet as required in accordance with Accounting Standard -15 (Revised) are as under:

The following table sets out the basis of the Defined Benefit Pension Plan and Gratuity Plan as per the actuarial valuation by the independent Actuary appointed by the Bank

* Expected Rate of return on Plan Assets not applicable for Leave encashment.

The estimates of future salary increases are considered taking into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market and in tandem with Funding Guidelines for Superannuation Schemes communicated by IBA. Such estimates are very longterm and are not based on limited past experience/immediate future. Empirical evidence also suggests that in very long term, consistent high salary growth rates are not possible.

The liabilities of leave encashment are unfunded.

6.2.3 Other Long Term Employee Benefits

Amount ofRs. 2.19 crore (previous yearRs. 1.74 crore) has been provided towards Long Term Employee Benefits as per the actuarial valuation by the independent Actuary appointed by the Bank and is included under the head “Payments to and Provisions for Employees” in Profit and LossAccount.

Details of additional Provisions made/(written back) for various long Term Employee Benefits during the year:

6.3 RELATED PARTYDISCLOSURES (AS18)

Names of the Related Parties and their relationship with the Bank:

a) Subsidiaries:

i. Ind BankHousing Ltd.

ii. Indbank Merchant Banking Services Ltd.

b) Associates: (Regional Rural Banks)

i) Pallavan Grama Bank

ii) Saptagiri Grameena Bank

iii) Puduvai Bharathiar Grama Bank

c) Key Managerial Personnel:

Shri KishorKharat Managing Director & Chief Executive Officer(upto 13.08.2018)

Ms. Padmaja Chunduru Managing Director & Chief Executive Officer (Wef 21.09.2018)

Shri AS Rajeev Executive Director (upto 30.11.2018)

Shri M K Bhattacharya Executive Director (w.e.f. 18.02.2017)

Shri Shenoy Vishwanath V Executive Director (w e f 01.12.2018)

Parties with whom transactions were entered during the year

No disclosure is required in respect of related parties, which are “State-controlled Enterprises” as per paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions Banker-Customer relationship have not been disclosed including those with Key Management Personnel and relatives of Key Management Personnel.

6.4 Leases (AS 19)

a) The properties taken on lease/rental basis are renewable/cancellable atthe option of the Bank.

b) The leases entered into by the Bank are for agreed period with an option to terminate the leases even during the currency of lease period by giving agreed calendar month notice in writing.

c) Lease rent paid for operating leases are recognized as an expense in the Profit & Loss account in the year to which it relates. The lease rent recognized during the year is Rs.214.63 Crores (Previous year Rs.195.94 Crore).

d) Finance Lease

An asset acquired on finance lease comprises land and building. The leases have a primary period, which is fixed and non-cancellable. The Bank has an option to renew the lease for a secondary period.

The minimum lease rentals and the present value of minimum lease payments in respect of assets acquired under finance lease are as follows:

Note: During the Financial year 2018-19, Bank’s Board has approved to issue 4 crore equity shares to its employees under Employees Share Purchase Scheme in multiple trenches upto 31.03.2021 with a discount upto a maximum of 25%. Necessary approval from SEBI /Stock exchanges for the issue has been received.

7.1 Letter of comfort issued by the Bank:

During the year ended 31.03.2019, branches in India have not issued any letter of comfort for financing of imports. Outstanding as on 31.03.2019 is NIL. Hence no financial impact on outstanding LOC/LOU

During the year ended 31.03.2019,Letter of Comfort issued by our foreign branches(Singapore and Colombo) is NIL and Outstanding as on 31.03.2019 is NIL

In view of the Letter of Responsibility given by the Bank to the Monetary Authority of Singapore, the Bank continues to maintain deposits from FCNR (B) resources to the extent of USD 43.00 Mio (equivalent to INR 297.37 crore) with Singapore Branch to meet the minimum NetAdjusted Capital funds requirement of the Branch.

We have issued LOU for Sri Lankan branches favoring Central Bank of Sri Lanka(CBSL)as per the mandatory requirement of CBSL. We do not anticipate any financial impact in immediate near future on account of LOU issued

7.2 Provision Coverage Ratio (PCR)

Non Performing Loan Provisioning Coverage Ratio is 65.72% (previous year 64.27%).

7.3 Indian Bank Trust for Rural Development

Indian Bank Trust for Rural Development has been set up by the Bank on 22.09.2008 to exclusively focus on rural development and accomplish better results by coordinating with various other players / agencies who are also engaged in the development of rural areas.

Under the Trust, Indian Bank Self Employment Training Institutes (INDSETIs) have been established in 12 centers, viz. Chittoor (in Andhra Pradesh), Puducherry (in uT of Puducherry), Cuddalore, Dharmapuri, Kancheepuram, Krishnagiri, Namakkal, Salem, Thiruvannamalai, Tiruvallur, Vellore and Villupuram (in Tamil Nadu) to impart skill oriented training to rural unemployed youth, to enable them to either self /wage employed as per the directions of Ministry of Rural Development, Govt. of India. Financial Literacy Centres (FLCs) have also been established under the Trust in 19 places viz. Chittoor, Machilipatnam (in Andhra Pradesh), Kollam, Chadayamangalam, Parassala(in Kerala), Puducherry (in UT of Puducherry), Cuddalore, Dharmapuri, Kancheepuram, Krishnagiri, Namakkal, Salem, Thiruvannamalai, Tiruvallur, Vellore, Villupuram (in Tamil Nadu) and Urban FLCs in Chennai, Delhi and Mumbai to provide financial literacy and counseling services to the general public to assist the banks in financial inclusion project.

The books of account of the Trust are being subjected to audit, independently by the Chartered Accountants appointed by the Trust

7.4.1 In accordance with Asset Quality Review (AQR) undertaken by RBI, the Bank has made additional provisions during the year, on certain accounts, as advised by RBI.: NIL

7.5 Disclosures relating to Securitization: NIL

7.6 Credit DefaultSwaps: Nil

7.7 Equity:

Treasury Branch is in receipt of 26,31,591 Shares of M/s Electrosteel Steels Limited with FV of Rs.10/- per share in the Demat account on 13/06/2018. As per New Delhi Main Branch letter dt 28/06/2018, these shares represent the settlement of Debt as ordered by NCLAT vide order 30/05/2018 in lieu of the assets maintained at New Delhi Main Branch, which has taken up with the lead Bank - SBI for appropriation of share valuation. New Delhi Main Branch has made due discussions / correspondence with State Bank of India. After discussions, in line with the decision arrived by the Lead Bank (SBI), accounting of shares was not carried out due to uncertainty in legal technicalities with NCLT

7.8 Intra Group Exposures:

7.9 Contingent liabilities include an A/c M/s Nimbus Communications Ltd., Guarantees were issued by Consortium Banks favouring BCCI. BCCI filed suit against Consortium Banks claiming guarantee liability. In the suit, conditional leave to defend was granted on making payment of R400 crores, wherein our Bank share is R100 crore. Remittance of our Bank’s share of R100 crore was made with the Prothonotary and Senior Master of the Hon’ble High Court of Bombay. The summary suit is pending adjudication before Hon’ble High Court of Bombay.

For this claim against the Bank by BCCI, Bank is having a sum of R32.44 crore as provision under the head ‘Provision for Other Contingencies’ after taking into consideration a sum of R70.74 crore held as security - margin money as on 31.03.2019

7.10 Foreign Currency Exposure:

The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers .Where there is no natural hedge, forward cover is suggested to customers in respect of import/export transactions. The forward cover will act as Unhedged risk mitigation on exchange risk. While sanctioning the facilities, bank is ensuring that all the exposures (fund based and non fund based including Letter of Comfort/Letter of Undertaking) in foreign currencies are covered by forward cover. Request for considering waiver of forward cover if any is considered only at corporate office level. While reviewing the borrowal accounts hedged and unhedged exposure are captured and impact is analyzed in credit proposals.

The Bank has provided a provision ofRs. 5.95 crores and Capital of Rs.30.53 crores for the year ended 31st March 2019 on Unhedged Foreign Currency Exposure to their constituents in terms of RBI Circular dated January 15,2014

7.11 Frauds reported during the year:

The Bank has reported 168 cases of fraud amounting to Rs. 808.38 crores during the year 2018-19 as per the details furnished below:

The Bank has reported 112 cases of non advance related frauds amounting to Rs. 3.82 crores during the year 2018-19.

Upto 31.03.2019,747 cases (cumulative) relating to non-advance related frauds are pending involving amount of Rs.131.36 crores and the Bank carries a provision ofRs. 40.65 crores against the same after taking into account recoveries made.

8.1 The LCR is designed to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high quality liquid resources to survive an acute stress scenario lasting for 30 days.As per the RBI guidelines minimum requirement of LCR as on January 1,2019 is 100%. The methodology for estimating the LCR is based on RBI guidelines.

The LCR is calculated by dividing the amount of high quality liquid unencumbered assets (HQLA) by the estimated net outflows over a stressed 30 calendar day period. The net cash outflows are calculated by applying RBI prescribed outflow factors to the various categories of liabilities (deposits, unsecured and secured wholesale borrowings), as well as to undrawn commitments and derivatives-related exposures, partially offset by inflows from assets maturing within 30 days.

The bank during the quarter ended March 31, 2019 had maintained average HQLA (after haircut) of Rs. 44051.84 Crores as against the average liquidity requirement of Rs. 36795.12 Crores at a minimum LCR requirement of 100%. HQLA primarily included government securities in excess of minimum Statutory Liquidity Ratio (SLR), the extent allowed under the Marginal Standing Facility (MSF) and the Facility to Avail Liquidity for LCR (FALLCR). Additionally cash, balances in excess of cash reserve requirement with RBI and the overseas central banks form part of level 1 HQLA. The Daily average LCR of the Indian bank for the quarter ended March 31,2019 was119.72%.

The main drivers of LCR of the bank are sufficient high quality liquid assets (HQLAs) to meet liquidity needs of the bank at all times. The weighted cash outflows are primarily driven by unsecured wholesale funding which contributed 65.91% of the total weighted cash outflows. Retail deposits including deposits from small business customers contributed 20.40% of the total weighted cash outflows. The other contingent funding obligations primarily include bank guarantees (BGs) and letters of credit (LCs) issued on behalf of the Bank’s clients.

Bank has one significant counterparty in the deposits as on 31.03.2019. The largest depositor contributed 3.07% of total deposits. The total contribution of the top 20 largest domestic depositors as on 31.03.2019 is 10.55% of the total deposits. The significant product / instruments include Savings deposit, Current deposit and Term deposits which are 25.27%, 4.73% and 56.43% of bank’s total liability respectively, the funding from which are widely spread and cannot create concentration riskforthe bank.

Bank’s Liquidity is managed by the Asset Liability Management Committee (ALCO) and contingency funding plan is in place based on the quarterly stress testing results.

9. MISCELLANEOUS

9.1 Reconciliation and Adjustments

9.1.1 Reconciliation of Inter Branch Account is completed up to 31.03.2019. The Bank through various effective steps has achieved reduction in the old outstanding entries in IBGA. Adjustments of the remaining outstanding entries are in progress. As per the Management, 5747 IBGA credit entries aggregating to Rs. 4.86 crores are outstanding pertaining to period before 01.03.2009.

9.1.2 In view of the net credit position in respect of un-reconciled entries in the Inter Branch Account outstanding for more than 6 months as on 31.03.2019, no provision is required.

9.1.3 Old outstanding entries, in drafts payable, clearing adjustment, sundries receivable, sundry deposit accounts, etc. and in bank reconciliation relating to Reserve Bank of India and other banks are being regularly reviewed for appropriate adjustments.

9.1.4 Balancing of subsidiary/ledgers, registers and reconciliation with general ledgers are in progress at some branches. In the opinion of the management, consequential financial impact of the above on the accounts will not be significant

9.1.5 As per information available with the Bank, there is no outstanding dues payable by the Bank to MSME units identified by the Bank, which is pending beyond the time limit prescribed under MSMEDAct, 2006 and there have been no reported cases of accepted liability of delayed payments of principal amount or interest thereon for such parties during the year.

10. Previous year’s figures have been regrouped/reclassified, wherever necessary, to conform to current year’s figures.

Source : Dion Global Solutions Limited
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