1.1. The financial statements are prepared under the historical cost conventions except as otherwise stated and conform to the Generally Accepted Accounting Principles (GAAP) which include statutory provisions, practices prevailing within the Banking Industry in India, the regulatory/ Reserve Bank of India ("RBI") guidelines, applicable Accounting Standards/ Guidance Notes issued by the Institute of Chartered Accountants of India (ICAI).
1.2. Use of Estimates
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of Assets and Liabilities (including contingent liabilities) as of the date of financial statements and reported income and expenses for the year under report. Management is of the view that the estimates used in the preparation of financial statements are prudent and reasonable. Future results could differ from these estimates. Any revisions to the accounting estimates shall be recognized prospectively unless otherwise stated.
1.3. Revenue and costs are accounted for on accrual basis except as stated in para 6.1 below.
1.4. The accounting policies with regard to Revenue Recognition, Investments and Advances are in conformity with the prudential accounting norms and guidelines issued by Reserve Bank of India from time to time.
2.1. The foreign currency transactions are translated at the weekly average closing rates for the preceding week as published by Foreign Exchange Dealers' Association of India (FEDAI). Revaluation of foreign currency assets and liabilities as on Balance Sheet date is done at the closing exchange rate published by FEDAI and the resultant profit/loss is accounted for in the Profit & Loss Account.
2.2. Outstanding Forward Foreign Exchange Contracts are stated at contracted rates and revalued/ marked to market as on quarterly basis and on Balance Sheet date at the exchange rates published by FBIL for specified maturities by discounting the same at the Modified MIFOR rate published by Financial Benchmarks India Pvt. Ltd. [FBIL] i.e. on PV01 basis. The resulting profit/loss, on revaluation, is recognized in the Profit & Loss Account in accordance with RBI / FEDAI guidelines and the effect is taken to "Other Assets" in case of gain or to "Other Liabilities" in case of loss.
2.3. Contingent Liabilities on account of Guarantees and Letters of Credit issued in foreign currency are stated in the Balance Sheet at the closing exchange rates published by FEDAI.
2.4. Credit exposure of the un-hedged foreign currency exposure, if any, of the constituents shall attract provisioning and capital requirements as per RBI guidelines.
As per Reserve Bank of India guidelines, the investments are classified and valued as under:
3.1. Investments are classified in the following categories:
• Held to Maturity (HTM)
• Available for sale (AFS)
• Held for trading (HFT)
3.2. All the investments are further classified in the
following six baskets in conformity with the requirement of Form-A of Third Schedule to the Banking Regulation Act, 1949:
• Government Securities
• Other approved Securities
• Shares
• Debentures and Bonds
• Subsidiaries and Joint Ventures
• Others (Commercial Papers, Mutual Fund Units etc.)
3.3. Bank decides the category of each investment at the time of acquisition and classifies the same accordingly. Shifting of securities from one category to another, other than shifting / transfer from HFT to AFS category, is done once in a year with the approval of Board of Directors, at the least of acquisition cost / book value / market value on the date of shifting. The depreciation, if any, on such shifting is provided for and the book value of the security is adjusted accordingly. The transfer of securities from one category to another is made as per permission from or guidelines of RBI. Transfer / shifting of investments from HFT to AFS category will be executed under exceptional circumstances, like not being able to sell the securities within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming unidirectional.
3.4. REPO/ Reverse REPO/ Standing Deposit Facility
The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of market Repo and Reverse Repo transactions. Repo and Reverse Repo transactions are treated as Collateralized Borrowing / Lending Operations with an agreement to repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investment and Securities purchased under Reverse Repo are not included in investment. Outstanding Repo / Term Repo is disclosed as borrowing and outstanding Reverse Repo is disclosed as lending. Costs and revenues are accounted for as interest expenditure / income, as the case may be.
3.5. Cost of investments is determined on the basis of Weighted Average Price method.
Interest paid for broken period / interest received for broken period at the time of purchase / sale of fixed income securities is treated as revenue expenditure / income.
Brokerage / incentive received / paid at the time of purchase/sale of investment is deducted / added from the amount of investment.
3.6. Valuation of investments:
a. Held to Maturity:
i. Securities under the category 'Held to Maturity' are valued at weighted average acquisition cost. Wherever the cost of security is higher than the face value, the premium is amortized over the remaining period of maturity on straight line basis. In case where the cost price is less than the face value, the difference is ignored.
ii. In case of investments in subsidiaries and joint ventures permanent diminution in value is recognized and provided for; investment in RRB is valued at carrying cost.
iii. On sale of investments in this category (a) the net profit is initially taken to profit and loss account and thereafter such profit net of applicable taxes and proportionate transfer to statutory reserve is appropriated to the 'Capital Reserve account'; and (b) the net loss is charged to the Profit & Loss Account.
b. Available for Sale:
The individual securities under this category are marked to market on a quarterly basis and on each balance sheet date. Central/ State Government securities are valued at market rates declared by FBIL. Other approved securities, debentures and bonds are valued as per the yield curve, average credit spread rating and methodology suggested by FIMMDA. Quoted shares are valued at market rates. Unquoted shares are valued at break-up value ascertained from the latest available Balance Sheet i.e. Balance Sheet of immediate preceding year and in case the latest Balance Sheet is not available, the same is valued at Re.1/- per company / scrip.
Investments in discounted instruments, viz. Treasury Bills, Certificate of Deposits, Commercial Papers, Zero Coupon Bonds are valued at carrying cost. Mutual Fund Instruments are valued at market rate or repurchase price or net asset value in that order depending on their availability. Investments in Security Receipts (SRs) /Pass Through Certificates (PTCs) issued by Asset Reconstruction Companies (ARCs) in respect of financial assets sold to ARCs are carried at lower of redemption value and net book value (i.e. book value less provision held) of the financial assets.
Based on the above valuation under each of
six-sub classifications under 'Available for
Sale':
i. If it results in appreciation, the same is ignored.
ii. If it results in net depreciation, the same is charged to Profit & Loss account and credited to Provision for Depreciation on Investments (AFS) in the liability side.
Provided that, depreciation, if any, on equity shares allotted consequent to implementation of Strategic Debt Restructuring (SDR) shall be provided for over a maximum of 4 calendar quarters on straight line basis from the date of conversion of debt into equity.
iii. The book value of securities is not changed in respect of marked to market (MTM) except as required by the RBI guidelines.
iv. Profit or Loss on sale of investment in this category is accounted for in the Profit and loss account.
c. Held for Trading:
i. The individual securities under this category are held at original cost and are marked to market every month and each balance sheet date. Central/ State Government securities are valued at market rates declared by FBIL. Other approved securities, debentures and bonds are valued as per the yield curve; average credit spread rating and methodology suggested by FIMMDA. Quoted Shares are valued at market rates.
ii. Investments in discounted instruments, viz. Treasury Bills, Certificate of Deposits, Commercial Papers, Zero Coupon Bonds are valued at carrying cost. Mutual Fund Instruments are valued at market rate or repurchase price or net asset value in that order depending on their availability. Investments in SRs / PTCs issued by ARCs in respect of financial assets sold to ARCs are carried at lower of redemption value and net book value (i.e. book value less provision held), of the financial assets.
iii. Net basket-wise depreciation if any, is charged to Profit & Loss Account and credited to Provision on Depreciation on Investment (HFT) under liability. Net appreciation, if any is ignored. The book value of the securities is not changed after revaluation except as required by the RBI guidelines.
iv. Profit or loss on sale of investment in this category is accounted for in the Profit & Loss Account.
d. Classification of and provisions on investments, including on restructured investments, are made in accordance with the prudential norms prescribed by and guidelines of RBI from time to time.
e. Costs such as brokerage, fees, commission, taxes etc. incurred at the time of acquisition of securities are capitalized.
!.7. Derivatives:
Interest Rate Swaps:
i. Valuation:
a) Hedging Swaps: Interest Rate Swaps for hedging assets and liabilities are not marked to market.
b) Trading Swaps: Interest Rate Swaps for trading purpose are marked to market.
ii. Accounting of income on derivative deals:
a) Hedging Swaps: Income is accounted for on realization basis. Expenditure, if any, is accounted for on accrual basis, if ascertainable.
b) Trading Swaps: : Income or expenditure is accounted for on realization basis on settlement date.
iii. Accounting of gain or loss on termination of swaps:
a) Hedging Swaps: Any gain or loss on the terminated swap is recognized over the shorter of (a) the remaining contractual life of the swap or (b) the remaining life of the asset/ liability.
b) Trading Swaps: Any gain or loss on terminated swap is recognized as income or expenditure in the year of termination.
3.8. Investment Fluctuation Reserve & Investment Reserve Account:
As per RBI circular number RBI/DOR/2021-22/81 DOR.MRG.42/21.04.141/2021-22 DATED AUG 25,2021 as updated till March 31,2024 Investment Fluctuation Reserve (IFR) is created to build up of adequate reserves to protect the bank against increase in yields.
Transfer to IFR is lower of the following -
a) Net profit on sale of Investments during the year or
b) Net profit for the year less mandatory appropriations, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis
Investment Reserve Account (IRA):
In the event, provisions created on account of depreciation in the 'AFS' or 'HFT' categories are found to be in excess of the required amount in any year, the excess shall be credited to the Profit & Loss Account and an equivalent amount (net of taxes, if any and net of transfer to Statutory Reserves as applicable to such excess provision) shall be appropriated to an IRA Account in Schedule 2 - "Reserves & Surplus" under the head "Revenue and Other Reserves".
4.1. Advances are disclosed net of write offs, provisions made for non-performing assets, claims settled with the credit guarantee institutions, provision for diminution in fair value for restructured advances and bills rediscounted.
4.2. Classification of advances and provisions thereon are made in accordance with the prudential norms prescribed by and guidelines of RBI from time to time, except in respect of following category of advances, provision on NPAs are made higher than the rate prescribed by RBI -
• Sub-Standard - 20%
• Doubtful Assets One to three years - 50% on secured portion
4.3. Provision for performing assets, is shown under the head "Other liabilities and provisions".
4.4. In respect of advances under SDR, provision is made in accordance with RBI guidelines, within a maximum period of four quarters.
4.5. In case of financial assets sold to Asset Reconstruction Company (ARC)/ Securitization Company (SC), if the sale is at a price higher than the NBV, the surplus is retained and utilised to meet the shortfall/loss on account of sale of other financial assets to SC/ARC. If the sale is at a price below the net book value (NBV), (i.e. outstanding less provision held) the shortfall is to be debited to the Profit and Loss account. However, if surplus is available, such shortfall will be absorbed in the surplus. Any shortfall arising due to sale of NPA will be amortised over a period of two years if not absorbed in the surplus.
Excess provision arising out of sale of NPAs are reversed only when the cash received (by way of initial consideration only/or redemption of SRs/PTC) is higher than the net book value (NBV) of the asset. Reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset.
5.1. Premises and Other Fixed Assets are carried at cost less accumulated depreciation/ amortization, except for certain premises, which were revalued and stated at revalued amount.
Cost includes cost of purchase, taxes as per GST law and all expenditure such as site preparation, installation costs and professional fees incurred on the asset before it is put to use. Subsequent expenditure(s) incurred on the assets put to use are capitalised only when it increases the future benefits from such assets or their functioning capability
5.2. Depreciation on fixed assets is provided for at the rates specified below, so as to write down value of assets to Rupee One over the residual life of the assets.
5.3. In respect of assets acquired during the year, depreciation is provided on proportionate basis for the number of days the assets have been put to use during the year.
Similarly, in respect of assets sold / discarded during the year, depreciation is provided on proportionate basis till the number of days the assets had been put to use during the year.
5.4. Eligible fixed assets are revalued once in every three years. Revalued portion of fixed assets net of salvage value (over and above the cost of fixed assets) is depreciated on straight line method over the residual life of the assets as certified by approved valuers at the time of valuation.
Revaluation reserve pertaining to lease hold lands, is amortised on straight line method over the residual life of the lease period.
Depreciation on revalued portion of fixed assets, over and above the cost is debited to Profit & Loss account. Amount of Revaluation Reserve to the extent of depreciation related to revalued portion of fixed assets over and above the cost debited to profit & loss account is transferred to Revenue Reserve from Revaluation Reserve.
5.5. In respect of leasehold premises, the lease premium, if any, is amortised over the period of lease on SLM basis in accordance with AS 19.
6.1. All revenues and costs are accounted for on accrual basis except the following items, which are accounted for on cash basis:-
• Interest on Advances and Investments identified as Non-Performing Assets according to the prudential norms and guidelines issued by RBI, from time to time.
• Income from commission like on Government business, Mutual Fund business, credit & debit cards issued, Annual maintenance charges for cards and Locker Rent.
• Interest for overdue period on bills purchased and bills discounted.
• Insurance claims.
• Remuneration on Debenture Trustee Business.
• Loan Processing Fees.
• Income from Merchant Banking Operations and Underwriting Commission.
• Transaction processing fees received on utility bill pay services through internet banking.
6.2. Pursuant to RBI guidelines, the interest payable on overdue term deposit is provided on accrual basis at rate of interest as applicable to saving account or contracted rate of interest on the matured TD, whichever is lower from 02.07.2021
Defined Contribution Plan: The contribution paid/ payable under defined contribution benefit schemes are charged to Profit & Loss Account.
Defined Benefit Plans: All eligible employees are entitled to receive benefits under the Bank's Gratuity, Pension & Privilege Leave schemes which are valued based on the principles laid down in AS -15, Employees Benefit (Revised) issued by Institute of Chartered Accountants of India. Bank's liabilities towards defined benefit schemes are determined by way of provisions and adjusted on the basis of an actuarial valuation report provided by the Actuaries appointed by the bank and made at the end of each quarter/financial year. Actuarial gains and losses are recognized in the Profit & Loss Account.
Other Employee Benefits such as Leave Fare Concession, Silver jubilee Award, resettlement allowance, and retirement benefit are provided based on Actuarial valuation.
The Bank recognizes Business Segment as its Primary Segment in compliance with the RBI Guidelines and in compliance with the Accounting Standard 17 issued by ICAI.
Impairment losses if any, on fixed assets including revalued fixed assets are recognized in accordance with Accounting Standard 28- Impairment of Assets issued by the ICAI and charged to Profit & Loss Account. Assets are reviewed for Impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable.
As per the Accounting Standard 29-"Provisions, Contingent Liabilities and Contingent Assets" issued by ICAI, the Bank recognizes 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 of the amount of the obligation can be made.
Contingent Liability is disclosed unless the possibility of an outflow of resources embodying economic benefit is remote.
Contingent assets are not recognized in the financial statements since this may result in the recognition of the income that may not be realized.
The Net Profit disclosed is after making the Provisions and Contingencies which include adjustment to the value of investments, write off of bad debts, provision for taxation (including deferred tax), and provision for advances including cases identified as fraud and contingencies /others.
The provision for tax for the year comprises liability towards current Income Tax, and Deferred Tax. The deferred tax asset/ liability is recognized, subject to the consideration of prudence, taking into account the timing differences between the taxable income and
accounting income, in terms of the Accounting Standard 22 issued by ICAI. The effect of change in tax rates on deferred tax assets and liabilities is recognized in the Profit & Loss Account in the period of applicability of the change.
Deferred tax assets and liabilities are measured using the applicable tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax assets are recognized and re-assessed at each reporting period based on management judgement as to whether their realization is considered as reasonably certain.
In cases of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence.
Interest income on refund of Income Tax is accounted for in the year in which; the order is passed by the concerned authority.
The demand raised by the Tax authorities including the interest thereon is provided for when such demand is accepted by the bank and the same is not contested before appellate authority OR when such demand is upheld by jurisdictional tribunal and there is no favorable judgement of other tribunal on identical issue and bank does not prefer to go before High Court OR when such demand is upheld by High Court.
The bank reports basic and diluted earnings per equity share in accordance with the Accounting Standard (AS-20) "Earnings Per Share" issued by ICAI. Basic Earnings per share is arrived by dividing net profit after tax with the weighted average number of equity shares outstanding for the period. The diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur in earnings per share if securities or other contracts to issue equity share are exercised or converted during the period.
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