SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES

A. Background

Central Bank of India (the Bank) is a body corporate registered under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 and is regulated by Reserve Bank of India. The principal business is providing banking and financial services with wide range of products and services to individuals, commercial enterprises, large corporates, public bodies and institutional customers. The business is conducted through its branches in India. The equity shares of the Bank are listed at BSE Limited and National Stock Exchange of IndiaLimited.

B. Basis of preparation:

The financial statements have been prepared following the going concern concept and under historical cost convention except in respect of revaluation of premises and conform, in all material aspects, to the Generally Accepted Accounting Principles (GAAP) in India, which encompasses applicable statutory provisions, regulatory norms prescribed by Reserve Bank of India (RBI) including those prescribed by the Banking Regulation Act 1949, Accounting Standards (AS) and pronouncements issued by The Institute of Chartered Accountants of India (ICAI) and the prevailing practices within the banking industry inIndia.

C. 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 on the date of the financial statements and the reported income and expenses for the reporting period. The management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Differences between the actual results and estimates are recognised in the year in which the results are known/ materialised.

D. Significant accounting policies:

1. Cash and Cash equivalents:

Cash and cash equivalents include cash in hand and ATMs, balances with the Reserve Bank of India, balances with other banks and money at call and short notice.

2. Revenue recognition:

2.1 General

a) Income/ expenditure is generally accounted for on accrual basis except for income accounted on cash basis as per regulatory provisions.

2.2 Income from investments

a) The Profit or loss on sale of investments is recognised in the Profit and Loss Account. In accordance with the guidelines issued by the Reserve Bank of India, profit on sale of investments in the Held to Maturity (HTM) category is appropriated (Net of applicable taxes and amount required to be transferred to “Statutory Reserve Account”) to the “Capital Reserve Account”.

(b) Income (other than interest) on investments in “Held to Maturity (HTM)” category acquired at a discount to the face value, is recognised asfollows:

(i) on interest bearing securities, it is recognised only at the time of sale/ redemption.

(ii) on zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yieldbasis.

(c) Dividend income is recognized when right to receive the dividend isestablished.

(d) Upside on security receipts is recognised on realisation as ‘Otherincome'.

2.3. Sale of financial assets

Financial Assets sold are recognized as under:

The sale of NPA is accounted as per guidelines prescribed by RBI. When the Bank sells its financial assets to Securitisation Company (SC)/ Reconstruction Company (RC), the same is removed from thebooks.

In case the sale to SC/ARC is at a price lower than the Net Book Value (NBV) the shortfall is charged to the Profit and Loss Account in the year ofsale.

In case the sale is at a price higher than the NBV on cash basis, the surplus is taken to the credit of Profit and LossAccount.

2.4. Fee based income

Commission on letters of credit, bank guarantee and deferred payment guarantee are recognised on accrual basis proportionately over the period. All other commission and fee income are recognised on their realisation.

2.5 Others

a) Interest on income tax refund is accounted on receipt of refund order(s)/ intimation from Income Tax Department and acceptance by the Bank.

b) Provision for interest payable on overdue deposits is made as per Reserve Bank of India guidelines.

3. Advances:

3.1 Based on the guidelines/ directives issued by the RBI, loans and advances are classified as performing and non-performing, as follows:

The term loan is classified as a non-performing asset, if interest and/ or instalment of principal remains overdue for a period of more than 90days.

An overdraft or cash credit is classified as a nonperforming asset, if, the account remains “out of order”, i.e. if the outstanding balance exceeds the sanctioned limit/ drawing power continuously for a period of 90 days, or if there are no credits continuously for 90 days, or if the credits are not adequate to cover the interest debited during the previous 90 days period.

The bills purchased/ discounted are classified as non-performing asset if the bill remains overdue for a period of more than 90days.

The agricultural advances are classified as a nonperforming if, (i) for short duration crops, where the instalment of principal or interest remains overdue for two crop seasons; and (ii) for long duration crops, where the principal or interest remains overdue for one cropseason.

Non-performing assets are classified into substandard, doubtful and loss Assets, based on the following criteria stipulated byRBI:

(a) Sub-standard: A loan asset that has remained non-performing for a period less than or equal to 12months.

(b) Doubtful: A loan asset that has remained in the sub-standard category for a period of 12 months.

(c) Loss: A loan asset where loss has been identified but the amount has not been fully writtenoff.

3.3 Provisions are made for NPAs as per the extant guidelines prescribed by the regulatory authorities, subject to minimum provisions as prescribed below:

Sub-standard assets:

A general provision of 15% on the totaloutstanding.

i. Additional provision of 10% for exposures which are unsecured ab-initio (i.e. where realisable value of security is not more than 10 percentab-initio).

ii, Unsecured Exposure in respect of infrastructure advances where certain safeguards such as escrow accounts are available -20%.

3.4 Advances are shown net of provisions (in case of NPA), Unrealised Interest, amount recovered from borrowers held in Sundries and claims received from CGTSI/ ECGC,etc.

3.5 For restructured/ rescheduled assets, provisions are made in accordance with the guidelines issued by the RBI, which inter alia require that the difference between the fair value of the loans/ advances before and after restructuring is provided for, in addition to provision for the respective loans/ advances. The provision for diminution in fair value and interest sacrifice, if any, arising out of the above, is reduced fromadvances.

3.6 In addition to the specific provision on NPAs, general provisions are also made for standard assets as per extant RBI guidelines. These provisions are reflected in Schedule 5 of the Balance Sheet under the head “Other Liabilities & Provisions - Others” and are not considered for arriving at the NetNPAs.

3.7 In the case of loan accounts classified as NPAs, an account may be reclassified as a performing asset if it conforms to the guidelines prescribed by theregulators.

3.8 Amounts recovered against debts written off in earlier years are recognised as revenue in the year ofrecovery.

3.9 Additional provisions higher than regulatory norms are made in specific assets in view of the identified weakness and/ or prevailing economic situation.

3.10 Partial recoveries in non-performing account (including partially written off accounts) are appropriated in the following order:

i. Principal Overdues /Irregularities

ii. Unrealised interest

iii. Partial Written Off principal

iv. Uncharged Interest

v. Unrealised charges

In case of suit filed/SARFAESI/ recalled accounts, recovery is appropriated in the following order:

i. Ledger outstanding balance

ii. Unrealised interest

iii. Partial Written Offprincipal

iv. Uncharged Interest

v. Unrealised charges

However, where any borrower account is required to be classified as non-performing from an earlier date, any recovery till the account was classified as Standard is first credited to Interest on Loans and Advances

4 Provision for country exposure:

In addition to the specific provisions held according to the asset classification status, provisions are also made for individual country exposures (other than the home country). Countries are categorised into seven risk categories, namely, insignificant, low, moderate, high, very high, restricted and off- credit and provisioning made as per extant RBI guidelines. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposures.

5. Investments:

Investments are accounted for in accordance with the extant guidelines of investment classification and valuation, as given below:

5.1 Classification:

In accordance with the guidelines issued by the Reserve Bank of India, Investments are classified into “Held to Maturity (HTM)”, “Held for Trading (HFT)” and “Available for Sale (AFS)” categories.

For disclosure in the Balance Sheet in Schedule 8, investments are classified as Investments in India and outside India. Under each category, the investments in India are further classified as

a) Government Securities

b) Other Approved Securities

c) Shares

d) Debentures and Bonds

e) Subsidiaries, joint ventures/associates and sponsored institutions; and

f) Others (Commercial Papers and units of Mutual Funds etc.)

The investments outside India are further classified under 3 categories

a) Government Securities

b) Subsidiaries and Joint Ventures/Associates

c) Other Investments

5.2 Basis of Classification:

a) Held to Maturity: Investments that the Bank intends to hold till maturity are classified as “Held to Maturity (HTM)”.

b) Held for Trading: Investments that are held principally for resale within 90 days from the date of purchase are classified as “Held for Trading (HFT)”.

c) Available for Sale: Investments, which are not classified in the above two categories, are classified as “Available for Sale (AFS)”.

d) Transfer of Securities between categories: An investment is classified as HTM, HFT or AFS at the time of purchase and subsequent shifting amongst categories is done in conformity with the regulatory guidelines.

e) Investments in subsidiaries, joint ventures/ associates and sponsored institutions are classified as HTM except in respect of those investments which are acquired and held exclusively with a view to its subsequent disposal. Such investments are classified as AFS.

5.3 Valuation:

The transactions in all securities are recorded on

a Settlement Date and cost is determined on the

weighted average cost method.

A. Incentive, front-end fees etc., received on purchase of securities are reduced from the cost of investments.

B. Expenses such as brokerage, fees, commission or taxes incurred at the time of acquisition of securities are charged to the Profit and Loss Account as revenue expenses.

C. Broken Period interest paid/ received on debt instruments is treated as interest expense/ income and is excluded from cost/ sale consideration.

a) Valuation of investments classified as Held to Maturity: The investments classified under this category are carried at acquisition cost. The excess of acquisition cost / book value over the face value is amortised over the remaining period of maturity. Such amortisation of premium is accounted as expense.

Investments (in India and abroad) in subsidiaries, joint ventures/associates are valued at historical cost. A provision is made

for diminution, other than temporary in nature, for each investment individually.

Investments in Regional Rural Banks are valued at carrying cost (i.e. book value).

b) Valuation of investments classified as Available for sale and Held for Trading:

Investments classified as Available for Sale and Held for Trading are individually revalued at market price or fair value determined as per the regulatory guidelines and the net depreciation if any, of each group for each category (viz.(i) Government securities, (ii) Other Approved Securities, (iii) Shares, (iv) Bonds and Debentures, (v) Subsidiaries and Joint Ventures/Associates and (vi) others) is provided for and net appreciation is ignored.

c) Valuation policy in event of inter category transfer of investments:

Transfer of securities from HFT/ AFS category to HTM category is carried out at the lower of acquisition cost/ book value/ market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for.

Transfer of securities from HTM category to AFS category is carried out on acquisition cost/ book value. On transfer, these securities are immediately revalued and resultant depreciation, if any, is provided, in the Profit and Loss Account.

d) Valuation in case of sale of NPA (financial asset) to Securitisation Company (SC)/ Asset Reconstruction Company (ARC) against issue of Security Receipts (SR):

i) The investment in security receipts obtained by way of sale of NPA to SC/ RC, is recognised at lower of: (i) Net Book Value (NBV) (i.e. book value less provisions held) of the financial asset; and (ii) Redemption value ofSR.

ii) SRs issued by an SC/ ARC are valued in accordance with the guidelines applicable to non-SLR instruments. Accordingly, in cases where the SRs issued by the SC/ ARC are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Net Asset Value, obtained from the SC/ ARC, is reckoned for valuation of suchinvestments.

e) Treasury Bills and Commercial Papers are valued at carrying cost.

5.4 Investments (NPI):

Investments are classified as performing and non-performing, based on “Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2021” (as amended) and “Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances”, as under:

a) Interest/ instalment (including maturity proceeds) is due and remains unpaid for more than 90 days. The same is applied to preference shares where the fixed dividend is not paid.

b) I n the case of equity shares, in the event the investment in shares of any company is valued at Re. 1 per company on account of non-availability of the latest balance sheet, those equity shares would be reckoned as NPI.

c) The Bank also classifies an investment as a non-performing investment, in case any credit facility availed by the same borrower/ entity has been classified as a non- performing asset and vice versa.

d) The investments in debentures/ bonds, which are deemed to be advance, are also subjected to NPI norms as applicable to investments.

5.5 Accounting for Repo/ Reverse Repo transactions

The Bank enters into repurchase and reverse repurchase transactions with RBI under Liquidity Adjustment Facility (LAF) and also with market participants. Repurchase transaction represents borrowing by selling the securities with an agreement to repurchase the securities. Reverse repurchase transactions on the other hand represent lending funds by purchasing the securities.

a) The securities sold and purchased under Repo/ Reverse Repo (other than LAF) are accounted as overnight Tri-party Repo (TREPS) dealing and settlement.

b) However, securities are transferred as in the case of normal outright sale/ purchase transactions and such movement of securities is reflected using the Repo/ Reverse Repo Accounts and contra entries.

c) The above entries are reversed on the date of maturity. Balance in Repo Account is classified under Schedule 4 (Borrowings) and balance in Reverse Repo Account is classified under Schedule 7 (Balance with Banks and Money at call & short notice).

d) Interest expended/ earned on Securities purchased/ sold under LAF with RBI is accounted for as expenditure/ revenue.

6. Derivatives:

The Bank enters into derivative contracts, such as interest rate swaps, currency swaps and cross currency swaps in order to hedge on balance sheet/ off-balance sheet assets and liabilities or for trading purposes.

6.1 Derivatives used for hedging are accounted as under:

a) In cases where the underlying assets/ liabilities are marked to market, resultant gain/loss is recognised in the Profit and Loss Account.

b) Derivative contracts classified as hedge are recorded on accrual basis. Hedge contracts are not marked to market unless the underlying assets/ liabilities are also marked to market.

c) Gain or losses on the termination of Swaps are recognised over the shorter of the remaining contractual life of the swaps or the remaining life of the assets/ liabilities.

6.2 Derivatives used for trading are accounted as under:

a) Currency futures and interest rate futures are marked to market on daily basis as per exchange guidelines of MCX-SX, NSE and BSE.

b) Mark to market profit or loss is accounted by credit/ debit to the margin account on daily basis and the same is accounted in the Bank's profit and loss account on final settlement.

c) Trading swaps are marked to market at frequent intervals. Any mark to market losses are booked and gains, if any, are ignored on net basis.

d) Gains or losses on termination of swaps are recorded immediately as income/ expense under the above head.

7. Transactions involving foreign exchange:

7.1 Foreign currency transactions 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.

7.2 Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (“FEDAI”) closing (spot/ forward) rates and the resultant profit or loss is recognised in the Profit and Loss Account.

Foreign currency non-monetary items, which are carried at historical cost, are reported using the exchange rate on the date of the transaction.

Contingent liabilities denominated in foreign currency are reported using the FEDAI closing spot rates.

7.3 Outstanding foreign exchange spot and forward contracts are revalued at the exchange rates notified by FEDAI for specified maturities, and the resulting Profit or Loss is recognised in the Profit and Loss Account. Foreign exchange forward contracts which are not intended for trading and are outstanding at the balance sheet date, are valued at the closing spot rate.

7.4 Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognised as income or as expense in the period in which theyarise.

7.5 Gains/ Losses on account of changes in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/losses are recognised in the profit and loss account.

8. Fixed assets and depreciation:

8.1 Fixed Assets are carried at cost less accumulated depreciation/ amortisation.

Cost includes cost of purchase and all expenditure such as site preparation, installation costs, taxes and professional fees incurred on the asset before it is put to use.

8.2 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.

8.3 Fixed Assets are depreciated under ‘Written Down Value Method' at the following rates (other than computers which are depreciated on Straight Line Method):

a) Premises at varying rates based on estimated life

b) Furniture, Lifts, Safe Vaults 10%

c) Vehicles, Plant & Machinery 20%

d) Air conditioners, Coolers, Typewriters etc. 15%.

e) Computers including Systems Software 33.33%

(Application Software is charged to the Revenue during the year of acquisition.)

8.4 Other fixed assets are depreciated on Straight Line Method on the basis of estimated useful life of the assets.

8.5 Land acquired on lease for over 99 years is treated as freehold land and those for 99 years or less is treated as leasehold land. Cost of leasehold land is amortized over the period of lease.

8.6 Where it is not possible to segregate the cost of land and premises, depreciation is charged on the composite cost.

8.7 In case of assets, which have been revalued, the depreciation/ amortization is provided on the revalued amount and is charged to the Profit and Loss Account. Amount of incremental depreciation/ amortization attributable to the revalued amount is transferred from ‘Revaluation Reserve' and credited to ‘Revenue and Other Reserves'.

8.8 Depreciation on additions to assets, made upto 30^th September is provided for the full year and on additions made thereafter, is provided for the half year.

No depreciation is provided on assets sold before 30^th September and depreciation is provided for the half year on assets sold after 30^th September.

8.9 The Bank considers only immovable assets for revaluation. Properties acquired during the last three years are not revalued. Valuation of the revalued assets is done every three years thereafter.

8.10The increase in net book value of the asset due to revaluation is credited to the Revaluation Reserve Account without routing through the Profit and Loss Account.

Additional depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Other Revenue Reserve.

8.11 The revalued asset is depreciated over the balance useful life of the asset as assessed at the time of revaluation.

9 Leases:

Leases where risks and rewards of ownership are retained by lessor are classified as Operating Lease as per AS-19 (Leases). Lease payments on such lease are recognised in Profit and Loss

account on a straight-line basis over the lease term in accordance with AS 19.

10 Impairment of Assets:

Fixed Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognised is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset and such impairment losses, if any, on fixed assets are recognised and charged to Profit & Loss Account in accordance with Accounting Standard-28 Impairment of Assets.

11. Employee Benefits:

11.1 Employee benefits are accrued in the year in which services are rendered by the employees.

11 2Short Term Employee Benefits:

The undiscounted amounts of short-term employee benefits, which are expected to be paid in exchange for the services rendered by employees, are recognised during the period when the employee renders theservice.

11.3Defined benefit plans:

The Bank operates Gratuity and Pension schemes which are defined benefit plans.

a) The Bank provides for gratuity to all eligible employees. The benefit is in the form of lump sum payments to vested employees on retirement, or on death while in employment, or on termination of employment, for an amount equivalent to 15 days basic salary payable for each completed year of service, subject to the cap prescribed by the Statutory Authorities. Vesting occurs upon completion of five years of service. The Bank makes periodic contributions to a fund administered by Trustees based on an independent external actuarial valuation.

b) The Bank provides for pension to all eligible employees. The benefit is in the form of monthly payments as per rules to vested employees on retirement or on death while in employment, or on termination of employment. Vesting occurs at different stages as per rules. The pension liability is reckoned based on an independent actuarial valuation carried out annually and Bank makes such additional contributions

periodically to the Fund as may be required to secure payment of the benefits under the pension regulations.

c) The cost of providing defined benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains/ losses are immediately recognised in the Profit and Loss Account and are not deferred.

d) When the benefits of the plan are changed, or when a plan is curtailed or settlement occurs, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment or settlement, is recognized immediately in the profit or loss account when the plan amendment or when a curtailment or settlement occurs.

Liability for long term employee benefit under defined benefit scheme such as contribution to gratuity, pension fund and leave encashment are determined at close of the year at present value of the amount payable using actuarial valuation technique.

e) Actuarial gain/losses are recognised in the year when they arise.

11.4Defined Contribution Plan:

Provident fund is a defined contribution as the bank pays fixed contribution at predetermined rates. The obligation of the bank is limited to such fixed contribution. The contributions are charged to Profit and Loss account.

National Pension Scheme which is applicable to employees who have joined bank on or after 01.04.2010 is a defined contribution scheme. Bank pays fixed contribution at pre-determined rate. The obligation of the bank is limited to such fixed contribution. The contribution is charged to Profit and Loss Account

12. Accounting for Taxes on Income:

Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Bank. The provision for tax for the year comprises of current tax liability computed in accordance with the Income Tax Act, 1961 and as per Accounting Standard 22 - “Accounting for Taxes on Income” respectively.

Deferred tax is recognized on timing differences between taxable income and accounting income that originate in one period and is capable of reversal in one or more subsequent periods. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future

taxable income will be available against which such deferred tax assets will be realised.

Deferred Tax Assets are recognised on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realised against future profits.

The carrying amount of deferred tax assets is reviewed at each balance sheet date to reassess its realization. Disputed tax liabilities are accounted for in the year of finality of assessment/ appellate proceedings and till such times they are shown as contingent liability. The impact of changes in deferred tax assets and liabilities is recognised in the Profit and Loss Account.

13. Provisions, Contingencies and Contingent assets:

13.11 n conformity with AS 29, “Provisions, Contingent Liabilities and Contingent Assets”, issued by the Institute of Chartered Accountants of India, the Bank recognises provisions only when it has a present obligation as a result of a past event, and would result in a probable 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.

13.2 No provision is recognised for:

a) any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Bank; or

b) any present obligation that arises from past events but is not recognised because:

i. it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

ii. a reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as contingent liabilities. These are assessed at regular intervals and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

13.3Provision for reward points in relation to the debit card holders of the Bank is made on estimated basis.

13.4Contingent assets are neither recognised nor disclosed in the Financial Statements.

14 Special Reserves:

Revenue and other Reserve include Special Reserve created under Section 36(i)(viii) of the Income Tax Act, 1961. The Board of Directors of the Bank has passed a resolution approving creation of the reserve and confirming that it has no intention to make withdrawal from the Special Reserve. 15 Segment Reporting

The Bank recognises the business segment as the primary reporting segment and geographical segment as the secondary reporting segment in accordance with the RBI guidelines and in compliance with the Accounting Standard 17 -“Segment Reporting” issued by The Institute of Chartered Accountants of India.

15 Segment Reporting

The Bank recognises the business segment as the primary reporting segment and geographical segment

as the secondary reporting segment in accordance with the RBI guidelines and in compliance with the Accounting Standard 17 - “Segment Reporting” issued by The Institute of Chartered Accountants of India.

16 Earnings per Share:

The Bank reports basic and diluted earnings per share in accordance with AS 20 - “Earnings per Share” issued by the Institute of Chartered Accountants of India. Basic Earnings per Share is computed by dividing the Net Profit after Tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is calculated by using the weighted average number of equity shares and dilutive potential equity shares outstanding during the year.