1. BASIS OF PREPARATION:

1.1 The Bank's financial statements have been prepared under the historical cost convention on the accrual basis of accounting and ongoing concern basis, unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprises applicable statutory provisions, regulatory / Reserve Bank of India (RBI) guidelines, Accounting Standards / Guidance Notes issued by the Institute of Chartered Accountants of India (ICAI) and practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective foreign countries are complied with.

Use of Estimates

1.2 The preparation of financial statements requires the Management to make estimates and assumptions which are considered in the reported amounts of assets and liabilities (including Contingent Liabilities) as of the date of the financial statements and the reported income and expense for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates.\

2. REVENUE RECOGNITION AND EXPENSE ACCOUNTING

2.1 Income is recognized on accrual basis on performing assets.

Recovery in case of Non-Performing Assets is first appropriated towards principal and the balance, if any, towards interest and charges.

Recovery in case of Suit Filed Accounts shall be appropriated towards principal or as per the directives of the court concerned.

Recovery under One Time Settlement (OTS) shall be appropriated towards principal and excess over

principal shall be adjusted towards interest.

If any borrower account is classified as NPA from back date, any recovery till such present date of classification is first appropriated towards interest and the balance, if any, towards principal. Subsequent recovery made in such Non-Performing Assets is first appropriated towards principal and the balance, if any, towards interest and charges.

In case of assets sold to Asset Reconstruction Companies (ARCs), the income is recognized to the extent of cash component of the Sale Consideration received, where the sale consideration is over and above Net Book Value (i.e. Book outstanding less Provisioning).

NCLT admitted accounts shall be treated as suit filed accounts and the appropriation of recovery in these NCLT accounts whether it is from the process initiated against the corporate debtor or guarantors shall be done as in suit filed accounts.

Recovery by way of debentures / equity / other debt or equity or quasi equity instruments etc in the NCLT approved resolution plan amount as cash recovery to be appropriated in the same manner as is done in suit filed accounts i.e. first towards principal and remaining amount towards interest.

2.2 Interest on bills purchased/Mortgage Backed Securities, Commission (except on Letter of Credit/ Letter of Guarantee/Government Business/Insurance), Exchange, Locker Rent and Dividend are accounted for on realization basis.

2.3 Income from consignment sale of precious metals is accounted for as Other Income after the sale is complete.

2.4 Expenditure is accounted for on accrual basis, unless otherwise stated.

2.5 In respect of Inoperative Savings Bank Accounts, unclaimed Savings Bank accounts and unclaimed Term Deposits, interest is accrued as per RBI guidelines.

2.6 Legal expenses in respect of Suit Filed Accounts are charged to Profit and Loss Account. Such amount when recovered is treated as income.

2.7 In respect of foreign branches, Income and Expenditure are recognized/ accounted for as per local laws of the respective countries.

3. FOREIGN CURRENCY TRANSACTIONS

3.1 Accounting for transactions involving foreign exchange is done in accordance with Accounting Standard (AS) 11, "The Effects of Changes in Foreign Exchange Rates” issued by The Institute of Chartered Accountants of India.

3.2 Transactions in respect of Treasury (Foreign):

a) Foreign Currency transactions, except foreign currency deposits and lending, 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. Foreign Currency deposits and lendings are initially accounted at the then prevailing FEDAI weekly average rate.

b) Closing Balances in NOSTRO and ACU Dollar accounts are stated at closing rates. All foreign currency deposits and lendings including contingent liabilities are stated at the FEDAI weekly average rate applicable for the last week of each quarter. Other assets, liabilities and outstanding forward contracts denominated in foreign currencies are stated at the rates on the date of transaction.

c) The resultant profit or loss on revaluation of all assets, liabilities and outstanding forward exchange contracts including contingent liabilities at year-end exchange rates advised by FEDAI is taken to revenue with corresponding net adjustments to "Other Liabilities and ProvisionsTOther Asset Account” except in case of NOSTRO and ACU Dollar accounts where the accounts stand adjusted at the closing rates.

d) Income and expenditure items are translated at the exchange rates ruling on the date of incorporating the transaction in the books of accounts.

3.3 Translation in respect of overseas branches:

a) As stipulated in Accounting Standard 11, all overseas branches are treated as Non Integral Operations.

b) Assets and Liabilities (including contingent liabilities) are translated at the closing spot rates notified by FEDAI at the end of each quarter.

c) Income and Expenses are translated at quarterly average rate notified by FEDAI at the end of each quarter.

d) The resulting exchange differences are not recognized as income or expense for the period but accumulated in a separate account "Foreign Currency Translation Reserve” till the disposal of the net investment.

4. INVESTMENTS

4.1 In line with the RBI Guidelines, Banks shall classify their entire investment portfolio (except investments in their own subsidiaries, joint ventures and associates) under three categories, viz., Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL). Held for Trading (HFT) shall be a separate investment sub-category within FVTPL.

The premium/ discount, if any, of acquisition cost in comparison the face value of each security (other than NPI) is amortized/ accrued on straight line method, over the remaining period of maturity.

Disclosures of Investments are made under six classifications viz.,

a) Government Securities

b) Other Approved securities including those issued by local bodies,

c) Shares,

d) Bonds & Debentures,

e) Subsidiaries / Joint Ventures and

f) Others (to be specified).

4.2 Interest on Investments, where interest/principal is in arrears for more than 90 days and income from Units of Mutual Funds, is recognized on realization basis as per prudential norms.

4.3 Valuation of Investments is done in accordance with the guidelines issued by RBI as under:

4.3.1. Individual securities under "Fair Value through Profit & Loss "(FVTPL)” and "Available for Sale” categories are marked to market at quarterly intervals. Individual securities under HFT are marked to market on daily basis.

Central Government securities and State Government securities are valued at market rates declared by FBIL (Financial Benchmarks India Pvt Ltd). Securities of State Government, other Approved Securities and Bonds & Debentures are valued as per the yield curve, credit spread rating-wise and other methodologies suggested by FIMMDA (Fixed Income Money Market and Derivatives Association of India). Quoted equity shares are valued at market rates, Unquoted equity shares and units of Venture Capital Funds are valued at book value /NAV ascertained from the latest available balance sheets, otherwise the same are valued at Re. 1/- per company /Fund.

Treasury Bills, Commercial Papers and Certificate of Deposits are valued at carrying cost. Units held in Mutual fund schemes are valued at Market Price or Repurchase price or Net Asset Value in that order depending on availability.

Valuation of Preference shares is made on YTM basis with appropriate mark-up over the YTM rates for Central Government Securities put out by the PDAI (Primary Dealers Association of India)/FBIL periodically.

Based on the above valuations, the valuation gains and losses across all performing investments, irrespective of classification (i.e., Government securities, Other approved securities, Bonds and Debentures, etc.), held under AFS shall be aggregated. The net appreciation or depreciation shall be directly credited or debited to a reserve named AFS-Reserve. The performing securities held in FVTPL shall be fair valued and the net gain or loss arising on such valuation shall be directly credited or debited to the Profit and Loss Account.

The book value of individual securities would undergo change due to valuation at the prescribed intervals in the books of account.

4.3.2. "Held to Maturity”: Such investments are carried at acquisition cost/amortized cost/ carrying value.

Investments in subsidiaries, associates and sponsored institutions are valued at carrying cost.

4.4 Investments are subject to appropriate provisioning / de -recognition of income, in line with the prudential norms prescribed by RBI for NPA classification. Bonds and Debentures in the nature of advances are also subject to usual prudential norms and accordingly provisions are made, wherever applicable.

4.5 Profit/Loss on Sale of Investments in any category (viz. Held for Trading, Available for Sale and FVTPL) is taken to Profit & Loss account.

In case of Profit on Sale of Investments in "Held to Maturity” category, Profit net of taxes and the amount required to be transferred to Statutory Reserves is appropriated to "Capital Reserve Account”.

Upon sale or maturity of a debt instrument in AFS category, the accumulated gain/ loss for that security in the AFS-Reserve shall be transferred from the AFS-Reserve and recognized in the Profit and Loss Account.

In the case of equity instruments designated under AFS at the time of initial recognition, any gain or loss on sale of such investments shall not be transferred

from AFS-Reserve to the Profit and Loss Account. Instead, such gain or loss shall be transferred from AFS-Reserve to the Capital Reserve.

4.6 Broken period interest, Incentive / Front-end fees, brokerage, commission etc. received on acquisition of securities are taken to Profit and Loss account. Broken Period interest does not arise in case of Treasury Bills. Income is accounted based on the difference between the holding cost and the face value i.e. discount income.

4.7 Repo / Reverse Repo transactions are accounted as per RBI guidelines.

4.8 Investments held by overseas branches are classified and valued as per guidelines issued by respective overseas Regulatory Authorities.

4.9 All the investments are held by adopting the Weighted Average Pricing Method

4.10 All the investments are held in the book on settlement date basis only

4.11 Dividend income on investments is accounted on cash basis

4.12 Investments are shown in the Balance Sheet at net off provision held in respect of Non Performing Investments

4.13 Investments matured for payment are shown under "Other Assets” and underlying provisions held for Non Performing Investments is also netted off from the said investments.

4.14 An Investment is classified as HTM, HFT or AFS at the time of its purchase and subsequent shifting amongst categories, 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. Such transfer of securities from one category to another is done as per permission from or guidelines of Reserve Bank of India (RBI)

4.15 As per RBI Circular no. RBI/2017-18/147 DBR No. BP BC. 102/ 21.04.0489/ 2017-18 dated April 2, 2018, from the year 2018-19 an Investment Fluctuation Reserve (IFR) is to be created to build up adequate reserves to protect the bank against increase in yields in future.

The Transfer to Investment Fluctuation Reserve (IFR) is to be the 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% of the HFT and AFS Portfolio, on a continuing basis.

5. ADVANCES:

5.1 Advances in India have been classified as 'Standard', 'Sub-standard', 'Doubtful' and 'Loss assets' and provisions for losses on such advances are made as per prudential norms issued by Reserve Bank of India from time to time. In case of overseas branches, the classification and provision is made based on the respective country's regulations or as per norms of Reserve Bank of India whichever is higher.

5.2 Advances are stated net of provisions, except general provisions for standard advances.

5.3 For Restructured / Rescheduled Assets, provisions are made in accordance with the guidelines issued by the RBI, which require that the difference between the fair value of the loans / advance 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 from advances.

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

6. DERIVATIVES

6.1 The Bank enters into Derivative Contracts in order to hedge interest bearing assets/ liabilities, and for trading purposes.

6.2 In respect of derivative contracts which are entered for hedging purposes, the net amount receivable/ payable is recognized on accrual basis. Gains or losses on termination of such contracts are deferred and recognized over the remaining contractual life of the derivatives or the remaining life of the assets/ liabilities, whichever is earlier. Such derivative contracts are marked to market and the resultant gain or loss is not recognized, except where the derivative contract is designated with an asset/ liability which is also marked to market, in which case, the resulting gain or loss is recorded as an adjustment to the market value of the underlying asset/ liability.

6.3 Derivative contracts entered for trading purposes are marked to market as per the generally accepted practices prevalent in the industry and the changes in the market value are recognized in the profit and loss account. Income and expenses relating to these contracts are recognized on the settlement date. Gain or loss on termination of the trading derivative contracts are recorded as income or expense.

7. FIXED ASSETS (PROPERTY, PLANT AND EQUIPMENT)

7.1 Fixed Assets, except revalued premises, are stated at historical cost.

7.2 Depreciation is provided on straight-line method at the rates considered appropriate by the Management as under:

Depreciation on revalued portion of the fixed assets is charged to the profit and loss account, and equivalent amount is transferred from Revaluation reserve to Revenue Reserves.

7.3 Capitalization of the furniture/fixtures can be done in view of the nature and use of the items.

7.4 Depreciation of the assets is provided for the full year irrespective of the date of acquisition / revaluation. (Under straight line method)

7.5 Depreciation of the assets is allowed only if the assets is put to use in the year of purchased.

7.6 If the value of single asset is less than or equal to Rs.1000/-, Bank will not capitalize the asset and treat the assets as a revenue expenditure. So, in this case ,asset will not eligible for capitalization .

7.7 If the value of single asset is more than Rs.1000/- but less than Rs.5000/-, it will be eligible for capitalization. However, depreciation will be applicable to the extent of 100% of value of asset at the end of the financial year. Thereafter, it will carry Rs.1/- in the books.

7.8 Depreciation is provided on Land and Building as a whole where separate costs are not ascertainable.

7.9 In respect of leasehold properties, premium is amortized over the period of lease.

7.10 Depreciation on Fixed Assets of foreign branches is provided as per the applicable laws/practices of the respective countries.

8. STAFF BENEFITS

8.1 Contribution to Provident Fund and National Pension System is charged to Profit and Loss Account.

8.2 Provision for gratuity and pension liability is made on actuarial basis and contributed to approved Gratuity and Pension Funds. Provision for encashment of accumulated leave payable on retirement is made based on actuarial valuation at the year-end.

8.3 In respect of overseas branches gratuity is accounted for as per laws prevailing in the respective countries.

9. TAXES ON INCOME

Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Bank. The current tax expense and deferred tax expense are determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - "Accounting for Taxes on Income” respectively after taking into account taxes paid at the foreign offices, which are based on the tax laws of respective jurisdictions. Deferred Tax adjustments comprises of changes in the deferred tax assets or liabilities during the year. Deferred tax assets and liabilities are recognized by considering the impact of timing differences between taxable income and accounting income for the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognized in the profit and loss account. Deferred tax assets are recognized and re-assessed at each reporting date, based upon management's judgment as to whether their realization is considered as reasonably certain. Deferred Tax Assets are recognized on carry forward of tax losses only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realized against future profits.

10. EARNINGS PER SHARE

The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard - 20, "Earnings Per Share”, issued by The Institute of Chartered Accountants of India. Basic earnings per equity share has been computed by dividing net profit for the year by the weighted average number of equity shares outstanding for the period. 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 have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year-end except where the results are anti-dilutive.

11. IMPAIRMENT OF ASSETS

The bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceed their estimated recoverable amount.

12. SEGMENT REPORTING

The Bank recognizes 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 issued by Institute of Chartered Accountants of India.

13. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In accordance with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets”, issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions when it has a present obligation as a result of a past event, 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.

Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements.

Contingent Assets, if any, are not recognized or disclosed in the financial statements.