SIGNIFICANT ACCOUNTING POLICIESA. Background

Punjab & Sind Bank (PSB or the Bank) is a banking and financial services statutory body engaged in providing a wide range of products and services to individuals, commercial enterprises, large corporates, public bodies, and institutional customers. The Bank is governed by the Banking Regulation Act, 1949.

B. Basis of Preparation

The financial statements of Punjab & Sind Bank (the "Bank") have been prepared and presented under historical cost convention, on accrual basis of accounting, on going concern basis, and conform in all material aspects, unless otherwise stated, to Generally Accepted Accounting Principles (GAAP) in India, statutory provisions, regulatory norms prescribed and circulars, directions and guidelines issued by Reserve Bank of India (RBI) from time to time, Banking Regulation Act, 1949, Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) to the extent relevant and applicable to the Bank and prevailing practices in the Banking Industry in India.

C. Use of Estimates

The preparation of financial statements requires the management to make estimates and assumptions that affect the reported amount of assets and liabilities (including contingent liabilities) as on date of the financial statements and the reported income and expenses for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the estimates or difference between the actual result and estimates is recognized in the period in which the results are known / materialized, unless otherwise stated.

D. Significant Accounting Policies1. Revenue Recognition

1.1 Income and expenditure are accounted for on accrual basis unless otherwise stated.

1.2 Income on Non-Performing Assets (NPAs) comprising of advances and investments is recognized on realization basis in accordance with the prudential norms prescribed by Reserve Bank of India.

1.3 Partial recovery in non-performing assets (other than stated in para 1.4) is appropriated first towards principal and thereafter towards interest and charges.

1.4 For cases covered under special schemes introduced by RBI viz. Scheme for Sustainable Structuring of Stressed Assets (S4A), Strategic Debt Restructuring, Flexible Structuring of Long-Term Project Loans (5/25), Change in Ownership of Borrowing Entities (Outside Strategic Debt Restructuring Scheme), where subsequently the account turns NPA, any recovery shall be first credited to Interest on Loans & Advances. Thereafter, the recovery shall be appropriated towards principal amount outstanding in the account. The accounting procedure shall be uniform and consistent in all accounts falling under above schemes.

1.5 Income on guarantees and letters of credit issued, locker rent, income from merchant banking transactions, money transfer services, dividend on shares, interest on refund of income tax, commission on credit card, interest on overdue bills, processing fee, Government business including distribution of pension and income from units of mutual fund products and income from ATM operations are accounted for on receipt basis.

1.6 Rebate on compromised accounts is accounted for at the time of full and final adjustment of the account.

1.7 Interest on overdue Term Deposits is provided at the rate of interest applicable to Savings Bank Accounts.

1.8 Bond Issue Expenses incurred in connection with raising Tier-II Capital are treated as Deferred Revenue Expenditure to be written off over a period of five years.

1.9 Share Issue Expenses are adjusted against the Share Premium Account

2. Investments

Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation.

2.1 Classification:

The entire investment portfolio is classified into three categories, viz, "Held to Maturity (HTM)", "Held for Trading (HFT)" and "Available for Sale (AFS)" in line with the guidelines / directions of Reserve Bank of India.

For disclosure in the Balance sheet, the investments under the above classifications are classified as Investments in India and Outside India.

Investments in India are further categorized as under:

i. Government Securities

ii. Other approved securities

iii. Shares

iv. Debentures

v. Subsidiaries / Joint Ventures and

vi. Others

Investments Outside India are further categorized as under:

i. Government Securities

ii. Subsidiaries / Joint Ventures and

iii. Others

2.2 Basis of Classification:

i. Investments that the Bank intends to hold till maturity are classified as Held to Maturity.

ii. Investments that are held principally for resale within 90 Days from the date of purchase are classified as Held for Trading.

iii. Investments which are not classified in the above two categories, are classified as Available for Sale.

An investment is classified under the above categories at the time of its purchase. Shifting of investments from one category to another is done in conformity with the approval of the Board normally once in a year. Transfer of securities from one category to another is carried out at the lower of acquisition cost/ book value/ market value on the date of transfer. However, transfer of securities from HTM category to AFS category is carried out on book value. After transfer, these securities are immediately revalued and resultant depreciation, if any, is provided.

2.3 Recording / Accounting of Investments:

The transactions in all the securities / investments are recorded on Settlement Date. Settlement Date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the de-recognition of an asset and recognition of any gain or loss on disposal on the day it is delivered by the entity.

The cost is determined on weighted average cost method

Brokerage / commission received on subscription is reduced from the cost. Brokerage, commission, Securities Transaction Tax (STT) etc. paid in connection with acquisition of investments are expensed upfront and excluded from cost.

Interest accrued up to the date of acquisition / sale of securities i.e. broken period interest on debt instruments is excluded from the acquisition cost / sale consideration and is treated as interest expense / income.

2.4 Valuation:

Investments under 'Held to Maturity' (HTM) are stated at acquisition costs. The premium paid on acquisition if any, is amortized over the remaining period of maturity on a constant yield basis. Such amortization of premium is reflected in Interest Earned under the head "Income on Investments" as a deduction. In case, the acquisition cost is less than the redemption value, the difference being the unrealized gain, is ignored. Any diminution in value of investments in subsidiaries and joint venture, other than temporary in nature, is provided for each investment individually.

Investments under 'Available for sale' (AFS) and 'Held for Trading' (HFT) are individually revalued at market price or fair value determined as per the regulatory guidelines and the net depreciation if any, of each group/category is provided for and the net appreciation is ignored.

The 'market price / fair value' for the purpose of valuation of investments included in the 'Available for Sale' and 'Held for Trading' categories is the market price of the scrip as available from the trades/quotes on the stock exchanges, price list of RBI, prices declared by Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives Association of India (FIMMDA).

In respect of unquoted securities, the 'market price / fair value' is ascertained as under:

2.5 Profit or loss on sale of investments in any category is taken to Profit and Loss account but, in case of profit on sale of investments in "Held to Maturity" category, an equivalent amount is appropriated to "Capital Reserve Account".

2.6 Non-Performing Investments (NPI)

Investments are subject to appropriate provisioning / de-recognition of income, in line with the prudential norms of Reserve Bank of India for NPI classification. The depreciation/provision in respect of non-performing securities is not set off against the appreciation in respect of the other performing securities.

If any credit facility availed by an entity is NPA in the books of the Bank, investment in any of the securities issued by the same entity would also be treated as NPI and vice versa. However, in respect of NPI preference share where the dividend is not paid, the corresponding credit facility is not treated as NPA.

2.7 In the event, depreciation booked on account of MTM in the 'AFS' or 'HFT' categories are found to be in excess of the required amount in any year, the excess is credited to the Profit & Loss Account and an equivalent amount is appropriated to an Investment Reserve Account in Schedule 2 - "Reserve & Surplus" under the head "Revenue and Other Reserves".

3. Loans / Advances and Provisions thereon:

3.1 Advances are classified as "Performing" and "Non-Performing" assets and provisions are made in accordance with prudential norms prescribed by the Reserve Bank of India.

3.2 Advances are classified into Standard, Sub-Standard, Doubtful and Loss assets, borrower wise.

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

3.4 Advances are stated net of unrealized interest and provisions / technical write off made in respect of non-performing advances. Claims received from DICGC / CGTMSE / ECGC are not reduced from such advances till adjusted / technically written-off whereas part recovery in all NPA accounts is reduced from advances.

3.5 In addition to the specific provision on NPAs, general provisions are also made for standard assets as per extant RBI Guidelines. These provisions are included under "Other Liabilities and Provisions" and are not considered for arriving at the Net NPAs.

3.6 For restructured / rescheduled advances, provisions are made in accordance with the guidelines issued by RBI.

3.7 The sale of NPA is accounted for as per guidelines prescribed by RBI, as under:

i) When the Bank sells its financial assets to Securitization Company (SC) / Reconstruction Company (RC), the same is removed from the books.

ii) If the sale is at a price below the net book value (NBV) (i.e. book value less provisions held), the shortfall is debited to the Profit & Loss account of the year of sale.

iii) If the sale is for a value higher than the NBV, the excess provision is reversed in the year the amounts are received.

4. Floating Provisions

In accordance with the RBI guidelines, the Bank has a approved policy for creation and utilization of floating provisions separately for advances and investments. The quantum of floating provisions to be created is assessed, at the end of each financial year. The floating provisions would be utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of Reserve Bank of India.

5. Fixed Assets

5.1 Fixed Assets are stated at historical cost (except revalued premises which are stated at revalued amount) less accumulated depreciation / amortization. The appreciation on revaluation is credited to Revaluation Reserve and the incremental depreciation attributable to the revalued amount is debited to the Profit & Loss account and the equal amount is transferred from Revaluation Reserve to Revenue & Other Reserve. Cost of fixed assets include cost of purchase and relevant expenditure incurred thereon till the time it is put to use. Subsequent expenditure/s incurred on the assets are capitalized only when it increases the future benefits from such assets or their functioning capability.

5.2 Premises, where segregation is not possible between land and superstructure, are considered in the value of superstructure.

5.3 Land included under Premises taken on perpetual lease is considered as freehold and not depreciated.

6. Depreciation on Fixed Assets

6.1 Computers are fully depreciated at 33.33%, on straight-line method as per RBI guidelines.

6.2 Additions during the year are depreciated for the full year irrespective of its date of addition.

6.3 Depreciation on Fixed Assets (other than Computers) is charged on straight line method basis as per useful life of assets, considering residual value at 5% of original cost. The useful life and depreciation rate are given hereunder:

6.4 Revalued premises are depreciated over the balance useful life of such premises.

6.5 No depreciation is provided on assets sold/disposed of during the year.

6.6 In respect of leasehold premises, the lease premium, if any, is amortized over the period of the lease.

7. Employment Benefits

7.1 Provident Fund and New Pension Scheme (which is applicable to employees who have joined Bank on or after 01.04.2010) are defined contribution schemes, 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 the Profit and Loss Account.

7.2 Gratuity, Pension and Leave Encashment liabilities are defined benefit obligations and are provided for on the basis of actuarial valuation made at the end of the financial year. These schemes are funded by the Bank and are managed by separate trusts. The short / excess of the liability as compared to the fund held by the respective trust is accounted for as liability / assets as at the at the end of the financial year.

7.3 Other long term Employee benefits such as Silver Jubliee Bonus and Retirement Gifts are provided for based on actuarial valuation.

7.4 Short term employee benefits are recognized as an expense in the Profit and Loss account of the year in which the related services are rendered.

8. Foreign Exchange Transactions

8.1 Monetary assets and liabilities, guarantees, acceptances, endorsements and other obligations are translated in Indian Rupee equivalent at the exchange rates prevailing as on the Balance Sheet date as per Foreign Exchange Dealers' Association of India (FEDAI) guidelines.

8.2 Non-monetary items other than fixed assets which are carried at historical cost are translated at exchange rate prevailing on the date of transaction.

8.3 Forward exchange contracts and bills are translated at the exchange rates prevailing on the date of commitment. Outstanding foreign exchange contracts and bills are translated as on the Balance Sheet date at the rates notified by FEDAI and the resultant gain / loss is taken to revenue.

8.4 Income and expenditure items are recorded at exchange rates prevailing on the date of the transaction.

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

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 recognized in the Profit and Loss Account.

8.5 Contingent liabilities on account of acceptances, endorsements and other obligations including guarantees and letter of credits in foreign currencies are reported at the Balance Sheet date using the FEDAI closing spot rates, except the Bills for Collection which are accounted for at the notional rates at the time of lodgement.

9. Taxes on Income

Income tax expense is the aggregate amount of current tax, including Minimum Alternate Tax (MAT), wherever applicable and deferred tax.

Current tax is determined as the amount of tax payable for the year and accordingly provision for tax is made.

Deferred Tax Assets and Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only if there is virtual certainty of realisation of such assets in future.

MAT credit is recognized as an asset only when and to the extent there is convincing evidence that there will be payment of normal income tax during the period specified under the Income Tax Act, 1961.

10. Impairment of Assets

The carrying costs of assets are reviewed at each Balance Sheet date. If there is any indication of impairment based on internal/external factors an impairment loss is recognized wherever the carrying cost of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset.

After impairment, if any, depreciation is provided on the revised carrying cost of the asset over its remaining useful life. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

11. SEGMENT REPORTING

The Bank recognizes the business segment as the primary reporting segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17 issued by Institute of Chartered Accountants of India. As Bank has no overseas branch / operation, there is no geographical segment.

12. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In conformity with Accounting Standard 29 "Provisions, Contingent Liabilities and Contingent Assets" issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions only 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.

Contingent Assets are not recognized in the financial statements since this may result in the recognition of income that may never be realized.

13. LEASES

Lease payments including cost escalations for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term considering the concept of materiality.

14. EARNINGS PER SHARE

The Bank reports basic and diluted earnings per equity share in accordance with the 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 income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.