SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies adopted in the preparation of financial
statements are consistent with those of previous year, except as
specified below
CHANGES IN ACCOUNTING POLICIES:
Effective April 1, 2024, the Bank has carried out the following
change in its accounting policies:
CLASSIFICATION AND VALUATION OF INVESTMENTS:
Pursuant to the Reserve Bank of India (RBI) Master Direction on
Classification, Valuation and Operation of Investment Portfolio
dated September 12, 2023 ("RBI Investment Direction 2023”),
the Bank has adopted the revised investment classification and
valuation framework effective April 1, 2024.
Accordingly, as prescribed under the transition provisions of the
aforesaid framework, the Bank has created general reserves
of ^ 75.58 crore (net of tax) which is included in the Revenue
and Other Reserve, resulting into increase in the networth of the
Bank, on account of:
a. reversal of the balance in provision for depreciation on
investments as at March 31,2024; and
b. adjustment to the Revenue and Other Reserve as on April 1,
2024, being the difference between the carrying value of its
investment portfolio as per the revised framework and the
previous carrying value as at March 31, 2024, including for
adjustment due to amortization of discount on securities
classified under the Held to Maturity category.
Further, in compliance with the above-mentioned RBI Master
Direction, the valuation gains and losses at the year ended March
31, 2025, as across all performing investments (irrespective of
classification), held under Available for Sale ("AFS”) is aggregated
and the net gain / loss has been directly credited / debited
respectively to a reserve named "AFS Reserve”. The securities
held in Fair Value through Profit and Loss ("FVTPL') (including
Held for Trading) is fair valued at the year ended March 31,2025
and the revaluation gain / loss arising on such valuation has been
credited / debited respectively to the Profit and Loss Account.
Due to the adoption of the revised framework, the figures for
the previous year are not comparable to the current year to that
extent.
1. Advances
a) Classification
Advances are classified as performing (standard) and/
or Non Performing (NPA) based on the relevant RBI
guidelines and are stated net of bills rediscounted, inter¬
bank participation with risk, specific provisions on NPA,
interest in suspense for non-performing advances, claims
received from credit guarantors and provisions for funded
interest term loan classified as non-performing advances.
Non performing and restructured loans are upgraded to
standard as per the extant RBI guidelines.
The premium paid on acquisition of portfolio is included in
advances and is amortized over the economic life of the
portfolio.
The reverse repos with banks and other institutions (other
than those with the RBI) having original tenors more than
14 days are classified under advances.
b) Provisioning
Specific provisions in respect of non-performing
and restructured advances are recognised based on
management's assessment of the degree of impairment
of the advances subject to the minimum provisioning
levels prescribed under the RBI guidelines with regard
to the Prudential Norms on Income Recognition, Asset
Classification & Provisioning, prescribed from time to time.
In accordance with the RBI guidelines, the Bank also
maintains provision on standard assets to cover potential
credit losses which are inherent in any loan portfolio
including provision for borrowers having un-hedged
foreign currency exposures, provisions on loans to
specific borrowers in specific stressed sectors, provision
of standard restructured accounts and also provision on
Mark-to-Market (MTM) on derivative at the rate prescribed
by the extant RBI guidelines or management estimates
whichever is higher. Provision made against standard
assets is included in 'Other Liabilities and Provisions' and
are not netted off from gross advances.
In addition to provisions held according to the asset
classification status, provisions are also recognised for
individual country exposures (other than for home country
exposure). Countries are categorised into risk categories
as per Export Credit Guarantee Corporation of India Ltd.
('ECGC') guidelines and provision is held in respect of that
country where the net funded exposure is one percent
or more of the total assets. Provision for country risk is
included under 'Other Liabilities and Provisions'.
Amounts recovered against debts written off and provisions
no longer considered necessary based on the current
status of the borrower are recognized in the profit and loss
account, under the 'Provisions and Contingencies'.
Restructured assets (including those where Resolution
Plan is approved by the National Company Law Tribunal
('NCLT')) are classified and provided for in accordance with
the extant guidelines issued by RBI from time to time.
Loss assets and unsecured portion of doubtful assets are
provided as per the extant RBI guidelines.
In respect of borrowers classified as non-cooperative and
wilful defaulters, the Bank recognises accelerated provision
as per extant RBI guidelines.
Loans reported as fraud are classified as loss assets, and
fully provided in accordance with extant RBI guidelines
without considering the value of security.
2. Investments
2.1 Applicable for the Financial Year ended March 31,2025:
Classification and measurement of investments is carried
out in accordance with RBI guidelines.
a) Classification:
Investments are classified into Held to Maturity (HTM),
Available for Sale (AFS), Fair Value Through Profit
and Loss (FVTPL) and Investment in Subsidiaries,
Associate and Joint Ventures. Held for Trading (HFT)
is a separate investment sub-category within FVTPL.
Under each category, the investments in India are
further classified as
(i) Government Securities
(ii) Other Approved Securities
(iii) Shares
(iv) Bonds and Debentures
(v) Subsidiaries, Associates and Joint Ventures
(vi) Others
The investments outside India are further classified as
(i) Government Securities
(ii) Subsidiaries, Associates and Joint Ventures
(iii) Other Investments
b) Basis of classification and subsequent
measurement
The category of the investment is decided by the Bank
before or at the time of acquisition
HTM:
Securities acquired where the intention is to hold it till
maturity and the contractual terms of the security give
rise to cash flows that are solely payments of principal
and interest on principal outstanding ('SPPI criterion')
on specified dates.
Securities held in HTM are carried at cost and are
not marked to market (MTM) after initial recognition.
Where in the opinion of the management, a diminution,
other than temporary, in the value of investments
classified under HTM has taken place, appropriate
provisions are made.
AFS:
Securities acquired where the objective is achieved
by both collecting contractual cash flows and selling
securities before maturity and the contractual terms
meet the SPPI criteria. On initial recognition, the
Bank may make an irrevocable election to classify an
equity instrument, that is not held with the objective of
trading, under AFS, in line with the RBI Guidelines.
The securities held in AFS are fair valued.
The valuation gains and losses across all performing
investments held under AFS is aggregated. The net
appreciation or depreciation is directly credited or
debited to AFS-Reserve without routing through the
Profit & Loss Account.
FVTPL:
Securities that do not qualify for inclusion in HTM or
AFS are classified under FVTPL. The securities held in
FVTPL are fair valued and the net gain or loss arising
on such valuation is directly credited or debited to the
Profit and Loss Account.
FVTPL HFT: (separate investment sub-category within
FVTPL)
Any instrument that the Bank holds for one or more
of the following purposes is designated as a HFT
instrument:
a. short-term resale
b. profiting from short-term price movements
c. locking in arbitrage profits or
d. hedging risks that arise from instruments
meeting (a), (b) or (c) above.
The Bank fair values all HFT instruments and
recognises any valuation change in the profit and loss
account.
Investment in subsidiary, associates and joint
ventures
The investments in own subsidiaries, joint ventures,
and associates are held in a distinct category, separate
from the other Investment categories (viz. HTM, AFS,
FVTPL and HFT in FVTPL).
All investments (i.e., including debt and equity) in
subsidiaries, associates and joint ventures are held at
acquisition cost.
The Bank follows settlement date method for
accounting of its investments.
c) Valuation
Fair value means the price that would be received
to sell an asset or paid to transfer a liability in an
orderly transaction between market participants on
the measurement date. Fair value measurements
are categorised into fair value hierarchy based on
the degree to which the inputs to the fair value
measurements are observable and the significance of
the inputs to the fair value measurement in its entirety,
which are described as follows:
Level 1 - in the context of inputs used for valuation
of a financial instrument are those inputs which are
quoted prices (unadjusted) in active markets for
identical instruments that the bank can access at the
measurement date.
Level 2 - in the context of inputs used for valuation
of a financial instrument are those inputs, other
than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or
indirectly.
Level 3 - in the context of inputs used for valuation of a
financial instrument are unobservable inputs.
The fair value for the quoted securities is valued as per
the prices declared by FBIL. For securities whose prices
are not published by FBIL, the fair value of the quoted
securities shall be based upon the quoted price as
available from the trades/quotes on recognised stock
exchanges, reporting platforms or trading platforms
authorised by RBI/SEBI or prices declared by FIMMDA.
For deriving market value of unquoted fixed income
securities and preferential shares, the Bank considers
yields/ mark-up rates (reflecting associate credit risk)
declared by the FBIL/FIMMDA.
Treasury bills, commercial papers and certificate of
deposits being discounted instruments, are valued at
carrying cost.
Unquoted equity shares are valued at the break-up
value. i.e value based on the latest audited financial
statements. In case the latest audited financial
statements are not available for a period beyond 18
months, the investments are valued at ^ 1/-.
Quoted Mutual Fund units are valued as per the stock
exchange quotations and un-quoted mutual fund
units are valued at last available re-purchase price or
Net Asset Value ('NAV') where re-purchase price is not
available.
The quoted unites of AIF shall be valued as per the
quoted price. In respect of unquoted units of AIF, the
valuation shall be done at the NAV as disclosed by the
AIF. Where an AIF fails to carry out and disclose the
valuation of its investments by an independent valuer
as per the frequency mandated by SEBI, the value of
its units shall be treated as ^ 1 for the purpose of these
Directions. In case AIF is not registered under SEBI and
the latest disclosed valuation of its investments by an
independent valuer precedes the date of valuation by
more than 18 months, the value of its units shall be
treated as ^ 1 for the purpose of these Directions."
Investments in Security receipts ('SR') which are
backed by more than 10% of the stress assets sold
by the Bank, provision for depreciation is made higher
of - provision required based on NAV disclosed by
the assets reconstruction company or the provision
as per IRAC norms, assuming that the loan notionally
continued in the books of the Bank.
In accordance to RBI circular dated March 29, 2025 in
respect of SRs guaranteed by the Government of India,
the SRs will be periodically valued at the NAV declared
by the ARC or book value of the SRs whichever is
lower.
Investments received in lieu of restructured advances
under Debt Restructuring schemes are valued in
accordance with the RBI guidelines. Any diminution in
value on these investments is provided for and is not
used to set off against appreciation in respect of other
performing securities in that category. Similarly, any
appreciation on these investments is not used to set
off against depreciation in respect of other performing
securities in that category. Depreciation on equity
shares acquired and held by the Bank under SDR / S4A
schemes is provided as per RBI guidelines.
The valuation of other unquoted fixed income
securities, including Pass Through Certificates (PTC)
are valued using FBIL GOI par yield and FIMMDA credit
spreads as applicable to associated risk category,
based on the credit rating and tenor of the respective
PTC instruments.
d) Short Sales
In accordance with the RBI guidelines, the Bank
undertakes short sale transactions in Central
Government dated securities. Such short positions are
categorised under HFT category and netted off from
investments in the Balance Sheet. These positions
are marked-to-market along with the other securities
under HFT portfolio and the resultant mark-to-market
gains/losses are accounted for as per the relevant
RBI guidelines for valuation of investments discussed
earlier.
e) Disposal of investments:
Cost of investments is based on the weighted average
cost method.
Any profit or loss on the sale of investment in HTM
is recognized in the Profit and Loss Account. The
profit from sale of investment under HTM category,
net of taxes and transfers to statutory reserve, is
appropriated from Profit and Loss Account to 'Capital
Reserve', in accordance with the RBI guidelines.
Any profit or loss on the sale of investment in AFS
debt instrument accumulated in AFS-Reserve will be
transferred from the AFS-Reserve to Profit and Loss
Account. In the case of equity instruments designated
under AFS, any profit or loss on sale of such
investments will be transferred from AFS-Reserve to
the Capital Reserve.
Any profit or loss on the sale of investment in FVTPL is
recognized in the Profit and Loss Account.
Any gain or profit arising on the reclassification/ sale
of an investment in a subsidiary, associate or joint
venture net of taxes and transfers to statutory reserve,
is appropriated from Profit and Loss Account to 'Capital
Reserve', in accordance with the RBI guidelines.
f) Transfer between categories
Transfer of investments from HTM to AFS/FVTPL:
The fair value measured at the reclassification date is
taken as the revised carrying value. Any gain or loss
arising from a difference between the revised carrying
value and the previous carrying value is recognised in
AFS-Reserve and in the Profit and Loss Account under
Other Income.
Transfer of investments from AFS to HTM: The
investments are reclassified at its fair value at the
reclassification date. However, the cumulative gain/
loss previously recognised in the AFS-Reserve are
withdrawn therefrom and adjusted against the fair
value of the investments at the reclassification date to
arrive at the revised carrying value.
Transfer of investments from AFS to FVTPL: The
investments will continue to be measured at fair value.
The cumulative gain or loss previously recognised in
AFS-Reserve are withdrawn therefrom and recognised
in the Profit and Loss Account under Other Income.
Transfer of investments from FVTPL to HTM/AFS:
The carrying amount representing the fair value at the
reclassification date remains unchanged.
g) Recognition of Day 1 Gain/Loss:
Day 1 Gain / Loss
Day 1 Gain / Loss is the difference between the fair
value at initial recognition and acquisition cost
Where the securities are quoted or the fair value can be
determined based on market observable inputs (such
as yield curve, credit spread, etc.) any Day 1 gain/ loss
is recognised in Profit and Loss Account.
Any Day 1 loss arising from Level 3 investments is
recognised immediately.
Any Day 1 gains arising from Level 3 investments is
deferred. In the case of debt instruments, the Day
1 gain is amortized on a straight-line basis up to
the maturity date (or earliest call date for perpetual
instruments), while for unquoted equity instruments,
the gain is set aside as a liability until the security is
listed or derecognised.
h) Non-Performing Investments:
Once an investment is classified as an NPI as per
the RBI guidelines, it is segregated from rest of the
portfolio and not considered for netting valuation gains
and losses. The Bank does not accrue any income on
NPIs. Income is recognised only on realisation of the
same. Further, any MTM appreciation in the security is
ignored.
Irrespective of the category (i.e., HTM, AFS or FVTPL
(including HFT)) in which the investment has been
placed, the expense for the provision for impairment
are recognised in the Profit and Loss Account. The
provision to be held on an NPI is the higher of the
amount of provision required as per IRAC norms and
the depreciation on the investment
In the case of an investment categorised under AFS
against which there are cumulative gains in AFS-
Reserve, the provision is created by charging the same
to AFS-Reserve to the extent of such available gains.
Further, in the case of an investment categorised
under AFS against which there are cumulative losses
in AFS-Reserve, the cumulative losses are transferred
from AFS-Reserve to the Profit and Loss Account.
i) Repurchase transactions
In accordance with the RBI guidelines, repurchase
('Repo'), Marginal Standing Facility ('MSF') under
liquidity adjustment facility (LAF) are accounted for
as borrowing from RBI, and Reverse Repurchase
('Reverse Repo')/ Standing Deposit Facility (SDF)
transactions, are accounted for as lending transactions.
Accordingly, securities given as collateral under an
agreement to repurchase them continue to be held
under the investment account of the Bank and the
Bank would continue to accrue the coupon/discount
on the security during the repo period. Also, the Bank
continues to value the securities sold under repo
as per the investment classification of the security.
Borrowing cost on repo transactions is accounted for
as interest expense and income on reverse repo/ SDF
transactions are accounted for as interest income.
j) Broken period interest, brokerage etc.
Broken period interest and costs such as brokerage
paid at the time of acquisition of the security are
charged to the Profit and Loss account and are not
included in the cost of acquisition.
k) Premium and Discount amortisation
Any discount or premium on acquisition of debt
securities held under HTM / AFS / FVTPL is amortised
over the remaining useful life of the instrument on
SLM basis. Discounted instrument is amortised over
the remaining useful life of the instrument on constant
yield basis. In case of NPI instrument premium
is amortised over the remaining useful life of the
instrument.
2.2 Applicable for the Financial Year ended March 31,2024:
Classification and valuation of the Bank's investments
is carried out in accordance with RBI and Fixed Income
Money Market and Derivatives Association ('FIMMDA') and
Financial Benchmark India Private Limited ('FBIL) guidelines
respectively, prescribed in this regard from time to time.
a) Classification
Investments are classified into 'Held for Trading' ('HFT'),
'Available for Sale' ('AFS') and 'Held to Maturity' ('HTM')
categories at the time of purchase. Investments, which
the Bank intends to hold till maturity are classified
as HTM investments. Investments in the equity of
subsidiaries/ joint ventures are categorised as HTM
in accordance with the RBI guidelines. Investments
that are held principally for resale within a short period
(90 days from the date of purchase), including short
sale, are classified as HFT investments. All other
investments are classified as AFS investments. As
per the RBI guidelines, HFT securities, which remain
unsold for a period of 90 days are transferred to AFS
securities. The Bank follows settlement date method
for accounting of its investments. For the purpose of
disclosure in the financial statements, the Investments
in India are classified under six groups a) Government
Securities b) Other Approved Securities c) Shares d)
Debentures and Bonds e) Subsidiaries and / or Joint
Ventures and f) Others.
Investments are classified as performing or non¬
performing as per RBI guidelines. Non-performing
investments are subjected to prudential norms for
Classification, Valuations and Operation of Investment
Portfolio by Banks, prescribed from time to time.
b) Valuation
Investments classified as HTM are carried at their
acquisition costs and not marked to market. Any
premium paid on acquisition, over the face value of
fixed and floating interest rate securities are amortized
over the remaining maturity of the instrument using
constant yield method. Such amortisation of premium
is adjusted against interest income under the head
income from investments as per the RBI guidelines.
Where in the opinion of the management, a diminution,
other than temporary, in the value of investments
classified under HTM has taken place, appropriate
provisions are made. In terms of RBI guidelines,
discount on securities held under HTM category is not
accrued and such securities are held at the acquisition
cost till maturity.
Investments in subsidiaries/joint ventures are
categorised as HTM and assessed for impairment
to determine other than temporary diminution, if any,
in accordance with the RBI guidelines and suitable
provisions are made. Non-performing investments
are identified and depreciation / provision are made
thereon based on the RBI guidelines. The depreciation
/ provision on such non-performing investments are
not set off against the appreciation in respect of other
performing securities. Interest on non-performing
investments is not recognised in the Profit and Loss
Account until received.
Investments classified as AFS and HFT are marked-
to-market on a periodic basis as per the relevant RBI
guidelines. The securities are valued scrip-wise and
depreciation / appreciation are aggregated for each
category. Net appreciation in each category, if any,
is ignored, while net depreciation is provided for. The
book value of individual securities is not changed
consequent to the periodic valuation of investments.
Treasury bills, commercial papers and certificates of
deposit being discounted instruments are valued at
carrying cost including the pro rata discount accreted
for the holding period on a constant yield to maturity
basis.
Quoted investments are valued at traded / quoted
price available on the recognized stock exchanges,
subsidiary general ledger account transactions are
valued as per the price list of RBI or prices declared
by FBIL as applicable as at the balance sheet date.
For deriving market value of unquoted fixed income
securities (other than Central and State Government
securities) and preferential shares, the Bank considers
yields / mark-up rates (reflecting associate credit risk)
declared by the FBIL/FIMMDA.
Unquoted equity shares are valued at the break-up
value, if the latest Balance Sheet is available or at T 1/-
as per the RBI guidelines.
Quoted Mutual Fund units are valued as per the stock
exchange quotations and un-quoted mutual fund
units are valued at last available re-purchase price or
Net Asset Value ('NAV') where re-purchase price is not
available.
Units of Venture Capital Funds ('VCF') held under AFS
category are valued using the NAV shown by VCF
as per the financial statement. The VCFs are valued
based on the audited financial statements. In case the
audited financial statements are not available for a
period beyond 18 months, the investments are valued
at T 1/- per VCF.
Investments in Security receipts ('SR') which are
backed by more than 10% of the stress assets sold
by the Bank, provision for depreciation is made higher
of - provision required based on NAV disclosed by
the assets reconstruction company or the provision
as per IRAC norms, assuming that the loan notionally
continued in the books of the bank. All other SR are
valued as at NAV provided by the asset reconstruction
company.
Investments received in lieu of restructured advances
under Debt Restructuring schemes are valued in
accordance with the RBI guidelines. Any diminution in
value on these investments is provided for and is not
used to set off against appreciation in respect of other
performing securities in that category. Similarly, any
appreciation on these investments is not used to set
off against depreciation in respect of other performing
securities in that category. Depreciation on equity
shares acquired and held by the Bank under SDR / S4A
schemes is provided as per RBI guidelines.
Pass Through Certificates (PTC) are valued using FBIL
GOI par yield and FIMMDA credit spreads as applicable
to associated risk category, based on the credit rating
and tenor of the respective PTC instruments.
c) Short Sales
In accordance with the RBI guidelines, the Bank
undertakes short sale transactions in Central
Government dated securities. The short positions
are reflected in 'Securities Short Sold ('SSS') A/c',
specifically created for this purpose. Such short
positions are categorised under HFT category and
netted off from investments in the Balance Sheet.
These positions are marked-to-market along with the
other securities under HFT portfolio and the resultant
mark-to-market gains/losses are accounted for as per
the relevant RBI guidelines for valuation of investments
discussed earlier.
d) Disposal of investments:
Profit / Loss on sale of investments under the
aforesaid three categories are recognized in the Profit
and Loss Account. Cost of investments is based on
the weighted average cost method. The profit from
sale of investment under HTM category, net of taxes
and transfers to statutory reserve, is appropriated
from Profit and Loss Account to 'Capital Reserve', in
accordance with the RBI guidelines.
e) Transfer between categories
Transfer of investments between categories is
accounted in accordance with the extant RBI
guidelines:
a) Transfer from AFS/HFT to HTM is made at the
lower of book value or market value at the time of
transfer.
b) Transfer from HTM to AFS/HFT is made at
acquisition price / amortized cost if originally
placed in HTM at par or at a discount and at
amortized cost if originally placed in HTM at a
premium.
c) Transfer from AFS to HFT category or vice-
versa is made at book value and the provision
for the accumulated depreciation, if any, held
is transferred to the provisions for depreciation
against the HFT securities or vice-versa.
f) Repurchase transactions
In accordance with the RBI guidelines, repurchase
('Repo'), Marginal Standing Facility ('MSF') under
liquidity adjustment facility (LAF) are accounted for
as borrowing from RBI, and Reverse Repurchase
('Reverse Repo')/ Standing Deposit Facility (SDF)
transactions, are accounted for as lending transactions.
Accordingly, securities given as collateral under an
agreement to repurchase them continue to be held
under the investment account of the Bank and the
Bank would continue to accrue the coupon/discount
on the security during the repo period. Also, the Bank
continues to value the securities sold under repo
as per the investment classification of the security.
Borrowing cost on repo transactions is accounted for
as interest expense and income on reverse repo/ SDF
transactions are accounted for as interest income.
g) Broken period interest, brokerage etc.
Broken period interest and costs such as brokerage
paid at the time of acquisition of the security are
charged to the Profit and Loss account and are not
included in the cost of acquisition.
3. Foreign currency transactions
Monetary assets and liabilities denominated in foreign
currencies are translated at the Balance Sheet date at
rates of exchange notified by 'Foreign Exchange Dealers'
Association of India'(FEDAI) and the resultant exchange
rate differences are recognized in the Profit and Loss
account. Income and expenditure items are translated at
the exchange rates prevailing on the date of the transaction.
Contingent liabilities on account of foreign exchange
contracts, letters of credit, bank guarantees and
acceptances and endorsements outstanding as at the
Balance Sheet date denominated in foreign currencies are
translated at year-end rates notified by FEDAI.
Both monetary and non-monetary foreign currency assets
and liabilities of non-integral foreign operations (IBU Branch)
are translated at relevant closing exchange rates notified by
FEDAI at the balance sheet date and the resulting gains/
losses from exchange rate differences are accumulated
in the foreign currency translation reserve. Income and
expenses are converted at the closing rate applicable on
the date of transaction.
4. Derivative transactions
The Bank undertakes derivative transactions for both
trading and hedging purposes, in accordance with the
extant regulatory guidelines and applicable accounting
standards.
a) Foreign Exchange Spot and Forward Contracts (Held
for Trading)
Foreign exchange spot and forward contracts
outstanding as at the Balance Sheet date and held for
trading purposes are revalued at the closing spot and
forward rates respectively. Valuation is carried out on
a present value basis. The resulting profit or loss on
valuation is recognized in the Profit and Loss Account.
Foreign exchange contracts are classified as assets
when the fair value is positive (positive marked to
market value) or as liabilities when the fair value is
negative (negative marked to market value).
b) Foreign Exchange Forward Contracts (Not Held for
Trading)
Foreign exchange forward contracts not intended for
trading, that are entered into to establish the amount
of reporting currency required or available at the
settlement date of a transaction and are outstanding at
the Balance Sheet date, are accounted in accordance
with Accounting Standard 11, The Effects of Changes
in Foreign Exchange Rates. The premium or discount
arising at the inception of such forward exchange
contract is amortised as expense or income over the
life of the contract.
c) Accounting for Derivative Contracts (General
Principles)
All derivative contracts, other than those designated
as hedging instruments, are initially recognised at fair
value on the date on which the derivative contracts
are entered into and are remeasured at fair value as at
the Balance Sheet or reporting dates. Gains or losses
arising from changes in fair value of trading derivatives
are recognised in the Profit and Loss Account.
Derivative contracts are classified as assets when
the fair value is positive and as liabilities when the fair
value is negative.
d) Accounting for Hedging Derivatives
Derivative contracts designated as hedging
instruments are accounted for based on the nature of
the hedge relationship:
• Fair Value Hedges: The hedging instrument and
the hedged item are measured at fair value.
Any changes in their respective fair values are
recognised in the Profit and Loss Account.
• Cash Flow Hedges: The hedging instruments are
measured at fair value and any changes in the fair
value of effective portion are recognised in equity
under 'Cash Flow Hedge reserve' and ineffective
portion of an effective hedging relationship if
any, is recognised in Profit and Loss account.
The accumulated balance in the cash flow hedge
reserve, in an effective hedging relationship is
recycled in Profit and Loss account at the same
time when the impact from hedged items is
recognised in Profit and Loss account.
The Bank identifies the hedged item (asset or
liability) at the inception of the transaction itself.
Hedge effectiveness is ascertained at the time of the
inception of the hedge and periodically thereafter.
e) Accounting for Options
Option premium paid or received is recognized in the
Profit and Loss Account on expiry of the option. Option
contracts are marked to market on every reporting
date.
f) Overdue Receivables under Derivative Contracts
Pursuant to the RBI guidelines, any receivable under a
derivative contract with a counterparty which remains
overdue for more than 90 days, mark-to-market
gains on any other derivative contract with the same
counterparty, is reversed through Profit and Loss
account and are held in separate Suspense Account.
5. Reciprocal transactions
Transactions of reciprocal nature where the Bank borrows
or lends in foreign currency and consequently lends or
borrows equivalent amount in INR to the counterparty, are
accounted as balance-sheet items, as lending or borrowing
(as the case may be). The settlement of exchange rate
movement at every reset date is recognized as lending or
borrowing.
6. Bullion
The Bank imports bullion including precious metal bars on
a consignment basis for selling to its wholesale customers.
The imports are typically on a back-to-back basis and are
priced to the customer based on price quoted by the supplier
and the local levies related to the consignment like custom
duty, etc. The Bank earns income on such wholesale bullion
transactions which is recognised on settlement basis.
The Bank also deals in bullion on a borrowing and lending
basis and the interest paid / received thereon is classified
as interest expense / income respectively.
L Property, Plant and Equipment, Depreciation and
amortisation
Property, Plant & Equipment are accounted for at cost less
accumulated depreciation, amortization and accumulated
impairment losses. Cost includes freight, duties, taxes
and incidental expenses related to the acquisition and
installation of the asset. Subsequent expenditure incurred
on assets put to use is capitalised only when it increases
the future economic benefit / functioning capability from
/ of such assets. Premises acquired up to March 31, 1998
have been re-valued by the management and are stated
at such re-valued figure. The appreciation on revaluation
is credited to 'Premises Revaluation Reserve' Account. On
disposal of re-valued premises, the amount standing to the
credit of the Premises Revaluation Reserve is transferred
to Capital Reserve. In case of premises, which are carried
at revalued amount, the depreciation on the revalued
amount over the historical cost is debited to the Premises
Revaluation Reserve.
Capital work-in-progress includes cost of Property, Plant
& Equipment that are not ready for their intended use and
also includes advances paid to acquire Property, Plant &
Equipment.
Depreciation is provided as per straight-line method from
the date ready for use over the estimated useful life of
the asset. Depreciation on assets sold during the year is
charged to the Profit and Loss account up to the date of
sale. Assets costing less than ? 5,000 are fully depreciated
in the year of purchase. If the management's estimate of
the useful life of a Property, Plant & Equipment at the time
of acquisition of the asset or of the remaining useful life
on a subsequent review is shorter, then the depreciation is
provided at a higher rate based on management's estimate
of the useful life/remaining useful life. The management
believes that depreciation rates currently used, fairly reflect
its estimate of the useful lives and residual values of
Property, Plant & Equipment, though these rates in certain
cases are different from the life prescribed under Schedule
II of Companies Act, 2013. Whenever there is a revision
of the estimated useful life of an asset, the unamortised
depreciable amount is charged over the revised remaining
useful life of the said asset.
The useful lives of the Property, Plant & Equipment are
given below:
Improvements and installations of capital nature on the
leasehold property are depreciated over the primary lease
term.
Gain or losses arising from the retirement or disposal
of Property, Plant & Equipment are determined as the
difference between the net disposal proceeds and the
carrying amount of assets and recognised as income
or expense in the Profit and Loss Account. Further, profit
on sale of premises is appropriated to Capital Reserve
account (net of taxes and transfer to statutory reserve) in
accordance with RBI guidelines.
At each Balance Sheet date, the Bank assesses impairment
on assets. If any such indication exists, the Bank estimates
the recoverable amount of the asset. An asset's recoverable
amount is the higher of an asset's net selling price and its
value in use. If such recoverable amount of the asset is less
than its carrying amount, the carrying amount is reduced
to its recoverable amount. The reduction is treated as an
impairment loss and is recognized in the Profit and Loss
account. If at the Balance Sheet date there is an indication
that a previously assessed impairment loss no longer
exists, the recoverable amount is reassessed and the
asset is reflected at the recoverable amount subject to a
maximum of depreciable historical cost.
8. Employee benefits
Provident Fund
The Bank's contribution towards provident fund, being a
defined contribution scheme, is accounted for on an accrual
basis and recognized in the Profit and Loss account. The
Bank makes contributions to the Fund administered by
trustees.
Gratuity and Pension
Liability for Gratuity and Pension, being defined benefit
retirement schemes, are determined based on an actuarial
valuation as at the Balance Sheet date as per the Projected
Unit Credit method as computed by an independent
actuary. Actuarial gains/losses arising during the year are
recognized in the Profit and Loss Account.
National Pension Scheme
The Bank contributes 10% of the total basic salary of certain
employees to National Pension Scheme (NPS), a defined
contribution plan, which is managed and administered
by pension fund management companies. The Bank also
gives an option to its employees allowing them to receive
the amount in lieu of such contributions along with their
monthly salary during their employment. The amounts so
contributed/paid by the Bank to the NPS or to employee
during the year are recognized in the profit and loss account.
Compensated Absences
The Bank provides for compensated absence liability of its
employees who are eligible for encashment of accumulated
leave, which is a long-term benefit scheme, based on
actuarial valuation of the compensated absences liability
at the balance sheet date, carried out by an independent
actuary. Actuarial gains/losses arising during the year are
recognized in the Profit and Loss Account.
Employee Stock Option Plans (‘ESOP')
The Bank accounts for Employee Stock Option plans in
accordance with the Guidance note on Employee Share
Based Payments issued by The Institute of Chartered
Accountants of India ('ICAI'). The Reserve Bank of India
(RBI), through its clarification dated August 30, 2021, on
guidelines on Compensation of Whole Time Directors/CEO/
Material Risk Takers and Control Function Staff, has advised
banks that the fair value of share-linked instruments granted
after March 31, 2021 should be recognised as an expense.
The Bank has changed its accounting policy from intrinsic
value method to fair value method for valuation of stock
options granted after March 31,2021 for all employees. The
fair value of stock options is estimated on the date of grant
using Black-Scholes model and is recognised as employee
expense over the vesting period.
The compensation cost is amortised on a straight-line
basis over the vesting period and is recognised in the Profit
and Loss Account with a corresponding credit to Employee
Stock Options Outstanding. On exercise of the stock
options, corresponding balance in Employee Stock Options
Outstanding is transferred to Share Premium. In respect of
the options which expire unexercised, the balance standing
to the credit of Employee Stock Options Outstanding is
transferred to General Reserve.
9. Revenue Recognition
a) Interest income is recognized on accrual basis,
except in the case of interest on loans categorised
as NPA/ investments categorised as NPI, in which
case it is recognized on realisation. The Bank does
not recognise the unrealised interest and fees on NPA
accounts as income.
b) Dividend is accounted on an accrual basis when the
right to receive the dividend is established.
c) Loan processing fee is accounted for upfront when
it becomes due. Processing or any other transaction
fee earned by the Bank and shared with the Banks'
Business Correspondents and partners are netted
from the fee income, where applicable.
d) Guarantee commission are recognized on straight-line
basis over the period of the contract. Other fees and
commission income are recognized when due, where
the Bank is reasonably certain of collection.
e) Fees received on sale of Priority Sector Lending
Certificates (PSLC) is considered as Miscellaneous
Income, while the fees paid for purchase is expensed
as other expenses in accordance with the guidelines
issued by the RBI. The fees income or expense is
amortized on a straight-line basis over the tenor of the
certificate.
f) Arrangership or syndication fee is accounted for on
completion of the agreed service and when the right
to receive is established.
g) Interest income on investments in PTCs is recognized
on accrual basis, at their contractual rate.
h) In accordance with the RBI guidelines on sale of non¬
performing advances, if the sale is at a price below the
book value (i.e., book value less provisions held), the
shortfall is charged to the Profit and Loss Account. If
the sale is at a price higher than the net book value
(NBV), the excess provision can be reversed to the
Profit and Loss Account in the year of transfer if the
sale consideration comprises only of cash or SRs
guaranteed by the Government of India.
i) Interest income on loans purchased through direct
assignments is recognised, on an accrual basis, at
the contractual interest rate as agreed with the seller.
Servicing charges are recognised as expense as per
the terms of the agreements.
j) Penal charges and other charges are recognised on
realisable basis.
k) Payouts made to network partners and entities with
co-branded arrangements, in the nature of sharing of
fees or based on driver of volume/spends are netted
off from the respective fee and commission income.
10. Lease transactions
Leases where the lessor effectively retains substantially
all the risks and benefits of ownership over the lease
term are classified as operating leases. Operating lease
rentals are recognized as an expense on straight-line
basis over the lease period. Assets given under leases in
respect of which all the risks and benefits of ownership are
effectively retained by the Bank are classified as operating
leases. Lease rentals received under operating leases are
recognized as an income in the Profit and Loss account as
per the terms of the contracts.
11. Taxation
Income tax comprises the current tax (i.e. amount of tax
for the period, determined in accordance with the Income
Tax Act, 1961 and the rules framed there under) and the net
change in the deferred tax asset or liability for the period
(reflecting the tax effects of timing differences between
accounting income and taxable income for the period and
reversal of timing differences of earlier years).
Provision for current income-tax is recognized in accordance
with the provisions of Indian Income Tax Act, 1961 and is
made based on the tax liability after taking credit for tax
allowances and exemptions.
The deferred tax charge or credit and the corresponding
deferred tax liability or asset is recognized using the tax
rates and tax laws that have been enacted or substantively
enacted as at the Balance Sheet date. In case of valuation
gain/loss recognised in AFS or cashflow reserve, the
deferred tax are also recognised in AFS or cashflow reserve
respectively.
Deferred tax assets are recognized only to the extent there
is reasonable certainty that the assets can be realised in
future. However, where there is unabsorbed depreciation or
carried forward loss under taxation laws, deferred tax assets
are recognized only if there is virtual certainty (supported by
convincing evidence of future taxable income) of realisation
of such assets.
Deferred tax assets are reviewed at each balance sheet
date and appropriately adjusted to reflect the amount that
is reasonably/virtually certain to be realised.
The Bank had exercised option referred u/s 115BAA with
respect to tax rate, accordingly Minimum Alternative Tax
('MAT') provision u/s 115JB is not applicable on Bank.
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