b. Liquidity Coverage Ratio (LCR)
Liquidity Coverage Ratio has been prescribed by RBI based on LCR Standards published by Basel Committee on Banking Supervision (BCBS). The LCR promotes short term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Assets (HQLAs) to survive an acute stress scenario in the immediate 30 days period.
LCR is defined as
Stock of High Quality Liquid Assets (HQLA) 100 0
Total Net Cash Outflows over the next 30 calendar days
The LCR standard aims to ensure that a Bank maintains an adequate level of unencumbered HQLAs that can be converted into cash to meet its liquidity needs for the next 30 days period under a significantly severe liquidity stress scenario specified by RBI.
The LCR guidelines was made effective from 01.01.2015 with a minimum requirement of 60% which was increased annually by 10% to reach a level of 100% as at 01.01.2019.
As part of the COVID-19 financial measures by RBI, the LCR requirement for Scheduled Commercial Bank was brought down from 100% to 80% from 17.04.2020. Subsequently, the requirement was gradually restored 100% in two phases - 90% in October 1, 2020 and 100% effective from April 1, 2021.
The present requirement of LCR as at 31st March, 2024 is 100%. The Bank prepares LCR on a daily basis and assess the liquidity position on an ongoing basis. The LCR position is made available in Bank's website on a quarterly basis in prescribed format in addition to the annual disclosure in notes to accounts. The disclosure in prescribed format is given below:
Qualitative disclosures on LCR :
• Composition : The main drivers of the LCR is High Quality Liquid Assets (HQLA) which can be easily converted into Cash and consists of Cash in Hand, excess CRR Balance as on that particular day, Government Securities in excess of minimum SLR requirement, Government Securities within the
mandatory SLR requirement to the extent allowed by RBI under MSF (Presently to the extent of 2.00% of NDTL as allowed for MSF), Facility to avail liquidity for Liquidity Coverage Ratio at 16.00% of NDTL Level 1 assets are main drivers of HQLA.
• Concentration of funding sources : Deposits are the main funding sources of the Bank.
• Currency mismatches in LCR : The Bank does not have any HQLA in foreign currency and accordingly LCR is reported in single currency only.
• The Bank does not have any Subsidiary / Associates and does not belong to any Group.
• The Bank has a well-diversified funding portfolio. Retail Deposits, considered as stable is the major funding source of the Bank, indicating lower dependence of the Bank on wholesale funds.
• The Liquidity Risk Management in the Bank is guided by the ALM Policy. The Bank's Liquidity Management is centralized at Treasury, Chennai as per the directions of ALCO.
RBI vide its draft circular dated May 28, 2015 has prescribed norms for introduction of Net Stable Funding Ratio (NSFR). The final guidelines on "Net Stable Funding Ratio (NSFR)" under the Basel III Framework on Liquidity Standards was issued by RBI on May 17, 2018. However, due to the Covid-19 outbreak, RBI on various dates has extended the implementation of NSFR guidelines. As per RBI circular on 05.02.2021, the NSFR guidelines have been implemented from 01.10.2021.
LCR & NSFR for funding liquidity were prescribed by the Basel Committee for achieving two separate but complementary objectives. While LCR promotes short-term resilience of Banks to potential liquidity
disruptions by ensuring that they have sufficient HQLAs to survive an acute stress scenario lasting for 30 days, the NSFR promotes resilience over a longer-term time horizon by requiring Banks to fund their activities with more stable sources of funding on an ongoing basis.
The NSFR is defined as the amount of Available Stable Funding (ASF) relative to the amount of Required Stable Funding (RSF). The Bank is maintaining NSFR of above 100%, which is the minimum requirement prescribed by RBI.
Available Stable Funding (ASF)
Net Stable Funding Ratio = , >=100%
° Required Stable Funding (RSF)
d) Sale and Transfers to / from HTM category :
The value of sales and transfer of securities from HTM category after considering the exemptions allowed by RBI doesn't exceed 5 percent of the book value of investments held in HTM category at the beginning of the year. Hence no disclosure is required.
d) Particulars of Resolution Plan and Restructuring :
Particulars of Resolution Plan
No accounts were resolved as per 'Prudential Framework for Resolution of Stressed Assets' issued vide circular DBR.No.BP.BC.45/21.04.048/2018-19 dated June 7, 2019.
e) Divergence in Asset Classification and Provisioning :
In terms of RBI Circular No.DOR.ACC.REC.No.74/21.04.018/2022-23 dated October 11, 2022 Banks are required to disclose the Divergence in Asset Classification and Provisioning consequent to RBI's annual supervisory review process if such divergence exceeds the threshold prescribed by the RBI. The Inspection of Supervisory Evaluation (ISE 2023) for the position as on 31.03.2023 by RBI was completed and there was no reportable Divergence in Asset Classification and Provisioning for NPAs.
g) Unhedged Foreign Currency Exposure:
(i) In terms of RBI circular No. DOR. MRG.REC. 76/00-00-007/2022-23 dated October 11, 2022 with regard to Capital and Provisioning Requirements for exposures to entities with Unhedged Foreign Currency Exposure (UFCE), the Bank has a policy approved by the Board of Directors.
(ii) The provision required for UFCE as on 31.03.2024 is '2.06 crore only against which a provision of '2.72 crore has already been made.
(iii) The incremental capital requirement for the UFCE as on 31.03.2024 has been determined based on the additional risk weight of '9.48 crore.
c) Disclosures on Risk Exposure in Derivatives :
i) Qualitative Disclosure
1. Structure and Organisation for Management of risk in derivatives trading.
Operations in the Treasury are segregated into three functional areas, namely Front-Office, Mid-Office and Back-Office, equipped with necessary infrastructure and trained officers, whose responsibilities are well defined. The Bank enters into plain vanilla
forward contracts only to backup / cover customer transactions as also for proprietary trading purpose.
The Integrated Treasury Policy of the Bank clearly lays down the scope of usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for trading.
The Mid Office is handled by Risk Management Department. Daily report is generated by Risk Management Department for appraisal of the risk profile to the Senior Management for Asset and Liability Management.
2. Scope and nature of risk measurement, risk reporting and risk monitoring systems.
Outstanding forward contracts are monitored by Risk Management Department against the limits (Counterparty, Stop Loss, Open Position, VaR, Aggregate Gap) fixed by the Board and approved by RBI (wherever applicable) and exceedings, if any, are reported to the Appropriate Authority / Board for ratification.
3. Policies for hedging and / or mitigating and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants.
The Bank's policy lays down that the transactions with the corporate clients are to be undertaken only after the inherent credit exposures are quantified and approved for customer appropriateness and suitability and necessary documents like ISDA agreements etc. are duly executed. The Bank adopts Current Exposure Method for monitoring the credit exposures.
While sanctioning the limits, the competent authority stipulates condition of obtaining collaterals / margin as deemed appropriate. The derivative limits are reviewed periodically along with other credit limits.
4. Accounting policy for recording the hedge and non-hedge transactions, recognition of Income premiums and discounts, valuation of outstanding contracts, provisioning, collateral and credit risk mitigation.
Valuation of outstanding forward contracts are done as per FEDAI guidelines in force. Marked to Market Profit & Loss is taken to Profit & Loss Account. MTM Profit & Loss calculated as per Current Exposure Method are taken into account while sanctioning forward contract limits to customers and collaterals / cash margins are prescribed for credit and market risks.
The Bank undertakes foreign exchange forward contracts for its customers and hedges them with other Banks. The credit exposure on account of forward contracts is also considered while arriving at the total exposure of each customer / borrower and counter party banker. The Bank also deals with other Banks in proprietary trading duly adhering to risk limits permitted by RBI, set in the policy and is monitored by Mid Office. The Marked to Market values are monitored on monthly basis for foreign exchange forward contracts. The credit equivalent is computed under Current Exposure Method. The operations are conducted in terms of the policy guidelines issued by Reserve Bank of India from time to time and as approved by the Board of the Bank.
@ ^ Out of the total credit exposure of '237.62 crore (FY : 22-23'274.24 crore), exposure to the tune of ' 88.47 crore (FY : 22-23'171.74 crore) is accepted for guaranteed settlement by Clearing Corporation of
India (CCIL) and exposure to the tune of ' 139.38 crore (FY : 22-23'91.05 crore) are other Inter-Bank deals not guaranteed by CCIL. Balance of ' 9.77 crore (FY : 22-23'11.45 crore) is out of forward contracts outstanding with customers.
d) Credit Default Swaps :
The bank has not entered into Credit Default Swaps during the current Financial Year.
12) Disclosure of penalties imposed by the
Reserve Bank of India :
a) In terms of RBI Master Direction ref. DCM (CC) No.G-3/03.44.01/2023-24 dated April 03, 2023 "on Scheme of Penalties for bank branches and Currency Chests for deficiency in rendering customer service to the members of public", RBI has levied a total penalty amount of ' 16,550/- on various dates during the FY 2023-24.
b) During the year, RBI has imposed penalty of ' 1,60,000/- under Scheme of penalty for
Non-replenishment of ATMs DCM (RMMT) No. S153/11.01.01/2021-22) dated August 10, 2021.
c) RBI vide its order ref. CO.ENFD.DECB.No. S789/02.02.002/2023-2024 dated 26.02.2024 has levied a penalty totalling ' 66,00,000/- towards non adherence of certain RBI directions related to divergence in reported NPAs and risk categorization of customers' accounts observed during its inspection for Supervisory Evaluation with regard to the Financial Position of the Bank as on 31st March 2022.
14- Disclosure on remuneration to Non Executive Directors :
All the Non-Executive Directors are paid remuneration by way of sitting fees for attending meeting of the Board and its committees. Further they are eligible for Profit Linked Commission (PLC) pursuant to the extant RBI guidelines on "Compensation of Non-Executive
Directors of Private Sector Banks", the Companies Act, 2013 and the Compensation Policy of the Bank. An amount of ' 1.42 crore & ' 0.78 crore (Previous year FY 2022-23, '1.38 crore & '0.56 crore) was paid as Sitting fees & PLC for FY 2023 (on pro-rata basis) respectively to the Non-Executive Directors of the Bank during the year.
III) Marketing and Distribution :
The Bank has received fees of ' 5.21 crore for the FY 2023-24 (Previous year-FY 2022-23 : ' 1.25 crore) with respect to marketing and distribution function (excluding Bancassurance Business).
IV) Disclosures regarding Priority Sector Lending Certificates (PSLCs) :
During the year, there was purchase of PSLC on various days totalling to ' 850.00 crore (Agriculture). No PSLC has been sold.
RBI notification DBR.BP.BC.No.29/21.07.001/2018-19 dated 22nd March 2019 has deferred the implementation of Ind AS until further notice.
VIII) Disclosure on amortisation of expenditure on account of enhancement in family pension of employees of Banks (Unamortized Pension & Gratuity liabilities) :
The Bank is not having any liability on account of family pension scheme since it is covered under defined contribution managed by LIC of India.
IX) Letters of Comfort :
The Bank has not issued any letters of comfort to other Banks / Branches during the Year.
X) Port-folio level of information on the use of funds raised from Green Deposits :
The Bank has not raised any Green Deposits in the Financial Year 2023-24.
The Bank has complied with the Accounting Standards (AS) issued by the Institute of Chartered Accountants of India and the following disclosures are made in accordance with RBI's guidelines.
The liability towards Gratuity is met through annual premium payments determined on actuarial valuation by Life Insurance Corporation of India under their Group Gratuity Life Assurance Scheme.
The Bank and its employees contribute a defined sum every month to City Union Bank Employees Pension Fund Superannuation Scheme of Life Insurance Corporation of India to meet the post retirement annuity payments of its employees.
Leave Encashment benefits of employees are provided on an actuarial basis and is not funded.
The summarized position of the employee benefits recognized in the Profit & Loss Account and Balance Sheet as required in accordance with Accounting Standard -15 (Revised) is as under - Leave Encashment :
a) Prior Period Items - AS 5
There are no material prior period items of Income / Expenditure during the year requiring disclosure.
b) Revenue Recognition - AS 9
As mentioned in the Accounting Policy of Income / Expenditure of certain items are recognized on cash basis.
c) Effects of changes in Foreign Exchange Rates -AS 11
The Bank is revaluing foreign currency transactions consistently at the weekly average rate of the last week, prescribed by FEDAI, instead of the rate at the date of the transaction as per AS 11. The management is of the view that there is no material impact on the accounts for the year.
g) Leases-AS 19
i) Lease rent paid for operating leases are recognized as an expense in the Profit & Loss Account in the year to which it relates.
ii) Future lease rents and escalation in the rent are determined on the basis of agreed terms.
iii) At the expiry of initial lease term, generally the Bank has an option to extend the lease for a further pre-determined period.
iv) The Bank does not have any financial lease.
k) Accounting for Investments in Associates in CFS - AS 23
The Bank has no Associates. Hence reporting under CFS - AS 23 is not applicable.
l) Discontinuing Operations - AS 24
The Bank has not discontinued any of its operations. Hence reporting under CFS - AS 24 is not applicable.
m) Interim Financial Reporting - AS 25
Quarterly review have been carried out as per extant RBI and SEBI guidelines and prescribed formats.
n) Intangible Assets - AS 26
The Bank has followed AS 26 - "Intangible Asset" issued by ICAI and the guidelines issued by RBI.
o) Financial Reporting of Interests in Joint Ventures - AS 27 - NIL
p) Impairment ofAssets - AS 28
In the opinion of the management there is no impairment to the assets to which AS 28 -"Impairment ofAssets" applies.
q) Provisions & Contingencies - AS 29
The details of the provisions and contingencies, contingent liabilities, the movement of provisions on NPA's and depreciation on investments which are considered material are disclosed elsewhere under the appropriate headings as per RBI guidelines.
9) Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank
Single Borrower Limit/ Group Borrower Limit has not been exceeded during the year.
10) Guarantees for Trade Credits.
The Bank has issued guarantees on behalf of its customers for availing Trade Credits for import of goods into India and outstanding as of 31st March 2024 was ' 141.13 crore.
11) Income Tax
Provision for income tax in the current year is made as per Income Computation Disclosures Standards (ICDS) after considering various judicial decisions on certain disputed issues.
In the opinion of the management, based on the opinion / Appellate orders decided in its favour on similar issues, no provision is considered necessary for earlier years towards disputed tax liability for Income Tax amounting to ' 1085.88 cr (under Appeal) (previous year ' 904.65 cr) and for Service Tax / GsT amounting to ' 13.49 cr (previous year '13.31 cr).
12) Inter Branch Reconciliation
Reconciliation of Central Office accounts maintained by branches has been completed upto 31.03.2024.
13) Employees Stock Option
The Bank has allotted 2,55,519 (P.Y. 8,31,472) equity shares during the year to its eligible employees who have exercised their options granted under ESOP of the Bank.
(i) No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend to or invest in other persons or entities identified by or on behalf of the Bank ("Ultimate Beneficiaries") or provide any guarantee, security or like on behalf of the Ultimate Beneficiaries.
(ii) The Bank has not received any funds from any person(s) or entity(ies) ("Funding Party") with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend to or invest in other persons or entities identified by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
15) Disclosure under Rule 11(e) of the Companies (Audit & Auditors) Rules, 2014
The Bank, as part of its normal business, grants loans and advances to Non-Banking Finance Company / ies, Real Estate Promoters/ Developers, makes investment, provides guarantees (including against margin / guarantees received from Third parties / Banks) and accepts deposits and borrowings from its customers, other entities and persons. Also, the Bank, as part of its normal business, avails refinance from Financial Institutions and other entities wherein the proceeds are applied to a category of customers with specific profile parameters. These transactions are part of Bank's authorised normal business, which is conducted in adherence to extant regulatory requirements.
Other than the transactions described above -
16) In accordance with RBI instruction, the Bank has made a provision of 5% amounting to ' 2.76 cr against exposure in the long term food credit advance to Punjab State Government.
17) In accordance with the RBI circular DBR. No.BP.BC.1/21.06.201/2015-16 dated 1st July 2015, read together with RBI circular DBR.No.BP.BC.80/21.06.201/2014-15 dated 31.03.2015, on prudential guidelines on Capital adequacy and Liquidity Standards - Amendments and RBI Circular DBR. BP. BC. No. 106/21.04.098/2017-18 dated May 17-2018 -Basel III Framework on Liquidity Standards - Net Stable Funding Ratio (NSFR) - Final Guidelines, Banks are required to make certain Pillar 3, Leverage Ratio, Liquidity Coverage Ratio and NSFR Disclosures along with publication of financial results. Accordingly Pillar III Disclosures under Basel III Capital Regulation is being made available on the Bank's website (www.cityunionbank.com). These disclosures have not been subjected to review by the Joint Statutory Central Auditors.
18) Other Income relates to income from non-fund based banking activities including commission, fees, gains from securities transactions including ATM sharing fees, recoveries from accounts written off, income from PSLC and other miscellaneous income.
19) The Board of Directors have recommended a Dividend @ 150% - '1.50 per equity share (100% plus 50% as a Special Dividend in commemoration of 120th Year of the Bank) for the year 2023-24 (Previous Year 100%) subject to approval of members in the ensuing Annual General Meeting.
In accordance with Accounting Standards 4 -Contingencies and Events Occurring after the Balance Sheet date, the proposed dividend has not been shown as an appropriation from the Profit and Loss account for the year ended March 31, 2024 and correspondingly not reported under Other Liabilities and Provisions as at March 31, 2024. However, Capital Adequacy Ratio has been computed by reducing the proposed dividend.
20) Previous year's figures have been regrouped wherever necessary to conform to the current year classification.
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