Axis Bank Limited ('the Bank') was incorporated in 1993 and provides a
complete suite of corporate and retail banking products. The Bank is
primarily governed by the Banking Regulation Act, 1949. The Bank has
overseas branches at Singapore, Hong Kong, DIFC - Dubai, Shanghai and
2 Basis of preparation
The financial statements have been prepared and presented under the
historical cost convention on the accrual basis of accounting in
accordance with the generally accepted accounting principles in India
to comply with the statutory requirements prescribed under the Banking
Regulation Act, 1949, the circulars and guidelines issued by the
Reserve Bank of India ('RBI') from time to time and the Accounting
Standards notified under Section 133 of the Companies Act, 2013 read
together with paragraph 7 of the Companies (Accounts) Rules, 2014 and
the Companies (Accounting Standards) Amendment Rules, 2016 to the
extent applicable and practices generally prevalent in the banking
industry in India.
3 Use of estimates
The preparation of the financial statements in conformity with the
generally accepted accounting principles requires the Management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements,
revenues and expenses during the reporting period and disclosure of
contingent liabilities at the date of the financial statements. Actual
results could differ from those estimates. The Management believes that
the estimates used in the preparation of the financial statements are
prudent and reasonable. Any revisions to the accounting estimates are
recognised prospectively in the current and future periods.
4 Significant accounting policies 4.1 Investments
In accordance with the RBI guidelines, investments are classified at
the time of purchase as:
Held for Trading ('HFT');
Available for Sale ('AFS'); and
Held to Maturity ('HTM').
Investments that are held principally for sale within a short period
are classified as HFT securities. As per the RBI guidelines, HFT
securities, which remain unsold for a period of 90 days are
reclassified as AFS securities.
Investments that the Bank intends to hold till maturity are classified
under the HTM category. Investments in the equity of subsidiaries/joint
ventures are categorised as HTM in accordance with the RBI guidelines.
All other investments are classified as AFS securities.
However, for disclosure in the Balance Sheet, investments in India are
classified under six categories - Government Securities, Other approved
securities, Shares, Debentures and Bonds, Investment in
Subsidiaries/Joint Ventures and Others.
Investments made outside India are classified under three categories -
Government Securities, Subsidiaries and/or Joint Ventures abroad and
Transfer of security between categories
Transfer of security between categories of investments is accounted as
per the RBI guidelines.
Costs including brokerage and commission pertaining to investments,
paid at the time of acquisition, are charged to the Profit and Loss
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost
Investments classified under the HTM category are carried at
acquisition cost unless it is more than the face value, in which case
the premium is amortised over the period remaining to maturity on a
constant yield to maturity basis. 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 classified under the AFS and HFT categories are marked to
market. The market/fair value of quoted investments included in the
'AFS' and 'HFT' categories is the market price of the scrip as
available from the trades/quotes on the stock exchanges or prices
declared by Primary Dealers Association of India ('PDAI') jointly with
Fixed Income Money Market and Derivatives Association of India
('FIMMDA'), periodically. Net depreciation, if any, within each
category of each investment classification is recognised in the Profit
and Loss Account. The net appreciation if any, under each category of
each investment classification is ignored. The book value of individual
securities is not changed consequent to the periodic valuation of
investments. Non-performing investments are identified and provision is
made thereon as per RBI guidelines.
Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate
of Deposits being discounted instruments, are valued at carrying cost.
Units of mutual funds are valued at the latest repurchase price/net
asset value declared by the mutual fund.
Market value of investments where current quotations are not available,
is determined as per the norms prescribed by the RBI as under:
in case of unquoted bonds, debentures and preference shares where
interest/dividend is received regularly (i.e. not overdue beyond 90
days), the market price is derived based on the YTM for Government
Securities as published by FIMMDA/PDAI and suitably marked up for
credit risk applicable to the credit rating of the instrument. The
matrix for credit risk mark-up for each categories and credit ratings
along with residual maturity issued by FIMMDA is adopted for this
in case of bonds and debentures (including Pass Through Certificates)
where interest is not received regularly (i.e. overdue beyond 90
days), the valuation is in accordance with prudential norms for
provisioning as prescribed by RBI;
equity shares, for which current quotations are not available or where
the shares are not quoted on the stock exchanges, are valued at
break-up value (without considering revaluation reserves, if any) which
is ascertained from the company's latest Balance Sheet. In case the
latest Balance Sheet is not available, the shares are valued at Rs.1 per
units of Venture Capital Funds ('VCF') held under AFS category where
current quotations are not available are marked to market based on the
Net Asset Value ('NAV') shown by VCF as per the latest audited
financials of the fund. In case the audited financials are not
available for a period beyond 18 months, the investments are valued at
Rs.1 per VCF. Investment in unquoted VCF after 23 August, 2006 are
categorised under HTM category for the initial period of three years
and valued at cost as per RBI guidelines and security receipts are
valued as per the NAV obtained from the issuing Reconstruction
Investments in subsidiaries/joint ventures are categorised as HTM and
assessed for impairment to determine permanent diminution, if any, in
accordance with the RBI guidelines.
Realised gains on investments under the HTM category are recognised in
the Profit and Loss Account and subsequently appropriated to Capital
Reserve account (net of taxes and transfer to statutory reserves) in
accordance with the RBI guidelines. Losses are recognised in the Profit
and Loss Account. Realised gains/losses on investments under the AFS
and HFT category are recognised in the Profit and Loss Account.
All investments are accounted for on settlement date, except
investments in equity shares which are accounted for on trade date.
Repurchase and reverse repurchase transactions
Repurchase and reverse repurchase transactions in government securities
and corporate debt securities [excluding those conducted under the
Liquidity Adjustment Facility ('LAF') and Marginal Standby Facility
('MSF') with RBI] are accounted as collateralised borrowing and lending
respectively. Such transactions done under LAF and MSF are accounted as
outright sale and outright purchase respectively.
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. 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.
Advances are classified into performing and non-performing advances
('NPAs') as per the RBI guidelines and are stated net of specific
provisions made towards NPAs and floating provisions. Further, NPAs are
classified into sub-standard, doubtful and loss assets based on the
criteria stipulated by the RBI. Advances held at the overseas branches
that are identified as impaired as per host country regulations for
reasons other than record of recovery, but which are standard as per
the RBI guidelines, are classified as NPAs to the extent of amount
outstanding in the host country. Provisions for NPAs are made for
sub-standard and doubtful assets at rates as prescribed by the RBI with
the exception for agriculture advances and schematic retail advances.
In respect of schematic retail advances, provisions are made in terms
of a bucket-wise policy upon reaching specified stages of delinquency
(90 days or more of delinquency) under each type of loan, which
satisfies the RBI prudential norms on provisioning. Provisions in
respect of agriculture advances classified into sub-standard and
doubtful assets are made at rates which are higher than those
prescribed by the RBI. Provisions for advances booked in overseas
branches, which are standard as per the RBI guidelines but are
classified as NPAs based on host country guidelines, are made as per
the host country regulations.
In addition to the above, the Bank on a prudential basis, makes
provision for expected losses against advances or other exposures to
specific assets/industry/sector either on a case-by-case basis or for a
group of assets, based on specific information or general economic
environment. These are classified as contingent provision and included
under Schedule 5 - Other Liabilities in the Balance Sheet.
Loss assets and unsecured portion of doubtful assets are
provided/written off as per the extant RBI guidelines. NPAs are
identified by periodic appraisals of the loan portfolio by the
Amounts recovered against debts written off are recognised in the
Profit and Loss account.
For restructured/rescheduled assets, provision is made in accordance
with the guidelines issued by RBI, which requires the diminution in the
fair value of the assets to be provided at the time of restructuring.
The Bank makes provision in accordance with the RBI guidelines, on
assets subjected to Strategic Debt Restructuring.
For entities with Unhedged Foreign Currency Exposure (UFCE), provision
is made in accordance with the guidelines issued by RBI, which requires
to ascertain the amount of UFCE, estimate the extent of likely loss and
estimate the riskiness of unhedged position. This provision is
classified under Schedule 5 - Other Liabilities in the Balance Sheet.
The Bank maintains a general provision on standard advances at the
rates prescribed by RBI. In case of overseas branches, general
provision on standard advances is maintained at the higher of the
levels stipulated by the respective overseas regulator or RBI.
Under its home loan portfolio, the Bank offers housing loans with
certain features involving waiver of Equated Monthly Installments
('EMIs') of a specific period subject to fulfilment of a set of
conditions by the borrower. The Bank makes provision on an estimated
basis against the probable loss that could be incurred in future on
account of waivers to eligible borrowers in respect of such loans. This
provision is classified under Schedule 5 - Other Liabilities in the
4.3 Country risk
In addition to the provisions required to be held according to the
asset classification status, provisions are held for individua country
exposure (other than for home country as per the RBI guidelines). The
countries are categorised into seven risk categories namely
insignificant, low, moderate, high, very high, restricted and
off-credit and provision is made on exposures exceeding 180 days on a
graded scale ranging from 0.25% to 100%. For exposures with contractual
maturity of less than 180 days, 25% of the normal provision requirement
is held. If the country exposure (net) of the Bank in respect of each
country does not exceed 1% of the total funded assets, no provision is
maintained on such country exposure.
The Bank enters into purchase/sale of corporate and retail loans
through direct assignment/Special Purpose Vehicle ('SPV'). In most
cases, post securitisation, the Bank continues to service the loans
transferred to the assignee/SPV The Bank also provides credit
enhancement in the form of cash collaterals and/or by subordination of
cash flows to Senior Pass Through Certificate ('PTC') holders. In
respect of credit enhancements provided or recourse obligations
(projected delinquencies, future servicing etc.) accepted by the Bank,
appropriate provision/disclosure is made at the time of sale in
accordance with AS-29, Provisions, Contingent Liabilities and
Contingent Assets as notified under Section 133 of the Companies Act,
2013 read together with paragraph 7 of the Companies (Accounts) Rules,
2014 and the Companies (Accounting Standards) Amendment Rules, 2016.
In accordance with RBI guidelines of 7 May, 2012, on 'Guidelines on
Securitisation of Standard Assets', gain on securitisation transaction
is recognised over the period of the underlying securities issued by
the SPV as prescribed under RBI guidelines. Loss on securitisation is
immediately debited to the Profit and Loss Account.
4.5 Foreign currency transactions
In respect of domestic operations, transactions denominated in foreign
currencies are accounted for at the rates prevailing on the date of the
transaction. Monetary foreign currency assets and liabilities are
translated at the Balance Sheet date at rates notified by Foreign
Exchange Dealers Association of India ('FEDAI'). All profits/losses
resulting from year end revaluations are recognised in the Profit and
Financial statements of foreign branches classified as non-integral
foreign operations as per the RBI guidelines are translated as follows:
Assets and liabilities (both monetary and non-monetary as well as
contingent liabilities) are translated at closing rates notified by
FEDAI at the year end.
Income and expenses are translated at the rates prevailing on the date
of the transactions.
All resulting exchange differences are accumulated in a separate
'Foreign Currency Translation Reserve' till the disposal of the net
investments. Any realised gains or losses are recognised in the Profit
and Loss Account.
Outstanding forward exchange contracts including tom/spot contracts
(excluding currency swaps undertaken to hedge foreign currency
assets/liabilities and funding swaps which are not revalued) are
revalued at year end on PV basis by discounting the forward value till
spot date and converting the FCY amount using the respective spot rates
as notified by FEDAI. The resulting gains or losses on revaluation are
included in the Profit and Loss Account in accordance with RBI/ FEDAI
Premium/discount on currency swaps undertaken to hedge foreign currency
assets and liabilities and funding swaps is recognised as interest
income/expense and is amortised on a pro-rata basis over the underlying
Contingent liabilities on account of forward exchange and derivative
contracts, guarantees, acceptances, endorsements and other obligations
denominated in foreign currencies are disclosed at closing rates of
exchange notified by FEDAI.
4.6 Derivative transactions
Derivative transactions comprise of forward contracts, swaps and
options which are disclosed as contingent liabilities. The forwards,
swaps and options are categorised as trading or hedge transactions.
Trading derivative contracts are revalued at the Balance Sheet date
with the resulting unrealised gain or loss being recognised in the
Profit and Loss Account and correspondingly in other assets or other
liabilities respectively. For hedge transactions, the Bank identifies
the hedged item (asset or liability) at the inception of transaction
itself. The effectiveness is ascertained at the time of inception of
the hedge and periodically thereafter. Hedge swaps are accounted for on
accrual basis except in case of swaps designated with an asset or
liability that is carried at market value or lower of cost or market
value in the financial statements. In such cases the swaps are marked
to market with the resulting gain or loss recorded as an adjustment to
the market value of designated asset or liability. The premium on
option contracts is accounted for as per FEDAI guidelines. Pursuant to
the RBI guidelines any receivables under derivative contracts
comprising of crystallised receivables as well as positive Mark to
Market (MTM) in respect of future receivables which remain overdue for
more than 90 days are reversed through the Profit and Loss Account and
are held in separate Suspense Account.
Currency futures contracts are marked to market using daily settlement
price on a trading day, which is the closing price of the respective
futures contracts on that day. While the daily settlement price is
computed based on the last half an hour weighted average price of such
contract, the final settlement price is taken as the RBI reference rate
on the last trading day of the futures contract or as may be specified
by the relevant authority from time to time. All open positions are
marked to market based on the settlement price and the resultant marked
to market profit/loss is daily settled with the exchange.
Valuation of Exchange Traded Currency Options (ETCO) is carried out on
the basis of the daily settlement price of each individual option
provided by the exchange and valuation of Interest Rate Futures (IRF)
is carried out on the basis of the daily settlement price of each
contract provided by the exchange.
4.7 Revenue recognition
Interest income is recognised on an accrual basis except interest
income on non-performing assets, which is recognised on receipt in
accordance with AS-9, Revenue Recognition as notified under Section 133
of the Companies Act, 2013 read together with paragraph 7 of the
Companies (Accounts) Rules, 2014, the Companies (Accounting Standards)
Amendment Rules, 2016 and the RBI guidelines.
Fees and commission income is recognised when due, except for guarantee
commission which is recognised on a pro-rata basis over the period of
Arrangership/syndication fee is accounted for on completion of the
agreed service and when right to receive is established.
Dividend is accounted on an accrual basis when the right to receive the
dividend is established.
Gain/loss on sell down of loans and advances through direct assignment
is recognised at the time of sale.
In accordance with RBI guidelines on sale of non-performing advances,
if the sale is at a price below the net book value (i.e. book value
less provisions held), the shortfall is charged to the Profit and Loss
Account. If the sale is for a value higher than the net book value, the
excess provision is credited to the Profit and Loss Account in the year
the amounts are received.
The Bank deals in bullion business on a consignment basis. The
difference between the price recovered from customers and cost of
bullion is accounted for at the time of sale to the customers. The Bank
also deals in bullion on a borrowing and lending basis and the interest
paid/received is accounted on an accrual basis.
4.8 Fixed assets and depreciation/impairment
Fixed assets are carried at cost of acquisition less accumulated
depreciation and impairment, if any. Cost includes freight, duties,
taxes and incidental expenses related to the acquisition and
installation of the asset.
Capital work-in-progress includes cost of fixed assets that are not
ready for their intended use and also includes advances paid to acquire
Profit on sale of premises is appropriated to Capital Reserve Account
in accordance with RBI instructions.
The carrying amounts of assets are reviewed at each Balance Sheet date
to ascertain if there is any indication of impairment based on
internal/external factors. An impairment loss is recognised wherever
the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is the greater of the asset's net selling price and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value at the weighted average
cost of capital. After impairment, depreciation is provided on the
revised carrying amount of the asset over its remaining useful life.
4.9 Lease transactions
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership over the lease term are classified as
operating lease. Lease payments for assets taken on operating lease are
recognised as an expense in the Profit and Loss Account on a
straight-line basis over the lease term.
4.10 Retirement and other employee benefits Provident Fund
Retirement benefit in the form of provident fund is a defined benefit
plan wherein the contributions are charged to the Profit and Loss
Account of the year when the contributions to the fund are due and when
services are rendered by the employees. Further, an actuarial
valuation is conducted by an independent actuary using the Projected
Unit Credit Method as at 31 March each year to determine the
deficiency, if any, in the interest payable on the contributions as
compared to the interest liability as per the statutory rate.
The Bank contributes towards gratuity fund (defined benefit retirement
plan) administered by various insurers for eligible employees. Under
this scheme, the settlement obligations remain with the Bank, although
various insurers administer the scheme and determine the contribution
premium required to be paid by the Bank. The plan provides a lump sum
payment to vested employees at retirement or termination of employment
based on the respective employee's salary and the years of employment
with the Bank. Liability with regard to gratuity fund is accrued based
on actuarial valuation conducted by an independent actuary using the
Projected Unit Credit Method as at 31 March each year. In respect of
employees at overseas branches (other than expatriates) liability with
regard to gratuity is provided on the basis of a prescribed method as
per local laws, wherever applicable.
Short term compensated absences are provided for based on estimates of
encashment/availment of leave. The Bank provides long term compensated
absences based on actuarial valuation conducted by an independent
actuary. The actuarial valuation is carried out as per the Projected
Unit Credit Method as at 31 March each year.
Actuarial gains/losses are immediately taken to the Profit and Loss
Account and are not deferred.
Employees of the Bank are entitled to receive retirement benefits under
the Bank's Superannuation scheme either under a cash-out option through
salary or under a defined contribution plan. Through the defined
contribution plan, the Bank contributes annually a specified sum of 10%
of the employee's eligible annual basic salary to LIC, which undertakes
to pay the lumpsum and annuity benefit payments pursuant to the scheme.
Superannuation contributions are recognised in the Profit and Loss
Account in the period in which they accrue.
4.11 Reward points
The Bank runs a loyalty program which seeks to recognise and reward
customers based on their relationship with the Bank. Under the program,
eligible customers are granted loyalty points redeemable in future,
subject to certain conditions. In addition, the Bank continues to
grant reward points in respect of certain credit cards (not covered
under the loyalty program). The Bank estimates the probable redemption
of such loyalty/reward points using an actuarial method at the Balance
Sheet date by employing an independent actuary. Provision for the said
reward points is then made based on the actuarial valuation report as
furnished by the said independent actuary.
Income tax expense is the aggregate amount of current tax and deferred
tax charge. Current year taxes are determined in accordance with the
Income tax Act, 1961. Deferred income taxes reflects the impact of
current year timing differences between taxable income and accounting
income for the year and reversal of timing differences of earlier
Deferred tax is measured based on the tax rates and the tax laws
enacted or substantively enacted at the Balance Sheet date. Deferred
tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current
tax liabilities and the deferred tax assets and deferred tax
liabilities relate to the taxes on income levied by same governing
Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realised. The
impact of changes in the deferred tax assets and liabilities is
recognised in the Profit and Loss Account.
Deferred tax assets are recognised and reassessed at each reporting
date, based upon the Management's judgement as to whether realisation
is considered as reasonably certain. Deferred tax assets are recognised
on carry forward of unabsorbed depreciation and tax losses only if
there is virtual certainty supported by convincing evidence that such
deferred tax asset can be realised against future profits.
4.13 Share issue expenses
Share issue expenses are adjusted from Share Premium Account in terms
of Section 52 of the Companies Act, 2013.
4.14 Earnings per share
The Bank reports basic and diluted earnings per share in accordance
with AS-20, Earnings per Share, as notified under Section 133 of the
Companies Act, 2013 read together with paragraph 7 of the Companies
(Accounts) Rules, 2014 and the Companies (Accounting Standards)
Amendment Rules, 2016. Basic earnings per share is computed by dividing
the net profit after tax by the weighted average number of equity
shares outstanding for the year.
Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue equity shares were
exercised or converted during the year. Diluted earnings per share is
computed using the weighted average number of equity shares and
dilutive potential equity shares outstanding at the year end.
4.15 Employee stock option scheme
The 2001 Employee Stock Option Scheme ('the Scheme') provides for grant
of stock options on equity shares of the Bank to employees and
Directors of the Bank and its subsidiaries. The Scheme is in accordance
with the Securities and Exchange Board of India (SEBI) (Employees Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
('the Guidelines'). These Guidelines have been repealed in the month of
October, 2014 and were substituted by Securities and Exchange Board of
India (Share Based Employee Benefits) Regulations, 2014. The Scheme is
in compliance with the said regulations. The Bank follows the intrinsic
value method to account for its stock based employee compensation plans
as per the Guidelines. Options are granted at an exercise price, which
is equal to/less than the fair market price of the underlying equity
shares. The excess of such fair market price over the exercise price of
the options as at the grant date is recognised as a deferred
compensation cost and amortised on a straight-line basis over the
vesting period of such options.
The fair market price is the latest available closing price, prior to
the date of grant, on the stock exchange on which the shares of the
Bank are listed. If the shares are listed on more than one stock
exchange, then the stock exchange where there is highest trading volume
on the said date is considered.
4.16 Provisions, contingent liabilities and contingent assets
A provision is recognised when the Bank has a present obligation as a
result of past event where it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the Balance Sheet date. These are reviewed at
each Balance Sheet date and adjusted to reflect the current best
estimates. A disclosure of contingent liability is made when there is:
a possible obligation arising from a past event, the existence of which
will be confirmed by occurrence or non- occurrence of one or more
uncertain future events not within the control of the Bank; or
a present obligation arising from a past event which is not recognised
as it is not probable that an outflow of resources will be required to
settle the obligation or a reliable estimate of the amount of the
obligation cannot be made.
When there is a possible obligation or a present obligation in respect
of which the likelihood of outflow of resources is remote, no provision
or disclosure is made.
Contingent assets are not recognised in the financial statements.
However, contingent assets are assessed continually and if it is
virtually certain that an inflow of economic benefits will arise, the
asset and related income are recognised in the period in which the
1. The shareholders of the Bank at the 20th Annual General Meeting held
on 27 June, 2014, approved the sub-division (split) of one equity share
of the Bank from nominal value of Rs.10/- each into five equity shares of
nominal value of Rs.2/- each. The record date for the sub-division was 30
July, 2014. All shares, stock options and per share information in the
financial statements reflect the effect of sub-division (split)
retrospectively for the earlier reporting periods.
Classification of assets and liabilities under the different maturity
buckets is based on the same estimates and assumptions as used by the
Bank for compiling the return submitted to the RBI, which has been
relied upon by the auditors. Maturity profile of foreign currency
assets and liabilities is excluding off balance sheet items.
* For the purpose of disclosing the maturity pattern, loans and
advances that have been subject to risk participation vide Inter-Bank
Participation Certificates ('IBPCs') and Funded Risk Participation
('FRPs') have been classified in the maturity bucket corresponding to
the contractual maturities of such underlying loans and advances gross
of any risk participation. The IBPC and FRP amounts have been
classified in the respective maturities of the corresponding underlying
Amount outstanding under restructuring facilities and other facilities
is as on 31 March, 2015
1. Amount reported here represents outstanding as on 31 March, 2015.
Actual amount subjected to restructuring determined as on the date of
approval of restructuring proposal is Rs.2,721.86 crores for the FY
2. Includes accounts on account of re-work of restructuring and these
accounts are not included in opening balance of standard restructured
3. Includes Rs.234.72 crores of fresh/additional sanction to existing
restructured accounts (Rs.0.28 crores under restructured facility and
Rs.234.44 crores under other facility)
4. Includes accounts which were not attracting higher provisioning
and/or additional risk weight at the beginning of FY
5. Includes accounts partially written-off during the year
6. Amount outstanding under restructuring facilities and other
facilities is as on the date of write-off in the books
7. Includes Rs.248.62 crores of reduction from existing restructured
accounts by way of sale/recovery (Rs.216.20 crores from restructured
facility and Rs.32.42 crores from other facility)
8. The cumulative value of net restructured advances after reducing
the provision held for diminution in fair value and balance in interest
capitalisation account upto 31 March, 2015 aggregated Rs.8,165.59 crores
9. Information appearing under substandard, doubtful and loss category
also include accounts slipped into NPAs from restructured standard
advances along with restructured NPAs
The Bank has not undertaken any transactions in Credit Default Swaps
(CDS) during the year ended 31 March, 2016 and 31 March, 2015.
2.1.27 Disclosure on risk exposure in Derivatives
(a) Structure and organisation for management of risk in derivatives
trading, the scope and nature of risk measurement, risk reporting and
risk monitoring systems, policies for hedging and/or mitigating risk
and strategies and processes for monitoring the continuing
effectiveness of hedges/mitigants:
Derivatives are financial instruments whose characteristics are derived
from an underlying asset, or from interest and exchange rates or
indices. The Bank undertakes over the counter and Exchange Traded
derivative transactions for Balance Sheet management and also for
proprietary trading/market making whereby the Bank offers derivative
products to the customers to enable them to hedge their interest rate
and currency risks within the prevalent regulatory guidelines.
Proprietary trading includes Interest Rate Futures, Currency Futures
and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR,
MIFOR and INBMK), and Currency Options for USD/INR pair (both OTC and
exchange traded). The Bank also undertakes transactions in Cross
Currency Swaps, Principal Only Swaps, Coupon Only Swaps and Long Term
Forex Contracts (LTFX) for hedging its Balance Sheet and also offers
them to its customers. These transactions expose the Bank to various
risks, primarily credit, market, legal, reputation and operational
risk. The Bank has adopted the following mechanism for managing risks
arising out of the derivative transactions.
There is a functional separation between the Treasury Front Office,
Risk and Treasury Back Office to undertake derivative transactions. The
derivative transactions are originated by Treasury Front Office, which
ensures compliance with the trade origination requirements as per the
Bank's policy and the RBI guidelines. The Market Risk Group within the
Bank's Risk Department independently identifies measures and monitors
the market risks associated with derivative transactions and apprises
the Asset Liability Management Committee (ALCO) and the Risk Management
Committee of the Board (RMC) on the compliance with the risk limits.
The Treasury Back Office undertakes activities such as trade
confirmation, settlement, ISDA documentation, accounting and other MIS
The derivative transactions are governed by the derivative policy,
market risk management policy, hedging policy and the Asset Liability
Management (ALM) policy of the Bank as well as by the extant RBI
guidelines. The Bank has also implemented policy on customer
suitability & appropriateness approved by the Board to ensure that
derivatives transactions entered into are appropriate and suitable to
the customer. The Bank has also put in place a detailed process flow on
documentation for customer derivative transactions for effective
management of operational risk/ reputation risk.
Various risk limits are set up and actual exposures are monitored
vis-…-vis the limits allocated. These limits are set up taking into
account market volatility, risk appetite, business strategy and
management experience. Risk limits are in place for risk parameters
viz. PV01, VaR, Stop Loss, Delta, Gamma and Vega. Actual positions are
monitored against these limits on a daily basis and breaches, if any,
are reported promptly. Risk assessment of the portfolio is undertaken
periodically. The Bank ensures that the Gross PV01 (Price value of a
basis point) position arising out of all non-option rupee derivative
contracts are within 0.25% of net worth of the Bank as on Balance Sheet
Hedging transactions are undertaken by the Bank to protect the
variability in the fair value or the cash flow of the underlying
Balance Sheet item. These deals are accounted on an accrual basis
except the swap designated with an asset/liability that is carried at
market value or lower of cost or market value. In that case, the swap
is marked to market with the resulting gain or loss recorded as an
adjustment to the market value of designated asset or liability. These
transactions are tested for hedge effectiveness and in case any
transaction fails the test, the same is re- designated as a trading
deal with the approval of the competent authority and appropriate
accounting treatment is followed.
(b) Accounting policy for recording hedge and non-hedge transactions,
recognition of income, premiums and discounts, valuation of outstanding
The Hedging Policy approved by the RMC governs the use of derivatives
for hedging purpose. Subject to the prevailing RBI guidelines, the Bank
deals in derivatives for hedging fixed rate and floating rate coupon or
foreign currency assets/ liabilities. Transactions for hedging and
market making purposes are recorded separately. For hedge transactions,
the Bank identifies the hedged item (asset or liability) at the
inception of the transaction itself. The effectiveness is ascertained
at the time of inception of the hedge and periodically thereafter.
Hedge derivative transactions are accounted for in accordance with the
hedge accounting principles. Derivatives for market making purpose are
marked to market and the resulting gain/loss is recorded in the Profit
and Loss Account. The premium on option contracts is accounted for as
per FEDAI guidelines. Derivative transactions are covered under
International Swaps and Derivatives Association (ISDA) master
agreements with respective counterparties. The exposure on account of
derivative transactions is computed as per the RBI guidelines and is
marked against the credit limits approved for the respective
(c) Provisioning, collateral and credit risk mitigation
Derivative transactions comprise of swaps, FRAs, futures and options
which are disclosed as contingent liabilities. The swaps are
categorised as trading or hedging and all the FRAs, futures and options
are categorised as the trading book. Trading swaps/FRAs/futures/options
are revalued at the Balance Sheet date with the resulting unrealised
gain or loss being recognised in the Profit and Loss Account and
correspondingly in other assets or other liabilities respectively.
Hedged swaps are accounted for as per the RBI guidelines. Pursuant to
the RBI guidelines, any receivables (crystallised receivables and
positive MTM) under derivatives contracts, which remain overdue for
more than 90 days, are reversed through the Profit and Loss Account and
are held in a separate Suspense account.
Collateral requirements for derivative transactions are laid down as
part of credit sanction terms on a case by case basis. Such collateral
requirements are determined, based on usual credit appraisal process.
The Bank retains the right to terminate transactions as a risk
mitigation measure in certain cases.
The credit risk in respect of customer derivative transactions is
sought to be mitigated through a laid down policy on sanction of Loan
Equivalent Risk (LER) limits, monitoring mechanism for LER limits and
trigger events for escalation/ margin calls/termination.
*During the year, the Bank received 3 awards which got cancelled
(previous year 1)
The above information is as certified by the Management and relied upon
by the auditors.