4. Significant accounting policies

A. Advances

i. Classification

Advances are classified as performing assets and non-performing assets ('NPAs') in accordance with the RBI
guideline on Income Recognition and Asset Classification (IRAC). Further, NPAs are classified into sub-standard,
doubtful and loss assets based on the criteria stipulated by the RBI. The advances are stated net of specific
provisions made towards NPAs and unrealised interest on NPAs. Interest on NPAs is transferred to an interest
suspended account and not recognised in the Profit and Loss Account until received.

ii. Provisioning

Provision for non-performing advances comprising sub-standard, doubtful and loss assets is made at a minimum
in accordance with the RBI guidelines. In addition, the Bank considers accelerated specific provisioning that
is based on past experience, evaluation of security and other related factors. Specific loan loss provision in
respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the
Bank in case of NPAs written off are recognised in the Profit and Loss Account. Provisions in respect of credit

card receivables classified into sub-standard and doubtful assets are made at rates which are higher than those
prescribed by the RBI.

The floating provisions are made in conformity with RBI guidelines and is netted off against advances and not
disclosed separately under Other liabilities.

The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the
borrower's financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider.
Restructuring would normally involve modification of terms of the advances / securities, which would generally
include, among others, alteration of repayment period / repayable amount / the amount of instalments / rate of
interest (due to reasons other than competitive reasons). Restructured accounts are classified as such by the
Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution
in the fair value of a restructured account is made and classification thereof is as per the extant RBI guidelines.

In accordance with the RBI guidelines on the prudential framework for resolution of stressed assets and the
resolution framework for COVID-19 related stress, the Bank in accordance with its Board approved policy, carried
out one-time restructuring of eligible borrowers. The asset classification and necessary provisions thereon are
done in accordance with the said RBI guidelines.

In accordance with RBI guidelines, the Bank has provided general provision on standard assets at levels stipulated
by RBI from time to time, direct advances to sectors agricultural and SME at 0.25%, commercial real estate at
1.00%, restructured standard advance at 5.00%, commercial real estate-residential housing at 0.75%, housing loans
(which have adequate Loan to Value (LTV) ratio as prescribed by RBI) at 0.25%, for projects under construction,
1.25% for Commercial Real Estate & 1.00% for others, however in the operational phase to 0.40% for non-CRE
projects, 0.75% for CRE-RH and 1.00% for CRE exposures. Additionally, where the Date of Commencement of
Commercial Operations (DCCO) is deferred but the asset continues to be classified as standard, lenders are
required to maintain incremental provisioning for each quarter of delay at 0.375% for infrastructure projects
and 0.5625% for non infrastructure projects, over and above the base standard asset provision and for other
sectors at 0.40%. Provision made against standard assets in accordance with RBI guidelines as above is disclosed
separately under Other Liabilities and not netted off against Advances.

The Bank maintains general provision for standard assets including credit exposures computed as per the
current marked to market values of interest rate and foreign exchange derivative contracts, in accordance with
the guidelines and at levels stipulated by RBI from time to time.

Provision for unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines.

B. Securitisation and transfer of assets

The Bank securitises out its receivables to Special Purpose Vehicles ('SPVs') in securitisation transactions. Such
securitised-out receivables are de-recognised in the Balance Sheet when they are transferred (conditions as
prescribed in the Reserve Bank of India (Small Finance Banks-Securitisation Transactions) Directions, 2025 being
fully met with) and consideration is received by the Bank. In respect of receivable pools securitised-out, the Bank
provides liquidity facility and credit enhancements, as specified by the rating agencies, in the form of cash collaterals
/ guarantees and / or by subordination of cash flows in line with the RBI guidelines. The Bank also acts as a servicing
agent for receivable pools securitised-out.

The Bank enters into transactions for transfer of standard assets through the direct assignment of cash flows,
which are similar to asset-backed securitisation transactions through the SPV route, except that such portfolios of
receivables are assigned directly to the purchaser and are not represented by Pass Through Certificates ('PTCs').

In accordance with the Master Direction - Reserve Bank of India (Small Finance Banks-Transfer and Distribution
of Credit Risk) Directions, 2025, the Bank does not provide liquidity facility or credit enhancements on the direct
assignment transactions undertaken subsequent to these guidelines. The Bank amortises any profit received for
every individual securitisation or direct assignment transaction based on the method prescribed in these guidelines.

The Bank invests in PTCs issued by other SPVs. These are accounted for at the deal value and are classified as
investments. The Bank also buys loans through the direct assignment route which are classified as advances. These
are carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over the
tenor of the loans.

In accordance with RBI guidelines on sale of nonperforming 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 and 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 transfers advances through inter-bank participation with and without risk. In accordance with the RBI
guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced
from advances and where the Bank is participating, the aggregate amount of the participation is classified under
advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified
under borrowings and where the Bank is participating, the aggregate amount of participation is shown as due from banks
under advances. Advances exclude derecognised securitised advances, inter-bank participation certificates issued.

C. Priority Sector Lending Certificates (PSLCs)

The Bank enters into transactions for the sale or purchase of Priority Sector Lending Certificates (PSLCs). In the
case of a sale transaction, the Bank sells the fulfilment of priority sector obligation and in the case of a purchase
transaction the Bank buys the fulfilment of priority sector obligation through the RBI trading platform. There is no
transfer of risks or loan assets. The fee received for the sale of PSLCs is recorded as 'Miscellaneous Income' and
the fee paid for purchase of the PSLCs is recorded as 'Other Expenditure' in the Profit and Loss Account.These are
amortised on quarterly basis.

D. Investments

Classification and valuation of the Bank's Investments is carried out in accordance with RBI Master Direction "Reserve
Bank of India (Small Finance Banks - Classification, Valuation and Operation of Investment Portfolio) Directions,
2025” as applicable and Fixed Income Money Market and Derivatives Association ('FIMMDA') guidelines issued in
this regard from time to time.

i. Classification

In accordance with the RBI guidelines on investment classification and valuation, investments (except investments
in own subsidiaries, joint ventures and associates) are classified on the date of purchase into under three
categories, viz., Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL).
Held for Trading (HFT) is a separate investment subcategory within FVTPL which is called as FVTPL-HFT.

The security, i.e., the financial assets which are held with an objective to collect the contractual cash flows; 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 and are held with intention to hold till maturity are
classified as HTM investments.

The security is acquired with an objective that is achieved by both collecting contractual cash flows (the
contractual terms of the security meet the SPPI criterion) and selling securities are classified as AFS investments.
Bank may make an irrevocable election to classify an equity instrument that is not held with the objective of
trading under AFS.

Securities that do not qualify for inclusion in HTM or AFS are classified under FVTPL. These are inter-alia include:

i. Equity shares, other than

• equity shares of subsidiaries, associates or joint ventures;

• equity shares where, at initial recognition, the irrevocable option to classify at AFS has been exercised.

ii. Investments in Mutual Funds, Alternative Investment Funds, Real Estate Investment Trusts, Infrastructure
Investment Trusts, etc.

iii. Investment in securitisation notes which represent the equity tranche of a securitisation transaction.

iv. Bonds, debentures, etc. where the payment is linked to the movement in a particular index such as an equity
index rather than an interest rate benchmark.

v. Instruments with compulsorily, optionally or contingently convertible features.

vi. Instruments with contractual loss absorbency features such as those qualifying for Additional Tier 1 and
Tier 2 under Basel 3 Capital Regulations.

vii. Instruments whose coupons are not in the nature of interest as defined in the applicable RBI Directions.

Further, Bank classify the investments in HFT category as a sub-category of FVTPL.

Any instrument that a bank holds for one or more of the following purposes, when it is first recognised on its
books, 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.

Unlisted equities and equity investments in subsidiaries, associates and joint ventures are not included in HFT
category.

Investments in subsidiaries, associates and joint ventures is held in a distinct category. Such investments are
held separate from the other investment categories (viz. HTM, AFS and FVTPL).

For disclosure in the financial statements, the investments are classified under six groups (hereinafter called
"groups"):

i. Government Securities;

ii. Other Approved Securities;

iii. Shares;

iv. Debentures & Bonds;

v. Subsidiaries and / or Joint Ventures; and

vi. Other Investments.

Bank categorizes the investment portfolio under AFS and FVTPL into three fair value hierarchies viz. Level 1,
Level 2, and Level 3 as defined in the Reserve Bank of India (Small Finance Banks - Classification, Valuation and
Operation of Investment Portfolio) Directions, 2025.

Level 1: Those inputs which are quoted prices in active markets for identical instruments that the bank can
access at the measurement date.

Level 2: Those inputs, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly.

Level 3: Unobservable inputs.

All investments purchase and sale including equity shares are recorded under "Settlement Date" Accounting.

ii. Acquisition cost

The cost of investments is determined at the time of initial recognition at fair value. Carrying cost is arrived on
weighted average basis. Broken period interest on debt instruments and government securities are considered
as a revenue item. The transaction costs including brokerage, commission, transaction/settlement charges etc.
paid at the time of acquisition of investments are recognised in Profit and Loss Account.

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 the Profit and Loss Account, under Schedule
14 : 'Other Income' within the subhead 'Profit / (Loss) on revaluation of investments (net)', as the case may be.

Any Day 1 loss arising from Level 3 investments is recognised immediately.

Any Day 1 gains arising from Level 3 investments are deferred. In the case of debt instruments, the Day 1 gain is
amortized on a straight-line basis upto 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.

iii. Reclassifications between categories

Reclassifications of investments between categories, if any are considered in accordance with the extant RBI
guidelines with the approval of the Board of Directors and prior approval of the Department of Supervision
(DoS), RBI:

If Bank is permitted to reclassify its investment portfolio, it applies the reclassification prospectively from the
reclassification date. The reclassification date is the first day of the first reporting period following the supervisory
permission allowing reclassification of financial asset.

Following is the accounting treatment given at the time of reclassification of investments from one category to
another category:

a. Reclassification from HTM to AFS is made at fair value. The fair value measured at the reclassification date
is 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.

b. Reclassification from HTM to FVTPL is made at fair value. The fair value measured at the reclassification date
is the revised carrying value. Any gain or loss arising from a difference between the revised carrying value
and previous carrying value of the investments are recognised in the Profit and Loss Account under sub head:
'Profit / (Loss) on revaluation of investments (net)' under Schedule 14: 'Other Income'.

c. Reclassification from AFS to HTM is made at its fair value at the reclassification date. However, the cumulative
gain/loss previously recognised in the AFS-Reserve is withdrawn therefrom and adjusted against the fair
value of the investments at the reclassification date to arrive at the revised carrying value. Thus, the revised
carrying value is the same as if the bank had classified the investment in HTM ab initio itself.

d. Transfer from AFS to FVTPL is made at fair value and the cumulative gain or loss previously recognised in
AFS-Reserve is withdrawn therefrom and recognized in the Profit and Loss Account, under sub head: 'Profit
/ (Loss) on revaluation of investments (net)' under Schedule 14: 'Other Income'.

e. Transfer from FVTPL to HTM/AFS is made at carrying value which represents fair value at the reclassification
date. Difference between the book value after amortization and Fair value on the reclassification date is
booked under Profit and Loss Account on Portfolio Shifting revaluation.

iv. Subsequent Measurement & Fair Value of Investments

Investments classified under HTM is carried at cost and is not marked to market ('MTM') after initial recognition.
Any discount or premium on the securities under HTM is amortised over the remaining life of the instrument.
The amortised amount is reflected in the financial statements under sub head 'Income on Investments' of
Schedule 13: 'Interest Earned' with a contra in Schedule 8: 'Investments'.

Investments classified as AFS is fair valued on daily basis. The valuation gains and losses across all performing
investments, irrespective of classification, held under AFS is aggregated. The net appreciation or depreciation
is directly credited or debited to a reserve named AFS-Reserve (net of Taxes) without routing through the Profit
& Loss Account. Any discount or premium on the acquisition of debt securities under AFS is amortised over the
remaining life of the instrument. The amortised amount is reflected in the financial statements under sub head
'Income on Investments' of Schedule 13: 'Interest Earned' with a contra in Schedule 8:'Investments'.

Amortisation of discount/premium is applicable only for investments and not for short positions.

The AFS-Reserve is reckoned as Common Equity Tier (CET) 1 subject to applicable clauses of the said Directions.
The unrealised gains transferred to AFS-Reserve are not available for any distribution such as dividend and
coupon on Additional Tier 1.

In the case of equity instruments designated under AFS at the time of initial recognition, any gain or loss on sale
of such investments is not transferred from AFS-Reserve to the Profit and Loss Account. Instead, such gain or
loss is transferred from AFS-Reserve to the Capital Reserve.

The securities held in FVTPL are fair valued and the net gain or loss arising on such valuation are directly credited
or debited to the Profit and Loss Account. Securities that are classified under the FVTPL are fair valued on a
daily basis.

Any discount or premium on the acquisition of debt securities (securities that meet the SPPI criterion) under
FVTPL is amortised over the remaining life of the instrument. The amortised amount is reflected in the
financial statements under sub head 'Income on Investments' of Schedule 13: 'Interest Earned' with a contra in
Schedule 8: 'Investments'.

For the purpose of the valuation of Investment and its related accounting in the system Bank uses the last available
observable inputs on the day of valuation i.e. prices, yield curves, spreads, NAV, etc. which are published by
FBIL, FIMMDA, NSE & BSE, AMFI, ARC etc.

Treasury bills, commercial papers and certificates of deposit are valued at carrying cost including the pro rata
discount accreted for the holding period.

On sale of stressed assets, if the sale is at a price below the net book value, the shortfall is charged to the Profit
and Loss Account and if the sale is for a value higher than the net book value, the excess is credited as profit
to the Profit and Loss Account in the year when the initial consideration received in cash and / or redemption or
transfer of security receipts issued by Securitisation company ('SC') / Reconstruction Company ('RC') is higher
than the net book value of the loan at the time of transfer.

In respect of stressed assets sold under an asset securitisation, where the investment by the bank in security
receipts ('SRs') backed by the assets sold by it is more than 10 percent of such SRs, provisions held on the
SRs are higher of the provisions required in terms of net asset value declared by the SC / RC and provisions as
per the extant norms applicable to the underlying loans, notionally treating the book value of these SRs as the
corresponding stressed loans assuming the loans remained in the books of the Bank.

The fair value for the quoted securities is the prices declared by the Financial Benchmarks India Private Ltd.
(FBIL). For securities whose prices are not published by FBIL, the fair value of the quoted security is based
upon quoted price as available from the trades/ quotes on recognised stock exchanges, reporting platforms or
trading platforms authorized by RBI/SEBI or prices declared by the Fixed Income Money Market and Derivatives
Association of India (FIMMDA). Unquoted Central / State Government securities is valued on the basis of the
prices/ YTM rates published by the FBIL.

Unquoted debentures and bonds are valued by applying the appropriate mark-up over the YTM rates for Central
Government Securities as put out by FBIL/FIMMDA.

Equity shares for which current quotations are not available i.e., which are classified as illiquid or which are not
listed on a recognised exchange, the fair value is the break-up value (without considering 'revaluation reserves',
if any) which is ascertained from the company's latest audited balance sheet. The date as on which the latest
balance sheet is drawn up is not precede the date of valuation by more than 18 months. In case the latest audited
balance sheet is not available or is more than 18 months old, the shares are valued at ? 1 per company.

Investment in un-quoted mutual fund units are valued at latest available re-purchase price as declared by the
mutual fund is respect of each scheme.

In case of funds with a lock-in period or any other Mutual Fund, where repurchase price/ market quote is not
available, Units are valued at Net Asset Value (NAV). If NAV is not available, these are valued at cost, till the end
of the lock-in period.

The valuation of investments includes securities under repo transactions.

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. Further, any MTM appreciation in the security is ignored. Interest on
non-performing investments is not recognised in the Profit and Loss Account until received. Provision on NPI
is higher of the following amounts:

i. The amount of provision required as per IRAC norms computed on the carrying value of the investment
immediately before it was classified as NPI; and

ii. The depreciation on the investment with reference to its carrying value on the date of classification as NPI.

v. Transition date accounting

Transition to the new guidelines of RBI as at April 01, 2024

As on the date of transition, the Bank followed:

i. The securities under the earlier categories, viz HTM, AFS and HFT were classified under new categories HTM,
AFS and FVTPL (including FVTPL-HFT).

ii. The balance in provision for depreciation, as at March 31, 2024, was reversed into the General Reserve.

iii. Amortisation of discounted securities of HTM Portfolio (from last purchase date to March 31, 2024) was
accounted through debit the Investment ledger and credit the General Reserve ledger.

iv. Securities in AFS and FVTPL portfolio were transferred at market value. Also, the difference between the
book value as on March 31, 2024 and the market value was accounted in General Reserve.

vi. Disposal of investments

Profit / Loss on sale of investments under AFS (other than Equity) and FVTPL category are recognised in the Profit
and Loss Account on sale or maturity of security in AFS category, the accumulated gain/ loss for that security
in the AFS-Reserve is transferred from the AFS-Reserve and recognized in the Profit and Loss Account under
sub head Profit / (Loss) on sale of investments (net) under Schedule 14-Other Income.

In any financial year, the carrying value of investments sold out of HTM does not exceed five percent of the
opening carrying value of the HTM portfolio (Except exclusions given in the applicable provisions of the Reserve
Bank of India (Small Finance Banks - Classification, Valuation and Operation of Investment Portfolio) Directions,
2025). Any sale beyond this threshold requires prior approval from DoS, RBI.

Any profit or loss on the sale of investments in HTM is recognized in the Profit and Loss Account under sub head
Profit / (Loss) on sale of investments (net) of Schedule 14 : 'Other Income'. The profit on sale of an investments
in HTM is appropriated below the line from the Profit and Loss Account to the 'Capital Reserve Account'. The
amount so appropriated is net of taxes and the amount required to be transferred to Statutory Reserve.

vii. Investment Fluctuation Reserve

To build up adequate reserves to protect against increase in yields in future, the Bank has created an Investment
Fluctuation Reserve (IFR) to the extent of the lower of following:

a. net profit on sale of investments during the year;

b. net profit for the year less mandatory appropriations.

As per the RBI Directions, this reserve is to be created until the amount of IFR is at least 2 percent of the FVTPL
(including FVTPL-HFT) and AFS portfolio, on a continuing basis.

Bank is permitted to draw down the balance available in IFR in excess of two percent of its AFS and FVTPL (including
FVTPL-HFT) portfolio, for credit to the balance of profit/loss as disclosed in the Profit and Loss account at the
end of any accounting year.

viii. Repo and reverse repo transactions

Repurchase ('repo') and reverse repurchase ('reverse repo') transactions including liquidity adjustment facility
(with RBI) accounted for as borrowing and lending transactions. Accordingly, securities given as collateral under
an agreement to repurchase them are held under the investments of the Bank and the Bank is accruing the
coupon/discount on such securities during the repo period.

The Bank value the securities sold under repo transactions as per the investment classification of the securities.
The difference between the clean price of the first leg and clean price of the second leg is recognised as interest
income/expense over the period of the transaction in the Profit and Loss Account.

E. Transactions involving foreign exchange and derivative contracts

Initial recognition

Transactions in foreign currencies entered into by the Bank are accounted at the exchange rates prevailing on the
date of the transaction or at rates that closely approximate the rate at the date of the transaction.

Measurement at the Balance Sheet date

Foreign currency monetary items, if any, of the Bank, outstanding at the balance sheet date are restated at the
rates prevailing as at Balance sheet date as notified by Foreign Exchange Dealers Association of India ('FEDAI').
Non-monetary items of the Bank are carried at historical cost.

Contingent liabilities on account of foreign exchange and Derivative contracts, guarantees, letters of credit, acceptances,
endorsements and other obligations denominated in foreign currencies are reported at closing rates of exchange
notified by FEDAI as at the Balance Sheet date.

Treatment of Exchange differences

Exchange differences arising on settlement / restatement of foreign currency monetary assets and liabilities of the
Bank are recognised as income or expense in the Profit and Loss Account.

Foreign exchange and derivative contracts

Derivative transactions comprise foreign exchange contracts, forward rate agreements, swaps and option contracts.
The Bank undertakes derivative transactions for market making/trading and Bank book transactions on-balance
sheet assets and liabilities. All market making/trading transactions are mark to market on daily basis and the resultant
unrealized gains/losses are recognized in the profit and loss account.

The gain or loss arising on cancellation/termination of the contracts is accounted for in the profit and loss account.

Outstanding forward exchange contracts (including funding swaps which are not revalued) are revalued on a daily
basis on Present Value basis by discounting the forward value till present date. The contracts of longer maturities
where exchange rates are not notified by FEDAI are revalued based on the forward exchange rates implied by the
swap curves in respective currencies. The resultant gains or losses are recognised in the profit and loss account.

Premium/discount on Bank book transactions is recognised as interest income/expense and is amortised on a pro¬
rata basis over the underlying swap period.

Derivatives are classified as assets when the fair value is positive (positive marked to market) or as liabilities when
the fair value is negative (negative marked to market).

Notional amounts of derivative transactions comprising of swaps, futures and options are disclosed as off-Balance
Sheet exposures.

Pursuant to RBI guidelines, any overdue receivables representing positive mark-to-market value under derivative
contracts which remain unpaid for a period of 90 days or more from the specified due date for payment is a Non¬
Performing Asset and the mark-to-market unrealised gains on all derivative contracts already taken in the profit and
loss account with the same counterparties are reversed and held in Suspense Account-Crystallised Receivables.

F. Employee Benefits

Employee benefits include Provident Fund, National Pension Scheme (NPS), Gratuity and Compensated Absences.
Defined contribution plan:

Provident Fund

The Bank's contributions to provident fund are considered as defined contribution plan and are charged as an
expense as they fall due based on the amount of contribution required to be made when the services are rendered by
the employees.

National Pension Scheme (NPS)

In respect of employees who opt for contribution to the NPS, the Bank contributes certain percentage of the basic
salary of employees to the aforesaid scheme, which is a defined contribution plan, and is managed and administered
by pension fund management companies. The Bank has no liability other than its contribution, and recognises such
contributions as an expense in the year incurred.

Defined Benefits Plan

Gratuity

For defined benefit plans in the form of gratuity fund, the cost of providing benefits is determined using the Projected
Unit Credit method, with actuarial valuations being carried out by an independent actuary as at the Balance Sheet
date. Actuarial gains and losses are recognised in the Profit and Loss Account in the period in which they occur.
Past service cost is recognised immediately to the extent that the benefits are already vested while otherwise,
it is amortised on a straight-line basis over the average period until the benefits become vested. The retirement
benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation
as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets. Any asset resulting
from this calculation is limited to past service cost, plus the present value of available refunds and reductions in
future contributions to the schemes.

Compensated absences-Long term Employee benefits

The Bank accrues the liability for compensated absences based on actuarial valuation as at the Balance Sheet date
conducted by an independent actuary which includes assumptions about demographics, early retirement, salary
increases, interest rates and leave utilisation. The net present value of the Bank's obligation is determined using the
Projected Unit Credit Method as at the Balance Sheet date. Actuarial gains/losses are recognised in the Profit and
Loss Account in the year in which they arise.

Other Employee benefits

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered
by employees are recognised during the year when the employees render the service. These benefits include
performance incentive.

Share based payments

The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with Securities and Exchange Board of
India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 and RBI guidelines to the extent applicable.
The Schemes provide for grant of options on equity shares to employees of the Bank to acquire the equity shares
of the Bank that vest in a cliff vesting or in a graded manner and that are to be exercised within a specified period.

In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity)
Regulations, 2021 and the Guidance Note on Accounting for Employee Share-based Payments, issued by The
Institute of Chartered Accountants of India, the cost of equity-settled transactions is measured using the intrinsic
value method. The intrinsic value being the excess, if any, of the fair market price of the share under ESOSs over
the exercise price of the option is recognised as deferred employee compensation with a credit to Employee's Stock
Option (Grant) Outstanding account. The deferred employee compensation cost is amortised on a straight-line basis
over the vesting period of the option. The cumulative expense recognized for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of
equity instruments that are outstanding. The fair market price is the latest available closing price preceding the date
of grant of the option, on the stock exchange on which the shares of the Bank are listed.

In accordance with the Reserve Bank of India (Small Finance Banks - Governance) Directions, 2025 (including
provisions relating to remuneration of Whole Time Directors/MD&CEO, Material Risk Takers and Control Function
staff) and RBI circular RBI/2021-22/95 DOR.GOV.REC.44/29.67.001/2021-22 "Guidelines on Compensation of Whole
Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function staff - Clarification" dated August
30, 2021, Share-linked instruments granted to Whole Time Directors/ Chief Executive Officers/ Material Risk Takers
and Control Function staff after the accounting period ending March 31, 2021, is fair valued on the date of grant
using Black-Scholes model.

The fair value method is followed for all share-linked instruments granted after March 31, 2024. The fair value of
the option is estimated on the date of grant using Black-Scholes model and is recognised as deferred employee
compensation with a credit to Employee's Stock Option (Grant) Outstanding account.

The options that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee
compensation expense, equal to the amortised portion of value of lapsed portion. In respect of the options which
expire unexercised the balance standing to the credit of Employee's Stock Option (Grant) Outstanding accounts is
transferred to General Reserve.

G. Revenue recognition

i. Interest Income is recognized on a time proportion accrual basis taking into account the amount outstanding and
the interest rate implicit in the underlying agreements. Income or any other charges on non-performing assets or
on assets taken in custody for recovery of loan through disposal of such assets during the period are recognized
only when realized, in accordance with the Reserve Bank of India (Small Finance Banks - Income Recognition,
Asset Classification and Provisioning) Directions, 2025. Any such income recognized and remaining unrealized,
before the asset became non-performing or before disposal of assets in custody of the company, is reversed.
Penal interest (which was accrued till implementation of "fair lending practice - penal charges in loan accounts")
is recognized on realization basis due to the uncertainty of their realization.

ii. In case of CCOD and Credit card, Service charges, fees and commission income are recognised when due.
Commission income on guarantee and letter of credit is recognised over the period of contract.

iii. Income on discounted instruments are recognised over the tenure of the instrument on a constant yield basis.

iv. Loan origination income i.e. processing fee and other charges are collected upfront and recognised at the
inception of the loan.

v. All other charges such as EMI bounce charges, cheque return charges, penal charges, legal charges, seizing
charges, etc. are recognised on realisation basis, due to the uncertainty of their realisation.

vi. Dividend income is recognized on an accrual basis when the right to receive the dividend is established.

vii. Interest income on deposits with banks and other financial institutions are recognised on a time proportion
accrual basis taking into account the amount outstanding and the rate applicable.

viii. Interest income on investments and other instruments is recognised on accrual basis.

ix. Gains arising on securitisation of assets is recognised over the tenure of securities issued by SPV in accordance
with the Reserve Bank of India (Small Finance Banks-Securitisation Transactions) Directions, 2025. Income
from excess interest spread is accounted for net of losses when redeemed in cash. Expenditure in respect of
securitisation (except bank guarantee fees for credit enhancement) is recognised upfront. Bank guarantee fees
for credit enhancement is amortised over the tenure of the agreements. Income arising on direct assignment /
other permitted transfer arrangements is recognised over the tenure of agreement on accrual basis in accordance
with the applicable RBI framework, including the Reserve Bank of India (Small Finance Banks - Transfer and
Distribution of Credit Risk) Directions, 2025.

x. Amounts recovered against debts written off in earlier years and provisions no longer considered necessary in
the context of the current status of the borrower are recognised in the Profit and Loss Account.

xi. Fees received on sale of Priority Sector Lending Certificates is recognised on proportionate basis during the financial
year and considered as Miscellaneous Income, in accordance with the guidelines issued by the RBI and amortised on
quarterly basis.

H. Reward Points

The Bank estimates the probable redemption of reward points and cost per point using an actuarial method by
employing an independent actuary, which includes assumptions such as mortality, redemption and spends etc.

I. Accounting for leases
Operating Leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term
is classified as operating leases. Operating lease rentals are recognised as an expense on straight-line basis over
the lease period in accordance with the AS 19, Leases.

J. Taxation

Tax expenses comprises of current income tax and deferred tax.

Income tax

Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the
Income-tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date. Current income tax relating to items recognised directly in
equity is recognised in equity and not in Profit and Loss Account.

Deferred taxes

Deferred taxes reflect the impact of timing differences between taxable income and accounting income originating
during the current year and reversal of timing differences for the earlier years. Deferred tax is measured using the
tax rates and the tax laws enacted or substantively enacted at the reporting date. Deferred tax relating to items
recognised directly in equity is recognised in equity and not in the Profit and Loss Account.

Deferred tax liabilities are recognised for all taxable timing differences. Deferred tax assets are recognised for
deductible timing differences 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 realized. In situations where the Bank has
unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that they can be realized against future taxable profits.

The carrying cost of the deferred tax assets are reviewed at each balance sheet date. The Bank writes down the
carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the
case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised.
Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.