1.1 Bank of Maharashtra (the Bank) is governed by the Banking Regulation Act, 1949 and The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
1.2 Basis of Preparation of Financial Statements:
The financial statements are prepared under the historical cost conventions with fundamental accounting assumptions of going concern, consistency, and accrual,except as otherwise stated and conform to the Generally Accepted Accounting Principles (GAAP) which include statutory provisions, practices prevailing within the Banking Industry in India, the regulatory/ Reserve Bank of India ("RBI") guidelines, applicable Accounting Standards/ Guidance Notes issued by the Institute of Chartered Accountants of India (ICAI). The financial statements have been prepared in accordance with requirements under the Third Schedule of the Banking Regulation Act, 1949.
1.3 Use of Estimates :
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of Assets and Liabilities (including contingent liabilities) as of the date of financial statements and reported income and expenses for the year under report. Management is of the view that the estimates used in the preparation of financial statements are prudent and reasonable. Future results could differ from these estimates. Any revisions to the accounting estimates shall be recognized prospectively unless otherwise stated
1.4 Revenue and costs are accounted for on accrual basis except as stated in para 6.1 below
1.5 The accounting policies with regard to Revenue Recognition, Investments and Advances are in conformity with the prudential accounting norms and guidelines issued by Reserve Bank of India from time to time
2.1. The foreign currency transactions are translated at the weekly average closing rates for the preceding week as published by Foreign Exchange Dealers' Association of India (FEDAI). Revaluation of foreign currency assets and liabilities as on Balance Sheet date is done at the closing exchange rate published by FEDAI and the resultant profit/loss is accounted for in the Profit & Loss Account.
2.2. Outstanding Forward Foreign Exchange Contracts are stated at contracted rates and revalued/ marked to market as on quarterly basis and on Balance Sheet date at the exchange rates published by FBIL for specified maturities by discounting the same at the Modified MIFOR rate published by Financial Benchmarks India Pvt. Ltd. [FBIL] i.e. on PV01 basis. The resulting profit/loss, on revaluation, is recognized in the Profit &
Loss Account in accordance with RBI / FEDAI guidelines and the effect is taken to "Other Assets" in case of gain or to "Other Liabilities" in case of loss. .
2.3. Contingent Liabilities on account of Guarantees and Letters of Credit issued in foreign currency are stated in the Balance Sheet at the closing exchange rates published by FEDAI
2.4. Credit exposure of the un-hedged foreign currency exposure, if any, of the constituents shall attract provisioning and capital requirements as per RBI guidelines.
As per Reserve Bank of India guidelines, the investments are classified and valued as under:
3.1. Investments are classified in the following categories:
• Held to Maturity (HTM)
• Available for sale (AFS)
• Fair Value through Profit and Loss (FVTPL) with subcategory of Held for trading (HFT)
All investments in subsidiaries, associates and joint ventures is held in a distinct category separate from above category.
3.2. All the investments are further classified in the following six baskets in conformity with the requirement of Form-A of Third Schedule to the Banking Regulation Act, 1949:
• Government Securities
• Other approved Securities
• Shares
• Debentures and Bonds
• Subsidiaries and Joint Ventures
• Others (Commercial Papers, Mutual Fund Units etc.)
3.3. Bank decides the category of each investment at the time of acquisition and classifies the same accordingly. All investments are measured at fair value on initial recognition. Unless facts and circumstances suggest that the fair value is materially different from the acquisition cost, then the acquisition cost is taken as the fair value. Any discount or premium on securities under HTM, AFS, and FVTPL is amortized over the remaining life of the instrument. Any sale from HTM (within limit of 5%) is as per Board approved policy. The bank has categorized its investment portfolio into three fair value hierarchies viz Level 1, Level 2, and Level 3
3.4. REPO/ Reverse REPO
The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of market Repo and Reverse Repo transactions. Repo and Reverse Repo transactions are treated as Collateralized Borrowing / Lending Operations with an agreement to repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investment and Securities purchased under Reverse Repo are not included in investment. Outstanding Repo / Term Repo is disclosed as borrowing and outstanding Reverse Repo is disclosed as lending. Costs and revenues are accounted for as interest expenditure / income, as the case may be.
3.5. Cost of investments is determined on the basis of Weighted Average Price method.
Interest paid for broken period / interest received for broken period at the time of purchase / sale of fixed income securities is treated as revenue expenditure / income.
Brokerage / incentive received / paid at the time of purchase/sale of investment is deducted / added from the amount of investment.
3.6. Valuation of investments:
a. Held to Maturity:
i. Securities under the category 'Held to Maturity' is acquired with the intention and objective of holding it to maturity i.e. the financial assets are held with an objective to collect the contractual cash flows. The contractual terms of the security give rise to cash flows that are solely payment of principal and interest on principal outstanding ("SPPI criterion") on specified date.
ii. Securities held in HTM is carried at cost and not be marked to market (MTM) after initial recognition. Any discount or premium on the securities under HTM is amortized over the remaining life of the instrument.
iii. Any profit or loss on the sale of investments in HTM is recognized in the profit and loss account unde item II of Schedule 14 Other Income. The profit on sale of an investment 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
b. Available for Sale:
i. Securities under the category 'Available for Sale' is acquired with an objective that is achieved by both collecting contractual cash flows and selling securities.
ii. The securities held in AFS is fair valued at least on quarterly basis. Any discount or premium on the acquisition of debt securities under AFS is amortized over the remaining life of the instrument. The valuation gains and losses across all performing investments, irrespective of classification (i.e. Government Securities, other approved securities, bonds and debentures, etc) held under AFS is aggregated.
iii. The net appreciation or depreciation is directly credited or debited to a reserve named AFS Reserve.
iv. Upon sale or maturity of any instrument 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. In case of equity instrument, any gain or loss on sale of such investment is transferred from AFS Reserve to the Capital Reserve.
c. Fair Value Through Profit & Loss:
i. Securities that do not qualify for inclusion in HTM or AFS is classified under FVTPL.
ii. The securities held in FVTPL is fair valued and the net gain or loss arising on such valuation is directly credited or debited to the Profit and Loss Account.
iii The securities that are classified under the HFT sub-category within FVTPL is fair valued on a daily basis, whereas other securities in FVTPL is fair valued at least on a quarterly, if not on a more frequent basis.
iv Any discount or premium on the acquisition of debt securities under FVTPL is amortized over the remaining life of the instrument.
3.7. Derivatives:
Interest Rate Swaps:
i. Valuation:
a) Hedging Swaps: : Interest Rate Swaps for hedging assets and liabilities are not marked to market.
b) Trading Swaps: : Interest Rate Swaps for trading purpose are marked to market
ii. Accounting of income on derivative deals:
a) Hedging Swaps: : Income is accounted for on realization basis. Expenditure, if any, is accounted for on accrual basis, if ascertainable
b) Trading Swaps: Income or expenditure is accounted for on realization basis on settlement date
iii. Accounting of gain or loss on termination of swaps:
a) Hedging Swaps: Any gain or loss on the terminated swap is recognized over the shorter of
(a) the remaining contractual life of the swap or
(b) the remaining life of the asset/ liability.
b) Trading Swaps: Any gain or loss on terminated swap is recognized as income or expenditure in the year of termination.
3.8. Investment Fluctuation Reserve & Investment Reserve Account:
As per RBI master direction vide circular RBI/DOR/2023-24/1 04 DOR.MRG.36/21.04.141/2023-24 dated 12.09.2023, Investment Fluctuation Reserve (IFR) to be created until the amount of IFR is at least 2% of AFS and FVTPL (Including HFT) portfolio, on continuous basis, by transferring to the IFR of an amount not less than the lower of the following:
a) Net profit on sale of Investments during the year or
b) Net profit for the year less mandatory appropriations.
Bank has been permitted to draw down the balance from IFR in excess of 2% of its AFS and FVTPL (including 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 subject to the conditions stipulated in RBI guidelines.
4.1. Advances are disclosed net of write offs, provisions made for non-performing assets, claims settled with the credit guarantee institutions, provision for diminution in fair value for restructured advances and bills rediscounted
4.2. Classification of advances and provisions thereon are made in accordance with the prudential norms prescribed by and guidelines of RBI from time to time, except in respect of following category of advances, provision on NPAs are made higher than the rate prescribed by RBI -
• Sub-Standard - 20%
• Doubtful Assets One to three years - 50% on
secured portion
4.3. Provision for performing assets, is shown under the head "Other liabilities and provisions".
4.4. In respect of advances under SDR, provision is made in accordance with RBI guidelines, within a maximum period of four quarters
4.5. In case of financial assets sold to Asset Reconstruction Company (ARC)/ Securitization Company (SC), if the sale is at a price higher than the NBV, the surplus is retained and utilised to meet the shortfall/loss on account of sale of other financial assets to SC/ARC. If the sale is at a price below the net book value (NBV), (i.e. outstanding less provision held) the shortfall is to be debited to the Profit and Loss account. However, if surplus is available, such shortfall will be absorbed in the surplus. Any shortfall arising due to sale of NPA will be amortised over a period of two years if not absorbed in the surplus.
Excess provision arising out of sale of NPAs are reversed only when the cash received (by way of initial consideration only/or redemption of SRs/PTC) is higher than the net book value (NBV) of the asset. Reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset.
5.1. Premises and Other Fixed Assets are carried at cost less accumulated depreciation/ amortization, except for certain premises, which were revalued and stated at revalued amount.
Cost includes cost of purchase, taxes as per GST law and all expenditure such as site preparation, installation costs and professional fees incurred on the asset before it is put to use. Subsequent expenditure(s) incurred on the assets put to use are capitalised only when it increases the future benefits from such assets or their functioning capability
5.2. Depreciation on fixed assets is provided for at the rates specified below, so as to write down value of assets to Rupee One over the residual life of the assets
5.3. In respect of assets acquired during the year, depreciation is provided on proportionate basis for the number of days the assets have been put to use during the year.
Similarly, in respect of assets sold / discarded during the year, depreciation is provided on proportionate basis till the number of days the assets had been put to use during the year
5.4. Eligible fixed assets are revalued once in every three years. Revalued portion of fixed assets net of salvage value (over and above the cost of fixed assets) is depreciated on straight line method over the residual life of the assets as certified by approved valuers at the time of valuation.
Revaluation reserve pertaining to lease hold lands, is amortised on straight line method over the residual life of the lease period.
Depreciation on revalued portion of fixed assets, over and above the cost is debited to Profit & Loss account. Amount of Revaluation Reserve to the extent of depreciation related to revalued portion of fixed assets over and above the cost debited to profit & loss account is transferred to Revenue Reserve from Revaluation Reserve.
5.5. In respect of leasehold premises, the lease premium, if any, is amortised over the period of lease on SLM basis in accordance with AS 19.
6.1. All revenues and costs are accounted for on accrual basis except the following items, which are accounted for on cash basis:
a. Interest on Advances and Investments identified as Non-Performing Assets according to the prudential norms and guidelines issued by RBI, from time to time.
b. Income from commission like on Government business, Mutual Fund business, credit & debit cards issued, Annual maintenance charges for cards and Locker Rent.
c. Interest for overdue period on bills purchased and bills discounted.
d. Insurance claims
e Remuneration on Debenture Trustee Business. f Loan Processing Fees.
g Income from Merchant Banking Operations and
Underwriting Commission.
h Transaction processing fees received on utility bill pay services through internet banking
6.2. Pursuant to RBI guidelines, the interest payable on overdue term deposit is provided on accrual basis at rate of interest as applicable to saving account or contracted rate of interest on the matured TD, whichever is lower from 02.07.2021
Defined Contribution Plan: The contribution paid/ payable under defined contribution benefit schemes are charged to Profit & Loss Account.
Defined Benefit Plans: All eligible employees are entitled to receive benefits under the Bank's Gratuity, Pension & Privilege Leave schemes which are valued based on the principles laid down in AS -15, Employees Benefit (Revised) issued by Institute of Chartered Accountants of India. Bank's liabilities towards defined benefit schemes are determined by way of provisions and adjusted on the basis of an actuarial valuation report provided by the Actuaries appointed by the bank and made at the end of each quarter/financial year. Actuarial gains and losses are recognized in the Profit & Loss Account.
Other Employee Benefits such as Leave Fare Concession, Silver jubilee Award, resettlement allowance, and retirement benefit are also provided based on Actuarial valuation.
The Bank recognizes Business Segment as its Primary Segment in compliance with the RBI Guidelines and in compliance with the Accounting Standard 17 issued by ICAI
Impairment losses if any, on fixed assets including revalued fixed assets are recognized in accordance with Accounting Standard 28- Impairment of Assets issued by the ICAI and charged to Profit & Loss Account. Assets are reviewed for Impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable
As per the Accounting Standard 29-"Provisions, Contingent Liabilities and Contingent Assets" issued by ICAI, the Bank recognizes provisions only when it has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.
Contingent Liability is disclosed unless the possibility of an outflow of resources embodying economic benefit is remote.
Contingent assets are not recognized in the financial statements since this may result in the recognition of the income that may not be realized.
The Net Profit disclosed is after making the Provisions and Contingencies which include adjustment to the value of investments, write off of bad debts, provision for taxation (including deferred tax), and provision for advances including cases identified as fraud and contingencies /others
The provision for tax for the year comprises liability towards current Income Tax, and Deferred Tax. The deferred tax asset/ liability is recognized, subject to the consideration of prudence, taking into account the timing differences between the taxable income and accounting income, in terms of the Accounting Standard 22 issued by ICAI. The effect of change in tax rates on deferred tax assets and liabilities is recognized
in the Profit & Loss Account in the period of applicability of the change.
Deferred tax assets and liabilities are measured using the applicable tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax assets are recognized and re-assessed at each reporting period based on management judgement as to whether their realization is considered as reasonably certain.
In cases of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence.
Interest income on refund of Income Tax is accounted for in the year in which; the order is passed by the concerned authority.
The demand raised by the Tax authorities including the interest thereon is provided for when such demand is accepted by the bank and the same is not contested before appellate authority OR when such demand is upheld by jurisdictional tribunal and there is no favorable judgement of other tribunal on identical issue and bank does not prefer to go before High Court OR when such demand is upheld by high Court.
The bank reports basic and diluted earnings per equity share in accordance with the Accounting Standard (AS-20) "Earnings Per Share" issued by ICAI. Basic Earnings per share is arrived by dividing net profit after tax with the weighted average number of equity shares outstanding for the year. The diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the year.
Diluted earnings per share reflects the potential dilution that could occur in earnings per share if securities or other contracts to issue equity share are exercised or converted during the year.
Cash and cash equivalents include Cash and Balances with RBI, Balances with Banks and money at call and short notice
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