1 CORPORATE INFORMATION
Capital Small Finance Bank Limited ('the Bank') is publicly held banking company, domiciled in India. The Bank is
governed by the Banking Regulation Act, 1949, banking guidelines issued by the RBI on Small Finance Bank 2016, and
the Companies Act, 2013.
The Bank had originally obtained its license from Reserve Bank of India ('RBI') to operate as a Capital Local Area Bank.
The name of the Bank has been included in the Second Schedule to the Reserve Bank of India Act, 1934 vide Reserve
Bank of India ('the RBI' or 'RBI') notification dated February 16, 2017. Headquartered in Jalandhar, Punjab, Capital Small
Finance Bank began operations as India's first small finance bank (SFB) in April 2016 after conversion from Capital Local
Area Bank. The Bank is engaged in providing a wide range of banking and financial services including retail & commercial
banking and treasury operations. The Bank operates in India and does not have any branch outside India.
2 BASIS OF PREPARATION
The accompanying financial statements have been prepared under the historical cost convention and on accrual basis
except where otherwise stated, and in compliance with the generally accepted accounting principles in India ("Indian
GAAP") and in accordance with statutory requirements prescribed under the Banking Regulation Act 1949, circulars and
guidelines issued by the RBI from time to time (RBI guidelines), Accounting Standards ("AS") referred to in Section 133 of
the Companies Act, 2013 (the Act) read with the Companies (Accounting Standards) Rules, 2021 to the extent applicable
and practices prevailing within the banking industry in India. The financial statements are presented in Indian Rupees
rounded off to the nearest thousands unless otherwise stated.
3 USE OF ESTIMATES
The preparation of financial statements in conformity with Indian GAAP requires management to make estimates
and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and
the reported income and expenses during the year. The management believes that the estimates used in preparation
of financial statements are prudent and reasonable. Actual results could differ from estimates and the differences
between the actual results and the estimates are recognised prospectively from the period of change unless otherwise
stated.
4 FIXED ASSETS AND DEPRECIATION/AMORTISATION
I. Fixed Assets
4.1 Fixed assets are stated at cost, net of accumulated depreciation and accumulated impairment if any. The cost of an
asset comprises its purchase price and any cost directly attributable to bringing the asset to its working condition
and location for its intended use. Subsequent expenditure on fixed assets after its purchase is capitalised only
if such expenditure results in an increase in the future benefits from such asset beyond its previously assessed
standard of performance.
4.2 An item of fixed assets is derecognised on disposal or when no future economic benefits are expected from its use
or disposal. The gain or loss arising on de-recognition is recognised in the Profit and Loss account.
4.3 Gains or losses arising from disposal or retirement of tangible fixed assets are measured as the difference between
the net disposal proceeds and the carrying amount of the asset and are recognised on net basis, within "Other
Income" as Profit/(Loss) on sale of fixed assets, as the case maybe, in the Profit and Loss account in the year/
period of disposal or retirement.
4.4 Profit on sale of immovable property net of taxes and transfer to statutory reserve, are transferred to capital reserve
account in terms of the RBI guidelines.
II. Depreciation and Amortisation
4.5 Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated
residual value. Depreciation on tangible fixed assets has been provided on the straight-line method as per the
useful life prescribed in Schedule II to the Companies Act, 2013. Leasehold improvements are depreciated over the
duration of the primary lease period or useful life whichever is less. Software and system development expenditure
is amortised over a period of 5 years.
4.6 Intangible assets are amortised on a straight-line basis over their estimated useful life. The amortisation period is
reviewed at the end of each financial year and the amortisation period is revised to reflect the changed pattern, if
any.
4.7 The useful life of depreciation for key fixed assets is based on historic experience of the Bank, which is different
from the useful life as prescribed in Schedule II of Companies Act, 2013 are as follows:
4.9 Assets purchased/sold during the year/period are depreciated on a pro-rata basis.
4.10 Assets individually costing up to ' 5,000/- are depreciated fully in the year of acquisition.
5 IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at the Balance Sheet date to determine if there are any indications of
impairment based on internal/external factors. In case of impaired assets, the impairment loss i.e., the amount by which
the carrying amount of the asset exceeds its recoverable value is charged to the Profit and Loss account to the extent
the carrying amount of assets exceeds its estimated recoverable amount. The recoverable amount is the greater of the
assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over
remaining useful life.
6 INVESTMENTS
During the year ended March 31,2025, the Bank has changed its policy on Investments in accordance with RBI guidelines:
Master Direction - Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions)
2023, dated September 12, 2023 effective w.e.f. April 01, 2024. The impact of the change in accounting policy has been
disclosed in note no. 3.2 of Schedule 18. The accounting policy is as follows:
6.1 Categorisation of Investments
The Bank classifies its investment into one of the following three categories:
• Held to Maturity (HTM) - The securities that are acquired with the intention and objective of holding it to
maturity and the contractual terms of the security give rise to cashflows that are solely payment of principal
and Interest (SPPI criteria) on principal outstanding on specified dates.
• Available for Sale (AFS) - The securities that are acquired with the objective of both collecting contractual
cash flows and selling securities and the contractual terms of the securities meet the SPPI criteria.
In case of equity instrument the bank may make an irrevocable election to classify an equity instrument that is
not held with the objective of trading under AFS.
• Fair Value through Profit and Loss (FVTPL) - The securities that do not qualify for inclusion in HTM or AFS are
classified under FVTPL.
Held for Trading (HFT) is treated as a separate investment sub-category within FVTPL.
6.2 Classification of Investments
Under each categorisation, investments in India are further classified under six groups viz., (i) Government Securities,
(ii) Other Approved Securities, (iii) Shares, (iv) Debentures and Bonds, (v) Investments in Subsidiaries, Associates
and Joint Ventures and (vi) Other Investments.
Investments outside India are classified under three groups viz., (i) Government Securities (Including local
authorities), (ii) Subsidiaries, Associates and/or Joint Ventures abroad and (iii) Other Investments.
6.3 Recognition and measurement
6.3.1 Initial recognition and measurement
• All investments are measured at fair value on initial recognition.
• 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 are recognised in the Profit and Loss Account,
under Schedule 14: 'Other Income' within the subhead 'Profit on revaluation of investments' or 'Loss on
revaluation of investments', 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 are amortised on a straight-line basis up to the maturity date (or earliest call date for perpetual
instruments), while for unquoted equity instruments, the gain is set aside as a liability until the security is
listed or derecognised.
6.3.2 Subsequent measurement
• HTM - Securities held in HTM are carried at cost. Any discount or premium on the securities under HTM
are amortised over the remaining life of the instrument. Any profit or loss on the sale of investments in
HTM category is recognised in the Profit and Loss Account. 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.
• AFS - The securities held in AFS are fair valued at least on a quarterly basis. Any discount or premium on
the acquisition of debt securities under AFS are amortised over the remaining life of the instrument. The
net appreciation or depreciation are directly credited or debited to AFS-Reserve. Upon sale or maturity
of a debt instrument in AFS category, the accumulated gain/loss for that security in the AFS-Reserve are
transferred from the AFS-Reserve and recognised in the Profit and Loss Account. In the case of equity
instruments designated under AFS at the time of initial recognition, any gain or loss on sale of such
investments are not transferred from AFS-Reserve to the Profit and Loss Account. Instead, such gain or
loss are transferred from AFS-Reserve to the Capital Reserve.
• FVTPL - 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 HFT
sub-category within FVTPL are fair valued on a daily basis. Any discount or premium on the acquisition of
debt securities under FVTPL are amortised over the remaining life of the instrument.
6.4 Investment fluctuation reserve (IFR)
RBI advised bank to create IFR with effect from FY19. As per RBI guidelines transfer to IFR will be not less
than lower of the following (i) net profit on sale of investments during the year or (ii) net profit for the year less
mandatory appropriations, until the amount of IFR is at least 2% of the AFS and FVTPL (including HFT) portfolio,
on a continuing basis.
6.5 Reclassifications between categories
Reclassification of investments between categories is carried out with approval of Board of Directors and prior
approval of Department of Supervision (DoS), RBI. Any reclassification is applied prospectively from reclassification
date. The Bank may reclassify investment only if such reclassification is necessitated by a significant change in
managing group of investments.
6.6 Valuation of Investments
The fair value for the purpose of initial recognition and periodical valuation of investments is determined as per the
valuation norms laid down in accordance with RBI guidelines.
6.6.1 Quoted Securities - The fair value for the quoted securities are the prices declared by the Financial
Benchmarks India Private Ltd. (FBIL) in accordance with RBI circular FMRD.DIRD.7/14.03.025/2017-18
dated March 31, 2018, as amended from time to time. 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 authorised by RBI/SEBI or prices
declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA).
6.6.2 Unquoted SLR Securities
• Treasury Bills are valued at carrying cost.
• Unquoted Central/State Government securities are valued on the basis of the prices/YTM rates published
by the FBIL.
• Other approved securities are valued applying the YTM method by marking them up by 25 basis
points above the yields of the Central Government Securities of equivalent maturity put out by FBIL.
6.6.3 Unquoted Non-SLR Securities
• 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 for the purposes of these directions is the break-up
value (without considering 'revaluation reserves', if any) which is to be ascertained from the Company's
latest audited balance sheet. 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.
• Other unquoted Non-SLR securities - fair valuation is on the basis of the RBI Master Direction- Classification,
Valuation and Operation of Investment Portfolio of Commercial Bank (Directions), 2023.
6.6.4 In accordance with the RBI guidelines, repurchase and reverse repurchase transactions in government
securities and corporate debt securities are reflected as borrowing and lending transactions respectively.
6.6.5 Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo
transactions are accounted for as interest income.
6.7 Fair Value Measurement
"Fair value" means the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants on the measurement date. The bank classifies its investment portfolio
into three fair value hierarchies viz. Level 1, Level 2, and Level 3 to signify the context of inputs used for valuation of
a financial instrument., described as follows:
"Level 1 investments" are fair valued based on quoted prices (unadjusted) in active markets for identical instruments
that the bank can access at the measurement date.
"Level 2 investments" are fair valued based on are those inputs, other than quoted prices included within Level 1,
that are observable for the asset or liability, either directly or indirectly.
"Level 3 investments" are fair valued at unobservable inputs such as valuation of equity shares in an unlisted
company where break-up value has to be ascertained from the Company's latest audited balance sheet.
6.8 Broken period Interest
Broken period interest on debt instruments is charged to Profit and Loss Account.
6.9 Provision for non-performing investments
The criteria for classification and recognition of non-performing investments are as per the guidelines used to
classify an asset as Non-Performing Asset (NPA) as per the extant Prudential Norms on Income Recognition, Asset
Classification and Provisioning (IRACP) pertaining to Advances.
7 ADVANCES
I. Classification
7.1 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
suspense account and not recognised in the Profit and Loss Account until received.
II. Provisioning
7.2 Specific provisions for non-performing advances and floating provisions are made in conformity with the RBI
guidelines.
7.3 In addition, the Bank considers accelerated provisioning based on past experience, evaluation of securities and
other related factors.
7.4 Provisions on Standard Assets are made @ 0.40% of the outstanding advances. Further, as per the RBI
guidelines, the standard asset provisioning on individual housing loans sanctioned on and after June 07,
2017, is made @ 0.25%. However, provision for banks direct advances to agriculture and SME sectors is made
@ 0.25%, medium enterprises sector is made @ 0.4%, commercial real estate sector is made @ 1% and housing
loans at teaser rates @ 2% in pursuance to the RBI circulars issued from time to time. Further the same is shown
under the head 'Other Liabilities and Provisions'.
7.5 Amounts recovered during the year against bad debts written off in earlier years are credited to the Profit and Loss
account.
7.6 Provision no longer considered necessary in the context of the current status of the borrower as a performing asset,
are written back to the Profit and Loss account to the extent such provisions were charged to the Profit and Loss
account.
7.7 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.
7.8 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 advance/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. Provision for
restructuring is considered at borrower level.
III. Priority Sector Lending Certificates (PSLCs)
7.9 The Bank enters into transactions for the sale/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 net fee received for the sale of PSLCs is recorded as 'Miscellaneous Income'
and the net expense paid on purchase of PSLC is recorded as 'Miscellaneous Expense'.
8 REVENUE RECOGNITION
Income is accounted on Accrual basis except in the following cases:
• Interest income is recognised in the Profit and Loss Account on an accrual basis, except in the case of non¬
performing assets which is recognised when realised.
• Interest which remains overdue for 90 days on securities not covered by Government Guarantee is recognised on
realisation basis as per RBI guidelines.
• Commission (other than on Deferred Payment Guarantees and Government Transactions), Exchange and Brokerage
are recognised on realisation basis. However, Commission, Exchange and Brokerage on loan accounts is recognised
as and when charged to the borrower account.
• Commission on Deferred Payment Guarantees and Government Transactions is recognised on straight-line basis
over the period of contract.
• Dividend income is recognised on an accrual basis when the right to receive the dividend is established.
• Interest income on deposits with banks and other financial institutions are recognised on a time proportion accrual
basis considering the amount outstanding and the rate applicable.
• Interest income on investments is recognised on accrual basis.
• Interest on Overdue Bills is recognised on Realisation Basis as per the RBI guidelines.
9 EMPLOYEE BENEFITS
Employee benefits include Provident Fund, Gratuity, Compensated Absences and Share-based payments.
9.1 Provident Fund: The Bank is covered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952
and accordingly contribution towards provident fund for certain employees is made to the regulatory authorities,
where the Bank has no further obligations. Such benefits are classified as Defined Contribution Schemes as the
they fall due based on the amount of contribution required to be made on monthly basis, when the services are
rendered by the employees. The contributions are charged to Profit and Loss Account.
9.2 Gratuity: The Bank pays gratuity, a defined benefit plan, to employees who retire or resign after a minimum prescribed
period of continuous service. The benefits vest after five years of continuous service. Every employee is entitled to
a benefit equivalent to 15 days' basic salary last drawn for each completed year of service in line with the Payment
of Gratuity Act, 1972.
The Gratuity expense for the period is recognised on the basis of actuarial valuation at the Balance Sheet date. The
present value of the obligation under such benefit plan is determined based on independent actuarial valuation
using the Projected Unit Credit Method which recognises each period of service that gives rise to additional unit of
employee benefit entitlement and measures each unit separately to build up the final obligation. Actuarial losses/
gains are recognised in the Profit and Loss Account in the year in which they arise. Payment obligations under the
Group Gratuity scheme are managed through a fund maintained by ICICI Prudential Life Insurance under separate
Trust set up by the Bank.
9.3 Compensated absences: The compensated absences is a long-term employee benefit. Provision for compensated
absences is made on the basis of actuarial valuation as at the Balance Sheet date. The actuarial valuation is carried
out using the Projected Unit Credit Method.
9.4 Share-based payments: The measurement and disclosure of Employee Stock Options is in accordance with
Guidance Note on Accounting for Share-based Payments issued by the Institute of Chartered Accountants of India.
The cost of equity-settled transactions for stock options granted after the period ending March 31,2021 is measured
using the fair value method and for stock options granted prior to such period, is measured using the intrinsic value
method.
The Bank uses Black-Scholes model to fair value the options on the grant date and the inputs used in the valuation
model include assumptions such as the expected life of the share option, volatility and risk-free rate.
The deferred employee compensation cost is amortised on a straight-line basis over the vesting period of the option.
The cumulative expense recognised 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 expense or credit recognised in the profit and loss account for the period represents the movement in cumulative
expense recognised as at the beginning and end of that period and is recognised in employee benefits expense.
10 LEASE
10.1 Lease arrangements where risk and rewards incidental to ownership of an assets substantially vest with the lessor
are recognised as operating leases.
10.2 Lease rentals under operating lease are charged to the Profit and Loss account on straight line basis over the lease
term in accordance with AS-19, Leases.
11 SEGMENT REPORTING
The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per the RBI
guidelines.
11.1 Business Segment
The Bank's business has been segregated into four segments namely Treasury, Wholesale Banking, Retail Banking
and other Banking Operations.
11.1.1 Treasury - The treasury segment primarily consists of net interest earnings from the Bank's investment
portfolio, borrowing and gains or losses on investment operations and on account of trading in foreign
exchange contracts.
11.1.2 Wholesale Banking - Wholesale Banking includes lending, deposit taking and other services offered to
wholesale customers.
11.1.3 Retail Banking - Retail Banking includes lending, deposit taking and other services offered to retail
customers.
11.1.4 Other Banking Operations - This segment includes income from para banking activities.
11.2 Geographical Segment
Since the business operations of the Bank are primarily concentrated in India, the Bank is considered to operate only
in the domestic segment.
12 EARNINGS PER SHARE
12.1 The Bank reports basic and diluted earnings per equity share in accordance with the AS 20 (Earnings Per Share).
12.2 Basic earnings per share is calculated by dividing the Net Profit or Loss for the year attributable to equity shareholders
by the weighted average number of equity shares outstanding during the year.
12.3 Diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive
potential equity shares outstanding as at end of the year except when its results are anti-dilutive.
13 TAXES
Tax expenses comprise of current and deferred taxes.
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax
Act, 1961.
Deferred tax expense is determined in accordance with the provisions as per AS 22 - Accounting for Taxes on Income.
Deferred taxes reflect the impact of current year timing differences between taxable income and accounting income
for the year and reversal of timing differences of earlier years. 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 are recognised, in general,
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; where there is unabsorbed depreciation and/or carry forward of losses under
tax laws, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that
such deferred tax asset can be realised against future taxable income. Current tax assets and liabilities and deferred
tax assets and liabilities are off-set when they relate to income taxes levied by the same taxation authority, when the
Bank has a legal right to off-set and when the Bank intends to settle on a net basis. Current tax assets and liabilities
and deferred tax assets and liabilities are calculated at the rates u/s section 115BAA of the Income Tax Act, 1961.
Accordingly, as per Section 115JB, Minimum Alternate Tax (MAT) is not applicable.
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