A. BACKGROUND
City Union Bank Limited (the Bank), incorporated in Kumbakonam, India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of Banking and Financial Services including Commercial Banking and treasury operations.
B. BASIS OF PREPARATION
The Financial Statements are prepared under the historical cost convention following accrual basis of accounting, unless otherwise stated, using going concern assumption, and conform in all material aspects to the Generally Accepted Accounting Principles (GAAP) in India, which comprises applicable statutory provisions, regulatory norms / guidelines and extant disclosure norms prescribed by the Reserve Bank of India (RBI), Accounting Standards (AS) issued under Section 133 of the Companies Act, 2013 read together with the Companies (Accounting Standards) Rules, 2021, Banking Regulation Act, 1949 and practices prevalent in the banking industry in India.
USE OF ESTIMATES
The preparation of Financial Statements in conformity with GAAP require the management to make estimates and assumptions in the reported amounts of Assets and Liabilities (including Contingent Liabilities) as of the date of the Financial Statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the Financial Statements are prudent and reasonable. Actual results could differ from these estimates. Any revision in the accounting estimates is recognised prospectively in the current and future periods.
C. SIGNIFICANT ACCOUNTING POLICIES
1. REVENUE RECOGNITION
Income and Expenditure are accounted on accrual basis, except the following;
a. Interest on Non-Performing Advances (NPA) and
Non-Performing Investments (NPI) are recognised upon realisation as per the prudential norms prescribed by RBI.
b. Interest on overdue bills, commission (excluding insurance commission), exchange, brokerage and rent on lockers are accounted on realization.
c. Dividend on equity shares, preference shares and mutual fund units is accounted as income when the right to receive the dividend is established.
In case of suit filed accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.
2. INVESTMENTS
a) Securities classified under "Held to Maturity" category are valued at carrying cost.
b) Securities held in "Available for Sale" Category are valued scrip wise as under:
i) Government of India Securities and State Government Securities are valued at market price as per quotation put out by Financial Benchmark India Limited.
ii) Trustee Securities, Securities guaranteed by Central / State Governments and PSU Bonds are valued on appropriate Yield to Maturity (YTM) basis as per Financial Benchmark India Limited / Reserve Bank of India guidelines.
iii) Treasury Bills / Certificate of Deposits / Commercial Papers are valued at carrying cost.
iv) Unquoted Equity Shares are valued at Break up Value as per the latest Balance Sheet, if available, or '1/- per Company.
For all above investments under AFS, net depreciation / appreciation on revaluation is charged to AFS reserve account.
c) Securities held in "Fair Value Through Profit and Loss (FVTPL) - Non HFT" Category are valued as under.
I. Quoted equity Shares are valued at market rate provided by the NSE. Unquoted shares are valued at Breakup Value as per the latest Balance Sheet, if the latest balance sheet is not available, then the valued at '1/- per Company.
ii. Preference shares are valued at market price if quoted or at appropriate YTM basis as per Financial Benchmark India Limited guidelines.
iii. Debentures / Bonds are valued at market price, if quoted, otherwise on an appropriate YTM basis by using spread matrix provided by FIMMDA.
iv. Mutual Funds are valued at market price, if quoted, or at NAV or Market Price/ Repurchase Price.
For all above investments under FVTPL (Non-HFT) net depreciation / appreciation after revaluation is charged to Profit / Loss Account.
d) Individual scrips under "FVTPL-Held For Trading" category are valued at Market Price.
• Government of India Securities are valued at market price as per quotation put out by Financial Benchmark India Limited.
• Equity Shares are valued at market rate if quoted, otherwise at Break up Value as per the latest Balance Sheet, if available, or Re.1/- per Company.
For all above investments under FVTPL- HFT, net depreciation / appreciation after revaluation, if any, for each asset class is charged to Profit / Loss Account.
In all the above categories, the premium / discount on the dated securities are amortised over the life time of the instrument.
Profit / Loss on sale of Investments from HTM category is first credited to profit and loss account and thereafter an amount equivalent to profit net of statutory reserve and taxes is appropriated to Capital Reserve Account.
Profit / Loss on sale of Investments from AFS/FVTPL/HFT (Other than Equity Shares held under AFS) is taken to profit and loss account. In case of Equity Shares held under AFS, profit / loss on sale of such shares is taken to Capital Reserve without crediting to Profit and Loss Account.
3. LOANS / ADVANCES AND PROVISIONS THEREON
3.1 Advances have been classified as per the Asset Classification norms laid down by the Reserve Bank of India. The required provisioning for Standard Assets and for Non Performing Assets have been made as per the Regulatory Norms.
3.2 Advances shown in the Balance Sheet are net of specific provisions, technical write offs and ECGC / DICGC claims received. Partial recoveries in Non Performing Assets are apportioned first towards charges and interest, thereafter towards principal.
3.3 NPAs are classified into Sub-Standard, Doubtful and Loss Assets based on the following criteria stipulated by RBI :
I. Sub-Standard : A loan asset that has remained non-performing for a period less than or equal to 12 months.
ii. Doubtful : A loan asset that has remained in the sub-standard category for a period of 12 months.
iii. Loss : A loan asset where loss has been identified but the amount has not been fully written off.
3.4 Provisions are made for NPAs as per the extant guidelines prescribed by the regulatory authorities, subject to minimum provisions as prescribed below :
Substandard Assets :
i. A general provision of 15% on the total outstanding ;
ii. Additional provision of 10% for exposures which are unsecured ;
iii. Unsecured Exposure in respect of infrastructure advances where certain safeguards such as escrow accounts are available 20%.
Doubtful Assets :
- Secured portion i. Upto one year - 25%
ii. One to three years - 40%
iii. More than three years - 100%
- Unsecured portion - 100%
Loss Assets:
100% to be provided on the total outstanding;
3.5 Floating Provisions :
The Bank has a policy for creation and utilisation of floating provisions separately for advances, investments and general purposes. The quantum of floating provisions to be created is assessed at the end of the financial year. The floating provisions are utilised only for contingencies under extraordinary circumstances specified in the policy with prior permission of Reserve Bank of India.
3.6 Provision for Country Exposure :
In addition to the specific provisions held according to the asset classification status, provisions are also made for individual country exposures (other than the home country). Countries are categorised into seven risk categories, namely, insignificant, low, moderately low, moderate, moderately high, high and very high and provisioning made as per extant RBI guidelines. 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 exposures. The provision is reflected in Schedules of the Balance Sheet.
3.7 Provision for Unhedged Foreign Currency Exposure :
Provision for Unhedged Foreign Currency Exposure of borrower entities is made considering their Unhedged Exposure to the Bank.
4. FIXED ASSETS, DEPRECIATION & AMORTIZATION
4.1 Premises, Software and Other Fixed Assets are accounted at acquisition cost less depreciation. Cost includes cost of purchase and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to use.
4.2 Capital work-in-progress includes cost of fixed assets that are not ready for their intended use.
4.3 Depreciation has been provided on the composite value for premises acquired with land
and building, where cost of the land is not separately identifiable.
4.4 The Bank has provided depreciation based on useful life of the assets in line with Schedule II of the Companies Act, 2013. Depreciation is charged over the estimated useful life of the fixed asset on a straight-line basis. Depreciation on assets purchased and sold during the year is provided on a pro-rata basis.
5. EFFECTS OF CHANGES IN THE FOREIGN
EXCHANGE RATE
5.1 Assets and Liabilities denominated in Foreign Currencies are translated at the rates notified by FEDAI at the close of the year. Profit or Loss accruing from such transactions is recognised in the Profit and Loss Account.
5.2 Income and Expenditure items have been translated at the exchange rates prevailing on the date of the transactions.
5.3 The Bank does not have a Branch in any Foreign Country.
5.4 Outstanding Forward Exchange Contracts are revalued at the exchange rates notified by FEDAI and the resultant net gain or loss is recognised in the Profit and Loss Account.
5.5 Foreign Currency Guarantees, Acceptances, Endorsements and other obligations are reported at the FEDAI notified closing exchange rates prevailing on the date of the Balance Sheet.
6. EMPLOYEE BENEFITS
6.1 Payments to defined contribution schemes such as Provident Fund and Employees Pension Fund, are charged as expenses, as and when they fall due.
6.2 Provision towards Leave Encashment is accounted on actuarial basis in accordance with Accounting Standard 15 (Revised 2005) issued by ICAI.
6.3 Payments to the Group Gratuity Life Assurance Scheme of the Life Insurance Corporation of India towards gratuity liability are charged as expenses, as and when they fall due.
7. EMPLOYEES STOCK OPTION SCHEME
The Employee Stock Option Scheme provides for grant of equity stock options to employees that vest in a graded manner. The Bank follows the Intrinsic Value Method to account for its employee compensation costs arising from grant of such options. The excess of fair market price over the exercise price shall be accounted as employee compensation cost in the year of vesting. The fair market price is the latest closing price of the shares on the Stock Exchanges in which shares of the Bank are largely traded immediately prior to the date of meeting of the Compensation Committee in which the options are granted.
8. SEGMENT REPORTING
The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.
Business Segment is classified into (a) Treasury (b) Corporate and Wholesale Banking, (c)Retail Banking (includes Digital Banking Units) (d) Other Banking Operations.
9. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit of the year by the weighted average number of equity shares.
Diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares.
10. IMPAIRMENT OF ASSETS
An assessment is made at each Balance Sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for.
11. PROVISIONS, CONTINGENT LIABILITIES AND
CONTINGENT ASSETS
11.1 In conformity with AS 29 "Provisions, Contingent Liabilities and Contingent Assets" issued by the Institute of Chartered Accountants of India, the Bank recognizes provision only when :
a) It has a present obligation as a result of a past event.
b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and
c) A reliable estimate of the amount of the obligation can be made.
11.2 No provision is recognized for :
I. Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Bank; or
ii. Any present obligation that arises from past events but is not recognized because
a) It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or
b) A reliable estimate of the amount of obligation cannot be made.
Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.
11.3 Contingent Assets are not recognized in the Financial Statements.
12. INCOME TAX
Income Tax comprises current tax and deferred tax for the year. The deferred tax assets / liability is recognised in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India.
13. NET PROFIT
The Net Profit disclosed in the Profit and Loss Account is after considering :
a. Provision for taxes on income in accordance with statutory requirements.
b. Provision for Standard Assets and NonPerforming Assets.
c. Provision for depreciation on Investments
d. Other usual and necessary provisions.
14. PROPOSED DIVIDEND
In term of AS 4 - "Contingencies and Events occurring after the Balance Sheet date" proposed dividend or dividend declared after Balance Sheet date is not shown as "Other Liability" in the Balance
Sheet, instead a note on the same will be included in the Financial Statement. Such proposed dividend will be appropriated from the "Reserves and Surplus" only after the approval of the shareholder.
15. SPECIAL RESERVES
Revenue and other Reserve include Special Reserve created under Section 36(i](viii] of the Income Tax Act, 1961 with the approval of the Board of Directors of the Bank.
16. CORPORATE SOCIAL RESPONSIBILITY
The expenditure towards Corporate Social Responsibility in accordance with the Companies Act, 2013 is recognised in the Profit and Loss Account.
17. OPERATING LEASES
Leases where all the risks and rewards of ownership are retained by the lessor are classified as 'Operating Lease'. Operating Lease payments are recognised as an expense in the Profit and Loss Account as per the lease terms. Initial direct costs in respect of operating leases such as legal costs, brokerage costs etc., are recognised as expense in the Profit and Loss Account.
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