1. BACKGROUND
DCB Bank Limited (“DCB” or “the Bank”), incorporated in Mumbai, India is a publicly held banking company engaged
in providing banking and financial services and governed by the Banking Regulation Act, 1949 and the Companies
Act, 2013.
2. BASIS OF PREPARATION
The financial statements have been prepared and presented under the historical cost convention and on the accrual
basis of accounting unless otherwise stated, and comply with the Generally Accepted Accounting Principles in India
('GAAP'), statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by
the Reserve Bank of India (the “RBI”) from time to time and the Accounting Standards (“AS”) notified under Section 133
of the Companies Act 2013 read with the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standard)
Rules, 2021 as amended, in so far as they apply to banks and the current practices prevailing within the banking industry
in India.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with GAAP requires the management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date
of the financial statements and the results of operations during the reporting period. Although these estimates are based
upon the management's best knowledge of current events and actions, actual results could differ from these estimates.
Any revisions to the accounting estimates are recognised prospectively in the current and future periods.
4. INVESTMENTS4.1 Classification:
The investment portfolio comprising approved securities (predominantly Government Securities) and other
securities (Pass through Certificates, Shares, Debentures and Bonds, etc.) is classified at the time of acquisition
in accordance with the RBI guidelines under three categories viz. 'Held to Maturity' ('HTM'), 'Available for Sale'
('AFS') and Fair Value though Profit and Loss (FVTPL). 'Held for Trading' ('HFT') is a separate category under
FVTPL. For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government
Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and
Other Investments.
The Bank follows 'Settlement Date' accounting for recording purchase and sale transactions.
4.2 Basis of Classification:
Investments are classified as HTM, if the securities are 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; 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.
Investments are classified as AFS, if the securities are acquired with an objective of both collecting contractual
cashflows and selling securities and the contractual term of the securities meet the SPPI criterion as defined in RBI
guidelines.
The securities that do not qualify for inclusion in HTM or AFS shall be classified under FVTPL.
4.3 Transfer of Securities between Categories:
The transfer/shifting of securities between categories of investments is accounted as per the RBI guidelines on
Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023.
4.4 Initial recognition and Acquisition Cost:
All investments are fair valued on initial recognition. Unless facts and circumstances suggest that the fair value is
materially different from the acquisition cost, it shall be presumed that the acquisition cost is the fair value. Cost
including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit
and Loss Account.
Broken period interest is charged to the Profit and Loss Account.
Cost of investments is computed based on the weighted average cost method.
4.5 Valuation:FVTPL - HFT and Available for Sale (AFS) categories:
Investments classified as FVTPL - HFT and AFS are marked to market daily. These securities are valued scrip-wise
and any resultant depreciation or appreciation is aggregated for each category. The net appreciation/depreciation
for each category is recognised in the profit and loss account.
As per RBI guidelines, the net appreciation/depreciation on FVTPL portfolio is passed through profit and loss
account while, for AFS, it is recognised in AFS reserves.
Quoted investments are valued based on the closing quotes on the recognised stock exchanges or prices declared
by Fixed Income Money Market and Derivatives Association (FIMMDA)/Financial Benchmark India Private Limited
(FBIL), periodically.
The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities,
Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up
(reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity,
published by FIMMDA/FBIL. Unquoted equity shares are valued at the break-up value, if the latest audited Balance
Sheet which is not older than 18 months from the reporting date is available or otherwise at '1 as per the RBI
guidelines. Units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual
fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at
carrying cost.
Units of Alternate Investment Fund ('AIF') held under AFS category are marked to market based on the NAV
provided by AIF based on the latest audited financial statements. Where an AIF fails to carry out and disclose
the valuation of its investments by an independent valuer as per the frequency mandated by SEBI (Alternative
Investment Fund) Regulations, 2012, the value of its units shall be treated as ' 1. In case AIF is not registered under
SEBI (Alternative Investment Fund) Regulations, 2012 and the latest disclosed valuation of its investments by an
independent valuer precedes the date of valuation by more than 18 months, the value of its units shall be treated
as ' 1.
Held to Maturity:
These investments are carried at their acquisition cost and are not marked to market. Any premium or discount on
acquisition is amortized over the remaining maturity period of the security on a straight-line basis. Where there is a
decline, other than temporary, in the carrying amounts of HTM investments, the resultant reduction in the carrying
amount is charged to the profit and loss statement.
Non-performing investments are identified and provision is made as per RBI guidelines.
Brokerage, fees, commission and broken period interest incurred at the time of acquisition of securities, including
money market instruments, are recognised as expenses.
4.6 Security Receipts (SR):
Where sale of stressed asset results in a consideration lower than the value of the stressed assets net of provisions
carried there against, the shortfall is debited to Profit & Loss account. Where such sale results in consideration higher
than the value of the stressed assets net of provisions carried there against, the excess is netted off against the cost
of corresponding SRs by creating a provision to arrive at their Book Value. The excess provision shall be credited to
the profit & loss account in the year in which sum of cash received by way of initial consideration and/or redemption or
transfer of Security Receipts (SRs) issued by ARCs if it exceed the NBV of the loan at the time of transfer.
SRs issued by Asset Reconstruction Companies ('ARC') are valued at Net Asset Value ('NAV') declared by the
ARC except in respect of stressed assets which are sold on or after April 01, 2018 and the Bank holds more than
90% of SRs backed by its sold assets, the provision held against the Book Value of these SRs is higher of provision
required in terms of NAV declared by the ARC and provisioning applicable to the underlying loans, assuming that
the assets sold notionally continued in the books of the Bank.
4.7 Disposal of Investments:
Profit/Loss on sale of investment under the AFS and FVTPL categories is recognised in the Profit and Loss Account
except for equity instruments designated under AFS at the time of initial recognition. Any gain or loss on sale of
such equity investments shall not be transferred from AFS-Reserve to the Profit and Loss Account. Instead, such
gain or loss shall be transferred from AFS-Reserve to the Capital Reserve. The profit on sale of investment in HTM
category, net of taxes and transfer to Statutory Reserve, is appropriated to Capital Reserve.
4.8 Repo and reverse repo transactions:
Repo and reverse repo transactions are accounted for as secured borrowing and lending transactions respectively.
Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is
treated as interest income.
4.9 Short Sale:
I n accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated
securities. The short positions are reflected in 'Securities Short Sold ('SSS') A/c', specifically created for this purpose.
Such short positions are categorized under HFT category and netted off from investments in the Balance Sheet.
These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-
to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed
earlier.
4.10 The Bank makes floating provision at 0.10% per annum on the opening balance of Standard Non SLR investments
in the nature of credit substitutes at the beginning of every calendar quarter, proportionately for the quarter. These
provisions are not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the
RBI under specific circumstances.
5. ADVANCES
5.1 In pursuance of guidelines issued by the RBI, advances are classified as Standard, Sub-Standard, Doubtful and
Loss Assets and are stated net of specific provisions made towards NPAs and floating provisions.
5.2 Advances are net of bills rediscounted, Inter-bank participation with risk, provisions for non- performing advances,
floating provisions and unrealised interest held in suspense account.
5.3 Credit facility/investment are classified as performing and non-performing asset as per applicable RBI guidelines.
5.4 In case of NPAs other than EMI loans, recoveries effected are first adjusted towards the principal amount. In case of
EMI loans, recoveries effected are adjusted towards the EMI and within the EMI first towards the principal amount.
5.5 In case of Standard accounts, repayments are appropriated first towards the interest and then towards the principal
amount.
5.6 Provision for non-performing advances ('NPAs') comprising sub-standard, doubtful and loss assets is made in
accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a
higher provision based on sound commercial judgment. NPAs are identified basis RBI guidelines. In respect of
identified NPAs in Retail portfolio, provision is recognised on the retail loans at account level on the basis of ageing
of loans in the non-performing category and in respect of identified NPAs in other cases, provision is recognised
account at borrower level. The provisioning done is at or higher than the minimum rate prescribed under the RBI
guidelines. Non-performing assets are written-off in accordance with the Bank's policy. Recoveries from bad debts
written off are recognised in Profit & Loss account under Provisions and Contingencies.
5.7 In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI
as applicable.
5.8 I n addition to the above, the Bank, on a prudent basis, recognizes provisions on advances or exposures which
are performing assets as per the IRAC norms, but has reasons to believe on the basis of the extant environment
impacting a specific exposure or any specific information, the possible deterioration of a specific advance or a
group of advances or exposures or potential exposures. These provisions are recognised as per Board approved
policy and are classified as Provision for Specific Standard Assets, included under Provision for Standard Assets
and reported under Other Liabilities. These provisions are not reversed to the Profit and Loss Account but are
transferred as provision on the same specific advance/exposure in case the asset slips into non-performing asset,
except in case of full repayment of the exposure when such provision will be reversed and recognised in the Profit
and Loss Account.
5.9 The Bank maintains general provision for Standard Assets, including on credit exposures computed as per the
current marked to market values of foreign exchange forward contracts, at levels stipulated by the RBI from time to
time. These provisions on Standard Assets are included under Other Liabilities.
5.10 The Bank estimates the inherent risk of the unhedged foreign currency exposures of its borrowers as per the
regulatory guidelines stipulated by the RBI from time to time and recognizes incremental provisions on exposures
to such entities as per methodology prescribed. These provisions are included in Provision for Standard Assets and
reported under Other Liabilities.
5.11 The RBI guidelines further permit banks to create floating provisions on Advances up to levels as per a Board
approved policy over and above the regulatory provisions required on standard assets. These floating provisions
are netted from Advances. The Bank makes floating provision at 0.05% per annum on the opening balance of
Standard Advances at the beginning of every calendar quarter, proportionately for the quarter. These provisions are
not reversed by credit to the Profit and Loss Account without prior approvals of the Board and the RBI under specific
circumstances.
5.12 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 fulfillment of priority sector obligation and in the case of a purchase
transaction the Bank buys the fulfillment of priority sector obligation through 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 Profit and Loss Account.
6. FIXED ASSETS [Property, Plant and Equipment]
Premises and other fixed assets are stated at historical cost (or revalued amounts, as the case may be), less accumulated
depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the
asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalized
only when it increases the future benefit/functioning capability from/of such assets. Profit on sale of immovable properties
is transferred to the Capital Reserves after appropriation to Statutory Reserve.
7. REVALUATION OF FIXED ASSETS
Portfolio of immovable properties is revalued periodically by an independent valuer to reflect current market valuation.
All land and building owned by the Bank and used as branches or offices are grouped under “Office Premises” in the
fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves.
Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the
Revaluation Reserves to Profit and Loss Account i.e. revenue reserves.
8. DEPRECIATION & AMORTIZATION
Depreciation on fixed assets, including amortization of software, is charged over the estimated useful life of the fixed
assets on a straight-line basis at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013,
except as mentioned below. The useful life of an asset is the period over which an asset is expected to be put to use to
the Bank.
Assets purchased/sold during the year are depreciated on a pro-rata basis, based on the actual number of days the assets
have been put to use. Whenever there is a revision in the estimated useful life of an asset, the unamortized depreciable
amount is charged over the revised remaining useful life of the said asset. Assets costing less than ' 5,000 individually are
fully depreciated in the year of purchase.
9. IMPAIRMENT OF ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based
on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is the greater of the asset's net selling price and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value 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.
10. RECOGNITION OF INCOME AND EXPENDITURE
10.1 Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Bank and the
revenue can be reliably measured.
10.2 Penal charges on loans are recognised as income on realization basis.
10.3 Other items of income and expenditure are accounted on accrual basis.
10.4 Interest income is recognised in the Profit and Loss Account on accrual basis as per Accounting Standard, except
in the case of non-performing assets where it is recognised on receipt basis as per the RBI norms.
10.5 Interest income on investments in Pass Through Certificates (PTC) is recognised at the coupon rate on an accrual
basis.
10.6 Interest income on loans bought out through the direct assignment route is recognised at the effective interest
rate i.e. after amortizing premium, if any, on the bought out portfolio as per Guidelines on Securitised Transactions
issued by the RBI.
10.7 Processing fees on loans are recognised as income on due basis. Processing overheads on loans are expensed at
the inception of the loan.
10.8 Overdue rent on safe deposit lockers is accounted for when there is certainty of receipts.
10.9 Guarantee commission, annual safe deposit locker rent fees are recognised on a straight-line basis over the period
of contract. Letters of credit ('LC') are generally issued for a shorter tenor, typically of 90 days. The commission on
such LC is recognised when due.
10.10 Dividend income is recognised as income when the right to receive dividend is established.
10.11 Fees received for priority sector lending certificates (PSLC) is recognised on straight-line basis under miscellaneous
income.
11. FOREIGN CURRENCY TRANSACTIONS11.1 Initial recognition:
Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the
exchange rate between the reporting currency and foreign currency on the date of the transaction.
11.2 Conversion:
Foreign currency monetary items are reported using the closing rate notified by Foreign Exchange Dealers'
Association of India ('FEDAI') at the Balance Sheet date and the resulting profit or loss is recognised in the Profit
and Loss Account, as per the guidelines issued by the RBI.
11.3 Exchange differences:
Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in
which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency
are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at
fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that
existed when the values were determined.
11.4 Foreign Exchange Forward Contracts:
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of
reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance
Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such
a forward exchange contract is amortized as expense or income over the life of the contract.
11.5 Outstanding forward exchange contracts intended for trading are revalued at the Balance Sheet date at the rates
notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation
is recognised in the Profit and Loss Account in accordance with the RBI/FEDAI guidelines
11.6 Contingent liabilities denominated in foreign currencies are disclosed in the Balance Sheet at the rates notified by
FEDAI as at the Balance Sheet date.
11.7 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid
over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on
Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.
12. DERIVATIVE TRANSACTIONS
Valuation of Exchange Traded Interest Rate Futures is carried out on the basis of the daily settlement price of each
contract provided by the exchange. Changes in the fair value of the Exchange Traded Interest Rate Futures are
recognised in the Profit and Loss Account.
13. EMPLOYEE BENEFITS13.1 Defined Benefit Plan
Provision in respect of future liability for payment of gratuity is made on the basis of actuarial valuation on projected
unit credit method made at the end of the year. The actuarial calculations entail assumptions about demographics,
early retirement, salary increases, interest rates etc. Gratuity is funded with the Gratuity Trust duly registered under
the provisions of Income tax Act, 1961. Actuarial gains/losses are recognised immediately in the Profit and Loss
Account and are not deferred.
13.2 Defined Contribution Scheme
Retirement benefits in the form of provident fund and national pension scheme is a defined contribution scheme and
the contributions are charged to the Profit and Loss Account of the year when the contributions to the fund are due.
There is no other obligation other than the contribution payable to the fund.
13.3 Short Term Employee Benefits
Short term employee benefits comprise salaries and other compensation payable for services which the employee
has rendered during the period. These are recognised at the undiscounted amount in the Profit & Loss Account.
14. TAXES ON INCOME
14.1 Tax expense comprises current and deferred taxes. Current income tax is measured at the amount expected to be
paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred Income Tax reflects the impact of
current year timing differences between the taxable income and the accounting income for the year and reversal of
timing differences of earlier years.
14.2 Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance
Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to
taxes levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is
reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets
can be realised. 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 realised
against future taxable profits.
14.3 At each Balance Sheet date, the Bank re-assesses unrecognised deferred tax assets and recognizes deferred tax
asset to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which such deferred tax assets can be realised.
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