4. Significant accounting policies
4.1 Investments
Classification
In accordance with the RBI guidelines, investments are
categorized at the time of purchase as:
• Held to Maturity (HTM)
• Available for Sale (AFS)
• Fair Value Through Profit and Loss (FVTPL)
• Held for Trading (HFT)
• Investments in Subsidiaries, Associates
and Joint Ventures
Under each of these categories, investments are further
classified under six groups ('hereinafter called groups') -
Government Securities, Other Approved Securities, Shares,
Debentures and Bonds, Investments in Subsidiaries/
Joint Ventures and Other Investments for the purposes of
disclosure in the Balance Sheet.
Basis of Classification
(a) Securities that fulfil the following conditions are
classified under Held to Maturity:
• The security 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; 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
(b) Securities that meet the following conditions are
classified under Available for Sale:
• The security is acquired with an objective that
is achieved by both collecting contractual cash
flows and selling securities; and
• the contractual terms of the security meet the
'SPPI criterion' as given above.
The bank, on initial recognition, may make an
irrevocable election to classify an equity instrument
that is not held with the objective of trading under AFS.
(c) Securities that do not qualify for inclusion in HTM
or AFS are classified under Fair Value Through
Profit and Loss.
(d) A separate category called Held for Trading
has been created within FVTPL. Specific RBI
guidelines for classifying investments under HFT
category are followed.
(e) All investments in subsidiaries, associates and joint
ventures are classified under a distinct category and
kept separate from the other investment categories.
Transfer of securities between Categories
Transfer of securities between categories of investments is
accounted as per RBI Guidelines.
Initial recognition
Investments are initially recognised at fair value. Unless
facts and circumstances suggest that the fair value is
materially different from the acquisition cost, it is presumed
that the acquisition cost is the fair value.
In determining the acquisition cost of the Investment:
• Transaction costs including brokerage and commission
pertaining to acquisition of Investments are 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.
Bank categorizes its investment portfolio into three
fair value hierarchies based on the inputs to the fair
value measurement.
• Level 1 instruments, if quoted prices are available in
active markets for identical instruments which can be
accessed at measurement date.
• Level 2 instruments, if valuation of instrument is based
on inputs other than quoted prices included within
Level 1, that are observable for the instrument.
• Level 3 instruments, if valuation is based on
unobservable inputs.
In case of level 1 and level 2 instruments, when acquisition
cost is not equal to fair value, the resulting Day 1 gain /
loss is recognised in profit and loss account. In case of
level 3 instruments, Day 1 loss is immediately recognised
in profit and loss account, however, day 1 gain from level
3 instruments is deferred. In the case of debt instruments,
the Day 1 gain shall be 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 shall be set aside as a liability until the security is listed
or derecognised.
Subsequent Measurement
The investments are subsequently measured in accordance
with the RBI Guidelines as follows:
Held to Maturity
• Securities held in HTM are carried at cost and not
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 on
a straight-line basis. The amortized amount is clubbed
with interest income on investments in the Profit
and Loss Account.
• Gain / Loss on sale of investments is included in the
Profit and Loss Account. The profit on sale of HTM
investments is appropriated to Capital Reserve after
adjustments for tax and transfer to Statutory Reserve
in accordance with the RBI Guidelines.
Available for Sale
• The securities held in AFS are fair valued and valuation
gains and losses across all performing investments,
irrespective of classification held under AFS are
aggregated. The net appreciation or depreciation
is directly credited or debited to a reserve named
AFS Reserve without routing through the Profit
& Loss Account.
• Any discount or premium on the acquisition of debt
securities under AFS is amortized over the remaining
life of the instrument on a straight-line basis. The
amortized amount is included as part of interest
income on investments in the Profit and Loss Account.
• Upon sale or maturity of a debt 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 the case of equity instruments designated under
AFS at the time of initial recognition, any gain or
loss on sale is transferred from AFS Reserve to the
Capital Reserve.
Fair Value Through Profit and Loss and Held for Trading
• The securities held in FVTPL and HFT are fair valued and
the net gain or loss arising on such valuation is directly
credited or debited to the Profit and Loss Account.
• Any discount or premium on the acquisition of debt
securities that meet the SPPI criteria and are classified
under FVTPL and HFT are amortised over the
remaining life of the instrument on a straight-line basis.
The amortized amount is included as part of interest
income on investments in the Profit and Loss Account.
Investments in Subsidiaries, Associates and Joint Ventures
• All investments (i.e., including debt and equity) in
subsidiaries, associates and joint ventures are held at
acquisition cost.
• Any discount or premium on the acquisition of debt
securities of subsidiaries, associates and joint ventures
are amortized over the remaining life of the instrument
on a straight-line basis. The amortized amount is
clubbed with interest income on investments in the
Profit and Loss Account.
• Any gain/ profit arising on the reclassification/ sale of
an investment in a subsidiary, associate or joint venture
is first recognized in the Profit and Loss Account and
then transferred to the 'Capital Reserve Account.
Fair Value of Investments
a. The 'market value' for quoted securities shall be the
prices declared by the Financial Benchmark India
Pvt. Ltd. (FBIL). For securities whose prices are not
published by FBIL, market price of quoted security
shall be as available from the trades/ quotes on
the stock exchanges/ reporting platforms/trading
platforms authorized by RBI/SEBI and prices declared
by the Fixed Income Money Market and Derivatives
Association of India (FIMMDA). Bonds/debentures in
foreign currencies are valued based on the last price
provided by market information providers such as
Bloomberg, Refinitiv, etc.
b. Treasury Bills, Commercial paper, US Treasury bills
denominated in foreign currencies and Certificate of
Deposits being discounted instruments, are valued
at carrying cost.
c. Units of Mutual Funds are valued at the latest
repurchase price/net asset value declared by
Association of Mutual Funds in India (AMFI).
d. Market value of investments where current quotations
are not available, is determined as per the norms
prescribed by the RBI as under:
• Unquoted government securities are valued as
per the prices published by FBIL. Valuation of
other unquoted fixed income securities (bonds
and debentures) is done with appropriate
mark-up, i.e. applicable FIMMDA published
credit spreads over the Yield to Maturity (YTM)
rates for Government of India securities as
published by FBIL.
• Pass Through Certificates ('PTC') including
Priority Sector PTCs are valued by using
FIMMDA credit spreads as applicable for the
NBFC category, based on the credit rating of
the respective PTC over the YTM rates for
Government of India securities published by FBIL.
• In case of bonds and debentures (including
Pass Through Certificates or PTCs) where
interest is not received regularly (i.e. overdue
beyond 90 days), the valuation is in accordance
with prudential norms for provisioning as
prescribed by RBI.
• Equity shares, for which current quotations are
not available or where the shares are not quoted
on the stock exchanges, are valued at break-up
value (without considering revaluation reserves,
if any) which is ascertained from the company's
latest Balance Sheet. In case the latest Balance
Sheet is not available, the shares are valued at
H1/- per company based on the stipulated norms
as per RBI circular.
• For unquoted preference shares, valuation shall
be done on Yield to Maturity (YTM) basis with
appropriate mark-up over the YTM rates for
central government securities of equivalent
maturity put out by FBIL subject to such
preference share not being valued above its
redemption value. Mark up shall be done as per
the RBI guidelines.
• Units of Venture Capital Funds (VCF) where
current quotations are not available are marked
to market based on the Net Asset Value (NAV)
as disclosed by the Alternative Investment
Fund (AIF). Where 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 H1. 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 H1.
• Investments in Security Receipts not guaranteed
by Government of India are valued as per
the latest NAV obtained from issuing Asset
Reconstruction Companies, subject to floor
provision requirements as per the extant asset
classification and provisioning norms as applicable
to the underlying loans as per RBI guidelines.
Investment in security receipts guaranteed
by Government of India is valued as per the
latest NAV declared by Asset Reconstruction
Companies. Security receipts outstanding after
the final settlement of the government guarantee
or the expiry of the guarantee period, whichever
is earlier, are valued at H1.
e. The Bank follows settlement date method of
accounting for purchase and sale of investments.
f. Non-Performing Investments are identified and valued
based on RBI Guidelines. Provision for depreciation on
non-performing investments is not offset against the
appreciation in respect of other performing securities.
Interest on non-performing investments is not
reckoned in Profit and Loss Account until it is received.
Conversion of principal and unpaid interest into debt,
preference or equity shares
In cases of conversion of principal and unpaid interest into
debt, preference or equity instruments, RBI guidelines are
followed for accounting and valuation of such instruments.
Repurchase and Reverse Repurchase Transactions
In accordance with the RBI guidelines, repurchase (Repo)
and reverse repurchase (Reverse Repo) transactions in
government securities and corporate debt securities
including those conducted under the Liquidity Adjustment
Facility ('LAF') and Marginal Standby Facility ('MSF') with
RBI are accounted as collateralised borrowing and lending
respectively. Balance in Repo Account is classified under
Schedule 4 -Borrowings. Balance in Reverse Repo account
with RBI is classified under Schedule 6 (II) (ii) - Balance
with RBI in Other accounts. Other balances in Reverse
Repo Accounts with original tenor of 14 days or less are
classified under Schedule 7 -Balance with Banks and Money
at call & short notice. While Reverse Repos with original
maturity more than 14 days are classified under Schedule
9 -Advances. Borrowing cost on repo transactions is
accounted as interest expense and revenue on reverse repo
transactions is accounted as interest income.
Short Sales
In accordance with the RBI guidelines, the Bank undertakes
short sale transactions in Central Government dated
securities. The Short Sales positions are reflected in
'Securities Short Sold ('SSS') A/C, specifically created for
this purpose. The short position is categorised under HFT
category and netted off from investments in the Balance
Sheet. These positions are marked -to-market and resultant
gains/losses are accounted for as per the relevant RBI
guidelines for valuation of Investments discussed earlier.
4.2 Advances
Classification
Advances are classified into Standard Assets and Non¬
Performing Assets ('NPAs') as per the RBI guidelines and
are stated net of bills rediscounted, inter-bank participation
certificates issued with risk sharing, specific provisions made
towards NPAs, floating provisions and unrealised interest
on NPAs. Further, NPAs are classified into sub-standard,
doubtful and loss assets based on the criteria as per Reserve
Bank of India (Commercial Banks - Income Recognition,
Asset Classification and Provisioning) Directions, 2025.
Interest on Non-Performing advances is transferred to an
unrealised interest account and recognized in Profit and
Loss Account upon receipt only.
Provisioning
The Bank has made provision for Non-Performing Assets
as stipulated under Reserve Bank of India (RBI) norms. As
per the Board approved policy, in addition to the minimum
provisioning requirement as prescribed by RBI, for certain
identified schematic advances, an accelerated provision for non¬
performing advances are made based on the day past due (DPD)
of the loan. Additionally, the Bank creates account specific
provision for certain corporate loans based on the management’s
assessment of the extent of impairment, over and above the
minimum provisioning requirement prescribed by the RBI.
Non-performing advances are written-off in accordance with
the Bank’s policy. Amounts recovered against debts written
off are recognised in the Profit and Loss Account and included
under “Other Income”. In compromise settlements where the
bank incurs /sanctions a write off above the existing NPA
provision, the bank shall create an additional provision equal
to the write off amount (over and above the existing provision)
subject to a maximum of 100% provisioning.
The Bank makes additional provisions as per Reserve Bank
of India (Commercial Banks - Resolution of Stressed Assets)
Directions, 2025, on accounts in default and with aggregate
exposure above the threshold limits as laid down in the said
framework where the resolution plan is not implemented
within the specified timeline.
Loans reported as fraud are classified as loss assets,
and fully provided immediately without considering the
value of security.
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. The Provision is classified under Schedule 5 - Other
Liabilities in the Balance Sheet.
In addition to the above, The Bank on a prudent basis
makes provisions on advances or exposures which are
not NPAs, but it has reasons to believe on the basis of
the extant environment or specific information or basis
regulatory guidance / instructions, of a possible slippage of
a specific advance or a group of advances or exposures or
potential exposures.
For restructured assets, provision is made in accordance
with the guidelines issued by the RBI. In respect of loans and
advances subjected to restructuring under the Prudential
Framework, the account is upgraded to standard only
after the specified period/ monitoring period, subject to
satisfactory performance of the account during the period.
Additional provision for restructured accounts as per
the relevant restructuring scheme announced by RBI for
Micro, Small and Medium (MSME) sector, accounts affected
by natural calamities and as per COVID 19 resolution
frameworks are made as per extant RBI guidelines.
Provision for Unhedged Foreign Currency Exposure
(UFCE) of borrower entities is made in accordance with
the guidelines issued by RBI, which requires the Bank to
ascertain the amount of UFCE, estimate the extent of likely
loss and estimate the riskiness of unhedged position of those
entities. The Provision is classified under Schedule 5 - Other
Liabilities in the Balance Sheet.
The Bank makes additional provisions on loans to specific
borrowers in specific stressed sectors and on projects where
Date of Commencement of Commercial Operations is delayed,
as per RBI guidelines.
In respect of borrowers classified as non-cooperative and
wilful defaulters, the Bank makes accelerated provisions as
per extant RBI guidelines.
4.3 Securitisation and transfer of assets
The Bank enters into purchase of corporate and retail loans
through direct assignments route and the same is accounted
as per extant RBI guidelines.
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 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.
In accordance with RBI guidelines on sale of stressed assets,
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. Further, such reversal shall be limited to the extent
to which cash received exceeds the net book value of the loan
at the time of transfer as per RBI guidelines. Additionally,
the bank shall reverse the entire excess provision (i.e., Sale
Consideration less Net Book Value) to the profit and loss
account in the year of transfer if the sale consideration
comprises only of cash and security receipts guaranteed by
the Government of India.
4.4 Country risk
In addition to the provisions required to be held according
to the asset classification status, provisions are held
for individual country exposure (other than for home
country). The countries are categorised into seven risk
categories namely insignificant, low, moderately low,
moderate, moderately high, high, very high as per Export
Credit Guarantee Corporation of India Limited (ECGC)
guidelines and provision is made in respect of the country
where the net funded exposure is 1% or more of the Bank’s
total funded assets.
4.5 Priority Sector Lending Certificates (PSLC)
The Bank vide RBI circular FIDD.CO.Plan.BC.23/
04.09.01/2015-16 dated April 07, 2016 trades in priority
sector portfolio by selling or buying PSLC. 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 in these transactions. The fee paid for purchase
of the PSLC is treated as an 'Expense’ and the fee received
from the sale of PSLCs is treated as 'Other Income’.
4.6 Transactions involving foreign exchange
In respect of domestic operations:
• Foreign currency income and expenditure items are
translated at the exchange rates prevailing on the date
of the transaction.
• Foreign currency monetary items are translated
at the closing exchange rates notified by Foreign
Exchange Dealers Association of India (FEDAI) as at
the Balance sheet date.
• The resulting net valuation profit or loss is recognized
in the Profit and Loss Account.
In respect of Non-Integral Foreign Branches (IBU at Gift City):
• Income and expenditure items are translated at
quarterly average closing rates.
• Both Monetary and Non- Monetary foreign currency
Assets and liabilities are translated at closing exchange
rates notified by Foreign Exchange Dealers Association
of India (FEDAI) at the Balance Sheet date.
• The resulting profit/loss arising from exchange
differences are accumulated in Foreign Currency
Translation Reserve until remittance or the disposal
of the net investment in the non-integral foreign
operations in accordance with AS-11. Any realised
gains or losses on such disposal are recognised in the
Profit and Loss Account.
Valuation of Foreign Exchange Spot and Forward Contracts:
• Foreign exchange spot and forward Contracts (Other
than the forwards / swaps marked under Funding
category) outstanding as at the Balance Sheet date
are revalued at the closing Spot and Forward Rates
respectively as notified by FEDAI and at interpolated
/ extrapolated rates for contracts of interim maturities.
• For valuation of contracts having longer maturities i.e.
greater than one year, the forward points (for rates/
tenures not published by FEDAI) are obtained from
Reuters for valuation of the FX Deals.
• As per directions of FEDAI, the profit or loss is
considered on present value basis by discounting
the forward profit or loss till the valuation date using
discounting yields. The resulting profit or loss on
valuation is recognized in the Profit and Loss Account.
Foreign exchange swaps taken for funding purposes is
amortized and recognized as interest income / interest
expense in the Profit and Loss Account.
Contingent liabilities on account of foreign exchange
contracts, guarantees, letters of credit, acceptances and
endorsements are reported at closing rates of exchange
notified by FEDAI as at the Balance Sheet date.
4.7 Derivative transactions
The Bank recognizes all derivative contracts at fair value,
on the date on which the derivative contracts are entered
into and are re-measured at fair value as at the Balance
sheet or reporting dates. 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). Changes in the fair value of
derivatives are recognized in the Profit and Loss Account.
For hedge transactions, the Bank identifies the hedged item
(asset or liability) at the inception of the transaction itself.
The effectiveness is ascertained at the time of inception
of the hedge and periodically thereafter. Hedge derivative
transactions are accounted for in accordance with the hedge
accounting principles. When applying fair value hedge
accounting, the hedging instrument and hedged items are
measured at fair value with changes in fair value recognised
in the Profit and Loss Account.
In case of cash flow hedge, the hedging instrument is
measured at fair value, but any gain or loss that is determined
to be an effective hedge is recognised in Reserves and Surplus
under cash flow hedge reserve and ineffective portion of
an effective hedging relationship, if any, is recognised in
the Profit and Loss Account. In order to match the gains
and losses of the hedged item and the hedging instrument
in Profit and Loss Account, the changes in fair value of the
hedging instrument recognised in cash flow hedge reserve is
transferred from cash flow hedge reserve and recognised in
Profit and Loss Account at the same time that the impact from
the hedged item is recognised in the Profit and Loss Account.
4.8 Revenue Recognition
• Interest income is recognised in the Profit and Loss
Account on an accrual basis in accordance with AS - 9,
'Revenue Recognition' as notified under Section 133
of the Companies Act, 2013 read together with the
Companies (Accounting Standards) Rules, 2021 and
the RBI guidelines, except interest income on non¬
performing assets which is recognised upon receipt
basis as specified in RBI guidelines.
• Interest on income tax refund is recognised in the year
of receipt of Assessment Orders.
• The recoveries made from NPA accounts are
appropriated based on “first in first out” policy; i.e. the
earliest entry shall be realized first. If different entries
are made in the account on the same day, the realization
shall be in the order of charges, interest, and principal.
• Processing fees collected on loans disbursed, along
with related loan acquisition costs are recognised at
inception/ renewal of the loan.
• Income on discounted instruments is recognised over
the tenure of the instrument on a straight-line basis.
• Guarantee commission, commission on letter of
credit and annual locker rent fees, are recognised on
a straight-line basis over the period of contract. Other
fees and commission income are recognised when
due, except in cases where the Bank is uncertain of
ultimate collection.
• Dividend on Equity Shares and Preference Shares is
recognised as income when the right to receive the
dividend is established.
• Loan Syndication fee is accounted for on completion
of the agreed service and when right to receive
is established.
• In compromise settlement cases, sacrifice on
settlement is accounted upfront.
• The difference between the sale price and purchase
cost of bullion received on consignment basis is
included in other income. The Bank also deals in bullion
on a borrowing and lending basis and the interest paid/
received is accounted on an accrual basis.
• Gain/loss on sell down of loans and advances through
direct assignment is recognised at the time of sale.
• In respect of non-performing assets acquired from
other Banks / FIs and NBFCs, collections in excess of
the consideration paid at each asset level or portfolio
level is treated as income in accordance with RBI
guidelines and clarifications.
4.9 Fixed assets and depreciation / amortization
Fixed assets are carried at cost of acquisition less
accumulated depreciation, amortization and impairment,
if any. Cost includes cost of purchase and all expenditure
like freight, duties, taxes and incidental expenses related
to the acquisition and installation of the asset before it is
ready to use. Taxes like GST paid on Fixed assets wherever
eligible are availed as ITC as per GST rules. Subsequent
expenditure incurred on assets put to use is capitalized only
when it increases the future economic benefit / functioning
capability from / of such assets.
Capital work-in-progress includes cost of fixed assets that
are not ready for their intended use and includes advances
paid to acquire fixed assets.
Depreciation on fixed assets, including amortisation of
software, is charged over the estimated useful life of fixed
assets on straight-line basis from the date of addition, except
as mentioned below.
• Premises are depreciated under the written down
value method, using the same useful life as in Schedule
II of the Companies Act, 2013. Improvements to leased
Premises are depreciated over lower of lease term or 5
years based on technical evaluation.
• Depreciation on premises revalued has been charged
on their written-down value including the addition
made on revaluation.
• Assets individually costing H 2,000/- or less are fully
depreciated in the year of purchase.
The management believes that the useful life of assets
assessed by the Bank, pursuant to Part C of Schedule II to
the Companies Act, 2013, taking into account changes in
environment, changes in technology, the utility and efficacy
of the asset in use, fairly reflects its estimate of useful lives
of the fixed assets. The estimated useful lives of key fixed
assets are given below:
Software is depreciated over a period of 3 to 5 years and
eligible Cost of license is capitalized and amortized over the
license period.
Depreciation on assets sold during the year is recognized on
a pro-rata basis till the date of sale. Gain or losses arising from
the retirement or disposal of Fixed Assets are determined
as the difference between the net disposal proceeds and
the carrying amount of assets and recognized as income or
expense in the Profit and Loss Account. Further, Profit on
sale of premises is appropriated to Capital Reserve account
(Net of applicable taxes and transfer to statutory reserves)
in accordance with RBI guidelines.
Whenever there is a revision of the estimated useful life of
an asset, the unamortized depreciable amount is charged
over the revised remaining useful life of the said asset.
4.10 Impairment of Assets
The Bank assesses at each Balance Sheet date whether there
is any indication based on internal / external factors that an
asset is impaired. Impairment loss, if any, is provided in the
Profit and Loss Account to the extent the carrying amount
of assets exceeds their estimated recoverable amount.
4.11 Non-Banking Assets acquired in Satisfaction of Claims
Non-Banking assets acquired in settlement of debts / dues
are accounted at the lower of their cost of acquisition or net
realizable value.
4.12 Lease transactions
Operating Lease
Leases where the lessor effectively retains substantially
all the risks and benefits of ownership over the lease term
are classified as operating lease. Lease payments for assets
taken on operating lease are recognized as an expense
in the Profit and Loss Account as per the lease terms in
accordance with AS-19, Leases. Initial direct costs in respect
of operating leases such as legal costs, brokerage costs,
etc. are recognized as expense immediately in the Profit
and Loss Account.
4.13 Employee benefits
Defined Contribution Plan
a) Provident Fund
Employees covered under contributory provident
fund scheme are entitled for retirement benefit in the
form of provident fund, which is a defined contribution
plan. Aggregate contributions along with interest
thereon are paid on retirement, death, incapacitation,
or termination of employment. Both the employee
and the Bank contribute at specific rates of the salary
to the provident fund account maintained with the
Federal Bank (Employees') Provident Fund Trust.
The contribution paid/payable by the Bank to The
Federal Bank (Employees') Provident Fund Trust,
administered by the trustees, is charged to the Profit
and Loss Account.
b) National Pension System ('NPS')
In respect of employees who are covered under NPS,
the Bank contributes certain percentage of the sum
of basic salary and dearness allowance of employees
to the aforesaid scheme, a defined contribution plan,
which is managed and administered by pension fund
management companies and regulated by Pension
Fund Regulatory and Development Authority (PFRDA).
NPS contributions are recognised in the Profit and
Loss Account in the period in which they accrue.
The Bank has no liability other than its contribution
and recognises such contributions as an expense in
the year incurred.
Defined Benefit Plan
a) Pension Fund
Employees covered under the pension scheme are
entitled to get pension benefits, which is a defined
benefit plan. The Bank contributes at specific rates of
the salary to the Federal Bank (Employees') Pension
Fund Trust set up by the Bank and administered by the
Trustees. Additional amount being the liability shortfall
as ascertained by an independent actuary, contributed
towards The Federal Bank Employees' Pension Fund,
is determined on actuarial basis on projected unit
credit method as on the Balance Sheet dates. The
contribution paid/payable by the Bank to Federal
Bank Employees' Pension Fund is charged to the Profit
and Loss Account.
b) Gratuity
All employees of the Bank are entitled for gratuity
benefits, which is a defined benefit plan. The Bank
makes contributions to The Federal Bank Employees'
Gratuity Trust Fund, which is administered and
managed by the Trustees. Liabilities with regard to the
gratuity plan are determined by Actuarial valuation
as on the Balance Sheet date, based upon which, the
Bank contributes all the ascertained liabilities to the
Federal Bank Employees' Gratuity Trust Fund. The
contribution paid/payable by the Bank to the Federal
Bank Employees' Gratuity Trust Fund is charged to the
Profit and Loss Account.
Other Employee Benefits
Compensation for absence on Privilege / Sick / Casual
Leave / Leave Travel Concession (LTC) & other Short-term
employee benefits
The employees of the Bank are entitled to compensated
absence on account of privilege / sick / casual leave as per
the leave rules. The Bank measures the long term expected
cost of compensated absence as a result of the unused
entitlement that has accumulated at the balance sheet date
based on actuarial valuation and such costs are recognized
in the Profit and Loss Account.
The employees are also eligible for LTC as per the rules. The
estimated cost of unused entitlement as on the Balance
Sheet date based on actuarial valuation is provided for.
The undiscounted amount of Short-term employee benefits
expected to be paid in exchange for the services rendered
by employees is recognized during the period when the
employees render the service. These benefits include
performance incentives.
4.14 Employee Stock Option Scheme
The Bank has formulated Employee Stock Option Scheme
(ESOS 2010), Employee Stock Option Scheme (ESOS
2017), Employee Stock Option Scheme 2023 (ESOS 2023),
& Employee Stock Option Scheme 2025 (ESOS 2025)
and the same is in consonance as per the provisions and
requirements under the SEBI (Share Based Employee
Benefits and Sweat Equity) Regulations, 2021. The Schemes
provided for grant of options to Employees and whole time
Directors of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and that are to be exercised
within a specified period.
In accordance with the SEBI Guidelines and the Guidance
Note on “Accounting for Share-based payments” issued
by the ICAI, the Bank follows 'Intrinsic value method' for
accounting of ESOS based on which, the excess, if any, of
the closing market price of the share on the date preceding
the date of grant of the option under ESOS over the exercise
price of the option is amortized on a straight line basis over
the vesting period.
The market price is the latest available closing price, prior to
the date of grant, on the stock exchange on which the shares
of the Bank are listed. If the shares are listed on more than
one stock exchange, then the stock exchange where there is
highest trading volume on the said date is considered.
However, the stock options granted to Material risk takers,
after March 31, 2021, are accounted as per 'Fair value
method' using Black-Scholes model, which is recognized as
compensation expense over the vesting period in line with
extant RBI guidelines.
4.15 Employee Stock Incentive Scheme
The Bank has formulated the Federal Bank Limited
Employee Stock Incentive Scheme 2023 (ESIS 2023) and
the Federal Bank Limited Employee Stock Incentive Scheme
2025 (ESIS 2025) in accordance with the SEBI (Share Based
Employee Benefits and Sweat Equity) Regulations, 2021
(“SEBI Regulations”) and other applicable laws. The Scheme
provided for grant of options to Employees and whole time
Directors of the Bank to acquire Equity Shares of the Bank
that vest in a graded manner and that are to be exercised
within a specified period.
Stock options under this scheme are granted at face
value of shares. Options granted under this scheme are
accounted as per 'Fair value method' using Black-Scholes
model in accordance with the SEBI Guidelines and the
Guidance Note on “Accounting for Share-based payments”
issued by the ICAI.
4.16 Debit and Credit card reward points
The Bank runs a loyalty program which seeks to recognize
and reward customers based on their relationship with the
Bank. Under the program, eligible customers are granted
loyalty points redeemable in future, subject to certain
conditions. The Bank estimates the probable redemption
of such loyalty/reward points using an actuarial method on
a quarterly basis by employing independent actuary, which
includes assumptions such as mortality, redemption, spends,
discount rate, value of reward points etc. Provision for said
reward points is then made based on the actuarial valuation
report as furnished by the said independent Actuary and
such costs are recognized in the Profit and Loss Account and
liabilities on the outstanding reward points as at the Balance
Sheet date is included in 'Others' under Schedule 5 - Other
liabilities and provisions.
4.17 Taxation
Income tax expense is the aggregate amount of current
tax expense and the net change in the deferred tax asset
or liability during the year. The current tax expense and
deferred tax expense is determined in accordance with the
provisions of the Income Tax Act, 1961, the rules framed
there under and considering the material principles set
out in Income Computation and Disclosure Standards and
as per Accounting Standard 22 - “Accounting for Taxes on
Income” issued by the ICAI, as notified under Section 133 of
the Companies Act, 2013 read together with the Companies
(Accounting Standards) Rules, 2021.
Deferred income taxes reflect the impact of current year
timing differences between the taxable income and the
accounting income that originate in one period and are
capable of reversal in one or more subsequent periods.
Deferred tax assets and liabilities are measured using the
tax rates and the tax laws enacted or substantively enacted
as at the reporting date. Deferred tax assets are recognized
for timing differences of items other than unabsorbed
depreciation and carry forward losses only to the extent
that reasonable certainty exists that sufficient future
taxable income will be available against which these can
be realized. However, if there are unabsorbed depreciation
and carry forward of losses and items relating to capital
losses, deferred tax assets are recognized only if there is
virtual certainty supported by convincing evidence that
there will be sufficient future taxable income available to
realize the assets.
Deferred tax assets and liabilities are offset if such items
relate to taxes on income levied by the same governing tax
laws and the Bank has a legally enforceable right for such
set off and when the Bank intends to settle on a net basis.
Deferred tax assets are recognized and reviewed at each
balance sheet date and appropriately adjusted to reflect the
amount that is reasonably / virtually certain to be realized.
The Bank has exercised option referred u/s 115BAA with
respect to tax rate, accordingly Minimum Alternative Tax
('MAT') provision u/s 115JB are not applicable on Bank.
4.18 Input Credit under GST
Goods & Service tax input credit is accounted for in the
books within the time limit prescribed under CGST Rules,
2017, as amended.
4.19 Share issue expenses
Share issue expenses are adjusted from Share Premium
Account in terms of Section 52 of the Companies Act, 2013.
4.20 Corporate Social Responsibility
Expenditure towards corporate social responsibility, in
accordance with Companies Act, 2013 is recognized in the
Profit and Loss Account.
4.21 Earnings per Share
The Bank reports basic and diluted earnings per share in
accordance with Accounting Standard 20 - “Earnings per
Share” issued by the ICAI, as notified under Section 133 of
the Companies Act, 2013 read together with the Companies
(Accounting Standards) Rules, 2021. Basic earnings per
share is computed by dividing the net profit for the year
attributable to equity shareholders by the weighted average
number of equity shares outstanding during the year.
Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue equity
shares were exercised or converted during the year. Diluted
earnings per share is computed using the weighted average
number of equity shares and dilutive potential equity shares
outstanding during the year except where the results are
anti-dilutive. The weighted average number of equity
shares outstanding during the year is adjusted for events
of bonus issue, bonus element in a rights issue to existing
shareholders, share split and a reverse share split.
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