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.
Acquisition Cost
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.
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 Statement.
• 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 Statement.
• 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 Statement.
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 Statement.
• 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).
b. Treasury Bills, Commercial paper 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:
• The market price is derived based on the Yield
to Maturity (YTM) for Government Securities as
published by FBIL and suitably marked up for credit
risk published by FIMMDA applicable to the credit
rating of the instrument. The matrix for credit
risk mark-up for each category and credit ratings
along with residual maturity issued by FIMMDA are
adopted for this purpose.
• Pass Through Certificates ('PTC') including
Priority Sector PTCs are valued as per extant
FIMMDA guidelines
• 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 H 1/- 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 H 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 H 1.
• Investments in Security Receipts 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.
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 unrealized interest on NPAs. Further, NPAs are
classified into sub-standard, doubtful and loss assets based
on the criteria as per Prudential norms on Income Recognition,
Asset Classification and Provisioning pertaining to Advances
(IRAC) issued by RBI. Interest on Non-Performing advances is
transferred to an unrealized interest account and not recognized
in Profit and Loss Account until received.
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 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.
The Bank makes additional provisions as per RBI's guidelines
on 'Prudential Framework on Resolution of Stressed Assets'
dated June 7, 2019 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.
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, provision on
incremental exposure to borrowers identified as per RBI's
large exposure framework 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.
Loans reported as fraud are classified as loss assets, and fully
provided immediately without considering the value of security.
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 non-performing
advances, 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.
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:
• 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.
• Unpaid funded interest on term loans are accounted on
realisation as per the guidelines of RBI.
• 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:
* The useful life of motor cars has been revised from 8 years to 5 years,
effective from April 01, 2024.
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) 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) 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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