C SIGNIFICANT ACCOUNTING POLICIES
1. Investments
The RBI, vide its master direction dated September 12,
2023, issued revised norms for the classification, valuation
and operation of investment portfolio of banks, which
became applicable from April 01, 2024 (herein after
referred as ‘revised norms on investments').
Classification:
I n accordance with the revised norms on investments,
investments are classified on the date of purchase into
“Held to Maturity” (‘HTM'), “Available for Sale” (‘AFS') and
“Fair value through Profit and Loss” (‘FVTPL') categories
(hereinafter called “categories”). “Held for Trading” (‘HFT')
is a separate investment sub-category within FVTPL. All
investments in subsidiaries, associates and joint ventures
are categorised in a distinct category Group companies
(“Group cos”). 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.
Hitherto, investments were classified on the date of
purchase into “Held for Trading” (‘HFT'), “Available for
Sale” (‘AFS') and “Held to Maturity” (‘HTM') categories.
(hereinafter called “categories”). Subsequent shifting
amongst the categories was done in accordance with
the RBI guidelines. Under each of these categories,
investments were further classified into six groups
(hereinafter called “groups”), Government securities,
Other approved securities, Shares, Debentures and
Bonds, Investments in subsidiaries / Joint Ventures and
Other Investments.
Purchase and sale transactions in securities are accounted
on settlement date except in the case of equity shares
which are accounted on trade date.
Basis of classification:
I nvestments which the Bank intends to hold till maturity
and contractual terms there of gives rise to cash flows that
are solely payment of principal and interest on principal
outstanding (SPPI) are classified under HTM category. All
investments in subsidiaries / associates / joint ventures
are classified under the category of Group Companies
(Group Cos.). Investments which the Bank acquires with
an objective that is achieved by both collecting contractual
cashflows and selling securities and where the contractual
terms of the investment meet the SPPI criterion are
classified under AFS category. Investments not classified
in any of the above categories are classified under FVTPL
category. HFT, which is a sub-category of FVTPL consists
of all instruments that meet the specifications for HFT
instruments prescribed by the RBI.
Hitherto, investments which the Bank intended to hold
till maturity were classified under HTM category and
investments that were held for resale within 90 days
from the date of purchase were classified under HFT.
Investments which were not classified in either of the
above categories were classified under AFS category.
Acquisition cost:
Costs, including brokerage and commission paid at the
time of acquisition of investments and broken period
interest on debt instruments, are recognised in the Profit
and Loss Account and are not included in the cost
of acquisition.
Valuation:
In accordance with the revised norms on investments:
• Investments classified under FVTPL and AFS
categories are fair valued individually. Net gain or
loss arising on such valuation of FVTPL category is
directly taken to the Profit and Loss Account. The
net appreciation or depreciation (adjusted for the
effect of applicable taxes, if any) in AFS Category is
directly taken to AFS reserve without routing through
the Profit & Loss Account.
Hitherto, investments classified under AFS and HFT
categories were marked to market individually, and
depreciation / appreciation was aggregated for
each group. Net depreciation, if any, compared to
the acquisition cost, in any of the six groups, was
charged to the Profit and Loss Account and net
appreciation, if any, in any of the six groups was
not recognised except to the extent of depreciation
provided earlier.
• Quoted investments are valued based on the trades /
quotes on the recognised stock exchanges or prices
published by Financial Benchmarks India Pvt Ltd.
(FBIL) or Fixed Income Money Market and Derivatives
Association (FIMMDA). Investments denominated in
foreign currencies are valued based on the prices
provided by market information providers such as
Bloomberg, Refinitiv, etc.
• Unquoted Government of India securities, state
government securities and special bonds such as oil
bonds, fertilizer bonds etc. issued by the Government
of India are valued as per the prices published by
FBIL. The valuation of other unquoted fixed income
securities (viz. other approved securities and bonds
and debentures) and preference shares 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.
• Unquoted equity shares are valued at the break¬
up value, ascertained from the company's latest
balance sheet. The date as on which the latest
balance sheet is drawn up does not precede the
date of valuation by more than 18 months. In case
the latest audited balance sheet is not available or is
more than 18 months old, the shares are valued at
' 1 per company.
• Units of mutual funds are valued at the latest Net
Asset Value (NAV) declared by the mutual fund.
• Treasury bills, commercial papers and certificate of
deposits being discounted instruments are valued at
carrying cost.
• Investments in Security Receipts (SRs) and unquoted
units of Infrastructure Investment Trust (InvIT) are
valued as per the net asset value provided by the
issuing Asset Reconstruction Company and InvIT
respectively.
• Investments in unquoted units of Alternative
Investment Fund (AIF) are valued at NAV provided
by the AIF based on its 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, the value of its units
is treated as ' 1. In case AIF is not registered under
SEBI (Alternative Investment Fund) Regulation, 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 is treated as ' 1.
• Pass Through Certificates (PTCs) 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.
• I nvestments classified under HTM and Group Cos.
category are carried at their acquisition cost and
not marked to market. Any diminution, other than
temporary, in the value of investments in HTM
and Group Cos. category is provided for. Hitherto,
any premium on investments classified under
HTM category, was amortised over the remaining
maturity period of the security on a constant yield-
to-maturity basis.
• For all debt securities meeting SPPI criteria (except
short sale securities), any discount or premium
on acquisition is accreted or amortised over the
remaining maturity period of the security on a
constant yield-to-maturity basis. Such accretion or
amortisation of discount or premium is classified
under interest income from investments.
• The investment portfolio is categorised into three fair
value hierarchies viz. Level 1, Level 2, and Level 3:
> Level 1 Financial Instruments are valued with
inputs such as quoted prices in active markets
for identical instruments.
> Level 2 Financial Instruments are valued with
inputs other than quoted prices, that are
observable for asset or liability either directly
or indirectly.
> Level 3 Financial Instruments are valued using
unobservable inputs.
• All investments are measured at fair value on initial
recognition. 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 case of Level 1 and Level 2
instruments, when acquisition cost is not equal to fair
value, any Day 1 gain / loss is recognised in the Profit
and Loss Account. In case of Level 3 instruments,
any Day 1 loss is recognized immediately in the
Profit and Loss Account whereas any Day 1 gain
is deferred. In case of Level 3 debt instruments, the
Day 1 gain is amortized on a straight-line basis up to
the maturity date (or earliest call date for perpetual
instruments), while for unquoted Level 3 equity
instruments, the gain is set aside as a liability until
the security is listed or derecognised.
• Non-performing investments (NPIs) are identified,
and provision is made thereon based on the RBI
guidelines. Provision for NPIs is not set-off against
appreciation in respect of performing investments.
Appreciation, if any, in the value of a NPI is not
recognised. Income on NPIs is not recognised
until received.
Disposal of investments:
I n accordance with the revised norms on investments,
Profit / Loss on sale of investments under the aforesaid
categories is recognised in the Profit and Loss Account
except for equity instruments designated under AFS at
the time of initial recognition, in respect of which the
gains and losses are transferred from AFS Reserve to
the Capital Reserve. Hitherto entire Profit / Loss on sale
of investments, were recognised in the Profit and Loss
Account. Cost of investments is determined based on
the weighted average cost method. The profit from sale of
investment under HTM and Group Cos. categories, net-
off taxes and transfer to statutory reserve is appropriated
from the Profit and Loss Account to “Capital Reserve”, in
accordance with RBI guidelines.
Short sale:
The Bank undertakes short sale transactions in Central
Government dated securities in accordance with the RBI
guidelines. The short position is categorised under HFT
and netted off from investments in government securities.
The short position along with other government securities
under HFT portfolio is marked to market and the resultant
MTM profit or loss, is taken to the Profit and Loss Account.
Profit / Loss on short sale is recognised on settlement
date.
2. Repurchase and reverse repurchase transactions:
Repurchase (Repo) and reverse repurchase (Reverse
Repo) transactions are reported as borrowing and
lending (lending above 14 days tenor reported as
advances) respectively.
Borrowing cost on repo transactions is accounted as
interest expense and revenue on reverse repo transactions
is accounted as interest income.
3. Advances
Classification:
Advances are classified as performing and non-performing
based on the RBI guidelines and are stated net of bills
rediscounted, inter-bank participation with risk, specific
loan loss provision, interest suspense for non-performing
advances, claims received from Credit Guarantors,
provision for funded interest term loan and provision for
diminution in the fair value of restructured assets.
The Bank classifies its loans and investments, including
overseas branches and overdues from crystallised
derivative contracts, into performing assets and non¬
performing assets (NPAs) in accordance with RBI
guidelines. Further the NPAs are classified into sub¬
standard, doubtful and loss assets based on the criteria
stipulated by RBI. Non-performing assets are upgraded
into standard as per the extant RBI guidelines.
Provisioning:
Specific loan loss provision in respect of non-performing
advances is made based on management's assessment
of the degree of impairment of advances, subject to the
minimum provisioning prescribed by the RBI.
The specific loan loss provision for retail non-performing
advances is also made based on the nature of product
and delinquency levels.
Non-performing advances are written-off in accordance
with the Bank's policy. Recoveries from bad debts written-
off are included under other income.
Loans reported as frauds are classified as loss assets
and fully provided for 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 and gold. The Bank also
maintains general provision for unhedged foreign currency
exposures of borrowers, provision on loans to specific
borrowers in specific stressed sectors, provision on
exposures to step-down subsidiaries of Indian companies
and provision on specified borrowers as prescribed by
RBI. In the case of overseas branches, general provision
on standard assets is maintained at the higher of the
levels stipulated by the respective overseas regulator or
RBI. The provision for standard assets is included under
other liabilities.
I n addition to the above, the Bank on a prudent basis
makes provision on advances or exposures which are not
N PAs, but 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. These are classified as contingent provisions
and included under other liabilities.
Provision made in addition to the Bank's policy for specific
loan loss provision for non-performing assets, possible
slippage of specific exposures and regulatory general
provision is categorised as floating provision. Creation of
floating provision is considered by the Bank up to a level
approved by the Board of Directors. Floating provisions
are used only for contingencies under extraordinary
circumstances and for making specific provisions for non¬
performing accounts. Floating provisions are included
under other liabilities.
Further to the provisions required to be held according
to the asset classification status, provision is held for
individual country exposures (other than for home country
exposure). Countries are categorised into risk categories
as per Export Credit Guarantee Corporation of India Ltd.
(‘ECGC') guidelines and provisioning is made in respect
of that country where the net funded exposure is one
percent or more of the Bank's total assets. Provision for
country risk is included under other liabilities.
I n accordance with the RBI guidelines on the prudential
framework for resolution of stressed assets and the
resolution frameworks for COVID-19 related stress and
its Board approved policy, the Bank has implemented
resolution plans for eligible borrowers. The asset
classification and necessary provision thereon is made
in accordance with the said RBI guidelines. Restructured
assets involving compromise settlements, where the
time for payment of the agreed settlement amount
exceeds three months are classified and provided for in
accordance with the guidelines issued by the RBI from
time to time.
The restructured loans are upgraded into standard
category as per the extant RBI guidelines. Further, in
respect of restructuring of loans pertaining to projects
under implementation, the asset classification and
necessary provision thereon is made in accordance with
the said RBI guidelines.
4. Securitisation and transfer of assets
Assets transferred through securitisation and direct
assignment of cash flows are de-recognised in the
Balance Sheet when they are sold (true sale criteria
being fully met with) and consideration is received.
Sales / transfers that do not meet true sale criteria are
accounted for as borrowings. For a securitisation or direct
assignment transaction, the Bank recognises profit upon
receipt of the funds and loss is recognised at the time of
sale. Unrealised gains associated with expected future
margin income is recognised in profit and loss account
on receipt, after absorbing losses, if any.
On sale of stressed assets, if the sale is at a price below
the net book value (i.e., funded outstanding less specific
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 when the sum
of cash received by way of initial consideration and /
or redemption or transfer of security receipts issued by
Securitisation Company (‘SC') / Reconstruction Company
(‘RC') exceeds the net book value of the loan at the time
of transfer. Where the sale consideration is comprised
of only cash and SRs guaranteed by the Government of
India, the excess provision is credited to the Profit and
Loss Account in the year of transfer.
In respect of stressed assets sold under an asset
securitisation, where the investment by the bank in SRs
issued against the assets transferred by it is more than 10
percent of such SRs, provisions held against outstanding
SRs are higher of the provisions required in terms of net
asset value declared by the SC / RC and provisions
as per the extant norms applicable to the underlying
loans, notionally treating the book value of these SRs as
the corresponding stressed loans assuming the loans
remained in the books of the Bank.
The Bank invests in PTCs issued by Special Purpose
Vehicles (SPVs). These are accounted at acquisition cost
and are classified as investments. The Bank also buys
loans through the direct assignment route which are
classified as advances. PTCs are carried at acquisition
cost unless it is more than the face value, in which case
the premium is amortised based on effective interest
rate method.
The Bank transfers advances through inter-bank
participation with and without risk. In the case of
participation with risk, the aggregate amount of the
participation issued by the Bank is reduced from
advances. In case where the Bank is assuming risk by
participation, the aggregate amount of the participation
is classified under advances. In the case of issue of
participation certificate without risk, the aggregate amount
of participation issued by the Bank is classified under
borrowings and where the Bank is acquiring participation
certificate, the aggregate amount of participation acquired
is shown as due from banks under advances.
5. Fixed assets and depreciation
Fixed assets are stated at cost less accumulated
depreciation as adjusted for impairment, if any. Cost
includes cost of purchase and all expenditure like site
preparation, installation costs and professional fees
incurred on the asset before it is ready to use. Subsequent
expenditure incurred on assets put to use is capitalised
only when it increases the future benefit / functioning
capability from / of such assets.
Depreciation is charged over the estimated useful life
of the fixed asset on a straight-line basis except for
freehold land. 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:
• Leasehold land is depreciated over the period
of lease.
• Improvements to leasehold premises are amortised
over the remaining period of lease.
• Software and system development expenditure is
amortised over a period upto 5 years.
• Point of Sales (PoS) terminals (including sound box)
are depreciated over a period of 4 years.
• For assets purchased and sold during the year,
depreciation is provided on pro-rata basis.
• Whenever there is a revision of the estimated useful
life of an asset, the unamortised depreciable amount
is charged over the revised remaining useful life of
the said asset.
• Profit on sale of immovable property net of taxes
and transfer to statutory reserve, are transferred to
capital reserve.
• Assets (other than PoS terminals) costing less than
' 5,000 individually, are fully depreciated in the year
of purchase.
6. Non-Banking Assets
Non-Banking Assets (NBAs) acquired in satisfaction
of claims are carried at lower of net book value or net
realizable value.
7. Impairment of assets
The Bank assesses at each Balance Sheet date whether
there is any indication that an asset may be impaired.
Impairment loss, if any, is provided to the extent the
carrying amount of assets exceeds their estimated
recoverable amount.
8. Translation of foreign currency items
Foreign currency income and expenditure items of
domestic operations are translated at the exchange
rates prevailing on the date of the transaction. Income
and expenditure items of integral foreign operations
(representative offices) are translated at the weekly
average closing rates and of non-integral foreign
operations (foreign branches and offshore banking units)
at the monthly average closing rates.
Outstanding foreign currency monetary items of domestic
and integral foreign operations are translated at the
closing exchange rates notified by Foreign Exchange
Dealers' Association of India (FEDAI) as at the Balance
Sheet date and the resulting net revaluation profit or loss
is recognised in the Profit and Loss Account.
Both monetary and non-monetary foreign currency
assets and liabilities of non-integral foreign operations
are translated at closing exchange rates notified by FEDAI
at the Balance Sheet date and the resulting profit / loss
arising from exchange differences are accumulated in the
Foreign Currency Translation Reserve until disposal of the
non-integral foreign operations in accordance with AS -
11, The Effects of Changes in Foreign Exchange Rates
and the extant RBI guidelines.
Foreign currency denominated contingent liabilities on
account of foreign exchange and derivative contracts,
guarantees, letters of credit, acceptances and
endorsements are translated at closing rates of exchange
notified by FEDAI as at the Balance Sheet date.
9. Foreign exchange and derivative contracts
Foreign exchange spot and forward contracts,
outstanding as at the Balance Sheet date and held for
trading, are revalued at the closing spot and forward
rates respectively as notified by FEDAI and at interpolated
rates for contracts of interim maturities. The USD-INR
exchange rate for valuation of contracts having longer
maturities i.e. greater than one year, is derived using the
USD-INR spot rate as well as relevant INR yield curve
and USD yield curve. For other currency pairs, and non¬
deliverable contracts, the forward points (for rates / tenors
not published by FEDAI) are obtained / derived basis
data published by Refinitiv or Bloomberg for valuation of
the contracts. Valuation is considered on present value
basis. For this purpose, the forward profit or loss on the
contracts are discounted to the valuation date using the
discounting yields. The resulting profit or loss on valuation
is recognised in the Profit and Loss Account. Marked to
market value of foreign exchange contracts are classified
as assets when the fair value is positive or as liabilities
when the fair value is negative.
The Bank recognises all derivative contracts at fair value,
on the date on which such derivative contracts are entered
into and are re-measured at fair value as at the Balance
Sheet date. Marked to market values of such derivatives
are classified as assets when the fair value is positive or
as liabilities when the fair value is negative.
The Bank as part of its risk management strategy, makes
use of derivative instruments, including foreign exchange
forward contracts, for hedging the risk embedded in
some of its financial assets or liabilities recognised on the
balance sheet. The Bank identifies the hedged item (asset
or liability) at the inception of the transaction itself. Hedge
effectiveness is ascertained at the time of the inception
of the hedge and at the reporting date thereafter.
Foreign exchange forward contracts and Principal only
swaps (POS) not intended for trading, that are entered into
to establish the amount of reporting currency required or
available at the settlement date of a transaction, and are
outstanding at the Balance Sheet date, are accounted in
accordance with AS-11. Accordingly, such contracts are
not marked to market and only translated at spot rate.
The premium or discount arising at the inception of such
forward exchange contract is amortised on a straight line
basis as expense or income over the life of the contract.
The interest income / expense on such POS transaction
is accounted on accrual basis.
I n case of a fair value hedge, the changes in the fair
value of the hedging instruments and hedged items are
recognised in the Profit and Loss Account and in case of
cash flow hedges, the changes in fair value of effective
portion are 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. The accumulated balance
in the cash flow hedge reserve, in an effective hedging
relationship, is recycled in the Profit and Loss Account at
the same time that the impact from the hedged item is
recognised in the Profit and Loss Account.
I n relation to derivative contracts with non-performing
borrowers, the Bank makes provision for the entire amount
of overdue and future receivables relating to positive
marked to market value of the said derivative contracts.
10. Revenue recognition
I nterest income is recognised in the Profit and Loss
Account on an accrual basis, except in the case of non¬
performing assets which is recognised when realised.
Interest income on investments in PTCs and loans bought
out through the direct assignment route is recognised at
their effective interest rate.
Income on non-coupon bearing discounted instruments is
recognised over the tenor of the instrument on a constant
yield basis.
Dividend on equity shares and preference shares is
recognised as income when the right to receive the
dividend is established.
Income from units of mutual funds / AIF is recognised on
cash basis.
Loan processing fee is recognised as income when due.
Syndication / Arranger fee is recognised as income when
a significant act / milestone is completed.
Gain / loss on sell down of loans is recognised in line with
the extant RBI guidelines.
Guarantee commission, commission on letter of credit,
annual locker rent fees and annual fees for credit cards
are recognised on a straight-line basis over the period
of contract. Other fees and commission income are
recognised when due, where the Bank is reasonably
certain of ultimate collection.
Fees paid / received for priority sector lending certificates
(PSLC) is recognised on straight-line basis over the period
of the certificate.
11. Employee benefits
Stock based Employee Compensation:
The Employee Stock Option Scheme (‘the Scheme')
provides for the grant of options to acquire equity shares
of the Bank to its employees and whole time directors.
The Employee Stock Incentive Master Scheme-2022
(ESIS-2022) provides for the grant of Restricted Stock
Units (units) to acquire equity shares of the Bank to its
employees and whole time directors. The options / units
granted shall vest as per their vesting schedule and these
may be exercised within a specified period.
The Bank followed the intrinsic value method to account for
its stock-based employee compensation plans in respect
of options granted up to March 31, 2021. Compensation
cost was measured by the excess, if any, of the market
price of the underlying stock over the exercise price as
determined under the option plan. The market price is
the closing price on the stock exchange where there is
highest trading volume on the working day immediately
preceding the date of grant.
Effective April 01, 2021, the fair value of share-linked
instruments on the date of grant for all instruments granted
after March 31, 2021 is recognised as an expense in
accordance with the RBI guidelines on Compensation of
Whole Time Directors / Chief Executive Officers / Material
Risk Takers and Control Function staff.
The fair value of the stock-based employee compensation
is estimated on the date of grant using Black-
Scholes model.
The compensation cost is amortised on a straight-line
basis over the vesting period after adjusting estimated
forfeiture. Ultimately, the cost for all instruments that vest is
recognised. The compensation expense is recognised in
the Profit and Loss Account with a corresponding credit to
Employee Stock Options Outstanding. On exercise of the
stock options, corresponding balance in Employee Stock
Options Outstanding is transferred to Share Premium.
In respect of the options which expire unexercised, the
balance standing to the credit of Employee Stock Options
Outstanding is transferred to General Reserve.
Gratuity:
The Bank has an obligation towards gratuity, a defined
benefit retirement plan covering all eligible employees.
The plan benefit vests upon completion of minimum
prescribed period of continuous years of service and
is in the form of lump sum amount, without an upper
limit, equivalent to 15 days' basic salary payable for each
completed year of service to all eligible employees on
resignation, retirement or death while in employment or on
termination of employment, except in respect of employees
of eHDFC Limited, where the vesting is equivalent to one
month's basic salary for each completed year of service
till the effective date of amalgamation. The Bank makes
contributions to a recognised Gratuity Trust administered
by trustees and whose funds are managed by insurance
companies. In respect of erstwhile Lord Krishna Bank
(eLKB) employees, the Bank makes contribution to a
fund set up by eLKB and administered by the Board of
Trustees. The defined gratuity benefit plans are valued
by an independent actuary as at the Balance Sheet
date using the projected unit credit method as per the
requirement of AS-15, Employee Benefits, to determine
the present value of the defined benefit obligation and the
related service costs. The actuarial calculations entails
assumptions about demographics, early retirement,
salary increases and interest rates. Actuarial gain or loss
is recognised in the Profit and Loss Account.
Superannuation:
The Bank has a Superannuation Plan under which
employees of the Bank, above a prescribed grade, are
entitled to receive retirement benefits either through salary
or under a defined contribution plan. For those opting for
a defined contribution plan, the Bank contributes a sum
equivalent to 13% of the employee's eligible annual basic
salary (15% for the whole time directors and for certain
eligible employees of the erstwhile Centurion Bank of
Punjab (eCBoP staff)) to a Trust administered by trustees
and whose funds are managed by insurance companies.
The Bank has no liability towards future superannuation
fund benefits other than its contribution and recognises
such contribution as an expense in the year incurred.
Provident fund:
The Bank is covered under the Employees Provident Fund
and Miscellaneous Provisions Act, 1952 and accordingly
all employees of the Bank are entitled to receive benefits
under the provident fund. The Bank contributes an amount,
on a monthly basis, at a determined rate (currently 12%
of employee's basic salary). Of this, the Bank contributes
an amount equal to 8.33% of employee's basic salary
up to a maximum salary level of ' 15,000/- per month,
to the Pension Scheme administered by the Regional
Provident Fund Office. The balance amount out of the
12% employer's share is contributed to an exempted Trust
set up by the Bank and administered by the Board of
Trustees. The Bank recognises such contributions as an
expense in the year in which it is incurred.
I nterest payable to the members of the exempted trust
shall not be lower than the statutory rate of interest
declared by the Central Government under the Employees
Provident Funds and Miscellaneous Provisions Act, 1952
and shortfall, if any, shall be made good by the Bank.
The guidance note on implementing AS-15, Employee
Benefits, states that benefits involving employer
established provident funds, which require interest
shortfalls to be provided, are to be considered as defined
benefit plan. Actuarial valuation of this Provident Fund
interest shortfall is done as per the guidance note issued
in this respect by The Institute of Actuaries of India (IAI)
and provision towards this liability is made.
The overseas branches of the Bank make contribution
to the respective applicable government social security
scheme calculated as a percentage of the employees'
salaries. The Bank's obligations are limited to these
contributions, which are expensed when due, as such
contribution is in the nature of defined contribution.
Pension:
In respect of pension payable to certain eLKB employees
under the Lord Krishna Bank (Employees) Pension
Scheme, which is a defined benefit scheme, the Bank
contributes 10% of basic salary to a pension trust set up
by the Bank and administered by the Board of Trustees
and an additional amount towards the liability shortfall
based on an independent actuarial valuation as at the
Balance Sheet date, which includes assumptions about
demographics, early retirement, salary increases and
interest rates.
In respect of certain eLKB employees who had moved to
a Cost to Company (CTC) based compensation structure
and had completed less than 15 years of service, the
contribution which was made until then, is maintained as
a fund and will be converted into annuity on separation
after a lock-in-period of two years. For this category
of employees, liability stands frozen and no additional
provision is required except for interest as applicable to
Provident Fund, which is provided for.
I n respect of certain eLKB employees who moved to
a CTC structure and had completed service of more
than 15 years, pension would be paid on separation
based on salary applicable as on the date of movement
to CTC structure. Provision thereto is made based on
an independent actuarial valuation as at the Balance
Sheet date.
National Pension System (NPS):
I n respect of employees who opt for contribution to the
N PS, the Bank contributes certain percentage of the basic
salary of employees to the aforesaid scheme, a defined
contribution plan, which is managed and administered
by pension fund management companies. The Bank has
no liability other than its contribution and recognises such
contributions as an expense in the year incurred.
12. Debit and credit cards reward points
The Bank estimates the probable redemption of debit
and credit card reward points and cost per point using an
actuarial method by employing an independent actuary,
which includes assumptions such as discount rate, block,
withdrawal, cost per reward point, mortality, redemption
and spends. Provisions for liabilities on the outstanding
reward points are made based on an independent
actuarial valuation as at the Balance Sheet date and
included in other liabilities and provisions.
13. Bullion
The Bank imports bullion including precious metal bars
on a consignment basis or through exchange (India
International Bullion Exchange - Gift City). The imports
are typically on a back-to-back basis and are priced to the
customer based on the price quoted by the supplier. The
difference between the price recovered from customers
and cost of bullion is accounted at the time of sale to the
customers and reported as ‘‘Other Income''.
The Bank also deals in bullion on a borrowing and lending
basis and the interest thereon is accounted as interest
expense / income respectively.
14. Segment information
The disclosure relating to segment information is in
accordance with AS-17, Segment Reporting and as per
guidelines issued by RBI.
15. Lease accounting
Lease payments including cost escalation for assets
taken on operating lease are recognised as expense in
the Profit and Loss Account over the lease term on a
straight-line basis in accordance with the AS-19, Leases.
16. Earnings per share
The Bank reports basic and diluted earnings per equity
share in accordance with AS-20, Earnings per Share.
Basic earnings per equity share has been computed
by dividing net profit for the year attributable to equity
shareholders by the weighted average number of equity
shares outstanding for 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 to equity during the year. Diluted earnings per
equity share are computed using the weighted average
number of equity shares and the dilutive potential equity
shares outstanding during the year except where the
results are anti-dilutive.
17. Income tax
Income tax expense is the aggregate amount of current tax
and deferred tax expense incurred by the Bank. Current
tax expense is determined in accordance with the relevant
provisions of the Income Tax Act, 1961 and rules framed
thereunder and considering the material principles set out
in the Income Computation and Disclosure Standards to
the extent applicable. Deferred tax expense is determined
as per AS-22, Accounting for Taxes on Income. Deferred
tax assets and liabilities are recognised for the future tax
consequences of timing differences between the carrying
values of assets and liabilities and their respective tax
bases, and operating loss carried forward, if any. Deferred
tax assets and liabilities are measured using the enacted
or substantively enacted tax rates as at the Balance
Sheet date.
Current tax assets and liabilities and deferred tax assets
and liabilities are off-set when they relate to income taxes
levied by the same taxation authority, when the Bank has
a legal right to off-set and when the Bank intends to settle
on a net basis.
Deferred tax assets are recognised only to the extent there
is reasonable certainty that the assets can be realised
in future. In case of unabsorbed depreciation or carried
forward loss under taxation laws, deferred tax assets are
recognised only if there is virtual certainty of realisation
of such assets. Deferred tax assets are reviewed at
each Balance Sheet date and appropriately adjusted to
reflect the amount that is reasonably / virtually certain to
be realised.
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