17 Significant accounting policies forming part

of the financial statements for the year ended March 31, 2026

A Background

IDFC FIRST Bank Limited (The “Bank”) was incorporated on October 21, 2014, as a Company under the Companies Act, 2013 and had commenced its banking operations on October 01, 2015, after receiving universal banking license from the Reserve Bank of India (‘The RBI') on July 23, 2015. The Bank provides a complete suite of banking and financial services including retail banking, wholesale banking, digital banking and treasury operations. The Bank is primarily governed by the Banking Regulation Act, 1949. The bank has an Offshore Banking unit at International Financial Service Centre Banking Unit (IBU), Gujarat International Finance Tec - City (GIFT City), Gandhinagar, India.

The financial accounting systems of the Bank are centralised and, therefore, accounting returns are not required to be submitted by branches of the Bank.

The Bank's shares are listed on National Stock Exchange of India Limited and BSE Limited.

B Basis of preparation

The financial statements have been prepared and presented based on historical cost convention and accrual basis of accounting, unless otherwise stated and are in accordance with the requirements prescribed under Section 29 and Third Schedule of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the preparation of these financial statements are in conformity with Generally Accepted Accounting Principles in India (‘Indian GAAP'), circulars and guidelines issued by the RBI from time to time, the Accounting Standards notified under section 133 of the Companies Act, 2013 read together with para 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Rules, 2021 (as amended) to the extent applicable and practices generally prevalent in the banking industry in India. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year except stated otherwise.

Cash flows statements are prepared using the indirect method.

C Use of estimates

The preparation of financial statements in conformity with the Generally Accepted Accounting Principles requires the Management to make estimates and assumptions that affects the reported amount of assets and liabilities (including contingent liabilities) as of the date of the financial statements and revenues and expenses during the reporting period. The management believes that the estimates used in preparation of financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively from the period of change.

D Significant accounting policies:

17.01 Investments

Classification and Valuation of the Bank's investments is carried out in accordance with the RBI guidelines and Fixed Income Money Market and Derivatives Association (‘FIMMDA') and Financial Benchmark India Private Limited (‘FBIL') guidelines respectively, prescribed in this regard from time to time.

Classification:

In accordance with the RBI Guidelines on investment classification and valuation; Investments are classified into following categories:

• Held to Maturity (‘HTM')

• Available for Sale (‘AFS')

• Fair Value through Profit and Loss (FVTPL) including sub-category Held for T rading (HFT) and

• I nvestment in Subsidiaries, Associates and / or Joint Ventures

However, for disclosure in the Balance Sheet, investments in India are classified under six categories - (i) Government securities, (ii) Other approved securities, (iii) Shares, (iv) Debentures and bonds, (v) Investment in Subsidiaries and / or joint ventures and (vi) Others.

Investments made outside India are classified under three categories - (i) Government Securities (including local authorities), (ii) Subsidiaries and / or joint ventures abroad and (iii) Others investments.

Purchase and sale transactions in securities are

recorded under settlement date of accounting, except in the case of equity shares where trade date accounting is followed.

Basis of classification and accounting:

HTM:

• Securities are acquired with an intention and objective of holding it to maturity and terms of the security gives rise to cash flows that are solely payments of principal and interest (SPPI criteria test) on specified dates then it shall be classified under HTM.

AFS:

• Securities that fulfil the SPPI criteria test and are acquired with the objective of collecting contractual cash flows and selling securities shall be classified under AFS. Further on initial recognition, the Bank may make an irrevocable election to classify an equity instrument that is not held with the objective of trading under AFS.

FVTPL:

• Securities that are not classified as HTM or AFS are classified as FVTPL. The Bank classifies investments in FVTPL category as either FVTPL-HFT or FVTPL Non-HFT. Securities acquired with the intention to trade i.e. to take advantage of price and interest rate movements in the short term through active buying and selling will be classified under FVTPL- ‘HFT'.

• Investments in listed equities are classified in FVTPL HFT category, while unlisted equities are classified in FVTPL Non-HFT, unless designated under AFS category at initial recognition.

• All other securities that do not qualify for inclusion in HTM, AFS or FVTPL-HFT shall be classified under FVTPL-Non - HFT subject to RBI Guidelines.

Investments in Subsidiaries, Associates and Joint Ventures:

• All investments in subsidiaries, associates, and joint ventures are held in a distinct category for such investments separate from the other investment categories.

Cost of acquisition:

• Costs such as brokerage and commission pertaining to investments paid at the time of

acquisition are charged to the Profit and Loss Account.

• Cost of investments is computed based on First in First Out Method (FIFO) for all categories of Investments including short sales.

• Broken period interest paid to the seller as part of cost and is treated as an item of expenditure under Profit & Loss Account in respect of investments in securities.

Initial recognition:

All investments are measured at fair value on initial recognition. Unless facts and circumstances as mentioned in the RBI guidelines suggest that fair value is materially different from the acquisition cost, it is presumed that the acquisition cost is the fair value.

Day-1 Gain / Loss:

Day-1 Gain / loss arising due to difference between fair value and acquisition cost on the date of initial recognition are accounted for under :

• Day-1 Gain / loss on level 1 / level 2 instruments are recognized in the Profit and Loss Account under Schedule 14 - Other Income within the subhead ‘Profit / (loss) on revaluation of investments (net)'.

• Day-1 gain on level 3 instruments are deferred. In the case of debt instruments, the Day-1 gains are amortized on a straight-line basis up to the maturity date (or earliest call date for perpetual instruments), while for unquoted equity instruments, the gains are set aside as a liability until the security is listed or derecognized.

• Day-1 loss on level 3 instruments is recognized immediately in the Profit and Loss Account.

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.

Transfer of security between categories:

• Transfer of securities between categories of investments is accounted as per the RBI guidelines. The Bank cannot reclassify investments between categories (viz. HTM, AFS and FVTPL (including reclassification from / to HFT) without the approval of the Board of Directors. Further, reclassification shall also require prior approval of the Department of Supervision (DoS), RBI.

• Transfer of scrip from HTM to AFS is made at fair value. Any gain or loss arising from a difference between the revised carrying value and the previous carrying value shall be recognised in AFS-Reserve.

• Transfer of scrip from HTM to FVTPL is made at fair value. Any gain or loss arising from a difference between the revised carrying value and the previous carrying value shall be recognised in Profit and Loss Account.

• Transfer of scrip from AFS to HTM is made at fair value. The cumulative gain / loss previously recognised in the AFS-Reserve shall be withdrawn therefrom and adjusted against the fair value of the investments at the reclassification date to arrive at the revised carrying value.

• Transfer of scrip from AFS to FVTPL is continuing to be at fair value. The cumulative gain or loss previously recognised in AFS-Reserve shall be withdrawn therefrom and recognised in the Profit and Loss Account.

• Transfer of scrip from FVTPL to AFS and HTM is made at carrying value. The carrying amount representing the fair value at the reclassification date remains unchanged.

Subsequent measurement:

Investments classified under HTM category are carried at cost and are not marked to market. Any premium or discount on acquisition of debt securities held under HTM, AFS or FVTPL including HFT category is amortised over the remaining life of the security on a straight line method basis excluding STRIPS. Such amortisation is adjusted against interest income under the head “Income on Investments” as per the RBI guidelines.

Investments classified under AFS are fair valued and net appreciation / depreciation across all performing investments, net of taxes, if any, is directly credited

or debited to AFS Reserve without routing through Profit and Loss Account.

Investments classified under FVTPL (including HFT category) are fair valued and net gain / loss arising on such valuation is directly credited or debited to Profit and Loss Account.

Valuation:

• The fair value of quoted government securities included in the AFS and FVTPL including subcategory HFT categories is computed as per the prices published by Financial Benchmarks India Private Limited (FBIL). For securities whose prices are not published by FBIL, fair value of the securities is based upon quoted price as available from the trades / quotes on recognised stock exchanges, reporting platforms or trading platforms authorized by RBI / SEBI or prices declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA).

• The fair value of unquoted central and state government securities which are in the nature of Statutory Liquidity Ratio (‘SLR') securities forming part of AFS and FVTPL-HFT categories are computed as per the Price / Yield to maturity (YTM) rates published by FBIL.

• Special bonds such as oil bonds, DISCOM bonds, fertilizer bonds, etc. that do not qualify for SLR are valued using the prices published by FBIL or as per the extant FIMMDA / RBI guidelines.

• Quoted Non SLR Bond investments are valued based on the Security Level Valuation (SLV) / Price published by FIMMDA. The valuation of unquoted Non SLR fixed income securities is done considering the YTM curve, as applicable. The YTM rate would consist of FBIL par yield and credit spread published by FIMMDA corresponding to the residual tenor, rating and industry classification of the security.

• Traded Equity investments are valued at the closing price as available on National Stock Exchange (NSE). In case the equity script is not listed on NSE, then closing price as available on BSE is considered. In case the script is not listed in either NSE or BSE, closing from the exchange on which the script is listed shall be considered.

• Unquoted equity shares are valued at the break -up value, if the latest Balance Sheet is available (which should not be more than 18 months prior

to the date of valuation) or at ' 1 as per the RBI guidelines in case the latest Balance sheet is not available.

• Units of mutual funds are valued at the Net Asset Value (‘NAV') declared by the mutual fund.

• The valuation of discounted instruments such as, Treasury Bills, Commercial Papers, Certificate of Deposits is reckoned at carrying cost, while STRIPS are valued as per the prices published by FBIL / FIMMDA, in line with FIMMDA / Market Risk Management Policy. The accretion of discount on discounted money market Securities (CP / CD / T-Bill) is computed basis the straightline method while the STRIPS is reckoned as per constant yield method.

• Security receipts (‘SR') are valued at the lower of realisation value and Net Asset Value (NAV) considering as per the Net Asset Value provided by the Asset Reconstruction Companies (ARCs). However, the Valuation (i.e. Market Value) for Security Receipts shall be capped to its Book Value, considering the nature of Instruments. Further, If the investment by the transferor in SRs issued against loans transferred by it is more than 10 percent of all SRs issued against the transferred asset, then the valuation of the SRs in the books of the transferor shall be carried out as per extant RBI guideline.

• Units of Venture Capital Funds (‘VCF') and Unquoted Alternative Investment Fund (AIFs) are valued at Net Asset Value (NAV) declared by the funds. Where an AIF fails to carry out and disclose the valuation of its investments by an independent valuer as per the frequency mandated by SEBI (Alternative Investment Fund) Regulations, 2012, the value of its units shall be treated as ' 1. In case AIF is not registered under SEBI (Alternative Investment Fund) Regulations, 2012 and the latest disclosed valuation of its investments by an independent valuer precedes the date of valuation by more than 18 months, the value of its units shall be treated as ' 1.

• The Bank may invest in Category I and Category II Alternative Investment Funds (AIFs) in accordance with the RBI (Commercial Banks -Undertaking of Financial Services) Directions, 2025. The Bank's investment in any single AIF scheme shall not exceed 10 percent of the total corpus of that scheme. Further, the aggregate investment by all banks in any single AIF scheme shall not exceed 20 percent of the corpus of that

scheme. Where the Bank's investment in an AIF scheme exceeds 5 percent of the corpus, and the AIF has made a downstream investment (other than equity instruments) in a company which is also a borrower of the Bank, the Bank shall make a 100 percent provision. Such provision shall be limited to the Bank's proportionate exposure to the borrower through the AIF scheme and shall be capped at the amount of the Bank's direct loan and /or investment exposure to that borrower. If the Bank's investment in an AIF scheme is in the form of subordinated units, the entire investment amount shall be regarded as high risk and shall be fully deducted from the Bank's capital funds. The deduction shall be made proportionately from Tier 1 and Tier 2 capital, wherever applicable.

• Pass Through Certificates (‘PTCs') including Priority Sector PTCs are valued as per extant RBI guidelines.

• Loans converted into equity instruments which are acquired as a part of resolution plan, are recognised and valued, in accordance with the RBI guidelines.

Investments in subsidiaries, Associates or Joint Ventures are separately categorised in accordance with RBI guidelines and held at cost. Any premium or discount on acquisition of debt securities of subsidiaries, associate and joint venture is amortised over the remaining maturity of instrument. The Bank assesses these investments for impairment on a quarterly basis to determine any permanent diminution in value considering the parameters as detailed in extant RBI Master Direction on Investments and if any provisions are made as per the extant RBI guidelines.

Dividend received from pre - acquisition profits is reduced from cost of investments as per AS-13 “Accounting for Investments”.

Investments classified under AFS and FVTPL including HFT categories are marked to market as per the extant RBI guidelines. Book value of the individual securities does not undergo any change after the marked to market.

Securities are valued script wise and depreciation / appreciation is aggregated for each category of investment in their respective classifications. Net depreciation / appreciation, if any, compared to the acquisition cost, for FVTPL including HFT categories, is charged to the Profit and Loss Account.

Non-performing investments (‘NPI') are identified and depreciation / provision is made thereon based on the RBI guidelines. Interest on non-performing investments is recognised on cash basis. Mark-to-Market appreciation in the security is ignored.

Once an investment is classified as an NPI, these securities are segregated from rest of the portfolio and are not considered for netting valuation gains and losses.

Irrespective of the category (i.e., HTM, AFS or FVTPL (including HFT)) in which the investment has been placed, the provision for impairment is recognised in the Profit and Loss Account.

As a prudent risk measure, specific provision against identified investments are made based on management's assessment of impairment based on qualitative factors, subject to minimum provision determined as per FIMMDA / RBI valuation guidelines. These provisions are netted off from carrying value of such investments. Further, interest on such identified investments is recognised on cash basis.

Bonds and debentures are classified as other receivables under other assets on maturity date and disclosed under Schedule 11 - Other assets.

Investment Fluctuation Reserve (‘IFR'):

As per the RBI guidelines the Bank is required to create an Investment Fluctuation Reserve (‘IFR'). An amount not less than the lower of net profit on sale of investments in the AFS and FVTPL (including HFT) portfolio during the year or net profit for the year less mandatory appropriations shall be transferred to the IFR, until the amount of IFR is at least 2 percent of the AFS and FVTPL (including HFT) portfolio, on a continuing basis.

Further, the Bank may, at its discretion, draw down the balance available in IFR in excess of 2 percent of its AFS and FVTPL (including HFT) portfolio, for credit to the balance of profit / loss as disclosed in the profit and loss account at the end of any accounting year. In the event the balance in the IFR is less than 2 percent of the AFS and FVTPL (including HFT) investment portfolio, a draw down is permitted subject to the following conditions:

(a) The drawn down amount is used only for meeting the minimum Common Equity Tier 1 / Tier 1 capital requirements by way of appropriation to free reserves or reducing the balance of loss and

(b) The amount drawn down shall not be more than the extent, the MTM provisions / losses made during the aforesaid year exceed the net profit on sale of investments during that year.

IFR is eligible for inclusion in Tier II capital.

Short sales:

The Bank undertakes short sale transactions in Central Government dated securities in accordance with the RBI guidelines and these are shown under Schedule 8 - Investments. The short sale position is categorised under HFT category and netted off from HFT investments. The short position is marked to market along with other securities in that category and Gain / loss, if any, is recognised in the Profit and Loss Account as per the relevant RBI guidelines for valuation of Investments. Profit / loss on settlement of the short position is recognised in the Profit and Loss Account.

Repurchase and reverse repurchase transactions:

In accordance with the RBI guidelines, Repurchase transactions (Repo) and Reverse repurchase transactions (Reverse Repo) in government securities, Municipal Debt Securities, Commercial Papers, Certificate of Deposits , Units of Debt ETFs and corporate debt securities, including transactions conducted under Liquidity Adjustment Facility (‘LAF') and Marginal Standby Facility (‘MSF') with RBI are reflected as collateralised borrowing and lending transactions respectively. Balances held under Standing Deposit Facility (SDF) are reported under Schedule 6 -Cash and Balance with Reserve Bank of India. Borrowing cost on repo transactions is accounted as interest expense and revenue on reverse repo transactions is accounted as interest income.

As per the RBI circular RBI/2022-23/55 DOR. ACC.REC.No.37/21.04.018/2022-23 dated May 19, 2022, reverse repos with banks and other institutions having original tenors more than 14 days are classified under Schedule 9 - Advances. Reverse repos with banks and other institutions having original tenors up to and inclusive of 14 days are classified under Schedule 7 - Balances with banks and money at call and short notice.

17.02 Advances

In accordance with the RBI guidelines, advances are classified as performing and non - performing. Non - Performing advances (‘NPA') are further classified as Sub - Standard, Doubtful and Loss Assets in accordance with the RBI guidelines on Income Recognition, Asset Classification and provisioning (‘IRACP'). In addition, based on extant environment or specific information on risk of possible slippages or current pattern of servicing, the Bank makes provision on specific advances which are classified as standard advances as these are not non-performing advances (‘identified standard advances'). Advances are stated net of provisions against NPA, Interest in suspense for NPAs, specific provisions against identified advances, claims received from Export Credit Guarantee Corporation, provisions for non -performing funded interest term loan, net of direct assignment and provisions in lieu of diminution in the fair value of restructured asset.

The Bank may transfer 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 the participation is classified as due from banks 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.

The Bank makes general provisions on all standard advances and restructured advances based on the rates under each category of advance as prescribed by the RBI. In addition, the Bank makes provisions for standard assets in stressed sectors, at rates higher than the regulatory minimum, based on evaluation of risk and stress as per the Board approved policy. The provision on standard advances is not reckoned for arriving at net NPAs. The provision against standard advances (other than provision against identified advances) is shown separately as “Contingent Provisions against Standard Assets” under Schedule 5 - Other Liabilities and Provision.

In case of corporate loans, specific loan loss provisions in respect of identified advances and non-performing advances are made based on the management's assessment of the degree of impairment, subject to the minimum provisioning level prescribed by the RBI. The Bank can provide additional specific provision on standard advances at higher than prescribed rates as a prudent risk measure. These provisions are reviewed and reassessed at least once in a year. Provision on / write off of homogeneous retail loans and advances,

subject to minimum provisioning requirement of the RBI, is assessed on the basis of ageing of loans as prescribed in the Board approved policy of the Bank. Provision due to diminution in the fair value of restructured / rescheduled loans and advances is made in accordance with the applicable the RBI guidelines.

Non-performing and restructured loans are upgraded to standard as per the extant RBI guidelines.

The RBI has issued Reserve Bank of India (Commercial Banks - Resolution of Stressed Assets) Directions, 2025 with a view to providing a framework for early recognition, reporting and time bound resolution of stressed assets. The Banks Board approved Recovery Policy covers resolution requirements detailed in these guidelines.

The Bank is required to make an additional provisioning for the delayed implementation of Resolution Plan (RP) as under:

(a) Additional provision of 20% of total

outstanding if RP is implemented beyond 180 days from the end of the review period.

(b) Additional provision of 15% of total

outstanding if RP is implemented beyond 365 days from the commencement of the review period.

The additional provisions shall be made over and above the higher of the following, subject to the total provisions held being capped at 100% of total outstanding:

(a) The provisions already held; or,

(b) The provisions required to be made as per the asset classification status of the borrower account

In the event of substantial erosion in value of loan and remote possibility of collection, non performing loans with adequate provisions are evaluated for technical / prudential write off based on Bank's policy and the RBI guidelines. Such write off does not have an impact on the Bank's legal claim against the borrower. The Bank may also write off non performing loans on one time settlement (‘OTS') with the borrower or otherwise. Amounts recovered from borrowers against debts written off is recognised in the Profit and Loss Account under “Provisions and Contingencies”.

Loans identified as fraudulent are classified as Loss Assets. In accordance with RBI guidelines, the Bank is required immediately to create a full provision for

the entire amount due to the Bank or for which the Bank is liable, without considering the value of any underlying security.

In respect of borrowers classified as wilful defaulters, the Bank makes accelerated provisions as per the extant RBI guidelines.

Unhedged foreign currency exposure:

Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines and disclosed under Contingent Provision against Standard Assets. Further, the provision for UFCE is considered for inclusion in Tier 2 Capital.

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 as per the RBI guidelines). The countries are categorised into seven risk categories as mentioned in the ECGC guidelines namely Insignificant, Low, Moderately Low, Moderate, Moderately high, High and very high and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the funded exposure (net funded) of the Bank in respect of each country does not exceed 1% of the total assets, no provision is maintained on such country exposure.

17.03 Revenue recognition

Interest income:

Interest Income is recognised on accrual basis in the Profit and Loss Account, except in the case of Non - Performing Assets (‘NPAs') and identified standard advances, where it is recognised upon realisation. The unrealised interest booked in respect of NPAs and identified standard advances and any other facility given to the same borrower is reversed to the Profit and Loss accounts and subsequent interest income is accounted into interest suspense.

The unrealized interest represented by Funded Interest Term Loan (‘FITL') is reversed in Profit and Loss Account with the corresponding credit in Sundry Liabilities Account - Interest Capitalization account. Interest income is booked in Profit and Loss Account upon realization, by debiting the sundry liabilities account.

Interest Income on coupon bearing securities is recognised over the tenure of the instrument on a straight line method and on non-coupon bearing securities over the tenure on yield basis. Any premium or discount on acquisition of debt securities (securities meeting SPPI criteria) held under HTM, AFS or FVTPL category is amortised over the remaining life of the security on a straight line method basis. STRIPS are amortised on constant yield basis. Interest income on investments in PTCs is recognised at their contractual rate.

Dividend on equity shares, preference shares, alternative investment funds and on mutual fund units is recognised as income when the right to receive the dividend is established.

Fees and charges:

Loan originating / processing fees, when it becomes due, is recognised upfront as income. Arrangership / Syndication fee is accounted on completion of the agreed service and when right to receive is established. Fee and commission income is recognised as income when due and reasonable right of recovery is established and can be reliably measured.

Commission received on guarantees and letter of credit issued is recognised on straight line basis over the period of the contract or the period for which commission is received.

Fee and commission on renegotiations or rescheduling of outstanding debt is recognised over the rescheduled extension period.

Underwriting commission earned to the extent not reduced from the cost of the securities is recognised as fees on closure of issue.

Penal charge is recognised as income on realisation basis.

Annual / renewal fee on cards and locker rent are amortised on a straight-line basis over period of one year.

All other fees and charges are recognised as and when they become due and revenue can be reliably measured and reasonable right of recovery is established.

Sale of Investments:

Profit / loss on sale of investments under the HTM categories is recognised in the Profit and Loss Account. Further, the profit on sale of investments in HTM categories is appropriated to the Capital

Reserve Account (net of taxes and amount required to be transferred to Statutory Reserves) in accordance with the RBI guidelines.

Profit / loss on sale of investments under the FVTPL including HFT categories is recognised 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 transferred from the AFS Reserve and recognized in the Profit and Loss Account under Schedule 14 - Other Income.

Profit from sale of investment in Subsidiary, Associate, or Joint Venture is first recognised in the Profit and Loss Account and then appropriated below the line from Profit and Loss Account to the Capital Reserve Account. The amount so appropriated is net of taxes and the amount required to be transferred to Statutory Reserves.

In the case of equity instruments designated under AFS at the time of initial recognition, any gain or loss on sale of such investments is not transferred from AFS-Reserve to the Profit and Loss Account. Instead, such gain or loss is transferred from AFS-Reserve to the Capital Reserve.

Exchange gain or loss arising on account of revaluation of monetary assets and liabilities (other than IBU) is recognised in the Profit and Loss Account as per the revaluation rates published by Foreign Exchange Dealers' Association of India (‘FEDAI').

Securitisation transactions:

The Bank enters into sale of loans through Special Purpose Vehicle (‘SPV'). In most cases, post securitisation, the Bank continues to service the loans transferred to the SPV. The Bank also provides credit enhancement in the form of cash collaterals and / or by subordination of cash flows to Senior Pass-Through Certificate holders. In respect of credit enhancements provided or recourse obligations accepted by the Bank, appropriate disclosure is made at the time of sale in accordance with AS - 29 “Provisions, Contingent Liabilities and Contingent Assets”.

The Bank invests in PTCs issued by SPVs. These are accounted for at the deal value and are classified as investments.

In accordance with the Reserve Bank of India (Commercial Banks - Securitisation Transactions) Directions, 2025 the profit, loss or premium on

account of securitisation of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitised asset.

Any resultant profit, loss or premium realised on account of securitisation is recognised to the Profit and Loss Account in the period in which the sale is completed.

In case of Non - Performing Assets sold to Securitisation Company (‘SC') / Reconstruction Company (‘RC') at a price below the Net Book value (NBV) at the time of transfer, Bank debit the shortfall to the profit and loss account for the year in which the transfer has taken place.

On the other hand, when the stressed loan is transferred to an ARC for a value higher than the NBV at the time of transfer, the Bank shall reverse the excess provision on transfer to the profit and loss account in the year the amounts are received and only when the sum of cash received by way of initial consideration and / or redemption or transfer of Security Receipts (SR) / Pass Through Certificates (PTCs) / other securities issued by ARCs is higher than the NBV of the loan at the time of transfer. Further, such reversal shall be limited to the extent to which cash received exceeds the NBV of the loan at the time of transfer.

In cases of investments in SRs by more than 10 percent of the SRs backed by the assets sold and issued under the scheme of securitisation, provisioning requirement on SRs will be lower of provisioning rate required in terms of net asset value declared by the SCs / RCs or face value of the SRs reduced by the notional provisioning rate as applicable to the underlying loans, assuming that the loans notionally continued in the books.

In case of stressed loans are taken over by ARCs as agents for recovery in exchange for a fee, the loans will not be removed from the books of the transferors but realisations as and when received shall be credited to the loan accounts. The Bank is required to continue provisions for the loan in the normal course.

Direct Assignments:

Assets transferred through 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 by the Bank.

Any loss or profit arising on account of sale is

recognised in the Profit and Loss Account in the year in which the sale occurs. However, unrealised profits, if any, arising out of such transfers, shall be deducted from CET 1 capital for meeting regulatory capital adequacy requirements till the maturity of such loans. In case of gain on sale of non -performing assets, the excess provision shall not be reversed but will be utilised to meet the shortfall / loss on account of sale of other non-performing financial assets and shortfall if any is charged to the Profit and Loss Account.

17.04 Priority sector lending certificates (‘PSLCs’)

The Bank enters into transactions for the purchase or sale of Priority Sector Lending Certificates (‘PSLCs'). In case of a purchase transaction, the Bank buys the fulfilment of priority sector obligation and in case of a sale transaction, the Bank sells the fulfilment of priority sector obligation through the RBI trading platform without any transfer of underlying risk or loan assets. Fees paid for purchase of the PSLCs is recorded as ‘Other Expenditure' and fees received for the sale of PSLCs is recorded as ‘Miscellaneous Income' in Profit and Loss Account. These are amortised on straight line basis over the tenor of the certificate.

17.05 Transactions involving foreign exchange

Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities of domestic and integral foreign operations are translated at closing exchange rates notified by FEDAI relevant to the Balance Sheet date and rates published by approved external market data service providers in case where FEDAI rates are not available. The resulting gain or loss on revaluation are included in the Profit and Loss Account in accordance with the RBI / FEDAI guidelines. All outstanding forward exchange contracts are revalued based on the Forward rates notified by FEDAI for specified maturities and at interpolated rates for contracts of interim maturities. The forward exchange contracts of longer maturities (i.e. greater than or equal to 2 years) where exchange rates are not notified by FEDAI are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognized in the Profit and Loss Account.

Contingent liabilities on account of forward exchange and derivative contracts, guarantees, acceptances,

endorsements and other obligations denominated in foreign currencies are valued and disclosed at closing rates of exchange notified by FEDAI as at the Balance Sheet date.

The financial statements of IBU branch which are in the nature of non-integral overseas operations are translated on the following basis: (a) Income and expenses are translated at the rates prevailing on the date of the transactions and (b) All assets and liabilities (both monetary and non-monetary as well as contingent liabilities) are translated at closing rate notified by FEDAI as at Balance sheet date.

The exchange difference arising out of translation is debited or credited as “Foreign Currency Translation Reserve” forming part of “Reserves and Surplus”.

17.06 Accounting for derivative transactions

Derivative transactions comprises of forward contracts, Forward rate agreements (FRAs), Futures, Bond forwards, Swaps and Options. The Bank undertakes derivative transactions for trading and hedging Balance Sheet assets and liabilities.

Trading Derivatives:

All trading transactions are marked to market and resultant gain or loss is recognized in the Profit and Loss Account.

Foreign exchange contracts and derivative contracts are classified as assets when the fair value is positive (positive marked to market value) under Schedule 11 - Other Assets or as liabilities when the fair value is negative (negative marked to market value) under Schedule 5 - Other Liabilities and Provision.

The amounts received / paid on cancellation of option contracts are recognized as realized gain / loss on options. Charges receivable / payable on cancellation / termination of foreign exchange forward contracts are recognized as income / expense on the date of cancellation / termination under ‘Other Income'.

Premium in option transaction is recognized as income / expense on expiry or early termination of the transaction.

Mark to market gain / loss (adjusted for premium received / paid on options contracts) is recorded as other income.

Hedging derivatives including funding swaps:

Hedge transactions after June 26, 2019 are accounted for as per the guidance note issued by ICAI on accounting for derivative contracts. In 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'. Any resultant profit or loss on termination of hedge swaps is amortized over the life of the swap or underlying whichever is shorter. Upon ineffectiveness of hedge on re-assessment or termination of underlying, the Bank shall de-designate the derivative as trade.

Funding swaps are accounted in accordance with FEDAI guidelines/ AS 11 - “The Effects of Changes in Foreign Exchange Rates”.

The forward exchange contracts and Principal only swaps (POS) that are not intended for trading (including funding swaps / swaps cost) 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 valued at closing spot rate. The premium / discount arising on inception of such forward exchange contracts is amortised over the life of the contract as interest income / expense. The interest income / expense on such POS transaction is accounted on accrual basis.

Provisioning:

Pursuant to the RBI guidelines, any receivables under derivative contracts which remain overdue for more than 90 days and mark-to-market gains on all derivative contracts with the same counter parties are reversed in Profit and Loss Account and held in a ‘Suspense Account-Crystallised Receivables'.

Further, derivative contract is not terminated on the overdue receivable remaining unpaid for 90 days. In addition to reversing the crystallised receivable from Profit and Loss Account as stipulated above, the positive MTM pertaining to future receivables shall also be reversed from Profit and Loss Account to another account styled as ‘Suspense Account -Positive MTM'.

The subsequent positive changes in the MTM value shall be credited to the ‘Suspense Account -Positive MTM', not to Profit and Loss Account. The subsequent decline in MTM value shall be adjusted against the balance in ‘Suspense Account - Positive MTM'. If the balance in this account is not sufficient, the remaining amount may be debited to the Profit and Loss Account.

On payment of the overdue in cash, the balance in the ‘Suspense Account-Crystallised Receivables' are transferred to the ‘Profit and Loss Account', to the extent payment is received.

General provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. For provisioning purpose, the exposure for all the counterparties with whom the Bank has bilateral agreement in place / Qualified Central Counter Party (QCCP), is reckoned as net positive MTM adjusted for collateral, if any, at the counterparty level. The exposure under standard provisioning for remaining counterparties is computed as the gross positive MTM at deal level and adjusted for collateral at the counterparty level.

17.07 Fixed assets and depreciation

Fixed assets are carried at cost of acquisition less accumulated depreciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets or an extension which becomes an integral part of the asset.

The Bank believes that the useful life of assets assessed, pursuant 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.

Capital work - in - progress includes cost of fixed assets that are not ready for their intended use and also include advances paid to acquire fixed assets.

Depreciation is charged over the estimated useful life of a fixed asset on a straight - line basis. The rates of depreciation for fixed assets, which are not lower than the rates prescribed in Part C of Schedule II of the Companies Act, 2013, are given below :

Depreciation on vehicles and mobile phones is higher than the rates prescribed under the Schedule II of the Companies Act, 2013, based on the internal assessment of the useful life of these assets.

During FY 2025-26, the useful life of vehicles was reassessed by management and revised from 4 years to 5 years.

Fixed assets individually costing less than ' 5,000 are fully depreciated in the year of installation.

Depreciation on assets sold during the year is recognized on a pro-rata basis to the Profit and Loss Account till the date of sale. The gain or loss on sale of fixed assets is recognised to Profit and Loss Account. Profit on sale of premises, net of taxes and transfer to Statutory Reserve is appropriated to Capital Reserve as per the RBI guidelines.

17.08 Income tax

Income tax expense is the aggregate amount of current tax and deferred tax charge. The current tax expense and deferred tax expense is determined in accordance with the provisions of the I ncome Tax Act, 1961 and considering the material principles set out in Income Computation and Disclosure Standards to the extent applicable and as per AS - 22 “Accounting for Taxes on Income” respectively.

Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and

liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted 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 recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization 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 realized. The impact of changes in the deferred tax assets / liabilities is recognised in the Profit and Loss Account.

17.09 Employees’ stock option scheme

The Bank has formulated Employees' Stock Option Scheme - IDFC FIRST Bank Limited ESOS - 2015 (‘the Scheme') in accordance with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 [‘SEBI (SBEB & SE) Regulations] (as amended). The scheme provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period.

The Bank follows the intrinsic value method to account for its stock - based employee compensation plans (for employees other than Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff). Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price on the options. The quoted market price is the closing price on the stock exchange with highest trading volume of the underlying shares, immediately prior to the grant date. Compensation cost is measured by the excess, if any, of the market price of the underlying stock over the grant price as determined under the option plan. Compensation cost is amortised over the vesting period on a straight line method with a corresponding credit to Employee Stock Options Reserve. In case the vested stock options get lapsed / cancelled / expire unexercised, the balance in stock options outstanding is transferred to the general reserve.

In case the unvested stock options get lapsed / cancelled, the balance in stock option outstanding account is transferred to the Profit and Loss Account. Further, the Bank recognises fair value of share -linked instruments on the date of grant as an expense for all instruments granted to Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff after the accounting period ending March 31, 2021 as per Reserve Bank of India (Commercial Banks - Governance) Directions, 2025 dated November 28, 2025 (as amended). In addition, the Bank recognises fair value of share-linked instruments on the date of grant as an expense for all instruments granted after the accounting period ending March 31, 2024 for all other category of employees apart from the Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff. The fair value of the stock-based compensation is estimated on the date of grant using Black - Scholes model and the inputs used in the valuation model include assumptions such as the Stock price, Volatility, Risk free interest rate, Exercise Price, Time to Maturity / Expected Life of options, Expected dividend yield.

17.10 Employee benefits

Short-term employee benefits:

Short-term employee benefits comprise salaries and other compensations payable for services which the employee has rendered during the period. These are recognized at the undiscounted amount in the Profit and Loss Account.

Provident fund:

The Bank makes contribution to statutory provident fund in accordance with Employees Provident Fund and Miscellaneous Provisions Act, 1952. Eligible employees receive benefits from the provident fund, which is a defined contribution plan. Both the employee and the Bank make monthly contributions to the provident fund plan equal to specified percentage of the covered employee's salary. The Bank has no further obligations under the plan beyond its monthly contributions. Contributions to provident fund are charged to the profit and loss.

Gratuity:

The gratuity scheme of the Bank is a defined benefit scheme covering all eligible employees. 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 entail assumptions about discount rate, expected rate of return on plan assets, salary escalation rate, demographics assumptions include retirement age, mortality, leaving service, disability. Actuarial gains and losses are recognised in the Profit and Loss Account for the year. Vested past service cost is recognised in Profit and loss account immediately. However, unvested past services cost is amortised over the vesting period as an expense in Profit and Loss Account.

Compensated absences:

Any unavailed privilege leave to the extent encashable is paid to the employees and charged to the Profit and Loss Account for the year based on encashment of leaves.

17.11 Provisions, contingent liabilities and contingent assets

In accordance with AS- 29 “Provisions, contingent liabilities, and contingent Assets” provision is recognised when the Bank has a present obligation as a result of past event where it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

Provisions for onerous contracts are recognised when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Bank recognises any impairment loss on the assets associated with that contract.

A disclosure of contingent liability is made when there is:

• a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of one or more

uncertain future events not within the control of the Bank; or

• a present obligation arising from a past event which is not recognised as it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Contingent assets are neither recognised nor disclosed in the financial statements.

17.12 Earnings per share

The Bank reports basic and diluted earnings per share in accordance with AS - 20 “Earnings per Share”. Basic earnings per share is computed by dividing the net profit after tax 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 during the year. Diluted earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year, except where the results are anti - dilutive.

17.13 Leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Amounts due under the operating leases, including escalation cost, are charged on a straight line method over the lease term in the Profit and Loss Account in accordance with the AS - 19 “Leases”. Initial direct costs incurred specifically for operating leases are recognised as expenses in the Profit and Loss Account in the year in which they are incurred.

17.14 Reward points

The Bank grants reward points in respect of certain selected cards. The Bank estimates the probable redemption of such loyalty / reward points using

17.19 Corporate social responsibility

Amount spent towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss Account. Further, any amount spent in excess of the mandatory CSR contribution is carried forward in the “CSR PreSpent Account”, as the said amount can be set off against the required 2% CSR expenditure up to the immediately succeeding three financial years.

17.20 Accounting for dividend

As per AS-4 “Contingencies and Events Occurring After the Balance Sheet Date”, the Bank does not account for proposed dividend as a liability through appropriation from the Profit and Loss account. The same is recognised in the year of actual payout post approval of shareholders. However, the Bank reckons proposed dividend in determining capital funds in computing the capital adequacy ratio.