Schedule 17 Significant accounting policies
Background
indusind Bank Limited ('the Bank') was incorporated in 1994 under
the Companies Act, 1956 and is licensed by the Reserve Bank of
india (RBI) to operate as a commercial bank under the Banking
Regulation Act, 1949. The Bank is publicly held and engaged
in providing a wide range of banking products and financial
services to corporate and retail clients besides undertaking
treasury operations. The Bank operates in india including at the
international Financial Service Centre in india (IFSC), at GIFT City
(IBU), and does not have a branch in any foreign country. The Bank
classifies transaction undertaken by IBU as overseas operation.
1. Basis of preparation
1.1 The accompanying standalone financial statements
have been prepared and presented under the historical
cost convention and accrual basis of accounting except
where otherwise stated and in accordance with statutory
requirements prescribed under the Banking Regulation
Act 1949, circulars and guidelines issued by RBI from time
to time (RBI guidelines), accounting standards referred to
in Section 133 of the Companies Act, 2013 (the Act) read
together with the Companies (Accounts) Rules, 2014, the
Companies (Accounting Standards) Rules, 2021 and other
relevant provisions of the Act in so far as they apply to the
Bank and practices prevailing within the banking industry
in india. Accounting policies have been consistent with the
previous year except otherwise stated.
2. Use of Estimates
2.1 The preparation of the financial statements in conformity with
generally accepted accounting principles in india requires
management to make estimates and assumptions that
affect the reported amounts of assets, liabilities (including
contingent liabilities) at the date of the financial statements,
revenues and expenses during the reporting period.
Management believes that the estimates and assumptions
used in the preparation of the financial statements are
prudent and reasonable. Actual results could differ from
these estimates. Any revision to accounting estimates is
recognised prospectively in current and future periods.
3. Transactions involving Foreign Exchange
3.1 Foreign currency transactions are recorded in the reporting
currency, by applying to the foreign currency amount with
the exchange rate between the reporting currency and the
foreign currency at the date of the transaction.
3.2 Monetary assets and liabilities of domestic and integral
foreign operations (representative offices) denominated in
foreign currency are translated at the Balance Sheet date at
the closing exchange rates notified by the Foreign Exchange
Dealers' Association of india ('FEDAI') and the resulting gains
or losses are recognised in the Profit and Loss account.
3.3 Non-monetary items which are carried in terms of historical
cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction; and all non¬
monetary items which are carried at fair value or other similar
valuation denominated in a foreign currency are reported
using the exchange rates that existed when the fair values
were determined.
3.4 Both monetary and non-monetary assets and liabilities
of non-integral foreign operations (foreign branches and
offshore banking units) are translated at the Balance Sheet
date at the closing rates of exchange notified by the FEDAI
and the resulting gains or losses are accumulated in the
foreign currency translation reserve until disposal of the net
investment at which time they are recognised in Profit and
Loss Account as gains or losses.
3.5 income and expenditure of domestic and integral foreign
operations denominated in a foreign currency is translated at
the exchange rates prevailing on the date of the transaction.
income and expenditure of non-integral foreign operations
is translated at daily average closing rates.
3.6 Contingent liabilities at the Balance Sheet date on account
of outstanding forward foreign exchange contracts,
guarantees, acceptances, endorsements and other
obligations denominated in a foreign currency are translated
at the closing exchange rates as at the balance sheet date
notified by the FEDAI.
4. Investments
Classification and valuation of the Bank's investments
are carried out in accordance with RBI Master Direction.
Significant accounting policies in accordance with relevant
RBI guidelines are as follows:
4.1 Categorisation of Investments
in accordance with the RBI guidelines, investments are
categorized at the time of purchase as:
• Held to Maturity (HTM)
• Available for Sale (AFS)
• Fair Value Through Profit and Loss (FVTPL)
• Held for Trading (HFT)
• investments in Subsidiaries, Associates and Joint Ventures
For the purpose of disclosure in the Balance Sheet, investments
are classified under six groups viz., (i) Government Securities,
(ii) Other Approved Securities, (iii) Shares, (iv) Debentures and
Bonds, (v) investments in Subsidiaries and Joint Ventures, and
(vi) Other investments.
Basis of Classification
(i) Held to Maturity (HTM) - Securities acquired with
the intention to hold till maturity. The Securities are
acquired with an objective to collect the contractual
cash flows which are solely payments of principal and
interest (SPPI criteria).
(ii) Available for Sale (AFS) - Securities acquired with
an objective of both collecting contractual cash flows
which meet SPPI criteria and selling the securities. This
include securities where the Bank's intent is flexible
with respect to holding to maturity or selling before
maturity. The bank, on initial recognition, may make
an irrevocable election to classify an equity instrument
that is not held with the objective of trading under AFS.
(iii) Fair Value Through Profit & Loss (FVTPL) - Securities
that do not qualify for inclusion in HTM or AFS
categories shall be classified under FVTPL.
Held for Trading (HFT) - This is a sub-category of
FVTPL which shall consist of securities that meet the
specifications as set out in the RBI Master Directions.
Securities will be classified under HFT if it meets one or
more of the following purposes:
a. Short term resale
b. Profiting from short term price movements
c. Locking in arbitrage profits
d. Hedging risks that arise from instruments meeting
a, b and c above.
(iv) Subsidiaries, Associates & Joint Ventures - All
investments in subsidiaries, associates & joint ventures
shall be held in a distinct category for such investments,
separate from the other investment categories
(i.e. HTM, AFS and FVTPL).
Subsequent shifting amongst the categories is done
in accordance with relevant RBI Mater Direction and
permitted only in exceptional circumstances, subject
to prior approval of the Board of Directors and RBI.
4.2 Acquisition cost
i. Acquisition cost at the time of initial recognition shall
be presumed to be the fair value of the investment
other than following situations:
a. transactions between related parties
b. transaction occurred under duress,
c. transaction is outside of the principal market (the
market with the greatest volume and level of
activity for a financial instrument) or
d. in the opinion of the regulator the fair value is
materially different from the acquisition cost.
ii. Broken period interest on debt instruments is treated
as a revenue item.
iii. Brokerage, commission, etc. pertaining to investments,
paid at the time of acquisition is charged to the Profit
and Loss account.
iv. Where the securities are quoted or the fair value can
be determined based on market observable inputs
(such as yield curve, credit spread, etc.) any Day 1 gain/
loss is recognised in the Profit and Loss Account, under
Schedule 14: 'Other Income' within the subhead 'Profit
on revaluation of investments'.
v. Any Day 1 loss arising from Level 3 investments is
recognised immediately.
vi. Any Day 1 gains arising from Level 3 investments
are deferred. In the case of 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 equity instruments,
the gain is set aside as a liability until the security is
listed or derecognised.
vii. Cost of investments is computed based on First in First
Out (FIFO) method.
4.3 Valuation of Investments
(i) Held to Maturity - Each security in this category is
carried at its acquisition cost and is not marked-to-
market (MTM) after initial recognition. Any premium
or discount on the securities is amortised over the
remaining life of the security. Amortisation is done
on a Constant Yield method and recognized in Profit
and Loss Account under Interest earned - Income on
investments (Item II of Schedule 13). The book value
of the security is reduced or increased to the extent of
premium or discount amortized. Any gain or loss on
sale of investments are first recognised in profit and
loss account and then appropriated to Capital Reserve
Account. The amount so appropriated shall be net of
taxes and the amount required to be transferred to
Statutory Reserves.
(ii) Available for Sale - Securities are valued scrip-wise
and depreciation / appreciation is aggregated for
each classification. Any discount or premium on the
acquisition of debt securities is amortised over the
remaining life of the security. Amortisation is done
on a Constant Yield method and recognized in Profit
and Loss Account under Interest earned - Income
on investments (Item II of Schedule 13). The net
appreciation or depreciation is directly credited or
debited to AFS Reserve without routing through the
Profit & Loss account. Upon sale or maturity of a debt
instrument, the accumulated gain/loss for that security
in the AFS Reserve is transferred from the AFS Reserve
and recognised in the Profit & Loss account. 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 transferred from AFS Reserve to the
Capital Reserve.
(iii) Fair Value Through Profit/Loss Account - Securities
are valued scrip-wise and net depreciation /
appreciation is aggregated for each classification.
Any discount or premium on the acquisition of debt
securities under FVTPL is amortised over the remaining
life of the security. Amortisation is done on a Constant
Yield method and recognized in Profit and Loss Account
under Interest earned - Income on investments (Item II
of Schedule 13). The net appreciation or depreciation is
directly credited or debited to the Profit & Loss account.
Any gain or loss on sale of investments are routed
through Profit and loss account.
(Iv) Subsidiaries, Associates and Joint Ventures -
All Investments (l.e., Including debt and equity) In
subsidiaries, associates and joint ventures are held
at acquisition cost. Any discount or premium on the
acquisition of debt securities of subsidiaries, associates
and joint ventures shall be amortized over the remaining
life of the instrument. Amortization is recognized in
Profit and Loss Account under Interest earned - Income
on investments (Item II of Schedule 13). Any gain or loss
on sale of investments are first recognised in profit and
loss account and then appropriated to Capital Reserve
Account. The amount so appropriated shall be net of
taxes and the amount required to be transferred to
Statutory Reserves. Such investments are assessed for
impairment and other than temporary diminution in
value is provided for.
(v) Market value of government securities including
State Development Loans (excluding treasury bills) is
determined on the basis of the prices / YTM published
by Financial Benchmark India Private Limited (FBIL).
(vI) Treasury bills including US Treasury Bills, commercial
papers and certificate of deposits are valued at carrying
cost. Carrying cost is defined as acquisition cost
adjusted for the discount accreted over the period till
maturity at the rate prevailing at the time of acquisition.
(vII) Pass Through Certificates (PTC) are valued by
using Fixed Income Money Market and Derivatives
Association (FIMMDA) credit spread as applicable for
the NBFC category, based on the credit rating of the
respective PTC over the Government of India curve
published by FBIL.
(vIII) Fair value of other debt securities is determined basis
traded price, Security Level valuation published by
FIMMDA or based on the yield curve published by FBIL
and relevant credit spreads corresponding to rating
and residual maturity published by FIMMDA. Foreign
Currency (FCY) bonds are valued basis the prices
sourced from Bloomberg.
(lx) Quoted equity shares held under AFS and FVTPL
categories are valued at the closing price on a
recognised stock exchange, in accordance with the
relevant RBI guidelines. Unquoted equity shares are
valued at their break-up value or at Re. 1 per company
where the latest Balance Sheet is not available
continuously for more than 18 months as on the date
of valuation.
(x) Units of the schemes of mutual funds are valued at
latest repurchase price / Net Asset Value (NAV) provided
by the respective schemes of mutual funds.
(xl) The depreciation on securities acquired by way
of conversion of outstanding loans is provided in
accordance with RBI guidelines.
(xll) Investments in quoted units of Alternative Investment
Funds (AIFs) are valued at quoted price and unquoted
units are valued at the NAV disclosed by AIF as per
RBI guidelines.
(xlll) Infrastructure Investment Trusts (InvITs) are valued at
book value till it is listed. Post listing, last exchange
closing price is considered for valuation. If trade price
is not available, then the latest NAV based on the
registered valuer's quarterly statement/book value (if
NAV not yet published) is considered for valuation.
(xlv) Investments by Bank in SRs issued by ARCs valued
periodically by reckoning the Net Asset Value (NAV)
declared by the ARC based on the recovery ratings
received for such instruments. Provided that when
Bank invest in the SRs issued by ARCs in respect of the
stressed loans transferred to the ARC, the Bank carries
the investment in the books on an ongoing basis, until
its transfer or realization, at lower of the redemption
value of SRs arrived based on the NAV as above, and
the NBV of the transferred stressed loan at the time of
transfer. If the investment by the Bank 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 is the lower of the following: i) value
arrived basis NAV; and ll) face value of the SRs reduced
by the notional provisioning rate applicable if the loans
had continued on the books of the Bank. In respect of
SRs guaranteed by the Government of India, such SRs
are valued periodically by reckoning the NAV declared
by the ARC based on the recovery ratings received for
such instruments. Any SRs outstanding after the final
settlement of the government guarantee or the expiry
of the guarantee period, whichever is earlier, are valued
at one rupee (?1).
(xv) Provision for non-performing investments is made in
conformity with relevant RBI guidelines. Interest on
non-performing investments is not recognized in the
profit and loss account unless received.
4.4 Others
(I) Purchase and sale transaction in securities are recorded
under Settlement Date method of accounting, except
in the case of the equity shares where Trade Date
method of accounting is followed.
(II) Repurchase (Repo) and Reverse Repurchase (Reverse
Repo) transactions with Banks or other institutions
are accounted for as collateralised borrowing and
lending (lending above 14 days' tenor classified under
advances) respectively. Repurchase (Repo) and Reverse
Repurchase (Reverse Repo) with original maturity up
to 14 days with RBI are accounted for as collateralised
borrowing or Cash and Balance with RBI respectively.
Balances held under Standing Deposit Facility (SDF)
has been reported under Cash and Balances with RBI.
Borrowing cost on repo transactions is accounted
as interest expense and revenue on reverse repo
transactions is accounted as interest income.
(Ill) in respect of the short sale transactions in Central
Government dated securities, the short position Is
covered by outright purchase of an equivalent amount
of the same security within a maximum period of three
months Including the day of trade. The short position Is
reflected as the amount received on sale In a separate
account and Is classified under 'investments'. The short
position Is categorized under the HFT portfolio and Is
accounted for accordingly.
(Iv) Profit or loss In respect of sale of Investments Is Included
In the Schedule 14 under Profit on Sale of investments
(net). in respect of profit from sale of Investments
under HTM category, an equivalent amount (net of
taxes, If any, and net of transfer to Statutory Reserves
as applicable to such profits) Is appropriated from the
Appropriations account to Capital Reserve account.
(v) Out of net profits earned during the year, transfer Is
made to investment Fluctuation Reserve, for an amount
not less than the lower of the (a) net profit on sale of
Investments during the year or (b) net profit for the year
less mandatory appropriations, till the balance In such
investment Fluctuation Reserve reaches a level of at
least 2% of the aggregate FVTPL (Including HFT) and
AFS portfolio. Draw down, If any, from the investment
Fluctuation Reserve shall be In accordance with the
applicable RBI guidelines.
5. Foreign Exchange and Derivative Contracts
5.1 All trading forward exchange contracts outstanding at the
Balance Sheet date are re-valued based on the exchange
rates notified by FEDAi for specified maturities and at
Interpolated rates for contracts of Interim maturities and
the resulting gains or losses are recognised on present
value basis in the Profit and Loss account. The contracts of
longer tenor maturities or currencies where exchange rates
are not notified by FEDAi are revalued based on the forward
exchange rates quoted In the market or Implied by the swap
curves In respective currencies and the resulting gains or
losses are recognised on present value basis In the Profit and
Loss account.
5.2 Swap Cost, arising on account of foreign currency swap
contracts to convert foreign currency funded liabilities and
assets into rupee liabilities and assets, is amortised in the
Profit and Loss account under the head 'interest Expended-
Others' over the life of swap contracts.
Derivative contracts are designated as hedging
or trading and accounted for as follows:
5.3 The hedging contracts comprise of Forward Rate Agreements,
interest Rate Swaps, and Currency Swaps undertaken to
hedge Interest rate and currency risk on certain assets and
liabilities. The net Interest receivable or payable Is accounted
on an accrual basis over the life of the swaps. However,
where the hedge Is designated with an asset or liability that
Is carried at market value or lower of cost and market value,
then the hedging Instrument Is also marked to market with
the resulting gain or loss recorded as an adjustment to the
market value of designated assets or liabilities. Gains or
losses on the termination of hedge swaps Is accounted In
accordance with relevant RBi guidelines.
5.4 The trading contracts comprise of trading In Forward
Contracts, interest Rate Swaps, Cross Currency interest Rate
Swaps, Forward Rate Agreements, interest Rate Futures,
Currency Futures, Currency Options, Swaption etc. The gain
or loss arising on unwinding or termination of the contracts,
Is accounted for In the Profit and Loss account. Trading
contracts outstanding as at the Balance Sheet date are re¬
valued at their fair value and resulting gains or losses are
recognised In the Profit and Loss account.
5.5 Premium paid and received on currency options Is accounted
when due In the Profit and Loss Account.
5.6 Fair value of derivative Is determined with reference to
market quotes or by using valuation models. Where the fair
value Is calculated using valuation models, the methodology
Is to calculate the expected cash flows under the terms of
each specific contract and then discount these values back
to the present value. The valuation takes Into consideration
all relevant market factors (e.g. prices, Interest rate, currency
exchange rates, volatility, liquidity, etc.). Most market
parameters are either directly observable or are Implied
from Instrument prices. The model may perform numerical
procedures in the pricing such as interpolation when input
values do not directly correspond to the most actively traded
market trade parameters.
5.7 Pursuant to 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 through the profit and
loss account.
6. Advances
6.1 Advances are classified Into standard, sub-standard, doubtful
and loss assets In accordance with RBi guidelines.
6.2 A general provision on standard assets Is made In accordance
with relevant RBi guidelines for the funded outstanding
on global portfolio basis. in respect of stressed advances
which are not yet classified as non-performing, contingent
provisions are made prudentially. Provision made against
standard assets is included in Schedule 5 - 'Other Liabilities
and Provisions - Others'. The general provision also Includes
provision for stressed sector exposures, provision on
exposures to step-down subsidiaries of indlan companies and
provision for Incremental exposure of the banking system to a
specified borrower beyond Normally Permitted Lending Limit
(NPLL) In proportion to bank's funded exposure to specified
borrower. Provision made on positive mark to market of
derivative contracts also forms part of general provision.
Further, provision requirement under various Restructure
scheme of RBi along with provision for the cases where viable
resolution plan has not been implemented within timeline
prescribed by RBi, from the date of default, also forms part of
general provision. Such, General provisions are Included In
Schedule 5 - 'Other Liabilities and Provisions - Others'.
6.3 Unhedged Foreign Currency Exposures (UFCE) of Clients
are subject to incremental provisions basis assessment of
estimated risk in line with relevant RBI guidelines. Provision
made towards UFCE and consequent further capital held
under Basel III Capital regulations are disclosed separately.
The provision forms a part of provision on standard assets.
6.4 Specific provisions for non-performing advances are made in
conformity with relevant RBI guidelines. In addition, the Bank
considers accelerated provisioning based on past experience,
and other related factors including underlying securities.
6.5 For restructured/rescheduled assets, provision is made
in accordance with the guidelines issued by RBI. The
restructured accounts are classified and provided in
accordance with relevant RBI guidelines.
6.6 Advances are disclosed in the Balance Sheet, net of specific
provisions and interest suspended for non- performing
advances, and floating provisions.
6.7 Advances exclude derecognised securitised advances, inter¬
bank participation certificates issued and bills rediscounted.
6.8 Non-performing advances are written off in accordance with
the Bank's NPA management and recovery policy. Amounts
recovered during the year against bad debts written off in
earlier years are recognised in the Profit and Loss account.
Provision no longer considered necessary in the context of
the current status of the borrower as a performing asset, are
written back to the Profit and Loss account to the extent of
provisions charged to the Profit and Loss account earlier.
6.9 In respect of loans reported as fraud to RBI, the entire amount
is provided for over a period of not exceeding four quarters
starting from the quarter in which fraud has been detected. In
respect of loans where there has been delay in reporting the
fraud to the RBI, the entire amount is provided immediately.
6.10 Further to the provisions held according to the asset
classification status, provision is held in accordance with
relevant RBI guidelines for individual country exposures
(other than for home country exposure), where the net
funded exposure of a country is one percent or more of the
total assets. Provision held for country risk is included under
Schedule 5 - 'Other Liabilities and Provisions - Others'.
6.11 The Bank makes floating provision as per the Board approved
policy, which is in addition to the specific and general
provisions made by the Bank. The floating provision is
utilised, with the approval of Board and RBI, if required. The
floating provision is netted-off from advances.
7. Securitisation transactions, direct
assignments and other transfers
7.1 The Bank transfers its loan receivables both through Direct
Assignment route as well as transfer to Special Purpose
Vehicles ('SPV').
7.2 The securitization transactions are without recourse to the
Bank. The transferred loans and such securitized receivables
are de-recognized in the Balance Sheet as and when these are
sold (true sale criteria being fully met) and the consideration
has been received by the Bank. Gains or losses are recognized
in accordance with relevant RBI guidelines.
7.3 In accordance with RBI guidelines on Securitisation of
Standard Assets, any loss, profit or premium realized at the
time of the sale is accounted in the Profit & Loss Account for
the accounting period during which the sale is completed.
However, in case of unrealized gains arising out of sale of
underlying assets to the SPV, the profit is recognized in Profit
and Loss Account only when such unrealized gains associated
with such income is redeemed in cash.
7.4 In case of sale of non-performing assets through securitization
route to Securitisation Company or Asset Reconstruction
Company by way of assignment of debt against issuance of
Security Receipts (SR), the recognition of sale and accounting
of profit and loss thereon is done in accordance with
applicable RBI guidelines. Generally, the sale is recognized at
the lower of redemption value of SR and the Net Book Value
(NBV) of the financial asset sold, and the surplus is recognized
in the Profit and Loss Account on realization; shortfall if any, is
charged to the Profit and Loss account subject to regulatory
forbearance, if any, allowed from time to time. Profit or loss
realized on ultimate redemption of the SR is recognized in
the Profit and Loss Account.
7.5 The Bank transfers advances through inter-bank participation
with and without risk. In accordance with the relevant
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
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.
8. Property, Plant and Equipment
8.1 Fixed assets are stated at cost (except in the case of premises
which were re-valued based on values determined by
approved valuers) less accumulated depreciation and
impairment, if any. Cost includes incidental expenditure
incurred on the assets before they are ready for intended
use. Subsequent expenditure incurred on assets put to use
is capitalised only when it increases the future benefit /
functioning capability from / of such assets.
8.2 The existing revaluation reserve in respect of some of
revalued asset is carried on reducing balance basis till the
related properties are depreciated over their remaining useful
lives. In case of revalued assets, depreciation is provided over
the remaining useful life of the assets with reference to the
gross carrying value.
Depreciation, including amortisation of intangible assets,
is provided over the useful life of the assets, pro rata for
the period of use, on a straight-line method. The useful life
estimates prescribed in Part C of Schedule II to the Companies
Act, 2013 are generally adhered to, except in respect of asset
classes where, based on technical evaluation, a different
estimate of useful life is considered suitable. Pursuant to this
policy, the useful life estimates in respect of the following
assets are as follows:
(a) Computers at 3 yea rs;
(b) Application software and perpetual software licences
at 5 years;
(c) Printers, Scanners, Routers, Switch at 5 years;
(d) ATMs at 7 years;
(e) Network cabling, Electrical Installations, Furniture and
Fixtures, Other Office Machinery at 10 years;
(f) Vehicles at 5 years;
(g) Buildings at 60 years.
Fixed assets costing less than ?5,000 individually are fully
depreciated in the year of purchase.
The useful life of an asset class is periodically assessed taking
into account various criteria such as changes in technology,
changes in business environment, utility and Efficiency of an
asset class to meet with intended user needs, etc. Whenever
there is a revision in the estimated useful life of an asset, the
unamortised depreciable amount is charged over the revised
remaining useful life of the said asset.
Non-banking assets:
Non-Banking Assets (NBAs) acquired in satisfaction of claims
are carried at lower of net book value and net realisable
value. Further, the Bank creates provision on non-banking
assets as per specific RBI directions.
8.3 The carrying amount of fixed assets is reviewed at the
Balance Sheet date to determine if there are any indications
of impairment based on internal / external factors. In case of
impaired assets, the impairment loss i.e. the amount by which
the carrying amount of the asset exceeds its recoverable
value is debited from revaluation reserve (to the extent
available) and balance charged to the Profit and Loss account.
8.4 Capital work-in-progress includes cost of fixed assets that are
not ready for their intended use and also includes advances
paid to acquire fixed assets.
9. Revenue Recognition
9.1 Interest and discount income on performing assets is
recognised on accrual basis. Interest and discount income
on non-performing assets is recognised on realisation. Penal
charges for covenant breach are recognised upon certainty
of its realisation.
9.2 Interest on Government securities, debentures and other
fixed income securities is recognised on a period proportion
basis. Income on discounted instruments is recognised
over the tenor of the instrument on a Constant Yield to
Maturity method.
9.3 Dividend income is accounted on accrual basis when the
right to receive dividend is established.
9.4 Commission Exchange and Brokerage are recognised on a
transaction date and net of directly attributable expenses.
9.5 Fees are recognised on an accrual basis when binding
obligation to recognise the fees has arisen as per agreement,
except in cases where the Bank is uncertain of realisation.
9.6 Income from distribution of third party products is recognised
on the basis of business booked.
9.7 The Bank in accordance with RBI circular FIDD.CO.Plan.
BC.5/04.09.01/2020-21 dated September 04, 2020, trades in
priority sector portfolio by selling or buying PSLC. There is
no transfer of risks or loan assets in these transactions. The
fee paid for purchase of the PSLC is treated as an 'Other
Expenditure' and the fee received from the sale of PSLCs is
treated as 'Other Income'.
9.8 Gain / loss on sell down of loans is recognised in line with the
extant RBI guidelines.
10. Operating Leases
10.1 Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as
operating leases. Lease rental obligations in respect of assets
taken on operating lease are charged to the Profit and Loss
account on a straight-line basis over the lease term.
10.2 Assets given under leases in respect of which all the risks
and benefits of ownership are effectively retained by the
Bank are classified as operating leases. Lease rentals received
under operating leases are recognized in the Profit and Loss
account on a straight-line basis over the lease term.
11. Employee Benefits
11.1 The Gratuity scheme of the Bank is a defined benefit scheme
and the expense for the year is recognized on the basis of
actuarial valuation at the Balance Sheet date. The present
value of the obligation under such benefit plan is determined
based on independent actuarial valuation using the
Projected Unit Credit Method which recognizes each period
of service that gives rise to additional unit of employee
benefit entitlement and measures each unit separately to
build up the final obligation. Payment obligations under the
Group Gratuity scheme are managed through purchase of
appropriate policies from insurers.
11.2 Provident Fund contribution, under defined benefit plan is
made to trusts separately established for the purpose, when
an employee covered under the scheme renders the related
service. The rate at which the annual interest is payable to
the beneficiaries by the trusts is being administered by the
government. The Bank has an obligation to make good the
shortfall, if any, between the return from the investments of
the trusts and the notified interest rates. Actuarial valuation
of this Provident Fund interest shortfall is done as per the
guidance note on Valuation of Interest Rate Guarantees on
Exempt Provident Funds under AS 15 (Revised) issued by the
Institute of Actuaries of India, and such shortfall, if any, is
provided for.
Provident Fund contribution, under defined contribution
plan, is made to the scheme administered by Regional
Provident Fund Commissioner (RPFC) and is debited to the
Profit and Loss Account, when an employee renders the
related service. The Bank has no further obligations.
In respect of employees who opted for contribution to the
National Pension System (NPS) regulated by the Pension
Fund Regulatory and Development Authority (PFRDA), the
Bank contributes certain percentage of the basic salary,
under a defined contribution plan, to identified pension
fund management companies. The Bank has no liability other
than its contribution, and recognizes such contributions as
an expense in the year in which it is incurred.
11.3 Provision for compensated absences is made on the basis
of actuarial valuation as at the Balance Sheet date. The
actuarial valuation is carried out using the Projected Unit
Credit Method.
11.4 The Employee Stock Option Scheme (ESOS) of the Bank is
in accordance with SEBI (Share Based Employee Benefits
and Sweat Equity) Regulations, 2021. The Bank has followed
intrinsic value method for share-linked instruments granted
under ESOS till March 31, 2021. The Bank has changed its
accounting policy from the intrinsic value method to the fair
value method for all share-linked instruments granted after
March 31, 2021 in accordance with relevant RBI guidelines.
Under intrinsic value method, options cost is measured as the
excess, if any, of the fair market price of the underlying stock
over the exercise price on the grant date. The fair market
price is the closing price on the stock exchange with highest
trading volume of the underlying shares, immediately prior to
the grant date. Under revised accounting policy, fair value of
share-linked instruments on the date of grant are recognized
as an expense for all instruments granted after the accounting
period ending March 31, 2021. The fair value of the stock-
based compensation is measured on the date of grant using
Black-Scholes option pricing model and is recognized as
compensation expense over the vesting period.
12. Segment Reporting
The disclosure relating to segment information is in
accordance with AS-17, Segment Reporting and as per
guidelines issued by RBI. The Bank has adopted Segment
Reporting as under:
(a) Treasury includes all investment portfolios, Profit / Loss
on sale of Investments, Profit / Loss on foreign exchange
transactions, equities, income from derivatives
and money market operations. The expenses of
this segment consist of interest expenses on funds
borrowed from external sources as well as internal
sources and depreciation (other than temporary)/
amortization of premium on investments.
(b) Corporate / Wholesale Banking includes lending to
and deposits from corporate customers and identified
earnings and expenses of the segment.
(c) Retail Banking includes lending to and deposits from
retail customers and identified earnings and expenses
of the segment.
(d) Other Banking Operations includes all other
operations not covered under Treasury, Corporate /
Wholesale Banking and Retail Banking.
(e) Unallocated includes Capital and Reserves, Employee
Stock Options (Grants) Outstanding and other
unallocable assets, liabilities, income and expenses.
13. Debit and Credit Card reward points liability
The liability towards Credit Card reward points is computed
based on an actuarial valuation and the liability towards
Debit Card reward points is computed on the basis of
management estimates considering past trends. Actuarial
valuation is determined based on certain assumptions
regarding mortality rate, discount rate, cancellation rate and
redemption rate.
14. Bullion
14.1 The Bank imports bullion including precious metal bars on a
consignment basis for selling to its customers. The imports
are on a back-to-back basis and are priced to the customer
based on the prevailing price quoted by the supplier and the
local levies related to the consignment like customs duty, etc.
The profit earned is included in commission income.
15. Income-tax
15.1 Tax expenses comprise of current and deferred taxes. Current
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Income Tax Act, 1961 and
the Income Computation and Disclosure Standards (ICDS).
Deferred taxes reflect the impact of timing differences
between taxable income and accounting income for the year
and reversal of timing differences of earlier years.
15.2 Deferred tax is measured based on the tax rates and the
tax laws enacted or substantively enacted at the Balance
Sheet date.
15.3 Deferred tax assets are recognized, only to the extent that
there is reasonable certainty that sufficient future taxable
income will be available against which such deferred tax
assets can be realized.
15.4 In case of unabsorbed depreciation and/or carry forward of
losses under tax laws, deferred tax assets are recognized only
if there is virtual certainty supported by convincing evidence
that such deferred tax asset can be realized against future
taxable income.
15.5 Deferred tax assets unrecognized of earlier years are re¬
assessed and recognized to the extent that it has become
reasonably certain that future taxable income will be
available against which such deferred tax assets can be
realized. At each Balance Sheet date, the Company re¬
assesses unrecognized deferred tax assets, if any.
16. Earnings per share
The Bank reports Basic and Diluted earnings per share in
accordance with AS 20 - Earnings per Share. Earnings per
share is calculated by dividing the Net Profit or Loss for the
period attributable to equity shareholders by the weighted
average number of equity shares outstanding during the
year. Diluted earnings per share reflect the potential dilution
that could occur if securities or other contracts to issue equity
shares were exercised or converted during the year. Diluted
earnings per equity share are computed using the weighted
average number of equity shares and dilutive potential
equity shares outstanding as at end of the year.
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