D. Significant Accounting Policies
1. Revenue Recognition
1.1 Income and expenditure are accounted on accrual basis, unless otherwise stated.
1.2 Interest / Discount income from Non-Performing Assets (NPAs) including investments is recognized in the Profit
and Loss Account on realization basis, as per the prudential norms prescribed by RBI.
1.3 Partial recovery in Non-Performing Assets is appropriated first towards principal and thereafter towards
interest.
1.4 Fee, commission (other than insurance commission & Government business), exchange income, locker rent,
insurance claims, dividend on shares and income from units in Mutual Fund and interest on refund of income tax
are accounted for on receipt basis.
1.5 Interest on overdue Term Deposits is provided at the rate of interest applicable to Savings Bank Deposits.
1.6 Unforeseen income/ expenses are accounted for in the year of receipt/ payment.
1.7 Stationery issued to branches has been considered as consumed.
2. Investments
Investments are accounted for in accordance with the extant RBI guidelines on investment classification and
valuation, as given below:
2.1. Classification of Investments by Banks Categorization of investments
(a) The entire investment portfolio (except investments in subsidiary and associates) is classified under three
categories, viz., Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss
(FVTPL). Held for Trading (HFT) is a separate investment subcategory within FVTPL. The category of
the investment is decided by the bank before or at the time of acquisition and this decision is properly
documented.
(b) Banks continues to present the investments in the Balance Sheet as set out in The Third Schedule to the
BR Act (Form A, Schedule 8 - Investments) as under:
(i) Government securities
(ii) Other approved securities
(iii) Shares
(iv) Debentures & Bonds
(v) Subsidiaries and / or joint ventures
(vi) Others
2.2. Basis of classification:
HTM
(a) Securities that fulfil the following conditions are classified under HTM:
(i) The security is acquired with the intention and objective of holding it to maturity, i.e., the financial
assets are held with an objective to collect the contractual cash flows; and the contractual terms of
the security give rise to cash flows that are solely payments of principal and interest on principal
outstanding ('SPPI criterion') on specified dates.
AFS
(a) Securities that meet the following conditions are classified under AFS:
(i) The security is acquired with an objective that is achieved by both collecting contractual cash flows
and selling securities; and
(ii) the contractual terms of the security meet the 'SPPI criterion
FVTPL
Securities that do not qualify for inclusion in HTM or AFS are classified under FVTPL.
FVTPL (HFT)
Securities that are to be fair valued on daily basis are classified as HFT within FVTPL
2.3 Valuation:
HTM
(a) Securities held in HTM are carried at cost and not be marked to market (MTM) after initial recognition.
However, they are subjected to income Recognition, asset classification and provisioning norms formulated
by RBI.
(b) Any discount or premium on the securities under HTM are amortised over the remaining life of the
instrument. The amortised amount is reflected in the financial statements under item II 'Income on
Investments' of Schedule 13:
'Interest Earned' with a contra in Schedule 8:'Investments'.
AFS
(a) The securities held in AFS are fair valued on quarterly basis. Any discount or premium on the acquisition
of debt securities under AFS is amortized over the remaining life of the instrument. The amortised amount
is reflected in the financial statements under item II 'Income on Investments' of Schedule 13: 'Interest
Earned' with a contra in Schedule 8:'Investments'.
(b) The valuation gains and losses across all performing investments, irrespective of classification (i.e.,
Government securities, Other approved securities, Bonds and Debentures, etc.), held under AFS is
aggregated. The net appreciation or depreciation are directly credited or debited to a reserve named AFS
Reserve without routing through the Profit & Loss Account.
(c) Securities under AFS are subjected to income recognition, asset classification and provisioning norms
formulated by RBI.
(d) The AFS-Reserve is reckoned as Common Equity Tier (CET) 1. The unrealised gains transferred to AFS-
Reserve are not available for any distribution such as dividend and coupon on Additional Tier 1.
(e) Upon sale or maturity of a debt instrument in AFS category, the accumulated gain/ loss for that security
in the AFS-Reserve are transferred from the AFS Reserve and recognized in the Profit and Loss Account
under item II Profit on sale of investments under Schedule 14-Other Income.
(f) 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 to be transferred from AFS-Reserve to the Profit and Loss Account. Instead,
such gain or loss is transferred from AFS-Reserve to the Capital Reserve.
FVTPL
(a) The securities held in FVTPL are fair valued and the net gain or loss arising on such valuation are directly
credited or debited to the Profit and Loss Account.
(b) Securities that are classified under the HFT sub-category within FVTPL are fair valued on a daily basis,
whereas other securities in FVTPL are fair valued quarterly.
(c) Any discount or premium on the acquisition of debt securities under FVTPL is amortised over the remaining
life of the instrument. The amortised amount is reflected in the financial statements under item II 'Income
on Investments' of Schedule 13: 'Interest Earned' with a contra in Schedule 8:'Investments'.
(d) Securities under FVTPL are subject to income recognition, asset classification and provisioning norms
formulated by RBI.
Subsidiary and Associate
(a) Investment in subsidiary is held at acquisition cost.
(b) Investment in Associate is valued and subject to impairment as per RBI guidelines.
(c) Any discount or premium on the acquisition of debt securities of subsidiaries and associate is amortized
over the remaining life of the instrument. The amortized amount is reflected in the financial statements
under item II 'Income on Investments' of Schedule 13: 'Interest Earned'.
Quoted Securities:
The fair value for the quoted securities is the prices declared by the Financial Benchmarks India Private Ltd.
(FBIL) in accordance with RBI circular FMRD.DIRD.7/14.03.025/2017-18 dated March 31, 2018, as amended from
time to time. For securities whose prices are not published by FBIL, the fair value of the quoted security is based
upon quoted price as available from the trades/ quotes on recognized 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).
2.4 Investment in security receipts (SRs) and other instruments issued by an Asset Reconstruction Company (ARC):
In respect of investments in SRs and other instruments issued by ARCs, the bank values the SRs as per the
requirements of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021, as amended from time to
time.
2.5 Non-performing Investments are not considered for netting valuation gains and losses and MTM appreciation in
the security is ignored.
2.6 The provision for impairment is recognized in the Profit and Loss Account as expense irrespective of the
category, i.e., HTM, AFS or FVTPL (including HFT) in which the investment has been placed as per RBI Guidelines.
2.7 Investments in Government securities and Government guaranteed investments:
Investments in Central Government Securities and State Government Securities are not classified as NPI. In
case of Central Government guaranteed securities, the investments are also not classified as NPI until the
Central Government has repudiated the guarantee when invoked. In respect of such securities held in AFS and
FVTPL, the bank shall continue to recognize MTM gains/losses in AFS-Reserve and Profit and Loss respectively.
However, any income shall be recognized only on realization basis. However, prudential norms for identification
of NPI and provisioning are attracted for investment in State Government guaranteed securities, when interest/
instalment of principal (including maturity proceeds) or any other amount due to the bank remains unpaid for
more than 90 days.
2.8 Profit or loss on sale of investments is taken to the Profit and Loss account. However, in case of profit on sale
of investments in "Held to Maturity” category, an equivalent amount of profit, net of taxes and the amount
required to be transferred to Statutory reserve, is appropriated to the "Capital Reserve Account”.
2.9 Broken period interest paid/received on debt instruments is treated as interest expense/income and is excluded
from cost/sale consideration.
2.10 Brokerage paid on securities purchased is charged to revenue account except for equity investment operations
where the same is added to the cost of purchase of investment.
2.11 In accordance with RBI circular No. FMRD.DIRD.01/14.03.038/2018-19 dated July 24, 2018, the Bank has made
changes in accounting for Repo/ Reverse Repo transactions including Triparty Repo (Other than transactions
under the liquidity adjustment facility (LAF) with the RBI). Accordingly, the securities sold and purchased under
Repo/Reverse Repo are accounted for as collateralized lending and borrowing transactions. However, securities
are transferred as in the case of normal outright sale/purchase transactions and such movement of securities
are reflected using Repo/Reverse Repo accounts and contra entries. The above entries are reversed on the
date of maturity. Cost and revenue are accounted as interest expenditure/Income as the case may be. Balance
in Repo account is classified under schedule 4 (Borrowing) and balance in Reverse Repo account is classified
under schedule 7 (Balance with Banks & money at call & short notice).
2.12 In respect of Non-Performing Securities, income is not recognized and appropriate provision is made for
depreciation in the value of such securities as per Reserve Bank of India guidelines.
3. Advances
3.1 Classification of Advances and Provisions thereof have been made as per the Income Recognition, Asset
Classification and Provisioning Norms formulated by the RBI viz., Standard, Sub-Standard, Doubtful and Loss
Assets. The Bank has made provisions on Non-Performing Assets as per the prudential norms prescribed by the
RBI as under:
To be more prudent, the Bank is making an additional provision @ 10 percent on the balances outstanding on
account of non-performing assets held in sub-standard category (both secured/unsecured) and Doubtful I and
Doubtful II category (secured portion only) over and above the abovementioned prescribed norms. In case of
NPAs in credit cards, the provision is made at 100%.
3.2 Advances are shown net of unrealized interest and provisions/ Technical write offs made in respect of non¬
performing advances. Provisions on standard advances are reflected in Schedule 5 of the Balance Sheet under
the head "Other Liabilities & Provisions - Others” and are not considered for arriving at the Net NPAs.
3.3 Restructuring of Advances and provisioning thereof have been made as per RBI guidelines.
3.4 Amounts recovered against debts written off in earlier years are recognized as revenue in the year of recovery.
3.6 Appropriation of recoveries in NPAs are made in order of priority as under:
i. Principal Due
ii. Charges, Costs, Commission etc.
iii. Unrealized Interest/ Interest.
4. Floating Provisions
In accordance with the RBI guidelines, the Bank has an approved policy for creation and utilization of floating
provisions for advances. The quantum of floating provisions to be created is assessed at the end of each quarter.
These provisions are utilized only for contingencies under extraordinary circumstances specified in the policy with
prior permission of Reserve Bank of India.
5. Fixed Assets and Depreciation
5.1 Fixed Assets, other than premises, are carried at cost less accumulated depreciation and impairment, if any.
Freehold premises are carried at revalued amount, being fair value at the date of revaluation less accumulated
depreciation.
5.2 Cost includes cost of purchase, freight, duties, taxes and all expenditure such as site preparation, installation
costs and professional fees incurred on the asset before it is put-to-use. Subsequent expenditure(s) incurred
on the assets put-to-use are capitalized only when it increases the future benefits from such assets or their
functioning capability. The fixed assets are depreciated as per straight line method, considering residual value
at 5% of original cost, as per the provisions of Companies Act 2013 based on the useful life of the assets
prescribed in Part C of the Schedule II of the Companies Act 2013 as given hereunder:
Depreciation on computers (including ATMs/CDMs) along with software, forming integral part of the
computers is computed at 33.33% on straight line method in terms of RBI guidelines issued vide letter no
BP.1660/21.04.018/2001 dated 01.02.2001, taking the residual value as Nil.
Useful life of the mobile phones is considered to be 2 years and the depreciation is charged in straight line
method as per provisions of Companies Act 2013 with no residual value.
In compliance with Section 15(1) of Banking Regulation Act, 1949, the Bank writes off the entire amount of
intangible assets.
5.3 In respect of assets acquired during the year, depreciation is charged on proportionate basis for the number of
days the assets have been put-to-use during the year.
5.4 Premium paid for leasehold properties is amortized over the period of lease.
5.5 The Bank revalues freehold immovable assets every three years. The increase in Net Book Value of the asset
due to revaluation is credited to the Revaluation Reserve Account without routing through the Profit and Loss
Account. However, where such an increase is a reversal of any previous decrease arising on revaluation which
has been charged to profit and loss account, such increase is credited to profit and loss account to the extent
that it offsets the previously recorded decrease. A decrease in net book value arising on revaluation of fixed
assets is charged to profit and loss account except that, to the extent such a decrease is related to a previous
increase on revaluation that is included in Revaluation Reserve, it is charged against that earlier increase.
Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from
the Revaluation Reserves to General Reserve. The revalued asset is depreciated over the balance useful life of
the asset as assessed at the time of revaluation.
5.6 Assets costing less than Rs.1000 each are charged off in the year of purchase.
6. Employee Benefits
6.1 Short Term Employee Benefits:
The undiscounted amounts of short-term employee benefits which are expected to be paid in exchange for the
services rendered by employees are recognized during the period when the employee renders the service.
6.2 Long Term Employee Benefits:
i. Defined Contribution Plan:
Provident Fund: Provident Fund is a defined contribution scheme as the bank pays fixed contribution at
pre-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are
charged to profit and loss account. The Bank is paying matching contribution towards those employees who
have not opted for the pension.
ii. Defined Benefit Plan
Gratuity
The Bank pays gratuity, a defined benefit plan, to vested employees on retirement or resignation or on
death while in employment or on termination of employment. The Bank makes contribution to recognized
trust which administers the funds on its own account or through insurance companies. Actuarial valuation
of the gratuity liability is determined by an independent actuary appointed by the Bank. Actuarial valuation
of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth,
mortality and staff attrition as per the projected unit credit method. The actuarial gains or losses arising
during the year are recognized in the profit and loss account.
Pension
The Bank provides for pension to all eligible employees. The Bank makes contribution to a trust which
administers the funds on its own account or through insurance companies. The plan provides for pension
payment including dearness relief on a monthly basis to these employees based on the respective
employee's years of service with the Bank and applicable salary. Actuarial valuation of the pension liability
is determined by an independent actuary appointed by the Bank. Actuarial valuation of pension liability
is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff
attrition as per the projected unit credit method. The actuarial gains or losses arising during the year
are recognized in the profit and loss account. Employees covered by the pension plan are not eligible for
employer's contribution under the provident fund plan.
The Bank also operates a New Pension Scheme (NPS) for all employees joining the Bank on or after 1st
August, 2010 (Such new joiners not being entitled to become members of the existing pension scheme).
As per the scheme, these employees contribute 10% of their salary and the Bank contributes 14% of the
employee's salary. The amount contributed by the Bank to NPS during the year is recognized in the profit
and loss account.
Leave Salary
The Bank provides for compensated absence based on actuarial valuation conducted by an independent
actuary, appointed by the Bank.
7. Transactions involving Foreign Exchange
7.1 Foreign currency transactions are recorded on initial recognition in the reporting currency by applying to the
foreign currency amount the exchange rate between the reporting currency and the foreign currency on the
date of transaction.
7.2 Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI)
closing (spot/forward) rates.
7.3 Monetary Assets and Liabilities as on balance sheet date have been translated using closing rate as at year-end
announced by FEDAI.
7.4 Exchange difference arising on the settlement of monetary items at rates different from those at which they
were initially recorded are recognized as income or as an expense in the period in which they arise.
7.5 Outstanding foreign exchange spot and forward contracts held for trading are revalued at the exchange rates
notified by FEDAI for specified maturities and the resulting Profit or Loss is recognized in the Profit and Loss
Account.
8. Segment Reporting
The Bank recognizes the business segment as the primary reporting segment in accordance with the RBI guidelines
and in compliance with the Accounting Standard 17 issued by Institute of Chartered Accountants of India.
9. Taxes on Income
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Bank. The
current tax expense and deferred tax expense are determined in accordance with the provisions of the Income
Tax Act, 1961 and as per Accounting Standard 22- "Accounting for taxes on Income” respectively. Deferred Tax
adjustments comprises of changes in the deferred tax assets or liabilities during the year. Deferred tax assets and
liabilities are recognized by considering the impact of timing differences between taxable income and accounting
income for the current year and carry forward losses. 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. The impact of changes in
deferred tax assets and liabilities is recognized in the profit and loss account.
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