3. SIGNIFICANT ACCOUNTING POLICIES

A. REVENUE RECOGNITION:

i. Interest income on loans, advances and investments is recognized in the Profit and Loss Account on
accrual basis except income on advances, investments and other assets classified as Non-Performing
Assets (NPA), which is recognized upon realization, as per the prudential norms prescribed by RBI.
Unrealized interest on NPA is reversed in the Profit and Loss Account and is recognized only on
receipt basis. Further, charges on advances are recognized on receipt basis.

ii. Income on non-coupon bearing discounted instruments is recognized over the tenure of the
instruments so as to provide a constant periodic rate of return.

iii. Processing fees on loan, direct assignment and securitisation is recognised upfront when it becomes
due.

iv. Dividend is accounted on an accrual basis when the right to receive the dividend is established.

v. Interest income on deposits with banks and financial institutions is recognized on a time
proportion basis taking into account the amount outstanding and the implicit rate of interest.

vi. Fees received on sale of Priority sector lending certificates is recognised upfront in the Profit
and Loss Account.

vii. Amounts recovered against debts written off in earlier years are recognised in the Profit and
Loss Account on cash basis.

viii. Gain / loss on sell down of loans is recognised in line with the extant RBI guidelines.

ix. All other fees, service charges and commission income are accounted for as and when they
become due.

B. INVESTMENTS:

Classification:

In accordance with RBI guidelines, investments are 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 sub-category within FVTPL. Subsequent shifting amongst
the categories is done in accordance with the RBI guidelines. Under each of these categories,
investments are further classified under five groups - Government Securities, Other Approved
Securities, Shares, Debentures and Bonds. All investments in subsidiaries, associates and joint
ventures are classified in a distinct category from the other investment categories.

The transactions in securities are accounted on settlement date except in the case of equity
shares which are accounted on trade date.

Basis of classification:

a. Held to Maturity (HTM)

Securities meeting the following criteria are classified as 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

ii. The contractual terms of the security give rise to cash flows that are solely payments
of principal and interest on principal outstanding (SPPI criterion) on specified dates.

b. Available for sale (AFS)

Securities meeting the following criteria are classified as 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' as mentioned above.

On initial recognition, Bank may make an irrevocable election to classify an equity instrument
that is not held with the objective of trading under AFS.

c. Fair Value through profit and loss account (FVTPL)

Securities that do not qualify for inclusion in HTM or AFS are classified under FVTPL.

HFT is a sub-category created within FVTPL, which includes any instrument which the Bank
holds for one or more of the following purposes and having no legal impediment against
selling or fully hedging it:

i. Short-term resale

ii. Profiting from short-term price movements

iii. Locking in arbitrage profit

iv. Hedging risks that arise from instruments meeting (i), (ii), (iii) above
Transfer between categories:

Transfer of investments from one category to the other is done in accordance with RBI guidelines.
Transfer of securities from AFS / HFT category to HTM category is made at the lower of book
value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the
investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition
price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at
the amortized cost. After transfer, these securities are re-valued and resultant depreciation, if any,
is provided.

Transfer of investments from AFS to HFT or vice- a- versa is done at the book value. Depreciation
carried, if any, on such investments is also transferred from one category to another.

Initial Recognition:

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

Broken period interest if any, paid on acquisition of investments is debited to Profit and Loss
Account. Broken period interest received on sale of securities is recognized as interest income.

Where the securities are quoted or the fair value can be determined based on market observable
inputs (i.e., based on Level 1 or Level 2 inputs) any Day 1 gain / loss is recognised in the Profit and
Loss Account immediately.

Any Day 1 loss arising from Level 3 investments is recognised immediately. Any Day 1 gains
arising from Level 3 investments is deferred. In the case of debt instruments, the Day 1 gain is
amortized on a straight-line basis up to the maturity date, while for unquoted equity instruments,
the gain shall be set aside as a liability until the security is listed or derecognised.

Subsequent Measurement:

The securities held under HTM are carried at cost and are not marked to market (MTM) after
initial recognition. Any discount or premium on the securities under HTM is amortised over the
remaining life of the instrument.

The securities held under AFS are fair valued daily. Any discount or premium on the acquisition
of debt securities under AFS is amortised over the remaining life of the instrument. The valuation
gains and losses across all performing investments, irrespective of classification held under AFS
is aggregated. The net appreciation or depreciation is directly credited or debited to AFS Reserve
without routing through the Profit & Loss Account.

The securities held in FVTPL are fair valued and the net gain or loss arising on such valuation is
directly credited or debited to the Profit and Loss Account. Securities that are classified under the
HFT sub-category within FVTPL are fair valued daily, whereas other securities in FVTPL are fair
valued quarterly. Any discount or premium on the acquisition of debt securities under FVTPL is
amortised over the remaining life of the instrument.

Disposal of Investments:

Profit / Loss on sale of investments under the aforesaid three categories is recognised in the
Profit and Loss Account. Cost of investments is determined based on the weighted average cost
method.

The profit from sale of investments under HTM category, net of taxes and transfer to Statutory
Reserve is appropriated from the Profit and Loss Account to Capital Reserve.

Upon sale or maturity of a debt instrument in AFS category, the accumulated gain/ loss for that
security in the AFS-Reserve is transferred and recognized in the Profit and Loss Account. In the
case of equity instruments designated under AFS at the time of initial recognition, any gain or
loss on sale of such investments is transferred from AFS-Reserve to the Capital Reserve.

Determination of Fair Value:

Fair value means the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants on the measurement date. The fair value for
the purpose of initial recognition and periodical valuation of investments is determined as per
the RBI directions.

The fair value for the quoted securities is the prices declared by the Financial Benchmarks
India Private Ltd. (FBIL). For securities whose prices are not published by FBIL, the fair value of
the quoted security shall be 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).
Treasury Bills are fair valued at their carrying cost which is the acquisition cost adjusted for the
discount accrued as on the valuation date.

Unquoted Central / State Government securities are valued on the basis of the prices / YTM rates
published by the FBIL. Other Unquoted SLR securities are valued applying the YTM method by
marking them up by 25 basis points above the yields of the Central Government Securities of
equivalent maturity put out by FBIL.

Equity shares for which current quotations are not available, the fair value is the break-up value
which is ascertained from the company's latest audited balance sheet. In case the latest audited
balance sheet is not available or is more than 18 months old, the shares are valued at '1 per
company.

Investment in un-quoted mutual fund units is valued on the basis of the latest repurchase price
declared by the mutual fund in respect of each scheme. In case of funds with a lock-in period or
any other Mutual Fund, where repurchase price / market quote is not available, units are valued
at Net Asset Value (NAV) of the scheme. If NAV is not available, these shall be valued at cost, till
the end of the lock-in period.

Investment in security receipts (SRs) and other instruments issued by an Asset Reconstruction
Company (ARC) are valued as per the net asset value provided by the issuing Asset Reconstruction
Company.

Non-performing investments are identified, and provision are made thereon based on RBI
guidelines. The provision on such non-performing investments is not set off against the
appreciation in respect of other performing investments. Interest on non-performing investments
is not recognized in the Profit and Loss Account until received.

Repurchase and reverse repurchase transactions:

In accordance with the RBI guidelines, repurchase (Repo) and reverse repurchase (Reverse Repo)
transactions in government securities and corporate debt securities are reflected as borrowing
and lending transactions respectively. Borrowing cost on repo transactions is accounted as
interest expense and revenue on reverse repo transactions is accounted as interest income.

C. ADVANCES CLASSIFICATION AND PROVISIONING:

Advances are classified into performing and non-performing advances (NPA) as per the RBI guidelines and
are stated net of specific provisions made towards NPA. Further, NPA are classified into sub-standard, doubtful
and loss assets based on the criteria stipulated by RBI. Provisions for NPA is made at rates as prescribed by the
RBI and as per Bank's internal assessment which is approved by the Board of Directors of the Bank and same
is charged to the Profit and Loss Account under Provisions and Contingencies.

Non-performing advances are written-off in accordance with Bank's policies. Amounts recovered against
debts written-off are recognised in the Profit and Loss account as "Miscellaneous income" under Other
Income (Schedule 14).

The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating
to the borrower's financial difficulty, grants to the borrower concessions that the Bank would not otherwise
consider. Restructuring would normally involve modification of terms of the advances/securities, which
would generally include, among others, alteration of repayment period/ repayable amount/ the amount of
instalments/ rate of interest (due to reasons other than competitive reasons). Restructured accounts are
classified as such by the Bank only upon approval and implementation of the restructuring package. Necessary
provision including diminution in the fair value of a restructured account is made and classification thereof
is as per the extant RBI guidelines.

The Bank maintains a general provision on standard advances at the rates prescribed by RBI. Provision made
against standard assets is included in "Other liabilities & provisions" (Schedule 5).

The Bank transfers advances through inter-bank participation. In accordance with RBI guidelines, in the case
of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from
advances. In case of participation with non-risk sharing, the aggregate amount of participation is classified
as borrowings.

The Bank trades in Priority Sector portfolio by selling or buying Priority Sector Lending Certificates (PSLCs)
as per RBI prescribed guidelines. There is no transfer of risk on loan assets in these transactions. The fee paid
for purchase of the PSLC is treated as an 'Expense' and the fee received for the sale of PSLCs is treated as
'Miscellaneous Income'.

Floating Provisions:

Provisions made, if any, in excess of the Bank's internal assessment for specific loan loss provisions
for non-performing assets and regulatory general provisions are categorised as floating provisions.
Creation of floating provisions is considered by the Bank up to a level approved by the Board of
Directors in accordance with RBI guidelines, floating provisions are used up to a level approved by the
Board of Directors only for contingencies under extraordinary circumstances and for making specific
provisions for impaired accounts as per these guidelines or any regulatory guidance / instructions.
Floating provisions, if any, are shown under "Other liabilities and Provisions" (Schedule 5).

Provision for unhedged Foreign Currency Exposure of borrowers is made as per RBI guidelines.

D. SECURITISATION AND TRANSFER OF ASSETS:

Assets transferred through securitisation and direct assignment of cash flows are de-recognised when they
are sold (true sale criteria being fully met with) and consideration is received. Sales / transfers that do not
meet true sale criteria are accounted for as borrowings. For a securitisation or direct assignment transaction,
the Bank recognises profit upon receipt of the funds and loss is recognised at the time of sale.

On sale of stressed assets, if the sale is at a price below the net book value (i.e., funded outstanding less
specific provisions held), the shortfall is charged to the Profit and Loss Account and if the sale is for a value
higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year
when the sum of cash received by way of initial consideration and / or redemption or transfer of security
receipts issued by Securitisation Company ('SC') / Reconstruction Company ('RC') exceeds the net book value
of the loan at the time of transfer.

In respect of stressed assets sold under an asset securitisation, where the investment by the bank in security
receipts (SRs) backed by the assets sold by it is more than 10 percent of such SRs, provisions held are
higher of the provisions required in terms of net asset value declared by the Securitisation Company ('SC') /
Reconstruction Company ('RC') and provisions as per the extant norms applicable to the underlying loans,
notionally treating the book value of these SRs as the corresponding stressed loans assuming the loans
remained in the books of the Bank.

The Bank invests in Pass Through Certificates (PTCs) issued by other Special Purpose Vehicles (SPVs). These
are accounted at acquisition cost and are classified as investments. The Bank also buys loans through the
direct assignment route which are classified as advances. These are carried at acquisition cost unless it is
more than the face value, in which case the premium is amortised based on effective interest rate method.

Bank recognizes Excess Interest Spread (EIS) only on cash basis and over collateralization, if any, is included
in the Gross Advances and it is provided for as per the provisioning norms of RBI.

Direct assignment portfolio bought by the Bank, if any, are classified as advances. These are carried at
acquisition cost unless it is more than the face value, in which case the premium is amortised over the tenor
of the loans.

E. FIXED ASSETS AND DEPRECIATION:

Fixed Assets are stated at cost less accumulated depreciation as adjusted for accumulated impairment, if
any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all other directly
attributable expenditures towards acquisition and installation of assets before it is 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. Specific grant received for acquisition of fixed assets are reduced
from the cost of the asset.

Depreciation on fixed asset is charged over the estimated useful life on a straight line basis after retaining a
residual value of 0.01%, except for leasehold improvements and software which are fully depreciated.

The estimated useful life of the intangible assets are reviewed at the end of each financial year and the
amortisation period is revised to reflect the changed pattern, if any.

Software is depreciated fully over the useful life of the software based on the license validity or five years
whichever is earlier.

Fixed assets purchased during the year are depreciated on the basis of actual number of days the asset has
been put to use in the year. Fixed assets disposed off during the year are depreciated up to the date of disposal.

Profit or losses arising from the retirement or disposal of a Fixed / Intangible Asset are determined as the
difference between the net disposal proceeds and the carrying amount of fixed/ intangible assets and
recognized as income or expense in the Profit and Loss Account. Profit on sale of fixed assets net of taxes and
transfer to statutory reserve, is transferred to Capital Reserve as per RBI guidelines.

F. IMPAIRMENT OF ASSETS (Other than loans and advances):

In accordance with Accounting Standard-28- Impairment of assets, the Bank assesses at each Balance Sheet
date whether there is any indication of impairment of assets based on internal / external factors. Impairment
loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds
their estimated recoverable amount, which is higher of an asset's net selling price and its value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and risks specific to the
asset.

After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining
useful life. When there is indication that an impairment loss recognised for an asset in earlier accounting
periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Profit
and Loss Account, to the extent the amount was previously charged to the Profit and Loss Account.

G. FOREIGN CURRENCY TRANSACTIONS:

(i) Foreign currency transactions are recorded in the reporting currency, by applying to the foreign
currency amount the exchange rate between the reporting currency and the foreign currency at the
date of the transaction.

(ii) Foreign currency monetary items are reported using the closing rate. 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.

Exchange differences arising on settlement of monetary items or on reporting of such monetary items at
rates different from those at which they were initially recorded during the year, or reported in previous
financial statements, are recognised as income or expense in the year in which they arise.

H. EMPLOYEE BENEFITS:

Defined contribution plan:

Retirement benefits in the form of provident fund and employee state insurance scheme are
defined contribution schemes and the contributions are charged to the Profit and Loss Account of
the year when the contributions to the respective funds are due, when the services are rendered

by the employees. There are no other obligations other than the contribution payable to the
respective funds.

Defined benefit plan and compensated absences:

The Bank accounts for its liability for unfunded compensated absences and funded gratuity based
on actuarial valuation, as at the Balance Sheet date, determined annually by an independent
actuary using the Projected Unit Credit Method to determine present value of the defined benefit
obligations and related service costs. The Bank makes contribution to the Gratuity Fund managed
by life insurance companies. Actuarial gains and losses are recognized in full in the Profit and Loss
Account for the period and are not deferred.

Short term employee benefits:

Short term employee benefits expected to be paid in consideration for the services rendered by
the employees is recognized during the period when the employee renders service.

I. INCOME TAXES:

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 asset/ liability is recognized on timing differences, being the differences between the taxable
income and the accounting income that originate in one period and are capable of reversal in one or more
subsequent periods. Deferred tax assets and liabilities are measured using the tax rates and the tax laws
enacted or substantively enacted as at the balance sheet date. 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 supported by convincing evidence 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.

J. EARNINGS PER SHARE:

Bank reports basic and diluted earnings per share in accordance with Accounting Standard - 20, Earnings
Per Share. Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to
equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares
outstanding during the year. The weighted average number of equity shares outstanding during the year
is adjusted for events of exercise of employee stock options and restricted stock units, bonus issue, bonus
element in a rights issue to existing shareholders and share split.

Diluted earnings per share reflects the potential dilution that could occur if 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 the dilutive potential equity shares (stock options, restricted
stock units and convertible preference shares) outstanding during the year, except where the results are anti¬
dilutive.