4. SIGNIFICANT ACCOUNTING POLICIES
4.1. ADVANCES
4.1.1. Classification and measurement of advances
Advances are classified into performing and non-performing assets('NPAs') as per the RBI guidelines and are stated
net of bills rediscounted, specific provisions made towards NPAs, unrealized interest, claims received from Credit
Guarantors and provisions for funded interest on term loan classified as NPAs.
The aggregate amount of the participation transferred to the Bank under Inter-Bank Participation on a risk-sharing
basis is classified under advances, following the RBI guidelines
4.1.2. Non-performing assets and provision on non-performing assets
NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. NPAs are
upgraded to standard as per the extant RBI guidelines.
Provisions for NPAs are made for sub-standard, doubtful and loss assets at rates as prescribed by the RBI. Accelerated
provisioning is made basis recoverability and sound commercial judgement.
In case of NPAs referred to the National Company Law Tribunal ('NCLT') under the Insolvency and Bankruptcy Code,
2016 ('IBC') and where the NCLT has approved the resolution plan or liquidation order, provision is maintained at
higher of the requirement under the RBI guidelines or the likely haircut as per resolution plan or liquidation order.
4.1.3. Provision on Restructured Assets
In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the
RBI as applicable.
4.1.4. Interest Reversals on NPAs
Interest on non-performing advances is transferred to an unrealised interest account and not recognised in the
Profit and Loss account until received.
4.1.5. Write-offs and recoveries from written-off accounts
Write-offs are carried out in accordance with the Bank's policy. Recoveries from advances written-off are recognised
in the Profit and Loss account under 'Other income' and recovery of Unrealised Interest under 'Income Interest on
Loans & Advances'.
4.1.6. Other provisions on advances
In respect of borrowers classified as non-cooperative or wilful defaulters or where there is delay in implementation
of a viable Resolution Plan for stressed borrowers, the Bank makes additional provisions as per the extant
RBI guidelines.
Loans reported as fraud are classified as loss assets, and fully provided for immediately without considering the
value of security.
For entities with Unhedged Foreign Currency Exposure ('UFCE'), provision is made in accordance with the guidelines
issued by the RBI, which requires ascertaining the amount of UFCE, estimating the extent of likely loss and estimating
the riskiness of the unhedged position. This provision is classified under Schedule 5 - Other Liabilities and Provisions
in the Balance Sheet. Further, incremental capital is maintained in respect of such borrower counterparties in the
highest risk category, in line with stipulations by the RBI.
As per extant RBI guidelines, the Bank assesses incremental exposure of specified borrowers of the banking system
beyond the Normally Permitted Lending Limit ('NPLL'), and makes additional provisions, if required.
The Bank maintains a general provision on standard advances at the rates prescribed by the RBI. Additionally, on a
prudent basis, for Special Mention Accounts (SMA), and identified stress sectors, higher provisioning is maintained.
4.1.7. Securitisation and transfer of assets
In accordance with RBI guidelines on Transfer of Loan exposures, any profit or loss arising because of the transfer
of loans, which is realised, is accounted for and reflected in the Profit and Loss Account for the accounting period
during which the transfer is completed.
4.2. INVESTMENTS
Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation,
as given below:
4.2.1 Classification
For disclosure in Balance Sheet, the investments are classified as Investments in India and outside India. The
investments in India are further classified as
(i) Government Securities,
(ii) Other Approved Securities,
(iii) Shares,
(iv) Bonds and Debentures,
(v) Subsidiaries and/or Joint Ventures (including Associates) and
(vi) Other Investments (Units and Gold).
There are no investments outside India.
In accordance with the RBI guidelines, investments are classified at the time of purchase as:
• Held to Maturity ('HTM').
• Available for Sale ('AFS'); and
• Fair Value Through Profit and Loss (FVTPL). Held for Trading (HFT) is separate investment subcategory within FVTPL.
• Investment in Subsidiaries, Associate and Joint Ventures.
4.2.2 Basis of Classification
The Bank classifies entire investment portfolio (except investments in their own Subsidiaries, Joint Ventures and
Associates) under three categories viz., Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit
and Loss (FVTPL) with a subcategory named Held for Trading (HFT).
i. Held to Maturity (HTM): The security acquired with the intention of holding it to maturity 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 (SPPI criterion') on specified dates are categorised as Held to Maturity (HTM).
ii. Available for Sale (AFS): The security acquired with the objective that is achieved by both collecting contractual
cash flows and selling securities before maturity; and the contractual terms of the security give rise to cash
flows that are Solely Payments of Principal and Interest (SPPI criterion) is categorised as Available for Sale (AFS).
On initial recognition, the Bank makes an irrevocable selection to classify an equity instrument, that is not held
with the objective of trading, under AFS, in line with the RBI Guidelines.
iii. Fair Value through Profit and Loss (FVTPL): Securities that do not qualify for inclusion in HTM or AFS are
classified under Fair Value through Profit and Loss (FVTPL) which shall include Equity Shares (other than equity
shares of subsidiaries, associates or joint ventures and where at the time of initial recognition, the irrevocable
option to classify at AFS has been exercised and listed equity shares) Mutual Funds, Alternative Investment
Funds, Real Estate Investment Trusts, Infrastructure Investment Trusts etc.
Held for Trading (HFT) Any instrument that is held for one or more of the following purposes is designated
as a Held for Trading (HFT) instrument:
a. short-term resale;
b. profiting from short-term price movements;
c. locking in arbitrage profits; or
d. hedging risks that arise from instruments meeting (a), (b) or (c) above.
iv. Investments in subsidiaries, associates and joint ventures is held in a distinct category for such
investments separate from the other investment categories. (viz. HTM, AFS and FVTPL).
4.2.3 Initial Recognition of investments:
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.
Costs incurred at the time of acquisition, of investments, such as brokerage, commission etc., are charged to the
Profit and Loss Account.
Broken period interest paid/ received on debt instruments is treated as interest expense/ income and is excluded
from cost/ sale consideration.
The cost of investment is computed based on the weighted average cost method.
Investments are categorised into 3 fair value hierarchy based on the degree to which the inputs to the fair value
measurements are observable,
(a) "Level 1" - wherein inputs used for valuation of a financial instrument are quoted prices (unadjusted) in active
markets for identical instruments that the bank can access at the measurement date;
(b) "Level 2" - wherein inputs used for valuation of a financial instrument are inputs other than quoted prices that
are observable for the asset or liability, either directly or indirectly (such as yield curve, credit spread etc.);
(c) "Level 3" - wherein valuation is based on unobservable inputs.
Recognition of Day 1 Gain/Loss:
a. Day 1 gain / loss arising in initial recognition of Level 1 and Level 2 hierarchy, is recognised in the Profit and Loss
Account, under item III- 'Profit/Loss on revaluation of investments(net)' under Schedule 14: 'Other Income'.
b. Any Day 1 loss arising from Level 3 investments is recognised immediately.
c. 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 (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.
4.2.4 Subsequent Recognition
Investments classified under the HTM category:
Investments are carried at acquisition cost and is not marked to market (MTM) after initial recognition. Any discount
or premium on the securities held under HTM category 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' with a contra in Schedule 8:'Investments'.
Investments classified under the AFS categories:
Investments classified under the Available for Sale (AFS) category are fair valued at least on a quarterly basis. Any
discount or premium arising on acquisition of debt securities held under AFS is amortised over the remaining life
of the instrument, with the amortised amount reflected under Schedule 13: 'Interest Earned' with a corresponding
adjustment under Schedule 8: 'Investments'. Net valuation gains or losses on all performing investments under
AFS—including government securities, other approved securities, bonds, and debentures—are aggregated and
directly credited or debited to the AFS-Reserve, without routing through the Profit and Loss Account.
Income recognition, asset classification, and provisioning norms for securities under the AFS category are in
accordance with the applicable regulatory guidelines. The AFS-Reserve is reckoned as part of Common Equity
Tier 1 (CET 1) capital, subject to applicable conditions, though unrealised gains in the reserve are not available for
distribution by way of dividends or coupons on Additional Tier 1 instruments.
Upon sale or maturity of a debt instrument in AFS category, the accumulated gain/ loss for that security in the AFS-
Reserve is 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. In the case of equity instruments designated under AFS at
the time of initial recognition, any gain or loss on sale of such investments are transferred from AFS-Reserve to the
Capital Reserve.
Investments classified under the FVTPL categories:
Investments classified under the Fair Value Through Profit or Loss (FVTPL) category are fair valued with the resultant
net gain or loss directly credited or debited to the Profit and Loss Account. Securities under the Held for Trading
(HFT) sub-category within FVTPL are fair valued on a daily basis, whereas other securities under FVTPL are fair valued
at least quarterly or more frequently, as applicable.
Any discount or premium on the acquisition of debt securities under the FVTPL category is amortised over the
residual maturity of the instrument. The amortised amount is accounted for under Schedule 13: 'Interest Earned'
(Item II - Income on Investments), with a corresponding adjustment in Schedule 8: 'Investments'.
FVTPL securities are also subject to income recognition, asset classification, and provisioning norms in accordance
with the applicable regulatory framework.
4.2.5 Fair value measurements
The fair value for the purpose of initial recognition and periodical valuation of investments as required by regulatory
guidelines is determined as per the valuation norms laid down as under:
Quoted Securities
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 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).
Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments,
are valued at carrying cost which includes discounts accreted over the period to maturity.
Units of mutual funds are valued at the latest repurchase price/Net Asset Value ('NAV') declared by the mutual fund.
The market value of investments where current quotations is not available is determined in accordance with the
following norms prescribed by the RBI:
• Unquoted Central / State Government securities are valued on the basis of the prices/ YTM rates
published by the FBIL.
• In case of special bonds issued by the Government of India that do not qualify for SLR purposes, unquoted
bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue
beyond 90 days), the market price is derived based on the Yield to maturity ('YTM') for Government Securities
as published by FIMMDA/FBIL and suitably marked up for credit risk applicable to the credit rating of the
instrument. The matrix for credit risk markup for each category and credit ratings along with residual maturity
issued by FIMMDA/FBIL is adopted for this purpose.
• In the case of bonds & debentures where interest is not received regularly (i.e. overdue beyond 90 days), the
valuation is in accordance with the prudential norms for provisioning as prescribed by the RBI.
• Equity shares, for which current quotations are not available or where the shares are not quoted on the stock
exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained
from the company's latest Balance Sheet (not older than 18 months). In case the latest Balance Sheet is not
available, the shares are valued at H 1 per company.
• Investments in Security Receipts ('SRs') are valued as per the NAV declared by the issuing Asset Reconstruction
Company ('ARC') or net book value of loans transferred or estimated recoverable value based on Bank's internal
assessment on case-to-case basis, whichever is lower
• Units of Alternate Investment Fund ('AIF') are marked to market using the NAV provided by AIF which is
determined from the latest audited financial statements. In case the audited financials are not available for a
period beyond 18 months, the investments are valued at H 1 per AIF.
4.2.6 Transfer of security between categories
Transfer of security between categories of investments is accounted for as per the RBI guidelines.
4.2.7 Disposal of Investments
Investments classified under the HTM category:
In any financial year, the carrying value of investments sold out of HTM should not exceed five per cent of the
opening carrying value of the HTM portfolio. Any sale beyond this threshold is require prior approval from DoS, RBI.
Realised gains are recognised in the Profit and Loss Account and subsequently appropriated to the Capital Reserve
Account (net of taxes and transfer to statutory reserves) in accordance with the RBI guidelines. Losses are recognised
in the Profit and Loss Account.
Investments classified under the AFS and HFT categories:
On sale or maturity of debt instruments under AFS, the corresponding accumulated gain or loss is transferred
from the AFS-Reserve to the Profit and Loss Account under Schedule 14: 'Other Income' (Item II - Profit on Sale
of Investments).
For equity instruments initially designated under AFS, any resultant gain or loss on sale are transferred from AFS-
Reserve to the Capital Reserve, and not routed through the Profit and Loss Account.
Investments classified under the HFT category
Under HFT categories, realised gains/losses are recognised in the Profit and Loss Account.
4.2.8 Short Sales
In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated
securities. Such short positions are categorised under the HFT category. These positions are marked-to-market
along with the other securities under the HFT portfolio and the resultant Mark-to-Market ('MTM') gains/losses are
accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.
4.2.9 Repurchase and reverse repurchase transactions. Repurchase transactions ('Repos')
Repurchase transactions in Government securities and corporate debt securities including those conducted under
the Liquidity Adjustment Facility ('LAF) and Marginal Standby Facility ('MSF') with RBI are accounted for as collateralised
borrowings. Accordingly, securities given as collateral under an agreement to repurchase them, continue to be held
under the investment account and the Bank continues to accrue the coupon on the security during the repo period.
Borrowing cost on such repo transactions is accounted as interest expense in "Schedule 15 - Interest Expended" in
the Profit and Loss Account.
Reverse repurchases transactions ('Reverse repos')
Reverse repurchases transactions with RBI with original maturity upto 14 days from the date of issuance, including
those conducted under the Liquidity Adjustment Facility ('LAF') are accounted for as collateralised lending under
"Schedule 6 - Balances with RBI - in Other Accounts". Revenue on such reverse repos is accounted for as interest
income under "Schedule 13 - Interest Earned - Interest on balances with Reserve Bank of India and Other Inter-bank
Funds" in the Profit and Loss Account.
Reverse repos with an original maturity of more than 14 days from the date of issuance are accounted for as
collateralised lending under "Schedule 9 - Advances". Revenue on such reverse repos are accounted for as interest
income under "Schedule 13 - Interest Earned - Interest/discount on advances/bills" in the Profit and Loss account.
4.2.10 Non-Performing Investments
Non-performing investments are identified, and provision is made thereon as per the RBI guidelines. Provision
for depreciation on such non-performing investments is not set off against the appreciation in respect of other
performing securities as per RBI guidelines.
In line with regulatory guidelines, where an investment classified under the Available for Sale (AFS) category has
cumulative gains in the AFS-Reserve, any provision required in respect of such investment may be made by debiting
the AFS-Reserve to the extent of available gains. Conversely, in cases where there are cumulative losses in the AFS-
Reserve relating to an AFS investment, such losses are transferred from the AFS-Reserve to the Profit and Loss
Account. Interest on non-performing investments is not recognized in the Profit and Loss Account until received.
The Bank also classifies an investment as a non-performing investment in case any credit facility availed by the same
borrower/entity has been classified as a non-performing asset and vice versa.
The above is applied to Preference Shares where the fixed dividend is not paid.
4.3. REVENUE RECOGNITION
Interest income is recognised on an accrual basis in accordance with AS-9, Revenue Recognition as notified under Section
133 of the Companies Act, 2013 read together with the Companies (Accounts) Rules, 2014, the Companies (Accounting
Standards) Rules, 2021 and the RBI guidelines, except in the case of interest income on non-performing assets where it
is recognised on receipt basis as per the income recognition and asset classification norms of RBI.
Income on non-coupon-bearing discounted instruments or low coupon-bearing instruments is recognised over the tenor
of the instrument on a constant yield basis.
Commission on Guarantees/Letters of Credit, Processing Fees and rent on safe deposit lockers are accounted for on
a receipt basis.
Other fees and commission income are recognised when due, where the Bank is reasonably certain of ultimate collection.
Dividend income is accounted for on an accrual basis when the right to receive the dividend is established.
Gain/loss on selling down of loans and advances through direct assignment is recognised at the time of sale.
Recoveries in the non-performing advances are appropriated as under:
a) In case of non-performing Term Loan/DPN the recoveries are appropriated towards the principal, interest and
charges, in the order of demand.
b) In case of non-performing Overdraft Accounts the recoveries are first appropriated towards interest and then
towards charges and excess allowed in overdraft account if any, followed by expired sanctioned TOD.
c) In case of one-time settlement (OTS) accounts, the recoveries are first adjusted towards principal balance and then
towards interest and charges.
In the case of suit-filed accounts, related legal and other expenses incurred are charged to the Profit and Loss Account
net of recovery.
Interest on income-tax refund is recognised based on the refund intimation/order received under the provisions of the
Income Tax Act, 1961 from time to time.
In accordance with RBI guidelines, on the sale of non-performing advances, if the sale is at a price below the net book
value (i.e. book value less provisions held), the shortfall is charged to the Profit and Loss Account. 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 the
amounts are received.
4.4. FOREIGN CURRENCY TRANSACTIONS
Initial Recognition
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 on the date of the transaction.
Conversion
Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements,
and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as
notified by the Foreign Exchange Dealers Association of India ('FEDAI') / Financial Benchmarks India Pvt. Ltd. (FBIL) and the
resulting profit and loss is recognised in the Profit and Loss account, as per the guidelines issued by RBI.
Exchange Differences
Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in which
it arises. 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 non-monetary items which are carried at fair value, or other
similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values
were determined.
Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting
currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are
effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange
contract is amortised as expense or income over the life of the contract.
Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI/FBIL and
at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognised in the Profit
and Loss Account in accordance with the RBI/FEDAI guidelines.
Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90
days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential
Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.
4.5. DERIVATIVE CONTRACTS
Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of
India's guidelines.
Derivative deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.
Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market
and income /expenditure is accounted on accrual basis.
4.6. FIXED ASSETS, DEPRECIATION, REVALUATION AND IMPAIRMENT
Fixed assets (except premises revalued) are carried at the cost of acquisition less accumulated depreciation and
impairment, if any. Cost includes initial handling and delivery charges, 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 economic benefit / functioning capability from / of such assets.
The portfolio of immovable properties is revalued periodically by an independent valuer to reflect the current market
valuation. All land and buildings owned by the Bank and used as branches, offices and employee's residential quarters
are grouped under "Land and Building" in the fixed assets category. Appreciation, if any, on revaluation is credited to
the Revaluation Reserve. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and
appropriated from the Revaluation Reserves to Revenue Reserves.
Computer Software is capitalised along with computer hardware and included under other fixed assets.
Intangibles/Application software
An intangible asset is recognised if, and only if:
- it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and
- the cost of the asset can be measured reliably.
- An intangible asset should be measured initially at cost.
Capital Work in Progress
Capital work-in-progress includes the cost of fixed assets that are not ready for their intended use and also includes
advances paid to acquire fixed assets.
Depreciation is provided over the estimated useful life of a fixed asset on a Straight-Line Method (SLM) from the date
of addition. The Management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives
and residual values of fixed assets based on the historical experience of the Bank, though these rates in certain cases
are different from those prescribed under Schedule II of the Companies Act, 2013. Whenever there is a revision of the
estimated useful life of an asset, the unamortised depreciable amount is charged over the revised remaining useful life of
the said asset.
Where during any financial year, an addition has been made to any asset or where any asset has been sold, discarded,
demolished or destroyed, the depreciation on such asset is calculated on pro rata basis from the date of such addition or
as the case maybe, up to the date on which such asset has been sold, discarded, demolished or destroyed.
Gain or losses arising from the retirement or disposal of fixed assets are determined as the difference between the
net disposal proceeds and the carrying amount of assets and are recognised as income or expense in the Profit
and Loss Account.
The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain if there is any indication of
impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an
asset exceeds its recoverable amount. The recoverable amount is the greater of the asset's net selling price and value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted
average cost of capital. After impairment, depreciation is provided on the revised carrying amount of the asset over its
remaining useful life.
4.7. EMPLOYEE BENEFITS
a. 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.
b. Long term employee benefits
i. Defined contribution plan
Provident Fund
Contributions made by the Bank to the Provident Fund and Contributory Pension Scheme in the form of
retirement benefits are charged to the Profit and Loss account. There is no other obligation other than the
contribution payable to the fund.
National Pension Scheme ('NPS')
In respect of employees who have joined the Bank on or after 1st April 2010, the Bank contributes prescribed
percentage of the Basic pay and dearness allowance of such employees (defined contribution plan), which is
managed and administered by pension fund management companies. NPS contributions are recognised in the
Profit and Loss Account in the period in which they accrue.
ii. Defined benefit plan
Gratuity
The Bank contributes towards the Gratuity Fund "Karnataka Bank Employees' Gratuity Fund" (Defined
Retirement Benefit Scheme) administered by a Trust formed for the benefits to eligible employees on the
Bank's instruction. Under this Scheme, the settlement obligations remain with the Bank. The Gratuity payable
to vested employees on termination of employment is determined based on the respective employee's salary
& number of years of employment with the Bank. The liability with regard to the Gratuity is recognised on the
basis of actuarial valuation conducted by an independent actuary using the Projected Unit Credit Method as at
31st March every year based on certain assumptions regarding Discount rate, Salary Escalation, mortality and
employee attrition. Actuarial gain/loss is recognized in the Profit and Loss Account and is not deferred.
Pension
The Bank makes contribution towards the Pension obligation (Defined Retirement Benefit Scheme) to a
separate Trust formed for the purpose of management of the Fund, which determines the pension payable
to the eligible employee based on the Industry-wide Pension Scheme. The Trust has purchased a Group
Superannuation Policy from LIC of India for payment of pension. However, the ultimate obligation of payment
of pension remains with the Bank. The liability with regard to the Pension is recognised on the basis of actuarial
valuation conducted by an independent actuary using the Projected Unit Credit Method as at 31st March every
year based on certain assumptions regarding Discount rate, Salary Escalation, mortality and employee attrition.
Actuarial gain/loss is recognized in the Profit and Loss Account of the Bank and is not deferred.
c. Other Long-term benefits
Compensated absence
Compensated leave entitlements are recognised as a liability in the year of rendering of service as per rules of the
Bank. The Bank treats accumulated leave as long-term employee benefits as the same can be carried beyond 12
months. In respect of accumulated leave that can be availed / encashed, during the tenure of / end of employment,
the liability is recognised on the basis of an independent actuarial valuation. They are therefore measured as the
present value of expected future payments to be made in respect of services provided by employees upto the end
of the reporting period. The benefits are discounted using the market yields at the end of the reporting period
that have terms approximating to the terms of the related obligation. Remeasurements as a result of experience
adjustments and changes in actuarial assumptions are recognised in the profit & loss account.
4.8. TAXATION
Tax expenses comprise current and deferred taxes. Current income tax is measured as the amount expected to be paid
to the tax authorities in accordance with the Income Tax Act, 1961, considering the material principles set out in the
Income Computation and Disclosure Standards (ICDS) to the extent applicable, rules framed thereunder and after due
consideration of the judicial pronouncement and legal opinions. 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 is measured based on the tax rates and the tax laws enacted or substantively enacted at the
Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect
to in the Profit and Loss Account in the period of change.
Deferred tax assets and liabilities are recognised for future tax consequences of timing differences between the carrying
values of assets and liabilities and their respective tax bases, and operating loss carry forwards.
Deferred tax is recognized subject to consideration of prudence on timing difference being the difference between taxable
income and accounting income that originate in one period and are capable of reversal in one or more subsequent period.
In the event of unabsorbed depreciation and carry forward losses and items relating to capital losses, deferred tax assets
are recognized only to the extent that there is virtual certainty supported by convincing evidence that sufficient future
taxable income will be available to realize such assets. In other situations, deferred tax assets are recognized only to the
extent that there is reasonable certainty that sufficient future taxable income will be available to realize these assets.
Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws
and the Company has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet
date and appropriately adjusted.
4.9. SHARE ISSUE EXPENSES
Share issue expenses are adjusted from the Share Premium Account in terms of Section 52 of the Companies Act, 2013.
4.10. 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 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 share is computed using the weighted average
number of equity shares and dilutive potential equity shares outstanding at the year-end except where the results
are anti-dilutive.
4.11. EMPLOYEE STOCK/UNIT OPTION SCHEME
In accordance with the SEBI (Share Based Employee Benefits) Regulations, 2021 / Guidance Note on Accounting for the
Employee Share-based Payments issued by The Institute of Chartered Accountants of India ('ICAO, the cost of equity-
settled transactions is measured using intrinsic value method for all options granted on or before 31 March 2021.
RBI vide its clarification dated 30th August 2021, circular reference no. RBI/2021-22/95 DOR.GOV.REC.44/29.67.001/2021-
22 on Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control
Function Staff, advised Banks that fair value of share-linked instruments on the date of grant should be recognised as
an expense for all instruments. For Employee Stock options granted after March 31, 2021, to Whole Time Directors/
Chief Executive Officers/ Material Risk Takers and Control Function Staff and employees of the Bank, as per the extant
guidelines of RBI, the Bank follows the fair value method and recognises the fair value of such option as on the date of
grant computed using the Black-Scholes model without reducing estimated forfeitures, as compensation expense over
the vesting period.
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