SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES

A. BACKGROUND

The Karur Vysya Bank Limited (‘the Bank') was
incorporated in Karur, Tamil Nadu, India is a publicly held
banking company governed by the Banking Regulation Act,
1949, the Companies Act, 2013 and other applicable Acts
/ Regulations and is engaged in providing a wide range
of banking and financial services including commercial
banking and treasury operations.

B. BASIS OF PREPARATION

The financial statements are prepared following the going
concern concept, on historical cost basis and conform to
the Generally Accepted Accounting Principles (GAAP) in
India which encompasses applicable statutory provisions,
regulatory prescriptions and extant disclosure norms
prescribed by the Reserve Bank of India (RBI) from time
to time, notified Accounting Standards (AS) issued under
Section 133 of the Companies Act, 2013, read together
with Companies (Accounting Standards) Rules, 2021 and
current practices prevailing in the banking industry in
India. The accounting policies adopted in the preparation
of financial statements are consistent with those followed
in the previous year except for accounting of employee
share based payment which is explained under the policy
for Employee Benefits.

Use of Estimates

The preparation of the financial statements requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
including contingent liabilities as of the date of the
financial statement and the reported income and expenses
during the reported period. The 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. The
differences, if any, between estimates and actual will
be dealt appropriately prospectively in the current and
future periods.

C. PRINCIPAL ACCOUNTING POLICIES

1. Revenue Recognition

Income and Expenditure are generally accounted on

accrual basis, except otherwise stated.

Interest/other charges from loans, advances and
investments other than on non-performing assets,
are recognized on accrual basis. Interest income on
non-performing advances (NPA)/ investments (NPI),
income from funded interest term loan accounts
(FITL) are recognized upon realisation, as per
prudential norms prescribed by RBI.

The policy of income recognition shall be objective
and based on the record of recovery. No interest will
be taken into income account on any NPA or NPI.
This will apply to Government guaranteed accounts
also. However, interest on advances against Term
Deposits, National Savings Certificates (NSCs), Indira
Vikas Patras (IVPs), Kisan Vikas Patras (KVPs) and
life policies will be taken to income account on the
due date, provided adequate margin is available in
the accounts.

Accounting for recoveries made in NPA

Recoveries made in NPA are appropriated in the
order of charges, interest and principal dues unless
otherwise agreed to with the borrower in a different
sequence; in cases where the borrower requires the
recovery to be appropriated in a different sequence,
the same is undertaken accordingly. In respect of
One Time Settlement accounts, the recoveries are
first adjusted to principal balance.

In compromise settlement cases / sale to Asset
Reconstruction Companies (ARC), sacrifice on
settlement is accounted at the time of closure
of account.

Commission on bank guarantees / letters of credit,
locker rent, annual fee on cards, commission on
bancassurance and third party products, premium
on sale of Priority Sector Lending Certificate and
Commission received on Government Agency Business
are accounted on receipt basis. Processing / other
fees collected on loans approved / disbursed, along
with related loan acquisition costs are recognised at
inception / renewal of the facility. Dividend income
and interest on income tax refund is recognised
when the right to receive payment is established.
Stationery and security items are charged to the
Profit and Loss Account on consumption basis.

Bank has a loyalty program which seeks to recognise
and reward customers based on their relationship
with the Bank. Under the program, eligible customers
are granted loyalty points, redeemable in future,
subject to certain conditions. The Bank estimates
the liability based on assumptions such as expected
redemption rate etc. and accounts for the expense
in the Profit and Loss Account.

Goods & Service Tax input credit is accounted for
in the books within the time limit prescribed under
CGST Rules, 2017, as amended.

2. Investments

Investments are accounted for in accordance with
the extant RBI guidelines on investment classification
and valuation.

Investments are categorized into three categories -

(i) Held to Maturity (HTM), (ii) Held for Trading
(HFT) and (iii) Available for Sale (AFS) with sub¬
classification under each category viz., (i) Government
Securities, (ii) Other Approved Securities, (iii) Shares,
(iv) Debentures & Bonds, (v) Subsidiaries and Joint
Ventures and (vi) Others - Units of Mutual Funds,
Certificate of Deposits, Commercial Paper, Security
Receipts and other investments, in accordance with
RBI guidelines.

The category under which the investments would
be classified is decided at the time of acquisition.
Investments which the Bank intends to hold till
maturity are classified as “Held to Maturity".
Investments which are primarily held for sale within
90 days from the date of purchase are classified
as “Held for Trading". As per RBI guidelines, HFT
Securities which remain unsold for a period of 90
days are classified as AFS Securities on that date.
Investments which are not classified in either of
the above two categories are classified as “Available
for Sale".

Shifting of securities among the categories is
accounted at the least of the acquisition cost /
book value / market price prevailing on the date of
shifting and depreciation, if any, on such shifting is
fully provided for.

Investments classified under HTM category
are carried at acquisition cost. Any premium on
acquisition of government securities are amortized
over the remaining maturity of the security on a
straight line basis. Such amortisation of premium
is adjusted against interest income under the head
Income on Investments under Schedule 13 in Profit
and Loss account. As per the RBI guidelines, discount
on securities held under HTM category is not accrued
and such securities are held at the acquisition cost till
maturity. Any diminution other than temporary, in the
value of investments in HTM category is provided for.

Investments classified under the AFS and HFT
categories are marked-to-market. The market / fair
value of quoted investments included in the ‘AFS'
and ‘HFT' categories is measured with respect to the
market price of the scrip as available from the trades
/ quotes on the stock exchanges, Subsidiary General
Ledger (SGL) account transactions, price list of RBI or
prices declared by Financial Benchmark India Private
Limited (FBIL), periodically. Net depreciation, if any,
within each category of investment classification is
recognised in the Profit and Loss Account under the
head “Other Income". The net appreciation, if any,
under each category of Investment is ignored. Except
in cases where provision for diminution other than
temporary is created, the book value of individual
securities is not changed consequent to the periodic
valuation of Investments.

The Bank follows settlement date method of
accounting for purchase / sale of investments, and
weighted average cost method for determining cost
and accounting of profit on sale of investments.

Brokerage, commission and securities transaction
tax (STT) etc., pertaining to investment, paid at
the time of acquisition are charged to the Profit
and Loss Account. Broken period interest on debt
instruments and Government securities is treated as
a revenue item.

Treasury Bills, Commercial Paper and Certificate
of Deposits, being discounted instruments, are
valued at carrying cost. Units of mutual funds are
valued at the latest repurchase price/ Net Asset

Value (NAV) declared by the mutual fund. In case
of 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 Fixed
Income Money Market and Derivatives Association
of India (FIMMDA) / Primary Dealers Association of
India (PDAI) and suitably marked up for credit risk
applicable to the credit rating of the instrument. The
matrix for credit risk mark-up for each category and
credit ratings along with residual maturity issued by
FIMMDA/FBIL are adopted for this purpose. 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.
In case the latest balance sheet is not available, the
shares are valued at Re. 1/- per company. Security
Receipts are valued at NAV provided by the issuing
ARC from time to time. Additional provision required,
if any, is made as per RBI guidelines, based on the
age of the underlying non-performing asset sold
to the ARC.

Non Performing Investments are identified and
valued based on RBI guidelines.

Investment in Security Receipts which are not
redeemed as at the end of the resolution period (i.e.,
five years or eight years as the case may be) shall be
treated as loss asset in the books and provided for.

Sale / Redemption of Investments

Profit or loss on sale / redemption in respect of
securities in HFT and AFS category is included in the
Profit and Loss Account. Profit on sale / redemption
of investments in HTM category is included in the
Profit and Loss Account and is appropriated to Capital
Reserve after adjustments for tax and transfer to
Statutory Reserve, as per RBI guidelines.

Short sales

Short sale transactions, including ‘notional' short
sale, are undertaken in Government securities as
per RBI guidelines. The short sales positions are

reflected in ‘Securities Short Sold (SSS) A/c', and
categorized under HFT category. These positions are
marked-to-market along with other securities under
HFT portfolio and resultant Mark-to-Market (MTM)
gains / losses are accounted for as per RBI guidelines.

Repo and Reverse Repo transactions

Repo and reverse repo 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 as collateralised borrowing
and lending respectively. Borrowing cost on repo
transactions is accounted as interest expense and
revenue on reverse repo transactions is accounted
as interest income.

3. Advances

Advances, including bullion/metal loans, are classified
into performing and non-performing assets (NPAs)
and provisions are made as per the prudential norms
prescribed by RBI. Advances stated in the balance
sheet are net of provisions, claims received from
credit guarantee institutions and recoveries pending
appropriation and held in sundry/suspense account.
Interest on non-performing advances is transferred
to an unrealized interest account and not recognized
in the Profit and Loss Account until received. Amounts
recovered in written off accounts is recognised as
income; provisions no longer considered necessary
based on the current status of the asset, is reversed
to the Profit and Loss Account.

In respect of restructured/rescheduled assets,
provisions are made in accordance with RBI
guidelines, including diminution in the fair value
of the assets to be provided on restructuring, as
applicable. In respect of loans and advances accounts
subjected to restructuring, the asset classification is
as per extant RBI guidelines.

Acquisition and transfer of loan exposure is
undertaken as per extant RBI guidelines.

Term reverse repo of original tenor greater than 14
days will be classified under Advances.

Provision for Unhedged Foreign Currency Exposure
of borrower entities is made considering their
unhedged exposure to the Bank.

Provision for standard assets, is made in accordance
with the guidelines and at levels stipulated by RBI
from time to time.

4. Fixed Assets

Premises and other fixed assets are accounted
for at historical cost as reduced by accumulated
depreciation, amortisation and impairment loss,
if any. The cost includes cost of purchase and all
expenditure such as site preparation, installation cost,
expenditure incurred for development of software,
professional fees and GST (net of ITC). Subsequent
expenditure incurred on the assets already in use are
capitalised only when it increases the future benefits
from such assets or their functioning capacity.

Capital work-in-progress includes cost of fixed assets
that are not ready for their intended use.

5. Depreciation

Depreciation on Fixed Assets is provided on Straight
Line Method (SLM) in respect of all fixed assets other
than buildings which are depreciated on Written
Down Value (WDV) method.

Useful life of the assets (except Computers, including
servers, network equipments and software, are
depreciated under SLM at the rate of 33.33% as
per RBI guidelines) has been estimated in line
with Schedule II of the Companies Act, 2013, as
determined by the Management, as under and
depreciation is provided for as under —

Depreciation on assets purchased and sold during the
year is recognised on a pro-rata basis from the date
of purchase/till the date of sale. Assets purchased
less than '5000/- will be debited in operating
expenses and will not be capitalised.

6. Foreign Exchange Transactions

As per the guidelines of Foreign Exchange Dealers
Association of India (FEDAI) and the requirements of
AS-11 - The Effects of Changes in Foreign Exchange
Rates, all foreign currency monetary assets and
monetary liabilities like Nostro balances, Foreign
Currency Non-Resident deposits, Resident Foreign
Currency deposit, Pre and Post Shipment Credit in
Foreign Currency and Foreign Currency Term Loans
are valued at the closing rates announced by FEDAI
as at the Balance Sheet date and the resultant
revaluation profit or loss, as the case may be, is taken
to in the Profit and Loss Account.

Forward contracts (excluding investment swaps)
and other forward maturity items like cheques/
bills purchased and negotiated are valued at the
appropriate Financial Benchmark India Private
Limited (FBIL) rates and the resultant profit or loss
is discounted using FBIL Mumbai Interbank Offered

Rate Overnight Index Swap curve (MIBOR-OIS
curve). Foreign exchange investment swaps against
foreign currency deposits / borrowings are valued
at the contracted rates and the premium/discount
thereon is recognised in the profit and loss account
on accrual basis.

Non-fund based assets like Guarantees, Letters
of Credit, Acceptances, Endorsements and other
obligations in foreign currencies are translated
at closing rates notified by FEDAI at the Balance
Sheet date.

Bullion Business

The Bank imports, on a back-to-back basis,
consignments of bullion, including precious metal
bars, for sale to its clients. The price quoted to the
customer is based on price quoted by the supplier.
The difference between the price paid by the
customer and the cost of bullion is accounted under
other income.

The Bank also borrows and lends bullion in
accordance with RBI guidelines, which is treated as
borrowings & lending and interest paid / received is
accounted on an accrual basis.

Metal Loan Advances are valued based on the
prevailing market rate and foreign exchange rates
as on the date of Balance Sheet.

7. Derivatives

Interest rate swaps pertaining to trading position and
which are outstanding as on balance sheet date are
marked to market and net appreciation is ignored
and net depreciation is recognized in the Profit &
Loss Account. Foreign currency options and swaps
are accounted in accordance with the guidelines
issued by FEDAI.

8. Proposed Dividend

In terms of Accounting Standard (AS) 4
“Contingencies and Events occurring after the
Balance Sheet date", proposed dividend or dividend
declared after balance sheet date is not shown as
‘other liability' in the Balance Sheet instead a note on
the same will be included in the financial statement.

Such proposed dividend will be appropriated from
the ‘Reserves & Surplus' only after the approval of
the shareholders.

9. Employee Benefits

Short-Term Employee Benefits

All employee benefits payable wholly within twelve
months of rendering the service are classified as
short-term employee benefits and recognized in the
period in which the employee renders the related
service. The Bank recognizes the undiscounted
amount of short term employee benefits expected
to be paid in exchange for services rendered, as
a liability (accrued expense) after deducting any
amount already paid.

Long-term Employee Benefits

a. Post-Employment Benefits

a1. Defined Contribution Plan

The following benefits provided to the employees of
the Bank are classified as Defined Contribution Plan.

Provident Fund - Employees covered under provident
fund scheme are entitled for retirement benefit in
the form of provident fund. Aggregate contributions
along with interest thereon are paid on retirement,
death, incapacitation, or termination of employment.
Both the employee and the Bank contribute at specific
rates of the salary to the provident fund account
maintained with the Karur Vysya Bank Limited
Employees' Provident Fund Trust. The contribution
made by the Bank to the Trust, administered by the
trustees, is charged to the Profit and Loss account.

New Pension Scheme (NPS) - In respect of employees
who are covered under NPS, the Bank contributes
certain percentage of the sum of basic salary and
dearness allowance of employees to the aforesaid
scheme, which is managed and administered by
pension fund management companies and regulated
by Pension Fund Regulatory and Development
Authority (PFRDA). NPS contributions are recognised
in the Profit and Loss Account in the period in which
they accrue. The Bank has no liability other than its
contribution, and recognises such contributions as
an expense in the year incurred.

Bank to the Trust. At the time of retirement
or death of the pension eligible employee,
the pension trust purchases annuity from
insurance company out of the contributions
made by the Bank. Employees covered by the
pension plan are not eligible for employers'
contribution under the provident fund plan.

Other Long Term Employee Benefits

Compensated absences, comprising of Medical
Leave and Privilege Leave are recognized when
they accrue to the employees. These are not
expected to occur wholly within twelve months
after the end of the period in which the
employees render the related services. These
liabilities are determined by an independent
actuary as on the Balance Sheet date using the
Projected Unit Credit Method. Liability towards
compensated absences is unfunded.

Employee Share Based Payments
The Bank's Employee Stock Options Schemes
(ESOS) are in accordance with the Securities
and Exchange Board of India (Share Based
Employee Benefits) Regulations, 2014 (‘SEBI
share-based employee benefits regulation').
The Scheme provides for grant of options on
equity shares to its employees including its Key
Managerial Personnel / Material Risk Takers,
to acquire the equity shares of the bank that
vest in a graded manner and that are to be
exercised within a specified period.

Hitherto (till 31^st March 2021), in accordance
with the SEBI share-based employee benefits
regulation and the Guidance note on accounting
for employee share-based payments, issued
by the Institute of Chartered Accountants of
India the cost of equity settled transactions is
measured using the intrinsic value method. The
intrinsic value, being the excess, if any, of the
fair market price of the share under ESOS over
the exercise price of the option is recognised
as deferred employee compensation with a
credit to Employees' Stock Option outstanding
account. The fair market price is the latest
available closing price, preceding the date of
grant of the option, on the stock exchange on
which the shares of the Bank are listed.

the employee as re-measured as at the date
of modification

10. Segment Reporting

The Bank recognises the business segment as
the primary reporting segment and geographical
segment as the secondary reporting segment, in
accordance with RBI guidelines and in compliance
with AS 17.

Business Segment is classified into (a) Treasury
(b) Corporate and Wholesale Banking, (c) Retail
Banking* and (d) Other Banking Operations.

* Retail banking shall be sub-divided into (i) Digital Banking
and (ii) Other Retail Banking segments. The business
involving digital banking products acquired by Digital
Banking Units (DBUs) or existing digital banking products
would qualify to be clubbed under ‘Digital Banking'
Segment.

11. Earnings per Share

Basic Earnings per Share is calculated by dividing
the net profit or loss for the year attributable to
the equity share-holders by the weighted average
number of equity shares outstanding during the year.

Diluted Earnings per Share is computed by using
the weighted average number of equity shares and
dilutive potential equity share outstanding as at
the year end.

12. Income Tax

Income Tax expense comprises of current tax
provision made after due consideration of the judicial
pronouncements and legal opinion (i.e. the amount of
tax for the period determined in accordance with the
Income Tax Act, 1961, the rules framed thereunder
and considering the material principles set out in
Income Computation and Disclosure Standards) and
the net change in the deferred tax asset or liability
during the year.

Deferred income taxes recognizes timing differences
between taxable income and accounting income that
originate in one period and are capable of reversal
in one or more subsequent periods. Deferred Tax
Assets are recognized in the books of account to

the extent of their future reversibility. Deferred Tax
Liabilities are recognized fully in the year of accrual.

Deferred tax is measured based on the tax rates and
the tax laws enacted or substantively enacted at the
Balance Sheet date.

13. Impairment of Assets

The Bank assesses at each Balance Sheet date
whether there is any indication that an asset may
be impaired. 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. In case the asset is carried at
revalued amount, any impairment loss of the revalued
asset is treated as a reduction in revaluation to the
extent a revaluation reserve is available for that asset.

When there is indication that an impairment loss
recognised for an asset (other than a revalued 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. In case of revalued assets
such reversal is not recognised.