Background

The South Indian Bank Limited ('SIB' or the 'Bank'), incorporated on January 29, 1929 at Thrissur, as a private limited company and was later converted into a public limited company on August 11, 1939. SIB has a network of 948 branches in India and provides retail and corporate banking, para banking activities such as debit / credit card, third party financial product distribution, in addition to Treasury and Foreign Exchange Business. The Bank has Representative office at Dubai. SIB is governed by Banking Regulation Act, 1949, The Companies Act, 2013 and other applicable Acts/Regulations for Banks. Its shares are listed in BSE Limited and National Stock Exchange of India Limited.

Basis of Preparation

The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the preparation of these financial statements conform in all material aspects to Generally Accepted Accounting Principles in India ("Indian GAAP"), the circulars, guidelines and directions issued by the Reserve Bank of India ('RBI') is implemented prospectively when it becomes applicable, unless specifically required under circular / directions from time to time and the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 (as amended) and the relevant provisions of the Companies Act, 2013 ("the Act") and current practices prevailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except where otherwise stated. The accounting policies adopted in the preparation of financial statements are consistent with those followed in the previous year except change in accounting policy pertaining to Investment due to adoption of the revised framework as detailed in RBI Master Direction on classification, valuation and operation of Investment portfolio issue on September 12, 2023.

Use of estimates

The preparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the

financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognized prospectively in the current and future periods.

Significant Accounting Policies

1. Revenue recognition

a) Interest / discount / other charges income from loans, advances and investments and deposits placed with banks and other institutions are recognized on accrual basis, except in respect of income relating to advances/ investments classified as non-performing advances/ investments, additional finance treated as standard asset under approved restructuring package, where the income is recognized only on realization in accordance with RBI guidelines.

b) Interest income on loans bought out through the direct assignment route is recognized at agreed interest rate, except in case of such loans classified as non-performing advances.

c) The recoveries made from NPA accounts are appropriated towards the order of demand applicable to borrowers accounts except for OTS. In case of One Time settlement (OTS) accounts the recoveries are first adjusted against the balance towards principal and sacrifice on settlement is accounted upfront.

d) Dividend on investments in shares and units of mutual funds are accounted when the bank's right to receive the dividend is established.

e) Income on discounted instruments is recognised over the tenure of the instrument on a straightline basis.

f) Insurance claims and locker rent are accounted on receipt basis.

g) Commission income on issuance of bank guarantee / letter of credit is recognised on prorata basis over the period of the guarantee/letter of credit.

h) Processing fee/ upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/ facility is recognised in the year of receipt without spreading it over the period of loan / facility.

i) Other fees and commission income (including commission income on third party products) are recognised when due, except in cases where the bank is uncertain of ultimate collection.

j) Funded interest on term loans as part of restructuring are recognised on realisation as per the guidelines of RBI.

k) In accordance with RBI guidelines on 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 in the year of sale. 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.

l) Interest on income tax refund is recognised under "Other Income" in the year of passing of Assessment Orders based on the reasonable certainty. Legal expenses incurred on suit filed accounts are expensed in profit and loss account. Such amount when recovered is treated as income

m) Penal interest/charges are recognised on accrual basis.

n) In case of check out finance, repayments are accounted on receipt basis.

o) All other amounts collected from customers as Non-interest income or recovery of expenses towards provision of various services / facilities are accounted / recognized on receipt basis.

2. Investments

A) Classification

Effective April 01, 2024 the Bank has adopted the revised framework as detailed in RBI Master Direction.

a) In accordance with the RBI guidelines, investments are categorised in to "HTM-Held to Maturity" (HTM), "AFS-Available for Sale" (AFS), "FVTPL-Fair value through profit and loss", "FVTPL-HFT Held for trading sub category within FVTPL" and "ISAJ-Investments in Subsidiaries, Associates and Joint Ventures", further classified under six groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds, Subsidiaries, associates and Joint Ventures and others for the purposes of disclosure in the Balance Sheet.

b) Securities that fulfil the following conditions shall be 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

(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.

c) Securities that meet the following conditions shall be 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' as given in paragraph (b)(ii) above. Provided that 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.

d) Securities that do not qualify for inclusion in HTM or AFS shall be classified under FVTPL. These shall inter-alia include:

(i) Equity shares, other than (a) equity shares of subsidiaries, associates or joint ventures and (b) equity shares where, at initial recognition, the irrevocable option to classify at AFS has been exercised.

(ii) Investments in Mutual Funds, Alternative Investment Funds, Real Estate Investment Trusts, Infrastructure Investment Trusts, etc.

e) HFT shall be a separate investment subcategory within FVTPL and consists instruments that meet all specifications for HFT instruments as per RBI regulations.

f) All investments in subsidiaries, associates and joint ventures shall be held under separate category called ISAJ.

B) Initial Recognition on Transactions

Investment are recorded at the Carrying cost to capture the fair value at the time of acquisition of the security. The investment portfolio to be categorised into three fair value hierarchies as below:

• Level 1(Quoted price)

• Level 2(Observable price)

• Level 3(Unobservable price i.e. computed price).

These hierarchies are for the accounting entries for Day1 Gain & Loss which is calculated at the time of purchase transaction entry based on the Carrying Cost and the Deal Price.

Gain & Loss for Level 1 & 2 category of securities is as follows:

Gain & Loss shall be recognized immediately in profit & loss account.

Gain & Loss for Level 3 category of securities is as follows:

Day1 Loss shall be recognized immediately in profit & loss account.

Day1 Gain for debt instruments shall be amortized till maturity based on the straight line method.

Day1 Gain for Unquoted Equities will be recognized under liabilities on the value date and finally moved to Profit & Loss a/c when it is sold on account of listing or de-recognition.

C) Valuation

The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments is treated as a revenue item. The transaction cost, including brokerage, commission etc., paid at the time of acquisition of investments are charged to Profit and Loss account.

The valuation of investments is made in accordance with the RBI Guidelines as shown below

a) Available for Sale

AFS portfolio is fair valued and valuation Gain/ Loss (post adjustment for the effect of applicable taxes, if any) across all performing investments, irrespective of classification will directly be accounted through AFS-Reserve without routing through the profit & loss account till the date of sale. Any discount or premium on the acquisition of debt securities under AFS is amortised over the remaining life of the instrument.

b) Held to Maturity (HTM)

Securities held in HTM are carried at cost and 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.

c) FVTPL

The securities held in FVTPL are fair valued on daily basis 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 also fair valued on a daily basis. Treasury Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.

d) Investments in Subsidiaries, Associates and Joint Ventures

All investments (i.e., including debt and equity) in subsidiaries, associates and joint ventures are held at acquisition cost. Any discount or premium on the acquisition of debt securities of subsidiaries, associates and joint ventures is amortised over the remaining life of the instrument.

e) Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund.

f) Market value of debentures/bonds/ preference shares/ Pass Through Certificates (PTCs) which are quoted and have been transactions within 15 days prior to valuation date, the value adopted will not be higher than the rate at which the transaction has been recorded on the Exchanges/ trading platforms/ reporting platforms authorized by RBI/SEBI. Further, where current quotations are not available, value is determined based on the SLV (Security Level Valuation) published by FIMMDA on a daily basis and investments for which SLV is not available, the value is determined as per the norms prescribed by the RBI as under:

• 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 Financial Benchmark India Pvt Limited (FBIL) and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual

maturity issued by FIMMDA are adopted for this purpose;

• in case of, bonds and debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI;

• in case of unquoted PTCs 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) as published by Financial Benchmark India Pvt Limited (FBIL) and suitably marked up for credit risk applicable to the credit rating of the instrument.

g) 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;

h) In case of investment by the Bank in SRs issued against loans transferred by it is more than 10 percent of all SRs issued against the transferred asset, then the provision for depreciation in value is made at the higher of - provisioning rate required in terms of net asset value declared by the Reconstruction Company ('RC')/ Securitisation Company ('SC') or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan is notionally continued in the books of the bank. For SRs backed by sovereign guarantee revised norms of provisioning is applied as prescribed by RBI.

i) In respect of securities included in any of the categories of investments where interest / principal is in arrears, for more than 90 days, income is not to be reckoned and appropriate provision for the depreciation in the value of the investments is to be made, as per prudential norms applicable to nonperforming investments. Debentures / Bonds in the nature of advances are subjected to usual prudential norms applicable to advances.

D) Transfer Between Categories

After transition to the new framework on April 1, 2024, banks can reclassify investments between categories (viz. HTM, AFS and FVTPL) only with the approval of Board of Directors. Further, reclassification shall also require the prior approval of the Department of Supervision (DoS), RBI.

E) Profit or Loss on sale / Redemption of Investment

a. AFS: Upon sale or maturity of a debt instrument in AFS category, the accumulated gain/ loss for that security in the AFS-Reserve shall be 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 shall not be transferred from AFS-Reserve to the Profit and Loss Account. Instead, such gain or loss shall be transferred from AFS-Reserve to the Capital Reserve.

b. HTM - Any profit or loss on the sale of investments in HTM shall be recognised in the Profit and Loss Account under Item II of Schedule 14: 'Other Income'. The profit on sale of an investment in HTM shall be appropriated below the line from the Profit and Loss Account to the 'Capital Reserve Account. The amount so appropriated shall be net of taxes and the amount required to be transferred to Statutory Reserve. Any sales from HTM shall be as per Board approved policy. Details of sales out of HTM shall be disclosed in the notes to accounts of the financial statements. In any financial year, the carrying value of investments sold out of HTM shall not exceed five per cent of the opening carrying value of the HTM portfolio; provided the sale of securities is in compliance with the situations prescribed in RBI are excluded. Any sale beyond this threshold shall require prior approval from DoS, RBI.

c. ISAJ: Any gain/ profit arising on the reclassification/ sale of an investment in a subsidiary, associate or joint venture shall be first recognised in the Profit and Loss Account and then shall be appropriated below the line from the Profit and Loss

Account to the 'Capital Reserve Account'. The amount so appropriated shall be net of taxes and the amount required to be transferred to Statutory Reserves.

F) Investment Fluctuation Reserve ('IFR')

Investment Fluctuation reserve is accounted in line with the RBI guidelines issued from time to time.

G) Repo and Reverse Repo Transactions

In accordance with the RBI guidelines repo and reverse repo transactions in government securities and corporate debt securities (including transactions conducted under Liquidity Adjustment Facility ('LAF') with RBI and Marginal Standing Facility ('MSF') with RBI) are reflected as collateralized borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as "Schedule 15 - Interest Expended" and revenue on reverse repo transactions is accounted for as "Schedule

13 - Interest Earned".

If the term lending/reverse repo is for more than

14 days then will be classified under "Schedule 9 - Advances".

H) Short Sales

The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under 'Other Liabilities. The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments.

3. Advances

A) Valuation / Measurement

a) Advances are classified into performing assets (Standard) and non-performing assets ('NPAs') as per the RBI guidelines on Income Recognition, Asset Classification and Provisioning (IRACP) and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealised interest on NPAs. Interest on Non- Performing advances is not recognised in profit and loss account and transferred to an unrealised interest account until receipt. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated

by the RBI. The bank may selectively adopt a policy to provisioning that is based on past experience, evaluation of security and other related factors in accordance with the Policy on Provisioning against Advance accounts subject to minimum amount as specified in IRaCp norms.

b) Non-performing advances are written-off in accordance with the Bank's policies. Amounts recovered against debts written off are recognised in the profit and loss account and included under "Other Income". The recovery of unrealised interest is accounted under "Interest on Loans & Advances" in the profit and loss account.

c) For restructured assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.

Additional provision for restructured accounts as per the relevant restructuring scheme announced by RBI for Micro, Small and Medium (MSME) sector, accounts affected by natural calamities and as per COVID 19 resolution framework is made as per extant RBI guidelines.

d) For entities with Unhedged Foreign Currency Exposure (UFCE), provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position. The Provision is classified under Schedule 5 -Other Liabilities and Provisions in the Balance Sheet.

e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time. The Provision is classified under Schedule 5 - Other Liabilities and Provisions in the Balance Sheet.

f) The bank transfers advances through interbank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating; the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.

g) Loss on sale of assets to Asset Reconstruction Companies

If the sale of non- performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account, spread over a period as specified in RBI guidelines. 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.

h) The Bank makes additional provisions as per RBI's guidelines on 'Prudential Framework on Resolution of Stressed Assets' dated June 7, 2019 on accounts in default and with aggregate exposure above the threshold limits as laid down in the said framework where the resolution plan is not implemented within the specified timeline.

i) Loans reported as fraud are classified as loss assets and provided as per RBI guidelines.

j) In the event of substantial erosion in value of loan and remote possibility of collection, nonperforming loans with adequate provisions are evaluated for technical / prudential write off based on Bank's policy and the RBI guidelines. Such write off does not have an impact on the Bank's legal claim against the borrower. The Bank may also write off non-performing/standard loans on One Time Settlement ('OTS') with the borrower or otherwise.

k) Credit card: Income and expenses in relation to credit card business is accounted on gross basis under respective heads of the profit and loss account unless otherwise agreed between the Bank and the credit card partner to net the same. Provisions for NPA is made in accordance with the policy on provisioning of advances of the Bank.

4. Country risk

In addition to the provisions required to be held accordingto the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited ("ECGC") guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity period of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure. This provision if any, is classified under Schedule 5 - Other Liabilities and Provisions in the Balance Sheet.

5. Fixed Assets (Property Plant & Equipment and Intangibles) and depreciation / amortization

a) The Property Plant & Equipment and Intangibles (other than office premise, which are revalued) are stated at historical cost less accumulated depreciation/amortisation and impairment losses, if any. Cost comprises the purchase price, GST and any attributable cost of bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on asset put to use is capitalised only when it increases the future benefit / functioning capability from/ of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises after adjustments for tax and transfer to Statutory reserve, if any, is transferred to Capital Reserve as per the RBI guidelines.

b) Portfolio of immovable properties is revalued periodically by independent valuers to reflect current market valuation. All land and building owned by the bank and used as branches or offices or office quarters are grouped under "Office Premises" in the Property Plant & Equipment. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserve. Additional depreciation on revalued asset is charged to Profit and Loss Account and appropriated from Revaluation Reserve to Revenue and other Reserves.

c) Depreciation /Amortisation: Depreciation is provided on a pro-rata basis on a straight-line method over the estimated useful life of the fixed assets at the rates and in the manner prescribed in Schedule II of the Companies Act, 2013, except for Vehicles which are depreciated over five years, based on technical estimates of the useful life of the assets. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful life and residual values of fixed assets, though these rates in certain cases are different from useful life prescribed under Schedule II of Companies Act, 2013. Computer software is amortised over its useful life, not more than 5 years. The summary of useful life of assets used for depreciation is provided below;

6. Impairment of Assets

The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. If the carrying amount of the assets exceeds the estimated recoverable amount, an impairment is recognised for such excess amount. The impairment loss is recognised as an expense in the Profit and Loss Account, unless the asset is carried at revalued amount, in which case any impairment loss of the revalued asset is treated as a reduction on 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.

7. Non-Banking Assets

Non-banking assets (NBAs) acquired in satisfaction of claims is carried at lower of net book value and net realisable value. Specific provision is made on specific Non-banking assets acquired on debt asset swap arrangements as specified by RBI.

8. Transactions involving foreign exchange

a) Foreign currency income and expenditure items are translated at the exchange rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account, as per the guidelines issued by RBI/FEDAI.

b) Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are translated at closing exchange rates notified by Foreign Exchange Dealers Association of India [FEDAI] at Balance sheet Date and resulting profits or losses in all applicable cases shall be included in the Profit and Loss Account in accordance with FEDAI guidelines.

c) In respect of contingent liability on account of Guarantees, acceptances, endorsements and other obligations shall be translated to Indian Rupee equivalent at the closing exchange rates notified by FEDAI and restated in financial statements.

9. Derivative transactions

The Bank recognizes all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are remeasured at fair value as at the Balance sheet or reporting dates. Derivatives are classified as assets when the fair value is positive (Positive marked-to-market) or as liabilities when the fair value is negative (negative marked-to-market). Changes in the fair value of derivatives other than those designated as hedges as per AS 11 are recognised in the Profit and Loss Account.

Currency future contracts are marked to market daily using settlement price on a trading day, which is the closing price of weighted average price of such contract, the final settlement price is taken as the RBI reference rate on the last trading day of the future contracts or as may be specified by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market profit / loss is daily settled with the exchange.

The forward exchange contracts that are not intended for trading and are entered into to establish the amount of reporting currency required or available at the settlement date of a transaction are accounted in accordance with AS 11. The Premium/ Discount arising on inception of such forward exchange contracts is amortised over the life of contract as interest income/ expense.

Foreign exchange spot and forward contracts other than those accounted as per AS11 outstanding at the Balance Sheet date are revalued at the closing spot and forward rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/ tenors not published by FEDAI) are obtained from Reuters for valuation of forward exchange deals. As directed by FEDAI to consider profit or loss on present value basis, the forward profit or loss on the deals are discounted till the valuation date using the discounting yields. The resulting profit or loss on such valuation is recognized in the Profit and Loss Account in accordance with RBI/FEDAI Guidelines.

10. Employee benefits

The liability on employee benefits are recognized in accordance with Accounting Standard 15 (revised) specified in Companies (Accounting Standards) Rules, 2006.

a) Provident Fund:

The contribution made by the Bank to "The South Indian Bank Ltd Employees Provident Fund", administered by the trustees is charged to Profit and Loss account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund.

b) Pension Fund:

The contribution towards "The South Indian Bank Ltd Employees' Pension Fund Trust", managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.

Employees who have joined the services of the Bank with effect from April 1, 2010 are covered under Defined Contributory Pension Scheme (DCPS).

c) Gratuity:

The bank makes contribution to "The South Indian Bank Ltd Employees' Gratuity Trust" administered and managed by the trustees. The present value of the bank's obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.

d) Compensation for absence on Privilege / Sick / Casual Leave and Leave Travel Concession (LTC):

The employees of the Bank are entitled to compensated absence on account of privilege / sick / casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the profit and loss account. The actuarial gain or loss arising during the year is recognised in the Profit and Loss Account.

The employees are also eligible for LTC as per the rules. The estimated cost of unused entitlement as on the Balance Sheet date based on actuarial valuation is provided for.

e) Employees Stock Option Scheme (ESOS):

The SIB ESOS 2008 Employee Stock Option Scheme ('the Scheme') provides for grant of stock options on equity shares of the Bank to employees and Managing Director of the Bank. The Scheme is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits and sweat equity) Regulations, 2021.

RBI issued a clarification on Guidelines on Compensation of Whole Time Directors/Chief Executive Officers /Material Risk Takers and Control Function Staff on 30 August, 2021, advising banks that the share-linked instruments are required to be fair valued on the date of grant using the Black-Scholes model. Accordingly, the Bank follows the fair value method for all share-linked instruments grants and recognizing the fair value of options computed using the Black-Scholes model, without reducing estimated forfeitures, as compensation expense over the vesting period. Options are granted at an exercise price, which is equal to the fair market price of the underlying equity shares at the date of the grant or at such a discount as may

be approved by NRC/Board from time to time. The fair market price being the closing price of stock exchange which recorded the highest trading volumes in equity shares of the Bank and trading day immediately preceding the date on which the grant of options was approved and recommended to Board by Nomination and Remuneration Committee of Board.

f) Other Employee Benefits:

The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the employee renders the service. These benefits include performance incentives.

g) 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, a defined contribution plan, which is managed and administered by pension fund management companies and regulated by Pension Fund Regulatory 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.

11. Other operating Expenses

Other operating expenses are generally accounted on accrual basis.

12. Segment Reporting

The disclosure relating to segment information is in accordance with the guidelines issued by RBI. Segmental expenses are allocated as per board approved policy.

13. Debit Card Reward Points

The Bank runs 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 probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary

14. Earnings Per Share (EPS)

The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, prescribed under section 133 of the Companies Act, 2013 read together with the Companies (Accounting Standards) Rules, 2021. Basic EPS has been computed by dividing Net Profit for the year attributable to equity shareholders 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. A diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored.

15. Taxes on income

Income tax expense is the aggregate amount of current tax and deferred tax charge. The current tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961, the rules framed there under and considering the material principles set out in Income Computation and Disclosure Standards and as per Accounting Standard 22 - "Accounting for Taxes on Income" respectively.

Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961, Accounting Standard 22 - "Accounting for Taxes on Income" and other applicable tax laws.

Deferred tax is recognised 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 is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses. In the case of unabsorbed depreciation and carry forward losses, Deferred Tax Assets are recognized only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these Deferred Tax Assets can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if

there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities set off and adjusted if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability.

The Bank has exercised option referred u/s 115BAA with respect to tax rate, accordingly Minimum Alternative Tax ('MAT') provision u/s 115JB are not applicable to the Bank.

16. Accounting for Provisions, Contingent Liabilities and Contingent Assets

In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets prescribed under section 133 of the Companies Act, 2013, the Bank recognises provisions when it has a present obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which a reliable estimate of the amount of the obligation can be made.

Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible, but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements. Contingent assets, if any, shall not be recognized or disclosed in the financial statements.

17. Operating Lease

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms in accordance with AS-19, Leases.

Rental payments for premises taken on operating lease agreements are recognized as an expense in the profit and loss account over the lease term as the lease are cancellable.

18. Cash and cash equivalents

Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/institutions and Money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).

19. Share issue expenses

Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013 and in line with the respective RBI guidelines issued from time to time.

20. Corporate Social Responsibility

Expenditure towards Corporate Social Responsibility is recognized in accordance with Companies Act 2013

21. Accounting of Priority Sector Lending Certificate (PSLC)

In line with the RBI guidelines updated from time to time, Bank trades in priority sector portfolio by selling or buying PSLC, without transfer of risks or loan assets in these transactions. The fee paid for purchase of such PSLC is treated as an 'Expense' and the fee received from the sale of PSLCs is treated as 'Other Income'.

22. Accounting for Dividend

In terms of revised Accounting Standard (AS) 4 "Contingencies and Events occurring after the Balance sheet date" as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016 dated March 30, 2016, Proposed Dividend or Dividend declared after balance sheet date are not shown as liability in current year balance sheet. The effect of the proposed dividend shall be reckoned in determining capital funds in the computation of capital adequacy ratios in Financial Year for which the dividend is declared. In case of interim dividend, the same shall be reckoned in the same quarter.

23. Cash Flows

Cash flow Statement has been prepared under the Indirect Method.