SCHEDULE-17: SIGNIFICANT ACCOUNTING POLICIES

1. GENERAL
Overview

Tamilnad Mercantile Bank Limited (TMB or the Bank),
incorporated in Thoothukudi, India is a publicly held
Banking Company governed by the Banking Regulation
Act, 1949 and is engaged in providing a wide range of
banking & financial services involving retail, corporate
banking and para-banking activities in addition to
treasury and foreign exchange business.

Basis of preparation

The financial statements have been prepared in
accordance with requirements prescribed under the
Third Schedule of the Banking Regulation Act, 1949. The
accounting and reporting policies used in the preparation
of these financial statements conform to Generally
Accepted Accounting Principles in India (Indian GAAP),
the guidelines issued by Reserve Bank of India (RBI) from
time to time and the Accounting Standards notified under
Section 133 of the Companies Act, 2013 read together
with paragraph 7 of the Companies (Accounts) Rules,
2014 to the extent applicable and practices generally
prevalent in the banking industry in India. The Bank
follows the historical cost convention and the accrual
method of accounting, except where specifically stated
and it conforms to the guidelines issued by RBI for banks.

Use of estimates

The preparation of financial statements requires
management to make estimates and assumptions that
are considered in the reported amounts of assets and
liabilities (including contingent liabilities) as of the date
of the financial statements and the reported income
and expenses during the reporting period. Management
believes that the estimates & assumptions used in the
preparation of the financial statements are prudent
and reasonable. Actual results could differ from these
estimates. The impact of any revision in these estimates
is recognised prospectively from the period of change.

2. REVENUE RECOGNITION

Income and expenditure is generally accounted on
accrual basis except in the following cases:

a) In the case of NPAs, income is recognized on realization
basis, in terms of guidelines of Reserve Bank of India.
Where recovery is not adequate to upgrade the NPA
accounts by way of regularization, such recovery is
being appropriated towards interest in the first instance
and towards the principal / book values thereafter,
except in the case of suit filed accounts. In case of Non-

performing investments (NPIs), the same accounting
treatment as above is followed except otherwise agreed.

b) Dividend Income is recognised when right to receive
the dividend is established.

c) Income from sale of mutual fund products, locker
rent, insurance claims, commission on LCs, income
on auxiliary services and other services, overdue
charges on bills and commission on Government
business are accounted on cash / realization basis.

d) Income related to credit card is accounted on the
basis of the bills raised.

e) In the case of suit filed accounts, legal expenses are
charged to the profit and loss account. Similarly, at the time
of recovery of legal expenses, in respect of such suit filed
accounts, the amount recovered is accounted as income.

f) Funded Interest on Standard Restructured Advances
and Interest on FITL are accounted as per the
guidelines of Reserve Bank of India.

3. INVESTMENTS

Investments are accounted for in accordance with the
extant RBI guidelines on the Classification, Valuation and
Operation of Investment Portfolio.

Classification:

Classification of investments has been made as per the
guidelines of Reserve Bank of India.

The entire investment portfolio of the Bank is classified
under three categories viz.

i. "Held to Maturity"(HTM),

ii. "Available for sale"(AFS) and

iii. "Fair value through Profit & Loss" (FVTPL). Held
for trading (HFT) is a separate investment sub
category within FVTPL.

Basis of Classification:

Classification of Investment is decided at the time
of acquisition.

Held to Maturity (HTM):

Securities that fulfil the following conditions are
classified under HTM:

(i) The security is acquired with the intention and
objective of holding it to maturity to collect the
contractual cash flows;

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

(iii) Investments in the securitization notes, other than the
equity tranche is classified under HTM if the underlying
pool of financial instruments meet the SPPI criteria.

Available for Sale (AFS):

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.

(ii) the contractual terms of the security meet the 'SPPI
criterion, provided that on initial recognition, the
bank makes an irrevocable election to classify an
equity instrument under AFS.

(iii) AFS securities inter-alia include debt securities held for
asset liability management (ALM) purposes that meet
the SPPI criterion where the bank's intent is flexible with
respect to holding to maturity or selling before maturity.

Fair Value through Profit and Loss (FVTPL):

(i) Securities that do not qualify for inclusion in HTM or
AFS shall be classified under FVTPL.

(ii) Held for Trading (HFT), is a sub-category of Fair
Value through Profit and Loss (FVTPL)

SUBSEQUENT MEASUREMENT OF INVESTMENTS

i) HTM

(a) Securities held in HTM is carried at cost
and is not marked to market (MTM) after
initial recognition.

(b) Any discount or premium on the securities under
HTM 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'.

ii) AFS

(a) The securities held in AFS shall be fair valued
at least on a quarterly basis. Any discount or
premium on the acquisition of debt securities
under AFS 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'.

(b) The valuation gains and losses across all performing
investments, irrespective of classification (i.e.,

Government securities, Other approved securities,
Bonds and Debentures, etc.), held under AFS is
aggregated. The net appreciation or depreciation
is directly credited or debited to AFS Reserve
without routing through the Profit & Loss Account.

(c) 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.

iii) FVTPL

(a) The securities held in FVTPL shall be fair valued
and the net gain or loss arising on securities
held in FVTPL on valuation is directly credited or
debited to the Profit and Loss Account.

(b) Any discount or premium on debt securities
under FVTPL is amortised over the remaining
life of the instrument. The amortised amount is
reported the financial statements under item II
'Income on Investments' of Schedule 13: 'Interest
Earned' with a contra in Schedule 8:'Investments'.

RECLASSIFICATIONS BETWEEN CATEGORIES

Reclassification of investments between categories (viz.
HTM, AFS and FVTPL) is done only with prior approval of
the Board of Directors and the Department of Supervision
(DoS), RBI. The reclassification is applied prospectively
from reclassification date and the accounting treatment
is carried out as per RBI guidelines.

The investments are classified for the purpose of Balance
Sheet under six groups viz. (i) Government securities, (ii) Other
approved securities, (iii) Shares, (iv) Debentures and Bonds
and (v) Subsidiaries and/or Joint Ventures and (vi) Others.

a) INITIAL RECOGNITION OF INVESTMENTS

i) 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.

ii) In respect of government securities acquired
through auction (including devolvement),
switch operations and open market operations
(OMO) conducted by the RBI, the price, at which
the security is allotted is considered as fair value.

iii) any Day 1 gain/ loss for securities where inputs used
for valuation are those inputs which are quoted
prices, is recognized in the Profit and Loss Account,
under Schedule 14: 'Other Income' within the subhead
'Profit on revaluation of investments' or 'Loss on
revaluation of investments', as the case may be.

iv) Any Day 1 loss (difference between acquisition
cost and the fair value at initial recognition where
the acquisition cost exceeds such fair value)
arising from Investment where inputs used for
valuation of investments are unobservable inputs,
is recognized immediately. However, any Day 1
gains (the difference between the fair value at
initial recognition and acquisition cost where
such fair value exceeds the acquisition cost)
on such 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 derecognized.

Valuation:

Investments are valued periodically as per RBI
guidelines as follows:

a) Quoted Securities:

The quoted securities are valued at the prices
declared by the Financial Benchmarks India Private
Ltd. (FBIL). Securities for which prices are not published
by FBIL are valued at quoted price as available from
the trades/ quotes on recognized stock exchanges,
reporting platforms or trading platforms authorized by
RBI/SEBI or prices declared by the Fixed Income Money
Market and Derivatives Association of India (FIMMDA).

b) Unquoted SLR Securities:

(i) Treasury Bills is valued at carrying cost.

(ii) Unquoted Central / State Government
securities is valued on the basis of the
prices/ YTM rates published by the FIBIL.

(iii) Other approved securities is valued
applying the YTM method by marking them
up by 25 basis points above the yields
of the Central Government Securities of
equivalent maturity put out by FIBIL.

c) Unquoted Non-SLR securities:

i) Debentures/Bonds:

Unquoted debentures and bonds are valued
by applying the appropriate mark-up over the
YTM rates for Central Government Securities as
put out by FBIL/FIMMDA.

ii) Zero Coupon Bonds:

Zero Coupon Bonds are valued at market price
and in the absence of market value, the ZCBs is
marked to market with reference to the present
value of the ZCB.

iii) Equity Shares:

Equity shares for which current quotations
are not available i.e., which are classified as
illiquid or which are not listed on a recognised
exchange, are valued at the break-up value
(without considering 'revaluation reserves',
if any) which is to be ascertained from the
company's latest audited balance sheet. The
date as on which the latest balance sheet
is drawn up shall not precede the date of
valuation by more than 18 months. In case the
latest audited balance sheet is not available
or is more than 18 months old, the shares are
valued at Hi per company.

iv) Mutual Funds Units (MF Units):

(a) Investment in un-quoted MF units is valued
on the basis of the latest repurchase
price declared by the MF in respect
of each scheme.

(b) In case of funds with a lock-in period or
any other fund, where repurchase price/
market quote is not available, units are
valued at Net Asset Value (NAV) of the
scheme. If NAV is not available, these
shall be valued at cost, till the end of the
lock-in period.

v) Commercial Paper:

Commercial paper is valued at the carrying cost.

vi) Conversion of principal and unpaid interest into
debt, preference or equity shares. In cases of
conversion of principal and unpaid interest into
debt, preference or equity instruments bank
follows RBI guidelines issued from time to time.

i. Provisions for Non performing investments
are made as per RBI prudential norms.

Repurchase (REPO) transactions:

Repo and reverse Repo transactions are accounted in
accordance with the extant RBI guidelines. Securities
purchased / sold under Liquidity Adjustment Facility (LAF)
and Marginal Standby Facility (MSF) with RBI are debited
/ credited to Investment account and reversed on
maturity of the transaction. Interest expended / earned
thereon is accounted for as expenditure / revenue.

4. ADVANCES & PROVISIONS
Classification:

a) Advances are classified into Standard, Sub-standard,
Doubtful and Loss Assets and provisions for possible

losses on such advances are made as per prudential
norms / directions of the Board of Directors/directions
issued by Reserve Bank of India from time to time.

b) 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.

c) In case of loan accounts classified as NPA, such
accounts may be reclassified as Standard Asset if it
conforms to the guidelines prescribed by RBI.

Provisioning, Write Off & Recovery:

a) With regard to the Standard Advances, Provisions
are made as per extant RBI guidelines. In addition to
the specific provision made towards identified NPAs,
the bank also holds floating provision. Provisioning
on categorized assets are made as follows:

incidental expenditure incurred on the assets before they
are ready for intended use and Taxes and duties to the
extent not eligible for input credits if any.

Computer Software is capitalized along with computer
hardware and included under other fixed assets.

Carrying amount of fixed assets is reviewed at each
balance sheet date for indication of impairment.
Impairment loss if any, is recognised in the Profit and Loss
Account to the extent the carrying amount of an asset
exceeds its estimated recoverable value.

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.

Depreciation:

Depreciation on fixed assets is provided over the estimated
useful life of fixed assets on a straight-line basis, in accordance
with estimated useful lives as specified in Schedule II to the
Companies Act, 2013, and reckoning the residual value at 5%
of the original cost of the asset except for the following:

b) Education loans are provided at 100% irrespective of
NPA asset classification.

c) Amounts guaranteed by NCGTC are excluded from
the scope of provisioning.

d) Reserve Bank of India has given methodology to
arrive at incremental provision towards Unhedged
Foreign Currency Exposure (UFCE). Accordingly,
the incremental provisioning for UFCE and capital
provisions are made as per RBI extant guidelines.

e) In terms of RBI guidelines, the NPAs are written-
off in accordance with the Bank's policy. Amounts
recovered against bad debts written-off are
recognised in the profit and loss account.

5. FIXED ASSETS & DEPRECIATION

Fixed Assets:

Fixed assets are stated at cost less accumulated

depreciation and impairment, if any. Cost includes

In case of Assets purchased / sold during the year,
depreciation is provided on a pro-rata basis for the
actual number of days the asset has been capitalized.

Expenditure during construction / capital works pending
completion is shown at cost.

6. FOREIGN CURRENCY TRANSACTION

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 as published by the
Foreign Exchange Dealers Association of India (FEDAI)
and in accordance with Accounting Standard 11.

Income and expenditure items are translated at the
exchange rates ruling on the respective dates of
the transaction.

Gain or loss on evaluation of outstanding monetary
assets / liabilities and Foreign Exchange Contracts are
taken to Profit and Loss Account.

7. EMPLOYEE BENEFITS

The bank is following Accounting Standard 15 (Revised
2005) "Employee Benefits" as under:

a) In respect of contributory plans viz - Provident
Fund and Contributory Pension Scheme, the bank
pays fixed contribution at pre-determined rates
to a separate entity, which invests in permitted
securities. The obligation of the bank is limited to
such fixed contribution.

b) In respect of Defined Benefit Plans, viz. Gratuity and
pension as well as for leave encashment, provisions
are made based on actuarial valuation as per
the guidelines.

c) The summarized position of Post-employment
benefits and long term employee benefits are
recognized in the profit and loss account and
balance sheet, as required in accordance with the
Accounting Standard-15.

d) The actuarial gain / loss is recognized in the profit
and loss account.

8. SEGMENT REPORTING

As per RBI guidelines on enhancement of disclosures
relating to segment reporting under AS-17, the reportable
segments have been divided into treasury, corporate /
wholesale, retail and other banking operations.

(a) The Bank recognizes the Business Segment as the
Primary Reporting Segment and Geographical
Segment as the Secondary Reporting Segment,
in accordance with the RBI guidelines and in
compliance with the Accounting Standard 17.

(b) Business Segment is classified into (i) Treasury
(ii) Corporate and Wholesale Banking (iii) Retail
Banking and (iv) Other Banking Operations.

(c) Geographical Segment consists only of the
Domestic Segment since the Bank does not have
any foreign branches.

9. LEASES

Leases where the lessor effectively retains substantially
all risks and benefits of ownership are classified as
Operating Leases. Operating Lease payments are
recognized as an expense in the profit and loss account
on a straight line basis over the lease term in accordance
with AS19 Leases

10. EARNINGS PER SHARE

The bank reports basic and diluted earnings per share
in accordance with applicable AS-20. For the year under
reference, both Basic and diluted earning per share
being the same, is computed by dividing the net profit
after tax by the weighted average number of equity
shares outstanding for the period

11. TAXES ON INCOME

a) Income tax expense is the aggregate amount of
current tax and deferred tax. Current taxes are
determined in accordance with the provisions of tax
laws prevailing in India. Deferred tax adjustments
comprise changes in the deferred tax assets or
liabilities during the period and Deferred Tax is
determined in terms of AS-22 issued by ICAI.

b) Deferred tax assets and liabilities are measured
using tax rates and tax laws that have been enacted
or substantially enacted prior to the balance
sheet date. Deferred tax assets and liabilities
are recognized on a prudent basis for future tax
consequences of timing differences by adoption
of Profit and Loss approach with their respective
tax bases. The impact of changes in the deferred
tax assets and liabilities is recognized in the profit
and loss account.

c) Deferred tax assets are recognized at each reporting
date, based upon management's judgment as
to whether realization is considered reasonably
certain. Deferred tax assets are recognized on carry
forward of unabsorbed depreciation and tax losses
only if there is virtual certainty that such deferred tax
assets can be realized against future profits.

d) No withdrawal is made from the Special Reserve
created and maintained under the provisions of
Section 36(1)(viii) of the Income Tax Act, 1961.

12. IMPAIRMENT OF ASSETS

Impairment losses, if any, on fixed assets are recognized
in accordance with the AS-28 - 'impairment of assets'
and charged to profit and loss account.

13. NET PROFIT

The net profit is arrived at after provisions for:

a) direct taxes;

b) possible losses on standard assets, restructured
advances, NPAs and other contingencies;

c) depreciation / diminution on investments ;

d) employee retirement benefits and

e) Other usual and necessary provisions.

14. PROPOSED DIVIDEND

In terms of 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 only after the
approval of the shareholders.

15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand,
Balance with RBI, Balance with other Banks and Money at
Call at Short Notice including cash in ATM, Coin Vending
Machine and Cash Deposit Machine.

16. CASH FLOW STATEMENT

The Bank has adopted the respective Accounting
Standard prescribed under Companies (Accounting
Standard) Rules, 2021 and follows indirect method.

17. INTANGIBLE ASSETS

In respect of Intangible Assets, the Bank has adopted the
respective Accounting Standard (AS26)

18. CONTINGENCIES

Loss, if any from contingencies arising from claims,
litigation, assessment, fines, penalties etc are recorded

when it is probable that a liability has been incurred and
the amount can be reasonably estimated.

The Bank does not recognize a contingent liability but
discloses its existence in the financial statements.
Provisions are reviewed at each balance sheet date and
adjusted to reflect the current best estimate.