1.    GENERAL

1.1    BASIS OF ACCOUNTING

The financial statements are prepared under 'going concern' concept on historical cost convention and on accrual basis of accounting unless otherwise stated and conform in all material aspects to Generally Accepted Accounting Principles (GAAP) in India, which comprise applicable statutory provisions, regulatory norms/guidelines prescribed by Reserve Bank of India (RBI), Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI), to the extent applicable and generally the practices prevailing in the banking industry in India.

In respect of foreign offices/branches, statutory provisions and accounting practices prevailing in the respective foreign countries are complied with, except as specified elsewhere.

1.2    USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires the Management to make estimates and assumptions while reporting assets and liabilities (including contingent liabilities) as at the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. However, actual results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.

2.    ADVANCES:

2.1    Loans and advances are classified as performing and non-performing based on the guidelines issued by the RBI and provisions for advances are made as per prudential norms of the Reserve Bank of India. Non-performing advances in India are ascertained as per the prudential norms and provisions are made upon classifying the same into 'Sub-Standard', 'Doubtful', and 'Loss' assets after considering the claims Received / Receivable from ECGC and advances are stated after netting of provisions.

2.2    Provision on Non-performing advances of foreign branches is made on the basis of regulatory requirement prevailing at the respective foreign countries or RBI guidelines whichever is higher.

2.3    Provision on standard restructured assets and project loans have been made as per RBI prudential norms and directives. A general provision on Standard Assets is made on global portfolio basis as per prudential norms of RBI.

2.4    The credit facilities backed by the guarantee of the Central Government though overdue is treated as NPA only when Government repudiates its guarantee when invoked

2.5    In respect of Compromise and Settlement Proposals, write-off is done on complete realization.

2.6    Partial prudential write-off of accounts is done upto unsecured portion level on a case to case basis on approval by the Competent Authority.

2.7    For restructured/rescheduled assets, provisions are made in accordance with the guidelines issued by RBI, which require the difference between the fair value of loan before and after restructuring is provided, in addition to provisions for NPAs. The provision for diminution in fair value (DFU) and interest sacrifice arising out of the above is reduced while arriving at net advance.

2.8    Amount recovered against debts written off in earlier years are recognized as revenue in the year of recovery.

2.9    Sale of Financial asset to Securitized Company (SC) / Reconstruction Company (RC) is done on the basis of Board approved Policy in line with the RBI guidelines.

3. INVESTMENTS

3.1    Bank follows the prudential norms formulated by Reserve Bank of India for classification, valuation and operation of investment portfolio.

3.2    Investments are classified into following categories

i)    Held to Maturity

ii)    Available for Sale

iii)    Fair Value through Profit & Loss. Held for Trading (HFT) shall be a separate investment sub-category within FVTPL.

All investments in subsidiaries, associates and joint ventures shall be held in a distinct category for such investments separate from the other investment categories (viz. HTM, AFS and FVTPL). For Reporting in Balance Sheet, Investments are further classified into Investments in Government Securities, Other Approved Securities, Shares, Debentures & Bonds, Subsidiaries and Joint Ventures and Others.

3.3    (i) Investments classified as Held to Maturity are carried at cost. Any discount or premium on the securities under HTM shall be amortised over the remaining life of the instrument as per straight line method. Profit on sale is initially taken to Profit and Loss Account and then appropriated to Capital Reserve Account net of taxes and amount required to be transferred to Statutory Reserve. Loss on sale is charged to the Profit and Loss Account.

(ii)    Investments classified as Available for Sale, are fair valued on a daily basis. Any discount or premium on the acquisition of debt securities under AFS is amortised over the remaining life of the instrument as per Straight Line method. 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 a reserve named AFS-Reserve without routing through the Profit & Loss Account.

(iii)    Investments held in FVTPL are fair valued and the net gain or loss arising on such valuation is directly credited or debited to the Profit and Loss Account. Securities that are classified under the FVTPL are fair valued on a daily basis. Any discount or premium on the acquisition of debt securities under FVTPL is amortised over the remaining life of the instrument as per straight line method.

3.4    Investments in Subsidiaries, Associates and Joint Ventures are valued at acquisition cost.

3.5    Investment in Commercial Papers and Treasury Bills are valued at carrying cost.

3.6    In respect of traded/quoted Investments, Market price is taken from the quotes available in the stock exchanges. Government securities are valued at Market price or price declared by Financial Benchmarks India Private Ltd. (FBIL). For securities whose prices are not published by FBIL, the fair value of the quoted security shall be based upon quoted price as available from the trades/ quotes on recognised stock exchanges, reporting platforms or trading platforms authorized by RBI/SEBI.

3.7    In respect of unquoted investments:- at breakup value (without considering Revaluation Reserve, if any) as per the latest Balance sheet (not more than 12 months old) otherwise Rs. 1 per company.

3.8    Investments by Bank in SRs / PTCs / other securities issued by ARCs shall be valued periodically by reckoning the Net Asset Value (NAV) declared by the ARC based on the recovery ratings received for such instruments. Provided that when transferors invest in the SRs/PTCs issued by ARCs in respect of the stressed loans transferred by them to the ARC, the transferors shall carry the investment in their books on an ongoing basis, until its transfer or realization, at lower of the redemption value of SRs arrived based on the NAV as above, and the NBV of the transferred stressed loan at the time of transfer. SRs guaranteed by the Government of India are valued by reckoning the Net Asset Value (NAV) declared by the ARC based on the recovery ratings received for such instruments. However, any unrealised gains recognised in the Profit and Loss Account on account of fair valuation of such investments is deducted from CET 1 capital, and no dividends be paid out of such unrealized gains.

3.9    Commission, brokerage, broken period interest on investment transactions are debited and /or credited to Profit and Loss Account in the year of transaction. Broken period interest paid/received on debt instruments are excluded from cost/sale consideration.

3.10 The bank follows the prudential norms for recognition income from investments and for ascertaining and provisioning non-performing investments.

4. PROPERTY, PLANT & EQUIPMENT

4.1    Items of property, plant & equipment except land and building are stated at historical cost less accumulated depreciation using cost model. Land and building are stated at revalued amount less accumulated depreciation using revaluation model. Surplus arising on revaluation is credited to Revaluation Reserve.

4.2    The rates of depreciation and method of charging depreciation as considered appropriate by the management in respect of fixed assets situated in India are as below:-

* Depreciation on computer software including the software forming integral part of computer hardware is provided at Straight Line Method at the rate of

33.33%.

4.3    Depreciation in respect of fixed assets situated outside India is provided on straight line/written down value method as per the local laws of respective country.

4.4    Equivalent amount of additional depreciation arising out of revaluation is transferred from Revaluation Reserve to Revenue Reserve.

4.5    Items of property, plant and equipment of small value costing upto Rs.1000 each are charged off whereas items costing between Rs.1001 and Rs.5000 each are depreciated @ 100% in the quarter in which the same are purchased.

4.6 Depreciation is provided at full rate on additions made upto 30th September and at half the rate on additions made thereafter.

5.    EFFECT OF CHANGES IN FOREIGN EXCHANGE RATE

5.1    FOREIGN CURRENCY TRANSACTIONS

i)    Foreign currency transactions are recorded on initial recognition 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 transaction.

ii)    Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing/spot rate.

iii)    Foreign currency non-monetary items, which are carried in terms at historical cost, are reported using the exchange rate at the date of the transaction.

iv)    Contingent Liabilities denominated in foreign currency are reported using the FEDAI closing spot rates.

v)    Exchange differences arising on settlement of monetary items at rates different from those at which they were initially recorded are recognised as income or as expense in the period in which they arise.

vi)    Outstanding forward exchange contracts are revalued every month as per month end FEDAI rates applicable based on maturity date of the forward contracts and the resultant gain/loss is taken to profit and loss at the end of each month.

vii)    The foreign exchange swaps which are not held for trading are not marked to market. The premium paid or received on such swaps are amortized as expense or accreted as income over the life of the swap.

5.2    FOREIGN OPERATIONS

Foreign Branches and representative offices of the Bank have been classified as non-integral operations. Translation

i)    Both monetary and non-monetary foreign currency assets and liabilities including contingent liabilities of nonintegral foreign operations are translated at closing exchange rates notified by FEDAI at the balance sheet date.

ii)    Income and expenditure of non-integral foreign operations are translated at quarterly average closing rates.

iii)    Exchange differences arising on net investment in non-integral foreign operations are accumulated in Foreign Currency Translation Reserve until the disposal of the net investment.

6.    EMPLOYEE BENEFITS

6.1    Short Term Employee Benefits

Short-term employee benefits, such as medical benefits, casual leave etc. which are paid in exchange for the services rendered by employees are recognized during the period when the employee renders the service.

6.2    Long Term Employee Benefits

Post-employment Benefits

A) Defined Contribution Plan

a) Contributions to Defined Contribution Schemes such as NPS, Provident Fund etc., are charged to the Profit & Loss Account as and when incurred. In respect of certain employees who have not opted for Pension Benefits, Provident Fund Contributions are made to a Trust administered by the Bank.

b) The employees joining the services of the bank on or after 1 st April 2010 are covered by a defined contributory pension scheme where the employees contribute 10% of pay plus DA the bank makes a contribution of 14% of the Pay plus DA.The scheme is governed by the provisions of the contributory pension scheme introduced for the employees of central government w.e.f 1st January 2004 and modified from time to time.

B)    Defined Benefit Plan

The bank operates gratuity and pension schemes which are defined benefit plans.

The bank operates gratuity and pension schemes which are defined benefit plans. The Bank provides gratuity to all eligible employees. The benefit is in the form of lump sum / onetime payment to vested employees on superannuation or retirement or resignation or death or disablement due to accident or disease while in employment, for an amount equivalent to :

1.    As per Gratuity Act 1972, For every completed year of service or part thereof in excess of six months, gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned, subject to a maximum amount of Rs.20,00,000/- or

2.    As per OSR/ Bipartite, the amount of gratuity shall be one month's pay for every completed year of service, subject to a maximum of 15 months' pay. Provided that where an officer has completed more than 30 years of service, he shall be eligible by way of gratuity for an additional amount at the rate of an additional amount at the rate of one half of a month's pay for each completed year of service beyond 30 years, whichever is higher. Vesting occurs upon completion of five years (Payment of Gratuity Act, 1972) / ten years (OSR/ Bipartite) (as applicable) of service. The Bank makes annual contributions to a fund administered by Trustees based on an independent external actuarial valuation carried out at regular intervals.

The Bank provides pension to all eligible employees. The benefit is in the form of monthly payments as per rules and regular payments to vested employees on retirement, on death while in employment, or on termination of employment as provided under regulation. Vesting occurs at different stages as per rules. The Bank makes additional annual contributions to funds administered by trustees based on an independent external actuarial valuation carried out at regular intervals besides monthly contribution @ 10% of pay per month.

The cost of providing defined benefits is determined by actuarial valuation using the projected unit credit method which is normally carried out on quarterly basis. Net liabilities are immediately recognized in the statement of profit and loss and are not deferred.

C)    Other Long Term Employee benefits

a.    All eligible employees of the bank are entitled to compensated absences; leave travel concession. The costs of such long-term employee benefits are internally funded by the Bank.

b.    The cost of providing these other long term benefits is determined by actuarial valuation using the projected unit credit method which is normally carried out on quarterly basis. Past service cost is immediately recognized in the statement of profit and loss and is not deferred.

c.    Medical benefits are extended to full time Directors, after their retirement as post-retirement medical benefits. The cost is ascertained and determined by actuarial valuation using the projected unit credit method and such valuation is carried out on quarterly basis for retired as well as in service full time Directors. The liability is immediately recognized in the statement of profit & loss and not deferred.

6.3 Employee benefits relating to employees employed at foreign branches and offices are valued and accounted for as per the respective local laws/regulations.

7.    INTEREST RATE SWAPS

7.1    The Interest Rate Swap transactions undertaken for hedging are accounted for on accrual basis and transactions for trading are marked to market and net depreciation is provided for whereas appreciation, if any, is ignored.

7.2    Gain or loss on terminated interest rate swap transactions undertaken for hedging is deferred and recognized over the shorter of the remaining contractual life of the swap or remaining life of the asset or liability.

7.3    Income and expenses relating to the trading swaps are recognized on the settlement date.

7.4    Gain or losses on the termination of the trading swaps are recorded as income or expense immediately.

8.    IMPAIRMENT OF ASSETS

Items of property, plant and equipment are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment, to be recognized, is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

9.    NON-BANKING ASSETS Non-Banking Assets are stated at cost.

10.    REVENUE RECOGNITION

10.1    Income is recognized on accrual basis, unless otherwise stated.

10.2    In respect of foreign offices, income is recognized as per local laws/ standards of respective country.

10.3    Income from non-performing assets/investments is recognized on realization basis in terms of RBI guidelines.

10.4    Commission on issuance of Letters of Credit/ Bank Guarantees is recognized over the tenure of LC/BG. Dividend is accounted when the right to receive the same is established.

10.5    Rental Income, Income on Units of Mutual Funds and Service Charges on various Deposit Accounts are recognized on realization basis.

10.6    Interest on Income-tax refund is recognized in the year it was actually received.

10.7    Profit or loss on sale of investments is recognized as per RBI guidelines.

10.8    Recoveries in Written off Advances / Investments are accounted for as 'Miscellaneous Income'.

11.    LEASE

In accordance with AS 19 - Leases, lease payments for assets taken on operating lease are recognized in the profit & loss account over the period of lease and in respect of assets taken on finance lease, the asset is recognized in the books taking the lease premium as the cost and the same is amortized over the period of the lease.

12.    TAXES ON INCOME

12.1    Current Tax

Current tax is provided using applicable tax rates on the taxable income determined on the basis of applicable tax laws, judicial pronouncements / legal opinions and the past assessments.

12.2    Deferred Tax

a) Deferred Tax is recognized subject to consideration of prudence, on timing difference, representing the difference between the taxable income and accounting income that originated in one period and are capable of reversal in one or more subsequent periods.

b)    Deferred tax asset or liability is recognized using the tax rates that have been enacted or substantially enacted by the Balance Sheet date as per Accounting Standard 22 Accounting for Taxes on Income.

c)    Deferred tax assets/liabilities are re-assessed at each reporting date, based upon management's judgement as to whether their realisation is considered as reasonably certain.

d)    Deferred Tax Assets on carry forward of unabsorbed depreciation and tax losses are recognized only if there is virtual certainty supported by convincing evidence that such deferred tax assets can be realised against future profits.

13.    EARNINGS PER SHARE

13.1    The Bank reports basic and diluted earnings per share in accordance with AS 20 - 'Earnings per Share'. Basic earnings per share computed by dividing the net profit after tax and dividend on preferential shares by weighted average number of equity shares outstanding for the year.

13.2    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 are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at year end.

14.    Derivatives

The Bank rarely deals in derivatives i e Forex Forward Contracts, interest rate and currency derivatives. The interest rate derivatives dealt with by the Bank are Rupee Interest Rate Swaps, Foreign Currency Interest Rate Swaps, Forward Rate Agreements and Interest Rate Futures. Currency Derivatives dealt with by the Bank are Options, Currency Swaps and Currency Futures. Based on RBI guidelines, Derivatives are valued as under:

(a)    Income/expenditure on hedging derivatives are accounted on accrual basis.

(b)    Forex forward contracts are Marked to market and the resultant gains and losses are recognized in the profit and loss account.

(c)    Exchange Traded Contracts entered into for trading purposes are valued at prevailing market rates based on rates given by the Exchange and the resultant gains and losses are recognized in the Profit and Loss Account.

(d)    Gains/ losses on termination of the trading swaps are recorded on the termination date as income/ expenditure. Any gain/loss on termination of hedging swaps are deferred and recognised over the shorter of the remaining contractual life of the swap or the remaining life of the designated assets/liabilities.

(e) Premium paid and received on currency options is accounted when due in the profit and loss account.

15.    ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In conformity with Accounting Standard AS 29, "Provisions, Contingent Liabilities and Contingent Assets", the Bank recognizes provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Contingent Assets are not recognized in the financial statements.

16.    Segment Reporting

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 issued by ICAI.