3 SIGNIFICANT ACCOUNTING POLICIES
3.1 USE OF ESTIMATES
The preparation of financial statements in conformity with Indian GAAP requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities (including contingent liability) and the reported
income and expenses during the period. The management believes that the estimates used in preparation of financial
statements are prudent and reasonable. Actual results could differ from these estimates. Any revision in the accounting
estimates is recognised prospectively in the future periods.
3.2 ADVANCES
Advances are classified as Performing Advances (Standard) and Non- Performing Advances (NPAs) in accordance with
the RBI guidelines on Income Recognition and Asset Classification (IRAC). Further, NPAs are classified into sub-standard,
doubtful and loss assets. Advances are stated net of specific loan loss provision and Inter Bank Participating Certificates
(IBPC) with risk sharing issued.
The bank transfers advances through Inter- Bank Participation arrangements with and without risk, which are accounted for
in accordance with the RBI guidelines, as follows:
a) In the case of participation with risk, the aggregate amount of participation transferred out of the Bank is reduced from
Advances; and participations transferred in to the Bank are classified under Advances.
b) 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 reported as due from banks
under Advances.
The bank transfers advances through securitisation arrangements to special purpose vehicles setup for this purpose.
Upon due execution/delivery of the requisite transaction documents and payment of purchase consideration, the value of
amounts transferred is reduced from advances reported in Schedule 9 to financial statements if the criteria for transfer
of receivables in terms of the master directions of the Reserve Bank of India on "Reserve Bank of India (Securitisation of
standard assets) Directions, 2021” are satisfied, based on appropriate legal advice regarding compliance with true sale
criteria stipulated in the said directions. In case these criteria are not fulfilled, the amount received is reported as borrowings.
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 and 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.
Provisioning:
Specific provisions for Non- Performing Advances and floating provisions are made in conformity with the RBI
guidelines or the policy of the bank , whichever is higher. While framing this policy, the bank has stipulated
accelerated provisioning based on past experience, value/stature of securities and other related factors.
Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account.
Any recoveries made by the Bank in case of NPAs written off are recognised in the Profit and Loss Account.
Loans reported as fraud are classified appropriately as per relevant RBI guidelines and fully provided for immediately without
considering the value of security.
A general provision on standard assets is made in accordance with RBI guidelines or the policy of the Bank whichever is higher.
Provision made for standard assets is included in 'Other Liabilities and Provisions'.
Floating Provisions:
Provisions made in excess of the Bank's policy for specific loan loss provisions for non-performing assets and regulatory
general provisions are categorised as floating provisions. Creation of floating provisions is considered by the Bank up to
the level approved by the Board of Directors. In accordance with the RBI guidelines, floating provisions are used up to a
level approved by the Board only for contingencies under extraordinary circumstances and for making specific provisions
as permitted. Based on the approval of the Board of Directors, Floating provisions considered towards calculation of Net
NPA and PCR are netted off against advances. If considered as tier-II capital or if unallocated, the same is disclosed under
Other Liabilities.
Restructured assets
The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower's
financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would
normally involve modification of terms of the advances / securities, which would generally include, among others, alteration
of repayment period / repayable amount / the amount of instalments / rate of interest (due to reasons other than competitive
reasons). Restructured accounts are classified as such by the Bank only upon approval and implementation of the restructuring
package. Necessary provision for diminution in the fair value of a restructured account is made and classification thereof is as
per the extant RBI guidelines.
An adjustment to the quantum of provisions based on the current status of the assets is made from provisions and
contingencies reported in the profit and loss account.
Priority Sector Lending Certificates (PSLCs):
The Bank enters into transactions for the sale of Priority Sector Lending Certificates (PSLCs). In the case of a sale transaction,
the Bank sells the priority sector assets . There is no transfer of risks or loan assets. The fee received from the sale of PSLCs
is recognised at the inception and recorded as 'Miscellaneous Income'.
3.3 INVESTMENTS
Classification and Valuation of the Bank's Investments are carried out in accordance with Reserve Bank of India (Small Finance
Banks - Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025 dated November 28, 2025 and
updated from time to time ("Master Directions”) , Fixed Income Money Market and Derivatives Association ('FIMMDA') and
Financial Benchmark India Private Limited ('FBIL') guidelines prescribed in this regard from time to time as follows:
Categorisation of Investments:
Based on the intent or duration for which investments shall be held as well as the ability to hold the securities, the Bank
classifies its Investment Portfolio (except investments in their own subsidiaries, joint ventures and associates) into 'Held to
Maturity' (HTM), Fair Value through Profit and Loss (FVTPL) and 'Available for Sale' (AFS). Held for Trading (HFT) will be a
subcategory within FVTPL.
Classification of Investments:
For the purpose of disclosure in the Balance Sheet, Investments in India are classified under six groups viz., (i) Government
Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures and Bonds, (v) Investments in Subsidiaries and Joint
Ventures and (vi) Other Investments. Investments outside India are classified under three groups viz., (i) Government
Securities (Including local authorities), (ii) Subsidiaries and/or Joint Ventures abroad and (iii) Other Investments
Purchase and sale transactions in securities are recorded under 'Settlement Date' accounting, except in the case of equity
shares where 'Trade Date' accounting is followed.
Acquisition cost and profit/loss on disposal:
(i) Broken period interest on debt instruments is treated as a receivable at the time of acquisition and post acquisition
broken period interest treated as a revenue item.
(ii) Brokerage, commission, etc. pertaining to Investments, paid at the time of acquisition is charged to the Profit
and Loss Account.
(iii) Profit or loss arising on disposal of investments are computed based on the weighted average cost method.
Where the securities are quoted or the fair value can be determined based on market observable inputs (such as yield curve,
credit spread, etc.) any Day 1 gain/ loss is recognised 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. Any Day 1 loss
arising from Level 3 investments is recognised immediately. Any Day 1 gains arising from Level 3 investments are deferred. In
the case of debt instruments, the Day 1 gain is amortized on a straight-line basis upto the maturity date (or earliest call date
for perpetual instruments), while for unquoted equity instruments, the gain is set aside as a liability until the security is listed
or derecognised.
Classification and Valuation of Investments:
(1) Held to Maturity ( 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, that are Solely Payments of Principal and Interest (SPPI) on
principal outstanding on specified dates.
ii) Securities held in HTM shall be carried at cost and are not be marked to market (MTM) after initial recognition.
However, they are subject to income recognition, asset classification and provisioning norms as specified in the
Master Directions.
iii) Any discount or premium on the securities under HTM are amortised over the remaining life of the instrument. The
amortised 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'.
(2) Available for Sale (AFS) -
a) Securities that meet the following conditions are 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' that are Solely Payments of Principal and Interest
(SPPI) on principal outstanding on specified dates. Provided that on initial recognition, a bank may make an
irrevocable election to classify an equity instrument that is not held with the objective of trading under AFS.
iii) AFS securities shall 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.
b) Any discount or premium on the acquisition of debt securities under AFS are amortised over the remaining life of
the instrument. The amortised 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'.
c) 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 are aggregated. The net
appreciation or depreciation is directly credited or debited to a reserve named AFS Reserve without routing
through the Profit & Loss Account.
d) Securities under AFS are subject to income recognition, asset classification and provisioning norms as specified in
Master Directions.
e) The AFS-Reserve is reckoned as Common Equity Tier (CET) 1. However, net unrealised gains on Level investments
(as defined in Master directions) recognised in the Profit and Loss Account or in the AFS-Reserve will be deducted
from CET 1 Capital . The unrealised gains transferred to AFS-Reserve will not be available for any distribution such
as dividend and coupon on Additional Tier 1.
f) Upon sale or maturity of a debt instrument in AFS category, the accumulated gain/ loss for that security in the AFS-
Reserve is transferred from the AFS Reserve and recognized in the Profit and Loss Account under item II 'Profit on
sale of investments' under Schedule 14-Other Income.
In the case of equity instruments designated under AFS at the time of initial recognition, any gain or loss on sale of such
investments is not transferred from AFS-Reserve to the Profit and Loss Account. Instead, such gain or loss is transferred
from AFS-Reserve to the Capital Reserve.
(3) Fair Value through Profit and Loss (FVTPL) -
Securities that do not qualify for inclusion in HTM or AFS are 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
iii) Alternative Investment Funds, Real Estate Investment Trusts, Infrastructure Investment Trusts (currently not allowed)
iv) Investment in securitisation notes which represent the equity tranche of a securitisation transaction.
v) Bonds, debentures, etc. where the payment is linked to the movement in a particular index such as an equity index
rather than an interest rate benchmark.
vi) Instruments with compulsorily, optionally or contingently convertible features.
vii) Instruments with contractual loss absorbency features such as those qualifying for Additional Tier 1 and Tier 2
under Basel III Capital Regulations.
viii) Instruments whose coupons are not in the nature of interest as defined in Master Direction
ix) Preference shares and Equity shares.
x) The securities held in FVTPL shall be fair valued and the net gain or loss arising on such valuation shall be directly
credited or debited to the Profit and Loss Account. Securities that are classified under the HFT sub-category within
FVTPL are fair valued on a daily basis, whereas other securities in FVTPL are fair valued on fortnightly basis.
xi) Any discount or premium on the acquisition of debt securities under FVTPL is amortised over the remaining life
of the instrument. The amortised amount will be reflected in the financial statements under item II 'Income on
Investments' of Schedule 13: 'Interest Earned' with a contra in Schedule 8:'Investments'.
xii) Securities under FVTPL are subject to income recognition, asset classification and provisioning norms as specified
in Master Directions.
(4) Held for Trading/FVTPL HFT -
Held for Trading (HFT), which is a sub-category of Fair Value through Profit and Loss (FVTPL) shall consist of all
instruments that meet the specifications for HFT instruments set out in the investment policy of the Bank.
Bank categorizes the investment portfolio under AFS and FVTPL into three fair value hierarchies viz. Level 1, Level
2, and Level 3 as defined in the Reserve Bank of India (Small Finance Banks - Classification, Valuation, and Operation
of Investment Portfolio) Directions, 2025 dated November 28, 2025. Level 1: Those inputs which are quoted prices in
active markets for identical instruments that the bank can access at the measurement date. Level 2: Those inputs, other
than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs. All investments purchase and sale including equity shares are recorded under "Settlement
Date” Accounting.
Reclassification between categories:
As per Reserve Bank of India (Small Finance Banks - Classification, Valuation, and Operation of Investment Portfolio)
Directions, 2025 dated November 28, 2025, the bank shall not reclassify investments between categories (viz. HTM,
AFS and FVTPL) without the approval of the Board of Directors, the ALCO or IC shall recommend the proposal for
approval. Further, reclassification shall also require the prior approval of the Department of Supervision (DoS), RBI. The
reclassification should be applied prospectively from reclassification date. As and when such shifting is initiated by the
Bank, accounting entries will be made in line with Master directions.
(5) Market value of government securities (excluding treasury bills) is determined based on the prices / YTM declared by
Financial Benchmarks India Pvt Limited(FBIL)
(6) Treasury bills are valued at carrying cost, which includes discount amortised over the period to maturity.
(7) Provision for non-performing Investments is made in conformity with RBI guidelines.
(8) 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, the fair value for the purposes of these directions shall be 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 shall be valued at W 1 per company.
(9) Mutual Funds Units (MF Units)-
i. Investment in un-quoted MF units shall be valued on the basis of the latest repurchase price declared by the MF in
respect of each scheme.
ii. In case of funds with a lock-in period or any other Mutual 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 are valued at cost,
till the end of the lock-in period.
(10) In accordance with the RBI guidelines, repurchase and reverse repurchase transactions in government securities
and corporate debt securities are reflected as borrowing and lending transactions respectively. Borrowing cost on
repo transactions is accounted for as interest expense and revenue on reverse repo transactions is accounted for as
interest income.
(11) Security Receipts shall be marked to market on half yearly basis as per NAV shared by the trust/ARC.
(12) Sale of investments from 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 investments in HTM is appropriated (Net of taxes and the
amount required to be transferred to Statutory Reserve) 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.
Short sale transactions :
In respect of the short sale transactions in Central Government dated securities, the short position is covered by outright
purchase of an equivalent amount of the same security within a maximum period of three months including the day of trade.
The short position is reflected as the amount received on sale in a separate account, specifically created for this purpose.
The short position is marked to market and loss, if any, is charged to the Profit and Loss account, while gain, if any, is not
recognised. Profit or loss on settlement of the short position is recognised in the Profit and Loss account.
Investment Fluctuation Reserve:
To build up adequate reserves to protect against increase in yields in future, the Bank has created an Investment Fluctuation
Reserve (IFR) to the extent of the lower of the following: a) net profit on sale of investments during the year; b) net profit for
the year less mandatory appropriations. As per the RBI directions, this reserve is to be created until the amount of IFR is at
least 2 percent of the FVTPL (including FVTPL-HFT) and AFS portfolio, on a continuing basis. Bank is permitted to draw down
the balance available in IFR in excess of two percent of its AFS and FVTPL (including FVTPL-HFT) portfolio, for credit to the
balance of profit/ loss as disclosed in the Profit and Loss account at the end of any accounting year.
3.4 REVENUE RECOGNITION
1) Interest income on performing assets and deposits with banks and other institutions are recognized in the Profit and
Loss Account on accrual basis. Interest Income on Non- Performing Assets is recognized upon realization as per the
prudential norms of the RBI. Any income recognised and remaining unrealised, before the asset became non-performing
or before disposal is reversed in the profit and loss account. Overdue interest is recognised on realisation basis.
2) Interest on advances transferred under securitisation arrangements meeting the criteria stipulated in para 3.2 above
are not recognised in Profit and Loss Account. The bank's share of the securitisation income is recognised on receipt
basis. Profit / premium arising at the time of securitization / assignment of loan portfolio is amortized over the life of
the underlying loan portfolio / securities and any loss arising therefrom is recognized immediately. Income from interest
strip (excess interest spread) is recognized in the profit and loss account net of any losses when redeemed in cash.
Interest retained under assignment of loan receivables is recognized on realization basis over the life of the underlying
loan portfolio.
3) Revenues from loan documentation charges and processing fees are recognized at the inception of the loan , except in
cases where the Bank is uncertain of its ultimate collection.
4) For Micro Finance Loans recoveries are appropriated towards instalment(s) outstanding and on partial collection
appropriation will be in the sequence of first Interest component of oldest EMI followed by Principal component of
oldest EMI, and so on both for standard and NPA accounts.
5) For other than Micro Finance Loans and Relationship Management based products, recoveries in respect of all EMI based
performing assets is appropriated towards interest, principal of each EMI followed by penal interest and then charges.
For Non-performing assets, appropriation is made towards principal, interest of each EMI followed by oldest penal
interest due and then oldest charges for the product defined.
6) Interest on Government securities, debentures and other fixed income securities is recognised on a period proportion
basis. Income on discounted instruments is recognised over the tenor of the instrument on a constant Yield to
Maturity method.
7) Dividend on equity shares, preference shares and on mutual fund units is recognised as income when the right to receive
the dividend is established.
8) Income from distribution of third party products is recognised on the accrual basis.
9) Recoveries in respect of purchase of Direct Assignment pools are to be appropriated as per appropriation methodology
followed by the originators.
10) Charges such as penal charges, EMI bounce charges, Cheque return charges, Legal charges, Seizing charges etc. are
recognised on realisation basis. These charges are treated to accrue on realisation, due to the uncertainty of their
realisation; and
11) All other fees are accounted for as and when they become due and when service is rendered.
3.5 EMPLOYEE BENEFITS
Provident Fund: Contribution towards provident fund of employees is made to the regulatory authorities, where the Bank has
no further obligations. Such benefits are classified as defined contribution schemes and are charged as an expense as they fall
due based on the amount of contribution required to be made when the services are rendered by the employees. The Bank
does not carry any further obligations, apart from the contributions made on a monthly basis.
Gratuity:
The Gratuity scheme of the Bank is a defined benefit scheme and the expense for the period is recognized based on actuarial
valuation at the Balance Sheet date. The present value of the of the defined benefit obligation at the balance sheet date less
the fair value of plan assets is determined based on independent actuarial valuation using the Projected Unit Credit Method
which recognizes each period of service, give rise to an additional unit of employee benefit entitlement and measures each
unit separately to build up the final obligation. Actuarial losses/ gains are recognised in the Profit and Loss Account in the year
in which they arise. Payment obligations under the Group Gratuity scheme are managed through purchase of appropriate
policies from insurers.
Short term Employee benefits:
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by
employees are recognised during the period when the employees render the service. These benefits include performance
incentive and compensated absences which are expected to occur within twelve months after the end of the period in which
the employee renders the related service.
Long term Employee benefits:
The Bank accrues the liability for compensated absences based on the actuarial valuation as on the Balance Sheet date
conducted by an independent actuary which includes assumptions about demographics, early retirement, salary increases,
interest rates and leave utilisation. The net present value of the Banks' obligation is determined using the Projected Unit
Credit Method as on the Balance Sheet date. Actuarial gains / losses are recognised in the Profit and Loss Account in the
period in which they arise.
Employee Stock Option Plan (ESOP)
The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with Securities and Exchange Board of India
(Share Based Employee Benefits) Regulations, 2014. The Schemes provide for grant of options on equity shares to employees
of the Bank to acquire the equity shares of the Bank that vest in a cliff vesting or in a graded manner and that are to be
exercised within a specified period.
In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 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 fair value method. Equity-settled share-based payments
to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 18 (27). The
fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the company's estimate of equity instruments that will eventually vest, with a corresponding increase
in equity. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment to the equity -settled employee benefits reserve.
In accordance with the Reserve Bank of India ( Small Finance Banks - Governance) Direction 2025 dated November 28, 2025,
Share-linked instruments granted to Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control
Function staff shall be fair valued on the date of grant using Black-Scholes model.
The options that do not vest because of failure to satisfy vesting condition and such options go back to the 'option pool'
for being granted in accordance with the Scheme. The cost relating to such options are reversed by a credit to employee
compensation expense, equal to the amortised portion of value of lapsed portion. . In respect of the vested options relating
to plan which expire unexercised the balance standing to the credit of Employee's Stock Option (Grant) Outstanding accounts
is transferred to General Reserve account.
Employee Stock Purchase Scheme (ESPS)
ESPS is a contractual promise that permits an employee to acquire an employer's stock at a future date under the terms and
conditions established on the grant date. The fair value of the entire purchase discount represents employee compensation.
The compensation expense will be the difference between the value of the stock on the date of shareholder approval and the
purchase/ Exercise price for that offering.
Cash-settled Stock Appreciation Rights ( SARs)
The cost of cash-settled transactions, stock appreciation rights (SARs) is measured on fair value basis.
The fair value is amortised on a straight-line basis over the vesting period with a recognition of corresponding liability. This
liability is remeasured at each balance sheet date up to and including the vesting date with changes in fair value recognised
in the profit and loss account in 'Payments to and provision for employees'. The SARs that do not vest because of failure to
satisfy vesting conditions are reversed by a credit to employee compensation expense, equal to the amortised cost in respect
of the lapsed portion.
3.6 FIXED ASSETS AND DEPRECIATION
Fixed Assets are stated at cost, net of accumulated depreciation and accumulated impairment if any. The cost of an asset
comprises its purchase price and any cost directly attributable to bringing the asset to its working condition and location for
its intended use. Subsequent expenditure on Fixed Asset after its purchase is capitalised only if such expenditure results in
an increase in the future benefits from such asset beyond its previously assessed standard of performance.
When significant parts of the plant and equipment are required to be replaced at intervals, the Bank depreciates them
separately based on its specific useful lives. Tangible fixed assets under construction and tangible fixed assets acquired but
not ready for their intended use will be disclosed as capital work-in-progress.
Depreciable amount for Fixed Asset is the cost of an asset, or other amount substituted for cost, less its estimated residual
value. Depreciation on Fixed asset has been provided on the straight-line method as per the useful life prescribed in Schedule
II to the Act. Leasehold improvements are amortised over the primary lease period. 'Point of Sale' terminals are fully
depreciated in the year of purchase.
The salvage value considered for computing depreciation is as per Schedule II of the Act (i.e. 5% of Cost) except for Software
and Lease hold assets.
Gains or losses arising from disposal or retirement of Fixed Asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised net, under "Other Income” as Profit/(Loss) on sale of Fixed
Asset, as the case maybe, in the Profit and Loss Account in the year of disposal or retirement.
Fixed Asset held for sale is valued at lower of their carrying amount and net realizable value, any write-down is recognized
in the Profit and Loss Account. If the management's estimate of the useful life of a fixed asset at the time of acquisition of
the asset or of the remaining useful life on a subsequent review is shorter, then the depreciation is provided at a higher rate
based on management's estimate of the useful life/remaining useful life.
3.7 INTANGIBLE ASSETS
Intangible Assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset comprises
of its purchase price , trade discounts and rebates, any directly attributable cost of bringing the item to its working condition
for its intended use following initial recognition. Subsequent to initial recognition, intangible assets are carried at cost less
accumulated amortization and accumulated impairment losses, if any. Subsequent expenditure is capitalized only when it
increases the future economic benefits from the specific asset to which it relates to.
Intangible assets are amortized on a straight line basis over the estimated useful economic life. The Bank uses a rebuttable
assumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for
use. Software with perpetual license and system development expenditure, if any, is amortised over an estimated economic
useful life of 6 years or license period, whichever is lower.
The amortization period and the amortization method are reviewed at each Balance Sheet date. For assets purchased/
sold during the year, amortisation is being provided on pro rata basis by the Bank. If the expected useful life of the asset
significantly differs from previous estimates, the amortization period is changed accordingly. If there has been a significant
change in the expected pattern of economic benefits from the asset, the amortization method is changed to reflect the
changed pattern. Such changes are accounted for in accordance with AS 5 Net Profit or Loss for the Period, Prior Period Items
and Changes in Accounting Policies.
3.8 IMPAIRMENT OF ASSETS
The carrying values of assets / cash generating units at the Balance Sheet date are reviewed for indications of impairment,
if any. If the carrying amount of the assets exceed 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 revaluation decrease to the extent
a revaluation reserve is available for that asset.
The recoverable amount is the greater of the net selling price and the value in use. Value in use is arrived at by discounting
the future cash flows to their present value based on an appropriate discount factor.
When there is indication that an impairment loss recognised for an 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.
3.9 LEASES
Lease arrangements where risk and rewards incidental to ownership of an assets substantially vest with the lessor are
recognised as operating leases. Lease rentals under operating lease are charged to the Profit and Loss Account on straight
line basis over the lease term in accordance with AS-19, Leases.
3.10 SEGMENT REPORTING
In accordance with Reserve Bank of India (Small Finance Banks - Financial Statements-Presentation and Disclosures)
Directions, 2025 dated November 28, 2025 and Accounting Standard 17 on "Segment Reporting”, the Bank's business has
been segregated into Treasury, Retail Banking and Corporate/ Wholesale Segments. Segment revenues consist of earnings
from external customers and inter-segment revenues based on a transfer pricing mechanism. Segment expenses consist of
interest expenses including allocated operating expenses, inter segment costs based on a transfer pricing mechanism and
provisions. Segment results are net of segment revenues and segment expenses. Segment assets include assets related to
segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding net worth,
dividend and tax related liability, if any. Since the business operations of the Bank are primarily concentrated in India, the
Bank is considered to operate only in the domestic segment.
3.11 EARNINGS PER SHARE
Basic and diluted earnings per share is computed in accordance with Accounting Standard-20 - Earnings per share. Basic
earnings per share is calculated by dividing the net profit or loss after tax for the period attributable to equity shareholders
by the weighted average number of equity shares outstanding during the period. Partly paid equity shares are treated as
a fraction of an equity share to the extent that they are entitled to participate in dividends relative to a fully paid equity
share during the period. For the purpose of calculating diluted earnings per share, the weighted average number of shares
outstanding during the period are adjusted for the effects of all dilutive potential equity shares, except when its results
are anti-dilutive.
3.12 TAXES ON INCOME
Income tax
Current income-tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income-tax
Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted, at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and
not in Profit and Loss Account.
Deferred tax
Deferred income-tax relating to items recognised directly in equity is recognised in equity and not in the Profit and Loss Account.
Deferred tax liabilities are recognised for all taxable timing differences. Deferred tax assets are recognised for deductible
timing differences only to the extent that there is reasonable certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. In situations where the Bank has unabsorbed depreciation or carry
forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence
that they can be realised against future taxable profits.
The carrying cost of the deferred tax assets are reviewed at each balance sheet date. The Bank writes down the carrying
amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be,
that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write down
is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future
taxable income will be available.
Current tax and deferred tax assets and liabilities are off-set when they relate to income taxes levied by the same taxation
authority, when the Bank has a legal right to off-set and when the Bank intends to settle on a net basis.
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