Background

Union Bank of India (UBI or the Bank) is a banking and financial services statutory body engaged in providing a wide range of products and services to individuals, commercial enterprises, large corporates, public bodies, and institutional customers. The Bank is governed by the Banking Regulation Act, 1949. The following are the Significant Accounting Policies i.e., the specific accounting principles and methods of applying these principles in the preparation and presentation of financial statements of the Bank.

1.    Basis of Preparation

The financial statements have been prepared and presented under the historical cost convention, accrual basis of accounting, unless otherwise stated and following the Going Concern concept. 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 of the Bank 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 (AS) issued by the Institute of Chartered Accountants of India (ICAI) to the extent applicable and practices generally prevalent in the banking industry in India.

In case of foreign offices, the statutory provisions, and practices of the local laws of the respective foreign country are followed if they are more prudent.

2.    Use of Estimates

The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of Assets and Liabilities (including Contingent Liabilities) as of the date of the financial statements and the reported Income and the Expenses during the reporting period. Management believes that the estimates wherever used in the preparation of the financial statements are prudent and reasonable. Difference between the actual results and estimates is recognized in the period in which the results are known/materialized.

Significant Accounting Policies:

3.    Revenue Recognition

3.1. Income and Expenditure have been accounted for on accrual basis unless otherwise stated.

3.2. Income on Non-Performing Assets (NPAs) is recognized to the extent realized as per the prudential norms prescribed by the RBI. Income accounted for in the preceding year and remaining unrealized is derecognized in respect of assets classified as NPAs during the year.

3.3. Commission on Letters of Credit (LC)/Bank Guarantee (BG), Deferred Payment Guarantee and Government Business are recognized on accrual basis proportionately over the period.

3.4.    Exchange and brokerage earned, rent on Safe Deposit Lockers, income from Aadhaar cards, Minimum balance charges etc. are accounted for on realization basis.

3.5.    Income recognized on accrual basis for the following investments:

3.5.1.Government Securities, bonds and debentures of corporate bodies, where interest rates on these securities are predetermined and provided interest is serviced regularly and is not in arrears.

3.5.2.Shares of corporate bodies provided dividend has been declared by the corporate body in its Annual General Meeting and the owner's right to receive payment is established.

3.5.3.Income from units of mutual funds, alternative investment funds and other such pooled/collective investment funds is recognized on cash basis.

3.5.4.Subject to sub-clause (3.5.2) above, dividend income on equity investments held under AFS is recognised in the Profit and Loss Account.

3.5.5. Accounting for Broken Period Interest:

Bank is not capitalizing the broken period interest paid to the seller as part of cost and treats it as an item of expenditure under Profit & Loss Account in respect of investments in securities.

3.6.    Sale of NPAs accounted in terms of extant RBI guidelines.

3.7.    Interest on Income-tax refunds is accounted for on receipt of Intimation order from the Income Tax Department.

4. Appropriation of Recovery:

Recoveries other than by way of OTS/NCLT shall be

appropriated as under:

4.1.    When there is no agreement between the debtor and creditor as to how monies paid by the debtor are required to be appropriated by the creditor, the order of appropriation is as under:

For Term Loans:

>    Towards expenses & costs etc.

>    Towards unrecovered interest reversed on the date of NPA.

>    Interest held in dummy ledger (unapplied interest).

>    Towards arrears of principal/EMI till the date of recovery.

>    Towards running ledger balance.

For Running Accounts:

>    Towards expenses & costs etc.

>    Towards interest held in dummy ledger (unapplied interest) including unrecovered interest reversed at the time of NPA.

>    Towards principal.

4.2.    In case, borrower stipulates terms of appropriation differently than above and if such different terms of appropriation are accepted by Bank then appropriation of recoveries will be as per the sanction terms.

4.3.    In case of OTS & all NCLT accounts, recovery either through resolution/liquidation:

Appropriation of recovery is done as mentioned here under or as per the sanction stipulations.

>    Towards principal.

>    Towards interest held in dummy ledger (unapplied interest) including unrecovered interest reversed at the time of NPA.

>    Towards expenses & costs etc.

4.4.    In case of Non-Performing Investments, recovery is apportioned as mentioned below:

a.    Towards expenses & costs etc.

b.    Towards unrecovered interest reversed on the date of NPI.

c.    Interest held in dummy ledger (unapplied interest).

d.    Towards arrears of principal/EMI till the date of recovery.

e.    Towards running ledger balance

5.    Cash Flow Statements:

Cash Flow statement of the Bank is prepared as per AS-3. Cash Flow statement is mainly classified as:

5.1.    Cash flow from Operating Activities: This activity includes cash flow generated from Operational activities.

5.2.    Cash Flow from Investing Activities: This activity includes cash flow generated by investments.

5.3.    Cash Flow from Financials Activities: This activity includes the cash flow generated from financial instruments.

5.4.    Cash and cash equivalents include Cash and Balances with RBI, Balances with Banks and money at call and short notice.

6.    Investments

6.1. Categorization of investments

a)    Bank classified the entire investment portfolio (except investments in their own subsidiaries, joint ventures and associates) under three categories, viz., Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL). Held for Trading (HFT) is a separate investment subcategory within FVTPL.

b)    Bank continue to present the investments in the Balance Sheet as set out in The Third Schedule to the BR Act (Form A, Schedule 8 - Investments) as under:

i.    Government securities

ii.    Other approved securities

iii.    Shares

iv.    Debentures & Bonds

v.    Subsidiaries and/or joint ventures

vi.    Others (to be specified)

c)    From the context of inputs used for valuation, the investments would be either of the following:

(i)    "Level 1" in the context of inputs used for valuation of a financial instrument are those inputs which are quoted prices (unadjusted) in active markets for identical instruments that the bank can access at the measurement date. In reference to the valuation of an instrument, it refers to a valuation that is substantively based on Level 1 inputs and does not have any significant Level 2 or Level 3 inputs.

(ii)    "Level 2" in the context of inputs used for valuation of a financial instrument are those inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. In reference to the valuation of an instrument, it refers to a valuation that is based on Level 1 and Level 2 inputs and does not have any significant Level 3 inputs.

(iii) "Level 3" in the context of inputs used for valuation of a financial instrument are unobservable inputs. In reference to the valuation of an instrument, it refers to a valuation in which there is a significant Level 3 input.

6.1.1.HTM

a)    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, 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.

b)    Notwithstanding the intent with which the following securities are acquired, they would not meet the SPPI criteria and therefore would not be eligible for classification either as HTM or AFS:

(i)    Instruments with compulsorily, optionally or contingently convertible features.

(ii)    Instruments with contractual loss absorbency features such as those qualifying for Additional Tier 1 and Tier 2 under Basel III Capital Regulations.

(iii)    Instruments whose coupons are not in the nature of interest as defined in clause 4(a)(xviii) of the RBI's "Master Direction -Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023" dated 12-09-2023 hereon mentioned as "RBI MASTER CIRCULAR".

(iv)    Preference shares and Equity shares.

c)    Investments in the securitization notes, other than the equity tranche, is considered to meet the SPPI criteria if the tranche in which the investment is made meets all the following conditions:

(i)    The contractual terms of the tranche being assessed for classification (without looking through to the underlying pool of financial instruments) gives rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(ii)    The underlying pool of financial instruments meet the SPPI criteria.

(iii)    The credit risk of the tranche is equal to or lower than the credit risk of the combined underlying pool of assets.

6.1.2. 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' as given in paragraph 6.1(a)(ii) of the RBI MASTER CIRCULAR.

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 (i.e., not held for any of the purposes listed in paragraph 4 of Annex I of the RBI MASTER CIRCULAR) under AFS.

(b)    AFS securities inter-alia includes 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.

6.1.3. FVTPL:

a) Securities that do not qualify for inclusion in HTM or AFS are classified under FVTPL, and 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.

(iii)    Investment in securitisation notes which represent the equity tranche of a securitisation transaction. Investments in senior and other subordinate tranches

would need to be reviewed for their compliance with SPPI criterion explained in clause 6.1(c) of the RBI MASTER CIRCULAR.

(iv)    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.

(v)    Securities referred to in sub-clause 6.1(b), subject to the exception for equity referred to in sub-clause (i) of the RBI MASTER CIRCULAR.

6.1.4.    HFT:

Bank create a separate sub-category called HFT within FVTPL.

6.1.5.    Investments in Subsidiaries, Associates and Joint Ventures

All investments in subsidiaries, associates and joint ventures are held sui generis i.e., in a distinct category for such investments separate from the other investment categories (viz. HTM, AFS and FVTPL).

6.2. Initial recognition

6.2.1.    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, it would be presumed that the acquisition cost is the fair value.

Situations where the presumption are tested include where:

a)    The transaction is between related parties.

b)    The transaction is taking place under duress where one party is forced to accept the price in the transaction.

c)    The transaction is done outside the principal market for that class of securities.

d)    Other situations, where in the opinion of the supervisor, facts and circumstances warrant testing of the presumption.

6.2.2.    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 the fair value for initial recognition purposes.

6.2.3.    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 sub-head 'Profit on revaluation of investments' or 'Loss on revaluation of investments', as the case may be.

6.2.4.    Any Day 1 loss arising from Level 3 investments is recognised immediately.

6.2.5.    Any Day 1 gains arising from Level 3 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.

6.3. Subsequent Measurement

6.3.1.    HTM

(a)    Securities held in HTM are carried at cost and will not be marked to market (MTM) after initial recognition. However, they are subject to Income recognition, Asset classification and Provisioning norms as specified in Chapter X of RBI MASTER CIRCULAR.

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

6.3.2.    AFS

(a)    The securities held in AFS are fair valued at least on a quarterly basis, if not more frequently. Any discount or premium on the acquisition of debt securities under AFS is amortised over the remaining life of the instrument. The amortised amount is shown 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 a reserve named AFS Reserve without routing through the Profit & Loss Account.

(c)    Securities under AFS would be subject to income recognition, asset classification and provisioning norms as specified in Chapter X of the RBI MASTER CIRCULAR.

(d)    The AFS-Reserve would be reckoned as Common Equity Tier (CET) 1 subject to clause 28 of the RBI MASTER CIRCULAR. The unrealised gains transferred to AFS-Reserve would not be available for any distribution such as dividend and coupon on Additional Tier 1.

(e)    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.

(f)    In the case of equity instruments designated under AFS at the time of initial recognition, any gain or loss on sale of such investments are 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.

6.3.3.FVTPL

(a)    The securities 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 HFT sub-category within FVTPL are fair valued on a daily basis, whereas other securities in FVTPL are fair valued at least on a quarterly, if not on a more frequent basis.

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

(c)    Securities under FVTPL are subject to income recognition, asset classification and provisioning norms as specified in Chapter X of the RBI MASTER CIRCULAR.

6.3.4.Investments in Subsidiaries, Associates and Joint

Ventures

(a)    All investments (i.e., including debt and equity) in subsidiaries, associates and joint ventures are held at acquisition cost, subject to the requirements of Chapter IV of the RBI MASTER CIRCULAR.

(b)    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. The amortised amount is shown in the Profit & loss account of the

financial statements under item II 'Income on Investments' of Schedule 13: 'Interest Earned'.

(c)    In case, where there is already an investment in an entity which is not a subsidiary, associate or joint venture and subsequently the investee entity becomes a subsidiary, associate or joint venture, the revised carrying value as at the date of such investee entity becoming a subsidiary, associate or joint venture is determined as under:

(i)    Where the investment is held under HTM, the carrying value less any permanent impairment is the revised carrying value.

(ii)    Where an investment is held under AFS, the cumulative gains and losses previously recognised in AFS-Reserve is reversed and adjusted to the carrying value of the investment along with any permanent diminution in the value of the investment to arrive at the revised carrying value.

(iii)    Where an investment is held in FVTPL, the fair value as on the date of the investee becoming a subsidiary, associate or joint venture is taken as the carrying value.

(d)    When an investee ceases to be a subsidiary, associate or joint venture, the investments are reclassified to the respective category as under:

(i)    Where the investment is reclassified into HTM, there is no change in the carrying value and consequently no accounting adjustment per se is required.

(ii)    Where the investment is reclassified into AFS or FVTPL, the fair value on the date of such reclassification is the revised carrying value. The difference between the revised and previous carrying value is transferred to AFS-Reserve and Profit and Loss account in case of reclassification into AFS and FVTPL respectively.

(e)    Any gain/profit arising on the reclassification/ sale of an investment in a subsidiary, associate or joint venture is first recognised in the Profit and Loss Account and then appropriated below the line from the Profit and Loss account to the 'Capital Reserve Account'. The amount so appropriated is net of taxes and the amount is transferred to Statutory Reserves.

(f)    Bank evaluate investments in subsidiaries, associates or joint ventures for impairment at least on a quarterly, if not more frequent basis. A non-exhaustive list of indicators of potential impairment is as under:

(i)    The entity has defaulted in repayment of its debt obligations.

(ii)    The loan amount of the entity with any bank has been restructured.

(iii)    The credit rating of the entity has been downgraded to below investment grade.

(iv)    The entity has incurred losses for a continuous period of three years and the net worth has consequently reduced by 25 per cent or more.

(v)    There is a significant decline in the fair value vis-a-vis the carrying value for a period of six months or more. For the purpose of this sub-clause the term significant would be interpreted as at least 20 per cent. Banks, with the approval of their Boards, may apply even more conservative thresholds.

(vi)    Any or all of the entity's outstanding securities have been delisted, are in the process of being delisted, or are under threat of being delisted from an exchange due to noncompliance with the listing requirements or for financial reasons.

In the case of a new entity/project where the originally projected date of achieving the breakeven point has been extended i.e., the entity/project has not achieved break-even within the gestation period as originally envisaged.

(g) When the need to determine whether impairment has occurred arises in respect of a subsidiary, associate or joint venture, the bank obtains a valuation of the investment by an independent registered valuer and make provision for the impairment, if any. Such diminution is provided by recognising it as an expense in the Profit and Loss account. It may be subsequently reversed through Profit and Loss Account, if there is a reversal of the diminution.

6.4. Reclassifications between categories

6.4.1.    After transition to this framework, bank is not reclassifying investments between categories (viz. HTM, AFS and FVTPL) without the approval of their Board of Directors. Further, reclassification also require the prior approval of the Department of Supervision (DoS), RBI.

6.4.2.    The reclassification should be applied prospectively from reclassification date.

6.4.3. When bank reclassifies investments from one category to another category, the accounting treatment is as given in the table below. The bank discloses the details of such reclassification including the reclassification adjustments in the notes to the financial statements:

6.5. Sale of investments

6.5.1. Gain/loss on sale of investments except AFS equity investments is recognised in the profit and loss account. The realised gain or loss on AFS equity investments is recognised in AFS reserve. Further, the profit from sale of HTM investments, investments in subsidiaries, joint ventures and associates and equity AFS investments, net of taxes and transfer to statutory reserve is transferred to "Capital Reserve" in accordance with the RBI Guidelines.

6.5.2. Any sales from HTM is as per the Board approved policy. Details of sales, out of HTM, is disclosed in the notes to accounts of the financial statements in the format specified in Annex II of Master directions of RBI dated 12^th September 2023.

6.5.3.In any financial year, the carrying value of investments sold out of HTM is not exceeds five per cent of the opening carrying value of the HTM portfolio. Any sale beyond this threshold, require prior approval from DoS, RBI.

6.5.4.Sales of securities in the situations given below is excluded from the regulatory limit of five per cent prescribed in clause 20 of the RBI master directions:

a)    Sales to the RBI under liquidity management operations of RBI such as the Open Market Operations (OMO) and Government Securities Acquisition Programme (GSAP).

b)    Repurchase of Government Securities by Government of India from banks under buyback or switch operations.

c)    Repurchase of State Development Loans by respective state governments under buyback or switch operations.

d)    Repurchase, buyback or exercise of call option of non-SLR securities by the issuer.

e)    Sale of non-SLR securities following a downgrade in credit ratings or default by the counterparty.

f)    Sale of securities as part of a resolution plan under the Prudential Framework for Resolution of Stressed Assets for a borrower facing financial distress.

g)    Additional sale of securities explicitly permitted by the Reserve Bank of India.

6.5.5.Any profit or loss on the sale of investments in HTM is recognised in the Profit and Loss Account under Item II of Schedule 14 'Other Income'. The profit on sale of investments in HTM is appropriated below the line from the Profit and Loss Account

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

6.5.6.Valuation of securities is arrived at as follows:

it is treated as due/unpaid in arrears and the date of balance sheet of the issuer for that particular year is reckoned as due date for the purpose of asset classification. Such an investment can be upgraded subsequently on payment of dividend for the current period in the case of non-cumulative preference shares and payment of dividend in arrears and for current period in the case of cumulative preferences shares.

(iii)    In the case of equity shares, in the event the investment in the shares of any company is valued at '1 per company on account of the non-availability of the latest balance sheet in accordance with clause 26.3 of the RBI MASTER CIRCULAR, those equity shares are reckoned as NPI. The NPI is upgraded subsequently on receipt of audited balance sheet.

(iv)    If any credit facility availed by the issuer is NPA in the books of the bank, investment in any of the securities, including preference shares issued by the same issuer is also treated as NPI and vice versa. However, this stipulation is not applicable in cases where only the preference shares are classified as NPI, and in such cases, the investment in any of the other performing securities issued by the same issuer need not be classified as NPI and any performing credit facilities granted to that borrower need not be treated as NPA.

(v)    In case of conversion of principal and/or interest into equity, debentures, bonds, etc., such instruments are classified in the same asset classification category as the loan and provision is made as per the norms. In case of post conversion, if the classification is standard or is subsequently upgraded to standard as per IRACP norms, the investment is categorised in HTM, AFS or FVTPL (including HFT) as per the requirements of Chapter III of the RBI MASTER CIRCULAR.

(b)    Once an investment is classified as an NPI, it is segregated from rest of the portfolio and is not considered for netting valuation gains and losses.

(c)    Bank is not accruing any income on NPIs. Income is recognised only on realisation basis Further, any MTM appreciation in the security is being ignored.

(d)    Irrespective of the category (i.e., HTM, AFS or FVTPL (including HFT)) in which the investment

has been placed, the expense for the provision for impairment is always recognised in the Profit and Loss Account. The provision held on an NPI is higher of the following amounts:

(i)    The amount of provision required as per IRACP norms computed on the carrying value of the investment immediately before it was classified as NPI; and

(ii)    The depreciation on the investment with reference to its carrying value on the date of classification as NPI.

In view of the above, no additional provision for depreciation is required over and above the provision for NPI as specified above.

Provided that, in the case of an investment categorised under AFS against which there are cumulative gains in AFS-Reserve, the provision required may be created by charging the same to AFS-Reserve to the extent of such available gains.

Provided further that in the case of an investment categorised under AFS against which there are cumulative losses in AFS-Reserve, the cumulative losses are transferred from AFS-Reserve to the Profit and Loss Account.

(e)    Upon an account being upgraded as per IRACP norms, any provision previously recognised is reversed and symmetric recognition of MTM gains and losses can resume.

(f)    Investments in Government securities and Government guaranteed investment:

(i)    Investments in Central Government Securities and State Government Securities is classified as NPI.

(ii)    Investments in Central Government guaranteed securities is not being classified as NPI until the Central Government has repudiated the guarantee when invoked. In respect of such securities held in AFS and FVTPL, bank continue to recognise MTM gains/losses in AFS-Reserve and Profit and Loss respectively. However, any income is recognised only on realisation basis.

(iii)    Investment in State Government guaranteed securities, attracts prudential norms for identification of NPI and provisioning, when interest/instalment of principal (including maturity proceeds) or any other amount due to the bank remains unpaid for more than 90 days.

6.7.    Investment Fluctuation Reserve

(a)    Bank creates an Investment Fluctuation Reserve (IFR) until the amount of IFR is at least two per cent of the AFS and FVTPL (including HFT) portfolio, on a continuing basis, by transferring to the IFR an amount not less than the lower of the following:

i.    Net profit on sale of investments during the year.

ii.    Net profit for the year, less mandatory appropriations.

(b)    IFR is eligible for inclusion in Tier II capital. The cap applicable on recognition of General Provisions and Loss Reserves as Tier II capital is not applicable on IFR.

(c)    Bank is permitted to draw down the balance available in IFR in excess of two percent of its AFS and FVTPL (including 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.

(d)    In the event the balance in the IFR is less than two percent of the AFS and FVTPL (including HFT) investment portfolio, a draw down is permitted subject to the following conditions:

i.    The drawn down amount is used only for meeting the minimum CET 1/Tier 1 capital requirements by way of appropriation to free reserves or reducing the balance of loss.

ii.    The amount drawn down should not be more than the extent the MTM provisions/ losses during the aforesaid year exceed the net profit on sale of investments during that year.

6.8.    Derivatives

6.8.1. Bank complies with the requirements of the Guidance Note on Accounting for Derivative Contracts (revised 2021) issued by the Institute of Chartered Accountants of India except for paragraph 63 of the said Guidance Note. It presents their derivative asset and liabilities as separate line items under Schedule 11:'Other Assets' and Schedule 5:'Other Liabilities' respectively. Bank may make adjustments to the carrying value of their investments in compliance with the hedge accounting requirements of the said Guidance Note.

6.8.2. Bank categorize their derivatives portfolio into three fair value hierarchies viz. Level 1, Level 2, and Level 3 as defined in Clause 4 of the RBI MASTER CIRCULAR and disclose the same in the notes to accounts of

their financial statements as per template specified in disclosure template.

6.8.3. Bank does not pay dividends out of net unrealised gains recognised in the Profit and Loss Account arising on fair valuation of Level 3 derivatives assets and liabilities on their Balance Sheet. Further, such net unrealised gains on Level 3 derivatives recognised in the Profit and Loss Account is deducted from CET 1 capital.

6.9. Transition Accounting Adjustments:

6.9.1. At the time of transition to RBI directions (i.e., on April 1, 2024 Revised Framework), bank reclassified the investment portfolio as at March 31, 2024, as per the directions laid down in Chapter III of RBI Directions. The balance in provision for depreciation, as at March 31, 2024, has been reversed into the Revenue/General Reserve. The balances in Investment Reserve Account (IRA), as of March 31, 2024, has been transferred to the Revenue/General Reserve since the bank met the minimum regulatory requirements of IFR. The specific treatment for transition from the previous year to the revised framework is given in the table below:

6.10. Bank made suitable disclosures of the transitional adjustment made, in their notes to the financial statements for the financial year ending March 31, 2025.

7. Advances

7.1.    All advances are classified under four categories:

7.1.1 .Standard,

7.1.2.Sub-standard,

7.1.3. Doubtful and

7.1.4. Loss assets.

Provisions required on such advances are made as per the extant prudential norms issued by the RBI in terms of Master Circular RBI/2024-2025/12 DOR. STR.REC.8/21.04.048/2024-25 dated April 02, 2024 as under:

7.2.    Loans and Advances are classified as performing and non-performing, based on the guidelines issued by the RBI. Loan Assets become Non-Performing Assets (NPAs) where:

7.2.1.In respect of term loans, interest and/or instalment of principal remains overdue for a period of more than 90 days;

7.2.2.In respect of Overdraft or Cash Credit advances, the account remains "out of order", i.e.

7.2.2.1.    The outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days.

7.2.2.2.    The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or

7.2.2.3.    The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period.

7.2.3.    In respect of bills purchased/discounted, the bill remains overdue for a period of more than 90 days;

7.2.4.    In respect of agricultural advances for short duration crops, where the instalment of principal or interest remains overdue for two crop seasons.

7.2.5.In respect of agricultural advances for long duration crops, where the principal or interest remains overdue for one crop season.

7.2.6.A working capital borrower account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working, or the borrower's financial position is satisfactory.

7.2.7. An account where the regular/ad hoc credit limits have not been reviewed/renewed within 180 days from the due date/date of ad hoc sanction will be treated as NPA.

7.2.8. The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of the Reserve Bank of India (Securitization of Standard Assets) Directions, 2021

7.2.9.In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

7.2.10. Accounts where there is erosion in the value of security/frauds committed by borrowers

7.2.10.1.    In respect of accounts where there are potential threats for recovery on account of erosion in the value of security or non-availability of security and existence of other factors such as frauds committed by borrowers it will not be prudent that such accounts should go through various stages of asset classification. In cases of such serious credit impairment, the asset should be straightaway classified as doubtful or loss asset as appropriate.

7.2.10.2.    Erosion in the value of security can be reckoned as significant when the realizable value of the security is less than 50 per cent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straightaway classified under doubtful category.

7.2.10.3.    If the realizable value of the security, as assessed by the bank/approved valuers/RBI is less than 10 per cent of the outstanding in the borrowal accounts, the existence of security should be ignored, and the asset should be straightaway classified as loss asset.

7.2.11 In respect of MSME accounts which will be restructured in terms of RBI Circular No    DOR.No.BP.BC.34/21.04.048/2019-20

February 11,2020 with reference to Circular No DBR. No.BP.BC.18/21.04.048/2018-19 dated 1^st January, 2019 and kept in standard category, the Bank shall maintain a provision of 5% in addition to the provision already held. Reversal of said provision shall be made in accordance with the said circular.

7.2.12. In terms of RBI guidelines relating to 'Covid 19 Regulatory Package' on Asset Classification and Provisioning RBI has issued circular no.DOR.No.BP. BC/3/21.04.048/2020-21 & circular no. DOR.No.BP. BC/4/21.04.048/2020-21 dated 06^th August, 2020, DoR.STR.REC.12/21.04.048/2021-22    & DoR.STR.

REC.11/21.04.048/2021-22 dated May 05^th, 2021

with reference to restructuring of Corporate & Retail Loan, Bank shall maintain necessary provision in this regard.

7.3. NPAs are classified into Sub-Standard, Doubtful and Loss Assets, based on the following criteria stipulated by RBI:

7.3.1.    Sub-standard: A loan asset that has remained nonperforming for a period less than or equal to 12 months,

7.3.2.    Doubtful: A loan asset that has remained in the sub-standard category for a period exceeding 12 months,

7.3.3.    Loss: A loan asset where loss has been identified but the amount has not been fully written off.

7.4. Provisions are made for NPAs as per the extant guidelines prescribed by the regulatory authorities, subject to minimum provisions as prescribed below:

7.5.    Additional Provisions:

After the COVID-19 Pandemic Impact and emerging economic scenario, the bank provides additional provisions against certain specific assets/portfolio of assets (Performing/Non-performing) on prudence basis, above the minimum stipulated as per the Regulatory Norms or as Bank May deem fit and will be reviewed on every quarter basis.

7.6.    Advances are stated net of specific loan loss provisions, Counter cyclical provisioning buffer and unrecovered interest held in Sundry/claims received from Credit Guarantee Trust Fund (CGTF)/Export

Credit Guarantee Corporation (ECGC) relating to non-performing assets.

7.7.    In respect of foreign offices, classification of loans and advances and provisions for NPAs are made as per the local regulations or as per the norms of RBI, whichever is more stringent.

7.8.    For restructured/rescheduled assets, provisions are made in accordance with the guidelines issued by the RBI, which require that the difference between the fair value of the loan before and after restructuring is provided for, in addition to provision for NPAs.

7.9.    In the case of loan accounts classified as NPAs, an account may be reclassified as a performing asset if it conforms to the guidelines prescribed by the regulators.

7.10.    Amounts recovered against debts written off are recognized as revenue in the year of recovery.

7.11.    The general provision on Standard Advances is held in "Other Liabilities and Provisions" reflected in schedule 5 of the Balance Sheet and is not considered for arriving at both net NPAs and net advances. Standard Assets provision to be made as per IRAC RBI/2024-2025/12 DOR.STR.REC.8/21.04.048/2024-25 dated April 02, 2024 and any subsequent circular issued from time to time.

7.12.    Provision on Suspense accounts entries outstanding for more than six months are made at 100% except the claim receivable from Govt./Govt. Bodies like Interest Subsidy on crop loan/export advance, Pension receivable etc.

8. Property, Plant and Equipment

8.1.    Premises and Other Fixed Assets are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises of purchase price, eligible borrowing costs and directly attributable costs of bringing the Asset to its working condition for the intended use less trade discounts and rebates. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefits from such assets or their functional capability. Land and Buildings, if revalued are stated at revalued amount. The appreciation on revaluation is credited to Revaluation Reserve and the depreciation provided thereon is deducted there from and shall be credited to Revenue Reserves in terms of revised AS-10 on "Property, Plant and Equipment".

8.2.    Depreciation on Fixed Assets is provided for on the Straight-Line Method at the rates prescribed in Expenditure Policy of the Bank from time to time. The applicable rates of depreciation are as under:

8.4. Depreciation on Leased assets and Leasehold improvements is recognized on a straight-line basis using rates determined with reference to the primary period of lease.

9.    Impairment of Assets

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognized in accordance with AS-28 on "Impairment of Assets" issued by the ICAI and charged off to Profit and Loss Account. The carrying costs of assets are reviewed at each Balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying cost of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying cost of the asset over its remaining useful life. A previously recognized impairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

10.    Counter Cyclical Provisioning Buffer

The Bank has a policy of creation and utilization of Counter Cyclical Provisioning Buffer separately for Advances and Investments. The quantum of provision to be created is assessed during the year. The counter Cyclical Provisions are utilized only for contingencies under extra ordinary circumstances specified in the policy with prior permission of the RBI.

11.    Transactions involving Foreign Exchange

Accounting for transactions involving foreign exchange is done in accordance with AS-11 on "The Effects of Changes in Foreign Exchange Rates", issued by the ICAI. In terms of AS-11, the foreign currency operations of the Bank are classified as a) Integral Operations and b) Non-Integral Operations.

All overseas branches, offshore banking units, overseas subsidiaries are treated as non-integral operations and domestic operations in foreign exchange and representative offices are treated as integral operations.

A. Accounting for Integral operations:

> Monetary and Non- Monetary Assets and Liabilities are revalued at the exchange rates notified by FEDAI at the close of the year and resultant gain/loss is recognized in the Profit & Loss Account.

>    Income & Expenditure items are recognized at the exchange rates prevailing on the date of the transaction.

>    Forward exchange contracts are recorded at the exchange rate prevailing on the date of commitment. Outstanding forward exchange contracts are revalued at the exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of 'in-between' maturities. The resultant gains or losses are recognized in the Profit & Loss account.

>    Contingent liabilities on account of guarantees, acceptances, endorsements and other obligations are stated at the exchange rates notified by FEDAI at the close of the year.

B. Accounting for Non-Integral operations

>    Revenue Recognition:

Income and Expenditure are recognized/ accounted for as per the local laws of the respective countries.

>    Asset Classification and Loan Loss Provisioning:

Asset classification and loan loss provisioning are made as per the local laws of the respective countries or as per RBI guidelines whichever is higher.

>    Fixed Assets and Depreciation:

Fixed Assets are accounted for at historical cost.

Depreciation on Fixed Assets is provided as per the applicable laws of the respective countries.

>    Assets and Liabilities (monetary and nonmonetary as well as Contingent Liabilities) are translated at the closing rates notified by FEDAI at the close of the year.

>    Income & Expenditure are translated at the quarterly average closing rates notified by FEDAI at the end of respective quarters.

>    All resulting exchange differences are accumulated in 'Foreign Currency Translation Reserve'.

12. Employee Benefits:

12.1. Short Term Employment Benefits:

The undiscounted amounts of short-term employee benefits (e.g. medical benefits) payable wholly within twelve months of rendering the services are treated as short term and recognized during the period in which the employee rendered the service.

The Short-term employee benefits in the nature of Performance based Rewards are recognized as expenses in the year of award.

12.2. Long term Employee Benefits:

12.2.1.    Defined Contribution Plans:

The Bank operates a new pension scheme (NPS) for all officers/employees joining the Bank on or after 1^st April,2010, which is a defined contribution plan, such new joinees not being entitled to become members of the existing Pension Scheme. As per the scheme, the covered employees contribute 10% of their basic pay plus dearness allowance to the scheme together with 14% contribution from the Bank. Pending completion of registration procedures of the employees concerned, these contributions retained with the Bank. The Bank recognizes such annual contributions in the year to which they relate. Upon receipt of the Permanent Retirement Account Number (PRAN), the consolidated contribution amounts are transferred to the NPS trust.

12.2.2.    Defined Benefit Plan:

Gratuity, Pension and Leave Encashment are defined benefits plans. These are provided for on the basis of an actuarial valuation as per Accounting Standard-15 "Employee Benefit" issued by the Institute of Chartered Accountants of India, made at the end of each financial year, based on the projected unit credit method. Actuarial gains/losses are immediately taken to the Profit & Loss account.

13.    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 the compliances with the Accounting Standard-17 "Segment Reporting" issued by the Institute of Chartered Accountants of India. Business segments are classified into

13.1.    Treasury Operations,

13.2.    Corporate and Wholesale Banking,

13.3.    Retail Banking Operations and (w/w Digital Banking Segment)

13.4.    Other Banking Operations.

14.    Lease Transactions

Lease payments for Assets taken on operating lease recognized as an expense in the profit and loss account on a straight-line basis over the lease term.

15.    Earnings per Share

The Bank reports the basic and diluted Earnings per Share in accordance with AS 20. Earnings per Share is calculated by dividing the net Profit or Loss (after tax) for the year attributable to the Equity shareholders by the weighted average number of Equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue Equity shares were exercised or converted during the year. Diluted earnings per Equity share is calculated by using the weighted average number of Equity shares and dilutive potential Equity shares outstanding as at the year-end.

16.    Taxation:

This comprises of provision for Income tax and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the period) as determined in accordance with AS-22 on "Accounting for taxes on Income" issued by the ICAI. Provision for Tax is made for both current and deferred taxes. Current tax is provided on the taxable income using applicable tax rate. Deferred Tax Assets and Deferred Tax Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognized using the tax rates and the tax laws that have been enacted or substantively enacted till the date of the Balance Sheet. Deferred Tax Assets are not recognized unless there is 'reasonable certainty' that sufficient future taxable income will be available against which such Deferred Tax Assets will be realized. In case of carry forward of unabsorbed depreciation and tax losses, Deferred Tax Assets are recognized only if there is "virtual certainty".

17.    Provisions, Contingent Liabilities and Contingent Assets

In accordance with AS-29, "Provisions, Contingent Liabilities and Contingent Assets", the Bank recognizes provisions 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 when 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.

A disclosure of contingent liability is made when there is;

•    a possible obligation arising from a past event, the existence of which will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Bank; or

•    a present obligation arising from a past event which is not recognised as it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Contingent assets, if any, are not recognized in the financial statements since this may result in the recognition of income that may never be realized.

18.    Share Issue Expenses:

Share Issue expenses are charged to the Share Premium account in terms of Section 52 of the Companies Act, 2013.

19.    Debit and Credit Card Rewards Points:

The Bank is having a system of accrual and redemption of reward points on debit and credit card. The Bank estimates the probable redemption of debit and credit card reward points and cost per point using an actuarial method and provide for the liabilities on the outstanding reward points.