SCHEDULE-17

SIGNIFICANT ACCOUNTING POLICIES

1. GENERAL
BASIS OF PREPARATION
The financial statements have been prepared and presented under historical cost
convention on accrual basis of accounting unless otherwise stated and comply with
Generally accepted accounting principles, statutory requirements prescribed under
Banking Regulation Act, 1949, circulars and guidelines issued by Reserve Bank of
India from time to time and notified accounting standards by companies (Accounting
Standards) Rules, 2006 to the extent applicable and current practices in Banking
Industry in India.
2.

Foreign Exchange Transactions

2.1

All the Monetary assets and liabilities in foreign currencies are translated in Indian
rupees at the exchange rates prevailing at the Balance Sheet date as notified by
Foreign Exchange Dealers Association of India (FEDAI). The resultant gain / loss is
accounted for in the Profit & Loss account.

2.2

The outstanding foreign exchange contracts are stated at the prevailing exchange
rate on the date of commitment. Profit or loss on such contracts is accounted for as per
rates advised by FEDAI and in accordance with FEDAI guidelines and provisions of
para 38 of AS-11.

2.3

Items of Income and expenditure relating to foreign exchange transactions are recorded
at exchange rates prevailing on the date of the transactions.

2.4

Contingent liabilities on account of acceptances, endorsements and other obligations

including guarantees & letter of credits in foreign currencies are valued as per rates
published by FEDAI except Bills for Collection which are accounted for at the notional
rates at the time of lodgment.

3.

Investments

3.1

Classification and valuation of investments are made in accordance with the prudential
norms prescribed by Reserve Bank of India read with clarifications / directions given by
RBI.

3.2

The entire investment portfolio is classified into three categories, viz, Held to Maturity,
Available for Sale and Held for Trading in line with the guidelines / directions of Reserve
Bank of India. Disclosure of the investments under the three categories mentioned
above is made under six classifications viz.,
i.
Government Securities
ii.
Other approved securities
iii.
Shares
iv.
Debentures
v.
Subsidiaries / Joint Ventures and
vi.
Others

3.3

Basis Of Classification:
i.

Investments that the Bank intends to hold till maturity are classified as Held to
Maturity.

ii. Investments that are held principally for resale within 90 Days from the date of
purchase are classified as Held for Trading.
iii. Investments which are not classified in the above two categories, are classified as
Available for Sale.
iv. An investment is classified under the above three categories at the time of its
purchase. Shifting of securities from one category to another is done with the
approval of the Board normally once in a year. Shifting is effected at the lower of
acquisition cost / book value / market value on the date of transfer and the
depreciation, if any, on such shifting is fully provided for and the book value of
securities is changed accordingly.
3.4

Securities under Held to Maturity are stated at acquisition costs unless such costs are
higher than the face value, in which case the premium is amortized over the remaining
period of maturity. Such amortization is shown under Income on Investments
Schedule 13 item II. In case, the cost is less than the redemption value, the difference
being the unrealized gain, is ignored. Any diminution in value of investments in
subsidiaries and joint venture, other than temporary in nature, is provided for each
investment individually

3.5

Securities under Available for sale are valued scrip wise and depreciation/ appreciation
is segregated category wise. While net appreciation is ignored, net depreciation under
each category is provided for.

3.6

Securities under 'Held for Trading' are valued at market price and the net depreciation
under each category is provided for and the net appreciation, if any, is ignored.

3.7

Cost of investment is based on the weighted average cost method category wise.

3.8

The 'market value' for the purpose of valuation of investments included in the 'Available
for Sale' and 'Held for Trading' categories is the market price of the scrip as available
from the trades/quotes on the stock exchanges, price list of RBI, prices declared by
Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market
and Derivatives Association of India (FIMMDA).

In respect of unquoted securities, the procedure adopted is as below:

3.9

a.

Government of India Securities:

At rates put out by FIMMDA/PDAI

b.

State Government Loans, Other

approved Securities, Preference
Shares, Debentures and PSU
Bonds:

On yield to maturity (YTM) basis at the

rate prescribed by FIMMDA/ PDAI with
such mark ups as laid down by RBI or
FIMMDA/PDAI

c.

Equity Shares:

At break-up value based on the latest

Balance Sheet, which are not older than
one year on the date of valuation. In
cases where latest Balance Sheets are
not available, the shares are valued at
Re.1 per company

d.

Mutual Fund Units:

At re-purchase price or Net Assets

Value

e.

Treasury
Bills,
Commercial
Papers, Certificate of Deposits,
Recapitalization
Bonds,
Subsidiaries, Joint Ventures and
Sponsored Institutions:

At carrying cost.

In determining acquisition cost of investments:

a. Incentive received on subscription is deducted from the cost of securities;
b. Brokerage / commission/ stamp duty paid in connection with acquisition of
securities are treated as revenue expenditure;
c. Broken period interest, if any, paid on acquisition of investment is debited to
profit & loss account. Broken period interest received on sale of securities is
recognized as Interest Income.

3.10 Profit/ Loss on sale of investments is taken to profit and loss account. However, in case
of profit on sale of investments in 'Held to Maturity' category, an equivalent amount of
profit is appropriated to Capital Reserve.
3.11 Non Performing Investments
In respect of Non-Performing Securities, income is not recognized and appropriate
provision is made for depreciation in the value of such securities as per Reserve Bank of
India guidelines.
4.

Advances

4.1 Advances are classified into Performing and Non-Performing assets and provisions are
made as per the prudential norms prescribed by the Reserve Bank of India. However, the
Bank has made higher provisions for sub-standard and doubtful category as follows:

Revised Rates of Provisioning for Non-Performing Assets w.e.f 18.05.2011 are as under:
Category of
Assets

Provisions
prescribed by
RBI
(EXISTING)

Provisions
prescribed by
RBI

Banks Provisions
norms

Banks Provision
norms

(EXISTING)

(REVISED)

(REVISED )

20% on Secured
10% on Secured 15% on Secured 20% on Secured
Exposure.
Exposure.
Exposure.
Exposure.
25% on
20% on
25% on Unsecured
20% on
Unsecured
Unsecured
Unsecured
Exposure*
20% on Unsecured
Exposure*
Exposure*
Exposure*
20% on
Exposure* in
15% on
20% on
Unsecured
respect of
Unsecured
Unsecured
Exposure* in
Exposure* in
Infrastructure loan
Exposure* in
respect of
respect of
respect of
accounts where
Infrastructure
certain safeguards
Infrastructure
Infrastructure
loan accounts
loan accounts
such as escrow
loan accounts
where certain
where certain
a/cs are available
where certain
safeguards such safeguards such
safeguards such
as escrow a/cs
as escrow a/cs
as escrow a/cs
are available
are available
are available
Doubtful-I
20% on
25% on Secured 30% on Secured
30% on Secured
Secured
100% on
100% on
100% on
100% on
Unsecured
Unsecured
Unsecured
Unsecured
Doubtful-II
30% on
40% on Secured 50% on Secured
50% on Secured
Secured
100% on
100% on
100% on
100% on
Unsecured
Unsecured
Unsecured
Unsecured
Doubtful-III
100% on
100% on
100% on Secured 100% on Secured
Secured
Secured
100% on
100% on
100% on
100% on
Unsecured
Unsecured
Unsecured
Unsecured
*/ Unsecured exposure is defined as an exposure where the realizable value of the security, as
assessed by the bank/ approved valuers/ Reserve Banks Inspecting Officers, is not more than
10 per cent, ab-initio, of the outstanding exposure.
Sub-Standard

The revised provisioning norms will have prospective effect on the fresh slippage (i.e. accounts
which slip into NPA category on or after 01.01.2011) and further deterioration in the existing
NPAs. However, the provisions already made in any existing NPA account as on 31.12.2010
will not be reduced/ reversed.
4.2 Advances are stated net of de-recognized interest and provisions/ Technical write off made
in respect of non-performing advances. Claims received from DICGC/ CGTMSE/ ECGC are
not reduced from such advances till adjusted/ technically written-off whereas part recovery in
all NPA accounts is reduced from advances.
4.3 Provisions on standard advances are made and are included under Other Liabilities and
Provisions as per RBIs guidelines.

4.4 For restructured/ rescheduled advances, provisions are made in accordance with the
guidelines issued by RBI
5

Floating Provisions
In accordance with the RBI guidelines, the bank has an approved policy for creation and
utilization of floating provisions separately for advances and investments. The quantum
of floating provisions to be created would be assessed, at, the end of each financial year.
The floating provisions would be utilized only for contingencies under extra ordinary
circumstances specified in the policy with prior permission of Reserve Bank of India.

Fixed Assets

6.1

Premises and other Fixed Assets are stated at historical cost/revalued amount. In
respect of premises, where segregation is not possible between land and
superstructure, are considered in the value of superstructure.

6.2

Premises taken on perpetual lease are considered as freehold premises and are not
amortized.

Depreciation on Fixed Assets

7.1

Depreciation is provided for on -

7.1.1 Computers at 33.33%, on straight-line method; additions are depreciated for the full year
irrespective of the date of addition as per RBI guidelines.
7.1.2 Other Fixed assets on written down value method at the rates prescribed by the Income
Tax Act 1961; additions effected before 30th September are depreciated for full year
and additions effected thereafter are depreciated for half year.
7.1.3 Cost of premises is taken composite, wherever it is not possible to segregate the cost of
land from the cost of the superstructure.
7.2

No depreciation is provided on assets sold/disposed of during the year.

7.3

Amount equivalent to depreciation attributable to revalued portion of the assets is

transferred from Revaluation Reserve Account to the Profit & Loss Account.

Revenue Recognition

8.1

Income and expenditure are accounted for on accrual basis unless otherwise stated.

8.2

Income on non-performing assets is recognized on realization basis in accordance with

the prudential norms prescribed by Reserve Bank of India.

8.3

Partial recovery in non-performing assets is appropriated first towards principal and

thereafter towards interest.

8.4

Income on guarantees and letters of credit issued, locker rent, income from merchant
banking transactions, money transfer services, dividend on shares, Interest on refund of
income tax, commission on credit card, interest on overdue bills, processing fee,
Government business including distribution of pension and income from units of mutual
fund products and income from ATM operations are accounted for on receipt basis.

8.5

Rebate on compromised accounts is accounted for at the time of full and final
adjustment of the account.

8.6

Interest on overdue Term Deposits is provided at the rate of interest applicable to

Savings Bank Deposits.

8.7

Liability in respect of incremental lease rent on renewal of lease agreement is accounted

for at the time of renewal of the lease.

8.8

Bond Issue Expenses incurred in connection with raising Tier-II Capital are treated as
Deferred Revenue Expenditure to be written off over a period of five years.

8.9

Share Issue Expenses are adjusted against the Share Premium Account

Staff Retirement Benefits

9.1

Annual contribution to Gratuity Fund, Pension Fund and Leave Encashment Fund are
provided for on the basis of an actuarial valuation.

9.2

Transitional liability relating to Pension Fund and Sick Leave determined as per actuarial
valuation is written off over a period of five years commencing from 2007-08 in terms of
Revised Accounting Standard 15 (AS-15) as against remaining seven years out of ten
years as approved by Reserve Bank of India vide its letter no. DBOD.BP.No.
271/21.01.002/2005-06 dated 23.08.2005.

9.3

The additional liability on account of re-opening of pension option for existing employees
who had not opted for pension earlier as well as amendment in the Payment of Gratuity
Act, 1972 enhancing the gratuity limit to Rs.10 lacs as per Actuarial Valuation is
amortized over a period of five years commencing from the FY 2010-11 in terms of RBI
Circular DBOD No.BP.BC.80/ 21.04.018/2010-11 dated February 9, 2011. The
unamortized expenditure carried forward does not include any amount relating to
separated/ retired employees.

9.4

The Employees joining on or after 01.04.2010 are being covered under the New Pension
Scheme.

10

Taxes on Income

10.1 Current Income Tax is measured at the amount expected to be paid considering the
applicable tax rates and favorable judicial pronouncement/ legal opinions.
10.2 In accordance with AS-22 Deferred Tax comprising of tax effect of timing differences
between taxable and accounting income for the period, is recognized keeping in view
the consideration of prudence in respect of Deferred Tax Assets/Liabilities.