SCHEDULE - 17

 SIGNIFICANT ACCOUNTING POLICIES

 

1.         GENERAL

The Financial Statements are prepared under the historical cost convention. They confirm to Generally Accepted Accounting Principles (GAAP) in India, which comprises the statutory provisions, regulatory/Reserve Bank of India (RBI) guidelines, Accounting Standards / guidance notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in Banking Industry in India.

 

2.         TRANSACTIONS INVOLVING FOREIGN EXCHANGE

(a)        Monetary assets and liabilities are translated at the closing spot rate of exchange as at the year end announced by FEDAI except unclaimed balances in Nostro Accounts which are valued at prevailing rates on the date of transfer to unclaimed balance account. The effect of revaluation of Forex Assets & Liabilities is taken to Revenue.

(b)        Income and expenditure items have been converted at the exchange rates prevailing on the date of transaction. 

(c)        Forward exchange contracts outstanding on the Balance Sheet date are revalued at the year end exchange rates for appropriate maturity rates as announced by FEDAI and the resultant gain / loss is taken to revenue.

(d)       Forward exchange Contracts / Swaps / Usance Bills discounted are all maintained within the prescribed Gap limits (both AGL and IGL) as per RBI Internal Control guidelines.

3.         INVESTMENTS

(a)        Investments are classified and shown in Balance Sheet under the following six groups:

i)                    Government Securities

ii)                  Other Approved Securities

iii)                Shares

iv)                Debentures and Bonds

v)                  Subsidiaries and / or joint ventures

vi)                Other (Commercial papers, units etc.)

(b)       Investment portfolio of the Bank is classified into "Held to Maturity", "Available for Sale" and "Held for Trading" categories in accordance with the RBI guidelines.

(c)        Investments acquired with the intention to hold them up to maturity are classified as “Held to Maturity" and are carried at acquisition cost. In case the acquisition cost is more than the face value, the premium is amortized over the residual maturity period by following the “Constant Yield Method” and carried at net of amortization.

(d)       Investments acquired with the intention to trade for taking advantage of short - term price/interest rate changes are classified as "Held for Trading" and are marked to market at monthly intervals as per RBI guidelines, without changing the book value of the security.

(e)    "Available for Sale" category comprises of investments which do not fall in either of the above two categories and are marked to market as per RBI guidelines. Each security in this category is marked to market at quarterly intervals without changing the book value of the security.

(f)     In case of investments under "Held for Trading" and "Available for Sale", while marking to market on individual security basis, depreciation / appreciation is aggregated classification wise and the net depreciation under each classification is provided for and the net appreciation, if any, is ignored. Market price is taken as available from the trade / quotes on the stock exchange, price declared by Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market And Derivatives Association Of India (FIMMDA). In case market quotations are not available, market value for this purpose is arrived at on the basis of realizable market              price computed as per guidelines of FIMMDA/PDAI/RBI. Commercial Papers, Certificates of Deposit and investment in RRB are carried at cost.

(g)   Shifting of scrips from one category to another is done at the least of the acquisition cost / book value / market value on the date of transfer and the depreciation, if any, on such transfer is fully provided for. In case of shifting of scrips to “Held to Maturity”, the investments are shown net of such depreciation.

(h)    Brokerage paid and broken period interest paid/received at the time of acquisition/sale is treated as revenue. Incentive/commission received is deducted from the cost of the security.

(i)    In case of Profit on sale of investments under "Held to Maturity" category, an equivalent amount is appropriated to the Capital Reserve Account (net of taxes).

(j)    Weighted Average Cost Method has been adopted for ascertaining profit/loss on sale of Investments.

(k)   Non – Performing investments are identified and provision made thereon as per RBI guidelines.

(l)    Repurchase & reverse repurchase transactions are accounted for in accordance with the extant RBI guidelines.

4.         ADVANCES

(a)        The Bank follows prudential norms formulated by RBI for classifying the assets as Standard, Sub-Standard, Doubtful & Loss Assets.

(b)        Provisions for advances classified as Standard, Sub-standard, Doubtful and Loss assets are made as per IRAC norms as advised by Reserve Bank of India from time to time.

c)         Advances are shown net of provisions for NPAs as per RBI guidelines. Provision for advances classified as Standard Assets is shown under “Other Liabilities and Provisions” in Schedule 5 of the Balance Sheet.

(d)       The bank is derecognizing the interest on fresh NPAs identified during the year by crediting to ‘Interest Not Collected Account (INCA)’. Partial recoveries in respect of NPA accounts are being appropriated first towards interest and balance, if any, to principal.

 

5.         FIXED ASSETS & DEPRECIATION

 

(a)        Depreciation on all assets, except computers, is provided for on diminishing balance method at the rates given below.

            Head                                                                                              Rate

A.           Furniture & Fixtures                                                                    10%

B.            Typewriters                                                                                  15%

C.           Electric Installations

a.    Photocopying Machines, Fax Machines, Note Counting

Machines, Ultra Violet Checkers, Detectrographs,

Air Conditioners, Mobile phone hand sets,

Electric Note Blending Machines                                                15%

                           b.   Electric Fittings including electrical wiring, switches,

sockets, other fittings, fans, coolers,   etc.                                                  10%

D.           Vehicles                                                                                          15%

                E.             Machinery & Plant, centrally air-conditioning system                  15%

               F.             Premises

a.     Office Premises                                                                               10%

b.     Residential Buildings                                                                      5%

(b)        Depreciation on computers / ATM is provided for at 33.33% on straight-line method. The cost of software acquired is capitalized under computers. However, the depreciation on the software, which does not constitute the integral part of the hardware, has been made at the rate of 60% and balance in next year.

(c)        Depreciation on additions to assets made up to 30^th September of the year is provided for at full rates and on additions thereafter at 50% of the rates. However in case of computers/ATMs, depreciation @33.33% on Straight Line Method has been provided for the full year irrespective of date of purchase. No depreciation is provided on assets sold/discarded.

(d)       In respect of leasehold premises, the lease amount is amortized over the period of         lease.

 

(6)        EMPLOYEE BENEFITS

           

The bank has adopted AS-15 (Revised) “Employee Benefits,” issued by Institute of Chartered Accountants of India, effective from 01.04.2007. Accordingly, necessary amount for employee benefits along with the transitional liability, based on actuarial valuation was provided during March 2008.

Annual contribution to Gratuity Fund, Pension Fund, Leave and other Employee benefits are provided for on the basis of actuarial valuation at the year end.

  

7.         REVENUE RECOGNITION

Income/Expenditure is accounted for on accrual basis, except in the following cases:

(a)  Non-Performing assets where income is recognized on realization as per prudential norms prescribed by RBI.

(b)  Insurance claims & Locker rent.

(c).Dividend income on Mutual Funds is accounted for on receipt basis.

(d) Income on cross selling products.

 

8.         NET PROFIT

The net profit disclosed in the Profit and Loss Account is arrived at after making -

(i)         Provision for Taxes including Fringe Benefit Tax.

(ii)        Provisions for Non Performing Assets/Standard Advances as per RBI guidelines.

(iii)       Adjustment in the value of investments.

(iv)       Other usual and necessary provisions.

            (v)        Provision in respect of restructured accounts under CDR and other-wise.

 

9.         INCOME TAX

            Provision for tax comprises of current tax for the period determined in accordance with the relevant laws, fringe benefit tax and deferred tax charge or credit reflecting the tax effect of timing difference between accounting income and taxable income for the period, in conformity with the AS-22 : Accounting for Taxes on Income issued by the ICAI. The deferred tax debit or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are not recognized unless there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realized.

 

10.       IMPAIRMENT OF ASSETS

            Impairment Losses (if any), are recognized in accordance with Accounting Standard-28 issued by ICAI and charged off to Profit & Loss account.