SCHEDULE - 1 SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH, 2016 Background The South Indian Bank Limited (‘SIB’ or the ‘Bank’) was incorporated on January 29, 1929 at Thrissur as a private limited company and was later converted into a public limited company on August 11, 1939. SIB has a network of 858 branches/ offices in India and provides retail and corporate banking, Para banking activities such as debit card, third party product distribution, in addition to Treasury and Foreign Exchange Business. SIB is governed by Banking Regulation Act, 1949 and other applicable Acts / Regulations. Its shares are listed in BSE Limited and National Stock Exchange of India Limited. Basis of Preparation The financial statements have been brpared in accordance with requirements brscribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the bank used in the brparation of these financial statements conform to Generally Accepted Accounting Principles in India (“Indian GAAP”), the circulars and guidelines issued by the Reserve Bank of India ('RBI') from time to time and the Accounting Standards brscribed under Section 133 of the Companies Act, 2013 to the extent applicable and the relevant provisions of the Companies Act, 2013 (“the Act”) and current practices brvailing within the banking industry in India. The Bank follows the historical cost convention and accrual method of accounting in the brparation of the financial statements, except where otherwise stated. The accounting policies adopted in the brparation of financial statements are consistent with those followed in the brvious year. The Ministry of Corporate affairs (MCA) has notified the Companies (Accounting Standards) Amendment Rules, 2016 vide its notification dated March 30, 2016. As per Clarification issued by Institute of Chartered Accountants of India dated 26th April, 2016, the said notification is applicable to accounting periods commencing on or after the date of notification i.e. 1st April, 2016. Hence the said notification has not been considered in the brparation of the financial statements. Use of estimates The brparation of the financial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods. Significant Accounting Policies 1. Revenue recognition a) Interest / discount income from loans, advances and investments (including deposits placed with banks and other institutions) are recognized on accrual basis, except in respect of income relating to advances/ investments, classified as non-performing advances/ investments where in accordance with RBI guidelines the income is recognized only on realization. b) Dividend on investments in shares and units of mutual funds are accounted when the bank’s right to receive the dividend is established. c) Income on discounted instruments is recognised over the tenure of the instrument on a straight line basis. d) Insurance claims and locker rent are accounted on receipt basis. e) Commission income on issuance of bank guarantee / letter of credit is recognized over the period of the guarantee/letter of credit. f) Processing fee/upfront fee, handling charges or income of similar nature collected at the time of sanctioning or renewal of loan/ facility is recognized at the inception/ renewal of loan. g) Other fees and commission income are recognised when due, except in cases where the bank is uncertain of ultimate collection. h) Funded interest on term loans are recognised on realisation as per the guidelines of RBI. i) The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income. 2. Investments A) Classification a) In accordance with the RBI guidelines, investments are categorized into “Held for Trading”, “Available for Sale” and “Held to Maturity” and further classified under five groups, viz. Government Securities, Other Approved Securities, Shares, Debentures & Bonds and Other Investments for the purposes of disclosure in the Balance Sheet. b) Investments which are held for sale within 90 days from the date of purchase are classified as “Held for Trading c) Investments which the bank intends to hold till maturity are classified as “Held to Maturity”. d) Investments which are not classified in either of the above two categories are classified as “Available for Sale”. B) Acquisition cost The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments and government securities is treated as a revenue item. The transaction cost including brokerage, commission etc. paid at the time of acquisition of investments are charged to the Profit and Loss Account. C) Valuation The valuation of investments is performed in accordance with the RBI Guidelines: a. Investments classified as HFT or AFS – Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ‘AFS’ and ‘HFT’ categories is measured with respect to the Market Price of the Scrip as available from the trades/ quotes on the stock exchanges, SGL account transactions, pricelist of RBI or prices declared by Primary Dealers Association of India (‘PDAI’) jointly with Fixed Income Money Market and Derivative Associations of India (‘FIMMDA’), periodically. Net debrciation, if any, within each category of investment classification is recognised in Profit and Loss Account. The net apbrciation, if any, under each category of Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments. b. Held to Maturity – These are carried at their acquisition cost. Any brmium on acquisition of government securities are amortized over the remaining maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided for. c. Treasury Bills and Certificate of Deposits being discounted instruments, are valued at carrying cost. d. Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund. e. Market value of investments where current quotations are not available, is determined as per the norms brscribed by the RBI as under: • in case of unquoted bonds, debentures and brference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by FIMMDA/ PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA are adopted for this purpose; • in case of bonds and debentures (including Pass Through Certificates or PTCs) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as brscribed by RBI; • equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at breakup value (without considering revaluation reserves, if any) which is ascertained from the company's latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Rs.1/- per company; • Investment in security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Reconstruction Company / Securitisation Company. • Non-Performing Investments are identified and valued based on RBI guidelines. f. The Bank follows 'Settlement Date' accounting for recording purchase and sale transactions in securities. D) Repo and Reverse Repo transactions In accordance with the RBI guidelines repo and reverse repo transactions in government securities [excluding transactions conducted under Liquidity Adjustment Facility (‘LAF’) and Marginal Standby Facility (‘MSF’) with RBI)] are reflected as borrowing and lending transactions respectively. Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo is accounted for as interest income. In respect of Repo transactions under LAF and MSF with RBI, amount borrowed from RBI is credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse Repo transactions under LAF, amount lent to RBI is debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income. E) Short Sales The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is classified under ‘Other Liabilities’. The short position is marked to market and resultant mark-to-market gain/losses are accounted for as per the relevant RBI guidelines for valuation of investments. F) Transfer of securities Between Categories Transfer of securities between categories is done at the lower of the acquisition cost / book value/ market value on the date of the transfer and the debrciation, if any, on such transfer is fully provided for in accordance with RBI guidelines. G) Disposal of Investments a. Investments classified as HFT and AFS – Profit or loss on sale / redemption is included in the Profit and Loss account. b. Investments classified as HTM – Profit on sale of / redemption of investments is included in the Profit and Loss Account and is appropriated to capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale/redemption is charged to the Profit and Loss Account. 3. Advances A) Valuation / Measurement a) Advances are classified into performing assets (Standard) and non-performing assets ('NPAs') as per the RBI guidelines and are stated net of specific provisions made towards NPAs, sacrifice provisions on restructured advances and unrealized interest on NPAs. Interest on Non Performing advances is transferred to an unrealized interest account and not recognized in profit and loss account until received. Further, NPAs are classified into substandard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made at the minimum required level as per the guidelines of the RBI on matters relating to prudential norms. b) Amounts recovered against debts written off are recognised in the profit and loss account and included under “Other Income”. c) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period. d) For entities with Unhedged Foreign Currency Exposure (UFCE) , provision is made in accordance with the guidelines issued by RBI, which requires to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskness of unhedged position. The Provision is classified under Schedule 5 – Other Liabilities in the Balance Sheet. e) The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time – direct advances to Sectors agricultural and SME at 0.25%, Commercial Real Estate at 1%, restructured advances at 5%, teaser rate housing loans at 2%, commercial real estate residential housing at 0.75% and for other sectors at 0.40%. f) The bank transfers advances through interbank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participating, the aggregate amount of participation is classified under advances. 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 shown as due from banks under advances g) Loss on sale of assets to Asset Reconstruction Companies The RBI issued guidelines on sale of nonperforming advances on February 26, 2014. In accordance with these guidelines, if the sale of non-performing advances is at a price below the net book value, the shortfall is charged to the Profit and Loss Account sbrad over a period of two years. 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. 4. Country risk: In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorized into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited (“ECGC”) guidelines and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure. 5. Fixed assets and debrciation a) The Fixed Assets (other than those, which are revalued) are stated at historical cost less accumulated debrciation/amortisation and impairment losses, if any. b) The revalued assets are stated at the revalued amount less debrciation. The apbrciation in value consequent to revaluation is credited to Asset Revaluation Reserve. Debrciation on assets revalued is charged on the historical cost or the amount substituted for the historical cost. The Bank transfers difference between debrciation based on the revalued carrying amount of the asset and debrciation based on its original cost from Asset Revaluation Reserve to the General Reserve. Debrciation on fixed assets, including amortisation of software, is charged over the estimated useful life of the fixed assets on a straight line basis at the rates and in the manner brscribed in Schedule II of the Companies Act, 2013. 6. Impairment of Assets The carrying values of assets at each balance sheet date are reviewed for impairment, if any indication of impairment exists. 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 reduction in revaluation to the extent a revaluation reserve is available for that asset. When there is indication that an impairment loss recognised for an asset (other than a revalued 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 brviously charged to the Profit and Loss Account. In case of revalued assets such reversal is not recognised. 7. Non-Banking Assets Non-Banking assets acquired in settlement of debts /dues are accounted at the lower of their cost of acquisition or net realizable value. 8. Transactions involving foreign exchange a) Foreign currency income and expenditure items are translated at the exchange rates brvailing on the date of the transaction. Monetary foreign currency assets and liabilities outstanding at the Balance Sheet date are revalued at rates notified by Foreign Exchange Dealers Association of India [FEDAI] and resulting profits or losses are included in the Profit and Loss Account. b) Foreign exchange spot and forward Contracts outstanding as at the Balance Sheet date are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rates for contracts of interim maturities. For valuation of contracts having longer maturities, the forward points (for rates/tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. The resulting profit or loss on valuation is recognised in the Profit and Loss Account. c) Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date. 9. Employee benefits a) Provident Fund: The contribution made by the Bank to “The South Indian Bank Ltd. Employees Provident Fund”, administered by the trustees is charged to Profit and Loss account. The fund is a defined contribution fund and the Bank has no further liability beyond the contribution made to the fund. b) Pension Fund: The contribution towards “The South Indian Bank Ltd. Employees’ Pension Fund Trust”, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognized in the profit and loss account. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account. Employees who had joined the services of the Bank with effect from April 01, 2010 are covered under Defined Contributory Pension Scheme (DCPS). In respect of such employees the bank contributes 10% of the Basic Pay plus Dearness Allowance and the expenditure thereof is charged to Profit and Loss account and the Bank has no further liability beyond the contribution to the fund on this account. c) Gratuity: The bank makes annual contribution to “The South Indian Bank Ltd. Employees’ Gratuity Trust” administered and managed by the trustees. The brsent value of the bank’s obligation towards the same is actuarially determined based on the projected unit credit method as at the balance sheet date. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account. d) Compensated absence on Privilege / Sick / Casual Leave: The employees of the Bank are entitled to compensated absence on account of privilege / sick / casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognized in the profit and loss account. The actuarial gain or loss arising during the year is recognized in the Profit and Loss Account. e) Employees Stock Option Scheme (ESOS) The Bank has formulated Employee Stock Option Scheme (ESOS) in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999. The Scheme provides for grant of options to Employees of the Bank to acquire Equity Shares of the Bank that vest in a graded manner and are to be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. In accordance with the SEBI Guidelines Regulations 2014 and the guidance note on “Accounting for Employee Share based payments” issued by the ICAI, the excess of the market price of the share brceding the date of grant of the option under ESOS over the exercise price of the option is amortized on a straight line basis over the vesting period. f) Other Employee Benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognised during the period when the employee renders the service. These benefits include performance incentives. 10. Segment Reporting The disclosure relating to segment information is in accordance with the guidelines issued by RBI. 11. Debit Card Reward Points The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method at the Balance Sheet date by employing independent actuary. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary. 12. Earnings Per Share (EPS) The Bank reports Basic and Diluted Earnings per Equity Share in accordance with Accounting Standard 20, brscribed under Section 133 of the Companies Act, 2013. Basic EPS has been computed by dividing Net Profit for the year by the weighted average number of Equity Shares outstanding for the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. Potential equity shares which are anti-dilutive in nature are ignored. 13. Taxes on income Income tax expense is the aggregate amount of current tax and deferred tax charge. Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws. Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Company. Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed debrciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed debrciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Bank has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their reliability. 14. Accounting for Provisions, Contingent Liabilities and Contingent Assets In accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets brscribed under Section 133 of the Companies Act, 2013, the Bank recognizes provisions when it has a brsent obligation as a result of a past event and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation in respect of which 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. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements. 15. Operating Lease Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms. 16. Cash and cash equivalents Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and balances with other banks/ institutions and Money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency). 17. Corporate Social Responsibility Spends towards corporate social responsibility, in accordance with Companies Act, 2013 are recognised in the Profit and Loss Account. 18. CENVAT Credit Service tax input credit is accounted for in the books within the time limit brscribed under CENVAT Credit Rules 2004, as amended. 1 Sale and transfers to/ from HTM Category During the current year, the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of investments held in HTM category at the beginning of the year. 2. Derivatives The bank uses forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transactions and firm commitments. The bank has not entered into any derivative instruments for trading / speculative purposes either in Foreign Exchange or domestic treasury operations. Bank does not have any Forward Rate Agreement or Interest Rate Swaps. The notional principal amount of foreign exchange contracts classified as trading on March 31, 2016 amounted to Rs.4,705.11 crore (Previous Year Rs.19,452.70 crore). For these trading contracts, on March 31, 2016, marked to market position was asset of Rs.46.80 crore (Previous Year Rs.140.63 crore) and liability of Rs.46.76 crore (Previous Year Rs.140.70 crore). The notional principal amount of foreign exchange contracts classified as hedging on March 31, 2016 amounted to Rs.1,444.51 crore (Previous Year Rs.1,072.48 crore). 3. Disclosures on Remuneration a) Information relating to the composition and mandate of the Nomination & Remuneration Committee. Composition. The Nomination & Remuneration committee of the Board consists of three members of which one member from Risk Management Committee of the Board facilitate effective governance of compensation. The roles and responsibilities of the Nomination & Remuneration Committee inter-alia includes the following: • Scrutinizing the declarations received from persons to be appointed as Directors as well as from the existing Directors seeking re-appointment and make references to the appropriate authority/persons to ensure compliance with the requirements indicated by Reserve Bank of India vide their directive dated May 23, 2011 on Fit & Proper Criteria of the Banks. • To devise a Succession Planning Policy for the Board and Senior Management. • To formulate a Nomination policy of the Board to guide the Board in relation to appointment/re-appointment/ removal of Directors. • To identify persons who are qualified to become Directors/ KMPs and who may be appointed in senior management as defined in the Succession Policy in accordance with the criteria laid down and to recommend to the Board their appointment and/ or removal. • To formulate the criteria for evaluation of Independent Directors and the Board/Committees. • To devise a policy on Board diversity. • To carry out any other function as is mandated by the Board from time to time and / or enforced by any statutory notification, amendment or modification, as may be applicable. • To perform such other functions as may be necessary or appropriate for the performance of its duties. • To oversee the framing, review and implementation of Bank’s overall compensation structure and related polices on remuneration packages payable to the WTDs/MD & CEO and other staff including performance linked incentives, perquisites, Stock option scheme etc. with a view to attracting, motivating and retaining employees and review compensation levels vis-a-vis other Banks and the industry in general. • The Committee shall work in close coordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks. The Committee will also ensure that the cost/income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio. • With respect to the Performance Linked Incentive Schemes, the Committee is empowered to: (i) Draw up terms and conditions and approve the changes, if any, to the Performance Linked Incentive schemes; (ii) Moderate the scheme on an ongoing basis depending upon the circumstances and link the same with the recommendations of Audit Committee; (iii) Coordinate the progress of growth of business vis -a- vis the business parameters laid down by the Board and Audit Committee and effect such improvements in the scheme as considered necessary; (iv) On completion of the year, finalize the criteria of allotment of marks to ensure objectivity/equity. • The Committee shall also function as the Compensation Committee as brscribed under the SEBI (Share Based Employee Benefits) Regulations, 2014 and is empowered to formulate detailed terms and conditions of the Scheme, administer, supervise the same and to allot shares in compliance with the guidelines and other applicable laws. • To obtain necessary clearances and approvals from regulatory authorities, appoint Merchant Bankers and do such other things as may be necessary in respect of the Employees Stock Option Scheme. • To oversee the administration of Employee benefits, such as, provident fund, Pension Fund, Gratuity, Compensation for absence on Privilege/Sick/Casual Leave etc., which are recognized in accordance with Accounting Standard-15 (revised) specified in the Companies (Accounting Standards) Rules, 2006. • The Committee may suggest amendments to any stock option plans or incentive plans, provided that all amendments to such plans shall be subject to consideration and approval of the Board; • Any other matters regarding remuneration to WTDs/MD & CEO and other staffs of the Bank as and when permitted by the Board. • To conduct the annual review of the Compensation Policy. • To fulfill such other powers and duties as may be delegated to it by the Board. b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy. The Bank has formed the compensation policy based on the Reserve Bank of India guidelines vide its Circular No. DBOD. No.BC.72/29.67.001/2011-12 dt. January 13, 2012. The fixed remuneration and other allowances including retirement benefits of all subordinate, clerical and officers up to the rank of General Manager (Scale VII) is governed by the industry level wage settlement under Indian Banks Association (IBA) pattern. In respect of officers above the cadre of General Manager, the fixed remuneration is fixed by Board / Committee. Further, the compensation structure for the Whole Time Directors (WTDs) / Managing Director & Chief Executive Officers (MD & CEO) of the bank are subject to approval of Reserve Bank of India in terms of Section 35 B of the Banking Regulation Act, 1949. The payment of compensation also requires approval of the shareholders of the Bank in the General Meeting pursuant to clause 95 of Articles of Association of the Bank read with Section 197 of the Companies Act, 2013. c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks. The Board of Directors through the NRC shall exercise oversight and effective governance over the framing and implementation of the Compensation Policy. Human Resource Management under the guidance of MD & CEO shall administer the compensation and Benefit structure in line with the best suited practices and statutory requirements as applicable. d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration. The factors taken in to account for the annual review and revision in the variable pay and performance bonus are: The performance of the Bank The performance of the business unit Individual performance of the employee Other risk perceptions and economic considerations. Further, the Bank has not identified any employee as “risk taker” for the purpose of variable pay under this compensation policy. e) A discussion of the bank’s policy on deferral and vesting of variable remuneration and a discussion of the bank’s policy and criteria for adjusting deferred remuneration before vesting and after vesting. Where the variable pay constitutes a substantial portion of the fixed pay, i.e., 50% or more, an appropriate portion of the variable pay, i.e., 40% will be deferred for over a period of 3 years. In case of deferral arrangements of variable pay, the deferral period shall not be less than three years. Compensation payable under deferral arrangements shall vest no faster than on a pro rata basis. The Board may adopt principles similar to that enunciated for WTDs / CEOs, as appropriate, for variable pay-timing, mRs.alus / clawback, guaranteed bonus and hedging. Employee Stock Option Scheme / Employee Stock Option Plan as may be framed by the Board from time to time in conformity with relevant statutory provisions and SEBI guidelines as applicable will be excluded from the components of variable pay. f) Description of the different forms of variable remuneration (i.e., cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms. Variable pay means the compensation as fixed by the Board on recommendation of the Committee, which is based on the performance appraisal of an employee in that role, that is, how well they accomplish their goals. It may be paid as: (i) Performance Linked Incentives to those employees who are eligible for incentives. (ii) Exgratia for other employees who are not eligible for Performance linked Incentives. (iii) Bonus for those staff members who are eligible for bonus under the Payment of Bonus Act, 1965 (iv) Any other incentives, by whatever name called having the features similar to the above 33. Letter of Comfort (LoCs) issued by Banks: The Bank has not issued any reportable Letter of Comfort during the year ended March 31, 2016 and March 31, 2015 respectively. 4. Unhedged Foreign Currency Exposure The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency product portfolio and encouraging them to hedge the unhedged portion. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. Further, the Bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank also maintains incremental provision towards the unhedged foreign currency exposures of its borrowers in line with the extant RBI guidelines. The Bank has maintained provision of Rs.10.07 crore (Previous Year Rs.15.12 crore) and additional capital of Rs.8.42 crore (Previous Year Rs.17.10 crore) on account of Unhedged Foreign Currency Exposure of its borrowers as at March 31, 2016 5. Qualitative Disclosure around LCR The Bank measures and monitors the LCR in line with the Reserve Bank of India’s circular dated June 9, 2014 on “Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards”. The LCR guidelines aim to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by January 1, 2019. However, with a view to providing transition time, the guidelines mandate a minimum requirement of 70% w.e.f. January 1, 2016 and a step up of 10% every year to reach the minimum requirement of 100% by January 1, 2019. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated time lines. The monthly average LCR of the bank for the quarter March 2016 is 143.94%. The Bank has been maintaining HQLA primarily in the form of SLR investments over and above mandatory requirement, regulatory dispensation allowed upto 2% of NDTL in the form of borrowing limit available through Marginal Standing Facility (MSF) and 5% of NDTL as Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). From February 2016 onwards, RBI has allowed Banks to reckon an additional 3% of NDTL as FALLCR. Level 1 asset contributes to 97.99% of the total high quality liquid assets of the bank of which the major contribution is from the Government securities. The principal components of the estimated cash out flows which could arise in next 30 days are retail deposits (59.36%) and unsecured wholesale funding (27.75%). The bank intends to fund the short term cash outflows from extremely liquid Government securities and funding for estimated cash outflows considered in LCR computation substantially flows from this source. Bank has only forward contract as derivative exposure. The bank is managing its liquidity from the centralized fund management cell attached to Treasury Department, Mumbai. 6. Intra-Group Exposure - Nil. 7. Inter-bank participation with risk sharing The aggregate amount of participation purchased by the Bank, shown as advances as per regulatory guidelines, outstanding as of March 31, 2016 was Rs.689 crore (Previous Year: Nil). B: Other Disclosures 1. Fixed Assets a) Premises of the Bank were revalued as on March 31, 2011 in accordance with the policy formulated by the Bank based on RBI guidelines by professionally qualified independent valuers empanelled by the Bank using the indices based on current market price. The written down value of the brmises has been increased from Rs.192.31 crore to Rs.326.18 crore and the resultant apbrciation in the value amounting to Rs. 133.87 crore has been credited to revaluation reserve during 2010-11. b) The software capitalized under Fixed Asset (Net of debrciation) was Rs.24.86 crore (PY Rs.13.34 crore) as at March 31, 2016. 2. Segment reporting Business Segments have been identified and reported taking into account, the target customer profile, the nature of product and services, the differing risks and returns, the organization structure, the internal business reporting system and guidelines issued by RBI vide notification dated April 18, 2007. The Bank operates in the following business segments; a) Treasury: The treasury segment primarily consists of interest earnings on investments portfolio of the bank, gains or losses on investment operations and earnings from foreign exchange business. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses. b) Corporate / Wholesale Banking: The Corporate / Wholesale Banking segment provides loans to corporate segment identified on the basis of RBI guidelines. Revenues of this segment consist of interest earned on Loans made to corporate customers and the charges / fees earned from other banking services. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses. c) Retail banking: The Retail Banking segment provides loans to non-corporate customers identified on the basis of RBI guidelines. Revenues of this segment consist of interest earned on Loans made to non-corporate customers and the charges / fees earned from other banking services. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses. d) Other Banking Operations: This segment includes income from para banking activities such as debit cards, third party product distribution and associated costs. Geographic segment The Bank operations are brdominantly confined within one geographical segment (India) and accordingly this is considered as the only secondary segment. 1. Provision for long term contracts The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the bank has reviewed and recorded adequate provision as required under any Law/ Accounting Standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements. 2. Corporate social responsibility Operating expenses include Rs.2.30 crore for the year ended March 31, 2016 towards Corporate Social Responsibility (CSR), in accordance with the Companies Act, 2013. The Bank has spent 0.40% of its average net profit for the last three financial years as part of its CSR for the year ended March 31, 2016. As a responsible Bank, it has approached the mandatory requirements of CSR spend positively by utilising the reporting year to lay a foundation on which to build and scale future projects and partnerships. The Bank is currently in the process of evaluating strategic avenues for CSR expenditure in order to deliver maximum impact. In the years to come, the Bank will further strengthen its processes as per requirement. 3. Investor education and protection fund There has been no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Bank. 4. Provisioning pertaining to fraud accounts The Bank has reported 8 cases as fraud during the Financial Year ended March 31, 2016 amounting to Rs.1.59 crore and has provided for the same in full. Bank does not have any unamortised loss in this regard as on March 31, 2016. 1.2 The Financial Statements for the year ended March 31, 2016 are audited by the statutory auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants. The Financial Statements for the year ended March 31, 2015 were audited by another firm of chartered accountants. 1.3Figures of the brvious year have been regrouped to confirm to the current year brsentation wherever necessary. As per our report of even date For DELOITTE HASKINS & SELLS Chartered Accountants S. Sundaresan Partner (Membership No. 25776) Place : Bengaluru Date : May 11, 2016 For and on behalf of Board of Directors Thomas Joseph K. Executive Vice President V. G. Mathew MD & CEO Mohan E. Alapatt Director Sivakumar G. Executive Vice President K. Thomas Jacob Director Dr. John Joseph Director Reghunathan K. N. Executive Vice President Francis Alapatt Director Salim Gangadharan Director C. P. Gireesh Chief Financial Officer Cheryan Varkey Director Ranjana S. Salgaocar Director Jimmy Mathew Company Secretary Parayil George John Tharakan Director Place : Kochi Date : May 11, 2016 |