SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF brPARATION:

The financial statements have been brpared on historical cost basis and conform, in all material aspects, to Generally Accepted Accounting Principles (GAAP) in India unless otherwise stated encompassing applicable statutory provisions, regulatory norms brscribed by Reserve Bank of India (RBI), circulars and guidelines issued by the Reserve Bank of India (RBI) from time to time, Banking Regulation Act 1949, Accounting Standards (AS) and pronouncements issued by The Institute of Chartered Accountants of India (ICAI) and brvailing practices in Banking industry in India.

In respect of foreign offices, statutory provisions and practices brvailing in respective foreign countries are complied with except as specified elsewhere.

The financial statements have been brpared on going concern basis with accrual concept and in accordance with the accounting policies and practices consistently followed unless otherwise stated.

2. Use of Estimates

The brparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as on date of the financial statements and the reported income and expenses for the reporting period.

Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable.

Future results could differ from these estimates.

Difference between the actual results and estimates is recognized in the period in which the results are known / materialized.

Any revision to the accounting estimates is recognised prospectively in the current and future periods unless otherwise stated.

3. REVENUE RECOGNITION

3.1 Income & expenditure (other than items referred to in paragraph 3.5) are generally accounted for on accrual basis.

3.2 Income from Non- Performing Assets (NPAs), comprising of advances, and investments, is recognised upon realisation, as per the prudential norms brscribed by the RBI/ respective country regulators in the case of foreign offices (hereafter collectively referred to as Regulatory Authorities).

3.3 Recoveries in NPA accounts (irrespective of the mode / status / stage of recovery actions) are appropriated in the following order of priority : -

a. Expenditure/out of pocket expenses incurred for recovery (earlier recorded in memorandum dues);

b. Principal irregularities i.e. NPA outstanding in the account.

c. Towards the interest irregularities/accrued interest.

3.4 The sale of NPA is accounted as per guidelines brscribed by RBI and as disclosed under Para 5.4.

3.5 Commission (excluding on Government Business), interest on overdue bills, exchange, locker rent, income from merchant banking transactions and dividend income, income on Rupee Derivatives designated as “Trading” are accounted for on realization and insurance claims are accounted for on settlement.

3.6 In case of suit filed accounts, related legal and other expenses incurred are charged to Profit & Loss Account and on recovery the same are accounted for as such.

3.7 Income from interest on refund of income tax is accounted for in the year the order is passed by the concerned authority.

3.8 Lease payments including cost escalation for assets taken on operating lease are recognised in the Profit and Loss Account over the lease term in accordance with the AS 19 (Leases) issued by ICAI.

3.9 Provision for Reward Points on Debit/Credit cards is made based on the accumulated outstanding points in each category.

3.10 Interest on unpaid and unclaimed matured term deposits is accounted for at savings bank rate.

4. INVESTMENTS

4.1 The transactions in Securities are recorded on “Settlement Date”. 4.2 Investments are classified into six categories as stipulated in form A of the third schedule to the Banking Regulation Act, 1949.

4.3 Investments have been categorized into "Held to Maturity", "Available for Sale" and "Held for Trading" in terms of RBI guidelines as under:

(a) Securities acquired by the Bank with an intention to hold till maturity are classified under "Held to Maturity".

(b) The securities acquired by the Bank with an intention to trade by taking advantages of short-term price/ interest rate movements are classified under “Held for Trading”.

(c) The securities, which do not fall within the above two categories, are classified under "Available for Sale"

4.4 Investments in subsidiaries, joint ventures and associates are classified as HTM.

4.5 Transfer of securities from one category to another is carried out at the lower of acquisition cost/ book value/ market value on the date of transfer. The debrciation, if any, on such transfer is fully provided for.

However, transfer of securities from HTM category to AFS category is carried out on book value. After transfer, these securities are immediately revalued and resultant debrciation, if any, is provided.

An investment is classified as HTM, HFT or AFS at the time of its purchase and subsequent shifting amongst categories is done in conformity with regulatory guidelines.

4.6 In determining acquisition cost of an investment

a. Brokerage / commission received on subscription is deducted from the cost of securities.

b. Brokerage, commission, Securities Transaction Tax (STT) etc. paid in connection with acquisition of securities are treated as revenue expenses upfront and excluded from cost.

c. Interest accrued up to the date of acquisition/sale of securities i.e. broken period interest is excluded from the acquisition cost/sale consideration and the same is accounted in interest accrued but not due account.

d. Cost is determined on the weighted average cost method for all categories of investments.

4.7 Investments are valued as per RBI/ FIMMDA guidelines, on the following basis:

Held to Maturity

i) Investments under "Held to Maturity "category are carried at acquisition cost. Wherever the book value is higher than the face value/redemption value, the brmium is amortized over the remaining period to maturity on constant yield basis. Such amortisation of brmium is adjusted against income under the head “interest on investments”.

ii) Investments in subsidiaries/joint ventures/associates are valued at carrying cost less diminution, other than temporary in nature for each investment individually.

iii) Investments in sponsored regional rural banks are valued at carrying cost.

iv) Investment in Venture Capital is valued at carrying cost.

v) Equity shares held in HTM category are valued at carrying cost.

Available for Sale and Held for Trading

a) Govt. Securities

I. Central Govt. Securities

At market prices/YTM as published by Fixed Income Money Market and Derivatives Association of India (FIMMDA)

II. State Govt. Securities

On appropriate yield to maturity basis as per FIMMDA/RBI guidelines.

b) Securities guaranteed by Central / State Government, PSU Bonds (not in the nature of advances)

On appropriate yield to maturity basis as per FIMMDA/RBI guidelines

c) Treasury Bills

At carrying cost

d) Equity shares

At market price, if quoted, otherwise at break up value of the Shares as per latest Balance Sheet (not more than one year old), otherwise at Re.1 per company

e) Preference shares

At market price, if quoted or on appropriate yield to maturity basis not exceeding redemption value as per RBI/ FIMMDA guidelines.

f) Bonds and debentures (not in the nature of advances)

At market price, if quoted, or on appropriate yield to maturity basis as per RBI/FIMMDA guidelines.

g) Units of mutual funds

As per stock exchange quotation, if quoted; at repurchase price/NAV, if unquoted

h) Commercial Paper

At carrying cost

i) Certificate of Deposits

At carrying cost

j) Security receipts of ARCIL

At net asset value of the asset as declared by ARCIL

k) Venture Capital Funds

At net asset value (NAV) declared by the VCF

l) Other Investments

At carrying cost less diminution in value

The above valuation in category of Available for Sale and Held for Trading is done scrip wise on quarterly basis and debrciation/apbrciation is aggregated for each classification. Net debrciation for each classification, if any, is provided for while net apbrciation is ignored. On provision for debrciation, the book value of the individual security remains unchanged after marking to market.

4.8 Investments are subject to appropriate provisioning/ de-recognition of income, in line with the prudential norms of Reserve Bank of India for NPI classification. The debrciation/provision in respect of non-performing securities is not set off against the apbrciation in respect of the other performing securities. For NPI in brference share, debentures and bonds, in addition to valuation as above, further provision is made on Sub-standard and Doubtful assets as per NPA provisioning norms.

If any credit facility availed by an entity is NPA in the books of the Bank, investment in any of the securities issued by the same entity would also be treated as NPI and vice versa. However, in respect of NPI brference share where the dividend is not paid, the corresponding credit facility is not treated as NPA.

4.9 Profit or loss on sale of investments in any category is taken to Profit and Loss account but, in case of profit on sale of investments in "Held to Maturity" category, an equivalent amount (net of taxes and amount required to be transferred to Statutory Reserve) is appropriated to "Capital Reserve Account"

4.10 Securities repurchased/resold under buy back arrangement are accounted for at original cost.

4.11 The derivatives transactions are undertaken for trading or hedging purposes. Trading transactions are marked to market. As per RBI guidelines, different categories of swaps are valued as under: -

Hedge Swaps

Interest rate swaps which hedge interest bearing asset or liability are accounted for on accrual basis except the swaps designated with an asset or liability that are carried at market value or lower of cost in the financial statement.

Gain or losses on the termination of swaps are recognized over the shorter of the remaining contractual life of the swap or the remaining life of the asset/ liabilities.

Trading Swaps

Trading swap transactions are marked to market with changes recorded in the financial statements.

Exchange Traded Derivatives entered into for trading purposes are valued at brvailing market rates based on rates given by the Exchange and the resultant gains and losses are recognized in the Profit and Loss Account.

4.12 Foreign currency options

Foreign currency options written by the bank with a backto- back contract with another bank are not marked to market since there is no market risk.

Premium received is held as a liability and transferred to the Profi t and Loss Account on maturity/cancellation.

5. LOANS / ADVANCES AND PROVISIONS THEREON:

5.1 Advances are classified as performing and nonperforming assets; provisions are made in accordance with prudential norms brscribed by RBI.

5.1 (a) Advances are classified : Standard, Sub Standard, Doubtful and Loss assets borrower wise.

5.1(b) Advances are stated net of specific loan loss provisions, provision for diminution in fair value of restructured advances.

5.2 In respect of foreign offices, the 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.

Loans and advances held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant RBI guidelines, are classified as NPAs to the extent of amount outstanding in the host country.

5.3 Financial Assets sold are recognized as under:

(a) For Sale of financial assets sold to SCs/RCs

(i) If the sale to SCs/RCs is at a price below the Net Book Value (NBV), the short fall should be debited to the Profit & Loss account of that year. Bank can also use countercyclical / floating provisions for meeting the shortfall on sale of NPAs i.e when the sale is at a price below the NBV. However, for assets sold on or after 26.02.2014 and upto 31.03.2016, as incentive for early sale of NPAs, bank can sbrad over any shortfall, if the sale value is lower than the NBV, over a period of two years. This facility of sbrading over the shortfall will be subject to necessary disclosures in the Notes to Accounts in Annual Financial Statements of the Bank.

(ii) If the sale is for a value higher than the NBV, Bank can reverse the excess provision on sale of NPAs to its profit and loss account in the year, the amounts are received. However, Bank can reverse excess provision (when the sale is for a value higher than the NBV) arising out of sale of NPAs, only when the cash received (by way of initial consideration and/or redemption of SRs/PTCs) is higher than the NBV of the asset. Further, reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset.

(b) For Sale of financial assets sold to Other Banks/ NBFCs/FIs etc.

(i) In case the sale is at a price below the Net Book Value (NBV) i.e. Book Value less provision held, the shortfall should be debited to the Profit & Loss A/c of that year.

(ii) In case the sale is for a value higher than the Net Book Value (NBV) i.e. Book Value less provision held, the excess provision shall not be reversed but will be utilized to meet the shortfall/loss on account of sale of other NPAs.

The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance / securities, which would generally include, among others, alteration of repayment period / repayable amount / the amount of installments / rate of interest (due to reasons other than competitive reasons). Restructured accounts are classified as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made.

5.4 For restructured/rescheduled advances, provisions are made in accordance with guidelines issued by RBI.

In respect of non-performing 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.

5.5 In addition to the specific provision on NPAs, general provisions are also made for standard assets as per extant RBI Guidelines. These provisions are reflected in Schedule 5 of the Balance Sheet under the head “Other Liabilities & Provisions – Others” and are not considered for arriving at the Net NPAs.

5.6 In accordance with RBI guidelines, accelerated provision is made on non-performing advances which were not earlier reported by the Bank as Special Mention Account under “SMA-2” category to Central Repository of Information on Large Credits (CRILC). Accelerated provision is also made on non-performing advances which are erstwhile SMA-2 accounts with Aggregate Exposure (AE) Rs. 1,000 million or above and Joint Lenders’ Forum (JLF) is not formed or they fail to agree upon a common Corrective Action Plan (CAP) within the stipulated time frame.

Amounts recovered against debts written-off in earlier years and provisions no longer considered necessary in the context of the current status of the borrower are recognised in the profit and loss account.

5.7 Provision for Country Exposure:

In addition to the specific provisions held according to asset classification status, provisions are also made for individual country exposures (other than the home country). Countries are categorised into seven risk categories, namely, insignificant, low, moderate, high, very high, restricted and off-credit and provisioning made as per extant RBI guidelines. 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 exposures. The provision is refl ected in Schedule 5 of the Balance Sheet under the “Other liabilities & Provisions – Others”.

6. FIXED ASSETS

6.1 Fixed assets are stated at historical cost less accumulated debrciation/amortisation, wherever applicable, except those brmises, which have been revalued. The apbrciation on revaluation is credited to revaluation reserve and incremental debrciation attributable to the revalued amount is deducted therefrom.

6.2 Software is capitalized and clubbed under Intangible assets.

6.3 Cost includes cost of purchase and all expenditure such as site brparation, installation costs and professional fees incurred on the asset till the time of capitalization. Subsequent expenditure/s incurred on the assets are capitalised only when it increases the future benefits from such assets or their functioning capability.

6.4 DEbrCIATION

A. Debrciation on assets (including land where value is not separable) is provided on straight-line method based on estimated life of the asset, except in respect of computers where it is calculated on the straightline method, at the rates brscribed by RBI.

B. Debrciation on assets has been provided at the rates furnished below:-

C. Debrciation on fresh additions to assets other than bank's own brmises is provided from the month in which the assets are put to use and in the case of assets sold/disposed off during the year, up to the month brceding the month in which it is sold/ disposed off.

D. The debrciation on bank's own brmises existing at the close of the year is charged for full year.

The construction cost is debrciated only when the building is complete in all respects. Where the cost of land and building cannot be separately ascertained, debrciation is provided on the composite cost, at the rate applicable to buildings.

E. In respect of leasehold brmises, the lease brmium, if any, is amortised over the period of lease and the lease rent is charged in the respective year(s).

7. IMPAIRMENT OF ASSETS

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 brsent value using a br-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset.

After impairment, if any, debrciation is provided on the revised carrying cost of the asset over its remaining useful life.

A brviously 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 brvailed by charging usual debrciation if there was no impairment.

8. EMPLOYMENT BENEFITS

i PROVIDENT FUND:

Provident fund is a defined contribution scheme as the Bank pays fixed contribution at br-determined rates. The obligation of the Bank is limited to such fixed contribution. The contribution are charged to Profit & Loss A/c.

ii GRATUITY:

Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust.

iii PENSION:

Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust.

The Bank operates a New Pension Scheme (NPS) for all officers/ employees joining the Bank on or after 01.04.2010. As per the scheme, the covered employees contribute 10% of their basic pay plus dearness allowance to the scheme together with a matching contribution from the Bank. Pending completion of registration procedures of the employees concerned, these contributions are retained. The Bank recognizes such annual contributions and interest as an expense 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.

iv COMPENSATED ABSENCES:

Accumulating compensated absences such as Privilege Leave (PL) and Sick Leave (including unavailed casual leave) are provided for based on actuarial valuation.

v OTHER EMPLOYEE BENEFITS:

Other Employee Benefits such as Leave Fare Concession (LFC), Silver Jubilee Award, etc. are provided for based on actuarial valuation.

In respect of overseas branches and offices, the benefits in respect of employees other than those on deputation are valued and accounted for as per laws brvailing in the respective countries

9. TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS & BALANCES:

Transactions involving foreign exchange are accounted for in accordance with AS 11, “The Effect of Changes in Foreign Exchange Rates”.

9.1 Except advances of erstwhile London branches which are accounted for at the exchange rate brvailing on the date of parking in India, all other monetary assets and liabilities, guarantees, acceptances, endorsements and other obligations are initially recorded at a notional rate and translated in Indian Rupee equivalent at the exchange rates brvailing as on the Balance Sheet date as per Foreign Exchange Dealers' Association of India (FEDAI) guidelines.

9.2 Non-monetary items other than fixed assets which are carried at historical cost are translated at exchange rate brvailing on the date of transaction.

9.3 Outstanding Forward exchange spot and forward contracts are translated as on the Balance Sheet date at the rates notified by FEDAI and the resultant gain/loss on translation is taken to Profit & Loss Account.

Foreign exchange spot/forward contracts/deals (Merchant and Inter-bank) which are not intended for trading/Merchant Hedge and are outstanding on the Balance Sheet date, are reverse re-valued at the closing FEDAI spot/forward rate in order to remove revaluation effect on exchange profit. The brmium or discount arising at the inception of such a forward exchange contract is amortised as interest expense or income over the life of the contract.

9.4 Income and expenditure items are accounted for at the exchange rate brvailing on the date of transaction.

Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognised as income or as expense in the period in which they arise.

Gains/Losses on account of changes in exchange rates of open position in currency futures trades are settled with the exchange clearing house on daily basis and such gains/ losses are recognised in the Profit and Loss Account.

9.5 Offices outside India / Offshore Banking Units:

i. Operations of foreign branches and off shore banking unit are classified as "Non-integral foreign operations" and operations of rebrsentative offices abroad are classified as "integral foreign operations"

ii. Foreign currency transactions of integral foreign operations and non-integral foreign operations are accounted for as brscribed by AS-11.

iii. Exchange Fluctuation resulting into Profit / loss of non integral operations is credited /debited to Exchange Fluctuation Reserve.

10. TAXES ON INCOME

Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Bank. The current tax expense and deferred tax expense are determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - Accounting for Taxes on Income respectively after taking into account taxes paid at the foreign offices, which are based on the tax laws of respective jurisdictions.

Deferred Tax adjustments comprises of changes in the deferred tax assets or liabilities during the year. Deferred tax assets and liabilities are recognised by considering the impact of timing differences between taxable income and accounting income for the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account. Deferred tax assets are recognised and re-assessed at each reporting date, based upon management’s judgment as to whether their realisation is considered as reasonably/virtually certain.

11. Earnings per Share:

The Bank reports basic and diluted earnings per share in accordance with AS 20 -‘Earnings per Share’ issued by the ICAI. Basic Earnings per Share are computed by dividing the Net Profit after Tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding for the year.

12. Provisions, Contingent Liabilities and Contingent Assets:

In conformity with AS 29, “Provisions, Contingent Liabilities and Contingent Assets”, issued by the Institute of Chartered Accountants of India, the Bank recognises provisions only when it has a brsent obligation as a result of a past event, and would result in a probable 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.

Provision for reward points in relation to the debit card holders of the Bank is being provided for on actuarial estimates.

Contingent Assets are not recognised in the financial statements.

13. Bullion Transactions:

The Bank imports bullion including brcious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on price quoted by the supplier.

The Bank earns a fee on such bullion transactions. The fee is classified under commission income. The Bank also accepts deposits and lends gold, which is treated as deposits/advances as the case may be with the interest paid / received classified as interest expense/income.

14. 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 compliance with the Accounting Standard 17 issued by ICAI.

NOTES TO ACCOUNTS

1. AS 23- Accounting for Investments in Associates in Consolidated financial Statements Since Investments of the bank in its Associates are participative in nature and the Bank having the power to exercise significant influence on their activities, such Investments are recognized in the Consolidated Financial Statements of the Bank.

2. AS 24 - Discontinuing Operations

During the period from 01.04.2015 to 31.03.2016, the bank has not discontinued operations of any of its branches, which resulted in shedding of liability and realization of the assets and no decision has been finalized to discontinue an operation in its entirety which will have the above effect.

3. AS 28 – Impairment of Assets

A substantial portion of the bank’s assets comprise of ‘financial assets’ to which Accounting Standard 28 ‘Impairment of Assets’ is not applicable. In the opinion of the bank, there is no impairment of its assets (to which the standard applies) to any material extent as at 31.03.2016 requiring recognition in terms of the said standard.

4. Credit Default Swaps

Since the Bank is not using any proprietary pricing model for pricing CDS contracts, and it is over the counter contract (OTC), the price is determined by the market dynamics. As such no disclosure is to be made in terms of extant RBI guidelines

5. Figures of the brvious year have been regrouped / rearranged / reclassified wherever necessary.