SCHEDULE 1 – SIGNIFICANT ACCOUNTING POLICIES

1. Accounting Conventions:

1.1 The financial statements are brpared under the historical cost conventions except as otherwise stated and conform to the Generally Accepted Accounting Principles (GAAP) which include statutory provisions, practices brvailing within the Banking Industry in India , the regulatory/ Reserve Bank of India (“RBI”) guidelines, applicable Accounting Standards/ Guidance Notes issued by the Institute of Chartered Accountants of India (ICAI).

1.2 The brparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as of the date of financial statements and reported income and expenses for the period under report. Management is of the view that the estimates used in the brparation of financial statements are prudent and reasonable.

1.3 Revenue and costs are accounted for on accrual basis except as stated in para 6.1 below.

1.4 The accounting policies with regard to Revenue Recognition, Investments and Advances are in conformity with the prudential accounting norms issued by Reserve Bank of India from time to time.

2. Foreign Exchange Transactions:

2.1 The foreign currency transactions are translated at the weekly average closing rates for the brceding week as published by Foreign Exchange Dealers' Association of India (FEDAI). Revaluation of foreign currency assets and liabilities as on Balance Sheet date is done at the closing exchange rate published by FEDAI and the resultant profit/ loss is accounted for in the Profit & Loss Account.

2.2 Outstanding Forward Foreign Exchange Contracts are stated at contracted rates and revalued/ marked to market as on quarterly basis and on Balance Sheet date at the exchange rates published by FEDAI for specified maturities by discounting the same at the applicable MIFOR rate published by Fixed Income Money Market and Derivatives Association of India [FIMMDA]- Reuter, i.e. on PV01 basis.

The resulting profit/loss, on revaluation, is recognized in the Profit & Loss Account in accordance with RBI / FEDAI guidelines and the effect is taken to “Other Assets” in case of gain or to “Other Liabilities” in case of loss.

2.3 Contingent Liabilities on account of Guarantees and Letters of Credit issued in foreign currency are stated in the Balance Sheet at the closing exchange rates published by FEDAI.

2.4 Credit exposure of the un-hedged foreign currency exposure, if any, of the constituents shall attract provisioning and capital requirements as per RBI guidelines.

3. Investments:

As per Reserve Bank of India guidelines, the investments are classified and valued as under:

3.1 Investments are classified in the following categories:

a. Held to Maturity (HTM)

b. Available for sale (AFS)

c. Held for trading (HFT)

3.2 All the securities are further classified in the following six baskets:

a. Government Securities

b. Other approved Securities

c. Shares

d. Debentures and Bonds

e. Subsidiaries and Joint Ventures

f. Others (Commercial Papers, Mutual Fund Units, Rural Infrastructure Development Funds etc.)

3.3 Bank decides the category of each investment at the time of acquisition and classifies the same accordingly. Shifting of securities from one category to another, other than shifting / transfer from HFT to AFS category, is done once in a year with the approval of Board of Directors, at the least of acquisition cost / book value / market value on the date of shifting. The debrciation, if any, on such shifting is provided for and the book value of the security is adjusted accordingly. The transfer of securities from one category to another is made as per permission from or guidelines of RBI. Transfer / shifting of investments from HFT to AFS category will be executed under exceptional circumstances, like not being able to sell the securities within 90 days due to tight liquidity conditions, or extreme volatility, or market becoming unidirectional.

3.4 REPO / Reverse REPO

The Bank has adopted the Uniform Accounting Procedure brscribed by the RBI for accounting of market Repo and Reverse Repo transactions. Repo and Reverse Repo transactions are treated as Collateralized Borrowing / Lending Operations with an agreement to repurchase on the agreed terms. Securities sold under Repo are continued to be shown under investment and Securities purchased under Reverse Repo are not included in investment. Outstanding Repo / Term Repo is disclosed as borrowing and outstanding Reverse Repo is disclosed as lending. Costs and revenues are accounted for as interest expenditure / income, as the case may be.

3.5 Valuation of investments:

a. Held to Maturity:

(i) Securities under the category 'Held to Maturity' are valued at average cost. Wherever the cost is higher than the face value, the brmium is amortized over the remaining period of maturity on straight line basis. In case of investments, where the cost price is less than the face value, the difference is ignored

(ii) In case of investments in subsidiaries and joint ventures permanent diminution in value is recognized and provided for; investment in RRB is valued at carrying cost.

(iii) On sale of investments in this category (a) the net profit is initially taken to profit and loss account and thereafter net of applicable taxes and proportionate transfer to statutory reserve is appropriated to the ‘Capital Reserve account’; and (b) the net loss is charged to the Profit & Loss Account.

b. Available for Sale:

The individual securities under this category are marked to market on a quarterly basis. Central/ State Government securities are valued at market rates declared by FIMMDA. Other approved securities, debentures and bonds are valued as per the yield curve, average credit sbrad rating and methodology suggested by FIMMDA. Quoted shares are valued at market rates. Unquoted shares are valued at book value ascertained from the latest available Balance Sheet i.e. Balance Sheet of immediate brceding year and in case the latest Balance Sheet is not available, the same is valued at Re.1/- per company / scrip.

Investments in discounted instruments, viz. Treasury Bills, Certificate of Deposits, Commercial Papers, Zero Coupon Bonds are valued at carrying cost.

Mutual Fund Instruments are valued at market rate or repurchase price or net asset value in that order depending on their availability. Investments in Security Receipts (SRs) /Pass Through Certificates (PTCs) issued by Asset Reconstruction Companies(ARCs) in respect of financial assets sold to ARCs are carried at lower of redemption value and net book value (i.e. book value less provision held), of the financial assets.

Based on the above valuation under each of six-sub classifications under `Available for Sale':

(i)If it results in apbrciation, the same is ignored.

(ii)If it results in net debrciation, the same is charged to Profit & Loss account and credited to Provision for Debrciation on Investments (AFS) in the liability side.

Provided that, debrciation, if any, on equity shares allotted consequent to implementation of Strategic Debt Restructuring (SDR) shall be provided for over a maximum of 4 calendar quarters on straight line basis from the date of conversion of debt into equity.

(iii) The book value of securities is not changed in respect of marked to market (MTM) except as required by the RBI guidelines.

(iv) Profit or Loss on sale of investment in this category is accounted for in the Profit and loss account.

c. Held for Trading:

(i) The individual securities under this category are held at original cost and are marked to market every month. Central/ State Government securities are valued at market rates declared by FIMMDA. Other approved securities, debentures and bonds are valued as per the yield curve, average credit sbrad rating and methodology suggested by FIMMDA. Quoted Shares are valued at market rates.

(ii) Investments in discounted instruments, viz. Treasury Bills, Certificate of Deposits, Commercial Papers, Zero Coupon Bonds are valued at carrying cost. Mutual Fund Instruments are valued at market rate or repurchase price or net asset value in that order depending on their availability. Investments in SRs /PTCs issued by ARCs in respect of financial assets sold to ARCs are carried at lower of redemption value and net book value (i.e. book value less provision held), of the financial assets.

(iii) Net basket-wise debrciation if any, is charged to Profit & Loss Account and credited to Provision on Debrciation on Investment (HFT) under liability. Net apbrciation, if any is ignored. The book value of the securities is not changed after revaluation except as required by the RBI guidelines.

(iv) Profit or loss on sale of investment in this category is accounted for in the Profit & Loss Account.

d. Classification of and provisions on investments, including on restructured investments, are made in accordance with the prudential norms brscribed by and guidelines of RBI from time to time.

e. Costs such as brokerage, fees, commission, taxes etc. incurred at the time of acquisition of securities are capitalised.

f. Interest Rate Swaps:

(i) Valuation:

(a) Hedging Swaps: Interest Rate Swaps for hedging assets and liabilities are not marked to market.

(b) Trading Swaps: Interest Rate Swaps for trading purpose are marked to market.

(ii) Accounting of income on derivative deals:

(a) Hedging Swaps: Income is accounted for on realisation basis. Expenditure, if any, is accounted for on accrual basis, if ascertainable.

(b) Trading Swaps: Income or expenditure is accounted for on realisation basis on settlement date.

(iii) Accounting of gain or loss on termination of swaps:

(a) Hedging Swaps: Any gain or loss on the terminated swap is recognized over the shorter of (a) the remaining contractual life of the swap or (b) the remaining life of the asset/ liability.

(b) Trading Swaps: Any gain or loss on terminated swap is recognized as income or expenditure in the year of termination.

4. Advances:

4.1 Advances shown are net of write offs, provisions made for non-performing assets, claims settled with the credit guarantee institutions, provision for diminution in fair value for restructured advances and bills rediscounted.

4.2 Classification of advances and provisions thereon are made in accordance with the prudential norms brscribed by and guidelines of RBI from time to time.

4.3 Provision for performing assets, other than provision on standard restructured advances, is shown under the head “Other liabilities and provisions”.

4.4 In respect of Rescheduled/ Restructured accounts, provision for diminution in fair value of restructured advances is made on brsent value basis as per RBI guidelines.

4.5 In respect of advances under SDR, provision is made in accordance with RBI guidelines, within a maximum period of four quarters.

4.6 In case of financial assets sold to Asset Reconstruction Company / Securitisation Company, if the sale is at price lower than the net book value, the short fall is amortised over a period of 2 years. If the sale value is higher than the net book value, the surplus provision is not reversed but will be utilized to meet the deficit/ loss on account of sale of other financial assets provided the excess provision on sale of NPAs, if the sale value is for a value higher than the NBV, shall be reversed to the Profit & Loss A/c in the financial year in which amounts are received when the cash received (by way of initial consideration and / or redemption of SRs / PTCs) is higher than the NBV of the asset provided reversal of excess provision shall be limited to the extent to which cash received exceeds the NBV of the asset.

5. Fixed Assets and Debrciation:

5.1 Premises and Other Fixed Assets are accounted for at cost except for certain brmises, which were revalued and stated at revalued amount.

5.2 Debrciation on fixed assets (other than those referred in para 5.3 and 5.4 below) is provided for on the diminishing balance method at the rates specified below, except in case of revalued assets, in respect of which higher debrciation is provided on the basis of estimated useful life of these revalued assets.

5.3 On computers, debrciation is provided at the rate of 33.33% on Straight Line Method (SLM) so as to write down the asset value in three years to Rupee One as per RBI guidelines. Computers include software, ATMs and UPS also.

5.4 Debrciation is provided for full year in respect of assets purchased during the year. No debrciation is provided on assets sold/discarded during the year.

5.5 Debrciation relating to revalued amount over and above the cost of the revalued assets, is provided on diminishing balance method over the residual life of the fixed assets as stated in para 5.2 and adjusted against the Revaluation Reserve. Revaluation Reserve on fully debrciated properties is amortized on the basis of their residual life as certified by approved valuers

5.6 Leasehold land cost is amortized over the period of lease on SLM basis.

6. Revenue Recognition

6.1 All revenues and costs are accounted for on accrual basis except the following items, which are accounted for on cash basis:-

a Interest on Advances and Investments identified as Non-Performing Assets according to the prudential norms issued by RBI, from time to time.

b. Income from commission viz., on Guarantees, Letter of Credit, Government business, Bancassuarance, Mutual Fund business, credit & debit cards issued and Locker Rent.

c. Interest for overdue period on bills purchased and bills discounted.

d. Insurance claims.

e. Remuneration on Debenture Trustee Business.

f. Loan Processing Fees.

g. Income from Merchant Banking Operations and Underwriting Commission.

h. Transaction processing fees received on utility bill pay services through internet banking.

6.2 Pursuant to RBI guidelines, the interest payable on overdue term deposit is provided on accrual basis at Saving Bank rate effective from date of RBI circular dated 22.08.2008, and the balance at the time of renewal.

7. Employees’ Benefits:

Defined Contribution Plan: The contribution paid/ payable under defined contribution benefit schemes are charged to Profit & Loss Account.

Defined Benefit Plans: Bank’s liabilities towards defined benefit schemes are determined on the basis of an actuarial valuation made at the end of financial year. Actuarial gains and losses are recognized in the Profit & Loss Account.

8. Impairment of Assets:

Impairment losses, if any, on fixed assets including revalued fixed assets are recognized in accordance with Accounting Standard 28- Impairment of Assets issued by the ICAI and charged to Profit & Loss Account.

9. Provisions Contingent Liabilities and Contingent Assets:

As per the Accounting Standard 29-“Provisions, Contingent Liabilities and Contingent Assets” issued by ICAI, the Bank recognizes provisions only when it has a brsent obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

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

10. Net Profit, Provisions and Contingencies:

The Net Profit disclosed is after making the Provisions and Contingencies which include adjustment to the value of investments, on bad debts, provision for taxation (including deferred tax), provision for advances and contingencies/others.

11. Income Tax:

The provision for tax for the year comprises liability towards current Income Tax, Wealth Tax and also Deferred Tax. The deferred tax asset/ liability is recognized, subject to the consideration of prudence, taking into account the timing differences between the taxable income and accounting income, in terms of the Accounting Standard 22 issued by ICAI. The effect of change in tax rates on deferred tax assets and liabilities is recognized in the Profit & Loss Account in the period of applicability of the change.

Interest income on refund of Income Tax is accounted for in the year the order is passed by the concerned authority.

The demand raised by the Income Tax authorities including the interest thereon is provided for when such demand is upheld in the second appeal (i.e. by ITAT).

12. Earnings per Share

Basic and Diluted earnings per equity share are reported in accordance with the Accounting Standard (AS-20) “Earnings Per Share” issued by ICAI. Basic Earnings per share is arrived by dividing net profit by the weighted average number of equity shares outstanding for the period. The diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period.

NOTES ON ACCOUNTS

12. Previous year’s figures have been regrouped / reclassified wherever considered necessary to make them comparable with current year’s figure