SIGNIFICANT ACCOUNTING POLICIES

1. ACCOUNTING CONVENTION

The financial statements are brpared by following the going concern concept on historical cost convention unless otherwise stated. They conform to generally accepted accounting principles in India, which comprises statutory provisions, regulatory / Reserve Bank of India guidelines, accounting standards / guidance notes issued by the Institute of Chartered Accountants of India and the practices brvalent in the Banking Industry in India. In respect of foreign branches as per statutory provisions and practices brvailing in the respective countries

2. USE OF ESTIMATES

The brparation of financial statements requires the management to make estimates and assumptions for considering the reported assets and liabilities (including contingent liabilities) as on the date of financial statements and the income and expenses for the reporting period. Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable

2. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

Foreign Currency transactions of Indian operations and non-integral foreign operations are accounted for as per Accounting Standard-11 (AS-11) issued by the Institute of Chartered Accountants of India (ICAI).

3.1 Translation in respect of Indian operations

1. Foreign exchange transactions are recorded at the Weekly Average Rate (WAR) notified by Foreign Exchange Dealers'Association of India (FEDAI).

2. Foreign currency assets and liabilities are translated at the closing rates notified by FEDAI at the year end.

3. Acceptances, endorsements and other obligations and guarantees in foreign currency are carried at the closing rates notified by FEDAI at the year end.

4. Exchange differences arising on settlement and translation of foreign currency assets and liabilities at the end of the financial year are recognized as income or expenses in the period in which they arise.

5. Outstanding forward exchange contracts are disclosed at the Contracted rates, and revalued at FEDAI closing rates, and the resultant effect is recognized in the Profit and Loss account.

3. Translation in respect of non-integral foreign operations

Foreign branches are classified as non-integral foreign operations and the financial statements are translated as follows

1. Assets and liabilities including contingent liabilities are translated at the closing rates notified by FEDAI at the year end.

2. Income and expenses are translated at the Quarterly Average Closing rate notified by FEDAI at the end of the respective quarter.

3. All resulting exchange differences are accumulated in a separate account “Foreign Currency Translation Reserve” (FCTR) till the disposal of the net investments..

4. INVESTMENTS

4.1 The entire investment portfolio of the Bank is classified in accordance with the RBI guidelines into three categories viz.

HeldTo Maturity (HTM)

Available For Sale (AFS)

Held ForTrading (HFT)

The securities acquired with the intention to be held till maturity are classified under “HTM” category. The securities acquired with the intention to trade by taking advantage of short–term price / interest movements are classified as “HFT”. All other securities which do not fall under any of the two categories are classified under “AFS” category.

An investment is classified as Held to Maturity,Available for Sale or Held for Trading at the time of its purchase/acquisition and subsequent shifting is done in conformity with the Regulatory guidelines. Transfer of scrips, if any, from one category to another is done at the lowest of acquisition cost/book value/market value on the date of transfer and debrciation, if any, on such transfer is fully provided for.

Investment in Subsidiaries andAssociates are classified as Held to Maturity.

4.2.1 Profit on sale of securities under HTM category is first taken to Profit and Loss account and thereafter appropriated to Capital Reserve account (net of taxes and amount required to be transferred to statutory reserves) and loss, if any, charged to Profit & Loss account.

4.2.1 Investments in India are valued in accordance with RBI guidelines, as under:

a) Securities in HTM category are valued at acquisition cost except where the acquisition cost is higher than the face value, in which case, such excess of acquisition cost over the face value is amortised over the remaining period of maturity. Any diminution, other than temporary, in value of investments in subsidiaries / joint ventures/Associates which are included under HTM category is recognized and provided. Such diminution is being determined and provided for each investment individually. Investment in units of Venture Capital funds (VCF) made after 23.08.2006 are classified under HTM category for initial period of 3 years and valued at cost.

b) Investment in Subsidiaries, Joint Ventures and Associates are valued at historical cost. Investment in sponsored Regional Rural Banks (RRB) are valued at carrying cost (i.e. Book value).

c) Investments in AFS category are marked to market, scrip-wise and classification wise, at quarterly intervals. Net debrciation, if any, is provided for in the Profit and Loss account while net apbrciation, if any, is ignored. The book value of the individual securities does not undergo any change after marking to market.

d) The individual scripts in the HFTcategory are marked to market at daily intervals. Net debrciation, if any, is provided for in the Profit and Loss account while net apbrciation, if any, is ignored. The Book Value of the individual securities in this category does not undergo any change.

e) Securities in AFS and HFTcategories are valued as under:

I. Central Government Securities are valued at prices / YTM rates as announced by Primary Dealers Association of India (PDAI) jointly with Fixed Income Money Market and Derivatives Association of India (FIMMDA).

ii. State Government and Other approved securities are valued applying the YTM method by marking up 25 basis points above the yields of the Central Government Securities of equivalent maturity put out by PDAI / FIMMDAperiodically.

iii. Equity shares are valued at market price, if quoted. Unquoted equity shares are valued at break-up value (without considering revaluation reserves if any) as per the company's latest balance sheet (not more than one year prior to the date of valuation). Otherwise, the shares are valued at Re. 1 per company.

iv. Preference shares are valued at market price, if quoted; otherwise at lower of the value determined based on the appropriateYTMrates or redemption value.

v. All debentures/bonds, other than those which are in the nature of advances, are valued on the YTM basis.

vi. Treasury bills, Certificate of deposits and Commercial papers are valued at carrying cost.

vii. Units of Mutual Funds are valued at market price, if quoted; otherwise at lower of repurchase price or

Net Asset Value (NAV). In case of funds with a lock-in period, where repurchase price / market quote is not available, units are valued atNAV, else valued at cost till the end of the lock-in period.

viii. Investment in units of Venture Capital funds (VCF) made after 23.08.2006 are classified under HTM category for initial period of 3 years and valued at cost. After period of 3 years from the date of disbursement, it will be shifted toAFS and markedto- market as per RBI guidelines. .

4.3 In respect of investment at Overseas branches, RBI guidelines or those of the host countries whichever are more stringent are followed. In case of those branches situated in countries where no guidelines are specified, the guidelines of RBI are followed.

4.4 Non-performing investment (NPI) are identified as stated below, as per guidelines issued by RBI.

a) Securities/Non-cumulative Preference shares where interest/fixed dividend/installment (including maturity proceeds) is due and remains unpaid for more than 90 days.

b) If any credit facility availed by the issuer from the Bank is a Non-performing advance, investment in any of the securities issued by the same issuer is also treated as NPI.

4.5 Brokerages / Commission / incentive received on subscriptions are deducted from the cost of securities. Brokerage / Commission / Stamp duty paid in connection with acquisition of securities are treated as revenue expenses.

4.6 Interest Rate Swap transactions for trading is marked to market at quarterly intervals. The fair value of the total swaps is computed on the basis of the amount that would be received/ receivable or paid/ payable on termination of the swap agreements as on the balance sheet date. Losses arising there from, if any, are fully provided for, while the profit, if any, is ignored.

4.7 Exchange traded FX Derivatives i.e. Currency Futures, are valued at the Exchange determined prices and the resultant gains and losses are recognized in the Profit and Loss account.

4.8 Premium/interest arising at the inception of forward exchange swap facility of RBI for FCNR (B) dollar deposits is amortized as expense over the period of the swap contract.

4.9 Investments backed by guarantee of the Central Government though overdue are treated as Non Performing Asset (NPA) only when the Government repudiates its guarantee when invoked.

4.10 Investment in State Government guaranteed securities, including those in the nature of 'deemed advances', are subjected to asset classification and provisioning as per prudential norms if interest/ installment of principal (including maturity proceeds) or any other amount due to the Bank remains unpaid for more than 90 days.

4.11 Cost of investments is determined based on the Weighted Average Cost method in each category. Investments classified under HTM are carried at acquisition cost as arrived under Weighted Average Cost method and in case the weighted average cost is more than the face value, the brmium is amortised over the remaining period of maturity.

4.12 Accounting for Repo/Reverse Repo transactions:

a. Under the Liquidity Adjustment Facility (LAF) with the RBI: Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and reversed on maturity of the transaction. Interest expended/earned thereon is accounted for as expenditure/revenue.

b. Other than transactions under the Liquidity Adjustment Facility (LAF) with the RBI: The securities sold and purchased under Repo/Reverse Repo are accounted as Collateralised lending and borrowing transactions. However, securities are transferred as in the case of normal outright sale/purchase transactions and such movement of securities is reflected using the Repo/Reverse RepoAccounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as Interest expenditure/income, as the case may be. Balance in Repo Account is classified under Schedule 4 (Borrowings) and balance in Reverse Repo Account is classified under Schedule 7 (Balance with Banks and Money at Call & Short Notice).

5. FINANCIAL ASSETS SOLD TO RECOVERY COMPANIES (RC)

5.1 Security Receipts (SR) issued by RCs in respect of financial assets sold to them is recognized at lower of redemption value of SRs and Net Book Value of financial assets. SRs are valued at Net Asset Value declared by RCs on the Balance Sheet date and debrciation, if any, is provided for and apbrciation is ignored.

5.2 In case of financial assets sold to RC, the valuation and, income recognition is being done as per RBI Guidelines. If the sale is for value lower than the Net Book Value (NBV) (i.e, book value less provisions held), the shorfall is debited to the Profit and Loss account or met out of utilisation of Floating provision held, as per extant RBI guidelines

If the cash received (by way of initial consideration and /or redemption of security receipts) is higher than the Net Book value of the Non Performing Asset (NPA) sold to RC, then excess provision is reversed to the profit and Loss account. The quantum of excess provision reversed to profit and loss account is limited to the extent to which cash received exceeds the NBV of the NPA sold.

6 ADVANCES

6.1 In accordance with the prudential norms issued by RBI, advances in India are classified into Standard, Sub- Standard, Doubtful and Loss assets borrower-wise.

6.2 Provisions are made for non performing advances as under:

a) Sub Standard:

I) 25% both for secured and unsecured category classified and / or categorized before 01.10.2014

ii) For accounts classified as Sub-Standard on or after 01.10.2014:

a) Accounts with unsecured exposures – 25%

b) Others - 15%

b) Doubtful category-1

I) 100 % for secured and unsecured classified and / or categorized before 01.07.2011.

ii) 25 % for secured classified and / or categorized after 30.06.2011

iii) 100% for Unsecured portion.

c) Doubtful Category – 2

I) 100 % for secured and unsecured classified and / or categorized before 01.07.2011

ii) 40 % for secured classified and / or categorized after 30.06.2011

iii) 100% for Unsecured portion.

d) Doubtful category-3 and Loss advances – 100 %.

6.3 Provision is made for standard advances including Restructured / Rescheduled standard advances as per RBI directives.

6.4 In respect of foreign branches, income recognition, asset classification and provisioning for loan losses are made as per local requirement or as per RBI prudential norms, whichever is more stringent.

Further, if an asset in the overseas books of the Bank requires to be classified as NPA at any point of time in terms of regulations issued by Reserve Bank of India, then all the facilities granted by the bank to the borrower and investment in all the securities issued by the borrower will be classified asNPAs/NPIs.

However, accounts classified as Non-performing/ Impaired assets (NPAs) by host regulators for reasons other than record of recovery, would be classified as NPAs at the time of consolidating financial statements in India and provided for, as required; whereas asset classification of other credit exposures to the same counterparties in other jurisdictions (including India) will continue to be governed by the extant guidelines in the respective jurisdictions.

6.5 Advances disclosed are net of provisions made for nonperforming assets, DICGC/ ECGC/ CGTMSE claims received and held pending adjustment, repayments received and kept in sundries account, participation certificates , usance bills rediscounted and provision in lieu of diminution in the fair value of restructured accounts classified as standard assets..

7. FIXED ASSETS/ DEbrCIATION

7.1. Premises and other fixed assets are stated at historical cost and at revalued amount in respect of assets revalued.

7.2. Debrciation on buildings (including cost of land wherever inseparable/ not segregated) and other fixed assets in India is provided for on the straight-line method at the same rates in which the said assets were charged, as specified below:

7.3. Debrciation relatable to revalued component is charged against revaluation reserve. Debrciation on fixed assets acquired on or before 30th September is charged at 100% ofthe brscribed rates and at 50% of the brscribed rates on the fixed assets acquired thereafter. No debrciation on the fixed assets is provided for in the year of sale / disposal.

7.4. Premium on leasehold land is capitalised in the year of acquisition and amortized over the period of lease.

7.5. Debrciation in respect of fixed assets at foreign branches is provided as per the practice brvailing in the respective countries.

7.6. In respect of Non Banking Assets, no debrciation is charged.

8. REVENUE RECOGNITION

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

8.2 Income from non-performing assets, Central Government guaranteed assets (where it is overdue beyond 90 days), dividend income, insurance claims, commission on letters of credit/ guarantees issued (other than those relating to project finance), income from Bancassurance products, income from wealth management, additional interest/ overdue charges on bills purchased, locker rent, finance charges on credit cards, income on Bank's right to recompense, AMC charges on debit cards are accounted for on realisation.

8.3 In case of overdue foreign bills, interest and other charges are recognised till the date of crystallisation as per FEDAI guidelines.

9. CREDITCARDREWARDPOINTS

Reward points earned by card members on use of Card facility is recognized as expenditure on such use.

10. NETPROFIT/LOSS

The result disclosed in the Profit and Loss Account is After considering:

- Provision for Non-Performing Advances and / or Investments

- General provision on Standard Advances

- Provision for RestructuredAdvances

- Provision for Debrciation on Fixed Assets

- Provision for Debrciation on Investments

- Transfer to/ from Contingency Fund

- Provision for direct taxes

- Usual or/and other necessary provisions

11. STAFFRETIREMENTBENEFITS

I) PROVIDENTFUND

Provident fund is a statutory obligation and in the case of Contributory Provident Fund Optees, the Bank pays fixed contribution at br-determined rates. The obligation of the Bank is limited to such fixed contribution. The contributions are charged to Profit and LossAccount. The fund is managed by Indian Bank Staff Provident Fund Trust.

ii) GRATUITY

Gratuity liability is a statutory obligation as per Indian Bank Employees' Gratuity Fund Rules and Regulations and is provided for on the basis of an actuarial valuation made at the end ofthe financial year. The gratuity liability is funded by the Bank and is managed by Indian Bank Employees Gratuity Fund Trust.

iii) PENSION

a) Pension liability is a defined benefit obligation under Indian Bank (Employees) Pension Regulations 1995 and is provided for on the basis of actuarial valuation, for the employees who have joined Bank up to31.03.2010 and opted for pension.

b) New Pension Scheme (NPS) which is applicable to employees who joined bank on or after 01.04.2010 and it is a defined contribution scheme. Under NPS the Bank pays fixed contribution at br determined rate and the obligation of the Bank is limited to such fixed contribution. The contribution is charged to Profit and LossAccount.

iv) COMPENSATEDABSENCES

Accumulating compensated absences such as Privilege Leave and Sick Leave are provided for based on actuarial valuation.

v) OTHER EMPLOYEE BENEFITS

Other Employee benefits such as Leave Encashment, Leave Fare Concession and Additional Retirement Benefit on Retirement 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 territories.

12. ACCOUNTINGFORLEASES

Lease payments including cost escalation for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term or life whichever is lower.

13. CONTINGENT LIABILITIESAND PROVISIONS

13.1 Contingent liability: Past events leading to, possible or brsent obligations are recognised as contingent liability in the following instances where:

(a) The existence of such obligations has not been confirmed

(b) no outflow of resources are required to settle such obligations

(c) a reliable estimate of the amount of the obligations cannot be made

(d) such amounts are not material

13.2 (a) Provision is recognized in case of brsent obligations where a reliable estimate can be made and/or where there are probable outflow of resources embodying foregoing of economic benefits to settle the obligations, excluding frivolous claims.

(b) Provision for Market Risk, Country Risk, etc., are made in terms of extant instructions of RBI.

(c) Floating provision as identified by the Bank Management is provided for. Floating provision may be utilized as per extant RBI guidelines, for- (i) Making specific provisions for non-performing assets;

(ii) Meeting any shortfall in sale of non-performing assets.

14. IMPAIRMENT OFASSETS

Impairment losses, if any, on Fixed Assets (including revalued assets) are recognised and charged to Profit and Loss Account in accordance with the Accounting Standard 28 "Impairment of Assets". However, an impairment loss on a revalued asset is recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset.

15. TAXESON INCOME

15.1 Provision for tax is made for both Current Tax and Deferred Tax.

15.2 Current tax is measured at the amount expected to be paid to the taxation authorities, using the applicable tax rates, tax laws and favourable judicial pronouncements / legal opinion.

15.3 Deferred Tax Assets and Liabilities arising on account of timing differences and which are capable of reversal in subsequent periods are recognised using the tax rates and tax laws that have been enacted or substantively enacted till the date of the Balance Sheet. Deferred Tax Assets are not recognised unless there is "virtual certainty" that sufficient future taxable income will be available against which such deferred tax assets will be realised.

NOTES ON ACCOUNTS

1. Dividend

Equity Shares : Provision for Equity Dividend includes proposed dividend at 15% amounting to Rs. 72.04 crore (brvious year Rs. 201.72 crore) for the year 2015-16.

2. Miscellaneous income includes:

I) a sum of Rs. 247.42 Crore (brvious year Rs.159.96 Crore) being recovery in written-off accounts

ii) Rs. 125.06 Crore (brvious year Rs.126.71 Crore) being recovery of processing charges during the year.

3. Pursuant to Reserve Bank of India circular No.DBR.No.BP.BC.75/21.04.048/2014-15 dt 11th March, 2015, on sale of financial assets regarding treatment of loss and profit made on sale of accounts, excess provision of earlier years of Rs. 52.75 crore has been reversed and has a consequential impact on profit during the year ended 31.03.2016

4. As per information available with the Bank, there is no outstanding dues payable by the Bank to MSME units identified by the Bank, which is pending beyond the time limit brscribed under MSMED Act, 2006 and there have been no reported cases of accepted liability of delayed payments of principal amount or interest thereon for such parties during the year.

5. Pursuant to RBI Circular No. DBR.No.BP.BC.83/21.06.201/2015-16 dated 1st March 2016,the Bank as at 31st March 2016considered the revaluation reserve and Foreign Currency Translation Reserve for CET 1 Capital as brscribed by RBI in the said Circular.

6 Previous year's figures have been regrouped / reclassified, wherever necessary, to conform to current year's figures.