SIGNIFICANT ACCOUNTING POLICIES A. BACKGROUND The Karur Vysya Bank Limited, incorporated in Karur, India is a publicly held Banking company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. B. BASIS OF brPARATION The financial statements are brpared following the going concern concept, on historical cost basis and conform to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms brscribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices brvailing in the banking industry in India. Use of Estimates: The brparation of the financial statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities including contingent liabilities as of the date of the financial statement and the reported income and expenses during the reported period. The Management believes that the estimates and assumptions used in the brparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods. C. PRINCIPAL ACCOUNTING POLICIES 1. Foreign Exchange Transactions Monetary Assets and Liabilities in Foreign Currencies, Outstanding Forward Contracts and Spot and Forward Positions are translated at the Exchange Rates brvailing at the year end as notified by FEDAI and the resultant Profit/ Loss is recognised in the Profit and Loss Account. Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction. Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations in foreign currencies are translated at Closing Spot Rates notified by FEDAI at the year-end. 2. Investments Investments are categorized into three categories - (i) Held to Maturity, (ii) Held for Trading and (iii) Available for sale, with sub- classification under each category viz., (i) Government Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures & Bonds, (v) Subsidiary and Joint Ventures and (vi) Others - Units of Mutual Funds, Certificate of Deposits etc., in accordance with the guidelines issued by Reserve Bank of India. The category under which the investments would be classified is decided at the time of acquisition. Shifting of securities among the categories are accounted at the least of the acquisition cost / book value / market price brvailing on the date of shifting and debrciation, if any, on such shifting is fully provided for. Investments classified under HTM category are carried at acquisition cost except in cases where the acquisition cost is higher than the face value, in which case the brmium is amortized over the remaining period to maturity. Investments classified under HFT and AFS categories are marked to market at regular intervals and net debrciation within each sub-classification is recognized and provided for, while net apbrciation is ignored. The Bank follows the method of calculating and accounting of profit on sale of investments under weighted average cost method. 3. Derivatives Interest rate swaps pertaining to trading position and which are outstanding as on Balance Sheet date are marked to market and net apbrciation is ignored and net debrciation is recognized in the Profit & Loss Account. Foreign Currency Options and Swaps are accounted in accordance with the guidelines issued by FEDAI. 4. Advances Advances are classified as Performing and Non-performing Assets and provisions are made as per the prudential norms brscribed by RBI. Advances stated in the Balance Sheet are net of provisions, claims received from credit guarantee institutions etc. 5. Fixed Assets Premises and other fixed assets are accounted for at historical cost as reduced by debrciation written off. 6. Debrciation Debrciation on Fixed Assets are provided on Straight Line Method (SLM) in respect of all fixed assets other than buildings. Computers including software however continue to be debrciated under SLM. Computers, including software are debrciated under SLM at the rate of 33.33% as per the guidelines issued by the Reserve Bank of India. Useful life of the assets has been estimated inline with Schedule II of the Companies Act , 2013. Debrciation on assets purchased and sold during the year is provided on pro rata basis. 7. Revenue / Expense Recognition Income and Expenditure are generally accounted on accrual basis. Interest income on all advances other than non-performing assets is recognized on accrual basis. In respect of nonperforming assets, the interest income is recognized on cash basis. Commission (including commission received on insurance business), exchange, brokerage and locker rent are accounted on cash basis. Interest Income on Tax Refund is accounted on Receipt basis. 8. Employee Benefits In accordance with Accounting Standard 15 issued under the Companies (Accounting Standards) Rules, 2006, Provision for Gratuity, Pension and other defined employee benefits are made on accrual basis as per Actuarial valuation done at the year-end and short term benefits are accounted for as and when the liability becomes due. Options granted under Employee Stock Option Scheme (ESOS) are valued and accounted for using Intrinsic Value Method. 9. Segment Reporting The Bank recognises 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. Business Segment is classified into (a) Treasury (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations. 10. Earnings per Share Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year. Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity share outstanding as at the year end. 11. Income-tax Tax expenses comprise current and deferred taxes. Provision for current Income tax is made after due consideration of the judicial pronouncements and legal opinion. Deferred income taxes recognizes timing differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred Tax Assets are recognized in the books of account to the extent of their future reversibility. Deferred Tax Liabilities are recognized fully in the year of accrual. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. 12. Impairment of Assets The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount. 13. Provisions and Contingent Liabilities A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their brsent value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. In case 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. Contingent Assets are not recognized since this may result in the recognition of income that may never be realized. 14. Net Profit The net profit disclosed in the Profit and Loss Account is after providing for: Provision for Taxes, Provision for Standard Assets and Non Performing Assets, Provision for Debrciation on investments, employee benefits and Other usual and necessary provisions NOTES ON ACCOUNTS 1. INTER BRANCH TRANSACTIONS: Inter Branch/Office accounts reconciliation has been completed upto 31.03.2016 and all the Inter branch entries have been reconciled upto 31.03.2016. 2. BALANCING OF BOOKS: The books of accounts have been balanced and tallied in all branches of the Bank as on 31.03.2016. 3. In accordance with the RBI circular DBOD. No. BPBC.1/21.06.201/2015-16 dated 01.07.2015, read together with RBI circular DBR.No.BP.BC.80/21.06.201/2014-15 dated 31.03.2015, Banks are required to make Pillar 3 disclosures under Basel III capital regulations. Accordingly, Pillar 3 disclosures under Basel III capital regulations have been made available on the Bank's website at the following link http://www.kvb.co.in/footer/pillarIII_disclosures.html. These disclosures have not been subjected to audit by the Statutory Central Auditors. 4 The bank has incurred an amount of Rs. 2,05,16,662/- towards Corporate Social Responsibility and is in the process of identifying various projects and its appropriateness for spending in future. 5 In terms of RBI circular DBR.No.BP.BC.83/21.01.048/2014-15 dated 01st April 2015, banks are allowed to make provisions in respect of fraud accounts, over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected; During the year ended 31st March 2016, in accounts amounting to Rs.157.43 crore, frauds were reported (Previous Year - Rs. 115.31 crore). The total amount of provision debited to profit and loss account during the year against these frauds was Rs. 200.91 crore (Previous Year - Rs. 30 crore) and unamortised amount at the year end is Rs. 41.83 crore (Previous Year end - Rs. 85.31 crore). In terms of RBI circular DBR.No.BP.BC.92/21.04.048/2015-16 dated 18th April 2016, the un amortised amount of Rs. 41.83 crore at the year end has been debited to General Reserve. The same will be debited to Profit and Loss account in the next year and correspondingly the General Reseve will be credited as per the said circular. 6. In accordance with UDAY (Ujwal Discom Assurance Yogjna) Scheme of GOI, Ministry of Power for operational and financial turnaround of Power Distribution Companies (DISCOMS), the Bank has subscribed to Non - SLR SDL Bonds of Government of Rajasthan (GoR) and Government of UP (GoUP) amounting to Rs. 55.24 crore and Rs.14.81 crore respectively and discom bonds of Rs. 15.07 crore issued by AVVNL (Rajasthan Discom). In compliance of the RBI communication no. DBR.BP.No.11657/21.04.132/2015-16 dated 17th March 2016, the Bank has made provisions of Rs. 1.01 crore towards diminution in the fair value of the loan/discom bonds envisaged to be converted into SDL during the year 2016-17. There is no part of DISCOM dues which is not envisaged to be converted as SDL Bonds by the end of March 2017. 7. Strategic Debt Restructuring ( SDR) During the year, the Bank has been allotted 10,38,220 no. of shares with a face value of Rs. 10 /- at the rate of Rs. 8.765 per share amounting to a book value of Rs. 0.91 crore on account of SDR mechanism in respect of one borrower account with an aggregate exposure of Rs. 45.54 crore under consortium arrangement. 8. Figures of the brvious year have been regrouped/rearranged/reclassified wherever necessary. B. SWAMINATHAN Chairman M.V. SRINIVASAMOORTHI Additional Director K.K. BALU Director Dr. V.G. MOHAN PRASAD Director K. L. VIJAYALAKSHMI Director Dr. K. S. RAVICHANDRAN Additional Director K. VENKATESWARA RAO brSIDENT & COO K. VENKATARAMAN MD & CEO A.J. SURIYANARAYANA Director A. K. PRABURAJ Director G. RAJASEKARAN Director M. K. VENKATESAN Director N. S. SRINATH Director T. SIVARAMA PRASAD GENERAL MANAGER & CFO R. KANNAN COMPANY SECRETARY As per our report of even date For ABARNA & ANANTHAN., Chartered Accountants Firm Regn No. 000003S (LALITHA RAMESWARAN) Partner (M.No. 207867) Karur 27th May 2016 |