SCHEDULE 17

SIGNIFICANT ACCOUNTING POLICIES

1. GENERAL

BASIS OF PREPARATION

The financial statements have been prepared and presented under historical cost convention on
accrual basis of accounting unless otherwise stated and comply with Generally accepted
accounting principles, statutory requirements prescribed under Banking Regulation Act, 1949,
circulars and guidelines issued by Reserve Bank of India from time to time and notified
accounting standards by companies (Accounting Standards) Rules, 2006 to the extent applicable
and current practices in Banking Industry in India.

USE OF ESTIMATES

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

2. Foreign Exchange Transactions

2.1 All the Monetary assets and liabilities in foreign currencies are translated in Indian rupees at the
exchange rates prevailing at the Balance Sheet date as notified by Foreign Exchange Dealers
Association of India (FEDAI). The resultant gain / loss is accounted for in the Profit & Loss
account.

2.2 The outstanding foreign exchange contracts are stated at the prevailing exchange rate on the
date of commitment. Profit or loss on such contracts is accounted for as per rates advised by
FEDAI and in accordance with FEDAI guidelines and provisions of para 38 of AS-11.

2.3 Items of Income and expenditure relating to foreign exchange transactions are recorded at
exchange rates prevailing on the date of the transactions.

2.4 Contingent liabilities on account of acceptances, endorsements and other obligations including
guarantees in foreign currencies are valued at year end closing rates published by FEDAI except
Bills for Collection which are accounted for at the notional rates at the time of lodgment.

3. Investments

3.1 Classification and valuation of investments are made in accordance with the prudential norms
prescribed by Reserve Bank of India read with clarifications / directions given by RBI.

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3.2 The entire investment portfolio is classified into three categories, viz, Held to Maturity, Available
for Sale and Held for Trading in line with the guidelines / directions of Reserve Bank of India.
Disclosure of the investments under the three categories mentioned above is made under six
classifications viz.,
i. Government Securities
ii. Other approved securities
iii. Shares
iv. Debentures
v. Subsidiaries / Joint Ventures and
vi. Others

3.3 Basis Of Classification:

i. Investments that the Bank intends to hold till maturity are classified as Held to Maturity.
ii. Investments that are held principally for resale within 90 Days from the date of
purchase are classified as Held for Trading.
iii. Investments which are not classified in the above two categories, are classified as
Available for Sale.
iv. An investment is classified under the above three categories at the time of its purchase.
Shifting of securities from AFS to HTM and vice versa can be done with the approval of
the Board normally once in a year. Shifting is effected at the lower of acquisition cost /
book value / market value on the date of transfer and the depreciation, if any, on such
shifting is fully provided for and the book value of securities is changed accordingly.

3.4 Securities under ‘Held to Maturity’ are stated at acquisition costs unless such costs are higher
than the face value, in which case the premium is amortized over the remaining period of
maturity. Such amortization is shown under “Income on Investments– Schedule 13 item II. In
case, the cost is less than the redemption value, the difference being the unrealized gain, is
ignored. Any diminution in value of investments in subsidiaries and joint venture, other than
temporary in nature, is provided for each investment individually

3.5 Securities under ’Available for sale’ are valued scrip wise and depreciation/ appreciation is
segregated category wise. While net appreciation is ignored, net depreciation under each category
is provided for.

3.6 Securities under 'Held for Trading' are valued at market price and the net depreciation under each
category is provided for and the net appreciation, if any, is ignored.

3.7 Cost of investment is based on the weighted average cost method category wise.

3.8 The 'market value' for the purpose of valuation of investments included in the 'Available for Sale'
and 'Held for Trading' categories is the market price of the scrip as available from the
trades/quotes on the stock exchanges, price list of RBI, prices declared by Primary Dealers
Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives
Association of India (FIMMDA).
In respect of unquoted securities, the procedure adopted is as below:

a. Government of India Securities: At rates put out by FIMMDA/PDAI

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 b. State Government Loans, Other On yield to maturity (YTM) basis at the rate
approved Securities, Preference prescribed by FIMMDA/ PDAI with such
Shares, Debentures and PSU mark ups as laid down by RBI or
Bonds: FIMMDA/PDAI
c. Equity Shares: At break-up value based on the latest
Balance Sheet, which are not older than one
year on the date of valuation. In cases where
latest Balance Sheets are not available, the
shares are valued at Re.1 per company
d. Mutual Fund Units: At re-purchase price or Net Assets Value
e. Treasury Bills, Commercial Papers, At carrying cost.
Certificate of Deposits,
Recapitalization Bonds,
Subsidiaries, Joint Ventures and
Sponsored Institutions:

3.9 In determining acquisition cost of investments:

a. Incentive received on subscription is deducted from the cost of securities;

b. Brokerage / commission/ stamp duty paid in connection with acquisition of securities are
treated as revenue expenditure;
c. Broken period interest, if any, paid on acquisition of investment is debited to profit &
loss account. Broken period interest received on sale of securities is recognized as
Interest Income.

3.10 Profit/ Loss on sale of investments is taken to profit and loss account. However, in case of profit
on sale of investments in 'Held to Maturity' category, an equivalent amount of profit is
appropriated to Capital Reserve.

3.11 Non Performing Investments

In respect of Non-Performing Securities, income is not recognized and appropriate provision is

made for depreciation in the value of such securities as per Reserve Bank of India guidelines.

3.12 Dividend Income on shares and units of mutual funds is booked on receipt basis.

3.13 In the event, provisions created on account of depreciation in the ‘AFS’ or ‘HFT’ categories are
found to be in excess of the required amount in any year, the excess is credited to the P.& L. Account and
an equivalent amount is appropriated to an Investment Reserve Account in Schedue 2 – “Reserve &
Surplus” under the head “Revenue and Other Reserves”.

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4. Advances

4.1 Advances are classified into “Performing” and “Non-Performing” assets and provisions are made
as per the prudential norms prescribed by the Reserve Bank of India. Bank has made provisions
on Non-Performing Assets as per the prudential norms prescribed by the RBI as under:

Category of
Provision norms
Assets
15% on Secured Exposure.
25% on Unsecured Exposure*
Sub-Standard 20% on Unsecured Exposure*
in respect of Infrastructure loan accounts where certain safeguards such as escrow
accounts are available
Doubtful-I 25% on Secured
100% on Unsecured
Doubtful-II 40% on Secured
100% on Unsecured
Doubtful-III 100% on Secured
100% on Unsecured
Loss 100% of Book Outstanding

* Unsecured exposure is defined as an exposure where the realizable value of the security, as assessed by
the bank/ approved valuers/ Reserve Bank’s Inspecting Officers, is not more than 10 per cent, ab-initio, of
the outstanding exposure.

4.2 Advances are stated net of de-recognized interest and provisions/ Technical write off made in
respect of non-performing advances. Claims received from DICGC/ CGTMSE/ ECGC are not
reduced from such advances till adjusted/ technically written-off whereas part recovery in all NPA
accounts is reduced from advances.

4.3 Provisions on standard advances are made and are included under “Other Liabilities and Provisions”
as per RBI’s guidelines.

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

4.5 The sale of NPA is accounted for as per guidelines prescribed by RBI:-

i). When the bank sells its financial assets to Securitization Company (SC)/ Reconstruction
Company (RC), the same is removed from the books.

ii). If the sale is at a price below the net book value (NBV) (i.e. book value less provisions held),
the shortfall is debited to the Profit & Loss account of the year of sale.

iii). If the sale is for a value higher than the NBV, the excess provision is reversed in the year the
amounts are received.

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5 Floating Provisions
In accordance with the RBI guidelines, the bank has an approved policy for creation and
utilization of floating provisions separately for advances and investments. The quantum
of floating provisions to be created would be assessed, at, the end of each financial year.
The floating provisions would be utilized only for contingencies under extra ordinary
circumstances specified in the policy with prior permission of Reserve Bank of India.
6 Fixed Assets

6.1 Premises and other Fixed Assets are stated at historical cost/revalued amount. In respect of
premises, where segregation is not possible between land and superstructure, are considered in
the value of superstructure.

6.2 Premises taken on perpetual lease are considered as freehold premises and are not amortized.

7 Depreciation on Fixed Assets

7.1 Depreciation is provided for on -
7.1.1 Computers at 33.33%, on straight-line method; additions are depreciated for the full year
irrespective of the date of addition as per RBI guidelines.

7.1.2 Other Fixed assets on written down value method at the rates prescribed by the Income Tax Act
1961; additions effected before 30th September are depreciated for full year and additions
effected thereafter are depreciated for half year.

7.1.3 Cost of premises is taken composite, wherever it is not possible to segregate the cost of land from
the cost of the superstructure.

7.2 No depreciation is provided on assets sold/disposed of during the year.

7.3 Amount equivalent to depreciation attributable to revalued portion of the assets is transferred
from Revaluation Reserve Account to the Profit & Loss Account.

8 Revenue Recognition
8.1 Income and expenditure are accounted for on accrual basis unless otherwise stated.

8.2 Income on non-performing assets is recognized on realization basis in accordance with the
prudential norms prescribed by Reserve Bank of India.

8.3 Partial recovery in non-performing assets is appropriated first towards principal and thereafter
towards interest.

8.4 Income on guarantees and letters of credit issued, locker rent, income from merchant banking
transactions, money transfer services, dividend on shares, Interest on refund of income tax,
commission on credit card, interest on overdue bills, processing fee, Government business
including distribution of pension and income from units of mutual fund products and income
from ATM operations are accounted for on receipt basis.

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8.5 Rebate on compromised accounts is accounted for at the time of full and final adjustment of the
account.

8.6 Interest on overdue Term Deposits is provided at the rate of interest applicable to Savings Bank
Deposits.

8.7 Liability in respect of incremental lease rent on renewal of lease agreement is accounted for at
the time of renewal of the lease.

8.8 Bond Issue Expenses incurred in connection with raising Tier-II Capital are treated as Deferred
Revenue Expenditure to be written off over a period of five years.

8.9 Share Issue Expenses are adjusted against the Share Premium Account

9 Staff Retirement Benefits

9.1 Annual contribution to Gratuity Fund, Pension Fund and Leave Encashment Fund are provided
for on the basis of an actuarial valuation.

9.2 The Employees joining on or after 01.04.2010 are being covered under the New Pension
Scheme.
10. Impairment of Assets

Impairment losses (if any) on Fixed Assets (including revalued assets) are recognized in
accordance with AS 28 (Impairment of Assets) issued by the ICAI and charged off to
Profit and Loss Account.

11 Taxes on Income

11.1 Current Income Tax is measured at the amount expected to be paid considering the applicable tax
rates and favorable judicial pronouncement/ legal opinions.

11.2 In accordance with AS-22 Deferred Tax comprising of tax effect of timing differences between
taxable and accounting income for the period, is recognized keeping in view the consideration of
prudence in respect of Deferred Tax Assets/Liabilities.