Kotak Mahindra Bank Ltd. कंपली की लेखा नीति
Mar 31, 2023
A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"). It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Consumer Banking, Commercial Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat. The Bank has commenced operations in October 2019 at its first overseas branch at the Dubai International Financial Centre (DIFC), Dubai, UAE.
B BASIS OF PREPARATION
The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention unless stated otherwise and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounting Standards) Rules, 2021 in so far as they apply to banks and the guidelines issued by RBI.
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 the date of the financial statements and the reported income and expenses during the reporting period. The Bank''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively in the current and future periods.
C SIGNIFICANT ACCOUNTING POLICIES 1 Investments Classification:
In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'') categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided.
Under each of these categories, investments are further classified under six groups (hereinafter called "group/groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''Trade Date'' accounting is followed.
Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category.
The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognised in Profit and Loss Account.
⢠Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognised in the Profit and Loss Account.
⢠Investments classified as HTM - Profit on sale or redemption of investments is recognised in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognised in the Profit and Loss Account.
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is categorised under HFT category and netted off from Investments in the Balance Sheet. The short position is marked to market and loss, if any, is charged to the Profit and Loss Account while gain, if any, is ignored. Gain or loss on settlement of the short position is recognised in the Profit and Loss Account.
The valuation of investments is performed in accordance with the RBI guidelines as follows:
a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortised over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognised in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the market price of the scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared on Fixed Income Money Market and Derivatives Association of India (''FIMMDA'') website by Financial Benchmark India Private Limited (FBIL) as at the year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.
e) Market value of units of mutual funds is based on the latest net asset value declared by the mutual fund.
f) Investments in subsidiaries / joint ventures (as defined by RBI) are categorised as HTM and assessed for impairment to determine other than temporary diminution, if any, in accordance with RBI guidelines.
g) Market value of investments where current quotations are not available are determined as per the norms prescribed by the RBI as under:
⢠In case of unquoted bonds, debentures and preference shares where interest / dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA / FBIL is adopted for this purpose;
⢠In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognised in the Profit and Loss Account until received;
⢠Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at '' 1 per investee company;
⢠Units of Venture Capital Funds (VCF) held under AFS category where current valuations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF. Investment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines. Such investments are required to be transferred to AFS thereafter;
⢠Security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Asset Reconstruction Company or Securitisation Company or estimated recovery whichever is lower.
h) Non-performing investments are identified and depreciation / provision are made thereon based on RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit & Loss Account until received.
i) Repurchase and reverse repurchase transactions - Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are accounted as collateralised borrowing and lending transactions respectively. The difference between the consideration amount of the first leg and the second leg of the repo is recognised as interest income or interest expense over the period of the transaction.
Advances are classified as performing and non-performing advances (''NPAs'') based on RBI guidelines and are stated net of bills rediscounted, interbank participation with risk, specific provisions, interest in suspense, claims received from Export Credit Guarantee Corporation and Emergency Credit Line Guarantee Scheme (ECLGS) with respect to non-performing advances, provisions for funded interest term loan and provisions in lieu of diminution in the fair value of restructured assets. Also, NPAs are classified into sub-standard, doubtful and loss assets as required by RBI guidelines. Interest on NPAs remaining uncollected is transferred to an interest suspense account and not recognised in the Profit and Loss Account until received.
Amounts paid for acquiring non-performing asset(s) from other banks and NBFCs are considered as advances. Actual collections received on such non-performing asset(s) are compared with the cash flow(s) estimated while purchasing the asset to ascertain overdue(s). If such overdue(s) is/ are in excess of 90 days, then this/these asset(s) are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing asset(s).
The Bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where the Bank is participating, the aggregate amount of the participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the Bank is participating, the aggregate amount of participation is shown as due from banks under advances.
Provision for NPAs comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Bank considers accelerated specific provisioning that is based on past experience, evaluation of security and other related factors. Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the Bank in case of NPAs written off are recognised in the Profit and Loss Account.
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.
In respect of borrowers restructured under the Resolution Framework - 1.0 and Resolution Framework 2.0 for COVID-19 related stress the Bank holds provisions higher than the provisions as required by the RBI guidelines based on the estimates made by the Bank.
In accordance with RBI guidelines the Bank has provided general provision on standard assets including credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts, and gold at levels stipulated by RBI from time to time. Additional standard asset provision is done for overseas stepdown subsidiaries of Indian corporates. Standard provision is also made at higher than the prescribed rates in respect of advances to stressed sectors as per the framework approved by the Board of Directors. In case of Frauds, the Bank makes provision for amounts it is liable for in accordance with the guidelines issued by RBI. A general provision on the entire amount outstanding from borrowers who had an overdue on February 29, 2020 and to whom moratorium was given is also made.
Further to provisions required as per the asset classification status, provisions are held for individual country exposure (except for home country) as per the RBI guidelines. Exposure is classified in the seven risk categories as mentioned in the Export Credit Guarantee Corporation of India Limited (''ECGC'') guidelines and provisioning is done for that country if the net funded exposure is one percent or more of the Bank''s total assets based on the rates laid down by the RBI.
Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines.
3 Loss on Sale of Advances to Asset Reconstruction Company
Loss on sale of Advances sold to Asset Reconstruction Company are recognised immediately in the Profit and Loss Account.
The Bank enters into purchase/sale of corporate and retail loans through direct assignment/Special Purpose Vehicle (''SPV''). In most cases, post securitisation, the Bank continues to service the loans transferred to the assignee/ SPV. The Bank also provides credit enhancement in the form of cash collaterals and/or by subordination of cash flows to Senior Pass-Through Certificate holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/disclosure is made at the time of sale in accordance with AS-29, Provisions, Contingent Liabilities and Contingent Assets as specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounting Standards) Rules, 2021.
In accordance with the RBI guidelines on Securitisation of Standard Assets dated 24 September 2021, the profit, loss or premium on account of securitisation of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitised asset. Any resultant profit, loss or premium realised on account of securitisation is recognised to the Profit and Loss Account in the period in which the sale is completed.
The Bank invests in instruments of other SPVs which are accounted for at the deal value and are classified under Investments.
5 Fixed assets (Property, Plant & Equipment and Intangible) and depreciation / amortisation
Property, Plant & Equipment and Intangible Assets have been stated at cost less accumulated depreciation and amortisation and adjusted for impairment, if any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets. Gain or loss arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises of the Bank, net of taxes and transfer to statutory reserve is appropriated to Capital Reserve as per RBI guidelines.
Depreciation / Amortisation - Depreciation is provided on a pro-rata basis on a Straight Line Method over the estimated useful life of the assets at rates which are equal to or higher than the rates prescribed under Schedule II of the Companies Act, 2013 in order to reflect the actual usage of the assets. The estimated useful lives of assets based on technical evaluation by management are as follows:
|
Asset Type |
Estimated Useful life in years |
|
Premises |
58 |
|
Leasehold Land |
Over the lease period |
|
Improvement to leasehold premises |
Over the period of lease subject to a maximum of 6 years. |
|
Office equipments (High capacity chillers, Transformers, UPS, DG set, Fire Suppression, HVAC, PAC & Elevators) |
10 |
|
Office equipments (other than above) |
5 |
|
Computers |
3 |
|
Furniture and Fixtures |
6 |
|
Motor Vehicles |
4 |
|
ATMs |
5 |
|
Software (including development) expenditure |
3 |
Used assets purchased are depreciated over the residual useful life from the date of original purchase.
Items costing less than '' 5,000 are fully depreciated in the year of purchase.
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
The Bank imports bullion including precious metal bars on a consignment basis for selling to its wholesale customers. The difference between the sale price to customers and actual price quoted by supplier is reflected under other income.
The Bank also borrows and lends gold, which is treated as borrowings or lending as the case may be in accordance with the RBI guidelines and the interest paid or received is classified as interest expense or income and is accounted on an accrual basis.
Interest income is recognised on accrual basis.
Interest income in respect of retail advances is accounted for by using the internal rate of return method to provide a constant periodic rate of return.
Interest income on investments in PTCs and loans bought out through the direct assignment route is recognised at their effective interest rate.
Interest income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return.
Service charges, fees and commission income are recognised when due except for guarantee commission and letter of credit which is recognised over the period of the guarantee / letter of credit. Syndication / arranger fee is recognised as income as per the terms of engagement.
Upon an asset becoming NPA the income accrued gets reversed, and is recognised only on realisation, as per RBI guidelines.
Penal interest is recognised as income on realisation other than on running accounts where it is recognised when due.
Dividend income is accounted on an accrual basis when the Bank''s right to receive the dividend is established.
Gain on account of securitisation of assets is amortised over the life of the securities issued in accordance with the guidelines issued by the RBI. Loss on account of securitisation of assets is recognised immediately in Profit and Loss account.
In respect of non-performing assets acquired from other Banks / FIs and NBFCs, collections in excess of the consideration paid at each asset level or portfolio level is treated as income in accordance with RBI guidelines and clarifications.
Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is recognised as expense under other expenses in accordance with the guidelines issued by the RBI.
9 Employee benefits Defined Contribution Plan Provident Fund
Contribution as required by the statute made to the government provident fund or to a fund set up by the Bank and administered by a board of trustees is debited to the Profit and Loss Account when an employee renders the related service. The Bank has no further obligations.
The Bank makes contributions in respect of eligible employees, subject to a maximum of 0.01 crore per employee per annum to a Fund administered by trustees and managed by Life Insurance Companies. The Bank recognises such contributions as an expense in the year when an employee renders the related service. The Bank has no further obligations.
The Bank contributes up to 10% of eligible employees'' salary per annum, to the New Pension Fund administered by a Pension Fund Regulatory and Development Authority (PFRDA) appointed pension fund manager. The Bank recognises such contributions as an expense in the year when an employee renders the related service.
DIFC Employee Workplace Savings Scheme (DEWS)
The Bank''s branch in Dubai International Financial Centre (DIFC) contributes up to 8.33% of eligible branch employees'' salary per annum to the DIFC Employee Workplace Savings Scheme (DEWS). The Bank recognises such contributions as an expense in the year when an employee renders the related service. The Bank has no further obligation.
The Bank provides for Gratuity, covering employees in accordance with the Payment of Gratuity Act, 1972, service regulations and service awards as the case may be. The Bank''s liability is actuarially determined (using Projected Unit Credit Method) at the Balance Sheet date. The Bank makes contribution to Gratuity Funds administered by trustees and managed by Life Insurance Companies.
In respect of pension payable to certain erstwhile ING Vysya Bank Limited ("eIVBL") employees under Indian Banks'' Association ("IBA") structure, the Bank contributes 10% of basic salary to a pension fund and the difference between the contribution and the amount actuarially determined by an independent actuary is trued up based on actuarial valuation conducted as at the Balance Sheet date. The Pension Fund is administered by the Board of Trustees and managed by Life Insurance Company. The present value of the Bank''s defined pension obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date.
Employees covered by the pension plan are not eligible for employer''s contribution under the provident fund plan.
The contribution made to the Pension fund is recognised as planned assets. The defined benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as reduced by the fair value of the plan assets.
Actuarial gains or losses in respect of all defined benefit plans are recognised immediately in the Profit and Loss Account in the year in which they are incurred.
Compensated Absences - Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation. The net present value of the Banks'' obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date. Actuarial gains / losses are recognised in the Profit and Loss Account in the year in which they arise.
As per the Bank''s policy, employees are eligible for an award after completion of a specified number of years of service with the Bank. The obligation is measured at the Balance Sheet date on the basis of an actuarial valuation using the Projected Unit Credit Method.
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include performance incentives.
Employee share based payments Equity-settled scheme:
The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. The schemes provide for grant of options to employees of the Group to acquire the equity shares of the Bank that vest in cliff vesting or in a graded manner and that are to be exercised within a specified period.
RBI, vide its clarification dated 30th August, 2021 on Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments granted after the accounting period ending 31st March, 2021.
In accordance with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 and the Guidance Note on "Accounting for Employee Share-based payments" issued by The Institute of Chartered Accountants of India, the cost of equity-settled transactions is measured using the intrinsic value method for all options granted on or before 31st March, 2021. The intrinsic value being the excess, if any, of the fair market price of the share under ESOSs over the exercise price of the option is recognised as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account.
The Bank has changed its accounting policy from intrinsic value method to fair value method for all share-linked instruments granted after 31st March, 2021 in accordance with the RBI guidance. The fair value of the option is estimated on the date of grant using Black-Scholes model and is recognised as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account.
The deferred employee compensation cost is amortised on a straight-line basis over the vesting period of the option. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of equity instruments that are outstanding.
The options that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense in "Payment to and provision for employee", equal to the amortised portion of the cost of lapsed option and credit to deferred employee compensation equal to the unamortised portion. In respect of the options which expire unexercised the balance standing to the credit of Employee''s Stock Option (Grant) Outstanding account is transferred to General Reserve. The fair market price is the latest available closing price, preceding the date of grant of the option, on the stock exchange on which the shares of the Bank are listed.
Where the terms of an equity-settled award are modified, the minimum expense recognised in ''Payments to and provision for employees'' is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total intrinsic/ fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
In respect of options granted to employees of subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. Cash-settled scheme:
The cost of cash-settled transactions, stock appreciation rights (SARs) having grant date on or before 31st March 2021 is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. Similar to Equity settled options, SARs granted after 31st March, 2021 are measured on fair value basis.
The intrinsic / fair value is amortised on a straight-line basis over the vesting period with a recognition of corresponding liability. This liability is remeasured at each balance sheet date up to and including the vesting date with changes in intrinsic / fair value recognised in the profit and loss account in ''Payments to and provision for employees''.The SARs that do not vest because of failure to satisfy vesting conditions are reversed by a credit to employee compensation expense, equal to the amortised cost in respect of the lapsed portion.
10 Foreign currency transactions
Foreign currency monetary assets and monetary liabilities are translated as at the Balance Sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (FEDAI) and the resultant gain or loss is accounted in the Profit and Loss Account.
Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transactions except in respect of representative office (which are integral in nature) expenses, which are translated at monthly average exchange rates.
Outstanding forward (other than deposit and placement swaps) and spot foreign exchange contracts outstanding at the Balance Sheet date are revalued at rates notified by FEDAI for specified maturities and at the interpolated rates of interim maturities. In case of forward contracts of greater maturities where exchange rates are not notified by FEDAI, are revalued at the forward exchange rates implied by the swap curves in respective currencies. The forward profit or loss on the forward contracts are discounted using discount rate and the resulting profits or losses are recognised in the Profit and Loss Account as per the regulations stipulated by the RBI.
Foreign exchange swaps "linked" to foreign currency deposits and placements are translated at the prevailing spot rate at the time of swap. The premium or discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortised over the period of the swap and the same is recognised in the Profit and Loss Account.
Contingent liabilities on account of letters of credit, bank guarantees and acceptances and endorsements outstanding as at the Balance Sheet date denominated in foreign currencies and other foreign exchange contracts are translated at year-end rates notified by FEDAI.
The financial statements of IBU and DIFC which are in the nature of non-integral overseas operations are translated on the following basis: (a) Income and expenses are converted at the average rate of exchange during the period and (b) All assets and liabilities are translated at closing rate as on Balance Sheet date. The exchange difference arising out of year end translation is debited or credited as "Foreign Currency Translation Reserve" forming part of "Reserves and Surplus".
Notional amounts of derivative transactions comprising of swaps, futures and options are disclosed as off Balance Sheet exposures. The Bank recognises all derivative contracts (other than those designated as hedges) at fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting date. Derivatives are classified as assets when the fair value is positive (positive marked to market) or as liabilities when the fair value is negative (negative marked to market). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss Account.
Outstanding derivative transactions designated as "Hedges" are accounted in accordance with hedging instrument on an accrual basis over the life of the underlying instrument. Option premium paid or received is recognised in the Profit and Loss Account on expiry of the option. Option contracts are marked to market on every reporting date.
Leases where all the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the Profit and Loss Account on a straight-line basis over the lease term. Initial direct costs in respect of operating leases such as legal costs, brokerage costs, etc. are recognised as expense immediately in the Profit and Loss Account.
13 Accounting for provisions, contingent liabilities and contingent assets
The Bank has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and long term contracts. In accordance with Accounting Standard - 29 on ''Provisions, Contingent Liabilities and Contingent Assets'', the Bank recognises a provision for material foreseeable losses when it has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are measured based on best estimate of the expenditure required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
In cases 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 to this effect is made as contingent liabilities in the financial statements. The Bank does not expect the outcome of these contingencies to have a materially adverse effect on its financial results. Contingent assets are neither recognised nor disclosed in the financial statements.
The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. Impairment loss, if any, is provided in the Profit and Loss Account to the extent carrying amount of assets exceeds their estimated recoverable amount.
The Income Tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent period.
Deferred tax assets on account of timing differences are recognised only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In case of carry forward losses and unabsorbed depreciation, under tax laws, all the deferred tax assets are recognised only to the extent there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.
Deferred tax assets are reassessed at each reporting date, based upon the Management''s judgement as to whether realisation is considered as reasonably certain.
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. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change.
Current tax assets and liabilities and deferred tax assets and liabilities are off-set when they relate to income taxes levied by the same taxation authority, when the Bank has a legal right to off-set and when the Bank intends to settle on a net basis.
As per AS 4 (Revised), with effect from April 2016, the Bank is not required to provide for dividend proposed / declared after the Balance Sheet date. The same shall be appropriated from next year amount available for appropriation.
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, and share split.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year.
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
The Bank estimates the liability for credit card reward points and cost per point using actuarial valuation conducted by an independent actuary, which includes assumptions such as mortality, redemption and spends.
In accordance with guidelines issued by RBI and Accounting Standard 17 (AS-17) on "Segment Reporting", the Banks'' business has been segregated into the following segments whose principal activities were as under:
|
Segment |
Principal activity |
|
Treasury, BMU and Corporate Centre |
Money market, forex market, derivatives, investments and primary dealership of government securities and Balance Sheet Management Unit (BMU) responsible for Asset Liability Management and Corporate Centre which primarily comprises of support functions. |
|
Corporate / Wholesale Banking |
Wholesale borrowings and lendings and other related services to the corporate sector which are not included under retail banking. |
|
Retail Banking |
Comprises of: |
|
Digital Banking |
Business involving digital banking products acquired by Digital Banking Unit including existing digital banking products as identified by the Management in accordance with the instructions of the RBI vide its circular dated April 7, 2022. |
|
Other Retail Banking |
Includes (other than covered under Digital Banking above): I Lending Commercial vehicle finance, personal loans, home loans, agriculture finance, other loans / services and exposures which fulfill the four criteria for retail exposures laid down in Basel Committee on Banking Supervision document "International Convergence of Capital Measurement and Capital Standards: A Revised Framework". II Branch Banking Retail borrowings covering savings, current, term deposit accounts and Branch Banking network / services including distribution of financial products. III Credit Cards Receivables / loans relating to credit card business. |
|
Other Banking business |
Any other business not classified above. |
A transfer pricing mechanism has been established by Asset Liability Committee (ALCO) for allocation of interest cost to the above segments based on borrowing costs, maturity profile of assets / liabilities etc. and which is disclosed as part of segment revenue.
Segment revenues consist of earnings from external customers and inter-segment revenues based on a transfer pricing mechanism. Segment expenses consist of interest expenses including allocated operating expenses and provisions.
Segment results are net of segment revenues and segment expenses including interdivisional items.
Segment assets include assets related to segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding net worth and employees'' stock option (grants outstanding) .
Since the business operations of the Bank are primarily concentrated in India, the Bank is considered to operate only in the domestic segment.
Mar 31, 2022
A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"). It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Consumer Banking, Commercial Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat. The Bank has commenced operations in October 2019 at its first overseas branch at the Dubai International Financial Centre (DIFC), Dubai, UAE.
B BASIS OF PREPARATION
The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention unless stated otherwise and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounting Standards) Rules, 2021 in so far as they apply to banks and the guidelines issued by RBI .
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 the date of the financial statements and the reported income and expenses during the reporting period. The Bank''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively in the current and future periods.
C SIGNIFICANT ACCOUNTING POLICIES 1 Investments Classification:
In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'') categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided.
Under each of these categories, investments are further classified under six groups (hereinafter called "group/groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''Trade Date'' accounting is followed.
Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category.
The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognised in Profit and Loss Account.
⢠Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognised in the Profit and Loss Account.
⢠Investments classified as HTM - Profit on sale or redemption of investments is recognised in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognised in the Profit and Loss Account.
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is categorised under HFT category and netted off from Investments in the Balance Sheet. The short position is marked to market and loss, if any, is charged to the Profit and Loss Account while gain, if any, is ignored. Gain or loss on settlement of the short position is recognised in the Profit and Loss Account.
The valuation of investments is performed in accordance with the RBI guidelines as follows:
a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortised over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognised in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the market price of the
scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared on Fixed
Income Money Market and Derivatives Association of India (''FIMMDA'') website by Financial Benchmark India Private Limited (FBIL) as at the year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.
e) Market value of units of mutual funds is based on the latest net asset value declared by the mutual fund.
f) Investments in subsidiaries / joint ventures (as defined by RBI) are categorised as HTM and assessed for impairment to determine other than
temporary diminution, if any, in accordance with RBI guidelines.
g) Market value of investments where current quotations are not available are determined as per the norms prescribed by the RBI as under:
⢠In case of unquoted bonds, debentures and preference shares where interest / dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA / FBIL is adopted for this purpose;
⢠In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognised in the Profit and Loss Account until received;
⢠Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at '' 1 per investee company;
⢠Units of Venture Capital Funds (VCF) held under AFS category where current valuations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF. Investment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines. Such investments are required to be transferred to AFS thereafter;
⢠Security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Asset Reconstruction Company or Securitisation Company or estimated recovery whichever is lower.
h) Non-performing investments are identified and depreciation / provision are made thereon based on RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit & Loss Account until received.
i) Repurchase and reverse repurchase transactions - Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are accounted as collateralised borrowing and lending transactions respectively. The difference between the consideration amount of the first leg and the second leg of the repo is recognised as interest income or interest expense over the period of the transaction.
Advances are classified as performing and non-performing advances (''NPAs'') based on RBI guidelines and are stated net of bills rediscounted, interbank participation with risk, specific provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation, claims received under the emergency credit line guarantee scheme (ECLGS) received from National Credit Guarantee Trustee Company Ltd., provisions for funded interest term loan and provisions in lieu of diminution in the fair value of restructured assets. Also, NPAs are classified into sub-standard, doubtful and loss assets as required by RBI guidelines. Interest on NPAs remaining uncollected is transferred to an interest suspense account and not recognised in the Profit and Loss Account until received.
Amounts paid for acquiring non-performing asset(s) from other banks and NBFCs are considered as advances. Actual collections received on such non-performing asset(s) are compared with the cash flow(s) estimated while purchasing the asset to ascertain overdue(s). If such overdue(s) is/ are in excess of 90 days, then this/these asset(s) are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing asset(s).
Provision for NPAs comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Bank considers accelerated specific provisioning that is based on past experience, evaluation of security and other related factors. Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the Bank in case of NPAs written off are recognised in the Profit and Loss Account.
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.
Further in accordance with Resolution Framework for COVID-19 and Restructuring of Micro, Small and Medium Enterprises (MSME) sector advances both announced by RBI on 6th August, 2020, 5th May, 2021 the Bank has implemented one-time restructuring for certain eligible borrowers and such borrowers are classified as Standard in accordance with the above framework at the time of implementation.
In respect of borrowers restructured under the Resolution Framework - 1.0 and Resolution Framework 2.0 for COVID-19 related stress the Bank holds provisions higher than the provisions as required by the RBI guidelines based on the estimates made by the Bank.
In accordance with RBI guidelines the Bank has provided general provision on standard assets including credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts, and gold at levels stipulated by RBI from time to time. Additional standard asset provision is done for overseas stepdown subsidiaries of Indian corporates. Standard provision is also made at higher than the prescribed rates in respect of advances to stressed sectors as per the framework approved by the Board of Directors. In case of Frauds, the Bank makes provision for amounts it is liable for in accordance with the guidelines issued by RBI. A general provision on the entire amount outstanding from borrowers who had an overdue on 29th February, 2020 and to whom moratorium was given is also made.
Further to provisions required as per the asset classification status, provisions are held for individual country exposure (except for home country) as per the RBI guidelines. Exposure is classified in the seven risk categories as mentioned in the Export Credit Guarantee Corporation of India Limited (''ECGC'') guidelines and provisioning is done for that country if the net funded exposure is one percent or more of the Bank''s total assets based on the rates laid down by the RBI.
Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines.
3 Loss on Sale of Advances to Asset Reconstruction Company
Loss on sale of Advances sold to Asset Reconstruction Company are recognised immediately in the Profit and Loss Account.
The Bank enters into purchase/sale of corporate and retail loans through direct assignment/Special Purpose Vehicle (''SPV''). In most cases, post securitisation, the Bank continues to service the loans transferred to the assignee/ SPV. The Bank also provides credit enhancement in the form of cash collaterals and/or by subordination of cash flows to Senior Pass-Through Certificate holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/disclosure is made at the time of sale in accordance with AS-29, Provisions, Contingent Liabilities and Contingent Assets as specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounting Standards) Rules.
In accordance with the RBI guidelines on Securitisation of Standard Assets dated 24th September, 2021, the profit, loss or premium on account of securitisation of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitised asset. Any resultant profit, loss or premium realised on account of securitisation is recognised to the Profit and Loss Account in the period in which the sale is completed.
The Bank invests in instruments of other SPVs which are accounted for at the deal value and are classified under Investments.
5 Fixed assets (Property, Plant & Equipment and Intangible) and depreciation / amortisation
Property, Plant & Equipment and Intangible Assets have been stated at cost less accumulated depreciation and amortisation and adjusted for impairment, if any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets. Gain or loss arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises of the Bank, net of taxes and transfer to statutory reserve is appropriated to Capital Reserve as per RBI guidelines.
Depreciation / Amortisation - Depreciation is provided on a pro-rata basis on a Straight Line Method over the estimated useful life of the assets at rates which are equal to or higher than the rates prescribed under Schedule II of the Companies Act, 2013 in order to reflect the actual usage of the assets. The estimated useful lives of assets based on technical evaluation by management are as follows:
|
Asset Type |
Estimated Useful life in years |
|
Premises |
58 |
|
Leasehold Land |
Over the lease period |
|
Improvement to leasehold premises Office equipments |
Over the period of lease subject to a maximum of 6 years. |
|
(High capacity chillers, Transformers, UPS, DG set, Fire Suppression, HVAC, PAC & Elevators) |
10 |
|
Office equipments (other than above) |
5 |
|
Computers |
3 |
|
Furniture and Fixtures |
6 |
|
Motor Vehicles |
4 |
|
ATMs |
5 |
|
Software (including development) expenditure |
3 |
Used assets purchased are depreciated over the residual useful life from the date of original purchase.
Items costing less than 5,000 are fully depreciated in the year of purchase.
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
The Bank imports bullion including precious metal bars on a consignment basis for selling to its wholesale customers. The difference between the sale price to customers and actual price quoted by supplier is reflected under other income.
The Bank also borrows and lends gold, which is treated as borrowings or lending as the case may be in accordance with the RBI guidelines and the interest paid or received is classified as interest expense or income and is accounted on an accrual basis.
Interest income is recognised on accrual basis.
Interest income in respect of retail advances is accounted for by using the internal rate of return method to provide a constant periodic rate of return.
Interest income on investments in PTCs and loans bought out through the direct assignment route is recognised at their effective interest rate.
Interest income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return.
Service charges, fees and commission income are recognised when due except for guarantee commission and letter of credit which is recognised over the period of the guarantee / letter of credit. Syndication / arranger fee is recognised as income as per the terms of engagement.
Upon an asset becoming NPA the income accrued gets reversed, and is recognised only on realisation, as per RBI guidelines.
Penal interest is recognised as income on realisation other than on running accounts where it is recognised when due.
Dividend income is accounted on an accrual basis when the Bank''s right to receive the dividend is established.
Gain on account of securitisation of assets is amortised over the life of the securities issued in accordance with the guidelines issued by the RBI. Loss on account of securitisation of assets is recognised immediately in Profit and Loss account.
In respect of non-performing assets acquired from other Banks / FIs and NBFCs, collections in excess of the consideration paid at each asset level or portfolio level is treated as income in accordance with RBI guidelines and clarifications.
Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is recognised as expense under other expenses in accordance with the guidelines issued by the RBI.
9 Employee benefits Defined Contribution Plan Provident Fund
Contribution as required by the statute made to the government provident fund or to a fund set up by the Bank and administered by a board of trustees is debited to the Profit and Loss Account when an employee renders the related service. The Bank has no further obligations.
The Bank makes contributions in respect of eligible employees, subject to a maximum of ''0.01 crore per employee per annum to a Fund administered by trustees and managed by Life Insurance Companies. The Bank recognises such contributions as an expense in the year when an employee renders the related service. The Bank has no further obligations.
The Bank contributes up to 10% of eligible employees'' salary per annum, to the New Pension Fund administered by a Pension Fund Regulatory and Development Authority (PFRDA) appointed pension fund manager. The Bank recognises such contributions as an expense in the year when an employee renders the related service.
DIFC Employee Workplace Savings Scheme (DEWS)
The Bank''s branch in Dubai International Financial Centre (DIFC) contributes up to 8.33% of eligible branch employees'' salary per annum to the DIFC Employee Workplace Savings Scheme (DEWS). The Bank recognises such contributions as an expense in the year when an employee renders the related service. The Bank has no further obligation.
The Bank provides for Gratuity, covering employees in accordance with the Payment of Gratuity Act, 1972, service regulations and service awards as the case may be. The Bank''s liability is actuarially determined (using Projected Unit Credit Method) at the Balance Sheet date. The Bank makes contribution to Gratuity Funds administered by trustees and managed by Life Insurance Companies.
In respect of pension payable to certain erstwhile ING Vysya Bank Limited ("eIVBL") employees under Indian Banks'' Association ("IBA") structure, the Bank contributes 10% of basic salary to a pension fund and the difference between the contribution and the amount actuarially determined by an independent actuary is trued up based on actuarial valuation conducted as at the Balance Sheet date. The Pension Fund is administered by the Board of Trustees and managed by Life Insurance Company. The present value of the Bank''s defined pension obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date.
Employees covered by the pension plan are not eligible for employer''s contribution under the provident fund plan.
The contribution made to the Pension fund is recognised as planned assets. The defined benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as reduced by the fair value of the plan assets.
Actuarial gains or losses in respect of all defined benefit plans are recognised immediately in the Profit and Loss Account in the year in which they are incurred.
Compensated Absences - Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation. The net present value of the Banks'' obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date. Actuarial gains / losses are recognised in the Profit and Loss Account in the year in which they arise.
As per the Bank''s policy, employees are eligible for an award after completion of a specified number of years of service with the Bank. The obligation is measured at the Balance Sheet date on the basis of an actuarial valuation using the Projected Unit Credit Method.
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include performance incentives.
Employee share based payments Equity-settled scheme:
The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. The schemes provide for grant of options to employees of the Group to acquire the equity shares of the Bank that vest in cliff vesting or in a graded manner and that are to be exercised within a specified period.
RBI, vide its clarification dated 30th August, 2021 on Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments granted after the accounting period ending 31st March, 2021.
In accordance with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 and the Guidance Note on "Accounting for Employee Share-based payments" issued by The Institute of Chartered Accountants of India, the cost of equity-settled transactions is measured using the intrinsic value method for all options granted on or before 31st March, 2021. The intrinsic value being the excess, if any, of the fair market price of the share under ESOSs over the exercise price of the option is recognised as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account.
The Bank has changed its accounting policy from intrinsic value method to fair value method for all share-linked instruments granted after 31st March, 2021 in accordance with the RBI guidance. The fair value of the option is estimated on the date of grant using Black-Scholes model and is recognised as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account.
The deferred employee compensation cost is amortised on a straight-line basis over the vesting period of the option. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of equity instruments that are outstanding.
The options that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense in "Payment to and provision for employee", equal to the amortised portion of the cost of lapsed option and credit to deferred employee compensation equal to the unamortised portion. In respect of the options which expire unexercised the balance standing to the credit of Employee''s Stock Option (Grant) Outstanding account is transferred to General Reserve. The fair market price is the latest available closing price, preceding the date of grant of the option, on the stock exchange on which the shares of the Bank are listed.
Where the terms of an equity-settled award are modified, the minimum expense recognised in ''Payments to and provision for employees'' is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total intrinsic/ fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.
In respect of options granted to employees of subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. Cash-settled scheme:
The cost of cash-settled transactions, stock appreciation rights (SARs) having grant date on or before 31st March, 2021 is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. Similar to Equity settled options, SARs granted after 31st March, 2021 are measured on fair value basis.
The intrinsic / fair value is amortised on a straight-line basis over the vesting period with a recognition of corresponding liability. This liability is remeasured at each balance sheet date up to and including the vesting date with changes in intrinsic / fair value recognised in the profit and loss account in ''Payments to and provision for employees''.The SARs that do not vest because of failure to satisfy vesting conditions are reversed by a credit to employee compensation expense, equal to the amortised cost in respect of the lapsed portion.
10 Foreign currency transactions
Foreign currency monetary assets and monetary liabilities are translated as at the Balance Sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (FEDAI) and the resultant gain or loss is accounted in the Profit and Loss Account.
Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transactions except in respect of representative office (which are integral in nature) expenses, which are translated at monthly average exchange rates.
Outstanding forward (other than deposit and placement swaps) and spot foreign exchange contracts outstanding at the Balance Sheet date are revalued at rates notified by FEDAI for specified maturities and at the interpolated rates of interim maturities. In case of forward contracts of greater maturities where exchange rates are not notified by FEDAI, are revalued at the forward exchange rates implied by the swap curves in respective currencies. The forward profit or loss on the forward contracts are discounted using discount rate and the resulting profits or losses are recognised in the Profit and Loss Account as per the regulations stipulated by the RBI.
Foreign exchange swaps "linked" to foreign currency deposits and placements are translated at the prevailing spot rate at the time of swap. The premium or discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortised over the period of the swap and the same is recognised in the Profit and Loss Account.
Contingent liabilities on account of letters of credit, bank guarantees and acceptances and endorsements outstanding as at the Balance Sheet date denominated in foreign currencies and other foreign exchange contracts are translated at year-end rates notified by FEDAI.
The financial statements of IBU and DIFC which are in the nature of non-integral overseas operations are translated on the following basis: (a) Income and expenses are converted at the average rate of exchange during the period and (b) All assets and liabilities are translated at closing rate as on Balance Sheet date. The exchange difference arising out of year end translation is debited or credited as "Foreign Currency Translation Reserve" forming part of "Reserves and Surplus".
Notional amounts of derivative transactions comprising of swaps, futures and options are disclosed as off Balance Sheet exposures. The Bank recognises all derivative contracts (other than those designated as hedges) at fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting date. Derivatives are classified as assets when the fair value is positive (positive marked to market) or as liabilities when the fair value is negative (negative marked to market). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss Account.
Outstanding derivative transactions designated as "Hedges" are accounted in accordance with hedging instrument on an accrual basis over the life of the underlying instrument. Option premium paid or received is recognised in the Profit and Loss Account on expiry of the option. Option contracts are marked to market on every reporting date.
Leases where all the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the Profit and Loss Account on a straight-line basis over the lease term. Initial direct costs in respect of operating leases such as legal costs, brokerage costs, etc. are recognised as expense immediately in the Profit and Loss Account.
13 Accounting for provisions, contingent liabilities and contingent assets
The Bank has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and long term contracts. In accordance with Accounting Standard - 29 on ''Provisions, Contingent Liabilities and Contingent Assets'', the Bank recognises a provision for material foreseeable losses when it has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are measured based on best estimate of the expenditure required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
In cases 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 to this effect is made as contingent liabilities in the financial statements. The Bank does not expect the outcome of these contingencies to have a materially adverse effect on its financial results. Contingent assets are neither recognised nor disclosed in the financial statements.
The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. Impairment loss, if any, is provided in the Profit and Loss Account to the extent carrying amount of assets exceeds their estimated recoverable amount.
The Income Tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent period.
Deferred tax assets on account of timing differences are recognised only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In case of carry forward losses and unabsorbed depreciation, under tax laws, all the deferred tax assets are recognised only to the extent there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.
Deferred tax assets are reassessed at each reporting date, based upon the Management''s judgement as to whether realisation is considered as reasonably certain.
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. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change.
Current tax assets and liabilities and deferred tax assets and liabilities are off-set when they relate to income taxes levied by the same taxation authority, when the Bank has a legal right to off-set and when the Bank intends to settle on a net basis.
As per AS 4 (Revised), with effect from April 2016, the Bank is not required to provide for dividend proposed / declared after the Balance Sheet date. The same shall be appropriated from next year amount available for appropriation.
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, and share split.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year.
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
The Bank estimates the liability for credit card reward points and cost per point using actuarial valuation conducted by an independent actuary, which includes assumptions such as mortality, redemption and spends.
Mar 31, 2021
A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"). It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Retail Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat. The Bank has commenced operations in October 2019 at its first overseas branch at the Dubai International Financial Centre (DIFC), Dubai, UAE.
B BASIS OF PREPARATION
The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention except derivatives and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 and other relevant provisions of the Companies Act, 2013 ("the 2013 act") and the Companies (Accounting Standards) Amendment Rules 2016 as amended from time to time in so far as they apply to banks and the guidelines issued by RBI.
The COVID-19 pandemic, besides the widespread public health implications, has had an extraordinary impact on macroeconomic conditions in India and around the world. During the previous year, people and economies around the world, witnessed serious turbulence caused by the first wave of the pandemic, the consequent lockdowns, the gradual easing of restrictions and the emergence of new variants of the virus. Although the government has started vaccination drive, COVID-19 cases have significantly increased in recent months due to second wave as compared to earlier levels in India. Various state governments have again announced strict measures including lockdowns to contain this spread. As COVID vaccines are administered to more and more people, businesses in sectors impacted by pandemic may pick up. However, the continuing and evolving nature of the virus has created uncertainty regarding estimated time required for businesses and lives to get back to normal.
The Bank continues to closely monitor the situation and in response to this health crisis has implemented protocols and processes to execute its business continuity plans and help protect its employees and support its clients. The pandemic has impacted lending business, distribution of third party products, fee income from services or usage of debit/ credit cards, collection efficiency etc. and has resulted in increase in customer defaults and consequently increase in provisions. The Bank, however, has not experienced any significant disruptions in the past one year and has considered the impact on carrying value of assets based on the external or internal information available up to the date of approval of standalone financial statements. The future direct and indirect impact of COVID-19 on Bank business, results of operations, financial position and cash flows remains uncertain. The standalone financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 the date of the financial statements and the reported income and expenses during the reporting period. The Bank''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively in the current and future periods.
C SIGNIFICANT ACCOUNTING POLICIES 1 Investments Classification:
I n accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'') categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided.
Under each of these categories, investments are further classified under six groups (hereinafter called "groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''Trade Date'' accounting is followed.
Basis of classification:
I nvestments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category.
Acquisition Cost:
The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered
as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognised in Profit and
Loss Account.
Disposal of investments:
⢠Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognised in the Profit and Loss Account.
⢠Investments classified as HTM - Profit on sale or redemption of investments is recognised in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognised in the Profit and Loss Account.
Short Sale:
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is categorised
under HFT category and netted off from Investments in the Balance Sheet. The short position is marked to market and loss, if any, is charged to the
Profit and Loss Account while gain, if any, is ignored. Gain or loss on settlement of the short position is recognised in the Profit and Loss Account.
Valuation:
The valuation of investments is performed in accordance with the RBI guidelines as follows:
a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortised over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognised in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the market price of the
scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared on Fixed Income
Money Market and Derivatives Association of India (''FIMMDA'') website by Financial Benchmark India Private Limited (FBIL) as at the year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.
e) Market value of units of mutual funds is based on the latest net asset value declared by the mutual fund.
f) I nvestments in subsidiaries / joint ventures (as defined by RBI) are categorised as HTM and assessed for impairment to determine other than temporary diminution, if any, in accordance with RBI guidelines.
g) Market value of investments where current quotations are not available are determined as per the norms prescribed by the RBI as under:
⢠I n case of unquoted bonds, debentures and preference shares where interest / dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA / FBIL is adopted for this purpose;
⢠In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognised in the Profit and Loss Account until received;
⢠Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at ? 1 per investee company;
⢠Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at ? 1 per VCF. Investment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines. Such investments are required to be transferred to AFS thereafter;
⢠Security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Asset Reconstruction Company or Securitisation Company or estimated recovery whichever is lower.
h) Non-performing investments are identified and depreciation / provision are made thereon based on RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit & Loss Account until received.
i) Repurchase and reverse repurchase transactions - Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are accounted as collateralised borrowing and lending transactions respectively. The difference between the consideration amount of the first leg and the second leg of the repo is recognised as interest income or interest expense over the period of the transaction.
2 Advances
Classification:
Advances are classified as performing and non-performing advances (''NPAs'') based on RBI guidelines and are stated net of bills rediscounted, specific provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation, provisions for funded interest term loan and provisions in lieu of diminution in the fair value of restructured assets. Also, NPAs are classified into sub-standard, doubtful and loss assets as required by RBI guidelines. Interest on NPAs remaining uncollected is transferred to an interest suspense account and not recognised in the Profit and Loss Account until received.
Amounts paid for acquiring non-performing assets from other banks and NBFCs are considered as advances. Actual collections received on such nonperforming assets are compared with the cash flows estimated while purchasing the asset to ascertain overdues. If these overdues are in excess of 90 days, then these assets are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing assets.
The Bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where the Bank is participating, the aggregate amount of the participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the Bank is participating, the aggregate amount of participation is shown as due from banks under advances.
Provisioning:
Provision for NPAs comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Bank considers accelerated specific provisioning that is based on past experience, evaluation of security and other related factors. Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the Bank in case of NPAs written off are recognised in the Profit and Loss Account.
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.
I n accordance with the RBI guidelines relating to COVID-19 Regulatory Package dated 27th March, 2020, 17th April, 2020 and 23rd May 2020 and clarification issued by RBI through Indian Bankers Association dated 6th May, 2020, the Bank has granted moratorium on the payment of instalments and / or interest, as applicable, falling due between 1st March, 2020 and 31st August, 2020 to eligible borrowers classified as Standard, even if overdue, as on 29th February, 2020. In accordance with RBI guidelines, the moratorium period, wherever granted, is excluded by the Bank from the number of days past-due for the purpose of asset classification under RBI''s Income Recognition and Asset Classification norms. The Bank holds provisions as at 31st March, 2021 against the potential impact of customers impacted by COVID-19 pandemic which is higher than the regulatory requirements. In accordance with the said guidelines, such accounts where moratorium has been granted will not be considered as restructured.
Further in accordance with Resolution Framework for COVID-19 and Restructuring of Micro, Small and Medium Enterprises (MSME) sector advances both announced by RBI on 6th August, 2020, the Bank has implemented one-time restructuring for certain eligible borrowers and such borrowers are classified as Standard in accordance with the above framework.
In accordance with RBI guidelines the Bank has provided general provision on standard assets including credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts, and gold at levels stipulated by RBI from time to time - farm credit to agricultural activities, individual housing loan and SME at 0.25%, commercial real estate at 1.00%, restructured standard advances and MSME borrowers registered under GST who have been granted relief at 5%, teaser rate housing loans at 2.00%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%. Additional 2% standard asset provision is done for overseas stepdown subsidiaries of Indian corporates. Standard provision is also made at higher than the prescribed rates in respect of advances to stressed sectors as per the framework approved by the Board of Directors. In case of Frauds, the Bank makes provision for amounts it is liable for in accordance with the guidelines issued by RBI. A general provision at 10% on the entire amount outstanding from borrowers who had an overdue on February 29, 2020 and to whom moratorium was given is also made.
In respect of borrowers restructured under the Resolution Framework for COVID-19, a general provision, which is higher of the provisions held as per the extant IRAC norms immediately before implementation of restructuring or 10% of the renegotiated debt exposure, has been made. Further, for borrowers restructured under the Restructuring of Micro, Small and Medium Enterprises (MSME) sector advances Bank has maintain additional provision of 5% over and above the provision already held.
Further to provisions required as per the asset classification status, provisions are held for individual country exposure (except for home country) as per the RBI guidelines. Exposure is classified in the seven risk categories as mentioned in the Export Credit Guarantee Corporation of India Limited (''ECGC'') guidelines and provisioning is done for that country if the net funded exposure is one percent or more of the Bank''s total assets based on the rates laid down by the RBI.
Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines.
3 Loss on Sale of Advances to Asset Reconstruction Company
Loss on sale of Advances sold to Asset Reconstruction Company are recognised immediately in the Profit and Loss Account.
4 Securitisation
The Bank enters into arrangements for sale of loans through Special Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank continues to service the loans transferred to the SPV. At times, the Bank also provides credit enhancement in the form of cash collaterals and / or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision / disclosure is made at the time of sale in accordance with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets".
I n accordance with the RBI guidelines, the profit or premium on account of securitisation of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitised asset amortised over the tenure of the securities issued. Loss on account of securitisation on assets is recognised immediately to the Profit and Loss Account.
The Bank invests in PTCs of other SPVs which are accounted for at the deal value and are classified under Investments.
5 Fixed assets (Property, Plant & Equipment and Intangible) and depreciation / amortisation
Property, Plant & Equipment and Intangible Assets have been stated at cost less accumulated depreciation and amortisation and adjusted for impairment, if any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets. Gain or loss arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises of the Bank, net of taxes and transfer to statutory reserve is appropriated to Capital Reserve as per RBI guidelines.
Depreciation / Amortisation - Depreciation is provided on a pro-rata basis on a Straight Line Method over the estimated useful life of the assets at rates which are equal to or higher than the rates prescribed under Schedule II of the Companies Act, 2013 in order to reflect the actual usage of the assets. The estimated useful lives of assets based on technical evaluation by management are as follows:
conform to current years'' presentation.
Mar 31, 2018
SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"), It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Retail Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat which is India''s first global financial and IT services hub designed on the lines of global financial centres.
B BASIS OF PREPARATION
The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 and other relevant provisions of the Companies Act, 2013 ("the 2013 act") and the Companies (Accounting Standards) Amendment Rules 2016 in so far as they apply to banks and the guidelines issued by RBI,
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 the date of the financial statements and the reported income and expenses during the reporting period. The Bank''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods,
C. SIGNIFICANT ACCOUNTING POLICIES
1 Investments Classification:
In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'') categories (hereinafter called "categories"), Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided,
Under each of these categories, investments are further classified under six groups (hereinafter called "groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries/Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''Trade Date'' accounting is followed,
Basis of classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category
Acquisition Cost:
The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognized in Profit and Loss Account.
Disposal of investments:
- Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognized in the Profit and Loss Account.
- Investments classified as HTM - Profit on sale or redemption of investments is recognized in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognized in the Profit and Loss Account.
Valuation:
The valuation of investments is performed in accordance with the RBI guidelines as follows:
a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortized over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognized in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the market price of the scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared on Fixed Income Money Market and Derivatives Association of India (''FIMMDA'') website by Financial Benchmark India Private Limited (FBIL) as at the year end,
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.
e) Units of mutual funds are valued at the latest net asset value declared by the mutual fund,
f) Investments in subsidiaries / joint ventures (as defined by RBI) are categorized as HTM and assessed for impairment to determine other than temporary diminution, if any, in accordance with RBI guidelines,
g) Market value of investments where current quotations are not available, are determined as per the norms prescribed by the RBI as under:
- In case of unquoted bonds, debentures and preference shares where interest /dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA/FBIL is adopted for this purpose;
- In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognized in the Profit and Loss Account until received;
- Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Rs, 1 per investee company;
- Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs, 1 per VCF. Investment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines;
Amounts paid for acquiring non-performing assets from other banks and NBFCs are considered as advances. Actual collections received on such non-performing assets are compared with the cash flows estimated while purchasing the asset to ascertain overdues. If these overdues are in excess of 90 days, then these assets are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing assets.
The Bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where the Bank is participating, the aggregate amount of the participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the Bank is participating, the aggregate amount of participation is shown as due from banks under advances,
Provisioning:
Provision for NPAs comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Bank considers accelerated specific provisioning that is based on past experience, evaluation of security and other related factors. Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the Bank in case of NPAs written off are recognized in the Profit and Loss Account,
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.
In accordance with RBI guidelines the Bank has provided general provision on standard assets including credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts, and gold at levels stipulated by RBI from time to time - farm credit to agricultural activities, individual housing loan and SME at 0.25%, commercial real estate at 1.00%, restructured standard advances at 5%, teaser rate housing loans at 2.00%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%. Additional 2% standard asset provision is done for overseas step-down subsidiaries of Indian corporate. Standard provision is also done at higher than the prescribed rates in respect of advances to stressed sectors as per the framework approved by the Board of Directors.
Further to provisions required as per the asset classification status, provisions are held for individual country exposure (except for home country) as per the RBI guidelines. Exposure is classified in the seven risk categories as mentioned in the Export Credit Guarantee Corporation of India Limited (''ECGC'') guidelines and provisioning is done for that country if the net funded exposure is one percent or more of the Bank''s total assets based on the rates laid down by the RBI,
Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines,
3 Loss on Sale of Advances to Asset Reconstruction Company
Loss on sale of Advances sold to Asset Reconstruction Company are recognized immediately in the Profit and Loss Account,
4 Securitization
The Bank enters into arrangements for sale of loans through Special Purpose Vehicles (SPVs). In most cases, post securitization, the Bank continues to service the loans transferred to the SPV. At times, the Bank also provides credit enhancement in the form of cash collaterals and / or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision / disclosure is made at the time of sale in accordance with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets",
In accordance with the RBI guidelines, the profit or premium on account of securitization of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitized asset amortized over the tenure of the securities issued. Loss on account of securitization on assets is recognized immediately to the Profit and Loss Account.
The Bank invests in PTCs of other SPVs which are accounted for at the deal value and are classified under Investments,
5 Fixed assets (Property, Plant & Equipment and Intangible) and depreciation / amortization
Property, Plant & Equipment and Intangible Assets have been stated at cost less accumulated depreciation and amortization and adjusted for impairment, if any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to put to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefit / functioning capability from / of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognized as income or expense in the Profit and Loss Account. Profit on sale of premises, if any, is transferred to Capital Reserve as per the RBI guidelines,
Depreciation / Amortization - Depreciation is provided on a pro-rata basis on a Straight Line Method over the estimated useful life of the assets at rates which are equal to or higher than the rates prescribed under Schedule II of the Companies Act, 2013 in order to reflect the actual usage of the assets. The estimated useful lives of assets based on technical evaluation by management are as follows:
|
Asset Type |
Estimated Useful life in years |
|
Premises |
58 |
|
Improvement to leasehold premises |
Over the period of lease subject to a maximum of 6 years. |
|
Office equipments (High capacity chillers, Transformers, UPS, DG set, Fire Suppression, HVAC, PAC & Elevators) |
10 |
|
Office equipments (other than above) |
5 |
|
Computers |
3 |
|
Furniture and Fixtures |
6 |
|
Motor Vehicles |
4 |
|
ATMs |
5 |
|
Software (including development) expenditure |
3 |
Used assets purchased are depreciated over the residual useful life from the date of original purchase,
Items costing less than Rs, 5,000 are fully depreciated in the year of purchase,
6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
7 Bullion
The Bank imports bullion including precious metal bars on a consignment basis for selling to its wholesale and retail customers. The difference between the sale price to customers and actual price quoted by supplier is reflected under other income.
The Bank also borrows and lends gold, which is treated as borrowings or lending as the case may be in accordance with the RBI guidelines and the interest paid or received is classified as interest expense or income and is accounted on an accrual basis.
8 Revenue recognition
Interest income is recognized on accrual basis,
Interest income in respect of retail advances is accounted for by using the internal rate of return method to provide a constant periodic rate of return on the outstanding on the contract.
Interest income on investments in PTCs and loans bought out through the direct assignment route is recognized at their effective interest rate.
Interest income on discounted instruments is recognized over the tenure of the instruments so as to provide a constant periodic rate of return,
Service charges, fees and commission income are recognized when due except for guarantee commission and letter of credit which is recognized over the period of the guarantee / letter of credit. Syndication / arranger fee is recognized as income as per the terms of engagement.
Upon an asset becoming NPA the income accrued gets reversed, and is recognized only on realisation, as per RBI guidelines. Penal interest is recognized as income on realization other than on running accounts where it is recognized when due,
Dividend income is accounted on an accrual basis when the Bank''s right to receive the dividend is established,
Gain on account of securitization of assets is amortized over the life of the securities issued in accordance with the guidelines issued by the RBI. Loss on account of securitization of assets is recognized immediately in Profit and Loss account.
In respect of non-performing assets acquired from other Banks/FIs and NBFCs, collections in excess of the consideration paid at each asset level or portfolio level is treated as income in accordance with RBI guidelines and clarifications,
Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is expensed as other expenses in accordance with the guidelines issued by the RBI,
9 Employee benefits
Defined Contribution Plan
Provident Fund
Contribution as required by the statute made to the government provident fund or to a fund set up by the Bank and administered by a board of trustees is debited to the Profit and Loss Account when an employee renders the related service. The Bank has no further obligations.
Superannuation Fund
The Bank makes contributions in respect of eligible employees, subject to a maximum of Rs, 0.01 crore per employee per annum to a Fund administered by trustees and managed by Life Insurance Companies. The Bank recognizes such contributions as an expense in the year when an employee renders the related service.
New Pension Scheme
The Bank contributes up to 10% of eligible employees'' salary per annum, to the New Pension Fund administered by a Pension Fund Regulatory and Development Authority (PFRDA) appointed pension fund manager. The Bank recognizes such contributions as an expense in the year when an employee renders the related service,
Defined Benefit Plan
Gratuity
The Bank provides for Gratuity, covering employees in accordance with the Payment of Gratuity Act, 1972, service regulations and service awards as the case may be. The Bank''s liability is actuarially determined (using Projected Unit Credit Method) at the Balance Sheet date, The Bank makes contribution to Gratuity Funds administered by trustees and managed by Life Insurance Companies.
Pension Scheme
In respect of pension payable to certain erstwhile ING Vysya Bank Limited ("eIVBL") employees under Indian Banks'' Association ("IBA") structure, the Bank contributes 10% of basic salary to a pension fund and the balance amount is provided based on actuarial valuation conducted by an independent actuary as at the Balance Sheet date. The Pension Fund is administered by the Board of Trustees and managed by Life Insurance Company. The present value of the Bank''s defined obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date.
Employees covered by the pension plan are not eligible for employer''s contribution under the provident fund plan
The contribution made to the Pension fund is recognized as planned assets. The defined benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as reduced by the fair value of the plan assets.
Actuarial gains or losses in respect of all defined benefit plans are recognized immediately in the Profit and Loss Account in the year they are incurred.
Compensated Absences - Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization. The net present value of the Banks'' obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date. Actuarial gains / losses are recognized in the Profit and Loss Account in the year in which they arise,
Other Employee Benefits
As per the Bank''s policy, employees are eligible for an award after completion of a specified number of years of service with the Bank, The obligation is measured at the Balance Sheet date on the basis of an actuarial valuation using the Projected Unit Credit Method,
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. These benefits include performance incentives.
Employee share based payments
Equity-settled scheme:
The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The Schemes provide for grant of options on equity shares to employees of the Bank and its Subsidiaries to acquire the equity shares of the Bank that vest in a cliff vesting or in a graded manner and that are to be exercised within a specified period,
In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments, issued by The Institute of Chartered Accountants of India, the cost of equity-settled transactions is measured using the intrinsic value method. The intrinsic value being the excess, if any, of the fair market price of the share under ESOSs over the exercise price of the option is recognized as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account. The deferred employee compensation cost is amortized on a straight-line basis over the vesting period of the option. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of equity instruments that are outstanding,
The options that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense, equal to the amortized portion of value of lapsed portion. In respect of the options which expire unexercised the balance standing to the credit of Employee''s Stock Option (Grant) Outstanding accounts is transferred to General Reserve. The fair market price is the latest available closing price, preceding the date of grant of the option, on the stock exchange on which the shares of the Bank are listed,
Where the terms of an equity-settled award are modified, the minimum expense recognized in ''Payments to and provision for employees'' is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total intrinsic value of the share-based payment arrangement, or is otherwise beneficial to the employee as premeasured as at the date of modification.
In respect of options granted to employees of subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries.
Cash-settled scheme:
The cost of cash-settled transactions (Stock Appreciation Rights - ["SARs"]) is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. This intrinsic value is amortized on a straight-line basis over the vesting period with recognition of corresponding liability. This liability is remeasured at each Balance Sheet date up to and including the vesting date with changes in intrinsic value recognized in Profit and Loss Account in ''Payments to and provision for employees'',
The SARs that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense, equal to the amortized cost in respect of the lapsed portion.
10 Foreign currency transactions
Foreign currency monetary assets and monetary liabilities are translated as at the Balance Sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (FEDAI) and the resultant gain or loss is accounted in the Profit and Loss Account,
Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transactions except in respect of representative office (which are integral in nature) expenses, which are translated at monthly average exchange rates.
Outstanding forward exchange contracts (other than deposit and placement swaps) and spot contracts outstanding at the Balance Sheet date are revalued at rates notified by FEDAI for specified maturities and at the interpolated rates of interim maturities. In case of forward contracts of greater maturities where exchange rates are not notified by FEDAI, are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resulting profits or losses are recognized in the Profit and Loss Account as per the regulations stipulated by the RBI.
Foreign exchange swaps "linked" to foreign currency deposits and placements are translated at the prevailing spot rate at the time of swap. The premium or discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortized over the period of the swap and the same is recognized in the Profit and Loss Account.
Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and endorsements outstanding as at the Balance Sheet date denominated in foreign currencies are translated at year-end rates notified by FEDAI.
The financial statements of IBU which are in the nature of non-integral overseas operations are translated on the following basis: (a) Income and expenses are converted at the average rate of exchange during the period and (b) All assets and liabilities are translated at closing rate as on Balance Sheet date. The exchange difference arising out of year end translation is debited or credited as "Foreign Currency Translation Reserve" forming part of "Reserves and Surplus",
11 Derivative transactions
Notional amounts of derivative transactions comprising of forwards, swaps, futures and options are disclosed as off Balance Sheet exposures. The Bank recognizes all derivative contracts (other than those designated as hedges) at fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting date. Derivatives are classified as assets when the fair value is positive (positive marked to market) or as liabilities when the fair value is negative (negative marked to market). Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account.
Outstanding derivative transactions designated as "Hedges" are accounted in accordance with hedging instrument on an accrual basis over the life of the underlying instrument. Option premium paid or received is recognized in the Profit and Loss Account on expiry of the option. Option contracts are marked to market on every reporting date,
12 Lease accounting
Leases where all the risks and rewards of ownership are retained by the less or are classified as operating leases. Operating lease payments are recognized as an expense in the Profit and Loss Account on a straight-line basis over the lease term. Initial direct costs in respect of operating leases such as legal costs, brokerage costs, etc. are recognized as expense immediately in the Profit and Loss Account.
13 Accounting for provisions, contingent liabilities and contingent assets
The Bank has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and long term contracts. In accordance with Accounting Standard - 29 on ''Provisions, Contingent Liabilities and Contingent Assets'', the Bank recognizes a provision for material foreseeable losses when it has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are measured based on best estimate of the expenditure required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
In cases 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 to this effect is made as contingent liabilities in the financial statements. The Bank does not expect the outcome of these contingencies to have a materially adverse effect on its financial results. Contingent assets are neither recognized nor disclosed in the financial statements.
14 Impairment
The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. Impairment loss, if any, is provided in the Profit and Loss Account to the extent carrying amount of assets exceeds their estimated recoverable amount.
15 Taxes on income
The Income Tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent period.
Deferred tax assets on account of timing differences are recognized only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In case of carry forward losses and unabsorbed depreciation, under tax laws, all the deferred tax assets are recognized only to the extent there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized,
Deferred tax assets are reassessed at each reporting date, based upon the Management''s judgment as to whether realization is considered as reasonably certain.
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. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change.
16 Accounting for Dividend
As per AS 4 (Revised), with effect from April 2016, the Bank is not required to provide for dividend proposed/ declared after the balance sheet date. The same shall be appropriated from next year amount available for appropriation.
17 Earnings per share
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, and share split.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year,
18 Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
19 Credit cards reward points
The Bank estimates the liability for credit card reward points and cost per point using actuarial valuation conducted by an independent actuary, which includes assumptions such as mortality, redemption and spends.
Segment revenues consist of earnings from external customers and inter-segment revenues based on a transfer pricing mechanism. Segment expenses consist of interest expenses including allocated operating expenses and provisions.
Segment results are net of segment revenues and segment expenses,
Segment assets include assets related to segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding net worth, employees'' stock option (grants outstanding) and proposed dividend and dividend tax thereon,
Since the business operations of the Bank are primarily concentrated in India, the Bank is considered to operate only in the domestic segment.
Mar 31, 2017
SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"). It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Retail Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat which is India''s first global financial and IT services hub designed on the lines of global financial centreâs.
B BASIS OF PREPARATION
The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 of the Companies Act, 2013 read with Paragraph 7 of the Companies (Accounts) Rules, 2014 and other relevant provisions of the Companies Act, 2013 ("the 2013 act") and the Companies (Accounting Standards) Amendment Rules 2016 in so far as they apply to banks and the guidelines issued by RBI.
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 the date of the financial statements and the reported income and expenses during the reporting period. The Bank''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognized prospectively in the current and future periods.
C.1 CHANGE IN ACCOUNTING POLICY
Accounting for Proposed Dividend
As per the requirements of pre-revised AS 4 - ''Contingencies and Events Occurring after the balance sheet date'', the Bank used to create a liability for dividend proposed/ declared after the balance sheet date if dividend related to periods covered by the financial statements. As per AS 4 (Revised), with effect from April 2016, the Bank is not required to provide for dividend proposed/ declared after the balance sheet date.
Had the Bank continued with creation of provision for proposed dividend, its surplus in the Profit and Loss Account would have been lower by Rs, 132.94 crore and other liabilities would have been higher by Rs, 132.94 crore ( including dividend distribution tax of Rs, 22.94 crore).
C.2 SIGNIFICANT ACCOUNTING POLICIES 1 Investments Classification:
In accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'') categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided.
Under each of these categories, investments are further classified under six groups (hereinafter called "groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''Trade Date'' accounting is followed.
Basis of classification:
Investments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category.
Acquisition Cost:
The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognized in Profit and Loss Account.
Disposal of investments:
- Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognized in the Profit and Loss Account.
- Investments classified as HTM - Profit on sale or redemption of investments is recognized in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognized in the Profit and Loss Account.
Valuation:
The valuation of investments is performed in accordance with the RBI guidelines as follows:
a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortized over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognized in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the market price of the scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared by Primary Dealers Association of India (''PDAI'') jointly with Fixed Income Money Market and Derivatives Association of India (''FIMMDA'') as at the year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.
e) Units of mutual funds are valued at the latest net asset value declared by the mutual fund.
f) Investments in subsidiaries / joint ventures (as defined by RBI) are categorized as HTM and assessed for impairment to determine other than temporary diminution, if any, in accordance with RBI guidelines.
g) Market value of investments where current quotations are not available, are determined as per the norms prescribed by the RBI as under:
- In case of unquoted bonds, debentures and preference shares where interest I dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA is adopted for this purpose;
- In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognized in the Profit and Loss Account until received;
- Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at '' 1 per investee company;
- Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per VCF Investment in unquoted VCF after 23rd August, 2006 are categorized under HTM category for the initial period of three years and valued at cost as per RBI guidelines;
h) Non-performing investments are identified and valued based on the RBI guidelines.
i) Repurchase and reverse repurchase transactions - Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are accounted as collateralized borrowing and lending transactions respectively. The difference between the consideration amount of the first leg and the second leg of the repo is recognized as interest income or interest expense over the period of the transaction.
Mar 31, 2016
A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to
carry out banking business by the Reserve Bank of India ("RBI"). It was
the first NBFC Company in India to be converted into a Bank. Kotak
Mahindra Bank Limited ("Kotak Mahindra Bank" "Kotak" or "the Bank")
provides a full suite of banking services to its customers encompassing
Retail Banking, Treasury and Corporate Banking in India and also has a
representative Office in Dubai.
B BASIS OF PREPARATION
The financial statements have been prepared in accordance with
statutory requirements prescribed under the Banking Regulation Act,
1949. The accounting and reporting policies of Kotak Mahindra Bank
used in the preparation of these financial statements is the accrual
method of accounting and historical cost convention and it conforms
with Generally Accepted Accounting Principles in India ("Indian GAAP"),
the Accounting Standards specified under Section 133 of the Companies
Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and
other relevant provisions of the Companies Act, 2013 ("the 2013 act"),
in so far as they apply to banks and the guidelines issued by the
Reserve Bank of India ("RBI"). The Ministry of Corporate Affairs
("MCA") has notifed the Companies (Accounting Standards) Amendment
Rules, 2016 vide its notifcation dated 30th March, 2016. As per
clarifcation of MCA dated 27th April, 2016, the said rules are
applicable to accounting period commencing on or after the date of
notifcation i.e. 1st April, 2016.
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 the date of
the financial statements and the reported income and expenses during
the reporting period. The Bank''s Management believes that the estimates
used in preparation of the financial statements are prudent and
reasonable. Actual results could differ from these estimates. Any
revision to the accounting estimates is recognised prospectively in the
current and future periods.
1 Investments
Classifcation:
In accordance with the RBI guidelines on investment classifcation and
valuation, investments are classifed on the date of purchase into "Held
for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to
Maturity" (''HTM'') categories (hereinafter called "categories").
Subsequent shifting amongst the categories is done in accordance with
the RBI guidelines at the lower of the acquisition cost or carrying
value and market value on the date of the transfer, and depreciation,
if any, on such transfer is fully provided.
Under each of these categories, investments are further classifed under
six groups (hereinafter called "groups") - Government Securities, Other
Approved Securities, Shares, Debentures and Bonds, Investments in
Subsidiaries / Joint Ventures and Other Investments for the purposes of
disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase
and sale transactions in securities, except in the case of equity
shares where ''Trade Date'' accounting is followed.
Basis of classifcation:
Investments that are held principally for resale within 90 days from
the date of purchase are classifed under HFT category. As per the RBI
guidelines, HFT securities, which remain unsold for a period of 90 days
are reclassifed as AFS securities as on that date. Investments which
the Bank intends to hold till maturity are classifed as HTM securities.
The Bank has classifed investments in subsidiaries, joint ventures and
associates under HTM category. Investments which are not classifed in
either of the above two categories are classifed under AFS category.
Acquisition Cost:
The cost of investments is determined on weighted average basis. Broken
period interest on debt instruments and government securities are
considered as a revenue item. The transaction costs including
brokerage, commission etc. paid at the time of acquisition of
investments is recognised in Profit and Loss Account.
Disposal of investments:
- Investments classifed as HFT or AFS - Profit or loss on sale or
redemption is recognised in the Profit and Loss Account.
- Investments classifed as HTM - Profit on sale or redemption of
investments is recognised in the Profit and Loss Account and is
appropriated to Capital Reserve after adjustments for tax and transfer
to Statutory Reserve. Loss on sale or redemption is recognised in the
Profit and Loss Account.
Valuation:
The valuation of investments is performed in accordance with the RBI
guidelines as follows:
a) Investments classifed as HTM Â These are carried at their
acquisition cost. Any premium on acquisition of debt instruments /
government securities is amortised over the balance maturity of the
security on a straight line basis. Any diminution, other than
temporary, in the value of such securities is provided.
b) Investments classifed as HFT or AFS Â Investments in these
categories are marked to market and the net depreciation, if any,
within each group is recognised in the Profit and Loss Account. Net
appreciation, if any, is ignored. Further, provision other than
temporary diminution is made at individual security level. Except in
cases where provision other than temporary diminution is made, the book
value of the individual securities is not changed as a result of
periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS''
and ''HFT'' categories is measured with respect to the market price of
the scrip as available from the trades or quotes on the stock
exchanges, SGL account transactions, price list of RBI or prices
declared by Primary Dealers Association of India (''PDAI'') jointly with
Fixed Income Money Market and Derivatives Association of India
(''FIMMDA'') as at the year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and
Certifcate of Deposits being discounted instruments, are valued at
carrying cost.
e) Units of mutual funds are valued at the latest Net Asset Value
declared by the mutual fund.
f) Investments in subsidiaries / joint ventures (as defned by the RBI)
are categorised as HTM and assessed for impairment to determine other
than temporary diminution, if any, in accordance with the RBI
guidelines.
g) Market value of investments where current quotations are not
available, is determined as per the norms prescribed by the RBI as
under:
- In case of unquoted bonds, debentures and preference shares where
interest / dividend is received regularly (i.e. not overdue beyond 90
days), the market price is derived based on the Yield to Maturity for
Government Securities as published by FIMMDA / PDAI and suitably marked
up for credit risk applicable to the credit rating of the instrument.
The matrix for credit risk mark-up for each category and credit rating
along with residual maturity issued by FIMMDA is adopted for this
purpose;
- In case of bonds and debentures (including Pass Through Certifcates)
where interest is not received regularly (i.e. overdue beyond 90 days),
the valuation is in accordance with prudential norms for provisioning
as prescribed by the RBI. Interest on such securities is not recognised
in the Profit and Loss Account until received;
- Equity shares, for which current quotations are not available or
where the shares are not quoted on the stock exchanges, are valued at
break-up value (without considering revaluation reserves, if any) which
is ascertained from the Company''s latest Balance Sheet. In case the
latest Balance Sheet is not available, the shares are valued at Rs, 1
per investee company;
- Units of Venture Capital Funds (VCF) held under AFS category where
current quotations are not available are marked to market based on the
Net Asset Value (NAV) shown by VCF as per the latest audited financials
of the fund. In case the audited financials are not available for a
period beyond 18 months, the investments are valued at Rs, 1 per VCF.
Investment in unquoted VCF after 23rd August, 2006 are categorised
under HTM category for the initial period of three years and valued at
cost as per RBI guidelines;
- Security receipts are valued as per the Net Asset Value (NAV)
obtained from the issuing Asset Reconstruction Company or
Securitisation Company.
h) Non-performing investments are identifed and valued based on the RBI
guidelines.
i) Repurchase and reverse repurchase transactions - Securities sold
under agreements to repurchase (Repos) and securities purchased under
agreements to resell (Reverse Repos) are accounted as collateralised
borrowing and lending transactions respectively. The difference between
the consideration amount of the first leg and the second leg of the
repo is recognised as interest income or interest expense over the
period of the transaction.
2 Advances
Classifcation:
Advances are classifed as performing and non-performing advances
(''NPAs'') based on the RBI guidelines and are stated net of bills
rediscounted, specific provisions, interest in suspense for
non-performing advances, claims received from Export Credit Guarantee
Corporation, provisions for funded interest term loan and provisions in
lieu of diminution in the fair value of restructured assets. Also, NPAs
are classifed into sub-standard, doubtful and loss assets. Interest on
NPAs is transferred to an interest suspense account and not recognised
in the Profit and Loss Account until received.
Amounts paid for acquiring non-performing assets from other banks and
NBFCs are considered as advances. Actual collections received on such
non-performing assets are compared with the cash fows estimated while
purchasing the asset to ascertain overdue. If the overdue is in excess
of 90 days, then the assets are classifed into sub-standard, doubtful
or loss as required by the RBI guidelines on purchase of non-performing
assets.
The Bank transfers advances through inter-bank participation with and
without risk. In accordance with the RBI guidelines, in the case of
participation with risk, the aggregate amount of the participation
issued by the Bank is reduced from advances and where the Bank is
participating, the aggregate amount of the participation is classifed
under advances. In the case of participation without risk, the
aggregate amount of participation issued by the Bank is classifed under
borrowings and where the Bank is participating, the aggregate amount of
participation is shown as due from banks under advances.
Provisioning:
Provision for NPAs comprising sub-standard, doubtful and loss assets is
made in accordance with the RBI guidelines. In addition, the Bank
considers accelerated specific provisioning that is based on past
experience, evaluation of security and other related factors. Specific
loan loss provision in respect of non-performing advances are charged
to the Profit and Loss Account. Any recoveries made by the Bank in case
of NPAs written off are recognised in the Profit and Loss Account.
The Bank considers a restructured account as one where the Bank, for
economic or legal reasons relating to the borrower''s financial
diffculty, grants to the borrower concessions that the Bank would not
otherwise consider. Restructuring would normally involve modifcation 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 classifed 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.
In accordance with RBI guidelines the Bank has provided general
provision on standard assets including credit exposures computed as per
the current marked to market values of interest rate and foreign
exchange derivative contracts and gold at levels stipulated by RBI from
time to time - direct advances to sectors agricultural and SME at
0.25%, commercial real estate at 1.00%, restructured standard advances
progressively to reach 5%, teaser rate housing loans at 2.00%,
commercial real estate-residential housing at 0.75% and for other
sectors at 0.40%.
Further to provisions required as per the asset classifcation status,
provisions are held for individual country exposure (except for home
country) as per the RBI guidelines. Exposure is classifed in the seven
risk categories as mentioned in the Export Credit Guarantee Corporation
of India Limited (''ECGC'') guidelines and provisioning is done for that
country if the net funded exposure is one percent or more of the Bank''s
total assets based on the rates laid down by the RBI.
Provision for Unhedged Foreign Currency Exposure of borrowers are made
as per the RBI guidelines.
3 Loss on Sale of Advances to Asset Reconstruction Company
Loss on sale of Advances sold to Asset Reconstruction Company are
recognised immediately in the Profit and Loss Account.
4 Securitisation
The Bank enters into arrangements for sale of loans through Special
Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank
continues to service the loans transferred to the SPV. At times the
Bank also provides credit enhancement in the form of cash collaterals
and / or by subordination of cash fows to Senior Pass Through
Certifcate (PTC) holders. In respect of credit enhancements provided or
recourse obligations (projected delinquencies, future servicing etc.)
accepted by the Bank, appropriate provision / disclosure is made at the
time of sale in accordance with Accounting Standard 29, "Provisions,
Contingent Liabilities and Contingent Assets".
In accordance with the RBI guidelines, the Profit or premium on account
of securitisation of assets at the time of sale is computed as the
difference between the sale consideration and the book value of the
securitised asset amortised over the tenure of the securities issued.
Loss on account of securitisation on assets is recognised immediately
to the Profit and Loss Account.
The Bank invests in PTCs of other SPVs which are accounted for at the
deal value and are classifed under Investments.
5 Fixed Assets (Tangible and Intangible) and depreciation/ amortisation
Tangible and Intangible Assets have been stated at cost less
accumulated depreciation and amortisation and adjusted for impairment,
if any. Cost includes cost of purchase inclusive of freight, duties,
incidental expenses and all expenditure like site preparation,
installation costs and professional fees incurred on the asset before
it is ready to put to use. Subsequent expenditure incurred on assets
put to use is capitalised only when it increases the future benefit /
functioning capability from / of such assets. Gain or losses arising
from the retirement or disposal of a Tangible / Intangible Asset are
determined as the difference between the net disposal proceeds and the
carrying amount of assets and recognised as income or expense in the
Profit and Loss Account. Profit on sale of premises, if any, is
transferred to Capital Reserve as per the RBI guidelines.
Depreciation / Amortisation - Depreciation is provided on a pro-rata
basis on a Straight Line Method over the estimated useful life of the
assets at rates which are higher than the rates derived from useful
lives prescribed under Schedule II of the Companies Act, 2013 in order
to refect the actual usage of the assets. Estimated useful lives over
which assets are depreciated / amortised are as follows:
Used assets purchased are depreciated over the residual useful life
from the date of original purchase. Items costing less than Rs, 5,000
are fully depreciated in the year of purchase.
6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve
Bank of India and Balances with Other Banks / institutions and money at
Call and short Notice (including the effect of changes in exchange
rates on cash and cash equivalents in foreign currency).
7 Bullion
The Bank imports bullion including precious metal bars on a consignment
basis for selling to its wholesale and retail customers. The difference
between the sale price to customers and actual price quoted by supplier
is refected under other income.
The Bank also borrows and lends gold, which is treated as borrowings or
lending as the case may be in accordance with the RBI guidelines and
the interest paid or received is classifed as interest expense or
income and is accounted on an accrual basis.
8 Revenue recognition
Interest income (other than in respect of retail advances) is
recognised on accrual basis.
Interest income in respect of retail advances is accounted for by using
the internal rate of return method to provide a constant periodic rate
of return on the net investment outstanding on the contract.
Interest income on investments in PTCs and loans bought out through the
direct assignment route is recognised at their effective interest rate.
Interest income on discounted instruments is recognised over the tenure
of the instruments so as to provide a constant periodic rate of return.
Service charges, fees and commission income are recognised when due
except for guarantee commission and letter of credit which is
recognised over the period of the guarantee / letter of credit.
Syndication / arranger fee is recognised as income as per the terms of
engagement.
Upon an asset becoming NPA the income accrued gets reversed, and is
recognised only on realisation, as per RBI guidelines. Penal interest
is recognised as income on realisation.
Dividend income is accounted on an accrual basis when the Bank''s right
to receive the dividend is established.
Gain on account of securitisation of assets is amortised over the life
of the securities issued in accordance with the guidelines issued by
the RBI.
In respect of non-performing assets acquired from other Banks / FIs and
NBFCs, collections in excess of the consideration paid at each asset
level or portfolio level is treated as income in accordance with RBI
guidelines and clarifcations.
9 Employee benefits
Defned Contribution Plan
Provident Fund
Contribution as required by the statute made to the government
provident fund or to a fund set up by the Bank and administered by a
board of trustees is debited to the Profit and Loss Account when an
employee renders the related service. The Bank has no further
obligations.
Superannuation Fund
The Bank makes contributions in respect of eligible employees, subject
to a maximum of Rs,0.01 crore per employee per annum to a Fund
administered by trustees and managed by life insurance companies. The
Bank recognises such contributions as an expense in the year when an
employee renders the related service.
New Pension Scheme
The Bank contributes up to 10% of eligible employees'' salary per annum,
to the New Pension Fund administered by a Pension Fund Regulatory and
Development Authority (PFRDA) appointed pension fund manager. The Bank
recognises such contributions as an expense in the year when an
employee renders the related service.
Defned Benefit Plan
Gratuity
The Bank provides for Gratuity, covering employees in accordance with
the Payment of Gratuity Act, 1972, Service regulations and Service
awards as the case may be. The Bank''s liability is actuarially
determined (using Projected Unit Credit Method) at the Balance Sheet
date. The Bank makes contribution to Gratuity Funds administered by
trustees and managed by life insurance companies.
Pension Scheme
In respect of pension payable to certain erstwhile ING Vysya Bank
Limited ("eIVBL") employees under Indian Banks'' Association ("IBA")
structure, the Bank contributes 10% of basic salary to a pension fund
and the balance amount is provided based on actuarial valuation
conducted by an independent actuary as at the Balance Sheet date. The
Pension Fund is administered by the board of trustees and managed by
life insurance company. The present value of the Bank''s defned
obligation is determined using the Projected Unit Credit Method as at
the Balance Sheet date.
Employees covered by the pension plan are not eligible for employer''s
contribution under the provident fund plan.
The contribution made to the trust is recognised as planned assets. The
defned benefit obligation recognised in the Balance Sheet represents
the present value of the defned benefit obligation as reduced by the
fair value of the plan assets.
Actuarial gains or losses in respect of all defned benefit plans are
recognised immediately in the Profit and Loss Account in the year they
are incurred.
Compensated Absences  Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the
actuarial valuation as at the Balance Sheet date conducted by an
independent actuary which includes assumptions about demographics,
early retirement, salary increases, interest rates and leave
utilisation. The net present value of the Banks'' obligation is
determined using the Projected Unit Credit Method as at the Balance
Sheet date. Actuarial gains / losses are recognised in the Profit and
Loss Account in the year in which they arise.
Other Employee Benefits
As per the Bank''s policy, employees are eligible for an award after
completion of a specified number of years of service with the Bank. The
obligation is measured at the Balance Sheet date on the basis of an
actuarial valuation using the Projected Unit Credit Method.
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These benefits
include performance incentives.
Employee share based payments
Equity-settled scheme:
The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance
with Securities and Exchange Board of India (Share Based Employee
Benefits) Regulations, 2014. The Schemes provide for grant of options
on equity shares to employees of the Bank and its Subsidiaries to
acquire the equity shares of the Bank that vest in a cliff vesting or
in a graded manner and that are to be exercised within a specified
period.
In accordance with the Securities and Exchange Board of India (Share
Based Employee Benefits) Regulations, 2014 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by The Institute
of Chartered Accountants of India, the cost of equity-settled
transactions is measured using the intrinsic value method. The
intrinsic value being the excess, if any, of the fair market price of
the share under ESOSs over the exercise price of the option is
recognised as deferred employee compensation with a credit to
Employee''s Stock Option (Grant) Outstanding account. The deferred
employee compensation cost is amortised on a straight-line basis over
the vesting period of the option. The cumulative expense recognized for
equity-settled transactions at each reporting date until the vesting
date refects the extent to which the vesting period has expired and the
number of equity instruments that are outstanding.
The options that do not vest because of failure to satisfy vesting
condition are reversed by a credit to employee compensation expense,
equal to the amortised portion of value of lapsed portion. In respect
of the options which expire unexercised the balance standing to the
credit of
Employee''s Stock Option (Grant) Outstanding accounts is transferred to
General Reserve. The fair market price is the latest available closing
price, preceding the date of grant of the option, on the stock exchange
on which the shares of the Bank are listed.
Where the terms of an equityÂsettled award are modifed, the minimum
expense recognised in ''Payments to and provision for employees'' is the
expense as if the terms had not been modifed. An additional expense is
recognised for any modifcation which increases the total intrinsic
value of the shareÂbased payment arrangement, or is otherwise
Beneficial to the employee as remeasured as at the date of modifcation.
In respect of options granted to employees of subsidiaries, the Bank
recovers the related compensation cost from the respective
subsidiaries.
Cash-settled scheme:
The cost of cash-settled transactions (Stock Appreciation Rights Â
["SARs"]) is measured initially using intrinsic value method at the
grant date taking into account the terms and conditions upon which the
instruments were granted. This intrinsic value is amortised on a
straight-line basis over the vesting period with recognition of
corresponding liability. This liability is remeasured at each Balance
Sheet date up to and including the settlement date with changes in
intrinsic value recognised in Profit and Loss Account in ''Payments to
and provision for employees''.
The SARs that do not vest because of failure to satisfy vesting
condition are reversed by a credit to employee compensation expense,
equal to the amortised cost in respect of the lapsed portion.
10 Foreign currency transactions
Foreign currency monetary assets and monetary liabilities are
translated as at the Balance Sheet date at rates notifed by the Foreign
Exchange Dealers'' Association of India (FEDAI) and the resultant gain
or loss is accounted in the Profit and Loss Account.
Income and Expenditure items are translated at the rates of exchange
prevailing on the date of the transactions except in respect of
representative Office (which are integral in nature) expenses, which
are translated at monthly average exchange rates.
Outstanding forward exchange contracts (other than deposit and
placement swaps) and spot contracts outstanding at the Balance Sheet
date are revalued at rates notifed by FEDAI for specified maturities
and at the interpolated rates of interim maturities. In case of forward
contracts of greater maturities where exchange rates are not notifed by
FEDAI, are revalued at the forward exchange rates implied by the swap
curves in respective currencies. The resulting Profits or losses are
recognised in the Profit and Loss Account as per the regulations
stipulated by the RBI / FEDAI.
Foreign exchange swaps "linked" to foreign currency deposits and
placements are translated at the prevailing spot rate at the time of
swap. The premium or discount on the swap arising out of the difference
in the exchange rate of the swap date and the maturity date of the
underlying forward contract is amortised over the period of the swap
and the same is recognised in the Profit and Loss Account.
Contingent liabilities on account of foreign exchange contracts,
letters of credit, bank guarantees and acceptances and endorsements
outstanding as at the Balance Sheet date denominated in foreign
currencies are translated at year-end rates notifed by FEDAI.
11 Derivative transactions
Notional amounts of derivative transactions comprising of forwards,
swaps, futures and options are disclosed as off Balance Sheet
exposures. The Bank recognises all derivative contracts (other than
those designated as hedges) at fair value, on the date on which the
derivative contracts are entered into and are re-measured at fair value
as at the Balance Sheet or reporting date. Derivatives are classifed as
assets when the fair value is positive (positive marked to market) or
as liabilities when the fair value is negative (negative marked to
market). Changes in the fair value of derivatives other than those
designated as hedges are recognised in the Profit and Loss Account.
Outstanding derivative transactions designated as "Hedges" are
accounted in accordance with hedging instrument on an accrual basis
over the life of the underlying instrument. Option premium paid or
received is recognised in the Profit and Loss Account on expiry of the
option. Option contracts are marked to market on every reporting date.
12 Lease accounting
Leases where the lessor effectively retains substantially all the risks
and rewards of ownership of the leased term, are classifed as operating
leases. Operating lease payments are recognised as an expense in the
Profit and Loss Account on a straight-line basis over the lease term.
13 Accounting for provisions, contingent liabilities and contingent
assets
The Bank has assessed its obligations arising in the normal course of
business, including pending litigations, proceedings pending with tax
authorities and other contracts including derivative and long term
contracts. In accordance with Accounting Standard - 29 on ''Provisions,
Contingent Liabilities and Contingent Assets'', the Bank recognises a
provision for material foreseeable losses when it has a present
obligation as a result of a past event and it is probable that an
outfow of resources will be required to settle the obligation, in
respect of which a reliable estimate can be made. Provisions are not
discounted to its present value and are measured based on best estimate
of the expenditure required to settle the obligation at the Balance
Sheet date. These are reviewed at each Balance Sheet date and adjusted
to refect the current best estimates.
In cases 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 to this effect is made as contingent
liabilities in the financial statements. The Bank does not expect the
outcome of these contingencies to have a materially adverse effect on
its financial results. Contingent assets are neither recognised nor
disclosed in the financial statements.
14 Impairment
The carrying amounts of assets are reviewed at each Balance Sheet date
if there is any indication of impairment based on internal / external
factors. Impairment loss, if any, is provided in the Profit and Loss
Account to the extent carrying amount of assets exceeds their estimated
recoverable amount.
15 Taxes on income
The Income Tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act, 1961.
Deferred tax assets and liabilities are recognised for the future tax
consequences of timing differences being the difference between the
taxable income and the accounting income that originate in one period
and are capable of reversal in one or more subsequent period.
Deferred tax assets on account of timing differences are recognised
only to the extent there is reasonable certainty that suffcient future
taxable income will be available against which such deferred tax assets
can be realised. In case of carry forward losses and unabsorbed
depreciation, under tax laws, the deferred tax assets are recognised
only to the extent there is virtual certainty supported by convincing
evidence that suffcient future taxable income will be available against
which such deferred tax assets can be realised.
Deferred tax assets are reassessed at each reporting date, based upon
the Management''s judgement as to whether realisation is considered as
reasonably certain.
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. Changes in deferred tax assets / liabilities on account of
changes in enacted tax rates are given effect to in the Profit and Loss
Account in the period of the change.
16 Earnings per share
Basic earnings per share are calculated by dividing the net Profit or
loss for the year attributable to equity shareholders (after deducting
attributable taxes) by the weighted average number of equity shares
outstanding during the year. The weighted average number of equity
shares outstanding during the year is adjusted for events of bonus
issue, bonus element in a rights issue to existing shareholders and
share split.
For the purpose of calculating diluted earnings per share, the net
Profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
Diluted earnings per share refect the potential dilution that could
occur if securities or other contracts to issue equity shares were
exercised or converted during the year.
17 Share issue expenses
Share issue expenses are adjusted from Securities Premium Account as
permitted by Section 52 of the Companies Act, 2013.
18 Credit cards reward points
The Bank estimates the liability for credit card reward points and cost
per point using actuarial valuation conducted by an independent
actuary, which includes assumptions such as mortality, redemption and
spends.
19 Segment reporting
In accordance with guidelines issued by RBI vide
DBOD.No.BP.BC.81/21.01.018/2006-07 dated 18th April, 2007 and
Accounting Standard 17 (AS-17) on "Segment Reporting", the Banks''
business has been segregated into the following segments whose
principal activities were as under:
A transfer pricing mechanism has been established by Asset Liability
Committee (ALCO) for allocation of interest cost to the above segments
based on borrowing costs, maturity profile of assets / liabilities etc.
and which is disclosed as part of segment revenue.
Segment revenues consist of earnings from external customers and
inter-segment revenues based on a transfer pricing mechanism. Segment
expenses consist of interest expenses including allocated operating
expenses and provisions.
Segment results are net of segment revenues and segment expenses.
Segment assets include assets related to segments and exclude tax
related assets. Segment liabilities include liabilities related to the
segment excluding net worth, employees'' stock option (grants
outstanding) and proposed dividend and dividend tax thereon.
Mar 31, 2015
1 Investments
Classification:
In accordance with the RBI guidelines on investment classification and
valuation, investments are classified on the date of purchase into
"Held for Trading"(''HFT''), "Available for Sale"(''AFS'') and "Held to
Maturity"(''HTM'') categories (hereinafter called "categories").
Subsequent shifting amongst the categories is done in accordance with
the RBI guidelines at the lower of the acquisition cost / carrying
value / market value on the date of the transfer, and depreciation, if
any, on such transfer is fully provided.
Under each of these categories, investments are further classified
under six groups (hereinafter called "groups") - Government Securities,
Other Approved Securities, Shares, Debentures and Bonds, Investments in
Subsidiaries / Joint Ventures and Other Investments for the purposes of
disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase
and sale transactions in securities, except in the case of equity
shares where ''Trade Date'' accounting is followed.
Basis of classification:
Investments that are held principally for resale within 90 days from
the date of purchase are classified under HFT category. As per the RBI
guidelines, HFT securities, which remain unsold for a period of 90 days
are reclassified as AFS securities as on that date. Investments which
the Bank intends to hold till maturity are classified as HTM
securities. The Bank has classified investments in subsidiaries, joint
ventures and associates under HTM category. Investments which are not
classified in either of the above two categories are classified under
AFS category.
Acquisition Cost:
The cost of investments is determined on weighted average basis. Broken
period interest on debt instruments and government securities are
considered as a revenue item. The transaction costs including
brokerage, commission etc. paid at the time of acquisition of
investments is charged to Profit and Loss Account.
Disposal of investments:
- Investments classified as HFT or AFS - Profit or loss on sale /
redemption is included in the Profit and Loss Account.
- Investments classified as HTM - Profit on sale / redemption of
investments is included in the Profit and Loss Account and is
appropriated to Capital Reserve after adjustments for tax and transfer
to Statutory Reserve. Loss on sale / redemption is charged to the
Profit and Loss Account.
Valuation:
The valuation of investments is performed in accordance with the RBI
guidelines as follows:
a) Investments classified as HTM - These are carried at their
acquisition cost. Any premium on acquisition of debt instruments /
government securities are amortised over the balance maturity of the
security on a straight line basis. Any diminution, other than
temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in this category
are marked to market and the net depreciation, if any, within each
group is recognised in the Profit and Loss Account. Net appreciation,
if any, is ignored. Further, provision for diminution other than
temporary is made for, at the individual security level. Except in
cases where provision for diminution other than temporary is created,
the book value of the individual securities is not changed as a result
of periodic valuations.
c) The market / fair value of quoted investments included in the ''AFS''
and ''HFT'' categories is measured with respect to the market price of
the scrip as available from the trades / quotes on the stock exchanges,
SGL account transactions, price list of RBI or prices declared by
Primary Dealers Association of India (''PDAI'') jointly with Fixed Income
Money Market and Derivatives Association of India (''FIMMDA'') as at the
year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and
Certificate of Deposits being discounted instruments, are valued at
carrying cost.
e) Units of mutual funds are valued at the latest repurchase price /
net asset value declared by the mutual fund.
f) Investments in subsidiaries / joint ventures (as defined by the RBI)
are categorised as HTM and assessed for impairment to determine other
than temporary diminution, if any, in accordance with the RBI
guidelines.
g) Market value of investments where current quotations are not
available, is determined as per the norms prescribed by the RBI as
under:
- In case of unquoted bonds, debentures and preference shares where
interest / dividend is received regularly (i.e. not overdue beyond 90
days), the market price is derived based on the YTM for Government
Securities as published by FIMMDA / PDAI and suitably marked up for
credit risk applicable to the credit rating of the instrument. The
matrix for credit risk mark-up for each categories and credit ratings
along with residual maturity issued by FIMMDA is adopted for this
purpose;
- In case of bonds and debentures (including Pass Through
Certificates) where interest is not received regularly (i.e. overdue
beyond 90 days), the valuation is in accordance with prudential norms
for provisioning as prescribed by the RBI. Interest on such securities
is not recognised in the Profit and Loss Account until received;
- Equity shares, for which current quotations are not available or
where the shares are not quoted on the stock exchanges, are valued at
break-up value (without considering revaluation reserves, if any) which
is ascertained from the Company''s latest Balance Sheet. In case the
latest Balance Sheet is not available, the shares are valued at '' 1 per
Company;
- Units of Venture Capital Funds (VCF) held under AFS category where
current quotations are not available are marked to market based on the
Net Asset Value (NAV) shown by VCF as per the latest audited financials
of the fund. In case the audited financials are not available for a
period beyond 18 months, the investments are valued at '' 1 per VCF.
Investment in unquoted VCF after 23rd August, 2006 are categorised
under HTM category for the initial period of three years and valued at
cost as per RBI guidelines;
- Security receipts are valued as per the Net Asset Value (NAV)
obtained from the issuing Reconstruction Company / Securitisation
Company.
h) Non-performing investments are identified and valued based on the
RBI guidelines.
i) Repurchase and reverse repurchase transactions - Securities sold
under agreements to repurchase (Repos) and securities purchased under
agreements to resell (Reverse Repos) are accounted as collateralised
borrowing and lending transactions respectively. The difference
between the consideration amount of the first leg and the second leg of
the repo is recognised as interest income / interest expense over the
period of the transaction.
2 Advances
Classification:
Advances are classified as performing and non-performing advances
(''NPAs'') based on the RBI guidelines and are stated net of bills
rediscounted, specific provisions, interest in suspense for
non-performing advances, claims received from Export Credit Guarantee
Corporation, provisions for funded interest term loan classified as
non-performing advances and provisions in lieu of diminution in the
fair value of restructured assets. Also, NPAs are classified into
sub-standard, doubtful and loss assets. Interest on NPAs is transferred
to an interest suspense account and not recognised in the Profit and
Loss Account.
Amounts paid for acquiring non-performing assets from other banks and
NBFCs are considered as advances. Actual collections received on such
non-performing assets are compared with the cash flows estimated while
purchasing the asset to ascertain overdue. If the overdue is in excess
of 90 days, then the assets are classified into sub-standard, doubtful
or loss as required by the RBI guidelines on purchase of non-
performing assets.
The Bank transfers advances through inter-bank participation with and
without risk. In accordance with the RBI guidelines, in the case of
participation with risk, the aggregate amount of the participation
issued by the Bank is reduced from advances and where the Bank is
participating, the aggregate amount of the participation is classified
under advances. In the case of participation without risk, the
aggregate amount of participation issued by the Bank is classified
under borrowings and where the Bank is participating, the aggregate
amount of participation is shown as due from banks under advances.
Provisioning:
Provision for NPAs comprising sub-standard, doubtful and loss assets is
made in accordance with the RBI guidelines. In addition, the Bank
considers accelerated specific provisioning that is based on past
experience, evaluation of security and other related factors. Specific
loan loss provision in respect of non-performing advances are charged
to the Profit and Loss Account. Any recoveries made by the Bank in case
of NPAs written off are recognised in the Profit and Loss Account.
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. Restructuring of an account is done at a
borrower level.
In accordance with RBI guidelines the Bank has provided general
provision on standard assets including credit exposures computed as per
the current marked to market values of interest rate and foreign
exchange derivative contracts, and gold at levels stipulated by RBI
from time to time - direct advances to sectors agricultural & SME at
0.25%, commercial real estate at 1.00%, restructured standard advances
progressively to reach 5.00%, teaser rate housing loans at 2.00%,
commercial real estate-residential housing at 0.75% and for other
sectors at 0.40%.
Further to provisions required as per the asset classification status,
provisions are held for individual country exposure (except for home
country) as per the RBI guidelines. Exposure is classified in the seven
risk categories as mentioned in the Export Credit Guarantee Corporation
of India Ltd. (''ECGC'') guidelines and provisioning is done for that
country if the net funded exposure is one percent or more of the Bank''s
total assets based on the rates laid down by the RBI.
Provision for Unhedged Foreign Currency Exposure of borrowers are made
as per the RBI guidelines.
3 Loss on Sale of Advances to Asset Reconstruction Company
Loss on sale of Advances sold to Asset Reconstruction Company are
recognised immediately to the Profit and Loss Account.
4 Securitisation
The Bank enters into arrangements for sale of loans through Special
Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank
continues to service the loans transferred to the SPV. At times the
Bank also provides credit enhancement in the form of cash collaterals
and / or by subordination of cash flows to Senior Pass Through
Certificate (PTC) holders. In respect of credit enhancements provided
or recourse obligations (projected delinquencies, future servicing
etc.) accepted by the Bank, appropriate provision / disclosure is made
at the time of sale in accordance with Accounting Standard 29,
"Provisions, Contingent Liabilities and Contingent Assets" notified by
the Companies (Accounting Standards) Rules, 2006 "as amended".
In accordance with the RBI guidelines, the profit / premium on account
of securitisation of assets at the time of sale is computed as the
difference between the sale consideration and the book value of the
securitised asset amortised over the tenure of the securities issued.
Loss on account of securitisation on assets is recognised immediately
to the Profit and Loss Account.
The Bank invests in PTCs of other SPVs which are accounted for at the
deal value and are classified under Investments.
5 Fixed assets (tangible and intangible) and depreciation /
amortisation
Tangible Assets / Intangible Assets have been stated at cost less
accumulated depreciation / amortisation and adjusted for impairment, if
any. Cost includes cost of purchase inclusive of freight, duties,
incidental expenses and all expenditure like site preparation,
installation costs and professional fees incurred on the asset before
it is ready to put to use. Subsequent expenditure incurred on assets
put to use is capitalised only when it increases the future benefit /
functioning capability from / of such assets. A rebuttable presumption
that the useful life of an Intangible Asset will not exceed 10 years
from the date the asset is available for use is considered by the
Management. Gain or losses arising from the retirement or disposal of a
fixed asset / intangible asset are determined as the difference between
the net disposal proceeds and the carrying amount of assets and
recognised as income or expense in the Profit and Loss Account. Profit
on sale of premises, if any, is transferred to Capital Reserve as per
the RBI guidelines.
Depreciation / Amortisation - Depreciation is provided on a pro-rata
basis on a Straight Line Method over the estimated useful life of the
assets at rates which are higher than the rates prescribed under
Schedule II of the Companies Act, 2013 in order to reflect the actual
usage of the assets. The estimates of useful lives of the assets are
based on a technical evaluation, taking into account the nature of the
asset, the estimated usage of the asset, and the operating conditions
surrounding the use of the asset etc. Based on the above, the useful
life of the assets has not under gone a change on account of transition
to the Companies Act, 2013.
Used assets purchased are depreciated over the residual useful life
from the date of original purchase.
Items costing less than Rs. 5,000 are fully depreciated in the year of
purchase.
6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve
Bank of India and Balances with Other Banks / Institutions and Money at
Call and Short Notice (including the effect of changes in exchange
rates on cash and cash equivalents in foreign currency).
7 Bullion
The Bank imports bullion including precious metal bars on a consignment
basis for selling to its wholesale and retail customers. The difference
between the sale price to customers and actual price quoted by supplier
is reflected under other income.
The Bank also borrows and lends gold, which is treated as borrowings /
lending as the case may be in accordance with the RBI guidelines and
the interest paid / received classified as interest expense / income
and is accounted on an accrual basis.
8 Revenue recognition
Interest income (other than in respect of retail advances) is
recognised on accrual basis except in case of NPAs where the income
accrued gets reversed, and then recognised, only upon realisation, as
per the RBI guidelines. Penal interest is recognised as income on
realisation.
Interest income in respect of retail advances is accounted for by using
the internal rate of return method to provide a constant periodic rate
of return on the net investment outstanding on the contract.
Interest income on investments in PTCs and loans bought out through the
direct assignment route is recognised at their effective interest rate.
Interest income on discounted instruments is recognised over the tenure
of the instruments so as to provide a constant periodic rate of return.
Service charges, fees and commission income are recognised when due
except for guarantee commission and letter of credit which is
recognised over the period of the guarantee / letter of credit.
Syndication / arranger fee is recognised as income as per the terms of
engagement.
Dividend income is accounted on an accrual basis when the Bank''s right
to receive the dividend is established.
Gain on account of securitisation of assets is amortised over the life
of the securities issued in accordance with the guidelines issued by
the RBI.
In respect of non-performing assets acquired from other Banks / FIs and
NBFCs, collections in excess of the consideration paid at each asset
level or portfolio level is treated as income in accordance with RBI
guidelines and clarifications.
9 Employee benefits
Provident Fund - Defined Contribution Plan
Contributio n as required by the statute made to the government
provident fund is debited to the Profit and Loss Account when incurred.
The Bank has no further obligations.
Gratuity - Defined Benefit Plan
The Bank provides for Gratuity, a defined benefit plan covering
employees in accordance with the Payment of Gratuity Act, 1972. The
Bank''s liability is actuarially determined (using Projected Unit Credit
Method) at the Balance Sheet date. The Bank makes contribution to a
Gratuity Fund administered by trustees and managed by a life insurance
company. Actuarial gains and losses are immediately recognised in the
Profit and Loss Account and are not deferred. The contributions made to
the trusts is recognised as planned assets. The defined benefit
obligation recognised in the Balance Sheet represents the present value
of the defined benefit obligation as reduced by the fair value of the
plan assets.
Superannuation Fund - Defined Contribution Plan
The Bank contributes a sum equivalent to 15% of eligible employee''s
salary, subject to a maximum of Rs.1 lakh per employee per annum to a
Fund administered by trustees and managed by a life insurance company.
The Bank recognises such contributions as an expense in the year they
are incurred.
Compensated Absences - Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the
actuarial valuation as at the Balance Sheet date conducted by an
independent actuary which includes assumptions about demographics,
early retirement, salary increases, interest rates and leave
utilisation. The net present value of the Bank''s obligation is
determined based on the Projected Unit Credit Method as at the Balance
Sheet date. Actuarial Gains / Losses are recognised in the Profit and
Loss Account in the year in which they arise.
New Pension Scheme - Defined Contribution Plan
The Bank contributes up to 10% of eligible employee''s salary per annum,
to the New Pension Fund administered by a Pension Fund Regulatory and
Development Authority (PFRDA) appointed pension fund manager. The Bank
recognises such contributions as an expense in the year they are
incurred.
Other Employee Benefits
As per the Bank''s policy, employees are eligible for an award after
completion of a specified number of years of service with the Bank. The
obligation is measured at the Balance Sheet date on the basis of an
actuarial valuation using the Projected Unit Credit Method.
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These benefits
include performance incentives.
Employee share based payments Equity-settled scheme:
The Bank has formulated Employee Stock Option Schemes (ESOSs) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Schemes provide for grant of
options on equity shares to employees and Whole Time Directors of the
Bank and its Subsidiaries to acquire the equity shares of the Bank that
vest in cliff vesting or in a graded manner and that are to be
exercised within a specified period. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" issued by The Institute of Chartered Accountants of
India, the excess, if any, of the fair market price of the share
preceding the date of grant of the option under ESOSs over the exercise
price of the option is recognised as deferred employee compensation
with a credit to Employee''s Stock Option (Grant) Outstanding account.
The deferred employee compensation cost is amortised on a straight-line
basis over the vesting period of the option. The options that do not
vest because of failure to satisfy vesting condition are reversed by a
credit to employee compensation expense, equal to the amortised portion
of value of lapsed portion and credit to deferred employee compensation
equal to the unamortised portion. In respect of the options which
expire unexercised the balance standing to the credit of Employee''s
Stock Option (Grant) Outstanding accounts is transferred to General
Reserve. The fair market price is the latest available closing price,
prior to the date of grant, on the stock exchange on which the shares
of the Bank are listed.
Where the terms of an equity-settled award are modified, the minimum
expense recognised in ''Payments to and provision for employees'' is the
expense as if the terms had not been modified. An additional expense is
recognised for any modification which increases the total intrinsic
value of the share-based payment arrangement, or is otherwise
beneficial to the employee as remeasured as at the date of
modification.
In respect of options granted to employees of subsidiaries, the Bank
recovers the related compensation cost from the respective
subsidiaries. Cash-settled scheme:
The cost of cash-settled transactions (Stock Appreciation Rights) is
measured initially using intrinsic value method at the grant date
taking into account the terms and conditions upon which the instruments
were granted. This intrinsic value is amortised on a straight-line
basis over the vesting period with recognition of corresponding
liability. This liability is remeasured at each Balance Sheet date up
to and including the settlement date with changes in intrinsic value
recognised in Profit and Loss Account in ''Payments to and provision for
employees''.
10 Foreign currency transactions
Foreign currency monetary assets and monetary liabilities are
translated as at the Balance Sheet date at rates notified by the
Foreign Exchange Dealer''s Association of India (FEDAI) and the
resultant gain or loss is accounted in the Profit and Loss Account.
Income and Expenditure items are translated at the rates of exchange
prevailing on the date of the transactions except in respect of
representative office (which are integral in nature) expenses, which
are translated at monthly average exchange rates.
Outstanding forward exchange contracts (other than deposit and
placement swaps) and spot contracts outstanding at the Balance Sheet
date are revalued at rates notified by FEDAI for specified maturities
and at interpolated rates of interim maturities. In case of forward
contracts of greater maturities where exchange rates are not notified
by FEDAI, are revalued at the forward exchange rates implied by the
swap curves in respective currencies. The resulting profits or losses
are included in the Profit and Loss Account as per the regulations
stipulated by the RBI / FEDAI.
Foreign exchange swaps "linked" to foreign currency deposits and
placements are translated at the prevailing spot rate at the time of
swap. The premium / discount on the swap arising out of the difference
in the exchange rate of the swap date and the maturity date of the
underlying forward contract is amortised over the period of the swap
and the same is recognised in the Profit and Loss Account.
Contingent liabilities on account of foreign exchange contracts,
letters of credit, bank guarantees and acceptances and endorsements
outstanding as at the Balance Sheet date on account of outstanding
foreign exchange contracts are restated at year-end rates notified by
FEDAI.
11 Derivative transactions
Notional amounts of derivative transactions comprising of forwards,
swaps, futures and options are disclosed as off Balance Sheet
exposures. The Bank recognises all derivative contracts (other than
those designated as hedges) at fair value, on the date on which the
derivative contracts are entered into and are re-measured at fair value
as at the Balance Sheet or reporting dates. Derivatives are classified
as assets when the fair value is positive (positive marked to market)
or as liabilities when the fair value is negative (negative marked to
market). Changes in the fair value of derivatives other than those
designated as hedges are recognised in the Profit and Loss Account.
Outstanding derivative transactions designated as "Hedges" are
accounted in accordance with hedging instrument on an accrual basis
over the life of the underlying instrument. Option premium paid /
received is accounted for in the Profit and Loss Account on expiry of
the option. Option contracts are marked to market on every reporting
date.
12 Lease accounting
Leases where the lessor effectively retains substantially all the risks
and rewards of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognised as an expense
in the Profit and Loss Account on a straight-line basis over the lease
term.
13 Accounting for provisions, contingent liabilities and contingent
assets
A provision is recognised when the Bank has a present obligation as a
result of past event; it is probable that an outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are measured based on best estimate of the expenditure
required to settle the obligation at the Balance Sheet date. These are
reviewed at each Balance Sheet date and adjusted to reflect the current
best estimates.
Contingent Liabilities are not recognised but are disclosed in the
notes unless the outflow of resources is remote. Contingent Assets are
neither recognised nor disclosed in the financial statements.
14 Impairment
The carrying amounts of assets are reviewed at each Balance Sheet date
if there is any indication of impairment based on internal / external
factors. Impairment loss, if any, is provided in the Profit and Loss
Account to the extent of carrying amount of assets exceeds their
estimated recoverable amount.
15 Taxes on income
The Income Tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act, 1961.
Deferred tax assets and liabilities are recognised for the future tax
consequences of timing differences being the difference between the
taxable income and the accounting income that originate in one period
and are capable of reversal in one or more subsequent period.
Deferred tax assets on account of timing differences are recognised
only to the extent there is reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realised. In case of carry forward losses and unabsorbed
depreciation, under tax laws, the deferred tax assets are recognised
only to the extent there is virtual certainty supported by convincing
evidence that sufficient future taxable income will be available
against which such deferred tax assets can be realised.
Deferred tax assets are reassessed at each reporting date, based upon
the Management''s judgement as to whether realisation is considered as
reasonably certain. 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. Changes in deferred tax assets /
liabilities on account of changes in enacted tax rates are given effect
to in the Profit and Loss Account in the period of the change.
16 Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
attributable taxes) by the weighted average number of equity shares
outstanding during the year. The weighted average number of equity
shares outstanding during the year is adjusted for events of bonus
issue, bonus element in a rights issue to existing shareholders, and
share split.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue equity shares were
exercised or converted during the year.
17 Share issue expenses
Share issue expenses are adjusted from Securities Premium Account in
terms of Section 52 of the Companies Act, 2013.
18 Credit cards reward points
The Bank estimates the liability for credit card reward points and cost
per point using actuarial valuation conducted by an independent
actuary, which includes assumptions such as mortality, redemption and
spends.
19 Segment reporting
In accordance with guidelines issued by RBI vide
DBOD.No.BP.BC.81/21.01.018/2006-07 dated 18th April, 2007 and
Accounting Standard 17 (AS-17) on "Segment Reporting" notified under
the Companies (Accounting Standard) Rules, 2006 "as amended", the
Bank''s business has been segregated into the following segments whose
principal activities were as under :
A transfer pricing mechanism has been established by Asset Liability
Committee (ALCO) for allocation of interest cost to the above segments
based on borrowing costs, maturity profile of assets / liabilities etc.
and which is disclosed as part of segment revenue.
Segment revenues consist of earnings from external customers and
inter-segment revenues based on a transfer pricing mechanism. Segment
expenses consist of interest expenses including allocated operating
expenses and provisions.
Segment results are net of segment revenues and segment expenses.
Segment assets include assets related to segments and exclude tax
related assets. Segment liabilities include liabilities related to the
segment excluding net worth, employee''s stock option (grants
outstanding) and proposed dividend and dividend tax thereon.
Since the business operations of the Bank are primarily concentrated in
India, the Bank is considered to operate only in the domestic segment.
6. During the year ended 31st March, 2015 and year ended 31st March,
2014, the value of sale / transfer of securities to / from HTM category
(excluding one time transfer of securities and sales to RBI under OMO
auctions) was within 5% of the book value of instruments in HTM
category at the beginning of the year.
Disclosures on risk exposures in derivatives:
Qualitative disclosures:
a) Structure and organization for management of risk in derivatives
trading:
The Board of Directors, the Asset Liability Management Committee
(ALCO), the Risk Management Committee (RMC), the Senior Management
Committee for Derivatives and the Market Risk Management Department are
entrusted with the management of risks in derivatives.
The philosophy and framework for the derivative business is laid out in
the Board approved Investment and Derivative policies. The ALCO of the
Bank is empowered to set the limit-framework for derivatives. It also
reviews the market risk exposures of derivatives against the limits.
The Risk Management Committee reviews all risks on a consolidated basis
and also reviews Stress Testing.
The Senior Management Committee for Derivatives is responsible for
reviewing and approving any new derivative products (within the
regulatory framework provided by the RBI). The Board approved ''Customer
Suitability and Appropriateness Policy for Derivatives'' provides
guidelines for the assessment of Customer Suitability and the
Appropriateness of products offered to these customers.
The monitoring and measurement of risk in derivatives is carried out by
the Market Risk Management Department. The Market Risk Management
Department is independent of the Treasury Front-Office & Back-Office
and directly reports into the Group Chief Risk Officer.
b) Scope and nature of risk measurement, risk reporting and risk
monitoring systems:
All significant risks of the derivative portfolio are monitored and
measured daily. The Market Risk Management Department measures and
reports Market Risk metrics like VaR, PV01, Option Greeks like Delta,
Gamma, Vega, Theta, Rho etc. The Credit Risk from the derivatives
portfolio is also measured daily.
The Market Risk Management Department monitors these exposures against
the set limits and also reviews profitability on a daily basis. MIS is
sent to ALCO on a periodic basis. Exception reports are also sent so
that emerging risks are reviewed and managed on a timely basis. Stress
testing is also performed on the Derivative portfolio. The Bank
continuously invests in technology to enhance the Risk Management
architecture.
c) Policies for hedging and / or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants:
The Board Approved ''Hedging Policy'' details the hedging strategies,
hedging processes, accounting treatment, documentation requirements and
effectiveness testing for hedges.
Hedges are monitored for effectiveness periodically, in accordance with
the Board Approved Policy.
d) Accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation:
Derivative transactions are segregated into trading or hedge
transactions. Trading transactions outstanding as at the Balance Sheet
dates are marked to market and the resulting profits or losses, are
recorded in the Profit and Loss Account.
Derivative transactions designated as "Hedges" are accounted in
accordance with hedging instruments on an accrual basis over the life
of the underlying instrument.
Option premium paid / received is accounted for in the Profit and Loss
Account on expiry of the option.
Pursuant to the RBI guidelines, any receivables under derivative
contracts comprising of crystallised receivables as well as positive
Mark to Market (MTM) in respect of future receivables which remain
overdue for more than 90 days are reversed through the Profit and Loss
Account. The derivative limit sanctioned to clients is part of the
overall limit sanctioned post credit appraisal. Collateral is accepted
on a case to case basis considering the volatility of the price of the
collateral and any increase in operational, legal and liquidity risk.
Mar 31, 2012
A. ACCOUNTING METHODOLOGY
The financial statements have been prepared in accordance with
statutory requirements prescribed under the Banking Regulation Act,
1949. The accounting and reporting policies of Kotak Mahindra Bank
Limited ("the Bank") used in the preparation of these financial
statements is the accrual method of accounting and historical cost
convention and it conforms with Generally Accepted Accounting
Principles in India ("Indian GAAP"), the guidelines issued by Reserve
Bank of India ("RBI") from time to time, the Accounting Standards
('AS') issued by the Institute of Chartered Accountants of India
('ICAI') and notified by the Companies (Accounting Standards) Rules,
2006 "as amended" to the extent applicable and practices generally
prevalent in the banking industry in India.
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 the date of
the financial statements and the reported income and expenses during
the reporting period. The Bank's Management believes that the estimates
used in preparation of the financial statements are prudent and
reasonable. Actual results could differ from these estimates. Any
revision to the accounting estimates are recognised prospectively.
B. REVENUE RECOGNITION
a.Interest income is recognised on accrual basis except in case of
non-performing assets where it is recognised, upon realisation, as per
RBI guidelines. Penal interest is recognised as income on realisation.
b.Interest income in respect of retail advances is accounted for by
using the internal rate of return method to provide a constant
periodic rate of return on the net investment outstanding on the
contract.
c.Interest income on discounted instruments is recognised over the
tenure of the instruments so as to provide a constant periodic rate of
return.
d.Service charges, fees and commission income are recognised when due
except for guarantee commission and letter of credit which is
recognised over the period of the guarantee / letter of credit.
e.Dividend income is accounted on an accrual basis when the Banks'
right to receive the dividend is established.
f.Gain on account of securitisation of assets is amortised over the
life of the securities issued in accordance with the guidelines issued
by the RBI.
g.In respect of non-performing assets acquired from other Banks / FIs
and NBFCs, collections in excess of the consideration paid at each
asset level or portfolio level is treated as income in accordance with
RBI guidelines and clarifications.
C. FIXED ASSETS
a. Fixed assets have been stated at cost inclusive of freight, duties
and incidental expenses less accumulated depreciation / amortisation.
b. Depreciation / Amortisation: The Bank adopts the Straight Line
Method of depreciation so as to write off 100% of the cost of assets at
rates higher than those prescribed under Schedule XIV to the Companies
Act, 1956 for all assets other than premises, based on the Managements'
estimate of useful lives of these assets. Estimated useful lives over
which assets are depreciated are as follows:
Asset Type Estimated Useful life in years
Premises 58
Improvement to leasehold
premises Over the primary period of lease
subject to a maximum of 6 years.
Office equipments (Chillers,
Transformers, UPS & DG set) 10
Office
equipments (other than above) 5
Computers 3
Furniture and Fixtures 6
Vehicles 4
ATMs 5
Software (including
development) expenditure 3
Items costing less than Rs 5,000 are fully depreciated in the year of
purchase.
D. EMPLOYEE BENEFITS
a. Provident Fund - Defined Contribution Plan
Contribution as required by the statute made to the Government
Provident Fund is debited to the Profit and Loss Account when incurred.
Schedules forming part of the Balance Sheet and Profit and Loss Account
(Contd.)
b. Gratuity - Defined Benefit Plan
The Bank accounts for the liability for future gratuity benefits based
on an actuarial valuation. The Bank makes contribution to a Gratuity
Fund administered by trustees and managed by a life insurance company.
The net present value of the Banks' obligation towards the same is
actuarially determined based on the projected unit credit method as at
the Balance Sheet date. Actuarial gains and losses are immediately
recognised in the Profit and Loss Account and are not deferred.
c. Superannuation Fund - Defined Contribution Plan
The Bank contributes a sum equivalent to 15% of eligible employees'
salary, subject to a maximum of Rs 1 lakh per employee per annum to a
Fund administered by trustees and managed by a life insurance company.
The Bank recognises such contributions as an expense in the year they
are incurred.
d. Compensated Absences - Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the
actuarial valuation as at the Balance Sheet date conducted by an
independent actuary. The net present value of the Banks' obligation is
determined based on the projected unit credit method as at the Balance
Sheet date.
e. Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These benefits
include performance incentives.
E. BULLION
The Bank imports bullion including precious metal bars on a consignment
basis for selling to its wholesale and retail customers. The difference
between the sale price to customers and actual price quoted by supplier
is reflected under other income.
The Bank also borrows and lends gold, which is treated as borrowings /
lending as the case may be with the interest paid / received classified
as interest expense / income and is accounted on an accrual basis.
F. INVESTMENTS
1. Classification
a. In accordance with the RBI guidelines, investments are categorised
at the date of purchase into "Held for Trading", "Available for
Sale" and "Held to Maturity" and further classified under six groups,
namely, Government Securities, Other Approved Securities, Shares,
Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and
Others for the purposes of disclosure in the Balance Sheet.
b. Investments which are held for resale within 90 days from the date
of purchase are classified as "Held for Trading".
c. Investments which the Bank intends to hold till maturity are
classified as "Held to Maturity". The Bank has classified investments
in subsidiaries, joint ventures and associates as "Held to Maturity".
d. Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
2. Valuation
The cost of investments is determined on weighted average basis. Broken
period interest on debt instruments and government securities are
considered as a revenue item. The transaction costs including
brokerage, commission etc. paid at the time of acquisition of
investments is charged to Profit and Loss Account.
The valuation of investments is performed in accordance with the RBI
guidelines as follows:
a. Held for Trading / Available for Sale - Each security except
treasury bills in this category is revalued at the market price or fair
value on a monthly basis and the net depreciation of each group is
recognised in the Profit and Loss Account. Net appreciation, if any, is
ignored. Further, provision for diminution other than temporary is made
for, at the individual security level.
b. Held to Maturity - These are carried at their acquisition cost. Any
premium on acquisition of debt instruments / government securities are
amortised over the balance maturity of the security on a straight line
basis. Any diminution, other than temporary, in the value of such
securities is provided.
c. The market / fair value of quoted investments included in the
"Available for Sale" and "Held for Trading" categories is measured
with respect to the market price of the scrip as available from the
trades / quotes on the stock exchanges, SGL account transactions, price
list of RBI or prices declared by Primary Dealers Association of India
('PDAI') jointly with Fixed Income Money Market and Derivatives
Association of India ('FIMMDA') as at the year end. The market value of
investments where market quotations are not available is determined as
per the norms laid down by the RBI. Treasury Bills, Commercial Papers
and Certificate of Deposits being discounted instruments, are valued at
carrying cost.
d. Repurchase and Reverse Repurchase Transactions - Securities sold
under agreements to repurchase (Repos) and securities purchased under
agreements to resell (Reverse Repos) are accounted as collateralised
borrowing and lending transactions respectively. The difference between
the consideration amount of the first leg and the second leg of the
repo is recognised as interest income / interest expense over the
period of the transaction.
Schedules forming part of the Balance Sheet and Profit and Loss Account
(Contd.)
3. Transfer between Categories
Transfer between categories is done, in accordance with RBI guidelines
at the lower of the acquisition cost / carrying value / market value on
the date of the transfer and depreciation, if any, on such transfer is
fully provided for.
4. Profit or Loss on sale / redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale /
redemption is included in the Profit and Loss Account.
b. Held to Maturity - Profit on sale / redemption of investments is
included in the Profit and Loss Account and is appropriated to Capital
Reserve after adjustments for tax and transfer to Statutory Reserve.
Loss on sale / redemption is charged off to the Profit and Loss
Account.
G. FOREIGN CURRENCY AND DERIVATIVE TRANSACTIONS
a. Foreign currency monetary assets and monetary liabilities are
translated as at the Balance Sheet date at rates notified by the
Foreign Exchange Dealers' Association of India ('FEDAI').
b. Income and Expenditure items are translated at the rates of
exchange prevailing on the date of the transactions except in respect
of representative office expenses, which are translated at monthly
average exchange rate.
c. Foreign Exchange contracts (other than deposit and placement swaps)
outstanding at the Balance Sheet date are revalued at rates notified by
FEDAI and resulting profits or losses are included in the Profit and
Loss Account. Foreign exchange swaps "linked" to foreign currency
deposits and placements are translated at the prevailing spot rate at
the time of swap. The premium / discount on the swap arising out of the
difference in the exchange rate of the swap date and the maturity date
of the underlying forward contract is amortised over the period of the
swap and the same is recognised in the Profit and Loss Account.
d. Notional amounts of derivative transactions comprising of forwards,
swaps, futures and options are disclosed as off Balance Sheet
exposures. The swaps are segregated into trading or hedge transactions.
Trading swaps outstanding as at the Balance Sheet dates are marked to
market and the resulting profits or losses, are recorded in the Profit
and Loss Account. Outstanding derivative transactions designated as
"Hedges" are accounted in accordance with hedging instrument on an
accrual basis over the life of the underlying instrument. Option
premium paid / received is accounted for in the Profit and Loss Account
on expiry of the option. Option contracts are marked to market on every
reporting date.
e. Contingent liabilities as at the Balance Sheet date on account of
outstanding foreign exchange contracts are restated at year end rates
notified by FEDAI.
H. ADVANCES
a. Advances are classified into standard, sub-standard, doubtful and
loss assets in accordance with the RBI guidelines and are stated net of
provisions made towards non-performing advances.
b. Provision for non-performing advances comprising sub-standard,
doubtful and loss assets is made in accordance with the RBI guidelines.
In addition, the Bank considers accelerated provisioning that is based
on past experience, evaluation of security and other related factors.
c. In accordance with RBI guidelines the bank has provided general
provision on standard advances-direct advances to sectors agricultural
& SME at 0.25%, commercial real estate at 1.00%, restructured standard
advances and teaser rate housing loans at 2.00% and for other sectors
at 0.40%.
Excess standard provision due to revision in provisioning rates is not
written back to Profit and Loss Account in accordance with the RBI
guidelines and clarifications.
d. Amounts paid for acquiring non-performing assets from other banks
and NBFCs are considered as advances. Actual collections received on
such non-performing assets are compared with the cash flows estimated
while purchasing the asset to ascertain overdue. If the overdue is in
excess of 90 days, then the assets are classified into sub-standard,
doubtful or loss as required by the RBI guidelines on purchase of
non-performing assets.
I. SECURITISATION
The Bank enters into arrangements for sale of loans through Special
Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank
continues to service the loans transferred to the SPVs. At times the
Bank also provides credit enhancement in the form of cash collaterals
and / or by subordination of cash flows to Senior Pass Through
Certificate (PTC) holders. In respect of credit enhancements provided
or recourse obligations (projected delinquencies, future servicing
etc.) accepted by the Bank, appropriate provision / disclosure is made
at the time of sale in accordance with Accounting Standard 29,
"Provisions, Contingent Liabilities and Contingent Assets" notified
by the Companies (Accounting Standards) Rules, 2006 "as amended".
The profit / premium on account of securitisation of assets at the time
of sale is computed as the difference between the sale consideration
and the book value of the securitised asset amortised over the tenure
of the securities issued. Loss on account of securitisation on assets
is recognised immediately to the Profit and Loss Account.
J. TAXES ON INCOME
The Income Tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act, 1961.
Deferred tax adjustments comprise of changes in
Schedules forming part of the Balance Sheet and Profit and Loss Account
(Contd.)
the deferred tax assets and liabilities. Deferred tax assets and
liabilities are recognised for the future tax consequences of timing
differences being the difference between the taxable income and the
accounting income that originate in one period and are capable of
reversal in one or more subsequent periods. Deferred tax assets are
recognised only to the extent that there is reasonable certainty that
sufficient future taxable income will be available against which such
deferred tax assets can be realised. Deferred tax assets and
liabilities are measured using tax rates and tax laws that have been
enacted or substantially enacted at the Balance Sheet date. Changes in
deferred tax assets / liabilities on account of changes in enacted tax
rates are given effect to in the Profit and Loss Account in the period
of the change.
L. LEASES
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognised as an expense
in the Profit and Loss Account on a straight-line basis over the lease
term.
M. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, balances with Reserve
Bank of India and Balances with Other Banks / institutions and money at
call and short notice (including the effect of changes in exchange
rates on cash and cash equivalents in foreign currency).
N. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
attributable taxes) by the weighted average number of equity shares
outstanding during the year. The weighted average number of equity
shares outstanding during the year is adjusted for events of bonus
issue; bonus element in a rights issue to existing shareholders and
share split.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
O. PROVISIONS AND CONTINGENCIES
A provision is recognised when the Bank has a present obligation as a
result of past event; it is probable that an outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its Schedules
forming part of the Balance Sheet and Profit and Loss Account (Contd.)
present value and are determined based on best estimate required to
settle the obligation at the Balance Sheet date. These are reviewed at
each Balance Sheet date and adjusted to reflect the current best
estimates. Provision is made for credit card reward points based on
reward points accrued to the customer at Balance Sheet date.
Contingent Liabilities are not recognised but are disclosed in the
notes unless the outflow of resources is remote. Contingent assets are
neither recognised nor disclosed in the financial statements.
P. IMPAIRMENT
The carrying amounts of assets are reviewed at each Balance Sheet date
if there is any indication of impairment based on internal / external
factors. Impairment loss, if any, is provided in Profit and Loss
Account to the extent of carrying amount of assets exceeds their
estimated recoverable amount.
Q. EMPLOYEE SHARE BASED PAYMENTS Equity-settled scheme:
The Bank has formulated Employee Stock Option Schemes (ESOSs) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Schemes provide for grant of
options to employees of the Group to acquire the equity shares of the
Bank that vest in cliff vesting or in a graded manner and that are to
be exercised within a specified period. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" issued by The Institute of Chartered Accountants of
India, the excess, if any, of the market price of the share preceding
the date of grant of the option under ESOSs over the exercise price of
the option is amortised on a straight-line basis over the vesting
period.
Where the terms of an equity-settled award are modified, the minimum
expense recognised in 'Payments to and provision for employees' is the
expense as if the terms had not been modified. An additional expense is
recognised for any modification which increases the total intrinsic
value of the share-based payment arrangement, or is otherwise
beneficial to the employee as remeasured as at the date of
modification.
In respect of options granted to employees of subsidiaries, the Bank
recovers the related compensation cost from the respective
subsidiaries.
Mar 31, 2011
A. ACCOUNTING METHODOLOGY
The financial statements have been prepared in accordance with
statutory requirements prescribed under the Banking Regulation Act,
1949. The accounting and reporting policies of Kotak Mahindra Bank
Limited used in the preparation of these financial statements conform
to Generally Accepted Accounting Principles in India ("Indian GAAP"),
the guidelines issued by Reserve Bank of India ("RBI") from time to
time, the Accounting Standards (AS) issued by the Institute of
Chartered Accountants of India (ICAI) and notified by the Companies
(Accounting Standards) Rules, 2006 "as amended" to the extent
applicable and practices generally prevalent in the banking industry in
India. The Bank follows the accrual method of accounting, except where
otherwise stated, and the historical cost convention.
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 the date of
the financial statements and the reported income and expenses during
the reporting period. Management believes that the estimates used in
preparation of the financial statements are prudent and reasonable.
Actual results could differ from these estimates.
B. REVENUE RECOGNITION
a. Interest income is recognised on accrual basis except in case of
non-performing assets where it is recognised, upon realisation, as per
RBI guidelines. Penal interest is recognised as income on realisation.
b. Interest income in respect of retail advances is accounted for by
using the internal rate of return method to provide a constant periodic
rate of return on the net investment outstanding on the contract.
c. Interest income on discounted instruments is recognised over the
tenure of the instruments so as to provide a constant periodic rate of
return.
d. Service charges, Fees and Commission income are recognised when due
except for Guarantee Commission which is recognised over the period of
the guarantee.
e. Dividend income is accounted on an accrual basis when the Banks
right to receive the dividend is established.
f. Gain on account of securitisation of assets is amortised over the
life of the securities issued in accordance with the guidelines issued
by the RBI.
g. In respect of non-performing assets acquired from other Banks / FIs
and NBFCs, collections in excess of the consideration paid at each
asset level or portfolio level is treated as income in accordance with
RBI guidelines and clarifications.
C. FIXED ASSETS
a. Fixed Assets have been stated at cost inclusive of incidental
expenses less accumulated depreciation.
D. EMPLOYEE BENEFITS
a. Provident Fund à Defined Contribution Plan
Contribution as required by the Statute made to the Government
Provident Fund is debited to the Profit and Loss Account when incurred.
b. Gratuity à Defined Benefit Plan
The Bank accounts for the liability for future gratuity benefits based
on an actuarial valuation conducted by an independent actuary. The Bank
makes contribution to a Gratuity Fund administered by trustees and
managed by a life insurance company. The net present value of the
Banks obligation towards the same is actuarially determined based on
the projected unit credit method as at the Balance Sheet date.
Actuarial gains and losses are recognised in the Profit and Loss
Account.
c. Superannuation Fund à Defined Contribution Plan
The Bank contributes a sum equivalent to 15% of eligible employees
salary, subject to a maximum of Rs. 1 lakh per employee per annum to a
Fund administered by trustees and managed by a life insurance company.
The Bank recognises such contributions as an expense in the year they
are incurred.
d. Compensated Absences à Other Long-Term Employee Benefits
The Bank accrues the liability for compensated absences based on the
actuarial valuation as at the Balance Sheet date conducted by an
independent actuary. The net present value of the Banks obligation is
determined based on the projected unit credit method as at the Balance
Sheet date.
e. Other Employee Benefits
The undiscounted amount of short-term employee benefits expected to be
paid for the services rendered by employees is recognised during the
period when the employee renders the service. These benefits include
performance incentives.
E. INVESTMENTS
1. Classification
a. In accordance with the RBI guidelines, investments are categorised
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classified under six groups, namely, Government Securities,
Other Approved Securities, Shares, Debentures and Bonds, Investments in
Subsidiaries / Joint Ventures and Other Investments for the purposes of
disclosure in the Balance Sheet.
b. Investments which are held for resale within 90 days from the date
of purchase are classified as "Held for Trading".
c. Investments which the Bank intends to hold till maturity are
classified as "Held to Maturity". The Bank has classified investments
in subsidiaries, joint ventures and associates as "Held to Maturity".
d. Investments which are not classified in either of the above two
categories are classified as "Available for Sale".
2. Valuation
The cost of investments is determined on weighted average basis. Broken
period interest on debt instruments is considered as a revenue item.
The transaction costs including brokerage, commission etc. paid at the
time of acquisition of investments is charged to Profit and Loss
Account.
The valuation of investments is performed in accordance with the RBI
guidelines as follows:
a. Held for Trading / Available for Sale à Each security in this
category is revalued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss
Account. Net appreciation, if any, is ignored. Further, provision for
diminution other than temporary is made for, at the individual security
level.
b. Held to Maturity à These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortised over the
balance maturity of the security on a straight line basis. Any
diminution, other than temporary, in the value of such securities is
provided.
c. The market value of investments where market quotations are not
available is determined as per the norms laid down by the RBI.
d. Repurchase and reverse repurchase transactions à Securities sold
under agreements to repurchase (Repos) and securities purchased under
agreements to resell (Reverse Repos) are accounted as collateralised
borrowing and lending transactions respectively. The difference between
the consideration amount of the first leg and the second leg of the
repo is recognised as interest income / interest expense over the
period of the transaction. (Refer note 3 of Schedule 18 B)
3. Transfer between Categories
Transfer between categories is done, in accordance with RBI guidelines
at the lower of the acquisition cost / book value / market value on the
date of the transfer and depreciation, if any, on such transfer is
fully provided for.
4. Profit or Loss on sale / redemption of Investments
a. Held for Trading and Available for Sale - Profit or loss on sale /
redemption is included in the Profit and Loss Account.
b. Held to Maturity - Profit on sale / redemption of investments is
included in the Profit and Loss Account and is appropriated to Capital
Reserve after adjustments for tax and transfer to Statutory Reserve.
Loss on sale / redemption is charged off to the Profit and Loss
Account.
F. FOREIGN CURRENCY AND DERIVATIVE TRANSACTIONS
a. Foreign currency assets and liabilities are translated as at the
Balance Sheet date at rates notified by the Foreign Exchange Dealers
Association of India (FEDAI).
b. Income and Expenditure items are translated at the rates of
exchange prevailing on the date of the transactions except in respect
of representative office expenses, which are translated at monthly
average exchange rate.
c. Foreign Exchange contracts (other than deposit and placement swaps)
outstanding at the Balance Sheet date are revalued at rates notified by
FEDAI and resulting profits or losses are included in the Profit and
Loss Account. Foreign exchange swaps "linked" to foreign currency
deposits and placements are translated at the prevailing spot rate at
the time of swap. The premium / discount on the swap arising out of the
difference in the exchange rate of the swap date and the maturity date
of the underlying forward contract is amortised over the period of the
swap and the same is recognised as income / expense.
d. Notional amounts of derivative transactions comprising of forwards,
swaps, futures and options are disclosed as off Balance Sheet
exposures. The swaps are segregated into trading or hedge transactions.
Trading swaps outstanding as at the Balance Sheet dates are marked to
market and the resulting profits or losses, are recorded in the Profit
and Loss Account. Outstanding derivative transactions designated as
"Hedges" are accounted on an accrual basis over the life of the
transaction. Option premium paid / received is accounted for in the
Profit and Loss Account on expiry of the option.
e. Contingent liabilities as at the Balance Sheet date on account of
outstanding foreign exchange contracts are restated at year end rates
notified by FEDAI.
G. ADVANCES
a. Advances are classified into standard, sub-standard, doubtful and
loss assets in accordance with the RBI guidelines and are stated net of
provisions made towards non-performing advances.
b. Provision for non-performing advances comprising sub-standard,
doubtful and loss assets is made in accordance with the RBI guidelines.
In addition, the Bank adopts an approach to provisioning that is based
on past experience, evaluation of security and other related factors.
c. In accordance with RBI guidelines the Bank has provided general
provision on standard advances at uniform rate of 0.40% except in case
of direct advances to Agricultural & SME sectors which are provided at
0.25%, Commercial Real Estate sector at 1.00% and teaser rate Housing
loans at 2.00%.
Excess standard provision due to revision in provisioning rates is not
written back to Profit and Loss Account in accordance with the RBI
guidelines and clarifications.
d. Amounts paid for acquiring non-performing assets from other banks
and NBFCs are considered as advances. Actual collections received on
such non-performing assets are compared with the cash flows estimated
while purchasing the asset to ascertain overdue. If the overdue is in
excess of 90 days, then the assets are classified into sub-standard,
doubtful or loss as required by the RBI guidelines on purchase of
non-performing assets.
H. SECURITISATION
The Bank enters into arrangements for sale of loans through Special
Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank
continues to service the loans transferred to the SPV. At times the
Bank also provides credit enhancement in the form of cash collaterals
and / or by subordination of cash flows to Senior Pass Through
Certificate (PTC) holders. In respect of credit enhancements provided
or recourse obligations (projected delinquencies, future servicing
etc.) accepted by the Bank, appropriate provision / disclosure is made
at the time of sale in accordance with Accounting Standard 29,
"Provisions, Contingent Liabilities and Contingent Assets" notified by
the Companies (Accounting Standards) Rules, 2006 "as amended".
The profit / premium on account of securitisation of assets at the time
of sale is computed as the difference between the sale consideration
and the book value of the securitised asset amortised over the tenure
of the securities issued. Loss on account of securitisation on assets
is recognised immediately to the Profit and Loss Account.
I. TAXES ON INCOME
The Income Tax expense comprises current tax and deferred tax. Current
tax is measured at the amount expected to be paid in respect of taxable
income for the year in accordance with the Income Tax Act, 1961.
Deferred tax adjustments comprise of changes in the deferred tax assets
and liabilities. Deferred tax assets and liabilities are recognised for
the future tax consequences of timing differences being the difference
between the taxable income and the accounting income that originate in
one period and are capable of reversal in one or more subsequent
periods. Deferred tax assets are recognised only to the extent that
there is reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
realised. Deferred tax assets and liabilities are measured using tax
rates and tax laws that have been enacted or substantially enacted at
the Balance Sheet date. Changes in deferred tax assets / liabilities
on account of changes in enacted tax rates are given effect to in the
Profit and Loss Account in the period of the change. The carrying
amount of deferred tax assets are reviewed at each Balance Sheet date
for recoverability based on future taxable income.
J. SEGMENT REPORTING
In accordance with guidelines issued by RBI vide
DBOD.No.BP.BC.81/21.01.018/2006-07 dated 18th April 2007 and Accounting
Standard 17 (AS-17) on "Segment Reporting" notified under the Companies
(Accounting Standard) Rules, 2006 "as amended", the Banks business has
been segregated into the following segments whose principal activities
were as under:
K. LEASES
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased term, are classified as
operating leases. Operating lease payments are recognised as an expense
in the Profit and Loss Account on a straight-line basis over the lease
term.
L. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, balances with Reserve
Bank of India and Balances with Other Banks / institutions and money at
Call and short Notice (including the effect of changes in exchange
rates on cash and cash equivalents in foreign currency).
M. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the net Profit or
Loss for the period attributable to equity shareholders (after
deducting attributable taxes) by the weighted average number of equity
shares outstanding during the period. The weighted average number of
equity shares outstanding during the period is adjusted for events of
bonus issue; bonus element in a rights issue to existing shareholders
and share split.
For the purpose of calculating diluted earnings per share, the net
Profit or Loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
N. PROVISIONS
A provision is recognised when the Bank has a present obligation as a
result of past event; it is probable that an outflow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the Balance Sheet date. These are reviewed at each
Balance Sheet date and adjusted to reflect the current best estimates.
Provision is made for Credit card reward points based on reward points
accrued to the customer at Balance Sheet date.
Contingent Liabilities are not recognised but are disclosed in the
notes unless the outflow of resources is remote. Contingent assets are
neither recognised nor disclosed in the financial statements.
O. IMPAIRMENT
The carrying amounts of assets are reviewed at each Balance Sheet date
if there is any indication of impairment based on internal / external
factors.
P. EMPLOYEE STOCK OPTION SCHEME
Equity-settled scheme:
The Bank has formulated Employee Stock Option Schemes (ESOSs) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Schemes provide for grant of
options to employees of the Group to acquire the equity shares of the
Bank that vest in cliff vesting or in a graded manner and that are to
be exercised within a specified period. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" issued by The Institute of Chartered Accountants of
India, the excess, if any, of the market price of the share preceding
the date of grant of the option under ESOSs over the exercise price of
the option is amortised on a straight-line basis over the vesting
period.
Where the terms of an equity-settled award are modified, the minimum
expense recognised in Payments to and provision for employees is the
expense as if the terms had not been modified. An additional expense is
recognised for any modification which increases the total intrinsic
value of the share-based payment arrangement, or is otherwise
beneficial to the employee as measured at the date of modification.
In respect of options granted to employees of subsidiaries, the Bank
recovers the related compensation cost from the respective
subsidiaries.
Cash-settled scheme:
The cost of cash-settled transactions (stock appreciation rights) is
measured initially using intrinsic value method at the grant date
taking into account the terms and conditions upon which the instruments
were granted. This intrinsic value is amortised on a straight- line
basis over the vesting period with a recognition of corresponding
liability. This liability is remeasured at each Balance Sheet date up
to and including the settlement date with changes in intrinsic value
recognised in Profit and Loss Account in Payments to and provision for
employees.
C. Disclosures on risk exposures in derivatives: Qualitative
disclosures:
a) Structure and organization for management of risk in derivatives
trading:
The management of risk in derivatives trading is carried out by the
market risk department which is independent of the Treasury and
directly reports into the Group HeadÃRisk of the Bank. The philosophy
and framework for the derivative business is laid out in the Board
approved Investment and Derivative policies. These policies are
actioned upon by the ALCO. The ALCO sets various limits and reviews
various exceptions to them.
Apart from ALCO, the New Product Committee is responsible for approving
any new derivative products. The Board approved Customer
Appropriateness and Suitability Policy gives guidance to assess
customers and the suitability of products offered to the customer.
b) Scope and nature of risk measurement, risk reporting and risk
monitoring systems:
The risk department is responsible for measuring, monitoring and
mitigating risk arising from Derivative transactions. Various risk
metrics like volatility, interest rate sensitivity, price sensitivity,
open position and counterparty exposure are monitored daily.
The Risk Management function undertakes the following activities:- -
monitors daily derivative operations against the set limits
- reviews daily profitability and activity reports for derivative
operations at various levels
- reports MIS to the ALCO on a periodic basis as well as exception
reporting
c) Policies for hedging and / or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants:
The Bank enters into derivative transactions for trading and hedging
purposes. The Balance Sheet Management Unit of the Bank obtains
approvals from the ALCO for hedging depending on the market conditions
and Balance Sheet positions.
These hedges are monitored for its hedge effectiveness periodically
having regard to the terms of the hedging instrument and the underlying
hedged risk.
d) Accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation:
Derivative transactions are segregated into trading or hedge
transactions. Trading transactions outstanding as at the Balance Sheet
dates are marked to market and the resulting profits or losses, are
recorded in the Profit and Loss Account.
Derivative transactions designated as "Hedges" are accounted on an
accrual basis over the life of the transaction.
Option premium paid / received is accounted for in the Profit and Loss
Account on expiry of the option.
Provisioning on derivative receivables is made in accordance with RBI
guidelines. The derivative limit sanctioned to clients is part of the
overall limit sanctioned post credit appraisal. Collateral is accepted
on a case to case basis considering the volatility of the price of the
collateral and any increase in operational, legal and liquidity risk.
Mar 31, 2010
A. Accounting Methodology
The financial statements have been prepared in accordance with statutory
requirements prescribed under the Banking Regulation Act, 1949. The
accounting and reporting policies of Kotak Mahindra Bank Limited used
in the preparation of these financial statements conform to Generally
Accepted Accounting Principles in India ("Indian GAAP"), the guidelines
issued by Reserve Bank of India ("RBI") from time to time, the
Accounting Standards (AS) issued by the Institute of Chartered
Accountants of India (ICAI) and notifed by the Companies (Accounting
Standards) Rules, 2006 to the extent applicable and practices generally
prevalent in the banking industry in India. The Bank follows the
accrual method of accounting, except where otherwise stated, and the
historical cost convention.
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 the date of
the financial statements and the reported income and expenses during the
reporting period. Management believes that the estimates used in
preparation of the financial statements are prudent and reasonable.
Actual results could differ from these estimates.
B. ReVenue Recognition
a. Interest income is recognised on accrual basis except in case of
non-performing assets where it is recognised, upon realisation, as per
RBI guidelines. Penal interest is recognised as income on realisation.
b. Interest income in respect of retail advances is accounted for by
using the internal rate of return method to provide a constant periodic
rate of return on the net investment outstanding on the contract.
c. Interest income on discounted instruments is recognised over the
tenure of the instruments so as to provide a constant periodic rate of
return.
d. Service charges, Fees and Commission income are recognised when due
except for Guarantee Commission which is recognised over the period of
the guarantee.
e. Dividend income is accounted on an accrual basis when the Banks
right to receive the dividend is established.
f. Gain on account of securitisation of assets is amortised over the
life of the securities issued in accordance with the guidelines issued
by the RBI.
g. In respect of non-performing assets acquired from other Banks / FIs
and NBFCs, collections in excess of the consideration paid at each
asset level or portfolio level is treated as income in accordance with
RBI guidelines and clarifcations.
c. Fixed Assets
a. Fixed assets have been stated at cost inclusive of incidental
expenses less accumulated depreciation.
D. Emplotee Benefits
a. Provident fund - Defned contribution Plan
Contribution as required by the Statute made to the Government
Provident Fund is debited to the Profit and Loss Account.
B. Gratuity - Defned Beneft Plan
The Bank accounts for the liability for future gratuity benefts based
on an actuarial valuation. The Bank makes contribution to a Gratuity
Fund administered by trustees and managed by a life insurance company.
The net present value of the Banks obligation towards the same is
actuarially determined based on the projected unit credit method as at
the Balance Sheet date. Actuarial gains and losses are immediately
recognised in the Profit and Loss Account.
c. Superannuation fund - Defned contribution Plan
The Bank contributes a sum equivalent to 15% of eligible employees
salary, subject to a maximum of Rs. 1 lakh per employee per annum to a
Fund administered by trustees and managed by a life insurance company.
The Bank recognises such contributions as an expense in the year they
are incurred.
D. Compensated Absences - other Long-term employee Benefts
The Bank accrues the liability for compensated absences based on the
actuarial valuation as at the Balance Sheet date conducted by an
independent actuary. The net present value of the Banks obligation is
determined based on the projected unit credit method as at the Balance
Sheet date.
E. OTHER EMPLOYEE BENEFTS
The undiscounted amount of short-term employee benefts expected to be
paid in exchange for the services rendered by employees is recognised
during the period when the employee renders the service. These benefts
include performance incentives.
e. Investments
1. classifcation
a. In accordance with the RBI guidelines, investments are categorised
into "Held for Trading", "Available for Sale" and "Held to Maturity"
and further classifed under six groups, namely, Government Securities,
Other Approved Securities, Shares, Debentures and Bonds, Investments in
Subsidiaries / Joint Ventures and Other Investments for the purposes of
disclosure in the Balance Sheet.
b. Investments which are held for resale within 90 days from the date
of purchase are classifed as "Held for Trading".
c. Investments which the Bank intends to hold till maturity are
classifed as "Held to Maturity". The Bank has classifed investments in
subsidiaries, joint ventures and associates as "Held to Maturity".
d. Investments which are not classifed in either of the above two
categories are classifed as "Available for Sale".
2. Valuation
The cost of investments is determined on weighted average basis. Broken
period interest on debt instruments is treated as a revenue item. The
transaction costs including brokerage, commission etc. paid at the time
of acquisition of investments is charged to Profit and Loss account.
The valuation of investments is performed in accordance with the RBI
guidelines:
a. Held for trading / Available for Sale à Each security in this
category is revalued at the market price or fair value and the net
depreciation of each group is recognised in the Profit and Loss Account.
Net appreciation, if any, is ignored. Further, provision for diminution
other than temporary is made for, at the individual security level.
b. Held to Maturity à These are carried at their acquisition cost. Any
premium on acquisition of debt instruments is amortised over the
balance maturity of the security. Any diminution, other than temporary,
in the value of such securities is provided for.
c. The market value of investments where market quotations are not
available is determined as per the norms laid down by the RBI.
d. Repurchase and reverse repurchase transactions à These are
accounted as outright purchase and outright sale respectively. The
difference between the clean price of the frst leg and the clean price
of the second leg is recognised as interest income / interest expense
over the period of the transaction. However, depreciation in their
value, if any, compared to their original cost, is provided for.
3. Transfer between categories
Transfer between categories is done at the lower of the acquisition
cost / book value / market value on the date of the transfer and
depreciation, if any, on such transfer is fully provided for.
4. Profit or Loss on sale / redemption of investments
a. Held for trading and Available for Sale à Profit or Loss on sale /
redemption is included in the Profit and Loss Account.
b. Held to Maturity à Profit on sale / redemption of investments is
included in the Profit and Loss Account and is appropriated to Capital
Reserve after adjustments for tax and transfer to Statutory Reserve.
Loss on sale / redemption is charged off to the Profit and Loss Account.
f. foreign currenct And Derivative Transactiona
a. Foreign currency assets and liabilities are translated as at the
Balance Sheet date at rates notifed by the Foreign Exchange Dealers
Association of India (FEDAI).
b. Income and Expenditure items are translated at the rates of
exchange prevailing on the date of the transactions except in respect
of representative offce expenses, which are translated at monthly
average exchange rate.
c. Foreign Exchange contracts (other than deposit and placement swaps)
outstanding at the Balance Sheet date are revalued at rates notifed by
FEDAI and resulting Profits or losses are included in the Profit and Loss
Account. Foreign exchange swaps "linked" to foreign currency deposits
and placements are translated at the prevailing spot rate at the time
of swap. The premium / discount on the swap arising out of the
difference in the exchange rate of the swap date and the maturity date
of the underlying forward contract is amortised over the period of the
swap and the same is recognised as income / expense.
d. Derivative transactions comprising of swaps and options are
disclosed as off Balance Sheet exposures. The swaps are segregated into
trading or hedge transactions. Trading swaps outstanding as at the
Balance Sheet dates are marked to market and the resulting Profits or
losses, are recorded in the Profit and Loss Account. Outstanding
derivative transactions designated as "Hedges" are accounted on an
accrual basis over the life of the transaction. Option premium paid /
received is accounted for in the Profit and Loss Account on expiry of
the option.
e. Contingent liabilities as at the Balance Sheet date on account of
outstanding foreign exchange contracts are restated at year end rates
notifed by FEDAI.
g. Adavnces
a. Advances are classifed into standard, sub-standard, doubtful and
loss assets in accordance with the RBI guidelines and are stated net of
provisions made towards non-performing advances.
b. Provision for non-performing advances comprising sub-standard,
doubtful and loss assets is made in accordance with the RBI guidelines.
In addition, the Bank adopts an approach to provisioning that is based
on past experience, evaluation of security and other related factors.
c. In accordance with RBI Guidelines dated 5th November, 2009 the bank
has provided general provision on standard advances at uniform level of
0.40% except in case of direct advances to agricultural & SME sectors
which are provided at 0.25% and to Commercial Real Estate sector at
1.00%.
Excess standard provision due to revision in provisioning rates is not
written back to Profit and Loss Account in accordance with the RBI
guidelines and clarifcations.
d. Amounts paid for acquiring non-performing assets from other banks
and NBFCs are considered as advances. Actual collections received on
such non-performing assets are compared with the cash fows estimated
while purchasing the asset to ascertain default. If the default is in
excess of 90 days, then the assets are classifed into sub-standard,
doubtful or loss as required by the RBI guidelines on purchase of
non-performing assets.
H. Securitisation
The Bank enters into arrangements for sale of loans through Special
Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank
continues to service the loans transferred to the SPV. At times the
Bank also provides credit enhancement in the form of cash collaterals
and / or by subordination of cash fows to Senior Pass Through
Certifcate (PTC) holders. In respect of credit enhancements provided or
recourse obligations (projected delinquencies, future servicing etc.)
accepted by the Bank, appropriate provision / disclosure is made at the
time of sale in accordance with Accounting Standard 29, "Provisions,
Contingent Liabilities and Contingent Assets".
The Profit / premium on account of securitisation of assets at the time
of sale computed based on the difference between the sale consideration
and the book value of the securitised asset is amortised over the
tenure of the securities issued. Loss on account of securitisation on
assets is charged off to the Profit and Loss Account.
i. Taxes on Income
The Income Tax expense comprises current tax, deferred tax and fringe
beneft tax. Current tax is measured at the amount expected to be paid
in respect of taxable income for the year in accordance with the Income
Tax Act, 1961. Deferred tax adjustments comprise of changes in the
deferred tax assets and liabilities. Deferred tax assets and
liabilities are recognised for the future tax consequences of timing
differences being the difference between the taxable income and the
accounting income that originate in one period and are capable of
reversal in one or more subsequent periods. Deferred tax assets are
recognised only to the extent that there is reasonable certainty that
suffcient future taxable income will be available against which such
deferred tax assets can be realised. Deferred tax assets and
liabilities are measured using tax rates and tax laws that have been
enacted or substantially enacted before the Balance Sheet date. Changes
in deferred tax assets / liabilities on account of changes in enacted
tax rates are given effect to in the Profit and Loss Account in the
period of the change. The carrying amount of deferred tax assets are
reviewed at each Balance Sheet date for recoverability based on future
taxable income. Provision for Fringe beneft tax is made on the basis of
applicable fringe beneft tax on the taxable value of chargeable
expenditure as prescribed under Income Tax Act.
J. Segment Reporting
The Bank has adopted RBIs revised guidelines issued in April 2007 on
segment reporting in terms of which the reportable segments are as
under:
Segment Treasury and BMU Principal activity
Money market, forex market, derivatives, investments and primary
dealership of government securities and Balance Sheet Management Unit
(BMU) responsible for Asset Liability Management.
Corporate / Wholesale Banking
Wholesale borrowings and lendings and other related services to the
corporate sector which are not included under retail banking
Retail Banking Includes:
I. Lending
Commercial vehicle fnance, personal loans, home loans, agriculture
fnance, other loans / services & exposures which fulfll the four
criterias for retail exposures laid down in Basel Committee on Banking
Supervision document "International Convergence of Capital Measurement
and Capital Standards : A Revised Framework"
II. Branch Banking
Retail borrowings covering savings, current, term deposit accounts and
Branch Banking network / services including distribution of financial
products.
III. Credit Cards Receivables / loans relating to credit card business
Other Banking business
Any other business not classifed above.
A transfer pricing mechanism has been established by ALCO for
allocation of interest cost to the above segments based on borrowing
costs, maturity profle of assets / liabilities etc.
Segment revenues consist of earnings from external customers and
inter-segment revenues based on a transfer pricing mechanism. Segment
expenses consist of interest expenses including allocated, operating
expenses and provisions.
Segment results are net of segment revenues and segment expenses.
Segment assets include assets related to segments and exclude tax
related assets. Segment liabilities include liabilities related to the
segment excluding net worth, employees stock option (grants
outstanding) and proposed dividend and dividend tax thereon.
Since the business operations of the Bank are concentrated in India,
the Bank is considered to operate only in the domestic segment.
K. LeASeS
Leases where the lessor effectively retains substantially all the risks
and benefts of ownership of the leased term, are classifed as operating
leases. Operating lease payments are recognised as an expense in the
Profit and Loss Account on a straight-line basis over the lease term.
L. CASH AND CASH EQUIVALESNTS
Cash and cash equivalents include cash in hand, balances with Reserve
Bank of India and Balances with Other Banks / institutions and money at
Call and short Notice (including the effect of changes in exchange
rates on cash and cash equivalents in foreign currency).
M. Earnings Per Share
Basic earnings per share are calculated by dividing the net Profit or
Loss for the period attributable to equity shareholders (after
deducting attributable taxes) by the weighted average number of equity
shares outstanding during the period. The weighted average number of
equity shares outstanding during the period is adjusted for events of
bonus issue; bonus element in a rights issue to existing shareholders;
share split; and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net
Profit or Loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are
adjusted for the effects of all dilutive potential equity shares.
n. Provisions
A provision is recognised when the Bank has a present obligation as a
result of past event; it is probable that an outfow of resources will
be required to settle the obligation, in respect of which a reliable
estimate can be made. Provisions are not discounted to its present
value and are determined based on best estimate required to settle the
obligation at the Balance Sheet date. These are reviewed at each
Balance Sheet date and adjusted to refect the current best estimates.
Provision is made for Credit card reward points based on reward points
accrued to the customer at Balance Sheet date.
o. IMPAIRMENT
The carrying amounts of assets are reviewed at each Balance Sheet date
if there is any indication of impairment based on internal / external
factors.
P. EMPLOYEE STOCK OPTION SCHEME
Equity-settled scheme:
The Bank has formulated Employee Stock Option Schemes (ESOSs) in
accordance with Securities and Exchange Board of India (Employee Stock
Option Scheme) Guidelines, 1999. The Schemes provide for grant of
options to employees of the Group to acquire the equity shares of the
Bank that vest in cliff vesting or in a graded manner and that are to
be exercised within a specifed period. In accordance with the SEBI
Guidelines and the guidance note on "Accounting for Employee Share
based payments" notifed under the Companies (Accounting Standard)
Rules, 2006, the excess, if any, of the market price of the share
preceding the date of grant of the option under ESOSs over the exercise
price of the option is amortised on a straight-line basis over the
vesting period.
In respect of options granted to employees of subsidiaries, the Bank
recovers the related compensation cost from the respective
subsidiaries.
Cash-settled scheme:
The cost of cash-settled transactions (stock appreciation rights) is
measured initially using intrinsic value method at the grant date
taking into account the terms and conditions upon which the instruments
were granted. This intrinsic value is amortised on a straight-line
basis over the vesting period with a recognition of corresponding
liability. This liability is remeasured at each Balance Sheet date up
to and including the settlement date with changes in intrinsic value
recognised in Profit and Loss Account in Payments to and provision for
employees.
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