Utkarsh Small Finance Bank Ltd. कंपली की लेखा नीति

Mar 31, 2025

17.1 Background

Utkarsh Small Finance Bank Limited (“Company” or “the Bank”), incorporated on April 30, 2016 in India, is a Small Finance Bank (''SFB’)
engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949. The Bank had commenced its
banking operations from January 23, 2017 Scheduled Bank status was accorded by Reserve Bank of India vide notification no. DBR.NBD.
(SFB-UMFL). No.2689/16.13.216/2017-2018 dated October 04, 2017 and was published in the Gazette of India on November 07, 2017

The Bank has completed the Process of initial public offer (IPO) and listed its equity shares on BSE Limited (“”BSE””) and National Stock
Exchange of India Limited (“”NSE””) on July 21, 2023 as per the relevant regulatory requirement.”

17.2 Basis of preparation

The accompanying financial statements have been prepared and presented under the historical cost convention, unless otherwise stated,
and on accrual basis of accounting and the Accounting Standards specified under section 133 of the Companies Act, 2013 including the
provisions of the Banking Regulation Act, 1949, the Master Direction on Financial Statements - Presentation and Disclosures issued by
Reserve Bank of India dated on August 30, 2021, as amended from time to time and various other orders/circulars/directions issued by
the RBI in this regard to the extent applicable and practices prevailing in the Banking industry in India and other accounting principles
generally accepted in India.

17.3 Use of estimates

The preparation of the financial statements in conformity with the Indian GAAP requires the management to make estimates and
assumptions that are considered in the reported amount of assets, liabilities and disclosure of contingent liabilities on the date of the
financial statements and reported income and expenses during the reporting period. The estimates and assumptions used in the
accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of
the financial statements and the management believes that the estimates used in the preparation of the financial statements are prudent
and reasonable. Actual results may differ from the estimates used in preparing the accompanying financial statements. Any revision to
accounting estimates is recognized prospectively in current and future periods.

17.4 Significant accounting policies

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year read with Schedule
18.30A and 18.30B.

The accompany financial statements have been prepared as prescribed under the historical cost.

A Revenue Recognition

a) Interest income on performing assets is recognised on accrual basis. Interest income on non-performing assets is recognised
on realisation;

b) For other than Micro Finance (JLG) Loans and Relationship Management based products, recoveries in respect of all EMI
based performing assets is appropriated towards interest, principal of each EMI followed by charges. For Non-performing
assets, appropriation is made towards principal, interest of each EMI followed by oldest charges for the product defined;

c) For Micro Finance (JLG) Loans recoveries would be appropriated towards instalment(s) outstanding and on partial collection
appropriation will be in the sequence of first Interest component of oldest EMI followed by Principal component of oldest EMI,
and so on both for standard and NPA accounts;

d) Relationship Management Based products, recoveries is appropriated towards Outstanding;

e) Penal Charge or Overdue Principal and charges are recognized on collection basis except in case of Relationship Management
based products where such penal charges are recognized on accrual basis;

f) Loan processing fee is accounted as income when it becomes due;

g) Documentation and monitoring charges collected from borrowers are accounted upfront when it becomes due;

h) Recoveries in respect of debts written off are recognized in the year in which such amounts is recovered and the same are
disclosed under “Other Income”;

i) Fees paid / received for priority sector lending certificates (PSLC) is recognised upfront;

j) Profit / premium arising at the time of securitization / assignment of loan portfolio is amortized over the life of the underlying
loan portfolio / securities and any loss arising therefrom is recognized immediately. Income from interest strip (excess interest
spread) is recognized in the profit and loss account net of any losses when redeemed in cash. Interest retained under assignment
of loan receivables is recognized on realization basis over the life of the underlying loan portfolio;

k) Interest on term deposits is accrued on time proportion basis, using the underlying interest rate.

l) Income on discounted instruments is recognised over the tenure of the instrument on a constant yield basis;

m) Dividend is accounted on an accrual basis when the right to receive the dividend is established;

n) Income from distribution of third party products is recognised on the basis of business booked;

o) Recoveries in respect of purchase of Direct Assignment pools are to be appropriated as per appropriation methodology
followed by the originators; and

p) All other fees are accounted for as and when they become due and when service is rendered.

B Advances

a) Accounting and Classification

Advances are classified as performing and non-performing (NPA) as per RBI guidelines. Restructured assets are classified and
provided for in accordance with the guidelines issued by the RBI from time to time.

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 advances / securities, which would generally include, among others, alteration
of repayment period / repayable amount / the amount of instalments / 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 and classification thereof is as
per the extant RBI guidelines. The asset classification and necessary provisions thereon are done in accordance with the said
RBI guidelines.

b) Inter Bank Participation Certificates

The Bank enters into Inter Bank Participation Certificate with Risk Sharing as issuing Bank and the aggregate amount of
participation are reduced from the aggregate loan outstanding.

c) Provisioning

Provisions in respect of non-performing and restructured advances are made based on management’s assessment of the
degree of impairment of the advances subject to the minimum provisioning levels prescribed under RBI guidelines with regard
to the Prudential Norms on Income Recognition, Asset Classification & Provisioning prescribed from time to time.

The Bank also maintains provision on standard assets to cover potential credit losses which are inherent in any loan portfolio
in accordance with RBI guidelines. However, provisioning rates prescribed by RBI are the regulatory minimum, and Bank made
additional provisions in respect of advances to stressed sectors of the economy as approved by the Board from time to time.
Provision made against standard assets is included in ''Other Liabilities and Provisions’.

Loans reported as fraud are classified appropriately as per relevant RBI guidelines and fully provided for immediately without
considering the value of security.

d) Floating Provision

The Bank recognises floating provision as per the Board approved policy, which is in addition to the specific, contingent
and general provisions made by the Bank. The floating provision will be utilised, with the approval of Board and RBI, in case
of contingencies which do not arise in the normal course of business and are exceptional and non-recurring in nature and
for making specific provision for impaired loans as per the requirement of extant RBI guidelines or any regulatory guidance /
instructions. Floating provisions are netted off for NNPA Ratio and is included in ''Other Liabilities and Provisions’.

C Investments

Policies applicable for the year ended March 31, 2025

a) Classification

In accordance with Reserve Bank of India (''RBI’) Master Direction - Classification, Valuation and Operation of Investment
Portfolio of Commercial Banks (Directions), 2023 (''RBI Directions’) issued on 12 September 2023 which is applicable from
April 01,2024, the Bank classifies its entire investment portfolio (except investments in their own subsidiaries, joint ventures and
associates) under three categories, viz., Held to Maturity (''HTM’), Available for Sale (''AFS’) and Fair Value through Profit and
Loss (''FVTPL’). Held for Trading (''HFT’) is a separate investment sub-category within FVTPL.

Under each of these categories, investments are further classified under six 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

The Bank classifies its investments as subsequently measured into the above categories based on the business model for
managing the investments and the contractual cash flow characteristics of the investments.

Business model assessment

The Bank makes an assessment of the objective of a business model in which an investment is held such that it best reflects the
way the business is managed and is consistent with information provided to management. The information considered includes:

i) The objectives for the portfolio, in particular, management’s strategy of focusing on earning contractual interest revenue,
maintaining a particular interest rate profile, matching the duration of the investments to the duration of the liabilities that are
funding those investments or realising cash flows through the sale of the investments;

ii) The frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales
activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how
the Bank’s stated objective for managing the investments is achieved and how cash flows are realised; and

iii) The risks that affect the performance of the business model, the investments held within that business model and how
those risks are managed.

Assessment whether contractual cashflows are solely payments of principal and interest

For the purposes of this assessment, ''principal’ is defined as the fair value of the investment on initial recognition. ''Interest’ is
defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding
during a particular period of time and for other basic lending risks and costs, as well as profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Bank considers the
contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could
change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the
Bank considers:

i) Reset terms;

ii) Contingent events that would change the amount and timing of cash flows;

iii) Leverage features;

iv) Prepayment and extension terms;

v) Terms that limit the Bank’s claim to cash flows from specified assets (e.g. non-recourse asset arrangements); and

vi) Features that modify consideration of the time value of money - e.g. periodical reset of interest rates.

Investments at HTM

An investment is classified at HTM only if both of the following conditions are met:

i) It is held with the objective to collect the contractual cash flows; and

ii) The contractual terms of the investment give rise to cash flows that are Solely Payments of Principal and Interest (''SPPI’
criterion) on principal outstanding on the specified dates.

Investments at AFS

An investment is classified at AFS only if both of the following conditions are met:

i) It is acquired with an objective that is achieved by both collecting contractual cash flows and selling investment; and

ii) The contractual terms of the investment meet SPPI criteria.

For equity instruments not held with the objective of trading, the Bank has an option on initial recognition to classify such
instruments under AFS. The Bank makes such election on an instrument-by-instrument basis. The classification is made on
initial recognition and is irrevocable.

Investments at FVTPL

Any investment, which does not meet the criteria for categorization as at HTM or as AFS, is classified at FVTPL.

Investments at HFT

HFT is a separate investment sub-category within FVTPL consisting of instruments that meet the specifications for HFT
instruments or are held with the intention of trading or short-term gains is classified under HFT as set out in the RBI Circular
dated 12^th September 2023.

Investments in Subsidiaries, Associates and Joint Ventures

All investments in subsidiaries, associates and joint ventures are held in a distinct category for such investments separate from
the other investment categories (viz. HTM, AFS and FVTPL).”

Acquisition Cost:

The cost of investments is determined on “weighted average cost” (''WAC’) basis. Broken period interest paid to seller is not
capitalized but treated as an item of expenditure under Profit and Loss Account in respect of investment in securities. 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 AFS

i) Debt instruments: Upon sale or maturity, the accumulated gain/ loss in the AFS Reserve is transferred from the AFS
Reserve and recognized in the Profit and Loss Account.

ii) Equity instruments: Any gain or loss on sale is transferred from AFS Reserve to the Capital Reserve.

Investments classified as FVTPL/ HFT

Any gain or loss on sale of investments is recognised in the Profit and Loss Account.

Investments in subsidiaries, associates and joint ventures

Profit or loss on sale of investments is recognised in the Profit and Loss Account and profit, if any, is appropriated to the Capital
Reserve Account after adjustments for tax and transfer to Statutory Reserve.

Investments classified as HTM

Profit on sale or redemption of investments is recognised in the Profit and Loss Account and profit if any, on sale is appropriated
to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale is recognised in the Profit and
Loss Account.

Valuation:

The valuation of investments is performed in accordance with the RBI guidelines as follows:

i) Investments classified as HTM - These are carried at cost and not Marked-to-Market (''MTM’) after initial recognition.
Any discount or premium on acquisition of debt instruments is amortized over the remaining life of the instrument using by
straight-line method (''SLM’). The discount or premium amortized is reflected as a part of interest earned in the Profit and
Loss Account.

ii) Investments classified as AFS - These are fair valued on a quarterly basis. The valuation gains and losses are
aggregated, and the net appreciation or depreciation directly gets credited or debited to AFS reserve (net of effect of
applicable taxes). Any discount or premium on acquisition of debt instruments is amortized over the remaining life of the
instrument by using straight-line method (''SLM’). The discount or premium amortized is reflected as a part of interest
earned in the Profit and Loss Account.

iii) Investments classified as FVTPL/HFT - These are fair valued and the net gain or loss arising on such valuation is
directly credited/debited to the Profit and Loss Account. Securities that are classified under the HFT sub-category within
FVTPL are fair valued on daily basis, whereas other securities in FVTPL are fair valued on a quarterly basis. Any discount or
premium on acquisition of debt instruments is amortized over the remaining life of the instrument using straight-line method
(''SLM’). The discount or premium amortized is reflected as a part of interest earned in the Profit and loss Account.”

iv) Investments in subsidiaries, associates, and joint ventures - All investments in subsidiaries, associates and joint
ventures are held at acquisition cost. Any discount or premium on the acquisition of debt instruments of subsidiaries
and associates are amortised over the remaining life of the instrument using straight-line method (''SLM’). The discount
or premium amortized is reflected as a part of interest earned in the Profit and Loss Account. The Bank assesses these
investments for impairment and provides for the same, in accordance with RBI Directions.

v) The fair value of the quoted securities are the prices declared by the Financial Benchmarks India Private Ltd. (''FBIL’). For
securities whose prices are not published by FBIL, the fair value of the quoted securities is based upon quoted price as
available from the trades/ quotes on recognised stock exchanges, reporting platforms or trading platforms authorised
by RBI or Securities and Exchange Board of India (''SEBI’) or prices declared by the Fixed Income Money Market and
Derivatives Association of India (''FIMMDA).

vi) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are
valued at carrying cost.

vii) Market value of units of mutual funds is based on the latest net asset value declared by the mutual fund.

viii) 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, Pass Through Certificates (PTCs) 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;

¦ 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 which shall not precede the date of valuation by more than 18 months In case the
latest Balance Sheet is not available, the shares are valued at H1 per investee company;

¦ 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.

¦ Units of Alternate Investment Funds (AIF) are valued at the NAV published by the AIFs. If AIF fails to carry out and
disclose valuation of its investments by an independent valuer as per the frequency mandated by the SEBI regulations,
the value of units shall be treated as H1. If the AIF is not registered under the applicable SEBI regulations and the latest
disclosed valuation of its investments by an independent valuer is not available for a period beyond 18 months, the

investment shall be valued at H1 per unit. Further, the Bank provides for investments in Alternate Investments Funds
(AIFs) in line with RBI circular dated 19^th December, 2023 and 27^th March 2024.

ix) Non-performing investments (NPIs) are identified and depreciation / provision are made thereon based on RBI guidelines.
Subsequent, MTM gains on NPIs are ignored. NPIs are segregated from rest of the portfolio and are not considered for
netting valuation gains and losses. Interest on non-performing investments is not recognized in the Profit & Loss Account
until received.

x) 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.

Day 1 gain/ loss on initial recognition

All investments are measured at fair value on initial recognition.

Unless facts and circumstances suggest that the fair value is materially different from the acquisition cost, it is presumed that the
acquisition cost is the fair value. Situations where the presumption is tested include:

¦ The transaction is between related parties.

¦ The transaction is done outside the principal market for that class of securities.

¦ The transaction is taking place under duress where one party is forced to accept the price in the transaction.

The Bank does not expect day 1 gain/ loss in case of investments which are executed through trading platforms like Recognized
Stock Exchange or through online investment platforms whereby the prices are determined in an orderly transaction between
market participants on the measurement date. Day 1 gain/ loss is tested when transactions are conducted outside the principal
market or transactions are done with related parties.

Where the securities are quoted or the fair value can be determined based on market observable inputs (such as yield curve,
spread, etc.) any day 1 gain/ loss is recognised in the Profit and Loss Account.

Any day 1 loss arising from Level 3 investments is recognised immediately in the Profit and Loss Account.

Any day 1 gains arising from Level 3 investments is deferred. In the case of debt instruments, the day 1 gain is amortized on
a straight-line basis up to the maturity date, while for unquoted equity instruments, the gain is set aside as a liability until the
security is listed or derecognised.

Fair Value Hierarchy:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants on the measurement date.

The management uses its judgment in selecting an appropriate valuation technique for financial instruments not quoted in an
active market. Valuation techniques commonly used by market participants are applied.

When measuring the fair value of an asset or a liability, the Bank uses observable market data as far as possible.

Fair values are categorized into different levels (Level 1, Level 2, or Level 3) in a fair value hierarchy based on the inputs used in
the valuation techniques. The levels are described as follows:

Level 1: The inputs used for valuation of financial instruments are quoted prices (unadjusted) in active markets for identical
instruments that the Bank can access at the measurement date.

Level 2: The valuation of financial instruments is based on inputs, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly.

Level 3: The valuation of financial instruments is based on unobservable inputs i.e. not based on observable market data.
Transition date accounting as on April 1, 2024

In line with the RBI Circular dated September 12, 2023, the fair value as on March 31, 2024 is the revised carrying value of
investments. Further, the difference between the fair value as on March 31,2024 and previous carrying value has been adjusted
in the General Reserve. (Refer Schedule 18.30B)”

Classification and valuation of Bank’s Investments is carried out in accordance with relevant RBI guidelines/directions and
Fixed Income Money Market and Derivatives Association (''FIMMDA’) and Financial Benchmark India Private Limited ( FBIL)
guidelines prescribed in this regard from time to time.

Policies applicable for the year ended March 31, 2024

a) Classification

Investments are classified into ''Held for Trading’ (''HFT’), Available for Sale’ (''AFS’) and ''Held to Maturity’ (HTM) categories
at the time of purchase.

Investments that are acquired with an intention to hold till maturity are classified as “HTM”.

Investments that are held primarily for sale within 90 days from the date of purchase are classified as “HFT”.

Investments, which are not classified in the above two categories, are classified as “AFS”. Further, as per the RBI guidelines,
HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities.

The Bank follows value date method of accounting for purchase and sale of investments, except for Government of India and
state government securities where settlement date method of accounting is followed in accordance with RBI guidelines.

For the purpose of disclosure in the financial statements, the Investments are classified under six groups a) Government
Securities b) Other Approved Securities c) Shares d) Debentures and Bonds e) Subsidiaries / Joint Ventures and f) Others.

Investments are classified as performing or non-performing as per RBI guidelines. Non performing investments are
subjected to prudential norms for Classification, valuations and Operation of Investment Portfolio by Banks prescribed
from time to time.

b) Valuation

Investments classified as “Held to Maturity” securities need not to be marked to market and will be carried at acquisition
cost, unless it is more than the face value, in which the premium should be amortised over the period remaining to maturity.
Where in the opinion of the management, a diminution, other than temporary in the value of investments classified under
HTM has taken place, appropriate provisions are made.

Investments classified as AFS and HFT are marked-to-market on a periodic basis as per relevant RBI guidelines. The
securities are valued scrip-wise and depreciation / appreciation is aggregated for each category. Net appreciation in each
category, if any, is ignored, while net depreciation is provided for. The book value of individual securities is not changed
consequent to the periodic valuation of investments.

Treasury bills, commercial papers and certificates of deposit are valued at carrying cost including the pro rata discount
accrued for the holding period.

Quoted investments are valued at traded quoted price available on the recognised stock exchanges, subsidiary general
ledger account transactions are valued as per the price list of RBI or prices declared by Primary Dealers Association of
India (“PDAI”) jointly with FIMMDA / FBIL applicable as at the balance sheet date. For deriving market value of unquoted
fixed income securities (other than Central and State Government securities), yields / mark-up rates (reflecting associate
credit risk) declared by the FIMMDA / FBIL are considered.

Quoted Mutual Fund units are valued as per stock exchange quotes and un-quoted mutual fund units are valued at last
available re-purchase price or Net Asset Value where re-purchase price is not available.”

c) Disposal of investments

Profit / Loss on sale of investments under the aforesaid three categories is recognized in the Profit and Loss account. Cost
of investments is based on the weighted average cost method. The profit from sale of investment under HTM category, net
of taxes and transfer to statutory reserve is appropriated from Profit and Loss account to “Capital Reserve” in accordance
with the RBI Guidelines.

d) Transfer between categories

Transfer of investments between categories is accounted in accordance with the extant RBI guidelines:
a) Transfer from AFS/HFT to HTM is made at the lower of book value or market value at the time of transfer.

b) Transfer from HTM to AFS/HFT is made at acquisition price/ amortised cost if originally placed in HTM at par or at a
discount and at amortised cost if originally placed in HTM at a premium.

c) Transfer from AFS to HFT category or vice-versa is made at book value and the provision for the accumulated
depreciation, if any, held is transferred to the provisions for depreciation against the HFT securities or vice-versa.

e) Repurchase and Reverse repurchase transactions

Repurchase (''Repo’) and reverse repurchase (''Reverse Repo’) transactions including liquidity adjustment facility (with RBI)
are accounted for as borrowing and lending transactions respectively. Accordingly, securities given as collateral under an
agreement to repurchase them continue to be held under the investment account of the Bank and the Bank would continue
to accrue the coupon/discount on the security during the repo period. The Bank continues to value the securities sold
under repo as per the investment classification of the security. Borrowing cost on repo transactions is accounted for as
interest expense and income on reverse repo transactions are accounted for as interest income.

f) Broken period interest, brokerage etc.

Broken period interest and costs such as brokerage paid at the time of acquisition of the investments are charged to the
Profit and Loss account.

Investment Fluctuation Reserve.

Out of net profits earned during the year, transfer is made to Investment Fluctuation Reserve, for an amount not less than the
lower of the (a) net profit on sale of investments during the year (b) net profit for the year less mandatory appropriations, till the
balance in such Investment Fluctuation Reserve reaches a level of at least 2% of the aggregate FVTPL, HFT and AFS portfolio.
Draw down from the Investment Fluctuation Reserve has been made in accordance with the applicable RBI guidelines.

D Fixed assets and depreciation / amortisation
Tangible assets

Tangible fixed assets are accounted for at cost less accumulated depreciation, amortization and accumulated impairment losses.
Cost includes freight, duties, taxes and all other directly attributable expenditures towards acquisition and installation of assets
before it is ready for commercial use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases
the future benefit / functioning capability from / of such assets. Tangible fixed assets under construction and tangible fixed assets
acquired but not ready for their intended use will be disclosed as capital work-in-progress.

Capital work in progress includes cost of fixed assets that are not ready for their intended use and also includes advances paid to
acquire fixed assets. Depreciation is provided as per straight-line method from the date of addition over the estimated useful life of
the asset.

For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank. Depreciation on assets sold
during the year is charged to the Profit and Loss account up to the date of sale. Assets costing less than H5,000 are fully depreciated
in the year of purchase. If the management’s estimate of the useful life of a fixed asset at the time of acquisition of the asset or of the
remaining useful life on a subsequent review is shorter, then the depreciation is provided at a higher rate based on management’s
estimate of the useful life/remaining useful life. The management believes that depreciation rates currently used, fairly reflect its
estimate of the useful lives and residual values of fixed assets which are in accordance with lives prescribed under Schedule II of
Companies Act, 2013.

Leasehold improvements are amortised on straight line basis over the primary period of the lease or the estimated useful life of the
assets, whichever is lower.

Losses arising from retirement or gains or losses arising from disposal of fixed assets which are carried at cost are recognized in the
Profit and Loss account.

Intangible assets

Intangible assets that are acquired by the Bank are measured initially at cost. The cost of an intangible asset comprises its purchase
price including after deducting trade discounts and rebates, any directly attributable cost of bringing the item to its working condition
for its intended use following initial recognition. After initial recognition, an intangible asset is carried at its cost less any accumulated
amortization and any accumulated impairment loss. Subsequent expenditure is capitalized only when it increases the future
economic benefits from the specific asset to which it relates.

Intangible assets are amortized in the Profit and Loss account over their estimated useful lives from the date they are available for
use based on the expected pattern of consumption of economic benefits of the asset. Intangible assets are amortized on straight line
basis. Computer software are amortized on straight line basis over their estimated useful life of three years.For assets purchased/
sold during the year, amortisation is being provided on pro rata basis by the Bank.

Impairment of Assets

In accordance with Accounting Standard 28- Impairment of assets, the Bank assesses at each balance sheet date whether there
is any indication of impairment of assets based on internal / external factor If any such indication exists, the Bank estimates the
recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit
to which the asset belongs to is less than its carrying amount, the carrying amount will be reduced to its recoverable amount. The
reduction is treated as an impairment loss and is recognized in the Profit and Loss account. If at the balance sheet date there is
an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is
reflected at the recoverable amount subject to a maximum of depreciable historical cost. Depreciation is provided on the revised
carrying amount of the asset over its remaining useful life

E Foreign Currency transactions

Transactions denominated in foreign currency are recorded at exchange rates prevailing on the date of the transactions. Exchange
differences arising on foreign currency transactions settled during the year are recognised in the Profit and Loss account. Income
and Expenditure items are translated at the rates of exchange prevailing on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date based on exchange rates
notified by Foreign Exchange Dealers’ Association of India (''FEDAI’) and the resultant exchange differences are recognized in the
Profit and Loss account.

F Derivatives

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 value) or as liabilities when the fair value
is negative (negative marked to market value). Changes in the fair value of derivatives other than those designated as hedges are
recognised in the Profit and Loss account.

Derivative contracts designated as hedges are not marked to market unless their underlying transaction is marked to market. In
respect of derivative contracts that are marked to market, changes in the market value are recognised in the Profit and Loss account
in the relevant period.

The Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. Hedge effectiveness is ascertained
at the time of the inception of the hedge and periodically thereafter. Gains or losses arising from hedge ineffectiveness, if any, are
recognised in the Profit and Loss account. Contingent liabilities on account of derivative contracts denominated in foreign currencies
are reported at closing rates of exchange notified by FEDAI as at the balance sheet date.

G Employee benefits

a. Defined Contribution Plan -

The Bank makes specified monthly contribution towards employee provident fund to Government administered provident fund
scheme, which is a defined contribution scheme. The Bank’s contribution is recognised as an expense in Profit and loss account
during the period in which the employee renders the related service.

b. Defined Benefit Plan and Compensated absences-

The Bank provides for gratuity, a defined benefit retirement plan covering eligible employees. Gratuity is covered under a scheme
administered by Life Insurance Corporation of India through gratuity trust (Group Gratuity scheme) and the contributions made
by the Bank to the scheme is recognised in the Profit and loss account. The liability recognised in the Balance Sheet in respect
of defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of
plan assets. The calculation of the Bank’s obligation under the plan is performed annually by qualified independent actuary
using projected unit credit method. Actuarial gains and losses arising during the year is immediately recognised in the Profit &
Loss account.

Compensated absence, is a long-term employee benefit, and accrued based on an actuarial valuation done as per projected
unit credit method at the balance sheet date, carried out by an independent actuary. Compensated absence is covered under
a scheme administered by Life Insurance Corporation of India. Actuarial gains and losses are recognized in full in the Profit and
Loss account for the period and are not deferred.

H Share Issue Expenses

Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013.

I Employee Stock Option Scheme

The holding company of the Bank has formulated Employees Stock Option Scheme. The scheme provides that subject to continued
employment with the Bank, employees of the Bank are granted an option to acquire equity shares of the Holding Company that
may be exercised within a specified period. The compensation cost for all options granted to employees by the Holding company
is computed based on valuation of shares of Holding company as per intrinsic value method and is amortised over the period of
vesting. Measurement and disclosure of the Employee Share-based Payment Schemes are done in accordance with the Guidance
Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India (''ICAI’).

The Bank has formulated Employees Stock Option Schemes, and the policy will be applicable to all scheme. The Bank measures
compensation cost relating to employee stock options using the Fair value method as per the Guidance Note on Accounting for
Employee Share based Payments’ issued by the ICAI and same is charged to Profit & Loss Account.

J Lease transactions

A lease is classified at the inception date as finance lease or an operating lease. Assets taken on lease where the Bank acquires
substantially all the risks and rewards incidental to ownership are classified as finance leases.

Finance lease is capitalised at the commencement of the lease at an amount equal to lower of its fair value and present value of
the minimum lease payments. Lease payments are apportioned between finance charges and reduction of lease liability so as to
achieve constant rate of interest on the remaining balance of the liability. The rental obligations, net of finance charges, are reflected
as borrowings. Finance charges are recognised as finance costs in the profit and loss account.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as
operating leases. Operating lease rentals are recognised as and when the payments are made over the lease terms.

K Taxation

Income tax comprises the current tax (i.e. amount of tax for the period, determined in accordance with the Income Tax Act, 1961 and
the rules framed there under) and the net change in the deferred tax asset or liability for the period (reflecting the tax effects of timing
differences between accounting income and taxable income for the period).

Provision for current income-tax is recognized in accordance with the provisions of the Income Tax Act, 1961 and is made annually
based on the tax liability after taking credit for tax allowances and exemptions.

The current tax, deferred tax charge or credit and the corresponding deferred tax liability or asset is recognised using the tax rates
that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realized in future. However,
where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there
is virtual certainty (supported by convincing evidence of future taxable income) of realization of such assets.

Deferred tax assets are reviewed at each Balance Sheet date and appropriately adjusted to reflect the amount that is reasonably/
virtually certain to be realized.

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Mar 31, 2024

Schedule 17 - Significant accounting policies

17.1 Background

Utkarsh Small Finance Bank Limited ("Company” or "the Bank”), Incorporated on April 30, 2016 In India, Is a Small Finance Bank (''SFB'') engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949. The Bank received the status of scheduled Bank from Reserve Bank of India and commenced its banking operation from January 2017. The Bank is subsidiary of Utkarsh Core Invest Limited ("the Holding Company”).

Pursuant to the condition attached in the approval for small finance bank, the Holding Company entered into a business transfer agreement ("BTA”) and transferred its micro finance business to the Bank. Pursuant to the BTA all the assets and liabilities (except certain specified assets and liabilities) including the employees as at January 21,2017 of the Holding Company were transferred to the Bank on slump sale basis.. Further, the non-convertible debentures listed on the stock exchange were also transferred in the name of the Bank as part of BTA which was effective from May 03, 2017.

The Bank has completed the process of initial public offer (IPO) and got its equity shares listed on BSE Limited ("”BSE””) and National Stock Exchange of India Limited ("”NSE””) on July 21,2023.

17.2 Basis of preparation

The accompanying financial statements have been prepared and presented under the historical cost convention, unless otherwise stated, and on accrual basis of accounting and the Accounting Standards specified under section 133 of the Companies Act, 2013 including the provisions of the Banking Regulation Act, 1949, the Master Direction on Financial Statements - Presentation and Disclosures issued by Reserve Bank of India dated on August 30, 2021, as amended from time to time and various other orders/circulars/directions issued by the RBI in this regard to the extent applicable and practices prevailing in the Banking industry in India and other accounting principles generally accepted in India.

17.3 Use of estimates

The preparation of the financial statements in conformity with the Indian GAAP requires the management to make estimates and assumptions that are considered in the reported amount of assets, liabilities and disclosure of contingent liabilities on the date of the financial statements and reported income and expenses during the reporting period. The estimates and assumptions used in the accompanying financial statements are based upon management''s evaluation of the relevant facts and circumstances as of the date of the financial statements and the management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from the estimates used in preparing the accompanying financial statements. Any revision to accounting estimates is recognized prospectively in current and future periods.

17.4 Significant accounting policies

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year. The accompany financial statements have been prepared as prescribed under the historical cost.

A Revenue Recognition

a) Interest income on performing assets is recognised on accrual basis. Interest income on non-performing assets is recognised on realisation;

b) For other than Micro Finance (JLG) Loans and Relationship Management based products, recoveries in respect of all EMI based performing assets is appropriated towards interest, principal of each EMI followed by penal interest and then charges. For Non-performing assets, appropriation is made towards principal, interest of each EMI followed by oldest penal interest due and then oldest charges for the product defined;

c) For Micro Finance (JLG) Loans recoveries would be appropriated towards instalment(s) outstanding and on partial collection appropriation will be in the sequence of first Interest component of oldest EMI followed by Principal component of oldest EMI, and so on both for standard and NPA accounts;

d) Relationship Management Based products, recoveries is appropriated towards Outstanding;

e) Penal Interest or Overdue Principal Interest and charges are recognized on collection basis except in case of Relationship Management based products where such penal interest or charges are recognized on accrual basis;

f) Loan processing fees collected from the borrowers is recognized over the tenure of the loan;

g) Documentation and monitoring charges collected from borrowers are accounted upfront when it becomes due;

h) Recoveries in respect of debts written off are recognized in the year in which such amounts is recovered and the same are disclosed under "Other Income

i) Fees paid / received for priority sector lending certificates (PSLC) is recognised upfront;

J) Profit / premium arising at the time of securitization / assignment of loan portfolio is amortized over the life of the underlying loan portfolio / securities and any loss arising therefrom is recognized immediately. Income from interest strip (excess interest spread) is recognized in the profit and loss account net of any losses when redeemed in cash. Interest retained under assignment of loan receivables is recognized on realization basis over the life of the underlying loan portfolio;

k) Interest on term deposits is accrued on time proportion basis, using the underlying interest rate.

l) Income on discounted instruments is recognised over the tenure of the instrument on a constant yield basis;

m) Dividend is accounted on an accrual basis when the right to receive the dividend is established;

n) Income from distribution of third party products is recognised on the basis of business booked;

o) Recoveries in respect of purchase of Direct Assignment pools are to be appropriated as per appropriation methodology followed by the originators; and

p) All other fees are accounted for as and when they become due and when service is rendered.”

B Advances

a} Accounting and Classification

Advances are classified as performing and non-performing (NPA) as per RBI guidelines. Restructured assets are classified and provided for in accordance with the guidelines issued by the RBI from time to time.

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 advances / securities, which would generally include, among others, alteration of repayment period / repayable amount / the amount of instalments / 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 and classification thereof is as per the extant RBI guidelines. The asset classification and necessary provisions thereon are done in accordance with the said RBI guidelines.

b) inter Bank Participation Certificates

The Bank enters into Inter Bank Participation Certificate with Risk Sharing as issuing Bank and the aggregate amount of participation are reduced from the aggregate loan outstanding.

c) Provisioning

Provisions in respect of non-performing and restructured advances are made based on management''s assessment of the degree of impairment of the advances subject to the minimum provisioning levels prescribed under RBI guidelines with regard to the Prudential Norms on Income Recognition, Asset Classification & Provisioning prescribed from time to time.

The Bank also maintains provision on standard assets to cover potential credit losses which are inherent in any loan portfolio in accordance with RBI guidelines. However, provisioning rates prescribed by RBI are the regulatory minimum, and Bank made additional provisions in respect of advances to stressed sectors of the economy as approved by the Board from time to time. Provision made against standard assets is included in ''Other Liabilities and Provisions''.

Loans reported as fraud are classified appropriately as per relevant RBI guidelines and fully provided for immediately without considering the value of security.

d) Floating Provision

The Bank recognises floating provision as per the Board approved policy, which is in addition to the specific, contingent and general provisions made by the Bank. The floating provision will be utilised, with the approval of Board and RBI, in case of contingencies which do not arise in the normal course of business and are exceptional and non-recurring in nature and for making specific provision for impaired loans as per the requirement of extant RBI guidelines or any regulatory guidance / instructions. Floating provisions are netted off for NNPA Ratio and is included in ''Other Liabilities and Provisions''.

C investments

Classification and valuation of Bank''s Investments is carried out in accordance with relevant RBI guidelines/ directions and Fixed Income Money Market and Derivatives Association (''FIMMDA'') and Financial Benchmark India Private Limited (''FBIL'') guidelines prescribed in this regard from time to time.

a) Classification

Investments are classified into ''Held for Trading'' (''HFT''), ''Available for Sale'' (''AFS'') and ''Held to Maturity'' (HTM) categories at the time of purchase.

Investments that are acquired with an intention to hold till maturity are classified as "HTM”.

Investments that are held primarily for sale within 90 days from the date of purchase are classified as "HFT”.

Investments, which are not classified in the above two categories, are classified as "AFS”. Further, as per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities.

The Bank follows value date method of accounting for purchase and sale of investments, except for Government of India and state government securities where settlement date method of accounting is followed in accordance with RBI guidelines.

For the purpose of disclosure In the financial statements, the Investments are classified under six groups a) Government Securities b) Other Approved Securities c) Shares d) Debentures and Bonds e) Subsidiaries / Joint Ventures and f) Others.

Investments are classified as performing or non-performing as per RBI guidelines. Non performing Investments are subjected to prudential norms for Classification, valuations and Operation of Investment Portfolio by Banks prescribed from time to time.

b) Valuation

Investments classified as "Held to Maturity” securities need not to be marked to market and will be carried at acquisition cost, unless it is more than the face value, in which the premium should be amortised over the period remaining to maturity. Where in the opinion of the management, a diminution, other than temporary in the value of investments classified under HTM has taken place, appropriate provisions are made.

Investments classified as AFS and HFT are marked-to-market on a periodic basis as per relevant RBI guidelines. The securities are valued scrip-wise and depreciation / appreciation is aggregated for each category. Net appreciation in each category, if any, is ignored, while net depreciation is provided for. The book value of individual securities is not changed consequent to the periodic valuation of investments.

Treasury bills, commercial papers and certificates of deposit are valued at carrying cost including the pro rata discount accrued for the holding period.

Quoted investments are valued at traded quoted price available on the recognised stock exchanges, subsidiary general ledger account transactions are valued as per the price list of RBI or prices declared by Primary Dealers Association of India ("PDAI”) jointly with FIMMDA / FBIL applicable as at the balance sheet date. For deriving market value of unquoted fixed income securities (other than Central and State Government securities), yields / mark-up rates (reflecting associate credit risk) declared by the FIMMDA / FBIL are considered.

Quoted Mutual Fund units are valued as per stock exchange quotes and un-quoted mutual fund units are valued at last available re-purchase price or Net Asset Value where re-purchase price is not available.

c) Disposal of investments

Profit / Loss on sale of investments under the aforesaid three categories is recognized in the Profit and Loss account. Cost of investments is based on the weighted average cost method. The profit from sale of investment under HTM category, net of taxes and transfer to statutory reserve is appropriated from Profit and Loss account to "Capital Reserve” in accordance with the RBI Guidelines.

d) Transfer between categories

Transfer of investments between categories is accounted in accordance with the extant RBI guidelines:

a) Transfer from AFS/HFT to HTM is made at the lower of book value or market value at the time of transfer.

b) Transfer from HTM to AFS/HFT is made at acquisition price/ amortised cost if originally placed in HTM at par or at a discount and at amortised cost if originally placed in HTM at a premium.

c) Transfer from AFS to HFT category or vice-versa is made at book value and the provision for the accumulated depreciation, if any, held is transferred to the provisions for depreciation against the HFT securities or vice-versa.

e) Repurchase and Reverse repurchase transactions

Repurchase (''Repo'') and reverse repurchase (''Reverse Repo'') transactions including liquidity adjustment facility (with RBI) are accounted for as borrowing and lending transactions respectively. Accordingly, securities given as collateral under an agreement to repurchase them continue to be held under the investment account of the Bank and the Bank would continue to accrue the coupon/discount on the security during the repo period. The Bank continues to value the securities sold under repo as per the investment classification of the security. Borrowing cost on repo transactions is accounted for as interest expense and income on reverse repo transactions are accounted for as interest income.

f) Broken period interest, brokerage etc.

Broken period interest and costs such as brokerage paid at the time of acquisition of the investments are charged to the Profit and Loss account.

g) investment Fluctuation Reserve.

Out of net profits earned during the year, transfer is made to investment Fluctuation Reserve, for an amount not less than the lower of the (a) net profit on sale of investments during the year (b) net profit for the year less mandatory appropriations, till the balance in such investment Fluctuation Reserve reaches a level of at least 2% of the aggregate HFT and AFS portfolio. Draw down from the investment Fluctuation Reserve has been made in accordance with the applicable RBI guidelines.

D Fixed assets and depreciation / amortisation Tangible assets

Tangible fixed assets are accounted for at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost includes freight, duties, taxes and all other directly attributable expenditures towards acquisition and installation of assets before it is ready for commercial use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets.

Tangible fixed assets under construction and tangible fixed assets acquired but not ready for their intended use will be disclosed as capital work-in-progress.

Capital work in progress includes cost of fixed assets that are not ready for their intended use and also includes advances paid to acquire fixed assets.

Depreciation is provided as per straight-line method from the date of addition over the estimated useful life of the asset. For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank. Depreciation on assets sold during the year is charged to the Profit and Loss account up to the date of sale. Assets costing less than H5,000 are fully depreciated in the year of purchase. if the management''s estimate of the useful life of a fixed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter, then the depreciation is provided at a higher rate based on management''s estimate of the useful life/ remaining useful life. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets which are in accordance with lives prescribed under Schedule II of Companies Act, 2013.

Leasehold improvements are amortised on straight line basis over the primary period of the lease or the estimated useful life of the assets, whichever is lower.

Losses arising from retirement or gains or losses arising from disposal of fixed assets which are carried at cost are recognized in the Profit and Loss account.

intangible assets

intangible assets that are acquired by the Bank are measured initially at cost. The cost of an intangible asset comprises its purchase price including after deducting trade discounts and rebates, any directly attributable cost of bringing the item to its working condition for its intended use following initial recognition. After initial recognition, an intangible asset is carried at its cost less any accumulated amortization and any accumulated impairment loss. Subsequent expenditure is capitalized only when it increases the future economic benefits from the specific asset to which it relates.

intangible assets are amortized in the Profit and Loss account over their estimated useful lives from the date they are available for use based on the expected pattern of consumption of economic benefits of the asset. intangible assets are amortized on straight line basis. Computer software are amortized on straight line basis over their estimated useful life of three years.For assets purchased/ sold during the year, amortisation is being provided on pro rata basis by the Bank.

impairment of Assets

in accordance with Accounting Standard 28- impairment of assets, the Bank assesses at each balance sheet date whether there is any indication of impairment of assets based on internal / external factor if any such indication exists, the Bank estimates the recoverable amount of the asset. if such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs to is less than its carrying amount, the carrying amount will be reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Profit and Loss account. if at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciable historical cost. Depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

E Foreign Currency transactions

Transactions denominated in foreign currency are recorded at exchange rates prevailing on the date of the transactions. Exchange differences arising on foreign currency transactions settled during the year are recognised in the Profit and Loss account. Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date based on exchange rates notified by Foreign Exchange Dealers'' Association of India (''FEDAI'') and the resultant exchange differences are recognized in the Profit and Loss account.

F Derivatives

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 value) or as liabilities when the fair value is negative (negative marked to market value). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss account.

Derivative contracts designated as hedges are not marked to market unless their underlying transaction is marked to market. In respect of derivative contracts that are marked to market, changes in the market value are recognised in the Profit and Loss account in the relevant period.

The Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. Hedge effectiveness is ascertained at the time of the inception of the hedge and periodically thereafter. Gains or losses arising from hedge ineffectiveness, if any, are recognised in the Profit and Loss account. Contingent liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI as at the balance sheet date.

G Employee benefits

a. Defined Contribution Plan -

The Bank makes specified monthly contribution towards employee provident fund to Government administered provident fund scheme, which is a defined contribution scheme. The Bank''s contribution is recognised as an expense in Profit and loss account during the period in which the employee renders the related service.

b. Defined Benefit Plan and Compensated absences-

The Bank provides for gratuity, a defined benefit retirement plan covering eligible employees. Gratuity is covered under a scheme administered by Life Insurance Corporation of India through gratuity trust (Group Gratuity scheme) and the contributions made by the Bank to the scheme is recognised in the Profit and loss account. The liability recognised in the Balance Sheet in respect of defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The calculation of the Bank''s obligation under the plan is performed annually by qualified independent actuary using projected unit credit method. Actuarial gains and losses arising during the year is immediately recognised in the Profit & Loss account.

Compensated absence, is a long-term employee benefit, and accrued based on an actuarial valuation done as per projected unit credit method at the balance sheet date, carried out by an independent actuary. Compensated absence is covered under a scheme administered by Life Insurance Corporation of India. Actuarial gains and losses are recognized in full in the Profit and Loss account for the period and are not deferred.

H Share Issue Expenses

Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013. I Employee Stock Option Scheme

The holding company of the Bank has formulated Employees Stock Option Scheme. The scheme provides that subject to continued employment with the Bank, employees of the Bank are granted an option to acquire equity shares of the Holding Company that may be exercised within a specified period. The compensation cost for all options granted to employees by the Holding company is computed based on valuation of shares of Holding company as per intrinsic value method and is amortised over the period of vesting. Measurement and disclosure of the Employee Share-based Payment Schemes are done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India (''ICAI'').

The Bank has formulated Employees Stock Option Schemes, and the policy will be applicable to all scheme. The Bank measures compensation cost relating to employee stock options using the Fair value method as per the Guidance Note on ''Accounting for Employee Share based Payments'' issued by the ICAI and same is charged to Profit & Loss Account.

J Lease transactions

A lease is classified at the inception date as finance lease or an operating lease. Assets taken on lease where the Bank acquires substantially all the risks and rewards incidental to ownership are classified as finance leases. Finance lease is capitalised at the commencement of the lease at an amount equal to lower of its fair value and present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of lease liability so as to achieve constant rate of interest on the remaining balance of the liability. The rental obligations, net of finance charges, are reflected as borrowings. Finance charges are recognised as finance costs in the profit and loss account.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognised as and when the payments are made over the lease terms.

K Taxation

Income tax comprises the current tax (i.e. amount of tax for the period, determined in accordance with the Income Tax Act, 1961 and the rules framed there under) and the net change in the deferred tax asset or liability for the period (reflecting the tax effects of timing differences between accounting income and taxable income for the period).

Provision for current income-tax is recognized in accordance with the provisions of the Income Tax Act, 1961 and is made annually based on the tax liability after taking credit for tax allowances and exemptions.

The current tax, deferred tax charge or credit and the corresponding deferred tax liability or asset is recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realized in future. However, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty (supported by convincing evidence of future taxable income) of realization of such assets.

Deferred tax assets are reviewed at each Balance Sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

L Provisions and contingencies

The Bank recognises a provision when there is present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

M Earnings per share (EPS)

Basic earnings per share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive.

N Cash and cash equivalents

Cash and Cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

O Cash Flow Statements

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Bank are segregated.

P Segment reporting

The disclosures relating to segment reporting is done as per guidelines issued by the RBI.

Q Priority Sector Lending Certificates

The Bank vide RBI circular FIDD.CO.Plan.BC.23/04.09.01/2015-16 dated April 07, 2016 trades in Priority Sector portfolio by selling or buying Priority Sector Lending Certificates (PSLCs). There is no transfer of risk on loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received for the sale of PSLCs is recognised upfront and is treated as ''Miscellaneous Income''.

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Mar 31, 2023

SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES17.1 Background

Utkarsh Small Finance Bank Limited ("Company" or "the Bank"), incorporated on 30 April 2016 in India, is a Small Finance Bank (''SFB'') engaged in providing banking and financial services and governed by the Banking Regulation Act, 1949. The Bank had commenced its banking operations from 23 January 2017. Scheduled Bank status was accorded by Reserve Bank of India vide notification no. DBR.NBD. (SFB-UMFL). No.2689/16.13.216/2017-2018 dated 04 October 2017 and was published in the Gazette of India on 07 November 2017. The Bank is subsidiary of Utkarsh Coreinvest Limited (the Holding Company).

The Reserve Bank of India (RBI) issued license no. MUM: 125 on 25 November 2015 to the Company to carry on business as SFB with certain terms and conditions. Pursuant to the condition attached in the approval for small finance bank, the Holding Company entered into a business transfer agreement (BTA) and transferred its micro finance business to the Bank. Pursuant to the BTA all the assets and liabilities (except certain specified assets and liabilities) as at 21 January 2017 of the Holding Company were transferred to the Bank at book value based on slump sale basis for cash consideration of ''68.51 crores. Pursuant to BTA, all the employees of the Holding Company (except certain employees) were transferred to SFB on the same employment terms and rights granted under employee stock option scheme of the Holding Company are continued in SFB. Resultant, non-convertible debentures listed on the stock exchange were also transferred in the name of the Bank and a transfer was effected by the exchange effective 03 May 2017.

17.2 Basis of preparation

The accompanying financial statements have been prepared and presented under the historical cost convention, unless otherwise stated, and on accrual basis of accounting and the Accounting Standards specified under section 133 of the Companies Act, 2013 including the provisions of the Banking Regulation Act, 1949, the Master Direction on Financial Statements - Presentation and Disclosures issued by Reserve Bank of India dated on August 30, 2021, as amended from time to time and various other orders/circulars/directions issued by the RBI in this regard to the extent applicable and practices prevailing in the Banking industry in India and other accounting principles generally accepted in India.

17.3 Use of estimates

The preparation of the financial statements in conformity with the Indian GAAP requires the management to make estimates and assumptions that are considered in the reported amount of assets, liabilities and disclosure of contingent liabilities on the date of the financial statements and reported income and expenses during the reporting period. The estimates and assumptions used in the accompanying financial statements are based upon management''s evaluation of the relevant facts and circumstances as of the date of the financial statements and the management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results may differ from the estimates used in preparing the accompanying financial statements. Any revision to accounting estimates is recognized prospectively in current and future periods.

17.4 Significant accounting policies

The accounting policies adopted in the preparation of financial statements are consistent with those of previous year.

The accompany financial statements have been prepared as prescribed under the historical cost.

A Revenue Recognition

a) Interest income on performing assets is recognised on accrual basis. Interest income on non-performing assets is recognised on realisation;

b) For other than JLG, till 24 September 2021, recoveries in respect of all past due loan accounts including classified as NPA is appropriated towards charges, interest, overdue and thereafter towards principal. From 25 September 2021 onwards except for Micro Finance (JLG) Loans and Relationship Management based products, recoveries in respect of all EMI based performing assets is appropriated towards interest, principal of each EMI followed by penal interest and then charges. For Non-performing assets, appropriation is made towards principal, interest of each EMI followed by oldest penal interest due and then oldest charges for the product defined;

c) For Micro Finance (JLG) Loans recoveries would be appropriated towards instalment(s) outstanding and on partial collection appropriation will be in the sequence of first Interest component of oldest EMI followed by Principal component of oldest EMI, and so on both for standard and NPA accounts;

d) Relationship Management Based products, recoveries is appropriated towards Outstanding;

e) Penal Interest or Overdue Principal Interest and charges are recognized on collection basis except in case of Relationship Management based products where such penal interest or charges are recognized on accrual basis;

f) Loan processing fees collected from the borrowers is recognized over the tenure of the loan;

g) Documentation and monitoring charges collected from borrowers are accounted upfront when it

becomes due;

h) Recoveries in respect of debts written off are recognized in the year in which such amounts is recovered and the same are disclosed under Other Income;

i) Fees paid / received for priority sector lending certificates (PSLC) is recognised upfront;

j) Profit / premium arising at the time of securitization / assignment of loan portfolio is amortized over the

life of the underlying loan portfolio / securities and any loss arising therefrom is recognized immediately. Income from interest strip (excess interest spread) is recognized in the profit and loss account net of any losses when redeemed in cash. Interest retained under assignment of loan receivables is recognized on realization basis over the life of the underlying loan portfolio;

k) Interest on term deposits is accrued on time proportion basis, using the underlying interest rate.

l) Income on discounted instruments is recognised over the tenure of the instrument on a constant yield basis;

m) Dividend is accounted on an accrual basis when the right to receive the dividend is established;

n) Income from distribution of third party products is recognised on the basis of business booked;

o) Recoveries in respect of purchase of Direct Assignment pools are to be appropriated as per appropriation methodology followed by the originators; and

p) All other fees are accounted for as and when they become due and when service is rendered.

3 Advances

a) Accounting and Classification

Advances are classified as performing and non-performing (NPA) as per RBI guidelines. Restructured assets are classified and provided for in accordance with the guidelines issued by the RBI from time to time. In respect of advances where resolution plan is under implementation or implemented under the RBI guidelines on "Resolution Framework for COVID 19-related Stress" and "Micro, Small and Medium Enterprises (MSME) Sector - Restructuring of Advances.

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 advances / securities, which would generally include, among others, alteration of repayment period / repayable amount / the amount of instalments / 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 and classification thereof is as per the extant RBI guidelines. In accordance with the RBI guidelines on the prudential framework for resolution of stressed assets and the resolution framework for COVID-19 related stress, the Bank in accordance with its Board approved policy, carried out one-time restructuring of eligible borrowers. The asset classification and necessary provisions thereon are done in accordance with the said RBI guidelines.

b) Inter Bank Participation Certificates

The Bank enters into Inter Bank Participation Certificate with Risk Sharing as issuing Bank and the aggregate amount of participation are reduced from the aggregate loan outstanding.

c) Provisioning

Provisions in respect of non-performing and restructured advances are made based on management''s assessment of the degree of impairment of the advances subject to the minimum provisioning levels prescribed under RBI guidelines with regard to the Prudential Norms on Income Recognition, Asset Classification & Provisioning prescribed from time to time.

The Bank also maintains provision on standard assets to cover potential credit losses which are inherent in any loan portfolio in accordance with RBI guidelines. However, provisioning rates prescribed by RBI are the regulatory minimum, and Bank made additional provisions in respect of advances to stressed sectors of the economy as approved by the Board from time to time. Provision made against standard assets is included in ''Other Liabilities and Provisions''.

Loans reported as fraud are classified appropriately as per relevant RBI guidelines and fully provided for immediately without considering the value of security.

d) Floating Provision

The Bank recognises floating provision as per the Board approved policy, which is in addition to the specific, contingent and general provisions made by the Bank. The floating provision will be utilised, with the approval of Board and RBI, in case of contingencies which do not arise in the normal course of business and are exceptional and non-recurring in nature and for making specific provision for impaired loans as per the requirement of extant RBI guidelines or any regulatory guidance / instructions. Floating provisions are netted off for NNPA Ratio and is included in ''Other Liabilities and Provisions''.

C Investments

Classification and valuation of Bank''s Investments is carried out in accordance with relevant RBI guidelines/ directions and Fixed Income Money Market and Derivatives Association (''FIMMDA'') and Financial Benchmark India Private Limited (''FBIL'') guidelines prescribed in this regard from time to time.

a) Classification

Investments are classified into ''Held for Trading'' (''HFT''), ''Available for Sale'' (''AFS'') and ''Held to Maturity'' (HTM) categories at the time of purchase.

Investments that are acquired with an intention to hold till maturity are classified as "HTM".

Investments that are held primarily for sale within 90 days from the date of purchase are classified as "HFT".

Investments, which are not classified in the above two categories, are classified as "AFS". Further, as per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities.

The Bank follows value date method of accounting for purchase and sale of investments, except for Government of India and state government securities where settlement date method of accounting is followed in accordance with RBI guidelines.

For the purpose of disclosure in the financial statements, the Investments are classified under six groups a) Government Securities b) Other Approved Securities c) Shares d) Debentures and Bonds e) Subsidiaries / Joint Ventures and f) Others.

I nvestments are classified as performing or non-performing as per RBI guidelines. Non performing investments are subjected to prudential norms for Classification, valuations and Operation of Investment Portfolio by Banks prescribed from time to time.

b) Valuation

Investments classified as "Held to Maturity" securities need not to be marked to market and will be carried at acquisition cost, unless it is more than the face value, in which the premium should be amortised over the period remaining to maturity. Where in the opinion of the management, a diminution, other than temporary in the value of investments classified under HTM has taken place, appropriate provisions are made.

Investments classified as AFS and HFT are marked-to-market on a periodic basis as per relevant RBI guidelines. The securities are valued scrip-wise and depreciation / appreciation is aggregated for each category. Net appreciation in each category, if any, is ignored, while net depreciation is provided for. The book value of individual securities is not changed consequent to the periodic valuation of investments.

Treasury bills, commercial papers and certificates of deposit are valued at carrying cost including the pro rata discount accrued for the holding period.

Quoted investments are valued at traded quoted price available on the recognised stock exchanges, subsidiary general ledger account transactions are valued as per the price list of RBI or prices declared by Primary Dealers Association of India (PDAI) jointly with FIMMDA / FBIL applicable as at the balance sheet date. For deriving market value of unquoted fixed income securities (other than Central and State Government securities), yields / mark-up rates (reflecting associate credit risk) declared by the FIMMDA / FBIL are considered.

Quoted Mutual Fund units are valued as per stock exchange quotes and un-quoted mutual fund units are valued at last available re-purchase price or Net Asset Value where re-purchase price is not available.

c) Disposal of investments

Profit / Loss on sale of investments under the aforesaid three categories is recognized in the Profit and Loss account. Cost of investments is based on the weighted average cost method. The profit from sale of investment under HTM category, net of taxes and transfer to statutory reserve is appropriated from Profit and Loss account to "Capital Reserve" in accordance with the RBI Guidelines.

d) Transfer between categories

Transfer of investments between categories is accounted in accordance with the extant RBI guidelines:

a) Transfer from AFS/HFT to HTM is made at the lower of book value or market value at the time of transfer.

b) Transfer from HTM to AFS/HFT is made at acquisition price/ amortised cost if originally placed in HTM at par or at a discount and at amortised cost if originally placed in HTM at a premium.

c) Transfer from AFS to HFT category or vice-versa is made at book value and the provision for the accumulated depreciation, if any, held is transferred to the provisions for depreciation against the HFT securities or vice-versa."

e) Repurchase and Reverse repurchase transactions

Repurchase (''Repo'') and reverse repurchase (''Reverse Repo'') transactions including liquidity adjustment facility (with RBI) are accounted for as borrowing and lending transactions respectively. Accordingly, securities given as collateral under an agreement to repurchase them continue to be held under the investment account of the Bank and the Bank would continue to accrue the coupon/discount on the security during the repo period. The Bank continues to value the securities sold under repo as per the investment classification of the security. Borrowing cost on repo transactions is accounted for as interest expense and income on reverse repo transactions are accounted for as interest income.

f) Broken period interest, brokerage etc.

Broken period interest and costs such as brokerage paid at the time of acquisition of the security are charged to the Profit and Loss account.

g) Investment Fluctuation Reserve.

Out of net profits earned during the year, transfer is made to Investment Fluctuation Reserve, for an amount not less than the lower of the (a) net profit on sale of investments during the year (b) net profit for the year less mandatory appropriations, till the balance in such Investment Fluctuation Reserve reaches a level of at least 2% of the aggregate HFT and AFS portfolio. Draw down from the Investment Fluctuation Reserve has been made in accordance with the applicable RBI guidelines.

D Fixed assets and depreciation / amortisation Tangible assets

Tangible fixed assets are accounted for at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost includes freight, duties, taxes and all other directly attributable expenditures towards acquisition and installation of assets before it is ready for commercial use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets.

Tangible fixed assets under construction and tangible fixed assets acquired but not ready for their intended use will be disclosed as capital work-in-progress.

Capital work in progress includes cost of fixed assets that are not ready for their intended use and also includes advances paid to acquire fixed assets.

Depreciation is provided as per straight-line method from the date of addition over the estimated useful life of the asset. For assets purchased/ sold during the year, depreciation is being provided on pro rata basis by the Bank. Depreciation on assets sold during the year is charged to the Profit and Loss account up to the date of sale. Assets costing less than ''5,000 are fully depreciated in the year of purchase. If the management''s estimate of the useful life of a fixed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter, then the depreciation is provided at a higher rate based on management''s estimate of the useful life/remaining useful life. The management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets which are in accordance with lives prescribed under Schedule II of Companies Act, 2013.

Leasehold improvements are amortised on straight line basis over the primary period of the lease or the estimated useful life of the assets, whichever is lower.

Losses arising from retirement or gains or losses arising from disposal of fixed assets which are carried at cost are recognized in the Profit and Loss account.

Intangible assets

Intangible assets that are acquired by the Bank are measured initially at cost. The cost of an intangible asset comprises its purchase price including after deducting trade discounts and rebates, any directly attributable cost of bringing the item to its working condition for its intended use following initial recognition. After initial recognition, an intangible asset is carried at its cost less any accumulated amortization and any accumulated impairment loss. Subsequent expenditure is capitalized only when it increases the future economic benefits from the specific asset to which it relates.

Intangible assets are amortized in the Profit and Loss account over their estimated useful lives from the date they are available for use based on the expected pattern of consumption of economic benefits of the asset. Intangible assets are amortized on straight line basis. Computer software are amortized on straight line basis over their estimated useful life of three years.For assets purchased/ sold during the year, amortisation is being provided on pro rata basis by the Bank.

Impairment of Assets

In accordance with Accounting Standard 28- Impairment of assets, the Bank assesses at each balance sheet date whether there is any indication of impairment of assets based on internal / external factor If any such indication exists, the Bank estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs to is less than its carrying amount, the carrying amount will be reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Profit and Loss account. If at the balance sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciable historical cost. Depreciation is provided on the revised carrying amount of the asset over its remaining useful life

E Foreign Currency transactions

Transactions denominated in foreign currency are recorded at exchange rates prevailing on the date of the transactions. Exchange differences arising on foreign currency transactions settled during the year

are recognised in the Profit and Loss account. Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date based on exchange rates notified by Foreign Exchange Dealers'' Association of India (''FEDAI'') and the resultant exchange differences are recognized in the Profit and Loss account.

F Derivatives

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 value) or as liabilities when the fair value is negative (negative marked to market value). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss account.

Derivative contracts designated as hedges are not marked to market unless their underlying transaction is marked to market. In respect of derivative contracts that are marked to market, changes in the market value are recognised in the Profit and Loss account in the relevant period.

The Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. Hedge effectiveness is ascertained at the time of the inception of the hedge and periodically thereafter. Gains or losses arising from hedge ineffectiveness, if any, are recognised in the Profit and Loss account. Contingent liabilities on account of derivative contracts denominated in foreign currencies are reported at closing rates of exchange notified by FEDAI as at the balance sheet date.

G Employee benefits

a. Defined Contribution Plan -

The Bank makes specified monthly contribution towards employee provident fund to Government administered provident fund scheme, which is a defined contribution scheme. The Bank''s contribution is recognised as an expense in Profit and loss account during the period in which the employee renders the related service.

b. Defined Benefit Plan and Compensated absences-

The Bank provides for gratuity, a defined benefit retirement plan covering eligible employees. Gratuity is covered under a scheme administered by Life Insurance Corporation of India through gratuity trust (Group Gratuity scheme) and the contributions made by the Bank to the scheme is recognised in the Profit and loss account. The liability recognised in the Balance Sheet in respect of defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The calculation of the Bank''s obligation under the plan is performed annually by qualified independent actuary using projected unit credit method. Actuarial gains and losses arising during the year is immediately recognised in the Profit & Loss account.

Compensated absence, is a long-term employee benefit, and accrued based on an actuarial valuation done as per projected unit credit method at the balance sheet date, carried out by an independent actuary. Compensated absence is covered under a scheme administered by Life Insurance Corporation of India. Actuarial gains and losses are recognized in full in the Profit and Loss account for the period and are not deferred.

H Share Issue Expenses

Share issue expenses are adjusted from Securities Premium Account in terms of Section 52 of the Companies Act, 2013.

I Employee Stock Option Scheme

The holding company of the Bank has formulated Employees Stock Option Scheme. The scheme provides that subject to continued employment with the Bank, employees of the Bank are granted an option to acquire equity shares of the Holding Company that may be exercised within a specified period. The compensation cost for all options granted to employees by the Holding company is computed based on valuation of shares of Holding company as per intrinsic value method and is amortised over the period of vesting. Measurement

and disclosure of the Employee Share-based Payment Schemes are done in accordance with the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India (''ICAI'').

The Bank has formulated Employees Stock Option Schemes, and the policy will be applicable to all scheme. The Bank measures compensation cost relating to employee stock options using the Fair value method as per the Guidance Note on ''Accounting for Employee Share based Payments'' issued by the ICAI and same is charged to Profit & Loss Account.

J Lease transactions

A lease is classified at the inception date as finance lease or an operating lease. Assets taken on lease where the Bank acquires substantially all the risks and rewards incidental to ownership are classified as finance leases.

Finance lease is capitalised at the commencement of the lease at an amount equal to lower of its fair value and present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of lease liability so as to achieve constant rate of interest on the remaining balance of the liability. The rental obligations, net of finance charges, are reflected as borrowings. Finance charges are recognised as finance costs in the profit and loss account.

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognised as and when the payments are made over the lease terms.

K Taxation

Income tax comprises the current tax (i.e. amount of tax for the period, determined in accordance with the Income Tax Act, 1961 and the rules framed there under) and the net change in the deferred tax asset or liability for the period (reflecting the tax effects of timing differences between accounting income and taxable income for the period).

Provision for current income-tax is recognized in accordance with the provisions of the Income Tax Act, 1961 and is made annually based on the tax liability after taking credit for tax allowances and exemptions.

The current tax, deferred tax charge or credit and the corresponding deferred tax liability or asset is recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realized in future. However, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty (supported by convincing evidence of future taxable income) of realization of such assets.

Deferred tax assets are reviewed at each Balance Sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

L Provisions and contingencies

The Bank recognises a provision when there is present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

M Earnings per share (EPS)

Basic earnings per share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive.

N Cash and cash equivalents

Cash and Cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice.

O Cash Flow Statements

Cash flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Bank are segregated.

P Segment reporting

The disclosures relating to segment reporting is done as per guidelines issued by the RBI.

Q Priority Sector Lending Certificates

The Bank vide RBI circular FIDD.CO.Plan.BC.23/04.09.01/2015-16 dated 07 April 2016 trades in Priority Sector portfolio by selling or buying Priority Sector Lending Certificates (PSLCs). There is no transfer of risk on loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ''Expense'' and the fee received for the sale of PSLCs is recognised upfront and is treated as ''Miscellaneous Income''.