SCHEDULE 1 - PRINCIPAL ACCOUNTING POLICIES

GENERAL

The financial statements are brpared under 'going concern' concept on historical cost basis, except as otherwise stated, and conform to Generally Accepted Accounting Principles (GAAP) in India, the brvailing practices and statutory provisions including directives of Reserve Bank of India (RBI).

2.EFFECT OF CHANGES IN FOREIGN EXCHANGE RATE

2.1 FOREIGN CURRENCY TRANSACTIONS

Foreign currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency  amount the exchange rate between the reporting currency and the foreign currency on the date of transaction.

Foreign currency monetary items are reported using the Foreign Exchange Dealers Association of India (FEDAI) closing/spot  rate.

Foreign currency non-monetary items, which are carried in terms at historical cost, are reported using the exchange rate at  the date of the transaction.

Contingent Liabilities denominated in foreign currency are reported using the FEDAI closing spot rates.

Exchange differences arising on settlement of monetary items at rates different from those at which they were initially  recorded are recognised as income or as expense in the period in which they arise.

Outstanding foreign exchange contracts and bills are revalued as per FEDAI Rates and the resultant gain/loss is taken to  revenue at the end of each month.

The foreign exchange swaps which are not held for trading are not marked to market. The brmium paid or received on such  swaps are amortized as expense or accreted as income over the life of the swap.

Foreign Branches and rebrsentative offices of the Bank have been classified as Non-integral Operations.

/Translation

Both monetary and non-monetary foreign currency assets and liabilities including contingent liabilities of non-integral foreign  operations are translated at closing exchange rates notified by FEDAI at the balance sheet date.

Income and expenditure of non-integral foreign operations are translated at quarterly average closing rates.

Exchange differences arising on net investment in non-integral foreign operations are accumulated in Foreign Currency

Translation Reserve until the disposal of the net investment.

INVESTMENTS

Investments are classified into three categories viz. Held to Maturity, Available for Sale and Held for Trading and are further  classified into Investments in Government Securities, Other Approved Securities, Shares, Debentures & Bonds, Subsidiaries and

Joint Ventures and Others

Investments classified as Held to Maturity are carried at cost. Wherever the cost is higher than the face value, the brmium  is amortised over the remaining period of maturity as per effective interest rate method. Profit on sale is initially taken to Profit  and Loss Account and then appropriated to Capital Reserve Account net of taxes and amount required to be transferred to  Statutory Reserve. Loss on sale is charged to the Profit and Loss Account

Investments classified as Available for Sale, are marked to market. Scrip-wise apbrciation/debrciation is aggregated for  each classification. While net debrciation in respect of each classification is charged to Profit & Loss Account, net apbrciation  in respect of any classification is ignored. These investments are shown, net of debrciation, in the Balance Sheet

Investments classified as Held for Trading are marked to market. Scrip-wise apbrciation/debrciation is aggregated for each  classification. While net debrciation in respect of each classification is charged to Profit & Loss Account, net apbrciation in  respect of any classification is ignored. These investments are shown, net of debrciation, in the Balance Sheet

In respect of securities, included in any of the above three categories where interest/ principal is in arrears for more than 90 days,  income is not recognized and appropriate provision on the value of such Investments is made as per prudential norms.

Investments in Regional Rural Banks, Commercial Papers and Treasury Bills are valued at carrying cost.

In respect of traded/quoted Investments, Market price is taken from the quotes available in the stock exchanges. Government  securities are valued at Market price or price declared by Primary Dealers Association of India (PDAI) jointly with Fixed Income

Money Market and Derivatives Association of India (FIMMDA)

Broken period interest paid/received on debt instruments is treated as interest expense/income and is excluded from cost/sale  consideration

Security receipts issued by securitisation / reconstruction company (SC/RC) in respect of financial assets sold by the Bank to the

SC/RC are valued at the lower of the redemption value of the security receipt and the Net Book Value of the financial assets. The

Investment is carried in the books at the price determined as above and the sale / realization if any, is reduced from Investment  and the net book value is shown.

The value, classification and other norms applicable to investment in non-SLR Investments brscribed by RBI are applied to  Bank's investment in Security Receipts issued by SC/RC.

/INTEREST RATE SWAPS

The Interest Rate Swap transactions undertaken for hedging are accounted for on accrual basis and transactions for trading are  marked to market and net debrciation, if any, is provided for, whereas apbrciation, if any, is ignored

Gain or loss on terminated interest rate swap transactions undertaken for hedging is deferred and recognized over the shorter of  the remaining contractual life of the swap or remaining life of the asset or liability.

Income and expenses relating to the trading swaps are recognized on the settlement date  Gain or losses on the termination of the trading swaps are recorded as income or expense immediately

FOREIGN EXCHANGE CONTRACTS

Outstanding forward exchange contracts are revalued every month as per month end FEDAI rates applicable based on maturity  date of the forward contracts and the resultant gain/loss is taken to profit and loss at the end of the each month.

/ADVANCES

Loans and advances are classified as performing and non-performing based on the guidelines issued by the RBI. Non-performing advances in India are ascertained as per the Prudential Norms and Provisions are made upon classifying the same into 'Sub- Standard', 'Doubtful', and 'Loss' assets after considering the claims Received / Receivable from ECGC and advances are stated after netting of provisions

Provision on Non-performing advances of foreign branches is made on the basis of local requirements or RBI guidelines whichever is higher

A general provision on Standard Assets is made on global portfolio basis as per Prudential norms of RBI

The credit facilities backed by the guarantee of the Central Government though overdue is treated as NPA only when Government repudiates its guarantee when invoked

In respect of Compromise and Settlement Proposals, write-off is done on complete realisation.

Partial prudential write-off of accounts is done up to unsecured portion level on a case to case basis on approval by the Competent  

Authority.

Sale of Financial asset to Securitised Company (SC) / Reconstruction Company (RC) is done on the basis of Board approved  Policy in line with the RBI guidelines

Fixed assets are stated at historical cost/revalued amount less accumulated debrciation. Surplus arising on revaluation is  credited to Revaluation Reserve

Advance payments made towards acquisition of fixed assets are included under other Assets.

Debrciation in respect of fixed assets situated outside India is provided on straight line/written down value method as per the  local laws of respective country

Additional debrciation arising out of revaluation is set off against Revaluation Reserve.

In respect of leasehold properties, the lease brmium is amortized over the period of the lease.

Fixed Assets items of small value, costing of Rs. 1000/- or less each, are charged off fully in the same quarter of purchase and  items, costing Rs. 1001/- to Rs. 5000/- each, are debrciated at the rate of 100% in the same quarter of purchase

Debrciation is provided at full rate on additions made upto 30th September and at half the rate on additions made thereafter.

EMPLOYEE BENEFITS

The short-term employee benefits, such as medical benefits, casual leave etc. which are paid/credited in exchange for the  services rendered by employees are recognised during the 12 month period when the employee renders the service

Long Term Employee Benefits

Post Employment Benefits

Defined Contribution Plan

Contributions to Defined Contribution Schemes such as NPS, Provident Fund etc., are charged to the Profit & Loss Account  as and when incurred. In respect of certain employees who have not opted for Pension Benefits, Provident Fund Contributions  are made to a Trust administered by the Bank

The employees joining the services of the bank on or after 1st April 2010 are covered by a defined contributory pension  scheme where the employees contribute 10% of pay plus DA and the bank makes a matching contribution. The scheme is  governed by the provisions of the contributory pension scheme introduced for the employees of central government w.e.f

1st January 2004 and modified from time to time

Defined Benefit Plan

The bank operates gratuity and pension schemes which are defined benefit plans.

The Bank provides for gratuity to all eligible employees. The benefit is in the form of lump sum/one time payment to vested  employees on retirement, on death while in employment, or on termination of employment, for an amount equivalent to i) 15 days  salary (Basic+DA) payable for each completed year of service, subject to a maximum amount of Rs.10,00,000 or ii) 15 days  salary (Basic only) for each completed year of service ,whichever is higher. Vesting occurs upon completion of five years/ ten   years (as applicable) of service. The Bank makes annual contributions to a fund administered by Trustees based on an independent  external actuarial valuation carried out at regular intervals

The Bank provides for pension to all eligible employees. The benefit is in the form of monthly payments as per rules and regular  payments to vested employees on retirement, on death while in employment, or on termination of employment as provided under  regulation. Vesting occurs at different stages as per rules. The Bank makes additional annual contributions to funds administered  by trustees based on an independent external actuarial valuation carried out at regular intervals besides monthly contribution  @ 10% of pay per month.

The cost of providing defined benefits is determined by actuarial valuation using the projected unit credit method which is  normally carried out on quarterly basis. Net liabilities are immediately recognised in the statement of profit and loss and are not  deferred.

Other Long Term Employee benefits

All eligible employees of the bank are entitled to compensated absences; leave travel concession. The costs of such long term  employee benefits are internally funded by the Bank

The cost of providing these other long term benefits is determined by actuarial valuation using the projected unit credit method

which is normally carried out on quarterly basis. Past service cost is immediately recognised in the statement of profit and loss  and is not deferred

Medical benefits are extended to full time Directors, after their retirement as post retirement medical benefits. The cost is  ascertained and determined by actuarial valuation using the projected unit credit method and such valuation is carried out on  quarterly basis for retired as well as in service full time Directors. The liability is immediately recognized in the statement of profit  & loss and not deferred

REVENUE RECOGNITION

Items of Income and Expenditure are accounted for on accrual basis, except as otherwise stated  Income from non-performing assets in terms of RBI guidelines is recognised on realization basis.

TAXES ON INCOME

Current tax is determined on the amount of tax payable in respect of taxable income for the year and accordingly provision for tax  is made including Minimum Alternate Tax (MAT).

The deferred tax asset or liability is recognised using the tax rates that have been enacted or substantially enacted by the Balance

Sheet date, in terms of notified Accounting Standard 22. Deferred Tax Assets/Liabilities are reviewed at each Balance Sheet date  based on developments during the year

IMPAIRMENT OF ASSETS

Fixed Assets are reviewed for impairment whenever events or changes in circumstances warrant that the carrying amount of an  asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount  of an asset to future net discounted cash flows expected to be generated by the asset. If such assets are considered to be  impaired, the impairment, to be recognized, is measured by the amount by which the carrying amount of the asset exceeds the  fair value of the asset

EARNINGS PER SHARE

The Bank reports basic and diluted earnings per share in accordance with AS 20 - 'Earnings per Share'. Basic earnings per share computed by dividing the net profit after tax and dividend on brferential shares by weighted average number of equity shares outstanding for the year.

Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at year end.

ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In conformity with AS 29, "Provisions, Contingent Liabilities and Contingent Assets" issued by the ICAI, the Bank recognises provisions only when it has a brsent obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made.

Contingent Assets are not recognised in the financial statements as this may result in the recognition of income that may never be realized.

3.3 Disclosures on risk exposure in derivatives

a) Qualitative Disclosures

i) The Structure and organization for management of risk in derivatives trading.

The organization structure consists of Investment Wing at the Corporate level which report to the Executive Directors, Managing Director & CEO and ultimately to the Board. Risk Management Department is informed of the transactions as and when they take place.

ii) The scope and nature of risk measurement, risk reporting and risk monitoring systems:

a) The Interest Rate Swap (IRS) transactions undertaken by the Bank are for hedging and trading purposes. Derivative as a product is also offered to the customer as per RBI norms. Such transactions are undertaken as per policies of the bank formulated based on RBI guidelines.

b) The risk is measured in the interest rate derivative transactions depending on the movement of benchmark interest rates for the remaining life of the interest rate swap contracts. All interest rate derivative transactions are included for the purpose of risk measurement. The risk is evaluated and reports are placed to the MD & CEO/ED daily and Board periodically. Risk is monitored based on the mark to market position of the interest rate derivative transactions.

(iii) Policies for hedging and /or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants:

IRS is undertaken on the actual interest bearing underlying assets or liabilities. The notional principal amount and maturity of the hedge does not exceed the value and maturity of underlying asset/liability. The risk is monitored on the mark to market basis of the outstanding interest rate swap contracts and accordingly the effectiveness of the hedge is determined.

Collateral required upon entering into IRS is Nil. Notional principal amount of IRS multiplied by the relevant conversion factor and the respective risk weight of the counter party has been taken into account for determining the capital requirements.

c) Other Disclosures for Interest Rate Swaps

The Bank has undertaken fixed to floating and floating to fixed interest rate swaps on underlying assets and liabilities. The loss of income on the above IRS will be Rs.1.58 Crores, in case counter-parties fail to fulfill their obligations. There is no concentration of credit risk arising from IRS transactions undertaken as the counter-parties are banks and the exposure is within the exposure limit permitted.

8.2 Disclosure of penalties imposed by RBI.

Reserve Bank of India has not imposed any penalty on the Bank u/s 46(4) of the Banking regulation Act, 1949

9.0. Disclosures Requirement as per Accounting Standards:

9.1 Net Profit or Loss for the period, prior period items and changes in accounting policies (AS-5):

There is no material “prior period item” included in Profit & Loss account required to be disclosed as per AS – 5 issued by ICAI read with RBI guidelines.

9.2 Revenue Recognition (AS-9):

Revenue is recognized as per Accounting Standard (AS-9) and Accounting policy No. 9 of Schedule -17.

9.3 AS - 15 –Employee Benefits

Provision for Employee Benefits viz. Pension, Gratuity, Leave Encashment, Sick Leave, LFC/LTC, medical benefits to retired and in service Directors and their family members etc. has been made as per Revised Accounting Standard (AS) -15.

A sum of Rs. 1572.61 Crore has been charged to Profit and Loss Account towards current year's liabilities. As far as liability on account of amortization due to reopening of pension option and enhancement of gratuity limit under the Act, the amount was adjusted in five years (As per RBI guidelines as enumerated in circular no. DBOD.BP.BC.80.21.04.018/2010-11 dated 09.02.2011) ended on 31.03.2015.

10.15 Reconciliation:

Most of the inter branch transactions are reconciled automatically with implementation of Centralized Banking Solution (CBS). Very few entries under inter branch account & inter bank account requires reconciliation which is done on ongoing basis.

Reconciliation of entries outstanding has been drawn upto 31.03.2016 in case of Inter-Branch Accounts and in Inter- Bank Accounts. Elimination of entries outstanding in Inter- Bank Accounts including Reserve Bank of India, State Bank of India, NOSTRO Accounts etc. and in Inter-Branch Accounts viz. drafts, suspense, branch adjustment, clearing transactions, fund transfers, telegraphic transfers, balances pertaining to advances paid for acquisition of assets, sundry creditors etc. is in progress. In the opinion of the management, consequential effect of the above on the revenue/assets/liabilities will not be material

10.17 Unhedged Foreign Currency Exposure:

In terms of RBI Guidelines, our Bank has framed a policy on 'Unhedged Foreign Exchange Exposure by borrowers including SMEs and Corporates duly approved by the Board. The policy inter-alia provides for:

l Monitoring and review of Unhedged Foreign Currency Exposure (UFCE) of all customers including SMEs.

l Incremental capital and provisioning requirements for exposures to entities with Unhedged Foreign Currency Exposure.

l Stipulation of UFCE Charge in order to provide protection and discourage entities having UFCE. Based on the available data and financial statements and the declaration from borrowers, the bank has estimated the liability of Rs. 56.60 lacs as on 31.03.2016 and made a provision of Rs. 24.48 Lacs during the year and allocated capital of Rs.46 Lacs as on 31.03.2016 on Unhedged Foreign Currency Exposure (UFCE) to their constituents in terms of RBI Circulars and our Board approved policy.

10.18 Liquidity Coverage Ratio (LCR):

Qualitative Assessment of LCR data and Result:

Driver of LCR:

The bank main driver of satisfactory level of LCR during the period have been

l High quality of Liquid Asset such as investment in Government securities

l Investment in short term assets resulting in quick inflows.

l Reliance on Stable liabilities.

High Quality liquid Assets (HQLA): Our HQLA comprises of following

l Level 1 Assets

1. Cash in hand including Cash Reserve in excess of CRR

2. Govt. Securities in Excess of Mandatory SLR

3. 7% of Net Demand and Time Liabilities in the form of SLR securities.

4. 3% of Net Demand and Time Liabilities in the form of SLR securities.

l Level 2 Assets (Not issued by Banks/Financial Institution)

1. Marketable securities rebrsenting claims on or claims guaranteed by Public Sector Entities (PSEs) having risk weight 20% under the Basel II

2. Common Equity Shares Included in NSE CNX Nifty index and/or S&P BSE Sensex index

Concentration of Funding Sources: Our Funding sources is well sbrad with diversified liabilities portfolio comprising mainly of

l Current Deposit and Saving Deposit, and

l Term Deposit

We do not have any group entities and liquidity at solo level is being managed centrally

10.19 Fixed Assets

(i) Bank had revalued its brmises in the past and further revalued the same as at 31.03.2016, by independent qualified valuers. The excess of fair market value over the book value is credited to revaluation reserve. As on date aggregate amount of revaluation reserve (net of revaluation relating to assets disposed of) is Rs. 2524.82 crore (Rs.764.23 crore) and debrciation on the revalued portion charged against revaluation reserve is Rs. 159.16 crore (Rs.154.50 crore).

(ii) Debrciation is charged on computer and computer peripherals including computer software as per RBI brscribed rates. Other assets are debrciated as per management brscribed rates which are based upon erstwhile schedule XIV of the Companies Act 1956. Incremental debrciation consequent upon revaluation of brmises shall be charged prospectively after determining appropriate rates by the management considering various factors, including its residual life of the assets.

10.20 Break up of provision held against non-performing advances into facility-wise, security-wise and sector-wise is not ascertained. The same is deducted on estimated basis from gross advances in the various categories to arrive at the balance of net advances as stated in Schedule 9 of the Balance Sheet.

10.21 Assets and liabilities have been suitably adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date

13. The bracketed figures indicate brvious year's figures. Previous year's figures have been re-grouped /re-arranged/ re-casted wherever considered necessary.