SIGNIFICANT ACCOUNTING POLICIES
ICICI Bank Limited (ICICI Bank or the Bank), incorporated in Vadodara, India is a publicly held banking company engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. ICICI Bank is a banking company governed by the Banking Regulation Act, 1949. The Bank also has overseas branches in Bahrain, China, Dubai, Hong Kong, Qatar, Sri Lanka, Singapore, South Africa and United States ofAmerica and Offshore Banking units.
Basis of brparation
The financial statements have been brpared in accordance with requirements brscribed under the Third Schedule of the Banking Regulation Act, 1949. The accounting and reporting policies of ICICI Bank used in the brparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by Reserve Bank of India (RBI) from time to time and the Accounting Standards notified under Section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014 to the extent applicable and practices generally brvalent in the banking industry in India. The Bank follows the historical cost convention and the accrual method of accounting, except in the case of interest income on non-performing assets (NPAs) and loans under strategic debt restructuring (SDR) scheme of RBI where it is recognised upon realisation.
The brparation of financial statements requires the management to make estimates and assumptions that are considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable. Future results could differ from these estimates.
Significant Accounting Policies
1. Revenue recognition
a) Interest income is recognised in the profit and loss account as it accrues except in the case of non-performing assets (NPAs) where it is recognised upon realisation, as per the income recognition and asset classification norms of RBI. Further, the interest income on loan accounts where restructuring has been approved by the Bank under SDR scheme of RBI is recognised upon realisation.
b) Income from finance leases is calculated by applying the interest rate implicit in the lease to the net investment outstanding on the lease over the primary lease period. Finance leases entered into prior to April 1, 2001 have been accounted for as per the Guidance Note on Accounting for Leases issued by the Institute of Chartered Accountants of India (ICAI). The finance leases entered subsequent to April 1, 2001 have been accounted for as per Accounting Standard 1 9 - Leases.
c) Income on discounted instruments is recognised over the tenure of the instrument on a constant yield basis.
d) Dividend income is accounted on accrual basis when the right to receive the dividend is established.
e) Loan processing fee is accounted for upfront when it becomes due.
f) Project appraisal/structuring fee is accounted for on the completion o f t h e agreed service.
g) Arranger fee is accounted for as income when a significant portion of the arrangement/syndication is completed.
h) Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee.
i) The annual/renewal fee on credit cards is amortised on a straight line basis over one year,
j) All other fees are accounted for as and when they become due.
k) Net income arising from sell-down/securitisation of loan assets prior to February 1, 2006 has been recognised upfront as interest income. With effect from February 1, 2006, net income arising from securitisation of loan assets is amortised over the life of securities issued or to be issued by the special purpose vehicle/special purpose entity to which the assets are sold. Net income arising from sale of loan assets through direct assignment with recourse obligation is amortised over the life of underlying assets sold and net income from sale of loan assets through direct assignment, without any recourse obligation, is recognised at the time of sale. Net loss arising on account of the sell-down/securitisation and direct assignment of loan assets is recognised at the time of sale.
I) The Bank deals in bullion business on a consignment basis. The difference between price recovered from customers and cost of bullion is accounted for at the time of sales to the customers. The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received is accounted on accrual basis.
Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation as given below.
1. All investments are classified into 'Held to Maturity', 'Available for Sale' and 'Held for Trading'. Reclassifications, if any, in any category are accounted for as per RBI guidelines. Under each classification, the investments are further categorised as (a) government securities, (b) other approved securities, (c) shares, (d) bonds and debentures, (e) subsidiaries and joint ventures and (f) others.
2. 'Held to Maturity' securities are carried at their acquisition cost or at amortised cost, if acquired at a brmium over the face value. Any brmium over the face value of fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on a constant yield basis and straight line basis respectively.
3. 'Available for Sale' and 'Held for Trading' securities are valued periodically as per RBI guidelines. Any brmium over the face value of fixed rate and floating rate investments in government securities, classified as 'Available for Sale', is amortised over the remaining period to maturity on constant yield basis and straight line basis respectively. Quoted investments are valued based on the trades/quotes on the recognised stock exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association (FIMMDA), periodically.
The market/fair value of unquoted government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the 'Available for Sale' and 'Held for Trading' categories is as per the rates published by FIMMDA. The valuation of other unquoted fixed income securities, including Pass Through Certificates, wherever linked to the Yield-to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for government securities published by FIMMDA.
Unquoted equity shares are valued at the break-up value, if the latest balance sheet is available, or at Rs. 1,as per RBI guidelines.
Securities are valued scrip-wise. Debrciation/apbrciation on securities, other than those acquired by way of conversion of outstanding loans, is aggregated for each category. Net apbrciation in each category, if any, being unrealised, is ignored, while net debrciation is provided for. The debrciation on securities acquired by way of conversion of outstanding loans is fully provided for. Non-performing investments are identified based on the RBI guidelines.
Debrciation on equity shares acquired and held by the Bank under SDR scheme is provided over a period of four calendar quarters from the date of conversion of debt into equity in accordance with the RBI guidelines.
4. Treasury bills, commercial papers and certificate of deposits being discounted instruments, are valued at carrying cost.
5. The units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual fund.
6. Costs including brokerage and commission pertaining to investments, paid at the time of acquisition, are charged to the profit and loss account. Cost of investments is computed based on the First-In-First-Out (FIFO) method.
7. Equity investments in subsidiaries/joint ventures are categorised as 'Held to Maturity' in accordance with RBI guidelines. The Bank assesses these investments for any permanent diminution in value and appropriate provisions are made.
8. Profit/loss on sale of investments in the 'Held to Maturity' category is recognised in the profit and loss account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/loss on sale of investments in 'Available for Sale' and 'Held for Trading' categories is recognised in the profit and loss account.
9. Market repurchase and reverse repurchase transactions are accounted for as borrowing and lending transactions respectively in accordance with the extant RBI guidelines. The transactions with RBI under Liquidity Adjustment Facility (LAF) are accounted for as borrowing and lending transactions.
10. Broken period interest (the amount of interest from the brvious interest payment date till the date of purchase/ sale of instruments) on debt instruments is treated as a revenue item.
11. At the end of each reporting period, security receipts issued by the asset reconstruction companies are valued in accordance with the guidelines applicable to such instruments, brscribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction companies are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting period end. The security receipts which are outstanding and not redeemed as at the end of the resolution period are treated as loss assets and are fully provided for.
12. The Bank follows trade 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.
13. The Bank undertakes short sale transactions in dated central government securities in accordance with RBI guidelines. The short positions are categorised under HFT category and are marked to market. The mark-to market loss is charged to profit and loss account and gain, if any, is ignored as per RBI guidelines.
3. Provision/write-offs on loans and other credit facilities
The Bank classifies its loans and investments, including at overseas branches and overdues arising from crystallised derivative contracts, into performing and NPAs in accordance with RBI guidelines. Loans and advances held at the overseas branches that are identified as impaired as per host country regulations for reasons other than record of recovery, but which are standard as per the extant RBI guidelines, are classified as NPAs to the extent of amount outstanding in the host country. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI.
In the case of corporate loans and advances, provisions are made for sub-standard and doubtful assets at rates brscribed by RBI. Loss assets and the unsecured portion of doubtful assets are provided/written-off as per the extant RBI guidelines. For loans and advances booked in overseas branches, which are standard as per the extant RBI guidelines but are classified as NPAs based on host country guidelines, provisions are made as per the host country regulations. For loans and advances booked in overseas branches, which are NPAs as per the extant RBI guidelines and as per host country guidelines, provisions are made at the higher of the provisions required under
RBI regulations and host country regulations. Provisions on homogeneous retail loans and advances, subject to minimum provisioning requirements of RBI, are assessed at a borrower level, on the basis of the ageing of the loans in the non-performing category. In respect of loans classified as fraud, the entire amount, without considering the value of security, is provided for over a period of four quarters starting from the quarter in which fraud has been detected. In accounts where there has been delay in reporting the fraud to the RBI, the entire amount is provided immediately. In respect of borrowers classified as non-cooperative borrowers, willful defaulters and NPAs covered under distressed assets framework of RBI, the Bank makes accelerated provisions as per extant RBI guidelines.
The Bank holds specific provisions against non-performing loans and advances and against certain performing loans and advances in accordance with RBI directions. The Bank also holds provisions on loans under SDR scheme of RBI. The assessment of incremental specific provisions is made after taking into consideration the existing specific provision held. The specific provisions on retail loans and advances held by the Bank are higher than the minimum regulatory requirements.
a) Provision due to diminution in the fair value of restructured/rescheduled loans and advances is made in accordance with the applicable RBI guidelines.
In respect of non-performing loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period.
A standard restructured loan is upgraded to the standard category when satisfactory payment performance is evidenced during the specified period and after the loan reverts to the normal level of standard asset provisions/ risk weights.
b) Amounts recovered against debts written-off in earlier years and provisions no longer considered necessary in the context o f t h e current status o f t he borrower are recognised in the profit and loss account.
c) The Bank maintains general provision on performing loans and advances in accordance with the RBI guidelines, including provisions on loans to borrowers having unhedged foreign currency exposure, provision on exposures to step-down subsidiaries of Indian companies and floating provision taken over from erstwhile Bank of Rajasthan upon amalgamation. For performing loans and advances in overseas branches, the general provision is made at higher of host country regulations requirement and RBI requirement.
d) In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures including indirect country risk (other than for home country exposure).
The countries are categorised into seven risk categories namely insignificant, low, moderately low, moderate, moderately high, high and very high, and provisioning is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 25%. For exposures with contractual maturity of less than 180 days, provision is required to be held at 25% of the rates applicable to exposures exceeding 180 days. The indirect exposure is reckoned at 50% of the exposure. If the country exposure (net) o f t h e Bank in respect of each country does not exceed 1% of the total funded assets, no provision is required on such country exposure.
4. Transfer and servicing of assets
The Bank transfers commercial and consumer loans through securitisation transactions. The transferred loans are de-recognised and gains/losses are accounted for, only if the Bank surrenders the rights to benefits specified in the underlying securitised loan contract. Recourse and servicing obligations are accounted for net of provisions.
In accordance with the RBI guidelines for securitisation of standard assets, with effect from February 1, 2006, the Bank accounts for any loss arising from securitisation immediately at the time of sale and the profit/brmium arising from securitisation is amortised over the life of the securities issued or to be issued by the special purpose vehicle to which the assets are sold. With effect from May 7, 2012, the RBI guidelines require the profit/brmium arising from securitisation to be amortised over the life of the transaction based on the method brscribed in the guidelines.
In the case of loans sold to an asset reconstruction company, the excess provision is not reversed but is utilised to meet the shortfall/loss on account of sale of other financial assets to securitisation company (SC)/reconstruction company (RC) in accordance with RBI guideline dated July 13,2005. With effect from February 26,2014, in accordance with RBI guidelines, in case of non-performing loans sold to SCs/RCs, the Bank reverses the excess provision in profit and loss account in the year in which amounts are received.
5. Fixed assets and debrciation
Fixed assets are carried at cost and include amounts added on revaluation of brmises, less accumulated debrciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation o f t h e asset. Debrciation is charged over the estimated useful life of a fixed asset on a straight-line basis.
The useful lives of the groups of fixed assets, are given below.
Asset Useful life
Premises owned by the Bank :60 years
Leased assets and improvements to leasehold brmises: 60 years or lease period whichever is lower
ATMs1: 8 years
Plantand machinery 1 (including office equipment) :10 years
Computers: 3 years
Furniture and fixtures1 : 6 years, 8 months
Motor vehicles1 :5 years
Others (including software and system development expenses)1: 4 years
1. The useful life of assets is based on historical experience of the Bank, which is different from the useful life as brscribed in Schedule II to the Companies Act, 2013.
a) Assets purchased/sold during the year are debrciated on a pro-rata basis for the actual number of days the asset has been put to use.
b) Items costing upto Rs.5,000/- are debrciated fully over a period of 12 months from the date of purchase.
c) Assets at residences of Bank's employees are debrciated over the estimated useful life of 5 years.
d) In case of revalued/impaired assets, debrciation is provided over the remaining useful life of the assets with reference to revised asset values.
e) The profit on sale of brmises is appropriated to capital reserve, net of transfer to statutory reserve and taxes, in accordance with RBI guidelines.
6. Transactions involving foreign exchange
Foreign currency income and expenditure items of domestic operations are translated at the exchange rates brvailing on the date of the transaction. Income and expenditure items of integral foreign operations (rebrsentative offices) are translated at daily closing rates, and income and expenditure items of non-integral foreign operations (foreign branches and offshore banking units) are translated at quarterly average closing rates.
Monetary foreign currency assets and liabilities of domestic and integral foreign operations are translated at closing exchange rates notified by Foreign Exchange Dealers' Association of India (FEDAI) relevant to the balance sheet date and the resulting gains/losses are included in the profit and loss account.
Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated relevant to closing exchange rates notified by FEDAI at the balance sheet date and the resulting gains/ losses from exchange differences are accumulated in the foreign currency translation reserve until the disposal of the net investment in the non-integral foreign operations. On the disposal/partial disposal of a non-integral foreign operation, the cumulative/proportionate amount of the exchange differences which has been accumulated in the foreign currency translation reserve and which relates to that operation are recognised as income or expenses in the same period in which the gain or loss on disposal is recognised.
The brmium or discount arising on inception of forward exchange contracts that are entered into to establish the amount of reporting currency required or available at the settlement date of a transaction is amortised over the life of the contract. All other outstanding forward exchange contracts are revalued based on the exchange rates notified by FEDAI for specified maturities and at interpolated rates for contracts of interim maturities. The contracts of longer maturities where exchange rates are not notified by FEDAI are revalued based on the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the profit and loss account.
Contingent liabilities on account of guarantees, endorsements and other obligations denominated in foreign currencies are disclosed at the closing exchange rates notified by FEDAI relevant to the balance sheet date.
7. Accounting for derivative contracts
The Bank enters into derivative contracts such as foreign currency options, interest rate and currency swaps, credit default swaps and cross currency interest rate swaps.
The swap contracts entered to hedge on-balance sheet assets and liabilities are structured such that they bear an opposite and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is correlated with the movement of underlying assets and liabilities and accounted pursuant to the principles of hedge accounting. Hedge swaps are accounted for on an accrual basis and are not marked to market unless their underlying transaction is marked to market.
Foreign currency and rupee derivative contracts entered into for trading purposes are marked to market and the resulting gain or loss (net of provisions, if any) is accounted for in the profit and loss account. Pursuant to RBI guidelines, any receivables under derivative contracts which remain overdue for more than 90 days and mark-to- market gains on other derivative contracts with the same counter-parties are reversed through profit and loss account.
8. Employee Stock Option Scheme (ESOS)
The Employees Stock Option Scheme (the Scheme) provides for grant of options on the Bank's equity shares to wholetime directors and employees of the Bank and its subsidiaries. The Scheme provides that employees are granted an option to subscribe to equity shares of the Bank that vest in a graded manner. The options may be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date and amortised over the vesting period. The fair market price is the latest closing price, immediately prior to the grant date, which is generally the date of the meeting of the Board Governance, Remuneration & Nomination Committee in which the options are granted, on the stock exchange on which the shares of the Bank are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date is considered.
9. Employee Benefits
The Bank pays gratuity, a defined benefit plan, to employees who retire or resign after a minimum brscribed period of continuous service and in case of employees at overseas locations as per the rules in force in the respective countries. The Bank makes contribution to a trust which administers the funds on its own account or through insurance companies.
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
Actuarial valuation of the gratuity liability is determined by an actuary appointed by the Bank. Actuarial valuation of gratuity liability is determined based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
Superannuation Fund and National Pension Scheme
The Bank contributes 15.00% of the total annual basic salary of certain employees to superannuation funds, a defined contribution plan, managed and administered by insurance companies. Further, the Bank contributes 10.00% of the total basic salary of certain employees to National Pension Scheme (NPS), a defined contribution plan, which is managed and administered by pension fund management companies. The Bank also gives an option to its employees allowing them to receive the amount in lieu of such contributions along with their monthly salary during their employment.
The amounts so contributed/paid by the Bank to the superannuation fund and NPS or to employee during the year are recognised in the profit and loss account.
The Bank provides for pension, a defined benefit plan covering eligible employees of erstwhile Bank of Madura, erstwhile Sangli Bank and erstwhile Bank of Rajasthan. The Bank makes contribution to a trust which administers the funds on its own account or through insurance companies. The plan provides for pension payment including dearness relief on a monthly basis to these employees on their retirement based on the respective employee's years of service with the Bank and applicable salary.
Actuarial valuation of the pension liability is determined by an actuary appointed by the Bank. Actuarial valuation of pension liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit method.
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
Employees covered by the pension plan are not eligible for employer's contribution under the provident fund plan.
The Bank is statutorily required to maintain a provident fund, a defined benefit plan, as a part of retirement benefits to its employees. Each employee contributes a certain percentage of his or her basic salary and the Bank contributes an equal amount for eligible employees. The Bank makes contribution as required by The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 to Employees' Pension Scheme administered by the Regional Provident Fund Commissioner. The Bank makes balance contributions to a fund administered by trustees. The funds are invested according to the rules brscribed by the Government of India.
Actuarial valuation for the interest rate guarantee on the provident fund balances is determined by an actuary appointed by the Bank.
The actuarial gains or losses arising during the year are recognised in the profit and loss account.
The overseas branches of the Bank and its eligible employees contribute a certain percentage of their salary towards respective government schemes as per local regulatory guidelines. The contribution made by the overseas branches is recognised in profit and loss account at the time of contribution.
The Bank provides for leave encashment benefit based on actuarial valuation conducted by an independent actuary.
10. Income Taxes
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Bank. The current tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961 and as per Accounting Standard 22 - Accounting for Taxes on Income respectively. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the year. Deferred tax assets and liabilities are recognised by considering the impact of timing differences between taxable income and accounting income for
the current year, and carry forward losses. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. The impact of changes in deferred tax assets and liabilities is recognised in the profit and loss account. Deferred tax assets are recognised and reassessed at each reporting date, based upon management's judgement as to whether their realisation is considered as reasonably/virtually certain.
11. Impairment of Assets
The immovable fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is treated as impaired when its carrying amount exceeds its recoverable amount. The impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the impaired assets exceeds their recoverable value.
12. Provisions, contingent liabilities and contingent assets
The Bank estimates the probability of any loss that might be incurred on outcome of contingencies on the basis of information available up to the date on which the financial statements are brpared. A provision is recognised when an enterprise has a brsent obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are determined based on management estimates of amounts required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure to this effect is made in the financial statements. In case of remote possibility neither provision nor disclosure is made in the financial statements.
The Bank does not account for or disclose contingent assets, if any.
The Bank estimates the probability of redemption of customer loyalty reward points using an actuarial method by employing an independent actuary and accordingly makes provision for these reward points. Actuarial valuation is determined based on certain assumptions regarding mortality rate, discount rate, cancellation rate and redemption rate.
13. Earnings per share (EPS)
Basic and diluted earnings per share are computed in accordance with Accounting Standard 20 - Earnings per share.
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.
14. Lease transactions
Lease payments for assets taken on operating lease are recognised as an expense in the profit and loss account over the lease term on straight line basis.
15. 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.
NOTES FORMING PART OF THE ACCOUNTS
The following additional disclosures have been made taking into account the requirements of Accounting Standards (ASs) and Reserve Bank of India (RBI) guidelines in this regard.
1. Preference shares
Certain government securities amounting to Rs. 3,189.8 million at March 31, 2016 (March 31, 2015: Rs. 3,088.6 million) have been earmarked against redemption of brference shares issued by the Bank, which fall due for redemption on April 20, 2018, as per the original terms of the issue.
2. Subordinated debt
During the year ended March 31, 2016, the Bank has not raised subordinated debt qualifying for Tier-2 capital (March 31, 2015: Nil).
3. Sales and transfers of securities to / from Held to Maturity (HTM) category
During the year ended March 31, 2016 the value of sales and transfers of securities to/from HTM category (excluding one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks at the beginning o f t h e accounting year, sale to RBI under br-announced Open Market Operation auctions and repurchase of Government securities by Government of India) had exceeded 5% of the book value of the investments held in HTM category at the beginning of the year. The market value of investments held in the HTM category was Rs. 999,326.82 million at March 31, 2016 which includes investments in subsidiaries/joint ventures carried at cost.
4. CBLO transactions
Collateralised Borrowing and Lending Obligation (CBLO) is a discounted money market instrument, established by The Clearing Corporation of India Limited (CCIL) and approved by RBI, which involves secured borrowings and lending transactions. At March 31, 2016, the Bank had no outstanding borrowings (March 31, 2015: Nil) and no outstanding lending (March 31, 2015: Nil) in the form of CBLO. The amortised book value of securities given as collateral by the Bank to CCIL for availing the CBLO facility was Rs. 68,296.0 million at March 31, 2016 (March 31, 2015: Rs. 84,853.6 million).
5. Provision on standard assets
Standard assets provision amounting to Rs. 2,970.1 million was made during the year ended March 31, 2016 (March 31, 2015: Rs.3,847.9 million) as per applicable RBI guidelines.
The provision on standard assets (including incremental provision on unhedged foreign currency exposure (UFCE)) held by the Bank at March 31, 2016 was Rs. 26,583.4 million (March 31, 2015: Rs. 23,336.0 million). The Bank assesses the unhedged foreign currency exposures of the borrowers through its credit appraisal and internal ratings process. The Bank also undertakes reviews of such exposures through thematic reviews by Risk Committee based on market developments evaluating the impact of exchange rate fluctuations on the Bank's portfolio, portfolio specific reviews by the RMG and scenario-based stress testing approach as detailed in the Internal Capital Adequacy Assessment Process (ICAAP). In addition, a periodic review of the forex exposures of the borrowers' having significant external commercial borrowings is conducted by RMG.
RBI, through its circular dated January 15, 2014 had advised banks to create incremental provision on advances to borrowers with UFCE. Incremental provision of Rs. 100.0 million was made against borrowers with UFCE during the year (March 31, 2015: Rs. 1,750.0 million).
The Bank held incremental capital of Rs. 5,580.0 million at March 31,2016 on UFCE (March 31, 2015: Rs. 4,050.0 million).
6. Provision Coverage Ratio
The provision coverage ratio of the Bank at March 31, 2016 computed as per the extant RBI guidelines is 50.6% (March 31, 2015: 58.6%).
7. Provision on Funded Interest Term Loan
In 2008, RBI issued guidelines on debt restructuring, which also covered the treatment of funded interest in cases of debt restructuring, that is, instances where interest for a certain period was funded by a Funded Interest Term Loan (FITL) which was then repaid based on a contracted maturity schedule. In line with these guidelines, the Bank was providing fully for any interest income which was funded through a FITL for cases restructured subsequent to the issuance of the guideline. However, during the year ended March 31, 2015, RBI required similar treatment of outstanding FITL pertaining to cases restructured prior to the 2008 guidelines which were not yet repaid. In view of the above, and since this item relates to prior years, the Bank had with the approval of the RBI debited its reserves by Rs. 9,291.6 million to fully provide outstanding FITLs pertaining to restructurings prior to the issuance of the guideline in the quarter ended March 31, 2015 as against over three quarters permitted by RBI.
8. Floating provision
The Bank holds floating provision of Rs. 1.9 million at March 31, 2016 (March 31, 2015: Rs. 1.9 million) taken over from erstwhile Bank of Rajasthan on amalgamation.
9. Factoring business
At March 31, 2016, the outstanding receivables acquired by the Bank under factoring business were Rs.4,290.6 million (March 31, 2015: Rs. 3,737.6).
10. Details of Single Borrower Limit and Borrower Group Limit exceeded by the Bank
During the year ended March 31,2016, the Bank complied with the RBI guidelines on single borrower and borrower group limit. As per the exposure limits permitted under the extant RBI regulation, the Bank with the approval of the Board of Directors can enhance exposure to a single borrower or borrower group by a further 5.0% of capital funds.
In accordance with the guidelines issued by RBI, with the prior approval of the Board of Directors, the Bank had taken additional exposure to Reliance Industries Limited during the year. At March 31, 2016, the exposure to Reliance Industries Limited as a percentage of capital funds was 14.6% and was within the prudential exposure limit.
During the year ended March 31,2015, the Bank complied with the RBI guidelines on single borrower and borrower group limit.
11. Unsecured advances against intangible assets
The Bank has not made advances against intangible collaterals of the borrowers, which are classified as 'unsecured' in its financial statements at March 31, 2016 (March 31, 2015: Nil) and the estimated value of the intangible collaterals was Nil at March 31, 2016 (March 31, 2015: Nil).
12. Provisions for income tax
The provision for income tax (including deferred tax) for the year ended March 31, 2016 amounted to Rs. 24,694.3 million (March 31,2015: Rs. 46,395.7 million).
The Bank has a combrhensive system of maintenance of information and documents required by transfer pricing legislation under section 92-92F of the Income Tax Act, 1961. The Bank is of the opinion that all transactions with international related parties and specified transactions with domestic related parties are primarily at arm's length so that the above legislation does not have material impact on the financial statements.
13. Dividend distribution tax
Dividend received from Indian subsidiaries, on which dividend distribution tax has been paid by them and dividend received from offshore subsidiaries, on which tax has been paid under section 115BBD of the Income Tax Act, 1961, has been reduced from dividend to be distributed by the Bank for the purpose of computation of dividend distribution tax as per section 115-0 of the Income Tax Act, 1961.
14. Small and micro enterprises
Under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to enterprises covered under the Act. During the year ended March 31, 2016, the amount paid after the due date to vendors registered under the MSMED Act, 2006 was Rs. 0.4 million (March 31, 2015: Rs. 4.7 million). An amount of Rs. 0.01 million (March 31, 2015: Rs. 0.06 million) has been charged to profit & loss account towards payment of interest on these delayed payments.
15. Penalties/fines imposed by RBI and other banking regulatory bodies
The penalty imposed by RBI and other banking regulatory bodies during the year ended March 31, 2016 was Nil (March 31, 2015: Rs. 10.4 million).
16. Drawdown from reserves
The Bank has not drawn down any amount from Investment Reserve Account (March 31, 2015: Rs. 1,270.0 million) in accordance with provisions of RBI guidelines on 'Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by banks'.
17. Investor Education and Protection Fund
The unclaimed dividend amount due to be transferred to the Investor Education and Protection Fund in FY2016 has been transferred without any delay.
18. Comparative figures
Figures of the brvious year have been re-grouped to conform to the current year brsentation.
As per our Report of even date.
For B S R & Co. LLP
ICAI Firm Registration
Membership no.: 113156
For and on behalf of the Board of Directors
M. K. Sharma Chairman
Dileep Choksi Director
Chanda Kochhar Managing Director & CEO
N. S. Kannan Executive Director
K. Ramkumar Executive Director
Rajiv Sabharwal Executive Director
Vishakha Mulye Executive Director
Place : Mumbai
Date : April 29, 2016
P. Sanker Senior General Manager (Legal) & Company Secretary
Rakesh Jha Chief Financial Officer
Ajay Mittal Chief Accountant