BANK OF AMERICA N.A. (INDIA BRANCHES)

Transcription

1 Independent Auditors Report To the Chief Executive Officer Bank of America N.A. India branches Report on the Financial Statements 1. We have audited the accompanying financial statements of Bank of America N.A. India branches ( the Bank ), which comprise the Balance Sheet as at 31 March 2013 and the Statement of Profit and Loss and the Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements 2. Management is responsible for preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, 1956 and circulars and guidelines issued by the Reserve Bank of India from time to time. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of the Bank including its branches in accordance with Standards on Auditing ( the Standards') issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 4. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements. 5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion 6. In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 1956, in the manner so required for banking companies and give a true and fair view in conformity with accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Bank as at 31 March 2013; (b) in the case of the Statement of Profit and Loss, of the profit of the Bank for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash flows of the Bank for the year ended on that date. Report on Other Legal and Regulatory Requirements 7. The Balance Sheet, Statement of Profit and Loss and the Cash flow Statement have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 1

2 8. We report that: (a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory; (b) the transactions of the Bank, which have come to our notice, have been within the powers of the Bank; (c) during the course of our audit we have visited 2 branches. Since the key operations of the Bank are automated with the key applications integrated to the core banking systems, the audit is carried out centrally as all the necessary records and data required for the purposes of our audit are available therein. 9. In our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956, to the extent they are not inconsistent with the accounting policies prescribed by the Reserve Bank of India. 10. We further report that: (i) the Balance Sheet and the Statement of Profit and Loss dealt with by this report are in agreement with the books of account; (ii) the financial accounting systems of the Bank are centralised and, therefore, accounting returns are not submitted by the Branches; (iii) in our opinion, proper books of account as required by law have been kept by the Bank so far as appears from our examination of those books; and (iv) the requirements of Section 274(1)(g) of the Companies Act, 1956 are not applicable considering the Bank is a branch of Bank of America N.A, which is incorporated and registered in Charlotte, U.S.A. For B S R & Co. Chartered Accountants Firm s Registration No.: W Sd/- Manoj Kumar Vijai Mumbai Partner 25 June 2013 Membership No: july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

3 BALANCE SHEET AS AT MARCH 31, 2013 As at As at March 31, March 31, Schedule PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2013 Year Ended Year Ended March 31, March 31, Schedule CAPITAL AND LIABILITIES Capital 1 9,853,492 9,853,492 Reserves and Surplus 2 35,306,073 30,612,753 Deposits 3 73,779,951 59,648,638 Borrowings 4 57,133,353 53,143,704 Other Liabilities and Provisions 5 8,298,607 8,520,449 ASSETS TOTAL 184,371, ,779,036 Cash and balances with Reserve Bank of India 6 4,241,056 4,196,962 Balances with banks and money at call and short notice 7 7,288,155 2,424,095 Investments 8 88,335,084 82,258,155 Advances 9 76,230,005 62,053,674 Fixed Assets , ,786 Other Assets 11 7,787,550 10,423,364 TOTAL 184,371, ,779,036 Contingent Liabilities 12 4,257,029,543 5,463,364,167 Bills for Collection 56,801,720 60,705,511 Significant accounting policies and notes to the Financial Statements 18 Schedules referred to above form an integral part of the Balance Sheet. This is the Balance Sheet referred to in our report of even date For B S R & Co. Chartered Accountants Firm Registration No W I. INCOME Interest earned 13 13,351,642 11,131,212 Other income 14 4,735,116 5,078,777 II. EXPENDITURE TOTAL 18,086,758 16,209,989 Interest expended 15 5,731,336 4,238,846 Operating expenses 16 4,306,690 4,054,998 Provisions and contingencies 17 3,355,412 2,661,557 III. PROFIT TOTAL 13,393,438 10,955,401 Net profit for the year 4,693,320 5,254,588 Profit/(loss) brought forward 3,940,941 IV. APPROPRIATIONS TOTAL 8,634,261 5,254,588 Transfer to Statutory Reserves 1,173,330 1,313,647 Transfer to Investment Reserve Account 27,456 Transfer to Capital Reserve 179,440 Balance carried over to Balance Sheet 7,254,035 3,940,941 TOTAL 8,634,261 5,254,588 Significant accounting policies and notes to the Financial Statements 18 Schedules referred to above form an integral part of the Profit and Loss Account This is the Profit and Loss Account referred to in our report of even date For BANK OF AMERICA N.A. INDIA BRANCHES Sd/- Sd/- Sd/- Manoj Kumar Vijai Kaku Nakhate Kumar Shah Partner Chief Executive Officer Chief Financial Officer Membership Number: Mumbai: June 25, 2013 Mumbai: June 25, 2013 Mumbai: June 25, 2013 Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 3

4 Year Ended Year Ended PARTICULARS Cash flow from Operating Activities Net profit before taxation 8,111,348 7,879,324 Adjustments for: Depreciation 165, ,479 Interest on subordinated debt 1,926 Loss/(Profit) on sale of fixed assets (410,918) 551 Provision for leave enchashment and sick leave 6,977 39,605 (Writeback)/Provision for country risk provision 528 (2,800) Provision/(Writeback) for depreciation on investments (63,144) 39,621 Operating profit before working capital changes 7,809,922 8,070,706 Adjustments for: (Increase) in investments (6,013,785) (33,691,834) Increase in advances (14,176,331) (3,462,269) Decrease/(Increase) in other assets 2,453,450 (732,968) Increase/(Decrease) in deposits 14,131,313 (40,417) (Decrease)/Increase in other liabilities and provisions (229,347) 863,869 Increase in borrowings 3,989,649 34,856,503 Cash Generated from Operations 7,964,871 5,863,590 Less: Direct Taxes Paid (net of refunds received) (3,235,664) (3,340,783) Net Cash generated from Operating Activities (A) 4,729,207 2,522,807 Cash flow from Investing Activities Purchase of fixed assets (248,100) (233,166) Proceeds from sale of fixed assets 427,047 8,320 Net Cash generated from/(used in) from Investing Activities (B) 178,947 (224,846) Cash flow from Financing Activities Repayment of subordinated debt (1,114,875) Interest paid on subordinated debt (1,936) Net Cash (used in) Financing Activities (C) (1,116,811) Net change in cash and cash equivalents (A+B+C) 4,908,154 1,181,150 Cash and Cash equivalents at the beginning of the year as per Schedule 6 and 7 6,621,057 5,439,907 Cash and Cash equivalents at the end of the year as per Schedule 6 and 7 11,529,211 6,621,057 4,908,154 1,181,150 Notes to the Cash Flow Statement 1) The above cash flow statement has been prepared under Indirect method set out in Accounting Standard 3 issued by The Institute of Chartered Accountants of India and notified by the Companies (Accounting Standards) Rules ) Previous year figures have been regrouped and reclassified wherever necessary to conform to current year s presentation. This is the Cash Flow Statement referred to in our report of even date. For B S R & Co. Chartered Accountants Firm Registration No W CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2013 For BANK OF AMERICA N.A. INDIA BRANCHES Sd/- Sd/- Sd/- Manoj Kumar Vijai Kaku Nakhate Kumar Shah Partner Chief Executive Officer Chief Financial Officer Membership Number: Mumbai: June 25, 2013 Mumbai: June 25, 2013 Mumbai: June 25, july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

5 SCHEDULES FORMING PART OF THE BALANCE SHEET As at As at March 31, March 31, SCHEDULE 1 Capital I. Amount of deposit kept with Reserve Bank of India under Section 11(2)(b)(ii) of the Banking Regulation Act, ,070,000 8,030,00 II. Amount brought in as start-up capital 2,000 2,000 Tier I Capital augmented by Head Office 9,851,492 9,851,492 TOTAL 9,853,492 9,853,492 Note: Capital infused during the year: Rs. Nil (Previous Year Rs. Nil) SCHEDULE 2 Reserves and Surplus I. Statutory Reserves Opening balance 8,518,094 7,204,447 Add : Transfer from Profit and Loss Account 1,173,330 1,313,647 9,691,424 8,518,094 II. Capital Reserves Opening balance 3,221,517 3,221,517 Add : Transfer from Revaluation Reserves 56,700 Add : Transfer from Profit and Loss Account 179,440 3,457,657 3,221,517 III. Amount Retained in India for meeting Capital to Risk- Weighted Assets Ratio (CRAR) Opening balance 14,875,501 9,077,363 Add : Transfer from Revenue and Other Reserves 5,798,138 14,875,501 14,875,501 IV. Revaluation Reserves 56,700 56,700 Less : Transfer to Capital Reserve 56,700 56,700 V. Investment Reserve Account Opening balance Add : Transfer from Profit and Loss Account 27,456 27,456 VI. Revenue and Other Reserves Opening balance 5,798,138 Add : Transfer from Profit and Loss Account 5,798,138 Less : Transfer to amount retained in India for meeting Capital to Risk-Weighted Assets Ratio (CRAR) 5,798,138 VII. Balance in Profit and Loss Account 7,254,035 3,940,941 TOTAL (I, II, III, IV, V, VI and VII) 35,306,073 30,612,753 SCHEDULE 3 Deposits As at As at March 31, March 31, A. I. Demand Deposits i) From Banks 1,917,943 1,707,894 ii) From Others 38,854,452 27,644,785 II. Savings Bank Deposits 2,298,829 1,988,325 III. Term Deposits i) From Banks ii) From Others 30,708,727 28,307,634 TOTAL (I, II and III) 73,779,951 59,648,638 B. i) Deposits of Branches in India 73,779,951 59,648,638 ii) Deposits of Branches outside India TOTAL 73,779,951 59,648,638 SCHEDULE 4 Borrowings I. Borrowings in India i) Reserve Bank of India 12,750,000 8,200,000 ii) Other Banks 4,200,000 8,000,000 iii) Other Institutions and Agencies 25,014,352 27,098,106 41,964,352 43,298,106 II. Borrowings outside India 15,169,001 9,845,598 TOTAL (I and II) 57,133,353 53,143,704 Secured borrowings in I and II above 37,764,352 35,298,106 SCHEDULE 5 Other Liabilities and Provisions I. Bills payable 1,090,993 1,217,186 II. Inter-office adjustments net 44,240 68,374 III. Interest accrued 251, ,121 IV. Provisions against standard assets (Refer Note 13 Schedule 18) 767, ,415 V. Others [including provisions] (Refer Note 8 Schedule 18) 6,144,863 6,207,353 TOTAL 8,298,607 8,520,449 Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 5

6 SCHEDULES FORMING PART OF THE BALANCE SHEET As at As at March 31, March 31, As at As at March 31, March 31, SCHEDULE 6 Cash and Balances with Reserve Bank of India I. Cash in hand (including foreign currency notes) 79,695 59,236 II. Balances with Reserve Bank of India (i) In Current account 4,161,361 4,137,726 (ii) In Other accounts TOTAL (I and II) 4,241,056 4,196,962 SCHEDULE 7 Balances with Banks and Money at Call and Short Notice I. In India i) Balances with banks a) In Current accounts 266, ,400 b) In Other deposit accounts 4,000,000 ii) Money at call and short notice a) with banks 2,000,000 b) with other institutions 1,592,228 II. Outside India TOTAL (i and ii) 6,266,999 1,776,628 i) In Current accounts 1,021, ,467 ii) In Other deposit accounts iii) Money at call and short notice 1,021, ,467 TOTAL (I and II) 7,288,155 2,424,095 SCHEDULE 8 Investments I. Investments in India (i) Government securities* 61,301,197 57,159,707 (ii) Other approved securities (iii) Shares (iv) Debentures and bonds 50, ,756 (v) Subsidiaries and/or joint ventures (vi) Others (including certificate of deposits and pass through certificates) 26,989,390 25,065,916 Gross Investments 88,341,764 82,327,979 Less : Provision for depreciation 6,680 69,824 88,335,084 82,258,155 II. Investments outside India TOTAL (I and II) 88,335,084 82,258,155 * Includes securities of Face Value Rs. 22,980,000,000/ deposited with Clearing Corporation of India Limited as margin deposit (Previous Year: Face Value: Rs. 25,350,000,000/ ) * Includes securities of Face Value Rs. 9,070,000,000/ kept with Reserve Bank of India under section 11(2)(b)(ii) of Banking Regulation Act, 1949 (Previous Year: Face Value: Rs. 8,030,000,000/ ) * Includes securities of Face Value Rs. 13,390,000,000/ pledged with Reserve Bank of India for funds borrowed under Liquidity Adjustment Facility (Previous year: Face Value: Rs. 8,610,000,000) SCHEDULE 9 Advances A. (i) Bills purchased and discounted * 12,796,047 4,317,192 (ii) Cash credits, overdrafts and loans repayable on demand 60,909,580 57,735,791 (iii) Term loans 2,524, TOTAL 76,230,005 62,053,674 B. (i) Secured by tangible assets (including book debts) 3,021,985 5,834,682 (ii) Covered by Bank/ Government guarantees (iii) Unsecured 73,208,020 56,218,992 TOTAL 76,230,005 62,053,674 6 july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

7 SCHEDULES FORMING PART OF THE BALANCE SHEET As at As at March 31, March 31, As at As at March 31, March 31, SCHEDULE 9 (Contd) C. I. Advances in India (i) Priority Sector 20,949,425 14,843,422 (ii) Public sector (iii) Banks 528, ,044 (iv) Others 54,751,629 46,800,208 76,230,005 62,053,674 II. Advances outside India TOTAL (I and II) 76,230,005 62,053,674 * net of Bills re-discounted amounting to Rs. Nil [Previous year 3,695,563 ('000s)] SCHEDULE 10 Fixed Assets I. Premises At Cost on March 31 of preceding year 80,743 80,743 Additions during the year 80,743 80,743 Deductions during the year 80,743 80,743 Accumulated depreciation 72,946 7,797 Capital Works in Progress 7,797 II. Other Fixed Assets (including Furniture and Fixtures)* At Cost on March 31 of preceding year 919, ,663 Additions during the year 263, ,379 1,182, ,042 Deductions during the year 25,319 37,777 1,157, ,265 Accumulated depreciation/ amortization 687, , , ,789 Capital Works in Progress 19,951 35, , ,989 TOTAL (I and II) 489, ,786 SCHEDULE 11 Other Assets I. Interest Accrued 332, ,128 II. Advance tax and tax deducted at source 1,514,513 1,670,018 (net of Provision for taxation Refer Note 21 Schedule 18) III. Stationery and Stamps IV. Deferred tax assets (Refer Note 20 Schedule 18) 261, ,062 V. Others (Refer Note 8 Schedule 18) 5,678,476 8,379,156 TOTAL 7,787,550 10,423,364 SCHEDULE 12 Contingent Liabilities I. Claims against the Bank not acknowledged as Debts (including tax related matters) 854, ,116 II. Liability for partly paid investments III. Liability on account of outstanding forward exchange contracts 1,738,719,215 2,123,994,203 IV. Liability on account of outstanding derivative contracts 2,479,168,938 3,304,274,652 V. Guarantees given on behalf of constituents (a) in India 11,729,204 10,286,182 (b) outside India 10,727,648 3,153,301 VI. Acceptances, endorsements and other obligations 7,242,682 9,533,517 VII. Other items for which the Bank is contingently liable Committed lines of credit 8,587,050 7,968,633 Bills re-discounted 3,695,563 TOTAL 4,257,029,543 5,463,364,167 * (Refer Note 34 Schedule 18) Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 7

8 SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT Year Ended Year Ended March 31, March 31, Year Ended Year Ended March 31, March 31, SCHEDULE 13 Interest Earned I. Interest/discount on advances/bills 5,916,089 6,735,738 II. Income on investments 7,127,961 4,324,613 III. Interest on balances with Reserve Bank of India and other inter-bank funds 185,482 20,758 IV. Others 122,110 50,103 TOTAL 13,351,642 11,131,212 SCHEDULE 14 Other Income I. Commission, exchange and brokerage 390, ,790 II. Profit/(Loss) on sale of investments (net) 1,277, ,688 III. Profit/(Loss) on revaluation of investments (net) IV. Profit/(Loss) on sale of land, buildings and other assets (net) 410,918 (551) V. Profit on exchange/derivative transactions (net) 1,835,512 3,623,915 VI. Miscellaneous Income (Refer Note 24 Schedule 18) 820, ,935 TOTAL 4,735,116 5,078,777 SCHEDULE 15 Interest Expended I. Interest on deposits 2,575,944 3,000,425 II. Interest on Reserve Bank of India/inter-bank borrowings 439, ,198 III. Others 2,715, ,223 TOTAL 5,731,336 4,238,846 SCHEDULE 16 Operating Expenses I. Payments to and provisions for employees 2,434,095 2,097,736 II. Rent, taxes and lighting 278, ,163 III. Printing and stationery 47,087 44,975 IV. Advertisement and publicity 55,285 V. Depreciation on Bank's property 165, ,479 VI. Directors' fees, allowances and expenses VII. Auditors' fees and expenses 3,184 2,773 VIII. Law Charges 13,204 3,366 IX. Postages, Telegrams, Telephones, etc 196, ,169 X. Repairs and maintenance 91,961 58,005 XI. Insurance 63,242 67,182 XII. Other expenditure (Refer Note 23 Schedule 18) 958,282 1,255,150 TOTAL 4,306,690 4,054,998 SCHEDULE 17 Provisions and Contingencies I. Provision for standard assets II. III. IV. Provision/(Write-back of provision) for country risk 528 (2,800) Provision for Taxation (Refer Note 21 Schedule 18) 3,467,624 2,713,646 Deferred tax (Refer Note 20 Schedule 18) (49,742) (84,436) V. Provision/(Write-back of provision) for wealth tax 146 (4,474) VI. (Write-back of provision)/ Provision for depreciation on investments (63,144) 39,621 TOTAL 3,355,412 2,661,557 8 july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

9 SCHEDULE 18 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS A) Background The financial statements for the year ended March 31, 2013 comprise the accounts of the India branches of Bank of America, N.A. (the Bank), which is incorporated in the United States of America with limited liability. B) Basis of preparation The financial statements are prepared and presented under the historical cost convention on accrual basis of accounting, unless otherwise stated and are in accordance with the Generally Accepted Accounting Principles, statutory provisions prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by The Reserve Bank of India (RBI) from time to time and Accounting Standards (AS) issued by The Institute of Chartered Accountants of India (ICAI) and notified by the Companies (Accounting Standards) Rules, 2006, to the extent applicable and conform to the statutory requirements prescribed by the RBI from time to time and current practices prevailing within the banking industry in India. The financial statements are presented in Indian Rupees rounded off to the nearest thousand unless otherwise stated. C) Use of Estimates The preparation of financial statements, in conformity with the Generally Accepted Accounting Principles, requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as at the date of the financial statements. Actual results could differ from those estimates and difference between the actual results and estimates are recognized in the period in which the results are known. Any revision to the accounting estimates is recognized in the current and future periods as appropriate. D) Significant Accounting Policies 1) Revenue recognition Interest income is recognized in the Profit and Loss Account on an accrual basis, except in case of interest on non-performing advances which is recognized as income upon receipt in accordance with the RBI prudential norms. Interest income on discounted instruments is recognized over the tenor of the instrument on a constant effective yield basis. Commission on guarantees and letters of credit is recognized upfront. 2) Foreign Exchange Transactions Transactions in foreign currency are recorded and translated at exchange rates prevailing on the date of the transaction. Exchange differences arising on foreign exchange transactions settled during the year are recognized in the Profit and Loss Account. Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date at exchange rates notified by the Foreign Exchange Dealers' Association of India (FEDAI) and the resulting exchange differences are recognized in the Profit and Loss Account. Outstanding forward exchange contracts are revalued at rates of exchange notified by FEDAI and the resulting gains/losses are included in the Profit and Loss Account. Contingent liabilities on account of foreign exchange contracts, guarantees and acceptances, endorsements and other obligations denominated in foreign currencies are disclosed at the year-end closing rates of exchange notified by FEDAI. 3) Derivatives The Bank enters into derivative contracts such as interest rate swaps, cross-currency swaps, currency options, forward exchange contracts, as well as exchange-traded interest rate futures, currency futures and currency options. All derivative transactions are classified as trading derivatives. Outstanding derivative contracts, other than exchange-traded interest rate futures, currency futures and currency options, are valued at the estimated realizable market price (fair value). Resulting gains/losses are recognized in the Profit and Loss Account under 'Other Income' with the corresponding net unrealized amounts reflected under 'Other Assets' or 'Other Liabilities' on the Balance Sheet. Fair value is determined by reference to a quoted market price or by using a valuation model. In case the market prices do not appropriately represent the fair value that would be realized for a position or portfolio, valuation adjustments such as market risk close-out costs and bid-offer adjustments are made to arrive at the appropriate fair value. These adjustments are calculated on a portfolio basis, and are reported together with/or as a part of the carrying value of the positions being valued, thus reducing trading assets or increasing trading liabilities. Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 9

10 Valuation models, where used, calculate the expected cash flows under terms of the specific contracts, taking into account the relevant market factors viz. interest rates, foreign exchange rates, volatility, prices etc. Exchange-traded interest rate futures, currency futures and currency options are marked-to-market using the closing price of relevant contract as published by the exchanges/clearing corporation. Margin money deposited with the exchanges is presented under 'Other Assets'. The Bank also maintains provisions on the current mark-to-market value of the contract, arising on account of derivative and foreign exchange transactions in accordance with the RBI Master circular (DBOD.No.BP.BC.9/ / dated July 2, 2012) on prudential norms on income recognition, asset classification and provisioning pertaining to advances. Any overdue receivables representing positive mark-to-market value of derivative and foreign exchange transactions are treated as non-performing assets, if remaining unpaid for a period of 90 days or more pursuant to the above guidelines. 4) Investments Investments are accounted for in accordance with the RBI Master Circular (DBOD No. BP. BC. 13/ / dated July 2, 2012) on prudential norms for classification, valuation and operation of investment portfolio by banks. Classification Investments are classified as Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS) at the time of purchase in accordance with RBI norms. Under each of these classifications, investments are further categorized as i) Government Securities ii) Other approved securities iii) Shares iv) Debentures and Bonds v) Subsidiaries and/or joint ventures and vi) Others. Valuation Investments held under HTM classification are carried at acquisition cost. If the acquisition cost is more than the face value, the premium is amortized over the remaining tenor of the investments. Investments classified under HFT and AFS portfolio are marked to market on a monthly basis. Investments classified under HFT and AFS portfolio are valued as per rates declared by the Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and in accordance with the RBI guidelines. Consequently net depreciation, if any, under each of the classifications in respect of any category mentioned in 'Schedule 8-Investments' is provided for in the Profit and Loss Account. The net appreciation, if any, under any classification is ignored, except to the extent of any depreciation provided previously. The book value of the individual securities is not changed consequent to periodic valuation of investments. Treasury Bills, Commercial Paper and Certificates of Deposit, being discounted instruments, are valued at carrying cost. Investments in Pass Through Certificates (PTCs) are valued by adopting the base yield curve and corporate bond spread relative to weighted average maturity of the security. Investment Reserve Account In accordance with the aforesaid Master Circular, in case the provision on account of depreciation in the HFT and AFS categories is found to be in excess of the required amount, the excess is credited to the Profit and Loss Account and an equivalent amount (net of taxes, if any and transfer to Statutory Reserve as applicable to such excess provision) is appropriated to an Investment Reserve Account. The provision required to be created on account of depreciation in investments in AFS & HFT categories is debited to the Profit and Loss Account and an equivalent amount (net of tax benefit, if any and net of consequent reduction in transfer to Statutory Reserves) is transferred from the Investment Reserve Account to the Profit and Loss Account, to the extent available. Transfer between classifications Transfer of investment between categories is accounted for in accordance with the extant RBI guidelines, as under: 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/book value if originally placed in HTM at a discount and at amortized 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 and vice-versa. 10 july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

11 Repurchase transactions Repurchase and Reverse Repurchase transactions including those under the Liquidity Adjustment Facility (LAF) with RBI are accounted for as secured borrowing and lending transactions in accordance with RBI guidelines. Brokerage and Commission Brokerage and Commission paid at the time of acquisition of a security is charged to Profit and Loss Account. Broken period interest Broken period interest paid at the time of acquisition of the security is charged to the Profit and Loss Account. 5) Fixed Assets Fixed Assets are stated at cost less accumulated depreciation/amortization. Tangible Assets Except for items forming part of (i) and (ii) below, depreciation is provided, prorata for the period of use, by straight line method (SLM), based on management estimate of useful lives of the fixed assets, or the SLM rates prescribed in Schedule XIV to the Companies Act, 1956 whichever is higher at the following rates: Asset category Building 5% Server, networking and other computer equipment 20% 50% Furniture and fixtures 10% Vehicles 20% Other equipment (mechanical/electronic) 15% 33.33% Depreciation rate per annum i) Assets costing less than the rupee equivalent of USD 2,500 are fully depreciated in the year of purchase. ii) Leasehold improvements are depreciated over the lease period including the renewal periods (if any). Assets associated with premises taken on lease are depreciated on straight line basis using the rates derived from the lease or at the rates mentioned above, whichever is higher. Profit on disposal of properties is recognised in the Profit and Loss Account and subsequently appropriated to Capital Reserve (net of taxes, if any and applicable transfer to Statutory Reserve); losses are recognised in the Profit and Loss Account. Intangible Assets The Company capitalizes software, where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 2 to 5 years. Software individually costing less than the rupee equivalent of USD 10,000/- is fully amortized in the year of purchase. Impairment of Assets In accordance with AS-28 on 'Impairment of Assets', an asset is considered as impaired, when at the balance sheet date there are indications of impairment and the carrying amount of the asset, or where applicable, the cash generating unit to which the asset belongs, exceeds its recoverable amount (i.e. the higher of the asset's net selling price and value-in-use). The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired based on internal/external factors. If any such indication exists, the Bank estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than the carrying amount, the carrying amount is reduced to the recoverable amount and the reduction is recognized as an impairment loss in the Profit and Loss Account. 6) Advances Classification and provisioning for advances is carried out in accordance with RBI Master Circular (DBOD.No.BP. BC.9/ / dated July 2, 2012) on prudential norms on income recognition, asset classification and provisioning pertaining to advances. Advances are stated net of bills re-discounted, specific loan loss provisions and interest-in-suspense for non-performing advances in accordance with the prudential norms. The Bank also maintains general provisions on standard assets over and above the specific provisions to cover potential credit losses inherent in any loan portfolio. Provision for Standard Assets and Country Risk Exposure is made in accordance with the norms prescribed by the RBI and disclosed under Schedule 5 'Other Liabilities and Provisions'. Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 11

12 7) Employee Benefits Provident fund Provident fund was contributed to a trust set up by the Bank for all eligible employees till March 31, 2012 with the interest rate payable to the members of the trust not being lower than the statutory rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, Shortfall, if any, was contributed by the Bank and to that extent this was a defined benefit plan. Contributions made to the trust were charged to the Profit and Loss Account. With effect from April 1, 2012, the Bank has started making provident fund contributions to a Government administered provident fund in respect of its employees. Further, the accumulated balances as at March 31, 2012 with the Trust set up by the Bank have also been transferred to the government administered provident fund. Liability/Obligation, if any, arising out of the transfer to the Government administered provident fund would be borne by the Bank. Gratuity The Bank has a gratuity scheme, a defined benefit plan, for all eligible employees, which is administered by a trust set up by the Bank. The costs of providing benefits under the gratuity scheme are determined using the Projected Unit Credit Method on the basis of actuarial valuation carried out by an independent actuary at each balance sheet date. The Bank makes periodical contributions to the trust. Gratuity benefit obligations recognised on the Balance Sheet represent the present value of the obligations as reduced by the fair value of plan assets. Actuarial gains and losses are recognised in the Profit and Loss Account in the year in which they arise. Compensated Absences Liability for sick leave and privilege leave defined benefit plans for all eligible employees is recognized based on actuarial valuation carried out by an independent actuary as at the balance sheet date. Pension The Bank has a pension scheme, a defined contribution plan, for all eligible employees, which is administered by a trust set up by the Bank. The Bank's contribution towards the pension scheme is accounted for on an accrual basis and charged to the Profit and Loss Account. 8) Taxation Taxes on income are accounted for in accordance with Accounting Standard 22 on Accounting for Taxes on Income and comprise current and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income tax-act, The tax effect of timing differences that result between taxable income and accounting income and are capable of reversal in one or more subsequent periods are recorded as a deferred tax asset or deferred tax liability. These are measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets arising on account of carry forward losses and unabsorbed depreciation under tax laws are recognized only if there is virtual certainty of its realization, supported by convincing evidence. Deferred tax assets on account of other timing differences are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. The carrying amount of deferred tax assets at each balance sheet date is reduced to the extent that it is no longer reasonably certain that sufficient future taxable income will be available against which the deferred tax asset can be realized. 9) Accounting for leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. For operating leases, lease payments are recognized as an expense in the statement of Profit and Loss Account on a straight line basis over the lease term. 10) Provisions and contingent liabilities A provision is recognized when there is a 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 best available 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 economic benefit will arise, the asset and the related income are recognized in the period in which the change occurs. 12 july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

13 Additional Disclosures in terms of RBI Master Circular on Disclosure in Financial Statements Notes to Accounts no. DBOD. BP.BC. No.14/ / dated July 2, Ratio of capital funds to risk weighted assets as at March 31, 2013 is stated below Sr. No. Particulars As at As at i) CRAR BASEL II 18.40% 17.59% ii) CRAR Tier I Capital (Basel II) 18.02% 17.21% iii) CRAR Tier II Capital (Basel II) 0.38% 0.38% iv) CRAR BASEL I 19.95% 19.12% v) CRAR Tier I Capital (Basel I) 19.53% 18.71% vi) CRAR Tier II Capital (Basel I) 0.42% 0.41% vii) Percentage of the shareholding of the Government of India in nationalized banks Nil Nil viii) Amount of subordinated debt raised during the year as Tier II capital Nil Nil ix) Amount raised by issue of Innovative Perpetual Debt Instruments during the year Nil Nil x) Amount raised by issue of Upper Tier II instruments during the year Nil Nil CRAR Capital to Risk Weighted Assets Ratio 2. Investments Particulars As at As at 1) Value of Investments i) Gross Value of Investments (a) In India 88,341,764 82,327,979 (b) Outside India Nil Nil ii) Provisions for Depreciation (a) In India 6,680 69,824 (b) Outside India Nil Nil iii) Net Value of Investments (a) In India 88,335,084 82,258,155 (b) Outside India Nil Nil 2) Movement of provisions held towards depreciation on investments i) Opening balance 69,824 30,203 ii) Add: Provisions made during the year Nil 39,621 iii) Less: Write-back of excess provision during the year (63,144) Nil iv) Closing balance 6,680 69, Information on Repurchase Agreement and Reverse Repurchase Agreement For the Year ended Minimum Maximum Daily Average Outstanding March 31, 2013* Outstanding Outstanding Balance as at during the year during the year Outstanding March 31, 2013 Securities Sold under Repurchase Agreement Government Securities Nil 78,967,520 14,867,952 17,119,890 Corporate debt securities Nil Nil Nil Nil Securities Purchased under Reverse Repurchase Agreement Government Securities Nil 4,467, ,308 Nil Corporate debt securities Nil Nil Nil Nil * Includes repurchase and reverse repurchase agreements under the Liquidity Adjustment Facility (LAF) with Reserve Bank of India. Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 13

14 For the Year ended Minimum Maximum Daily Average Outstanding March 31, 2012* Outstanding Outstanding Balance as at during the year during the year Outstanding March 31, 2012 Securities Sold under Repurchase Agreement Government Securities Nil 29,129,072 5,886,614 16,950,118 Corporate debt securities Nil Nil Nil Nil Securities Purchased under Reverse Repurchase Agreement Government Securities Nil 8,352, ,805 1,592,228 Corporate debt securities Nil Nil Nil Nil * Includes repurchase and reverse repurchase agreements under the Liquidity Adjustment Facility (LAF) with Reserve Bank of India. 4. Issuer Composition of Non-SLR Investments As at March 31, 2013 Sr. No. Issuer Amount Extent of Extent of 'below Extent of Extent of (Book Value) private investment 'unrated' 'unlisted' placement grade' securities securities securities (1) (2) (3) (4)# (5)# (6)# (7)# 1) Public Sector Undertakings@ 50,577 Nil Nil Nil Nil 2) Financial Institutions 1,674,642 1,674,642 Nil Nil 1,674,642 3) Banks 25,314,748 25,314,748 Nil Nil 25,314,748 4) Private corporate Nil Nil Nil Nil Nil 5) Subsidiaries/Joint ventures Nil Nil Nil Nil Nil 6) Others Nil ) Provision held towards depreciation (1,074) (987) Nil Nil (987) Total 27,039,493 26,989,003 Nil 600 Comprises 9.02% Rural Electrification Ltd # Amounts reported under columns (4), (5), (6) and (7) above are not mutually exclusive. As at March 31, 2012 Sr. No. Issuer Amount Extent of Extent of 'below Extent of Extent of (Book Value) private investment 'unrated' 'unlisted' placement grade' securities securities securities (1) (2) (3) (4)# (5)# (6)# (7)# 1) Public Sector Undertakings* 101,756 Nil Nil Nil Nil 2) Financial Institutions 2,569,803 2,569,803 Nil Nil 2,569,803 3) Banks 22,496,113 22,496,113 Nil Nil 22,496,113 4) Private corporate Nil Nil Nil Nil Nil 5) Subsidiaries/Joint ventures Nil Nil Nil Nil Nil 6) Others Nil ) Provision held towards depreciation (33,433) (31,357) Nil Nil (31,357) Total 25,134,839 25,035,159 Nil ,035,159 * Comprises 9.61% Power Finance Corporation Limited # Amounts reported under columns (4), (5), (6) and (7) above are not mutually exclusive. 14 july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

15 5. Non-Performing Non-SLR Investments as at March 31, 2013 There are no non-performing non-slr Investments as at March 31, (Previous year Rs. Nil) 6. Forward Rate Agreements/Interest Rate Swaps Notes: Sr. No. Particulars As at As at i) The notional principal value of interest rate swaps 2,299,521,929 3,042,129,359 ii) Losses which would be incurred if counterparties failed to fulfill their obligations under the agreements 9,835,242 18,224,683 iii) Collateral required by the bank upon entering into swaps Nil Nil iv) Concentration of credit risk arising from the swaps (in the banking industry) 89% 97% v) The fair value of interest rate swaps Gains/(Losses) 723,103 2,088,872 a) Swaps undertaken with counterparties are based on established market benchmarks. b) The counterparties for the swaps undertaken are Banks/Corporates and are within approved credit exposure limits. c) There are no forward rate agreements as on March 31, (Previous year Rs. Nil) d) For accounting policies relating to the Interest Rate Swaps refer Note (D)(3) Schedule Exchange Traded Interest Rate Derivatives Sr. No. Particulars As at As at 1) Notional principal amount of exchange traded interest rate derivatives undertaken during the year, Interest rate futures Nil 2,152,800 2) Notional principal amount of exchange traded interest rate derivatives outstanding as on March 31, Interest rate futures Nil Nil 3) Notional principal amount of exchange traded interest rate derivatives outstanding and not "highly effective" Interest rate futures Nil Nil 4) Mark-to-market value of exchange traded interest rate derivatives outstanding and not "highly effective" Interest rate futures Nil Nil 8. Disclosure on Risk Exposure in Derivatives a. Qualitative Disclosure The Bank enters into derivative contracts for the purposes of trading and to meet customer requirements to manage their risks. The Bank has comprehensive policies in place for measurement, reporting, monitoring and mitigating credit, market and operational risk. o o o Credit risk is managed based on the risk profile of the borrower or counterparty, repayment sources and other support given the current events, conditions and expectations. Credit risk for a derivative contract is sum of the potential future changes in value and the replacement cost, which is the positive mark-to-market value of the contract. The Bank uses Value-at-Risk (VaR) modeling and stress testing to measure and manage market risk. Trading limits and VaR are used to manage day-to-day risks and are subject to testing where expected performance is compared to actual performance. All limit excesses are communicated to senior management for review. There exists an organizational set up for the management of risk. All lines of business are responsible for the risks within the business including operational risks. Such risks are managed through corporate-wide and/or line of business specific policies and procedures, controls, and monitoring tools. Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 15

16 Treasury front-office, mid-office and back-office are managed by officials with necessary systems support and clearly defined responsibilities. There exist policies for recording derivative transactions, recognition of income, valuation of outstanding contracts, provisioning and credit risk mitigation. The gains or losses are aggregated product-wise and reported under the head 'Profit on exchange/derivative transactions' in the Profit and Loss account and either Other assets or Other Liabilities depending upon whether the present value of the aggregate outstanding derivative instruments is a receivable or payable. The details in respect of the mark-to-market positions for forward exchange contracts, interest rate swaps, cross currency interest rate swaps, currency futures & options which are aggregated product-wise and disclosed net on the Balance Sheet under 'Other assets' or 'Other Liabilities' in Schedule 11 or Schedule 5 respectively are as under: As at March 31, 2013 Particulars Asset (+) Liability (-) Net Forward exchange contracts 23,289,816 (20,255,820) 3,033,996 Interest rate swap 9,835,242 (9,112,139) 723,103 Cross currency interest rate swap 10,197,373 (13,484,638) (3,287,265) Currency Futures Nil (346) (346) Options 134,641 (70,398) 64,243 Total 43,457,072 (42,923,341) 533,731 As at March 31, 2012 Particulars Asset (+) Liability (-) Net Forward exchange contracts 45,721,134 (41,711,908) 4,009,226 Interest rate swap 18,224,683 (16,135,811) 2,088,872 Cross currency interest rate swap 18,110,497 (20,965,754) (2,855,257) Currency Futures Nil (36,311) (36,311) Options 2,059,730 (347,104) 1,712,626 Total 84,116,044 (79,196,888) 4,919,156 b. Quantitative Disclosure Sr. No. Particulars Currency Interest Rate Derivatives** Derivatives* As at As at March 31, 2013 March 31, ) Derivatives (Notional Principal Amount) a) For hedging Nil Nil b) For trading 179,647,009 2,299,521,929 2) Marked to Market Positions a) Asset (+) 10,332,014 9,835,242 b) Liability (-) (13,555,383) (9,112,139) 3) Credit Exposure# 25,351,964 26,629,591 4) Likely impact of one percentage change in interest rate (100*PV01) a) on hedging derivatives Nil Nil b) on trading derivatives (173,794) 96,811 5) Maximum and Minimum of 100*PV01 observed during the year a) on hedging Nil Nil b) on trading (Maximum) (1,028) 3,462,526 c) on trading (Minimum) (1,498,120) (474,312) * Interest Rate derivatives comprise Interest Rate swaps. ** Currency Derivatives includes Currency futures, Cross Currency interest rate swaps and options. # Credit exposure represents sum of potential future exposure and positive mark-to-market value of contracts. 16 july 20, 2013 vol xlviii no 29 EPW Economic & Political Weekly

17 Sr. No. Particulars Currency Interest Rate Derivatives** Derivatives* As at As at March 31, 2012 March 31, ) Derivatives (Notional Principal Amount) a) For hedging Nil Nil b) For trading 262,145,293 3,042,129,359 2) Marked to Market Positions a) Asset (+) 20,170,227 18,224,683 b) Liability (-) (21,349,170) (16,135,811) 3) Credit Exposure# 41,126,187 41,149,904 4) Likely impact of one percentage change in interest rate (100*PV01) a) on hedging derivatives Nil Nil b) on trading derivatives 47,730 1,667,637 5) Maximum and Minimum of 100*PV01 observed during the year a) on hedging Nil Nil b) on trading (Maximum) 367,228 1,779,821 c) on trading (Minimum) (150,670) (514,112) * Interest Rate derivatives comprise Interest Rate swaps and interest rate futures. ** Currency Derivatives includes Currency futures, Cross Currency interest rate swaps and options. # Credit exposure represents sum of potential future exposure and positive mark-to-market value of contracts. c. Nature and terms of interest rate swaps Nature Benchmark No. of trades as at Notionals as at No. of trades as at Notionals as at March 31, 2013 March 31, 2012 Trading MIBOR* 2,053 1,837,035,187 2,887 2,510,485,008 Trading MIFOR** ,212, ,866,514 Trading INBMK*** 52 24,850, ,000,000 Trading Others ,424, ,777,836 * Mumbai Interbank Offer Rate ** Mumbai Interbank Forward Rate *** India Benchmark Total 2,840 2,299,521,929 3,767 3,042,129, Movement in Non Performing Assets (Funded) Particulars As at As at Gross NPAs as on April 01 (Opening Balance) 6,978 6,978 Additions (Fresh NPAs during the year) Nil Nil Sub-total (A) 6,978 6,978 Less: - (i) Upgradations Nil Nil (ii) Recoveries (excluding recoveries made from upgraded accounts) Nil Nil (iii) Write-offs 6,978 Nil Sub-total (B) 6,978 Nil Gross NPAs as on March 31 (Closing balance) (A-B) Nil 6,978 Economic & Political Weekly EPW july 20, 2013 vol xlviii no 29 17