Accounting Policies of Karnataka Bank Ltd. Company

Mar 31, 2025

4.12. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In accordance with AS-29 "Provisions, Contingent Liabilities and Contingent Assets", provision is recognised when the
Bank has a present obligation as a result of past event where it is probable that an outflow of resources will be required
to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present
value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These
are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.

A disclosure of contingent liability is made when there is:

• a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non¬
occurrence of one or more uncertain future events not within the control of the Bank; or

• a present obligation arising from a past event which is not recognised as it is not probable that an outflow of resources
will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

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.

Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and
endorsements denominated in foreign currencies and outstanding as at the Balance Sheet date are translated at year
end rates notified by the FEDAI/FBIL.

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

4.13. SEGMENT REPORTING

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the
Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other
Banking Operations and revenues /expenses allocated in accordance with the RBI guideline. Further, ''Digital Banking'' has
been identified as a Sub-segment under Retail Banking as required in extant guidelines of the RBI

Geographical Segment consists only of Domestic Segment since the Bank does not have any foreign branches.

4.14. LEASE TRANSACTIONS

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are
classified as operating lease. Operating Lease payments are recognised on SLM basis as an expense in the Profit & Loss
Account, over the lease term in accordance with AS-19.

4.15. ACCOUNTING FOR DIVIDEND

As per AS-4 ''Contingencies and Events occurring after the Balance Sheet date'', the Bank does not account for the proposed
dividend as a liability through an appropriation from the Profit and Loss Account. The same is recognised in the year of
actual payout post approval of the shareholders. However, the Bank considers the proposed dividend in determining
capital funds in computing the capital adequacy ratio.

4.16. CASH AND CASH EQUIVALENT

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

4.17. CORPORATE SOCIAL RESPONSIBILITY

Expenditure towards Corporate Social Responsibility is recognised in the Profit and Loss Account in accordance with the
provisions of the Companies Act, 2013.

RBI vide circular No. DBR.No.BP.BC.83/21.06.201/2015-16 dated 1^st March 2016, has given discretion to banks to consider
Revaluation Reserve, Foreign Currency Translation Reserve and Deferred Tax Asset for purposes of computation of Capital
Adequacy as CET- I capital ratio. The Bank has exercised the option in the above computation.

# On October 26, 2023, the Bank has allotted 334,00,132 equity shares of Rs.10/- each for cash pursuant to Preferential Issue as per the relevant
provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 at a price of Rs.239.52 per share aggregating to Rs.800 crore
(including share premium).

On February 28, 2024, the Bank has allotted 37,72,730 equity shares of Rs.10/- each for cash pursuant to a Preferential
Issue as per the relevant provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 at a price of
Rs.265.06 per share aggregating to Rs.100 crore (including share premium).

On March 28, 2024, the Bank has allotted 264,31,718 equity shares of Rs.10/- each for cash pursuant to a Qualified
Institution Placement (QIP) as per the relevant provisions of SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2018 at a price of Rs.227 per share aggregating to Rs.600 crore (including share premium).

Also includes issuance of shares under Employee Stock Option Scheme 2018 of Rs.1.30 Cr.

b) Draw down from Reserves

During the year ended March 31, 2025, the Bank has drawn down H 89 ( Previous Year: Nil) crores from the Investment
Fluctuation Reserve (IFR), maintaining a closing balance in the IFR at 2.38% of the closing balance of investments in the
Available for Sale (AFS) and Held for Trading (HFT)/Current categories.

b) Liquidity Coverage Ratio

Bank is computing LCR on a daily basis in line with the RBI circular dated June 9, 2014 on "Basel III Framework on
Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards". These
guidelines ensure that banks maintain sufficient amount of High Quality Liquidity Assets (HQLAs) to survive 30 days stress
scenario so that banks can take corrective measures within such period. These HQLAs have to be 100% of the net cash
outflows w.e.f. January 1,2019.

Necessary system is put in place to compute LCR and Bank''s strategy is to maintain LCR well above the regulatory
minimum levels ahead of the stipulated timelines.

The Bank during the three months ended March 31,2025, maintained average HQLA (after haircut) of H 23,217.64 Crore
( H 20,918.91 Crore as on March 31,2024). HQLA primarily includes government securities in excess of minimum statutory
liquidity ratio (SLR), 2% of NDTL under "marginal standing facility (MSF)", 16% of NDTL under "facility to avail liquidity for
LCR (FALLCR)", investments under Corporate bonds & commercial papers rated "AA- and above".

The weighted cash outflows are primarily driven by deposits from retail & small business customers, unsecured wholesale
funding which includes non-operational deposits and unsecured debt. During the three months ended March 31, 2025,
funding from "retail & small business customers" and "non-operational deposits" contributed 45.38% & 47.34% to the
total weighted cash outflows respectively. The other contingent funding obligations primarily include bank guarantees
(BGs) and letters of credit (LCs) issued on behalf of the Bank''s clients.

The average LCR of the Bank for the three months ended March 31,2025, was 162.50% (March 31,2024: 212.34%).

As of March 31, 2025, top liability products/instruments and their percentage contribution to the total liabilities of the
Bank were term deposits: 59.13%, savings account deposits: 21.65% and current account deposits: 5.86%. The Bank has
consistently maintained a robust funding profile with a significant portion of funding through deposits. Top 20 depositors
constituted 3.42% of total deposits of the Bank as of March 31,2025, indicating a healthy and stable deposit profile.

In addition to daily/ monthly LCR reporting, Bank prepares daily Structural Liquidity Statements to assess the liquidity
needs of the Bank on an ongoing basis.

Bank''s Asset Liability Management Committee (ALCO) is empowered to monitor and form suitable strategies to maintain
stipulated levels of LCR by channelizing funds to target good quality asset and liability profile to meet Bank''s profitability
as well as liquidity requirements. Funding strategies are formulated by the Integrated Treasury in accordance with ALCO
guidance. The objective of the funding strategy is to achieve an optimal funding mix which is consistent with prudent
liquidity, diversity of sources and servicing costs. Accordingly, Integrated Treasury estimates daily liquidity requirement.
With the help of structural liquidity statement prepared by Bank, Integrated Treasury evaluates current and future liquidity
requirement and takes necessary action.

c) Overseas assets, NPAs and Revenue -Nil (Previous Year - Nil)

d) Particulars of resolution plan and restructuring

There are no Borrowers requiring additional provision in terms of Reserve Bank of India Circular DBR.No.BP.
BC.45/21.04.048/2018-19 dated June 7, 2019. (Previous Year : Nil)"

e) Divergence in asset classification and provisioning:

No disclosure on divergence in asset classification and provisioning for NPAs is required with respect to the Risk based
Supervision conducted by the Reserve Bank of India for the year ended 31^st March 2024, based on conditions mentioned
in the RBI Master Direction No. RBI/DOR/2021-22 /83 DOR.ACC.REC.No.45/21.04.018/2021-22 dated 30^th August 2021
(updated as on 11^th October 2022). (Previous year Nil.)

f) Disclosure of transfer of loan exposures

i) Details of loans not in default that are transferred/ acquired during the year ended March 31, 2025 under the RBI
Master Direction on transfer of loan exposure dated 24^th September, 2021 are given below:

a) The Bank has not transferred any stressed loan (Special Mention Account) and any loan not in default during
the year ended March 31,2025.

b) The Bank has not transferred any non-performing Assets (NPAs) during the year ended March 31,2025.

c) The Bank has not acquired any Security Receipts (SR) issued by Asset Reconstruction Companies (ARCs) during
the year ended March 31,2025.(Previous Year : Nil)

ii) In the case of stressed loans transferred: (H in Cr. except no. of accounts & Tenor)

f) Intra -group Exposure

There are no Intra Group exposures other than investment of H1.75 Crore in wholly owned non-financial Subsidiary KBL
Services Ltd. (Previous Year H 1.75 crore)

g) Unhedged Foreign Currency Exposure

The Bank has put in place a policy on hedging of foreign currency exposure of borrowal entities as a part of the loan policy
which stipulates the guidelines on managing the risk arising out of the unhedged foreign currency exposure in line with
the extant RBI guidelines. Further, the Bank has made a provision of H 22.61 crore (Previous year H 23.72 crore) and has
provided capital for the unhedged foreign currency exposure of borrowal entities of H 3.95 crore (Previous year H 3.97
crore) in line with the extant RBI guidelines.

Disclosure on Risk exposure in derivatives
(i) Qualitative Disclosure

The Bank has put in place Board approved Integrated Treasury Policy, Asset Liability Management (ALM) policy,
Market Risk Management Policy and Fund Transfer Pricing Policy for effective management of market risk in the
Bank. The objective of Integrated Treasury Policy is to assess and minimize risks associated with treasury operations
by extensive use of various risk management tools. Broadly, it encompasses Policy prescriptions for managing
systemic risk, credit risk, market risk, operational risk and liquidity risk in treasury operations

For market risk arising out of various products in treasury and its business activities, the Bank has set regulatory/
internal limits and ensures the adherence thereof. Migration of ratings is tracked regularly. Limits for exposures
to counter-parties, industries and countries are monitored and the risks are controlled through Stop Loss Limits,
Overnight limit, Daylight limit, Aggregate Gap limit, Individual gap limit, Value at Risk (VaR) limit for Forex, Inter-Bank
dealing and various investment limits. For the Market Risk Management the Bank has a Mid Office. The functions of
Mid Office are handled by Risk Management Department.

The Board, Risk and Capital Management Committee & Asset -Liability Committee are overseeing the market risk
management of the Bank, procedures thereof, implementing risk management guidelines issued by regulator, best
risk management practices followed globally and ensures that internal parameters, procedures, practices/policies
and risk management prudential limits are adhered to. Liquidity risk of the Bank is assessed through daily gap
analysis for maturity mismatch based on residual maturity in different time buckets as well as various liquidity
ratios and management of the same is done within the prudential limits fixed thereon. Advance techniques such as
Stress testing, simulation, sensitivity analysis etc. are conducted on regular intervals to draw the contingency funding
plan under different liquidity scenarios. Fund Transfer Pricing Policy lays down methodology/assumptions on which
profitability of the branches/products/customers is measured.

f) Implementation of IFRS converged Indian Accounting Standards (Ind AS)

In order to implement Indian Accounting Standards (Ind AS), the Bank has set up a Steering Committee headed by the Managing
Director and a sub-committee called IFRS Working Group having members across cross-functional business verticals, to work
towards effectively implementation of Ind AS in the Bank. The Reserve Bank of India (RBI), vide its communication Ref: DBR.
BP.BC.No.29/21.07.001/2018-19 dated 22^nd March, 2019 has deferred implementation of Ind AS for all Scheduled Commercial
Banks till further notice. Bank has been submitting the Proforma Ind AS financials to RBI every half year as per the RBI guidelines.
Also, as a prudent measure, Bank is preparing Proforma Ind AS financials on quarterly basis and the estimated impact along
with latest update on the Ind AS implementation in the Bank is placed to the Audit Committee of the Board.

Towards effective implementation of the Standards, Bank has also endeavored on onboarded - Oracle Financial Services
Analytical Application (OFSAA) which includes IFRS-9 Module to compute Effective Interest Rate (EIR) and Expected Loan
Loss Provisioning (ECL) through the Core Banking System.

h) Disclosure on amortisation of Expenditure on account of Enhancement in family pension of Employees
of Banks:

Nil for the year.The Bank had fully recognised the expenditure for enhancement of Family pension in the FY 2021-22.

i) Disclosure of Letters of Comfort (LoCs) issued by banks:

There were no LoCs outstanding as at 31^st March 2025. (Previous year Nil).

j) Portfolio-level information on the use of funds raised from green deposits:

The bank has raised no funds from the Green Deposits during the financial year 2025.

k) There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection
Fund by the Bank, during the year ended March 31,2025.

15. Accounting Standards

In compliance with the guidelines issued by the Reserve Bank of India regarding disclosure requirements of the various

Accounting Standards, following information is disclosed:

a) Accounting Standard 5 - Net Profit or Loss for the period, Prior Period Items and Changes in Accounting
Policies

There are no material prior period items.

In the preparation of these Standalone and Consolidated financial results for the year ended March 31, 2025, the Bank
has followed the same significant accounting policies and generally accepted practices as adopted in the preparation of
audited Standalone and Consolidated financial statements for the year ended March 31^st 2024, except for -

i. Classification and valuation of Investment as per master direction issued by RBI dated 12^th September 2023,
applicable from 1^st April 2024;

ii. Provision for certain category of accounts, over and above the regulatory norms not considered during the year as
the same was assessed as not required at this point of time.

iii. in case of recoveries in non-performing Overdraft Accounts whereby the recoveries are first appropriated towards
interest and then towards charges and excess allowed in overdraft account if any, followed by expired sanctioned
TOD, vis-a-vis earlier policy whereby it was first appropriated towards excess allowed in overdraft account if any,
followed by expired sanctioned TOD and then towards interest. However, the impact, is immaterial.

The investments of the Bank as at April 01, 2024 have been re-classified and valued in accordance with the
requirements of the above-mentioned Master Directions and transitional adjustments on account of ''Available For
Sale'' (AFS) portfolio and other securities has been credited to "AFS Reserve" and opening "Revenue Reserve" to the
extent of H 106.88 crore and H 24.68 crore, respectively.

Further, in Compliance with the Master Directions, the valuation gains and losses at the year ended March 31, 2025
across all performing investments, irrespective of classification (i.e., Government securities, Other approved securities,
Bonds and Debentures, etc.), held under AFS is aggregated and the net gain of H35.80 crore (net of taxes) has been
directly credited to AFS reserve. The securities held in Fair Value through Profit and Loss (''FVTPL'') and Held for Trade
(''HFT'') are fair valued as at the year end and the revaluation gain (net) arising on such valuation has been credited to the
Profit and Loss amounting to H2.23 crore. All investment purchased and sold during the year ended March 31, 2025
are done in compliance with the requirement of the Master Directions and revised accounting policy.

b) Accounting Standard 9 - Revenue Recognition

Revenue is recognized on accrual basis as per Bank''s Accounting Policy ( Schedule 17) to the financial statements except
for certain items mentioned therein and same is not material.

c) Accounting Standard 11-The Effects of Changes in Foreign Exchange Rates

The Bank has complied with the guidelines issued by the RBI and the FEDAI to ensure adherence to the applicable
requirements under AS 11. Accordingly, foreign exchange transactions are accounted for in accordance with the Bank''s
accounting policy, as detailed in Schedule 17.

d) Accounting Standard 15 - Employee Benefits

Various Benefits made available to the Employees

i) Pension: The Bank has a defined benefit plan under Pension Trust to cover employees who have joined employment
up to 31^st March 2010 and who have opted for Pension Scheme, provided they have completed 20 years of service.
The benefits under this plan are based on last drawn salary and the tenure of employment. The liability for the
pension is determined and provided on the basis of actuarial valuation and is covered by purchase of annuity
from LIC. The employees who have joined employment after 31^st March 2010 are covered under contributory
pension scheme. Bank has recognized H57.78 crore under defined contribution plan during the FY 2025.
( Previous Year :44.76 crore)

ii) Gratuity: In accordance with the applicable Indian Laws including the Bank''s policy, the Bank provides for defined
benefit retirement plan (''the Gratuity Plan'') covering eligible employees. This plan provides for a lump sum payment
to the eligible employees on retirement, death, incapacitation or termination of employment of amounts that are
based on the last drawn salary and tenure of employment. Liabilities with regard to the gratuity plan are determined
by actuarial valuation and contributed to the gratuity fund trust. Trustees administer the contribution made to the
trust and invest in specific designated securities as mandated by law, which generally comprise of Central and State
Government Bonds and debt instruments of Government owned corporations.

\ iii) Compesated Absences: The liability for compensated absences is determined and provided on the basis of actuarial

valuation. For the current financial year, Bank has provided an amount of H86.20 crore. ( Previous Year :H82 crore)

iv) Provident Fund: The Bank pays fixed contribution to Provident Fund at predetermined rates to a separate trust,
which invests the funds in permitted securities. The obligation of the Bank is limited to such contributions. As on 31^st
March 2025, there was no liability due and outstanding to the Fund by the Bank. (Previous Year: Nil)

v) The summarised position of post-employment benefits and employees'' long term benefits are recognized in the
financial statements in accordance with Accounting Standard - 15 and are as under:

In terms of the aforesaid RBI Master Direction, the KMP are the whole-time director and the Chief Executive Officer (CEO)
for an Indian bank. The Bank has only one entity under Subsidiary and two Key Managerial Personnel, the definition
of which, are drawn from the "Accounting Standard 18 - Related Party Disclosures" as required for disclosure under
Regulation 23(9) of the SEBI LODR. In terms of the aforesaid RBI Master Direction, the Bank''s relationship with each of the
parties is as under:

Key Managerial Personnel:

1. Mr. Srikrishnan H, Managing Director & CEO of the Bank, was appointed with effect from 09^th June 2023 in accordance
with the approval received from the RBI in terms of Banking Regulation Act, 1949.

2. Mr. Sekhar Rao, Executive Director of the Bank, was appointed with effect from 01^st February 2023 in accordance
with the approval received from the RBI in terms of Banking Regulation Act, 1949.

Subsidiary:

KBL Services Limited, is a Wholly Owned Non-Financial Subsidiary of the Bank in respect of which the approval of the
Reserve Bank of India was obtained in terms of "Master Direction - Reserve Bank of India (Financial Services provided by
Banks) Directions, 2016".

17 Litigations and claims

A sum of H1,365.82 crore (Previous year H 1,634.94 crore) is outstanding on account of demands raised by the Income Tax Department
in the earlier years, out of which an amount of H892.98 Crore (Previous year H 846.86 Crore) has been paid under protest by debit
to Sundry Assets - Protested Tax Account and for the balance of H 472.84 crore (Previous year H788.08Crore) stay from collection
of demand has been granted.In addition to the above, the Income Tax Department has gone on appeal on various issues wherein
Appellate Authority has given decisions in favour of the Bank to the extent of H 388.24 crore (Previous year H 475.74 crore).

The Bank has preferred appeal against certain service tax demands to the extent of H193.15 crore (Previous year H 193.15
crore) and paid pre deposit of H 1.06 crore (Previous year H 1.06 crore) by debit to Sundry Assets - Service Tax Paid under
Protest.In addition to above, the department has gone on appeal in respect of certain matters wherein appellate authority has
given decision in favour of the Bank to extent of H17.49 crore.

The Bank has also preferred appeal against certain GST demands to the extent of H3.46 crore (Previous year H1.42 crore) and
paid pre deposit of H 0.35 crore (Previous year H0.15 crore) by debit to Sundry Assets - Service Tax Paid under Protest.

The Bank has been advised by its Tax Consultants and Experts that there are good chances of success in these appeals,
considering legal provision favourable judicial pronouncements and / or appellate orders on identical issues for earlier years.
Hence, the Bank does not consider it necessary to make any provision or include the same under Schedule 12 - Contingent
Liability, to the Balance sheet.

All pending litigations which may have an impact on its financial position have been estimated and provided for. In respect of
other pending litigations, no provision is required since these pending litigations have no impact on its financial position.

18 Description of Contingent Liabilities

i) Claims against the Bank not acknowledged as debts:

These represent claims filed against the Bank in the normal course of business relating to various legal cases
currently in progress.

ii) Liability on account of forward exchange:

The Bank presently enters into forward exchange contracts which are committed to buy or sell foreign currency at a future
date at the contracted rate. The notional amounts of such foreign exchange contracts provide a basis for comparison with
instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved
or the current fair value of the instruments and, therefore, do not indicate the Bank''s exposure to credit or price risks.
The fluctuation of market rates and prices cause fluctuations in the value of these contracts and the contracted exposure
become favourable (assets) or unfavourable (liabilities).

iii Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing.
Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to
fulfil its financial or performance obligations.

iv) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers
that are accepted or endorsed by the Bank.

v) Other items for which the bank is contingently liable

Includes amount transferred to RBI under the Depositor Education and Awareness Fund (DEAF) also claims settled.
(Refer schedule 12 for amounts relating to contingent liability.)

19 Employee Stock Option

The shareholders of the Bank, on July 21, 2018, have approved ''KBL Employee Stock Option Scheme-2018'' (ESOS-2018) with
a total of 50,00,000 stock options available for grant, each of which is convertible into one equity share. The scheme has been
framed in accordance with SEBI (Share Based Employee Benefits) Regulations, 2014 as amended from time to time. Further, to
give effect to the corporate action by way of Bonus issue in the ratio of 1:10, additional 1,07,147 options have been accounted
and hence, the total available options under the scheme stand increased to 51,07,147 stock options.

The options granted under ESOS 2018 would vest after one year from the date of grant of such options in a graded manner over a period
of three years (i.e. 40%, 30% & 30% respectively on completion of 1^st, 2^nd & 3^rd year), as determined by the Nomination & Remuneration
Committee (NRC), a committee of the Board of Directors, subject to continued employment with the Bank on the date of vesting.

During the year ended March 31, 2025, no modifications were made to the terms and conditions of ESOS - 2018 as
approved by the NRC.

The Shareholders of the Bank on March 30, 2023 have approved ''KBL Employee Stock Option Scheme-2023'' (ESOS-2023) with
a total of 15,00,000 Stock options available for grant each of which is convertible into one equity share catering partially towards
the disbursal of share linked portion of variable pay as per RBI guidelines relating to compensation payable to MD & CEOs/
Whole Time Directors/Material Risk Takers (MRTs) in banks vide DOR.Appt.BC.No.23/29.67.001/2019-20 dated November 4,
2019. The Scheme, which is in lieu of ESOS-2018, has been framed in accordance with Securities and Exchange Board of India
(Share Based Employee Benefits & Sweat Equity) Regulations, 2021. The old Scheme ESOS 2018 will continue to be operative
for the limited purpose of permitting exercise of already granted options.

The Options granted under ESOS 2023 would vest one year after the date of grant of such options in a graded manner over a
period of three years (i.e. 30%, 30% & 40% respectively on completion of 1^st, 2^nd & 3^rd year), as determined by the Nomination
& Remuneration Committee (NRC), a committee of the Board of Directors.

During the year ended March 31, 2025, no modifications were made to the terms and conditions of ESOS - 2023 as
approved by the NRC.

To ascertain the ESOP compensation cost at fair value for the purpose of accounting/ disclosures in the financial statements, Bank
has adopted Black Scholes Valuation Methodology. Black Scholes model is a mathematical formula used to estimate the value of
stock options based on several factors. Some of the key factors that are considered when computing the fair market value of an
ESOP under the Black Scholes model are stock price, exercise price, time to expiry, volatility, risk-free interest rate, dividend yield, etc.

During the year bank has recognized H 0.62 crore towards Employee stock option compensation expenses on ESOS-2018 and
ESOS-2023 scheme.

20 Dividend

The Board of Directors of the Bank have proposed a dividend of H 5 per Equity share of H 10/- each (50% of Equity share
Capital) for the year ended March 31,2025 (Previous year H. 5.50 per Equity share of H. 10 each), subject to the approval of the
members at the ensuing Annual General Meeting. In terms of Accounting Standard (AS) 4 Contingencies and Events occurring
after the Balance Sheet date, the Bank has not appropriated proposed dividend aggregating to H 188.97 crore from the Profit
and loss account for the year ended March 31, 2025. However, the effect of the proposed dividend has been reckoned in
determining capital funds in the computation of Capital adequacy ratio as on March 31,2025.

21 During the last quarter of FY 2024-25, certain suspicious UPI Global transactions were found on account of erroneous
identification of some of the transactions as "failed". This identification resulted in reversal of amount to the customer accounts.

The matter was informed to Reserve Bank of India (RBI) on 17^th February 2025 and to the stock exchanges and the Bank
has also suspended the transactions in UPI Global. As per the RBI letter dated 19^th March, 2025, Bank has adhered to the
instructions inter-alia including forensic audit by an external agency, report of which is awaited.

The Bank has initiated necessary actions towards recovery of the amount involved, duly following the procedures of filing FIR
and other available legal recourses.

The impact on account of the above at H 18.87 crore is fully provided for. The Bank does not envisage any further adverse
impact on this account as the Bank has suspended transactions in UPI Global as stated above.

22 Total expenditure includes expenditure incurred in connection with engaging consultants and other revenue expenditure
amounting to H 1.16 Crore and Total Fixed Assets include capital expenditure amounting to H 0.37 Crore incurred beyond the
delegated powers of the whole-time directors, which was not ratified by the board and hence is recoverable from them, after
following due process. The recoverable amount has not been given effect to in the accounts.

23 Reconciliation of Branch Adjustments and Balancing of Subsidiary Ledgers

a) Balancing of Subsidiary Ledgers is completed at all the Branches/Offices

b) Reconciliation of Branch Adjustments/Inter Bank accounts has been completed up to March 31,2025 and steps are being
taken to give effect to consequential adjustments of pending items.

24 Disclosure under Rule 11(e) of the Companies (Audit & Auditors) Rules, 2014

The Bank, as part of its normal business, grants loans and advances (including loans against third party deposits or Non¬
Banking Finance Company or Real estate promoters / developers loan, other margins / security), makes investment, provides
guarantees (including against margin / guarantees received from third parties / banks) to and accepts deposits and borrowings
from its customers, other entities and persons. These transactions are part of Bank''s authorised normal business, which is
conducted ensuring adherence to regulatory requirements.

In the course of the transactions carried out as described above

(a) No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources
or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries") with
the understanding, whether recorded in writing or otherwise, that the Intermediary shall whether directly or indirectly
lend or invest in other persons or entities identified by in any manner whatsoever by or on behalf of the Bank ("Ultimate
Beneficiaries") or provide any guarantee, security or like on behalf of the Ultimate Beneficiaries.

(b) The Bank has not received any funds from any person(s) or entity(ies) including foreign entity(ies) ("Funding Party") with
the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or
invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate
Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

26 Previous year''s figures have been regrouped/rearranged wherever necessary.

Sham K Abhishek S Bagchi

Company Secretary Chief Financial Officer

For and on behalf of Board

Sekhar Rao Srikrishnan H P Pradeep Kumar

Executive Director Managing Director & CEO Chairman

DIN 06830595 DIN 00318563 DIN 03614568

B R Ashok A V Chandrashekar Uma Shankar D S Ravindran

Director Director Director Director

DIN 00415934 DIN 08829073 DIN 07165728 DIN 09057128

Balakrishna Alse S Jeevandas Narayan K Gururaj Acharya

Director Director Director

DIN 08438552 DIN 07656546 DIN 02952524

Attached to our report of even date

For Ravi Rajan & Co. LLP For R.G.N. Price & Co.

Chartered Accountants Chartered Accountants

Firm Reg. No.009073N/N500320 Firm Regn. No. 002785S

Sumit Kumar Sriraam Alevoor M

Partner Partner

M No:512555 M No:221354

Place : Mangaluru
Date : 14-05-2025

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Mar 31, 2024

4. SIGNIFICANT ACCOUNTING POLICIES

4.1. ADVANCES

4.1.1 Classification and measurement of advances

Advances are classified into performing and non-performing advances (''NPAs'') as per the RBI guidelines and are stated net of bills rediscounted, specific provisions made towards NPAs, unrealized interest, claims received from Credit Guarantors and provisions for funded interest on term loan classified as NPAs.

The aggregate amount of the participation transferred to the Bank under Inter-Bank Participation on a risk-sharing basis is classified under advances, following the RBI guidelines

4.1.2Non-performing advances and provision on non-performing advances

NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. NPAs are upgraded to standard as per the extant RBI guidelines.

Provisions for NPAs are made for sub-standard, doubtful and loss assets at rates as prescribed by the RBI. Higher accelerated provisioning is made basis recoverability and sound commercial judgement.

In case of NPAs referred to the National Company Law Tribunal (''NCLT'') under the Insolvency and Bankruptcy Code, 2016 (''IBC'') and where the NCLT has approved the resolution plan or liquidation order, provision is maintained at higher of the requirement under the RBI guidelines or the likely haircut as per resolution plan or liquidation order.

4.1.3Provision on Restructured Assets

In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI as applicable.

4.1.4Write-offs and recoveries from written-off accounts

Write-offs are carried out in accordance with the Bank''s policy. Recoveries from advances written-off are recognised in the Profit and Loss account under ''Other income'' and recovery of Unrealised Interest under ''Income Interest on Loans & Advances''.

4.1.5Other provisions on advances

In respect of borrowers classified as non-cooperative or wilful defaulters, the Bank makes accelerated provisions as per the extant RBI guidelines.

Loans reported as fraud are classified as loss assets, and fully provided for immediately without considering the value of security.

For entities with Unhedged Foreign Currency Exposure (''UFCE''), provision is made in accordance with the guidelines issued by the RBI, which requires ascertaining the amount of UFCE, estimating the extent of likely loss and estimating the riskiness of the unhedged position. This provision is classified under Schedule 5 - Other Liabilities and Provisions in the Balance Sheet. Further, incremental capital is maintained in respect of such borrower counterparties in the highest risk category, in line with stipulations by the RBI.

As per extant RBI guidelines, the Bank assesses incremental exposure of specified borrowers of the banking system beyond the Normally Permitted Lending Limit (''NPLL''), and makes additional provisions, if required.

The Bank maintains a general provision on standard advances at the rates prescribed by the RBI. Additionally, on a prudent basis, for Special Mention Accounts (SMA), and identified stress sectors, higher provisioning is maintained.

4.1.6Securitisation and transfer of assets

In accordance with RBI guidelines on Transfer of Loan exposures, any profit or loss arising because of the transfer of loans, which is realised, is accounted for and reflected in the Profit and Loss Account for the accounting period during which the transfer is completed.

4.2. INVESTMENTS

4.2.1 Classification

In accordance with the RBI guidelines, investments are classified at the time of purchase as:

• Held for Trading (''HFT'');

• Available for Sale (''AFS''); and

• Held to Maturity (''HTM'').

Investments that are held principally for sale within 90 days are classified as HFT securities.

Investments that the Bank intends to hold till maturity are classified under the HTM category. Investments in the equity of subsidiaries is categorised as HTM in accordance with the RBI guidelines.

All other investments are classified as AFS securities.

For disclosure in the Balance Sheet, investments in India are classified under six categories - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investment in Subsidiaries/Joint Ventures and Units and Gold.

4.2.2 Transfer of security between categories

Transfer of security between categories of investments is accounted for as per the RBI guidelines.

4.2.3 Acquisition cost

Costs incurred at the time of acquisition, of investments, such as brokerage, commission etc., are charged to the Profit and Loss Account. Broken period interest is charged to the Profit and Loss Account. The cost of investment is computed based on the weighted average cost method.

4.2.4Valuation

Investments classified under the HTM category:

Investments are carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over the remaining maturity period of the security on a straight-line basis. Such amortization of premium is adjusted against interest income under the head ''Income from Investments'' under "Schedule 13" in the Profit and Loss Account. As per the RBI guidelines, discount on securities held under the HTM category is not accrued and such securities are held at the acquisition cost till maturity.

Investments under these categories are marked to market. The market/fair value of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the stock exchanges or prices declared by the Fixed Income Money Market and Derivatives Association of India (''FIMMDA'')/Financial Benchmark India Private Limited (''FBIL''), periodically. Net depreciation, if any, within each category of each investment classification is recognised in the Profit and Loss Account. The net appreciation, if any, under each category of each investment classification is ignored. Net depreciation on each type of investment falling under the residual category of ''Others'' (i.e. mutual funds, Pass Through Certificates (PTCs), security receipts etc.) is not offset against gain in another class of investment falling within the ''Others'' category. The depreciation on securities acquired by way of conversion of outstanding loans is provided in accordance with the RBI guidelines.

Provision for depreciation on investments is classified under Schedule-14 ''Other Income''. The book value of individual securities is not changed consequent to the periodic valuation of investments.

Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost which includes discounts accreted over the period to maturity.

Units of mutual funds are valued at the latest repurchase price/Net Asset Value (''NAV'') declared by the mutual fund.

The market value of investments where current quotations are not available is determined in accordance with the following norms prescribed by the RBI:

• The market/fair value of unquoted government securities which are in the nature of Statutory Liquidity Ratio (''SLR'') securities forming part of AFS and HFT categories is computed as per the rates published by FIMMDA / FBIL.

• In case of special bonds issued by the Government of India that do not qualify for SLR purposes, unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to maturity (''YTM'') for Government Securities as published by FIMMDA/ FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk markup for each category and credit ratings along with residual maturity issued by FIMMDA / FBIL is adopted for this purpose.

• In the case of bonds & debentures where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with the prudential norms for provisioning as prescribed by the RBI.

• Equity shares, for which current quotations are not available or where the shares are not quoted on the stock

exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from

the company''s latest Balance Sheet (not older than 18 months). In case the latest Balance Sheet is not available, the shares are valued at H1 per company.

• Investments in Security Receipts (SRs.) are valued as per the NAV declared by the issuing Asset Reconstruction Company (''ARC'') or net book value of loans transferred or estimated recoverable value based on Bank''s internal assessment on case-to-case basis, whichever is lower. In case of investments in SRs. which are backed by more than 10% of the stressed assets sold by the Bank, the valuation of such SRs. is additionally subject to a floor of face value of the SRs. reduced by the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continued in the books of the Bank.

• Where the sale of a stressed asset results in a consideration lower than the value of the stressed assets net of

provisions carried there against, the shortfall is debited to the Profit & Loss account. Where such a sale results

in consideration higher than the value of the stressed assets net of provisions carried there against, the excess is netted off against the cost of corresponding SRs. to arrive at their Book Value.

• SRs. issued by Asset Reconstruction Companies (''ARC'') are valued at Net Asset Value (''NAV'') declared by the ARC except in respect of stressed assets which are sold on or after April 1,2018 and the Bank holds more than 90% of SRs. backed by its sold assets. The provision held against the Book Value of these SRs. is higher of provision required in terms of NAV declared by the ARC and provisioning applicable to the underlying loans, assuming that the assets sold notionally continued in the books of the Bank.

• Units of Alternate Investment Fund (''AIF'') held under the AFS category are marked to market using the NAV provided by AIF which is determined from the latest audited financial statements. In case the audited financials are not available for a period beyond 18 months, the investments are valued at H1 per AIF.

Realised gains are recognised in the Profit and Loss Account and subsequently appropriated to the Capital Reserve Account (net of taxes and transfer to statutory reserves) in accordance with the RBI guidelines. Losses are recognised in the Profit and Loss Account. The discount if any, on the acquisition of investments in the Held to Maturity (HTM) category is accounted for as follows:

a) on interest-bearing securities, it is accounted for at the time of sale/ redemption.

b) on zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.

Investments classified under the AFS and HFT categories:

Realised gains/losses are recognised in the Profit and Loss Account.

4.2.6Short Sales

In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. Such short positions are categorised under the HFT category and netted off from investments in the Balance Sheet. These positions are marked-to-market along with the other securities under the HFT portfolio and the resultant Mark-to-Market (''MTM'') gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.

4.2.7Repurchase and reverse repurchase transactions.

Repurchase transactions (''Repos'')

Repurchase transactions in Government securities and corporate debt securities including those conducted under the Liquidity Adjustment Facility (''LAF'') and Marginal Standby Facility (''MSF'') with RBI are accounted for as collateralised borrowings. Accordingly, securities given as collateral under an agreement to repurchase them, continue to be held under the investment account and the Bank continues to accrue the coupon on the security during the repo period. Borrowing cost on such repo transactions is accounted as interest expense in "Schedule 15 - Interest Expended" in the Profit and Loss Account.

Reverse repurchase transactions (''Reverse repos'')

Reverse repurchase transactions with RBI with original maturity upto 14 days from the date of issuance, including those conducted under the Liquidity Adjustment Facility (''LAF'') and Standing Deposit Facility (''SDF''), are accounted for as collateralised lending under "Schedule 6 - Balances with RBI - in Other Accounts". Revenue on such reverse repos is accounted for as interest income under "Schedule 13 - Interest Earned - Interest on balances with Reserve Bank of India and Other Inter-bank Funds" in the Profit and Loss Account.

Reverse repos with an original maturity of more than 14 days from the date of issuance are accounted for as collateralised lending under "Schedule 9 - Advances". Revenue on such reverse repos are accounted for as interest income under "Schedule 13 - Interest Earned - Interest/discount on advances/bills" in the Profit and Loss account.

4.2.8 Non-Performing Investments

Non-performing investments are identified, and provision is made thereon as per the RBI guidelines. Provision for depreciation on such non-performing investments is not set off against the appreciation in respect of other performing securities as per RBI guidelines. Interest on non-performing investments is not recognized in the Profit and Loss Account until received.

The Bank also classifies an investment as a non-performing investment in case any credit facility availed by the same borrower/entity has been classified as a non-performing asset and vice versa. The above is applied to Preference Shares where the fixed dividend is not paid.

The investments in debentures/ bonds, which are deemed to be an advance, are also subjected to NPI norms as applicable to investments.

4.3. REVENUE RECOGNITION

Interest income is recognised on an accrual basis in accordance with AS-9, Revenue Recognition as notified under Section 133 of the Companies Act, 2013 read together with the Companies (Accounts) Rules, 2014, the Companies (Accounting Standards) Rules, 2021 and the RBI guidelines, except in the case of interest income on non-performing assets where it is recognised on receipt basis as per the income recognition and asset classification norms of RBI. Income on non-coupon-bearing discounted instruments or low coupon-bearing instruments is recognised over the tenor of the instrument on a constant yield basis.

Commission on Guarantees/Letters of Credit, Processing Fees and rent on safe deposit lockers are accounted for on a receipt basis. Other fees and commission income are recognised when due, where the Bank is reasonably certain of ultimate collection.

Dividend income is accounted for on an accrual basis when the right to receive the dividend is established. Gain/loss on selling down of loans and advances through direct assignment is recognised at the time of sale.

Recoveries in the non performing advances are appropriated as under:

a) In the case of Term Loan/DPN, recoveries are appropriated towards principal, interest and charges in order of demand.

b) In the case of non performing Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest.

c) In the case of One-Time settlement (OTS) accounts the recoveries are first adjusted to the principal balance and then towards interest and charges

d) In the case of suit-filed accounts, related legal and other expenses incurred are charged to the Profit and Loss Account net of recovery.

Profit or Loss on sale of investments is recognised in the Profit and Loss Account. However, the profit on the sale of investments in the "Held to Maturity" category is appropriated to Capital Reserve (net of applicable taxes and the amount required to be transferred to the Statutory Reserve account) in accordance with the RBI guidelines.

Interest on income-tax refund is recognised based on the refund intimation/order received under the provisions of the Income Tax Act, 1961 from time to time.

In accordance with RBI guidelines on the sale of non-performing advances, if the sale is at a price below the net book value (i.e. book value less provisions held), the shortfall is charged to the Profit and Loss Account. If the sale is for a value higher than the net book value, the excess provision is credited to the Profit and Loss Account in the year the amounts are received.

4.4. FOREIGN CURRENCY TRANSACTIONS Initial Recognition

Foreign currency transactions are recorded 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 the transaction.

Conversion

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements, and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as notified by the Foreign Exchange Dealers Association of India (''FEDAI'') / Financial Benchmarks India Private Limited (FBIL) and the resulting profit and loss is recognised in the Profit and Loss account, as per the guidelines issued by RBI.

Exchange Differences

Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value, or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.

Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI/FBIL and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognised in the Profit and Loss Account in accordance with the RBI/FEDAI guidelines.

Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.

4.5. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India''s guidelines.

Derivative deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and income /expenditure is accounted on accrual basis.

4.6. FIXED ASSETS, DEPRECIATION, REVALUATION AND IMPAIRMENT

Fixed assets (except premises revalued) are carried at the cost of acquisition less accumulated depreciation and impairment, if any. Cost includes initial handling and delivery charges, duties, taxes, and incidental expenses related to the acquisition and installation of the asset. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future economic benefit / functioning capability from / of such assets.

The portfolio of immovable properties is revalued periodically by an independent valuer to reflect the current market valuation. All land and buildings owned by the Bank and used as branches, offices and employee''s residential quarters are grouped under "Land and Building" in the fixed assets category. Appreciation, if any, on revaluation is credited to the Revaluation Reserve. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Revenue Reserves.

Computer Software is capitalised along with computer hardware and included under other fixed assets.

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

Depreciation is provided over the estimated useful life of a fixed asset on a straight-line method from the date of addition. The Management believes that depreciation rates currently used, fairly reflect its estimate of the useful lives and residual values of fixed assets based on the historical experience of the Bank, though these rates in certain cases are different from those prescribed under Schedule II of the Companies Act, 2013. Whenever there is a revision of the estimated useful life of an asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset.

Where during any financial year, an addition has been made to any asset or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such asset is calculated on pro rata basis from the date of such addition or as the case maybe, up to the date on which such asset has been sold, discarded, demolished or destroyed.

Gain or losses arising from the retirement or disposal of fixed assets are determined as the difference between the net disposal proceeds and the carrying amount of assets and are recognised as income or expense in the Profit and Loss Account. Further, profit on sale of premises is appropriated to the Capital Reserve Account (net of taxes and transfer to Statutory Reserve) in accordance with RBI instructions.

The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.

4.7. EMPLOYEE BENEFITS

Short-term employee benefits

Short-term employee benefits comprise salaries and other compensations payable for services which the employee has rendered during the period. These are recognized at the undiscounted amount in the Profit and Loss Account.

Provident Fund

Contributions made by the Bank to the Provident Fund and Contributory Pension Scheme in the form of retirement benefits are charged to the Profit and Loss account. There is no other obligation other than the contribution payable to the fund. Shortterm employee benefits are accounted for on an actual basis.

Gratuity

The Bank contributes towards the Gratuity Fund "Karnataka Bank Employees'' Gratuity Fund" (Defined Retirement Benefit Scheme) administered by a Trust formed for the benefits to eligible employees on the Bank''s instruction. Under this Scheme, the settlement obligations remain with the Bank. The Gratuity payable to vested employees on termination of employment is determined based on the respective employee''s salary & number of years of employment with the Bank. The liability with regard to the Gratuity is recognised on the basis of actuarial valuation conducted by an independent actuary using the Projected Unit Credit Method as at 31^st March every year based on certain assumptions regarding Discount rate, Salary Escalation, mortality and employee attrition. Actuarial gain/loss is immediately recognized in the Profit and Loss Account of the Bank and is not deferred.

Pension

The Bank makes contribution towards the Pension obligation (Defined Retirement Benefit Scheme) to a separate Trust formed for the purpose of management of the Fund, which determines the pension payable to the eligible employee based on the Industry-wide Pension Scheme. The Trust has purchased a Group Superannuation Policy from LIC of India for payment of pension. However, the ultimate obligation of payment of pension remains with the Bank. The liability with regard to the Pension is recognised on the basis of actuarial valuation conducted by an independent actuary using the Projected Unit Credit Method as at 31^st March every year based on certain assumptions regarding Discount rate, Salary Escalation, mortality and employee attrition. Actuarial gain/loss is immediately recognized in the Profit and Loss Account of the Bank and is not deferred.

National Pension Scheme (''NPS'')

In respect of employees who have joined the Bank on or after 1^st April 2010, the Bank contributes prescribed percentage of the Basic pay and dearness allowance of such employees (defined contribution plan), which is managed and administered by pension fund management companies. NPS contributions are recognised in the Profit and Loss Account in the period in which they accrue.

4.8. TAXATION

Tax expenses comprise current and deferred taxes. Current income tax is measured as the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961, considering the material principles set out in the Income Computation and Disclosure Standards (ICDS) to the extent applicable, rules framed thereunder and after due consideration of the judicial pronouncement and legal opinions. Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of change.

Deferred tax assets and liabilities are recognised for future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards.

Deferred tax is recognized subject to consideration of prudence on timing difference being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent period. In the event of unabsorbed depreciation and carry forward losses and items relating to capital losses, deferred tax assets are recognized only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available to realize such assets. In other situations, deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realize these assets.

Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off.

Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted.

4.9. SHARE ISSUE EXPENSES

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

4.10. EARNINGS PER SHARE

The Bank reports basic and diluted earnings per share in accordance with AS-20, Earnings per Share, as notified under Section 133 of the Companies Act, 2013 read together with the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Rules, 2021. Basic earnings per share is computed by dividing the net profit after tax by the 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 is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year-end except where the results are anti-dilutive.

4.11. EMPLOYEE STOCK/UNIT OPTION SCHEME

In accordance with the SEBI (Share Based Employee Benefits) Regulations, 2021 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants of India (''ICAO, the cost of equity-settled transactions is measured using intrinsic value method for all options granted on or before 31 March 2021.

RBI vide its clarification dated 30^th August 2021, circular reference no. RBI/2021-22/95 DOR.GOV.REC.44/29.67.001/2021-22 on Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function Staff, advised Banks that fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments. For Employee Stock options granted after March 31, 2021, to Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function Staff and employees of the Bank, as per the extant guidelines of RBI, follows the fair value method and recognises the fair value of such option as on the date of grant computed using the Black-Scholes model without reducing estimated forfeitures, as compensation expense over the vesting period.

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Mar 31, 2023

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN PREPARING THE FINANCIAL STATEMENTS

GENERAL

The Karnataka Bank Limited incorporated at Mangaluru in India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking and financial services involving retail, corporate banking and para-banking activities in addition to treasury and foreign exchange business.

BASIS OF PREPARATION

The accompanying Financial Statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949, following the going concern concept, on historical cost basis and accrual basis of accounting unless otherwise stated, conforming to the Generally Accepted Accounting Principles (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act, 2013 and Companies (Accounting Standards) Rules, 2021 to the extent applicable and practices generally prevalent in the Banking industry in India.

USE OF ESTIMATES

The preparation of the financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities including contingent liabilities as of the date of the financial statements and the reported income and expenses during the reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision in the accounting estimates is recognised prospectively in the current and future periods.

SIGNIFICANT ACCOUNTING POLICIES

1. REVENUE RECOGNITION

Revenue is recognised on accrual basis, except otherwise stated.

Interest and discount on performing advances and investments is accounted for on accrual basis. Income on discounted instruments is recognised over the tenor of the instrument on a Constant Yield to Maturity method. Interest and discount income is recognised in the Profit and Loss account on realisation basis for the following: i. Income from Non-Performing Assets (NPAs) including investments as per the RBI prudential norms on Income Recognition and Asset Classification.

ii. Income on Rupee derivatives designated as "Trading".

Commission on Guarantees/Letter of Credit, Funded Interest on Term Loan, Processing Fees, Rent on safe deposit lockers and other fees and incomes are accounted on receipt basis.

Commission on para banking business is accounted on accrual basis.

Dividend Income is recognised when right to receive the dividend is established.

Recoveries in the non performing advances are appropriated as under:

a) In case of Term Loan/DPN, recoveries are appropriated towards principal, interest and charges in order of demand.

b) In case of Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest.

c) In case of One Time Settlement (OTS) accounts the recoveries are first adjusted to principal balance.

d) In case of suit filed accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

e) Recoveries from advances written-off are recognised in the Profit and Loss account under other income and recovery of Unrealised Interest under Income Interest on Loans & Advances.

Profit or Loss on sale of investments is recognised in the Profit and Loss Account. However, the profit on sale of investments in the "Held to Maturity" category is appropriated (net of applicable taxes and amount required to be transferred to Statutory Reserve account) in accordance with the RBI guidelines.

I nterest on income tax refund is recognised based on the refund intimation / order received under the provisions of the Income tax Act, 1961 from time to time.

2. INVESTMENTS2.1 Classification:

Investments are classified under the heads "Held to Maturity", "Available for Sale" and "Held for Trading" categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet. For the purposes of disclosure in the Balance Sheet, they are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries and/or joint ventures and Other Investments.

2.2 Basis of Classification:

Investments that are held principally for resale within 90 days from the date of purchase are classified as HFT securities.

Investments which the Bank intends to hold till maturity are classified as HTM securities.

Investments which are not classified in the above categories are classified as AFS securities.

Investments in subsidiaries and joint ventures are classified as HTM except in respect of those investments which are acquired and held exclusively with a view to its subsequent disposal. These investments are classified as AFS. An investment is classified as HTM, HFT or AFS at the time of its purchase and subsequent shifting amongst categories is done in conformity with regulatory guidelines.

2.3 Acquisition Cost:

Cost of investments is computed based on the weighted average cost method. Cost including brokerage, commission pertaining to investments, paid at the time of acquisition, is charged to the Profit and Loss Account. Broken period interest is charged to the Profit and Loss Account.

2.4 Valuation:

Held to Maturity:

These are carried at their acquisition cost and are not marked to market. Any premium on acquisition is amortised over the remaining maturity period of the security on a straight-line basis. Provision is recognised for diminution other than temporary in the value of such investments for each investment individually.

Non-performing investments are identified and provision is recognised as per the RBI guidelines.

Held for Trading and Available for Sale categories:

Investments classified under HFT and AFS are marked to market as per the RBI guidelines. These securities are valued scrip-wise and any resultant depreciation or appreciation is aggregated for each category. The net depreciation for each category within each group is provided for, whereas the net appreciation for each category is ignored. The book value of individual securities is not changed consequent to periodic valuation of investments. Traded investments are valued based on the trades / quotes from the recognised stock exchanges, prices declared by Primary Dealers Association of India (''PDAI'') jointly with Fixed Income Money Market and Derivatives Association (''FIMMDA'')/Financial Benchmark India Private Limited (''FBIL''), periodically.

The market value of unquoted government securities which qualify for determining the Statutory Liquidity Ratio (''SLR'') included in the AFS and HFT categories is computed as per the Yield-to-Maturity (''YTM'') rates published by FIMMDA/FBIL.

The valuation of other unquoted fixed income securities (viz. State government securities, Other approved securities, Bonds and debentures, Pass through Certificates) wherever linked to the YTM rates, is computed with a mark-up (reflecting associated credit and liquidity risk) over the YTM rates for government securities with similar maturity, published by FIMMDA/FBIL. Unquoted equity shares are valued at the break-up value, if the latest Balance Sheet is available or at '' 1 as per the RBI guidelines. Units of mutual funds are valued at the latest repurchase price / net asset value declared by the mutual fund. Treasury bills, commercial papers and certificate of deposits, being discounted instruments, are valued at carrying cost.

Units of Alternate Investment Fund (''AIF'') held under AFS category are marked to market based on the NAV provided by AIF based on the latest audited financial statements. In case the audited financials are not available for a period beyond 18 months, the investments are valued at '' 1 per AIF.

In the event provisions recognised on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year, such excess is recognised in the Profit and Loss Account and subsequently appropriated, from profit available for appropriation, if any, to Investment Reserve Account in accordance with the RBI guidelines after adjusting for income tax and appropriation to Statutory Reserve.

2.5 Security Receipts (SR):

Where sale of stressed asset results in a consideration lower than the value of the stressed assets net of provisions carried there against, the shortfall is debited to Profit & Loss account. Where such sale results in consideration higher than the value of the stressed assets net of provisions carried there against, the excess is netted off against the cost of corresponding SRs to arrive at their Book Value.

SRs issued by Asset Reconstruction Companies (''ARC'') are valued at Net Asset Value (''NAV'') declared by the ARC except in respect of stressed assets which are sold on or after Apr 1, 2018 and the Bank holds more than 90% of SRs backed by its sold assets, the provision held against the Book Value of these SRs is higher of provision required in terms of NAV declared by the ARC and provisioning applicable to the underlying loans, assuming that the assets sold notionally continued in the books of the Bank.

2.6 Disposal of Investments:

Profit/Loss on sale of investment under the aforesaid three categories is recognised in the Profit and Loss Account. In accordance with the guidelines issued by the Reserve Bank of India, Profit on sale of investments in the Held to Maturity (HTM) category is appropriated to Capital Reserve, net of applicable taxes and amount required to be transferred to Statutory Reserve. The discount if any, on acquisition of investments in Held to Maturity (HTM) category is accounted as follows:

a. on interest bearing securities, it is accounted for at the time of sale/ redemption.

b. on zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.

2.7 Repo and reverse repo transactions:

Repo and reverse repo transactions are accounted for as secured borrowing/ lending transactions respectively. Borrowing cost on repo transactions is treated as interest expense and income on reverse repo transactions is treated as interest income.

2.8 Short Sale

In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reflected in ''Securities Short Sold (''SSS'') A/c'', specifically created for

this purpose. Such short positions are categorised under HFT category and netted off from investments in the Balance Sheet. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier.

2.9 Non Performing Investments

a. Interest/ instalment (including maturity proceeds) is due and remains unpaid for more than 90 days.

b. I n the case of equity shares, in the event the investment in shares of any company is valued at '' 1 per company on account of non-availability of the latest balance sheet, those equity shares would be reckoned as NPI.

c. The Bank also classifies an investment as a non-performing investment in case any credit facility availed by the same borrower/entity has been classified as a non-performing asset and vice versa. The above is applied to Preference Shares where the fixed dividend is not paid.

d. The investments in debentures/ bonds, which are deemed to be advance, are also subjected to NPI norms as applicable to investments.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India''s guidelines.

Derivative deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and income /expenditure is accounted on accrual basis.

4. ADVANCES

4.1 Classification

Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances, unrealised interest and claims received from Guarantee corporations. etc. Advances are net of bills rediscounted, Interbank participation with risk, provisions for non- performing advances, floating provisions, unrealised fees and unrealised interest held in suspense account. Credit facility/investment are classified as performing and nonperforming asset as per applicable RBI guidelines.

4.2 Provisioning

Provision for non-performing advances (''NPAs'') comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines which prescribe minimum provision levels and encourage banks to make a higher provision based on sound commercial judgement.

In case of restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI as applicable.

In case of financial assets sold to Securitisation/Reconstruction Company, if the sale is for the price higher than the net book value, excess provision held is not reversed but retained till redemption of the security receipt, wherever applicable. If the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account, as per the RBI Guidelines.

5. FIXED ASSETS

Fixed assets are stated at historical cost (except premises revalued based on values determined by the approved valuers) less accumulated depreciation and impairment, if any. Cost includes incidental expenditure incurred on the assets before they are ready for intended use and taxes and duties to the extent not eligible for input credits if any. Profit on sale of immovable properties are transferred to the Capital Reserves after adjusting for income tax and appropriation to Statutory Reserve.

Computer Software is capitalised along with computer hardware and included under other fixed assets.

6. REVALUATION OF FIXED ASSETS

Portfolio of immovable properties is revalued periodically by an independent valuer to reflect current market valuation. All land and building owned by the Bank and used as branches or offices are grouped under "Land and Building" in the fixed assets category. Appreciation, if any, on revaluation is credited to Revaluation Reserve under Capital Reserves. Additional Depreciation on the revalued asset is charged to the Profit and Loss Account and appropriated from the Revaluation Reserves to Revenue Reserves.

7. DEPRECIATION

Depreciation on fixed assets (including revalued portion thereon) is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act, 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per the RBI guidelines.

Where during any financial year, addition has been made to any asset or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such asset is calculated on pro rata basis from the date of such addition or as the case maybe, up to the date on which such asset has been sold, discarded, demolished or destroyed.

Premium paid on leasehold properties is charged off over the lease period. Depreciation on leased assets is calculated so as to spread the depreciable amount over the primary lease period.

8. IMPAIRMENT OF ASSETS

The carrying amount of assets is reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. In case of indicators of impairment, an impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset''s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. After impairment, depreciation is provided on the revised carrying amount of the asset over remaining useful life.

9. FOREIGN CURRENCY TRANSACTIONS

9.1 Initial Recognition

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

9.2 Conversion

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as notified by the Foreign Exchange Dealers Association of India (''FEDAI'') and the resulting profit and loss is recognised in the Profit and Loss account, as per the guidelines issued by RBI.

9.3 Exchange Differences

Exchange difference arising on settlement of monetary items is recognised as income or as expense in the year in which it arises. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction and non-monetary items which are carried at fair value or other similar valuations denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.

Foreign exchange forward contracts not intended for trading that are entered into to establish the amount of reporting currency required or available at the settlement date of transactions, which are outstanding at the Balance Sheet date are effectively valued at the closing spot rate. The premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.

9.4 Outstanding forward exchange contracts are revalued at the Balance Sheet date at the rates notified by FEDAI and at interpolated rates for contracts of interim maturities. The resultant gain/loss on revaluation is recognised in the Profit and Loss Account in accordance with the RBI/FEDAI guidelines.

9.5 Forward exchange contracts and other derivative contracts which have overdue receivables remaining unpaid over 90 days or more are classified as non-performing assets and provided for as per the extant master circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning issued by the RBI.

10. EMPLOYEE BENEFITS

10.1 Defined Benefit Plan

Liability towards Gratuity, Pension, Sick Leave and En-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date. Gratutity is funded with the Gratuity Trust duly registered under the provisions of Income Tax Act, 1961. The actuarial gains/losses are recognised as per the Accounting Standard 15.

10.2 Defined Contribution Scheme

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme in the form of retirement benefits are charged to the Profit and Loss account. There is no other obligation other than the contribution payable to the fund.

Short term employee benefits are accounted for on actual basis.

11. EMPLOYEE SHARE BASED PAYMENTS

In accordance with the SEBI (Share Based Employee Benefits) Regulations, 2021 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants of India (''ICAI''), the cost of equity-settled transactions is measured using intrinsic value method for all options granted on or before 31 March 2021.

RBI vide its clarification dated 30th August, 2021, circular reference no. RBI/2021-22/95 DOR.GOV. REC.44/29.67.001/2021-22 on Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function Staff, advised Banks that fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments. For options granted after March 31,2021, the Bank follows the fair value method and recognise the fair value of such option computed using the Black-Scholes model without reducing estimated forfeitures, as compensation expense over the vesting period.

12. SEGMENT REPORTING

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations and revenues /expenses allocated in accordance with the RBI guideline. Further, ''Digital Banking'' has been identified as a Sub-segment under Retail Banking as required in extant guidelines of the Reserve Bank of India (RBI)

Geographical Segment consists only of Domestic Segment since the Bank does not have any foreign branches.

13. EARNINGS PER SHARE

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

Diluted Earnings per share are computed by dividing the net profit or loss for the year attributable to the equity shareholders using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end.

14. TAXATION

Tax expenses comprise current and deferred taxes. Current income tax is measured as the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961, rules framed thereunder and after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of change.

Deferred tax assets and liabilities are recognised for future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards.

Deferred tax is recognized subject to consideration of prudence on timing difference being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent period. In the event of unabsorbed depreciation and carry forward losses and items relating to capital losses, deferred tax assets are recognized only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available to realize such assets. In other situations, deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available to realize these assets.

Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set off.

Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted.

15. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements.

Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and endorsements denominated in foreign currencies and outstanding as at the Balance Sheet date are translated at year end rates notified by the FEDAI.

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

16. NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, (v) Depreciation on Investments and (vi) other necessary and applicable provisions.

17. LEASES

Leases where the Lessor effectively retains substantially all risks and benefits of ownership of the leased item are classified as operating leases. Operating lease payments are recognised on SLM basis as an expense in the Profit and Loss Account over the lease term in accordance with AS-19.

18. ACCOUNTING FOR DIVIDEND DECLARED / PAID

The Bank is not required to provide for dividend proposed/ declared after the balance sheet date. The same shall be appropriated from next year from amount available for appropriation.

19. CASH AND CASH EQUIVALENT

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

20. CORPORATE SOCIAL RESPONSIBILITY

Expenditure towards corporate social responsibility, in accordance with the Companies Act, 2013, are recognised in the Profit and Loss account.

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Mar 31, 2022

GENERAL

The Karnataka Bank Limited incorporated at Mangaluru in India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking & financial services involving retail, corporate banking and para-banking activities in addition to treasury and foreign exchange business.

BASIS OF PREPARATION

The accompanying Financial Statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949, following the going concern concept, on historical cost basis and accrual basis of accounting unless otherwise stated, conforming to the Generally Accepted Accounting Principles(GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the Banking industry in India.

USE OF ESTIMATES

The preparation of the financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities including contingent liabilities as of the date of the financial statements and the reported income and expenses during the reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision in the accounting estimates is recognised prospectively in the current and future periods.

SIGNIFICANT ACCOUNTING POLICIES1. REVENUE RECOGNITION

Interest and discount on performing advances and investments is accounted for on accrual basis. Income on discounted instruments is recognised over the tenor of the instrument on a Constant Yield to Maturity method.

Interest and discount on non performing advances and investments is accounted on realisation as per the RBI prudential norms on Income Recognition and Asset classification.

Commission on para banking business is accounted on accrual basis. Commission on Guarantees/Letter of Credit, Funded Interest on Term Loan, Processing Fees, Rent on safe deposit lockers and other fees and incomes are accounted on receipt basis.

Dividend Income is recognised when right to receive the dividend is established.

Recoveries in the non performing advances are appropriated as under:

a) In case of Term Loan/DPN, recoveries are appropriated towards principal, interest and charges in order of demand.

b) In case of Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest.

c) In case of One Time settlement (OTS) accounts the recoveries are first adjusted to principal balance.

d) In case of suit filed accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

e) Recoveries from advances written-off are recognised in the Profit and Loss account under other income and recovery of Unrealised Interest under Income Interest on Loans & Advances.

Profit or Loss on sale of investments is recognised in the Profit and Loss Account. However, the profit on sale of investments in the "Held to Maturity” category is appropriated (net of applicable taxes and amount required to be transferred to Statutory Reserve account) in accordance with the RBI guidelines.

Interest on income tax refund is recognised based on the refund intimation / order received under the provisions of the Income tax Act 1961 from time to time.

2. INVESTMENTS

Investments are classified under the heads "Held to Maturity”, "Available for Sale” and "Held for Trading” categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under "Held to Maturity” category is amortised over the remaining period to maturity.

Transfers of scrip, if any, from one category to another, are done at the lower of the book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines. In respect of Non performing Non SLR debt instruments the bank makes provisions as per RBI prudential norms on Income Recognition and Classification as applicable to advances.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India''s guidelines.

Derivative deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and income /expenditure is accounted on accrual basis.

4. ADVANCES

a) Advances are classified into (a) Standard; (b) SubStandard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances, unrealised interest and claims received from Guarantee corporations. etc.

Provisions are made in accordance with the prudential norms as prescribed by Reserve Bank of India from time to time.

b) In case of financial assets sold to Securitisation/ Reconstruction Company, if the sale is for the price higher than the net book value, excess provision held is not reversed but retained till redemption of the security receipt, wherever applicable. If the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account, as per the RBI Guidelines.

c) For restructured / rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires diminution in the fair value of assets to be provided at the time of restructuring. Restructured accounts are classified in accordance with the RBI guidelines, including special dispensation wherever allowed.

5. FIXED ASSETS

Fixed assets are stated at cost (except premises revalued based on values determined by the approved valuers) less accumulated depreciation and impairment, if any. Cost includes incidental expenditure incurred on the assets before they are ready for intended use and Taxes and duties to the extent not eligible for input credits if any. Appreciation on account of revaluation is credited to the Revaluation Reserve. Depletion in value arising out of revaluation is charged to the Revaluation Reserve.

Computer Software is capitalised along with computer hardware and included under other fixed assets.

Carrying amount of fixed assets is reviewed at each balance sheet date for indication of impairment. Impairment loss if any, is recognised in the Profit and Loss Account to the extent the carrying amount of an asset exceeds its estimated recoverable value.

6. DEPRECIATION

Depreciation on fixed assets (including revalued portion thereon) is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act, 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per the RBI guidelines.

Where during any financial year, addition has been made to any asset or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such asset is calculated on pro rata basis from the date of such addition or as the case maybe, up to the date on which such asset has been sold, discarded, demolished or destroyed.

Premium paid on leasehold properties is charged off over the lease period. Depreciation on leased assets is calculated so as to spread the depreciable amount over the primary lease period.

Pursuant to Accounting Standard -10 (Revised 2016) on Property, Plant & Equipment, depreciation on Revalued portion of the fixed assets is transferred from the Revaluation Reserve to the Revenue Reserve.

7. FOREIGN CURRENCY TRANSACTIONS

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as published by the FEDAI and in accordance with Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

Gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

8. EMPLOYEE BENEFITS

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme are charged to the Profit and Loss account.

Liability towards Gratuity, Pension, Sick Leave and En-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/losses are recognised as per the Accounting Standard 15.

Short term employee benefits are accounted for on actual basis.

9. EMPLOYEE STOCK OPTION

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank except for all option granted after the accounting period ended March 31, 2021 based on fair value method.

10. SEGMENT REPORTING

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations and revenues / expenses allocated in accordance with the RBI guidelines.

Geographical Segment consists only of Domestic Segment since the Bank does not have any foreign branches.

11. EARNINGS PER SHARE

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

Diluted Earnings per share are computed by dividing the net profit or loss for the year attributable to the equity shareholders using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end.

12. TAXATION

Tax expenses comprise current and deferred taxes. Current income tax is measured as the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961, rules framed thereunder and after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of change.

Deferred tax assets and liabilities are recognised for future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards.

Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted.

13. PROVISIONS AND CONTINGENT LIABILITIES & ASSETS

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank

does not recognize a contingent liability but discloses its existence in the financial statements.

Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and endorsements denominated in foreign currencies and outstanding as at the Balance Sheet date are translated at year end rates notified by the FEDAI.

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

14. NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, (v) Depreciation on Investments and (vi) other necessary and applicable provisions.

15. CASH AND CASH EQUIVALENT

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

16. CORPORATE SOCIAL RESPONSIBILITY

Expenditure towards corporate social responsibility, in accordance with the Companies Act, 2013, are recognised in the Profit and Loss account.

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Mar 31, 2019

1. REVENUE RECOGNITION:

Interest and Discount Income on performing advances and investments is accounted for on accrual basis. Income on discounted instruments is recognised over the tenor of the instrument on a Constant Yield to Maturity method.

Interest and Discount on Non performing advances and investments is accounted on realisation as per RBI prudential norms on Income Recognition and Asset classification.

Commission on para banking business are accounted on accrual basis. Commission on Guarantees/Letter of Credit, Funded Interest on Term Loan, Processing Fees, Rent on safe deposits lockers and other fees and incomes are accounted as and when received on receipt basis.

Dividend Income is recognised when the right to receive the dividend is established.

Recoveries in the non performing advances are appropriated as under:

a) In case of Term Loan/DPN, recoveries are appropriated towards principal, interest and charges in order of demand.

b) In case of Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest.

c) In case of One Time settlement (OTS) accounts the recoveries are first adjusted to principal balance.

d) In case of suit filed accounts, related legal and other expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

e) Recoveries from advances written-off are recognised in the Profit and Loss account under other income.

Profit or Loss on sale of investments is recognised in the Profit and Loss Account. However, the profit on sale of investments in the “Held to Maturity” category is appropriated (net of applicable taxes and amount required to be transferred to capital reserve account in accordance with RBI guidelines).

Interest on income tax refund is recognised based on the refund intimation / order received under the provisions of the Income tax Act 1961 from time to time.

2. INVESTMENTS:

Investments are classified under the heads “Held to Maturity”, “Available for Sale” and “Held for Trading” categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under “Held to Maturity” category is amortised over the remaining period to maturity.

Transfers of scrip, if any, from one category to another, are done at the lower of the book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines. In respect of Non performing Non SLR debt instruments the bank makes provisions as per RBI prudential norms on Income Recognition and Classification as applicable to advances.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India’s guidelines.

Derivative deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and income /expenditure is accounted on accrual basis.

4. ADVANCES:

a) Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances, unrealised interest and claims received from Guarantee corporations. etc.

Provisions are made in accordance with the prudential norms as prescribed by Reserve Bank of India from time to time.

b) In case of financial assets sold to Securitisation/Reconstruction Company, if the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable. If the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account, as per RBI Guidelines.

c) For restructured / rescheduled assets, provision is made in accordance with the guidelines issued by RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. The restructured accounts are classified in accordance with RBI guidelines, including special dispensation wherever allowed.

5. FIXED ASSETS:

Fixed assets are stated at cost (except in the case of premises which were re-valued based on values determined by approved valuers) less accumulated depreciation and impairment, if any. The appreciation on account of revaluation is credited to Revaluation Reserve. Cost includes incidental expenditure incurred on the assets before they are ready for intended use and Taxes and duties to the extent not eligible for input credits if any.

Computer Software is capitalised along with computer hardware and included under other fixed assets.

The carrying amount of fixed assets are reviewed at each balance sheet date for indication of impairment. Impairment loss if any, is recognised in the Profit and Loss Account to the extent the carrying amount of an asset exceeds its estimated recoverable value.

6. DEPRECIATION:

Depreciation on fixed assets (including revalued portion thereon) is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act, 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per RBI guidelines.

Where during any financial year, addition has been made to any asset or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such asset is calculated on pro rata basis from the date of such addition or as the case maybe, up to the date on which such asset has been sold, discarded, demolished or destroyed.

Pursuant to Accounting Standard -10 (Revised 2016) on Property, Plant & Equipment, depreciation on Revalued portion of the fixed assets is transferred from the Revaluation Reserve to the Revenue Reserve.

7. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

8. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund including NPS and Contributory Pension Scheme are charged to the profit and loss account.

Liability towards Gratuity, Pension, Sick Leave and En-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/losses are recognised as per the Accounting Standard 15.

Short term employee benefits are accounted for on actual basis.

EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

9. SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations and revenues /expenses allocated in accordance with RBI guidelines.

Geographical Segment consists only of Domestic Segment since the Bank does not have any foreign branches.

10. EARNINGS PER SHARE:

Basic Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per share are computed by dividing the net profit or loss for the year attributable to the equity share holders using the weighted average number of equity shares and dilutive potential equity shares outstanding as at the year end.

11. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act,1961, the rules framed there under and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change.

Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards.

Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted.

12.PROVISIONS AND CONTINGENT LIABILITIES & ASSETS:

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank or a present obligation that arises from past events that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. The Bank does not recognize a contingent liability but discloses its existence in the financial statements.

Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and endorsements outstanding as at the Balance Sheet date denominated in foreign currencies are translated at year-end rates notified by FEDAI.

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

13.NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, (v) Depreciation on Investments and (vi) other necessary and applicable provisions.

14.CASH AND CASH EQUIVALENT:

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

15.CORPORATE SOCIAL RESPONSIBILITY:

Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognised in the Profit and Loss account.

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Mar 31, 2018

1. REVENUE RECOGNITION:

Income is accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange, Funded Interest Term Loan (FITL) and rent on safe deposit lockers, which are all accounted on cash basis. Recoveries made in Non-performing advances are appropriated as under:

a) In case of Term Loan/DPN the recoveries are appropriated towards the principal, interest and charges in order of demand.

b) In case of Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest.

c) In case of One Time settlement (OTS) accounts the recoveries are first adjusted to principal balance.

2. INVESTMENTS:

Investments are classified under the heads “Held to Maturity”, “Available for Sale” and “Held for Trading” categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under “Held to Maturity” category is amortised over the remaining period to maturity.

Transfers of scrip, if any, from one category to another, are done at the lowest of the acquisition cost / book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India’s guidelines.

Derivative deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and income /expenditure is accounted on accrual basis.

4. ADVANCES:

a) Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances, unrealised interest and claims received from Guarantee corporations. etc. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

b) In case of financial assets sold to Securitisation/Reconstruction Company, if the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable. If the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account, as per extant RBI Guidelines.

5. FIXED ASSETS:

Premises and other fixed assets are shown at cost/ revalued amount as reduced by depreciation written off to date. The Land and buildings are capitalized based on conveyance/letters of allotment/physical possession of the property.

Software is capitalised along with computer hardware and included under Other Fixed Assets.

6. DEPRECIATION:

Depreciation on fixed assets (including revalued portion thereon) is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act, 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per RBI guidelines.

Where during any financial year, addition has been made to any asset or where any asset has been sold, discarded, demolished or destroyed, the depreciation on such asset is calculated on prorata basis from the date of such addition or as the case maybe, upto the date on which such asset has been sold, discarded, demolished or destroyed.

Premium paid on lease hold properties is charged off over the lease period.

Depreciation on leased assets is calculated so as to spread the depreciable amount over the primary lease period.

Pursuant to Accounting Standard -10 (Revised 2016) on Property, Plant & Equipment, depreciation on Revalued portion of the fixed assets is transferred from the Revaluation Reserve to the Revenue Reserve.

Carrying amount of assets is reviewed at each balance sheet date for indication of impairment, if any, and is recognised wherever the carrying amount of an asset exceeds its recoverable value.

7. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

8. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme are charged to the profit and loss account.

Liability towards Gratuity, Pension, accumulated sick leave balances and En-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/losses are recognised as per the Accounting Standard 15.

Short term employee benefits are accounted for on actual basis.

9. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

10.SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

Geographical Segment consists only of Domestic Segment since the Bank does not have any foreign branches.

11. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted in share premium account.

12.EARNINGS PER SHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity shares outstanding as at the year end.

13.TAXATION :

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act,1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

14.PROVISIONS AND CONTINGENT LIABILITIES:

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

In case 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 is made in the financial statements under Contingent Liabilities.

15.NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, (v) Depreciation on Investments and (vi) other necessary and applicable provisions.

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Mar 31, 2017

GENERAL

The Karnataka Bank Limited incorporated at Mangaluru in India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking & financial services involving retail ,corporate banking and para-banking activities in addition to treasury and foreign exchange business.

BASIS OF PREPARATION:

The accompanying financial statements have been prepared following the going concern concept, on historical cost basis and conform to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

The preparation of the financial statements require management to make estimates and assumptions that affect 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 reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

SIGNIFICANT ACCOUNTING POLICIES

1. REVENUE RECOGNITION:

Income is accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange, Funded Interest Term Loan (FITL) and rent on safe deposit lockers, which are all accounted on cash basis. Recoveries made in Non-performing advances are appropriated as under:

a) In case of Term Loan/DPN the recoveries are appropriated towards the principal, interest and charges in order of demand.

b) In case of Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest.

c) In case of One Time Settlement (OTS) accounts the recoveries are first adjusted to principal balance.

2. INVESTMENTS:

Investments are classified under the heads “Held to Maturity”, “Available for Sale" and “Held for Trading” categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under “Held to Maturity” category is amortized over the remaining period to maturity.

Transfers of scrip, if any, from one category to another, are done at the lowest of the acquisition cost / book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India''s guidelines.

Derivatives deals for trading are marked to market and net depreciation is recognized while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and Income /expenditure is accounted on accrual basis.

4. ADVANCES:

a) Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances and unrealized interest. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

b) In case of financial assets sold to Securitization/Reconstruction Company, if the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable. If the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account, except wherein Reserve Bank of India has specifically permitted amortization of the loss on sale of advances over the subsequent periods.

5. FIXED ASSETS:

Premises and other fixed assets are shown at Cost / Revalued amount as reduced by depreciation written off to date. The land and buildings are capitalized based on conveyance/letters of allotment/physical possession of the property.

Software is capitalized along with computer hardware and included under Other Fixed Assets.

6. DEPRECIATION:

Depreciation on fixed assets is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act, 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33% as per RBI guidelines.

Where during any financial year, addition has been made to any Asset or where any Asset has been sold, discarded, demolished or destroyed, the Depreciation on such Asset is calculated on Pro rata basis from the date of such addition or as the case may be, up to the date on which such asset has been sold, discarded, demolished or destroyed.

Premium paid on lease hold properties is charged off over the lease period.

Depreciation of leased assets is calculated so as to spread the depreciable amount over the primary lease period.

Carrying amount of assets is reviewed at each balance sheet date for indication of impairment, if any, and is recognized wherever the carrying amount of an asset exceeds its recoverable value.

7. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

8. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme are charged to the Profit and Loss Account.

Contribution to the recognized Gratuity Fund, Pension Fund and encashable Leave are determined and recognized in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/losses are recognized as per the Accounting Standard 15.

Short term employee benefits are accounted for on actual basis.

9. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic Value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

10. SEGMENT REPORTING:

The Bank recognizes the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

11. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted in share premium account.

12. EARNINGS PER SHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity shares outstanding as at the year end.

13. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are not recognized unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realized.

14. PROVISIONS AND CONTINGENT LIABILITIES:

A provision is recognized when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

In case 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 is made in the financial statements under Contingent Liabilities.

15. NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured Advances, (v) Depreciation on Investments and (vi) other necessary and applicable provisions.

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Mar 31, 2015

SIGNIFICANT ACCOUNTING POLICIES

1. REVENUE RECOGNITION:

Income is accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange, Funded Interest Term Loan (FITL) and rent on safe deposit lockers, which are all accounted on cash basis. Recoveries made in Non performing advances (NPA) are appropriated towards the principal, interest and charges in the order of demand except in the case of One Time Settlement (OTS) where recoveries are first adjusted to Principal balance.

2. INVESTMENTS:

Investments are classified under the heads "Held to Maturity", "Available for Sale" and "Held for Trading" categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under "Held to Maturity" category is amortised over the remaining period to maturity.

Transfers of scrip, if any, from one category to another, are done at the lowest of the acquisition cost / book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India''s guidelines.

Derivatives deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and Income /expenditure is accounted on accrual basis.

4. ADVANCES:

Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances and unrealised interest. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

In case of financial assets sold to Securitisation/reconstruction Company, if the sale is at a price below the Net book value (NBV), the shortfall is debited to the Profit and Loss account. If the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable.

5. FIXED ASSETS:

Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date. Land and buildings are capitalized based on conveyance/letters of allotment/physical possession of the property.

Software is capitalised along with computer hardware and included under Other Fixed Assets.

6. DEPRECIATION:

Depreciation on fixed assets is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per RBI guidelines.

Where during any financial year, addition has been made to any Asset or where any Asset has been sold, discarded, demolished or destroyed, the Depreciation on such Asset is calculated on Prorata basis from the date of such Addition or as the case may be, upto the date on which such Asset has been sold, discarded, demolished or destroyed.

Premium paid on lease hold properties is charged off over the lease period.

Depreciation of leased assets is calculated so as to spread the depreciable amount over the primary lease period.

Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any and is recognized wherever the carrying amount of an asset exceeds its recoverable value.

7. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/Forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

8. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme are charged to the Profit and Loss Account.

Contribution to the recognised Gratuity Fund, Pension Fund and en-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/Losses are recognised as per the Accounting Standard 15.

Provisions for short term employee benefits are accounted for on an estimated basis.

9. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

10. SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury (b) Corporate/Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

11. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted in share premium account.

12. EARNINGS PER SHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity share outstanding as at the year end.

13. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act 1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

14. PROVISIONS AND CONTINGENT LIABILITIES:

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

In case 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 is made in the financial statements under Contingent Liabilities.

15. NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, and (v) Depreciation on Investments and other necessary and applicable provisions.

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Mar 31, 2013

1. BASIS OF PREPARATION:

The accompanying financial statements have been prepared following the going concern concept, on historical cost basis and confirm to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

2. USE OF ESTIMATES:

The preparation of the financial statements require management to make estimates and assumptions that affect 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 reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

3. REVENUE RECOGNITION:

Income and expenditure are accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange and rent on safe deposit lockers, all of which are accounted on cash basis. Recoveries made in Non-performing advances (NPAs) are appropriated towards the principal, interest and charges in the order of demand except in the case of One Time Settlement (OTS) where recoveries are first adjusted to Principal balance.

4. INVESTMENTS:

Investments are classified under the heads "Held to Maturity", "Available for Sale" and "Held for Trading" categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under "Held to Maturity" category is amortized over the remaining period to maturity.

Transfers of scrip, if any, from one category to another, are done at the lowest of the acquisition cost / book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines.

5. DERIVATIVE CONTRACTS:

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India''s guidelines.

Derivatives deals for trading are marked to market and net depreciation is recognized while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and Income /expenditure is accounted on accrual basis.

6. ADVANCES:

Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances and unrealized interest. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

In case of financial assets sold to Securitization/reconstruction Company, if the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account. If the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable.

7. FIXED ASSETS:

Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date. Land and buildings are capitalized based on conveyance/letters of allotment/physical possession of the property.

Software is capitalized along with computer hardware and included under Other Fixed Assets.

8. DEPRECIATION:

Depreciation on fixed assets is provided on Written Down Value (WDV) method as per the rates and in the manner specified under Schedule -XIV of the Companies Act 1956, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % on Straight Line Method (SLM) as per RBI guidelines, which is more than the amount required to be charged off under schedule -XIV of the Companies Act 1956.

Depreciation on assets purchased during the year is computed up to the end of the year including for the entire month in which the asset is capitalized, and on assets sold/scrapped, up to the end of the month in which it is sold/scrapped.

Premium paid on lease hold properties is charged off over the lease period.

Depreciation of leased assets is calculated so as to spread the depreciable amount over the primary lease period.

Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any and is recognized wherever the carrying amount of an asset exceeds its recoverable value.

9. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/Forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

10. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme are charged to the Profit and Loss Account.

Contribution to the recognised Gratuity Fund, Pension Fund and en-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/Losses are recognised as per the Accounting Standard 15.

Provisions for short term employee benefits are accounted for on an estimated basis.

11. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

12. SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

13. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted in share premium account.

14. EARNINGS PER SHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity share outstanding as at the year end.

15. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act 1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantially enacted at the Balance Sheet date. Deferred tax assets are not recognized unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realized.

16. PROVISIONS AND CONTINGENT LIABILITIES:

A provision is recognized when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

In case 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 is made in the financial statements under Contingent Liabilities.

17. NET PROFIT:

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) taxes, (ii) Non Reforming Assets, (iii) Standard Advances, (iv) Restructured advances, and (v) Investments and other necessary and applicable provisions.

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Mar 31, 2012

1. BASIS OF PREPARATION:

The accompanying financial statements have been prepared following the going concern concept, on historical cost basis and confirm to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

2. USE OF ESTIMATES:

The preparation of the financial statements require management to make estimates and assumptions that affect 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 reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

3. REVENUE RECOGNITION:

Income and expenditure are accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange and rent on safe deposit lockers, all of which are accounted on cash basis. Recoveries made in Non-performing advances (NPAs) are appropriated towards the principal, interest and charges in the order of demand except in the case of One Time Settlement (OTS) where recoveries are first adjusted to Principal balance.

4. INVESTMENTS:

Investments are classified under the heads "Held to Maturity", "Available for Sale" and "Held for Trading" categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet. The excess of acquisition cost over the face value of securities under "Held to Maturity" category is amortised over the remaining period to maturity. Transfers of scrip, if any, from one category to another, are done at the lowest of the acquisition cost / book value / market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for. Provisions for non-performing investments are made as per RBI guidelines.

5. DERIVATIVE CONTRACTS:

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India's guidelines. Derivatives deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored.

Derivatives used for hedging are marked to market in cases where the underlying assets / liabilities are marked to market and Income/expenditure is accounted on accrual basis.

6. ADVANCES:

Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non-performing advances and unrealised interest. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

In case of financial assets sold to Securitisation/reconstruction Company, if the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account. If the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable.

7. FIXED ASSETS:

Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date. Land and buildings are capitalized based on conveyance / letters of allotment / physical possession of the property. Software is capitalised along with computer hardware and included under Other Fixed Assets.

8. DEPRECIATION:

Depreciation on fixed assets is provided on Written Down Value (WDV) method as per the rates and in the manner specified under Schedule -XIV of the Companies Act 1956, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33% on Straight Line Method (SLM) as per RBI guidelines, which is more than the amount required to be charged off under Schedule - XIV of the Companies Act 1956. Depreciation on assets purchased during the year is computed up to the end of the year including for the entire month in which the asset is capitalised, and on assets sold / scrapped, up to the end of the month in which it is sold / scrapped. Premium paid on lease hold properties is charged off over the lease period. Depreciation of leased assets is calculated so as to spread the depreciable amount over the primary lease period. Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any and is recognized wherever the carrying amount of an asset exceeds its recoverable value.

9. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates / Forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets / liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

10. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund is charged to the Profit and Loss Account.

Contribution to the recognised Gratuity Fund, Pension Fund and en-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains / Losses are recognised as per the Accounting Standard 15.

Provisions for short term employee benefits are accounted for on an estimated basis.

11. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

12. SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

13. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted from share premium account.

14. EARNINGS PERSHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity share outstanding as at the year end.

15. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act 1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

16. PROVISIONSAND CONTINGENT LIABILITIES:

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

In case 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 is made in the financial statements under Contingent Liabilities.

17. NET PROFIT:

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, and (v) Investments and other necessary and applicable provisions.

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Mar 31, 2011

1. BASIS OF PREPARATION:

The accompanying financial statements have been prepared following the going concern concept, on historical cost basis and confirm to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

2. USE OF ESTIMATES:

The preparation of the financial statements require management to make estimates and assumptions that affect 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 reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

3. REVENUE RECOGNITION:

Income and expenditure are accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange and rent on safe deposit lockers, all of which are accounted on cash basis. Recoveries made in Non-Performing Advances (NPAs) are appropriated towards the principal, interest and charges in the order of demand except in the case of One Time Settlement (OTS) where recoveries are first adjusted to Principal balance.

4. INVESTMENTS:

Investments are classified under the heads “Held to Maturity”, “Available for Sale” and “Held for Trading” categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet. The excess of acquisition cost over the face value of securities under “Held to Maturity” category is amortised over the remaining period to maturity. Provisions for non-performing investments are made as per RBI guidelines.

5. DERIVATIVE CONTRACTS:

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of Indias guidelines.

Derivatives deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and Income /expenditure is accounted on accrual basis.

6. ADVANCES:

Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards non performing advances, unrealised interest, claims received from Credit Guarantee institutions etc. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

In case of financial assets sold to Securitisation/reconstruction Company, if the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account. If the sale is for the price higher than the net book value, excess provision held is not reversed.

7. FIXED ASSETS:

Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date. Software is capitalised along with computer and included under Other Fixed Assets.

8. DEPRECIATION:

Depreciation on fixed assets are provided on Written Down Value (WDV) method as per the rates and in the manner specified under Schedule –XIV of the Companies Act 1956, except in respect of computers (including software) where depreciation is provided at a fat rate of 33.33 % on Straight Line Method (SLM) as per RBI guidelines, which is more than the amount required to be charged off under schedule –XIV of the Companies Act 1956.

Depreciation on assets purchased during the year is computed up to the end of the year including for the entire month in which the asset is capitalised, and on assets sold/scrapped, up to the end of the month in which it is sold / scrapped.

Premium paid on lease hold properties is charged off over the lease period.

Depreciation of leased assets is calculated so as to spread the depreciable amount over the primary lease period. Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any and is recognized wherever the carrying amount of an asset exceeds its recoverable value.

9. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/Forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11. Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction. The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

10. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund is charged to the Profit and Loss Account. Contribution to the recognised Gratuity Fund, Pension Fund and en-cashable Leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/ Losses are recognised as per the Accounting Standard 15.

Provisions for short term employee benefits are accounted for on an estimated basis.

11. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

12. SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

13. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted from share premium account.

14. EARNINGS PER SHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity share outstanding as at the year end.

15. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act 1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes refect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

16. PROVISIONS AND CONTINGENT LIABILITIES:

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to refect the current best estimates.

In case 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 is made in the financial statements under Contingent Liabilities.

17. NET PROFIT:

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances and (v) Investments and other necessary and applicable provisions.

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Mar 31, 2010

1. BASIS OF PREPARATION:

The accompanying financial statements have been prepared on historical cost convention on the accrual basis of accounting, unless otherwise stated, and comply with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (RBI) from time to time and notified accounting standards by Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in banking industry in India.

2. USE OF ESTIMATES:

The preparation of the financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses along with disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. The differences if any between estimate and actual will be dealt appropriately in future periods.

3. REVENUE RECOGNITION:

Income and expenditure are accounted for on accrual basis except receipt of commission, exchange, rent on safe deposit lockers all of which are accounted on cash basis. In respect of Non Performing Assets, the bank has not recognised interest. Recoveries are appropriated towards the principal, interest and charges in the order of demand. In the case of matured Term Deposits, interest is provided at the rate of interest applicable to savings bank deposit pending renewal / discharge and the balance overdue interest is accounted for at the time of renewal.

4. INVESTMENTS:

Investments have been presently classified under the heads “Held to Maturity”, “Available for Sale” and “Held for Trading” categories and have been valued in accordance with the RBI guidelines. The value net of depreciation has been shown in the Balance Sheet. The excess of acquisition cost over the face value of securities under “Held to Maturity” is amortised over the remaining period to Maturity. Provision for non-performing investments has been made as per RBI guidelines.

5. ADVANCES:

All outstanding advances are reviewed and classified under 4 categories namely

a) Standard Assets

b) Sub-Standard Assets

c) Doubtful Assets and

d) Loss Assets

Provision for Non-performing and Standard Advances has been made on the basis of asset classification and provisioning requirement over and above the prudential norms laid down by the Reserve Bank of India. Advances shown in the Balance Sheet are net of provisions (including Floating Provision) for Non Performing Advances and unrealised interest.

6. FIXED ASSETS

Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date. Software is capitalised along with computer and included under Other Fixed Assets.

7. DEPRECIATION: Depreciation on fixed assets has been provided on written down value method as per the rates and in the manner specified under Schedule –XIV of the Companies Act 1956, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 percent as per RBI guidelines which is more than the amount required under schedule –XIV of the Companies Act 1956.Depreciation on assets purchased during the year has been computed upto the end of the year including for the entire month in which the asset was capitalised, and on assets sold/scrapped, upto the end of the month in which it is sold/scrapped. Depreciation of leased assets has been calculated so as to spread the depreciable amount over the primary lease period as per RBI guidelines. Carrying amount of assets is reviewed at each balance sheet date for indication of impairment if any. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable value.

8. FOREIGN CURRENCY TRANSACTIONS:

a) Foreign currency transactions of FCNR/EEFC/RFC accounts are re-valued at the year end closing spot rates as published by Foreign Exchange Dealers Association of India (FEDAI).

b) Transactions other than FCNR/EEFC/RFC accounts: - Foreign currency balances both under Assets and Liabilities and outstanding Forward Exchange Contracts and Swaps are evaluated at the year-end rates published by FEDAI. The resultant profit/loss is shown as Income/Loss.

The Gain or Loss on a trading forward exchange contract is computed by multiplying the forward rate available on the reporting date for the remaining maturity period of the contract, and the difference between that amount and the contracted forward amount is recognised as profit or loss for the period. Revenue items are translated at the exchange rates ruling on the dates of transactions. Contingent liabilities on account of acceptances, endorsements and other obligations including guarantees and letters of credit issued in foreign currencies are valued at the year end closing spot rates published by FEDAI.

9. STAFF BENEFITS:

Provision for payment of Gratuity and Pension are made on actuarial basis and paid to the concerned funds, Leave encashment benefit and leave fare concession payable at a future date to the employees has been accounted on accrual basis as per actuarial valuation. On the rest of the employee benefits, adhoc provisions have been made.

10. INCOME TAX :

The provision for tax for the year comprises of current tax liability and deferred tax assets and liabilities which recognise, subject to the consideration of prudence, timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

11. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted from share premium account.

12. EMPLOYEE STOCK OPTION:

The Bank has elected to use intrinsic value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

13. SEGMENT REPORTING:

(i) The Bank has recognised the Business Segment as the Primary Reporting Segment and Geographical Segment as Secondary Segment in accordance with the RBI guidelines in compliance with the Accounting Standard 17.

(ii) The Business Segment has been divided into (a) Treasury (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

(iii) The Geographical Segment consists only of the Domestic Segment, as the Bank does not have any foreign branches.

14. NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making necessary provisions for taxes, NPA, Standard Advances, and Investments without recognising unrealised interest on Non-Performing Assets as per RBI guidelines.