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HOME / MARKET TODAY / COMPANY SNAPSHOT / NotestoAccount

NSE BSE
102.4 +1.50(1.49%)
Last Updated on: 06 Jul 2015 15:59 Hrs
102.55 +1.55 (1.53%)
Last Updated on: 06 Jul 2015 15:58 Hrs
Syndicate Bank NotestoAccount March 2015 
1.1 Profit on account of sale of securities from HTM category amounting to Rs.4,03,96,846.21 (Previous Year Rs.2,16,26,380.00) has been taken to Profit and Loss Account and 25% of such profit net of tax of Rs.1,99,99,468 has been appropriated towards Capital Reserve Account.

1.2 The amortization charges of Rs.53,92,64,029.01 (Previous Year Rs.56,21,11,965.41) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule - 13, Interest Earned: Item II - Income on Investments as a deduction as per RBI Master Circular.

1.3 Investment in Floating Rate Notes and Foreign Currency Bonds held in London Branch are classified as Available for Sale and are valued at closing rate. Floating Rate Notes are valued based on issuers' value.

(1) Losses have been defined as the Total Credit Exposure inclusive of Current Credit Exposure and Replacement Risk (Positive MTM).

(2) Fair Value of Swaps book is the Net MTM receivable or payable on the above Swaps.

(3) Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRS) were undertaken by the Bank to hedge its own books and for managing asset and liability mismatches. Currency swap has been undertaken with customers for hedging their exposures and covered back-to-back with identical terms.

(4) These derivative transactions are entered with counterparties satisfying the criteria as prescribed by the Credit and Treasury Policies. These Board approved policies prescribe various parameters / limits to manage and monitor Credit and Market Risks.

(5) The Accounting Policy for Derivatives has been drawn-up in accordance with RBI guidelines, the details of which are presented under Schedule 17 - Significant Accounting Policies 2014 - 2015.

3.B Exchange Traded Interest Rate Derivatives

Currency Futures:

The Bank is undertaking proprietary trading in Currency Futures in USD/INR on the three Exchanges. RBI, vide AP (DIR Series) circular no. 147 dated 20th June 2014, has allowed Banks to resume Exchange Traded Currency Derivatives Trades. Earlier RBI vide their AP (DIR) Series Circular no. 07 dated 08.07.2013 had restricted Banks to not to carry out Proprietary Trading in Currency Future in Exchange Markets. There is no Outstanding Contracts under Currency future as at 31.03.2015.

3.C Disclosures on Risk Exposure in Derivatives a) Qualitative Disclosure 99The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

99The Bank is undertaking derivative transactions for hedging risks on its Balance Sheet as well as for trading / market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest rate swaps, Currency swaps and Currency Options, with bank and Non-bank Counterparties. The Bank is only undertaking proprietary trading position in Currency Futures on the Exchanges.

99Forward contracts under past performance category are booked for clients with Rating SYND 01 - SYND 04 only and on complying with RBI guidelines.

99Currency futures have no credit risk for the Bank, as the Exchanges guarantee the payment.

99During the year Bank undertook Interest Rate Swaps and FRA for hedging purpose to mitigate Interest Rate Risk in Banking Book for Liabilities at London Branch.

99Cross Currency swaps are undertaken for both principal and interest, back-to-back, thus hedging both exchange rate risk and interest rate risk without involvement of any outlays.

99Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position.

99Currency swaps are undertaken for non-bank counterparty with ratings SYND 01 to 04 only.

99The bank has set in place appropriate control system to assess the risks associated with Derivatives and MIS in place to monitor the same.

99The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counterparties.

99Credit exposures for derivative transactions are monitored on the basis of Current Credit Exposure Method (CEM).

99Credit Risk is monitored by setting up counterparty exposure limits setting country risk exposure limits and mitigating settlement risk through CCIL / CLS.

99The transactions with our Counterparty Banks and non-bank counterparty are undertaken within the limits approved by the Board. The transactions with non-bank counterparties are done on a back-to-back covered basis without assuming any market risk.

99The Bank is not having any exposure in complex derivatives nor has it any direct exposure to the sub-prime assets.

99The Bank has not crystallized and written off any account nor incurred any loss on account of undertaking derivative transactions.

99The segregation of Front Office, Mid Office and Back Office is ensured to avoid conflict of interests and to mitigate the degree of risk. The Mid Office is directly reporting to Risk Management Department at Corporate Office, Bangalore.

99ISDA agreements are executed / exchanged with every counterparty banks and non-bank clients as per RBI guidelines.

99Mid Office measures and monitors the risk arising out of trading deals independently.

99The transactions are undertaken within the overall Aggregate Gap Limits and Net Overnight Open position limits sanctioned by the Board / RBI.

99Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity.

99The transactions are separately classified as hedge or non- hedge transactions and measured at fair value.

99The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Bank assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis.

99Premium at the time of purchase, if any, is amortized over the residual period of the transaction. Profit is recognized on maturity. Discount is held in Income Received in Advance account and appropriated to Profit and Loss Account on maturity.

99Adequate provision is made for transactions undertaken for hedging purpose, which became naked resulting in mark-to market losses.

99Provision is also made for net funded country exposures, where the exposure is 1% or more of the bank's assets. 99Transactions for market making purposes are marked-to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis. 99Collaterals are also obtained depending on the terms of sanction.

9992.18% of Derivatives fall under the short tenure of less than one year of remaining Maturity.

b) Change in Policy on appropriation of recoveries in NPA Accounts:

Hitherto, the Bank was appropriating recoveries in NPA accounts first towards unrecovered charges and balance towards unrecovered interest and principal in that order. With effect from 1st April 2014, the Bank has changed its accounting policy for appropriation of recoveries in NPA accounts. Thus, recoveries in such accounts are now first appropriated towards unrecovered charges and balance towards unrecovered principal and interest in that order. The impact of this change in policy on interest income on NPA accounts for the year and on net profit for the year is not readily ascertainable. However, had the policy not been changed, the profit for the year would have been higher.

f) The Bank has changed its policy with respect to treatment of excess provision on sale of financial assets to Asset Reconstruction Company (ARC)/Securitization Company (SC) / Banks / FIs / NBFCs where the sale is at a value higher than the NBV. The excess provision was hitherto being maintained for utilization towards future shortfall/loss on account of sale of other financial assets. In accordance with RBI Circular No.DBOD.BP.BC.No.98/21.04.132/2013-14 dated 26th February, 2014, the policy has been changed and the excess provision is now reversed to the Profit & Loss Account in the year amounts are received. Had the policy not been changed, Net profit for the year would have been lower by Rs.161.60 crores and provision against sold assets would have been higher by Rs.161.60 crores and reserves would have been lower by Rs.106.67 (net of Tax).

8. TAX PROVISIONS

a) Income Tax Provision

Following its consistent policy based on the advice of its tax consultants that MAT is not applicable to the Public Sector Banks, the Bank calculated its current year tax liability and the surplus provision of Income Tax lying in the books of Rs.335 crores has been written back.

c) Deferred Tax Liability on HTM Securities:

Based on the opinion of tax consultant, the Bank considers the difference between accounting income and taxable income on account of difference in valuation of securities as permanent difference and accordingly recognition of Deferred Tax Liability of Rs.754.91 crores as at 31st March 2015 has not been considered necessary.

B. Qualitative Disclosures:

1. The main drivers for the contribution to the LCR are Excess liquid investments over the SLR requirement, the marginal standing facility(MSF) available from RBI and the facility to avail liquidity for LCR. Major outflows are the Deposits. Promotion of acceptance of Term Deposits without pre-mature option will improve the ratio over a period.

2. The LCR would undergo change due to change in the interest rate scenario, likely pick up in the credit etc.

3. High Quality Liquid Assets(HQLA) mainly consists of Cash, Excess CRR, Government securities in excess of SLR requirements, Available MSF facility, Facility to avail liquidity for LCR.

4. Mainly the funding sources are concentrated with the retail deposits, Deposits from non-financial corporate and funding from other legal entities.

5. Bank has modest derivative exposures and its contribution to the LCR is not significant. Currently potential collateral calls are not significant.

6. Major currency is INR and the LCR in other currency is not significant.

7. Investment Committee is the top level committee, comprising of Chairman and Managing Director, Executive Directors and the General Managers from significant departments like Treasury, Risk Management, Credit and Planning etc. This committee meets preferably on daily basis and as may be required depending upon the urgency. One of the major functions of the Investment committee is to review the Funds and Investment position of the Bank. The liquidity position and the projected cash inflow and the outflows will be discussed during this meeting. The degree of centralization of liquidity management is high and the communication between the group's units is high.

8. Bank does not have any other major cash inflows and outflows omitted for the purpose of LCR computation.

10. DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

The disclosures under Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) (to the extent applicable) are given below:

i) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (AS 5):

There were no material prior period income / expenditure items requiring disclosure under AS - 5.

iii) Revenue Recognition (AS 9):

As per Accounting Policy no. 8, given in Schedule - 17, Significant Accounting Policies, certain items of income are recognised on realisation basis on account of statutory requirement or on account of materiality.

iv) Effects of changes in Foreign Exchange Rate (AS 11):

a) The net profit for the year includes an amount of loss of Rs.37.98 crores {Rs.43.76 cr of Loss for the previous year} being the profit/ loss booked under difference in Exchange on account of AS-11 valuation of FX Assets & Liabilities.

b) In terms of Regulatory directives, Accounting Standard (AS 11) in respect of Forex Assets and Liabilities has been implemented to ensure a fair and true disclosure of the value of the same in the Balance Sheet.

v) Employee Benefits (AS 15):

In accordance with the RBI guidelines, the Bank has amortised 1/5th (Rs.145.38 crores) of the enhanced liability of Rs.726.90 crores from the year 2010 - 11 in respect of pension and gratuity liabilities relating to continuing employees. Accordingly, the Bank has charged remaining balance of Rs.145.38 crores to the current year Profit and Loss Account being the last year.

The Indian Banks Association has made a settlement of wage negotiation with various Officers' Associations and Workmen Unions on 23.02.2015 to settle the annual wage increase in salary and allowances @ 15% w.e.f. 01.11.2012 and accordingly, the bank is holding a total provision of Rs.520 crores as on 31.03.2015 towards wage arrears which is 15.72% of the salary and allowances. During the current year Rs.180 crores provision was made (for the quarter - nil).

A reconciliation of Opening and Closing Balances of the present value of the defined benefit obligations and the effects during the period attributable to each of the following is as under:

x) Interim Financial Reporting (AS 25):

The Bank is adopting the format prescribed by the RBI for the purpose of quarterly return of its accounts as per RBI Circular No.: DBS.ARS. No.BC. 17/08.91.001/2002-03 dated June 5, 2003.

xi) Impairment of Assets (AS 28):

In the opinion of the Management of the Bank, there is no impairment of assets of the Bank.

As permitted by Reserve Bank of India vide its circular no. RBI/2014- 15/522/DBR No. BP.BC.79/21.04.048/2014-15 dated 30.03.2015 and also pursuant to Bank's Board approved policy, the Bank has during the year utilised a sum of Rs.102.21 crores from Floating Provisions / Counter Cyclical Provisioning buffer towards specific provision for Non-Performing Assets.

i) Letters of comfort issued by the Bank

(A) Letters of Comfort issued in favour of overseas branch at LONDON by International Division, Mumbai & Branches

The Bank has given an undertaking to FSA (Financial Services Authority) of U.K. with approval from the Board of Directors / RBI, that it will make available liquidity resources at all times to its London Branch (if needed) in connection with application made for "Whole form liquidity modification" of the London Branch under the new liquidity regime of FSA U.K.

Treasury and International Banking Department, Mumbai issued Letter of Comfort amounting to USD 75.00 Mio and also issued a letter of commitment amounting to USD 100.00 Mio (valid upto 31.12.2015) with approval from the Board of Directors of the Bank.

(B) Letters of Comforts issued by our Branches for the purpose of providing Buyer's Credit facility to Corporate Clients Branches have issued Letters of Comfort on behalf of their corporate customers in favour of SyndicateBank, London Branch for providing Buyer's Credit, to the extent of Rs.65.26 crore as on 31.03.2015 ( Previous Year Rs.16.94 crores).

Letters of Comfort issued by the Branches for the purpose of providing buyers credit facility to corporate clients, in favour of various Foreign Banks and Indian Banks' Branches outside India, is Rs.5,664.91crore as on 31.03.2015 (Previous Year Rs.1,573.77 crores).

The Outstanding Gross Amount of Letters of Comfort issued by our Branches as at 31.03.2015 stands at Rs.5,730.17 crore (Previous Year Rs.1,770.43 crores).

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings / World Rankings, Securities, Collaterals and Counter Guarantees available of / from the underlying reference entities are taken into account.

j) Bancassurance Business

The total income from the Bancassurance Business during the year 2014 - 15 is Rs.1288.52 Lakhs as against Rs.1,054.95 Lakhs in the previous year. This comprises of Rs.615.71 Lakhs (PY Rs.486.78 Lakhs) from Life Insurance business and Rs.672.81 Lakhs (Rs.568.17 Lakhs) from Non Life Insurance business.

q) The disclosures relating to Securitisation is not applicable since the Bank has not sponsored any SPVs.

r) Fixed Assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained.

The bank owned premises have been revalued during the year 2011-12 (last revaluation done in the year 2006-07) at value determined based upon the appraisal by the approved valuers. Additional depreciation for the year aggregating to Rs. 28.09 crores on the revalued assets has been adjusted to the revaluation reserves.

s) Inter Branch transactions, clearing and other adjustment accounts, including with other Banks, which being an on-going process are at various stages of reconciliation. In the opinion of the management, there will not be any material impact on the financial statements arising out of such reconciliation.

Note: Rs.0.18 crore being aggregate of unclaimed overdue matured deposits as on 31.03.2015 including interest thereon are yet to be remitted to DEAF.

u) Unhedged Foreign Currency Exposure :

Unhedged foreign currency exposures of the entities are an area of concern not only for individual entity but also to the entire financial system. Entities who don't hedge their foreign currency exposures can incur significant losses due to exchange rate movements. These losses may reduce their capacity to service the loans taken from the banking system and thereby affect the health of the banking system.

I. Methodology of computation of Incremental provision on account of Unhedged Foreign Currency Exposure: For calculating the incremental provisioning and capital requirements, the following methodology is followed:

a) Ascertainment of the amount of Unhedged Foreign Currency Exposure (UFCE):

Foreign Currency Exposure (FCE) refers to the gross sum of all items on the balance sheet of the borrowers that have impact on profit and loss account due to movement in foreign exchange rates.

UFCE may exclude items which are effective hedge of each other. For this purpose, both financial hedge and natural hedge can be considered. Financial hedge is ensured normally through a derivative contract with a financial institution. Natural hedge may be considered when cash flows arising out of the operations of the company offset the risk arising out of the foreign currency exposure.

b) Estimation the extent of likely loss:

The loss to the entity in case of movement in USD-INR exchange rate is calculated using the annualised volatilities. For this purpose, largest annual volatility seen in the USD-INR rates during the period of last ten years is taken as the movement of the USD-INR rate in the adverse direction.

Likely loss = UFCE * Highest annual volatility of last ten years

c) Estimation of the risk of unhedged position

Once the loss figure is calculated, it is compared with the annual EBID as per the latest quarterly results of the constituents certified by the statutory auditors. This loss is computed as a percentage of EBID. Higher this percentage, higher will be the susceptibility of the entity to adverse exchange rate movements. Therefore, as a prudential measure, all exposures to such entities would attract incremental capital and provisioning requirements (i.e., over and above the present requirements) as under:

d) Incremental Provision

This provision is over and above the standard provision requirement. This aggregated amount of the incremental provision on account of UFCE has been provided starting with the quarter ending June- 2014. For the first year the total provision requirement can be apportioned for the four quarters.

Beginning with quarter ending June-2015, Bank shall provide the total actual incremental provision with respect to the UFCE.

Based on the available data, available financial statements and the declaration from borrowers wherever received, the Bank has estimated the liability of Rs.35 crores on Unhedged Foreign Currency Exposure of its constituents in terms of RBI circular no.DBOD no.BP.85/21.06.200/2013-14 dated January 15, 2014 and clarification vide Circular no.DBOD.NO.BP. BC.116/21.06.200/2013-14 dated 03.06.2014. Accordingly the Bank has made incremental provision for the year ended March 31, 2015 of Rs.35 crores.

(v) Previous year figures

Previous year figures have been regrouped/rearranged wherever considered necessary to conform to the current year's classification.

We, the undersigned Statutory Central Auditors of the SyndicateBank, have verified the above Cash Flow Statement of the Bank for the year ended 31.03.2015. The Statement has been prepared in accordance with the requirements of Clause 32 of the listing agreement with the Stock Exchanges and is based on and is in agreement with the corresponding Profit and Loss Account and Balance Sheet of the Bank covered by our Report.

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