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HOME / MARKET TODAY / COMPANY SNAPSHOT / NotestoAccount

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Syndicate Bank NotestoAccount March 2013 
Note: *Appreciation / Reduction in rupee valuation of Investments is due to fluctuation in USD/INR rates.

Face Value of non performing FCCB's USD 0.250 Mio on which provision of USD 0.250 Mio was made as on 31-03-2013.

i) Sale and transfer to / from HTM category

The value of sales and transfers of securities to / from HTM category does not exceed 5 percent of the book value of investments held in HTM category (excluding exempted category) at the beginning of the year as per RBI guidelines.

Note: All Forward Rate Agreements and Interest Rate Swaps undertaken are against Banks to hedge Balance Sheet gaps. During the financial year, Bank has raised the Fixed Interest rate MTN fund of USD 500.00 Mio. The fixed interest rate liability was converted into Floating rates by entering into Interest Rate Swaps of matching maturity

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

(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 counter parties 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 2012 - 2013.

1.A Exchange Traded Interest Rate Derivatives Currency Futures:

The Bank undertakes proprietary trading in Currency Futures in USD/INR on the three Exchanges. There are no outstanding contracts under Currency future as at 31-03-2013.

1.B Disclosures on Risk Exposure in Derivatives a) Qualitative Disclosure

- The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board.

- The 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 Counter parties. The Bank is only undertaking proprietary trading position in Currency Futures on the Exchanges.

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

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

- During 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.

- Cross 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.

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

- Currency swaps are undertaken for non-bank counter party with ratings SYND 01 to 04 only

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

- The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counter-parties.

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

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

- The transactions with our Counter-Party 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.

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

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

- The 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.

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

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

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

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

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

- The 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.

- Premium 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 P&L account on maturity.

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

- Provision is also made for net funded country exposures, where the exposure is 1% or more of the bank's assets.

- Transactions for market making purposes are marked-to-market at fortnightly intervals and those for hedging purposes are accounted for, on accrual basis.

- Collaterals are also obtained depending on the terms of sanction.

- 89.87% of Derivatives fall under the short tenure of less than one year of remaining Maturity.

c) Country Risk Management

The Bank has analysed its net funded exposures to various countries as on 31-03-2013 and such exposures to countries is well within the stipulation of 1% of total assets of the Bank.

2. MISCELLANEOUS

a) Minimum Alternate Tax (MAT):

Provision for Income Tax for the current year of Rs. (-)441.01 crore (PY Rs. 74.64 crore) is made net off DTA / DTL and adjustment for earlier years on the basis of Minimum Alternate Tax (MAT) in accordance with Section 115JB of the Income Tax Act 1961. Considering the future profitability and taxable position of the Bank in subsequent years, the bank management has recognised MAT credit entitlement of Rs. 573.59 crore (Previous Year: NIL) as other assets (Schedule - 11) by crediting to Profit & Loss, since in the opinion of the bank management based on Tax Consultants Opinion, MAT credit can be set-off during specified period as per the provisions of the Income Tax Act 1961.

3. 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.

ii) 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

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

a) The net profit for the year includes an amount of Rs. 19.54 crore, (Rs. 13.54 Cr. Loss for the previous year) being the 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.

iv) Employee Benefits (AS 15):

In accordance with the RBI guidelines, the Bank has amortised 1/5th (Rs. 145.38 crore) of the enhanced liability of Rs. 726.90 crore from the year 2010 - 11 in respect of pension and gratuity liabilities relating to continuing employees. Accordingly, the Bank has charged Rs. 145.38 crore to the current year profit and loss account and the balance amount of Rs. 290.76 crore will be absorbed in future years.

In expectation of wage revision with effect from 1st November, 2012, Bank has made adhoc provision of Rs. 100 crore during the current year.

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

v) Related Party Disclosures (AS 18):

(A) Names of Related Parties and their relationship:

a) Subsidiary:

Syndbank Services Limited

b) Associates:

Prathama Bank

Karnataka Vikas Grameena Bank

Andhra Pragathi Grameena Bank

North Malabar Gramin Bank Gurgaon Gramin Bank

vi) Consolidated Financial Statements (AS 21):

The consolidated financial statements for the year ended 31st March 2013 have been prepared in accordance with AS 21 and on the basis of the audited financial statements of the subsidiary of the Bank, M/s. Syndbank Services Ltd.

vii) Accounting for Taxes on Income (AS 22):

The Bank has complied with the requirements of AS 22. The Net balance of DTA / DTL as on 31st March, 2013 amounting to Rs. 268.16 crore consists of the following:

viii) Impairment of Assets (AS 28):

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

c) Draw down from reserves:

The Bank has not made any draw down from the Reserves during the year.

e) 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.

International Division; Mumbai issued Letter of Comfort amounting to USD 75 Mio and also issued a letter of commitment amounting to USD 100.00 Mio (valid upto 31-12-2013) 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. 27.31 crore as on 31-03-2013.

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. 1,743.12 crore as on 31-03-2013.

The Outstanding Gross Amount of Letters of Comfort issued by our Branches as at 31-03-2013 stands at Rs. 1,770.43 crore.

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.

f) Provision Coverage Ratio:

The provision coverage ratio for the financial Year 2012-13 is 83.41%

g) Bancassurance Business:

Income from the Bancassurance Business during the year 2012 -13 is Rs. 565.09 Lakhs as against Rs. 749.33 Lakhs in the previous year.

m) OTHERS

(i) 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 at London has been revalued on a desk top basis during the year 2012 - 13 at value determined, based on the appraisal by valuer. Surplus arising on such valuation aggregating to Rs. 1.32 crore is credited to revaluation reserves. Additional depreciation aggregating to Rs. 30.93 crore on revalued domestic assets and Rs. 0.04 crore on revalued premises at London have been adjusted to the revaluation reserves.

(ii) Investments

(a) Profit on account of sale of securities from HTM category amounting to Rs. 475,01,665.15 has been taken to Profit and Loss Account and thereafter appropriated towards Capital Reserve Account.

(b) The amortization charges of Rs. 56,49,74,074.44 (previous year Rs. 58,1 7,27,342.62) 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.

(iii) Details of Bonds Issue

During the year, the Bank has issued Bonds of Rs. 1,000 crore as subordinated debts to strengthen the Tier II Capital of the Bank. The Bank has also raised USD 500 Mio through its London Branch during the financial year for funding its London Branch business.

(iv) Credit Default Swaps

During the financial year, the Bank has not traded in Credit Default Swaps.

(v) 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. Consequently the provision for depreciation on these investments is at Rs. 3.08 Crs.

(vi) 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.

(vii) Previous year figures

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

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Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000.Sharekhan Ltd.: SEBI Regn. Nos. BSE-Cash-INB011073351; F&O-INF011073351; NSE – INB/INF231073330; CD - INE231073330; MCX Stock Exchange: INB/INF-261073333; CD - INE261073330; United Stock Exchange: CD - INE271073350; DP-NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-CDSL-271-2004; PMS-INP000000662; Mutual Fund-ARN 20669;
Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080; (MCX/TCM/CORP/0425); NCDEX -00132; (NCDEX/TCM/CORP/0142);
For any complaints email at igc@sharekhan.com;

Sharekhan Financial Services Pvt. Ltd: Corporate agents for ICICI Prudential Life Insurance Company Ltd. with corporate agency License no: ICI 8419765

Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com before investing.

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