Bank of Baroda - India's International Bank - Financials - Annual Report - FY 2008

Financials > Annual Report - FY 2008 - Notes to Account

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SCHEDULE -18 NOTES ON ACCOUNTS

A Disclosure in terms of RBI requirements

1. Capital

Items	Current Year		Previous Year
	Basel I	Basel II	(Basel I)
CRAR (%)	12.91%	12.94%	11.80%
CRAR - Tier I capital (%)	7.63%	7.64%	8.74%
CRAR - Tier II Capital (%)	5.28%	5.30%	3.06%
Percentage of the shareholding of the Government of India in bank	53.81%	53.81%	53.81%
Amount of subordinated debt raised as Tier-II capital (during the year)	Rs. 2704 Crores		Rs. 920 Crores

2. Investments

(Rs. in Crores)

Items	Current Year	Previous Year
(1) Value of Investments
(i) Gross Value of Investments
(a) In India	40652.49	31704.74
(b) Outside India,	3656.65	3685.72
(ii) Provisions for Depreciation
(a) In India	338.34	424.52
(b) Outside India,	100.74	22.32
(iii) Net Value of Investments
(a) In India	40314.15	31280.22
(b) Outside India,	3555.92	3663.40
2) Movement of provisions held towards depreciation on investments
(i) Opening balance	446.84	296.99
(ii) Add: Provisions made during the year	94.65	335.66
(iii) Less: Write-off / write-back of excess provisions during the year	102.41	185.81
(iv) Closing balance	439.08	446.84

2.1 Repo Transactions

(Rs. in Crores)

	Minimum outstanding during the year	Maximum outstanding during the year	Daily Average outstanding during the year	As on March 31,2008
Securities sold under repos	26.67	201.52	1.88	NIL
Securities purchased under reverse repos	93.69	500.28	7.63	NIL

Non-SLR Investment Portfolio

i) $nbsp;Issuer composition of Non SLR investments

(Rs. in Crores)

NO.	Issuer	Amount	Extent of Private Placement	Extent of �Below Investment Grade' Securities	Extent of �Unrated� Securities	Extent of �Unlisted� Securities
(1)	(2)	(3)	(4)	(5)	(6)	(7)
(i)	PSUs	1083.38	1030.16	131.13	89.70	81.39
(ii)	FIs	347.46	147.47	45.00	212.77	225.46
(iii)	Banks	1377.88	1329.70	130.77	228.50	180.20
(iv)	Private Corporate	1051.70	1132.80	108.72	2930.90	2907.69
(v)	Subsidiaries /Joint Ventures	687.37	0.00	0.00	0.00	0.00
(vi)	Others	1546.93	0.00	0.00	0.00	0.00
(vii)	Provision held towards depreciation	-287.92	xxx	xxx	xxx	xxx
	Total	5806.80	3640.13	415.62	3461.87	3394.74

ii) Non-performing Non-SLR investments

(Rs. in Crores)

Particulars	Current Year	Previous Year
Opening balance	186.00	78.52
Additions during the year since 1st April	9.39	111.70
Reductions during the above period	20.61	4.22
Closing balance	174.78	186.00
Total provisions held	173.78	92.88

2.3 Derivatives

2.3.1 Forward Rate Agreement / Interest Rate Swap

(Rs. in Crores)

	Items	Current Year	Previous Year
i)	The notional principal of swap agreements	6186.53	6935.54
ii)	Losses which would be incurred if counter parties failed to fulfill their obligations under the agreements	84.34	117.93
iii)	Collateral required by the bank upon entering into swaps	—	—
iv)	Concentration of credit risk arising from the swaps	175.11	128.98
v)	The fair value of the swap book	47.88	-63.23

Forward Rate Agreement/Interest Rate Swaps were undertaken for market making, hedging of FCNR (B) Deposit Portfolio, deposits and call lending and hedging market making exposures and for hedging Bank�s Tier II Bonds.

All the forward rate agreement/interest rate swaps undertaken to hedge were on the basis of �Receive fixed and pay floating�.

2.3.2 Exchange Traded Interest Rate Derivatives:

(Rs. in Crores)

Sr. No.	Particulars	Amount
i)	Notional principal amount of exchange traded interest rate derivatives undertaken during the year (instrument-wise)	NIL
ii)	Notional principal amount of exchange traded interest rate derivatives outstanding as on 31st March 2008 (instrument-wise)	NIL
iii)	Notional principal amount of exchange traded interest rate derivatives outstanding and not �highly effective� (instrument-wise)	NIL
iv)	Mark-to-market value of exchange traded interest rate derivatives outstanding and not �highly effective� (instrument-wise)	NIL

2.3.3 Disclosures on risk exposure in derivatives

Qualitative Disclosure

The Treasury Policy of the Bank lays down the types of financial derivative instruments, scope of usages, approval procedures and the limits like open position limits, stop loss limits and counter party exposure limits for undertaking derivative transactions.

The Bank uses financial derivative transactions for hedging its on or off balance sheet exposures as well as for market making. Basically, these products are used for hedging risk, reducing cost and increasing the yield in such transactions and for proprietary trading.

The types of risk to which the bank is exposed to are credit risk, market risk, country risk and operational risk. The Bank has risk management policies (approved by Board of Directors of the Bank), which is designed to measure the financial risks for transactions in the trading book on a regular basis, by way of MTM, VaR and PV01, and to set appropriate risk limits. These are monitored by means of reliable and upto date Management Information Systems by the Risk Management Department of the Bank from time to time who, in turn, apprises the risk profile to the Risk Management Committee of Directors which is presided over by the Bank�s Chairman and Managing Director.

The counter parties to the transactions are banks and corporate entities. The deals are done under approved exposure limits. The bank has adopted the current exposure method prescribed by Reserve Bank of India for measuring Credit Exposure on Derivative products as per which the bank sums the total replacement cost (obtained by mark to market of all its contracts with positive value i.e. when the bank has to receive money from the counter party) and an amount for potential future changes in credit exposure calculated on the basis of the total notional principal amount of the contract multiplied by the relevant credit conversion factors according to the residual maturity as detailed herein under:-

Conversion factor to be applied on notional principal amount

Residual Maturity	Interest Rate Contract	Exchange Rate Contract
Less than one year	NIL	1.0%
One year and above	0.50%	5.0%

The hedge/non-hedge (market making) transactions are recorded separately. Hedging derivatives are accounted for on an accrual basis. Trading derivative positions are markedto- market (MTM) and the resulting losses, if any, are recognized in the Profit and Loss Account. Profit, if any, is not recognized. Income and Expenditure relating to interest rate swaps are recognized on the settlement date. Gains/losses on termination of the trading swaps are recorded on the termination date as income/expenditure.

Quatitative Disclosure

(Rs. in Crores)

Sr. No.	Particulars	Currency Derivatives	Interest rate Derivatives
i)	Derivatives (Notional Principal Amount)	2382.46	6074.09
	a) For hedging	1309.74	4875.71
	b) For trading	1072.72	1198.38
ii)	Marked to Market Positions [1]	-24.26	61.95
	a) Asset (+)	3.04	102.78
	b) Liability (-)	-27.30	-40.83
iii)	Credit Exposure [2]	56.64	174.08
iv)	Likely impact of one percentage change in interest rate (100*PV01)	7.65	201.77
	a) on hedging derivatives	7.65	201.77
	b) on trading derivatives	NIL	NIL
v)	Maximum and Minimum of 100*PV01 observed during the year	9.52 & 7.54	208.41 & 96.01
	a) On hedging	9.52 & 7.54	208.41 & 96.01
	b) On trading	0.00	0.00

2.4 Asset Quality

2.4.1 Non-Performing Asset

(Rs. in Crores)

	Items	Current Year	Previous Year
i)	Net NPAs to Net Advances (%)	0.47%	0.60%
ii)	Movement of NPAs (Gross)
	(a) Opening balance	2092.14	2390.14
	(b) Additions during the year	1002.15	773.66
	(c) Reductions during the year	1112.91	1071.66
	(d) Closing balance	1981.38	2092.14
iii)	Movement of Net NPAs (net of floating provisions)
	(a) Opening balance	501.67	518.04
	(b) Additions during the year	729.75	572.80
	(c) Reductions during the year	737.87	589.17
	(d) Closing balance	493.55	501.67
iv)	Movement of provisions for NPAs ((other than floating provision and provisions on standard assets)
	(a) Opening balance	991.45	1328.07
	(b) Provisions made during the year	262.72	380.56
	(c) Write-off / write-back of excess provisions	359.95	717.18
	(d) Closing balance	894.22	991.45

2.4.2 Details of Loan Assets subjected to Restructuring

(Rs. in Crores)

	Item	Current Year	Previous Year
i)	Total amount of loan assets subjected to restructuring, rescheduling, renegotiation;	357.28	287.78
	- Of which under CDR	208.93	71.09
	- Of which under SME	33.01	40.58
ii)	The amount of Standard assets subjected to restructuring, rescheduling, renegotiation;	356.90	271.66
	- Of which under CDR	208.81	71.09
	- Of which under SME	32.75	24.68
iii)	The amount of Sub-Standard assets subjected to restructuring, rescheduling, renegotiation;	-	6.73
	- Of which under CDR	-	-
	- Of which under SME	-	6.72
iv)	The amount of Doubtful assets subjected to restructuring, rescheduling, renegotiation;	0.38	9.39
	- Of which under CDR	0.12	-
	- Of which under SME	0.26	9.18
	Note: [(i) = (ii)+(iii)+(iv)]

2.4.3 Details of financial assets sold to Securitisation / Reconstruction Company for Asset Reconstruction

(Rs. in Crores)

	Item	Current Year*	Previous Year
i)	No. of accounts	103	9
ii)	Aggregate value (net of provisions) of accounts sold to SC / RC	167.86	4.30
iii)	Aggregate consideration	269.79	28.42
iv)	Additional consideration realized in respect of accounts transferred in earlier years	—	—
v)	Aggregate gain / (loss) over net book value.	101.93	24.12

* Financial assets also includes the debts written off at corporate level.

2.4.4 Details of non-performing financial assets purchased/sold

A. Details of non-performing financial assets purchased: During The financial year bank has not purchased any non-performing assets.

B. Details of non-performing financial assets sold:

(Rs. in Crores)

Particulars	Current Year	Previous Year
No. of accounts sold	103	9
Aggregate outstanding	634.24	78.84
Aggregate consideration received	269.79	28.42

2.4.5 Provisions on Standard Asset

(Rs. in Crores)

Item	Current Year	Previous Year
Provisions towards Standard Assets as per RBI norms	504.71	393.72
Other contingent provision towards Standard Assets	68.03	48.39

2.5 Business Ratio

(Rs. in Crores)

	Items	Current Year	Previous Year
(i)	Interest Income as a percentage to Average Working Funds	7.63%	7.22%
(ii)	Non-interest income as a percentage to Average Working Funds	1.32%	1.11%
(iii)	Operating Profit as a percentage to Average Working Funds	1.96%	1.94%
(iv)	Return on Assets	0.89%	0.80%
(v)	Business (Deposits plus advances) per employee (Rs. in Lac)	710.00	555.00
(vi)	Profit per employee (Rs. in Lac)	3.94	2.73

2.6 Asset Liability Management Maturity pattern of certain items of assets and liabilities

(Rs. in Crores)

	1 day	2 to 7 days	8 to 14 days	15 to 28 days	29 days to 3 months	Over 3 months & up to 6 months	Over 6 months & up to 1 year	Over 1 year & up to 3 years	Over 3 years & up to 5 years	Over 5 years	Total
Deposits	3118.42	6370.87	5953.62	5596.44	20230.59	19036.14	31398.62	28338.33	5026.18	26964.91	152034.12
Advances	2061.38	4752.13	5845.91	4138.00	13677.85	12084.54	11982.49	19207.88	13707.25	19243.89	106701.32
Investments	28.12	32.86	578.17	957.95	1128.31	3634.63	1148.98	8730.56	5930.80	21699.69	43870.07
Borrowings	379.04	564.29	314.69	1398.47	119.19	110.36	62.40	906.15	67.52	4.94	3927.05
Foreign Currency assets	3704.06	2272.99	2810.66	5228.46	7822.10	5885.60	4013.88	3273.80	6242.36	3707.20	44961.11
Foreign Currency liabilities	3662.63	4003.68	3684.75	4227.48	9440.52	6561.85	4797.25	2995.13	3444.66	3981.02	46798.97

2.7 Lending to Sensitive Sector

2.7.1 Exposure to Real Estate Sector

Rs. in Crores

Category	Current Year	Previous Year
a) Direct exposure
(i) Residential Mortgages �
Lendings fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented;	6744.90	5414.60
Of which: Upto Rs.15 Lac	5861.64	4576.98
Above Rs.20 Lac (Prev yr Rs. 15 lacs)	883.26	837.62
(ii) Commercial Real Estate �
Lendings secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure includes non-fund based (NFB) limits;	4030.10	1968.13
(iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures �
a. Residential,	18.10	12.23
b. Commercial Real Estate.	-	142.29
b) Indirect Exposure
Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs).	2936.57	3119.57

2.7.2 Exposure to Capital Market

(Rs. in Crores)

	Items	Current Year	Previous Year
(i)	Direct Investments in equity shares, convertible bonds, convertible debentures and units of equity oriented mutual funds the corpus of which is not exclusively invested in corporate debt	769.26	553.00
(ii)	Advances against shares/bonds/debentures or other securities or on clean basis to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures and units of equity oriented mutual funds;	49.99	11.52
(iii)	Advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;	-	-
(iv)	Advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/units of equity oriented mutual funds does not fully cover the advances	-	-
(v)	Secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers	127.46	56.89
(vi)	Loans sanctioned to corporates against security of shares/bonds/debentures or other securities or on clean basis for meeting promoter�s contribution to the equity of new companies in anticipation of raising resource	-	-
(vii)	Bridge loans to companies against expected equity flows/issues	-	-
(viii)	Underwriting commitments taken up by banks in respect of primary issue of shares or convertible bonds/debentures or units of EOMF	-	-
(ix)	Financing to stockbrokers for margin trading	-	-
(x)	All exposures to venture capital funds both registered and unregistered will be deemed to be on par with equity and hence will be reckoned for compliance with the capital market exposure ceilings (both direct and indirect)	172.71	167.25
	Total Exposure to Capital Market(i+ii+iii+iv+v+vi+vii+viii+ix+x)	1119.42	788.66

The exposure to Capital Market Rs 1119.42 Crores is within the limit of Rs 3958.88 Crores (i.e. 40% of Bank�s Net Worth Rs 9897.21 Crores). The direct exposure to Capital Market is Rs 991.96 Crores and is with in 20% of the Bank�s Net Worth (Rs 1979.44 Crores)

2.7.3 Risk Category wise Country Exposure

(Rs. in Crores)

Risk Category	Exposure (net) as at 31st March 08	Provision held as at 31st March 08	Exposure (net) as at 31st March 07	Provision held as at 31st March 07
Insignificant	8412.56	-	11126.85	8.73
Low	4692.52	4.44	3062.69	2.43
Moderate Low	1180.66	-	864.84	-
Moderate	316.68	-	22.90	-
Moderate High	1322.70	-	1241.08	-
High	15.05	-	5.07	-
Very High	7.99	-	6.06	-
Total	15948.16	4.44	16329.49	11.16

2.7.4 Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the bank.

(Rs. in Crores)

Name of the borrower	Single borrower exposure limit	Total Limit sanctioned	Balance as on 31.3.2008
National Aviation Co. of India ltd.	1539.98	1817.22	1544.75
Bharat Petroleum Corporation Ltd	1539.98	1700.00	199.99
Hindustan Petroleum Corporation Ltd	1719.28	2250.00	1858.05
Indian oil Corporation Ltd	1539.98	2025.00	2025.38
Rural Electrification Corporation Ltd	1719.28	1812.49	1199.99

2.8 Miscellaneous

2.8.1 Amount of Provisions made for Income-tax during the year

(Rs. in Crores)

	Current Year	Previous Year
Provision for Income Tax	831.08	623.41
Less: Reversal of income tax provisions relating to previous years	67.33	-
Net Provision for Income Tax	763.75	623.41

2.8.2 Disclosure of penalties imposed by RBI

During the financial year 2007-08, bank is not subjected to any penalty for contraventions of the any of the provisions of the Act or non-compliance with any other requirements of the Banking Regulation Act, 1949, rules or condition specified by the Reserve Bank of India under the act.

3. SLR Investments

(Rs. in Crores)

Particulars	As on 31.3.2008		As on 31.3.2007
	Book Value	Market Value	Book Value	Market Value
Government Securities � SLR(CG,SG & TB)	33392.62	33354.64	25477.87	25034.50
Approved Securities � SLR	1165.05	1152.61	1252.62	1369.35

4. Break up of Provisions and Contingencies

4.1 The break-up of provisions and contingencies appearing in Profit & Loss Account is as under

(Rs. in Crores)

Particulars	Current Year	Previous Year
Provision for depreciation on investment	41.76	335.66
Bad Debts written off / Provision made towards NPA	435.98	227.15
Provision for standard assets	108.80	176.03
Provision for taxes (including Deferred Taxes, Fringe Benefit and Wealth tax)	771.63	627.80
Other Provision and Contingencies -
Provision towards sacrifice of interest in restructured standard and sub-standard accounts	89.90	(8.07)
Provision for Country Risk Management	-6.87	11.31
Provision for staff welfare expenses	15.00	15.00
Others	136.83	3.66
Total	1593.03	1388.54

4.2 Floating Provisions � Comprehensive Disclosures

(Rs. in Crores)

Particulars	Current Year	Previous Year
a. Opening balance in the floating provisions account	450.35	450.35
b. The quantum of floating provisions made in the accounting year	100.00	-
c. Purpose and amount of draw down made during the accounting year	-	-
d. Closing balance in the floating provisions account.	550.35	450.35

4.3 Draw Down from Reserves

During the financial year 2007-08 there is no Draw Down of the Reserves.

5. Disclosure of complaints

A Customer Complaints

(a)	No. of complaints pending at the beginning of the year	137
(b)	No. of complaints received during the year	3229
(c)	No. of complaints redressed during the year	3269
(d)	No. of complaints pending at the end of the year	97

B. Awards passed by the Banking Ombudsman

(a)	No. of unimplemented Awards at the beginning of the year	2
(b)	No. of Awards passed by the Banking Ombudsman during the year	8
(c)	No. of Awards implemented during the year	9
(d)	No. of unimplemented Awards at the end of the year*	1

*An appeal has been filed against the award of the Banking Ombudsman with appropriate authority.

6. Status of Letters of Comfort

(a) Letters of Comfort (LOC�s) issued during the Current Financial Year.

During the current financial year Bank has not issued any Letter of Comfort to meet the requirements of the overseas / domestic regulators while seeking their approval for establishing subsidiaries / opening of branches.

(b) Cumulative position of LOC�s outstanding on 31.03.2008.

Bank has no outstanding Letter of Comfort issued in favour of the foreign / domestic regulators for the purpose of establishing subsidiaries / opening of branches.

B. Disclosure in terms of Accounting Standards (AS) issued by the Institute of Chartered Accountants of India:

1. Net Profit or Loss for the Period, prior period items and changes in accounting policies (AS-5)

During the year 2007-08 the Bank paid Rs.13,12,87,000/- (Rs. Thirteen Crores Twelve Lacs Eighty Seven Thousands only) to the debit of P/L Interest earned A/c and made payment to TRUST FUND FOR EMPOWERMENT OF PERSONS WITH DISABILITIES, being excess recovery of interest tax. The Bank has also made a provision of Rs.50/- lacs (Rs. Fifty Lacs only) being the initial contribution to the Corpus Fund of the above named Trust Fund. The net profit of the bank has been affected to the extent of payments & provisions made as above. This pertains to financial year 91-92 to 96-97, the period during which the interest tax was levied. The payment & provision has been made as per the directions of Hon�ble Supreme Court in the matter of case filed by M/s Devkala Consultancy Services (P) Ltd. against The Union of India, RBI, IBA & Others.

2. Employee Benefits (AS-15)

During the year Bank has adopted the Accounting Standard ( AS-15) issued by ICAI and effective from 07.12.2006. The standard has been revised and notified on 17.12.2007. The provisions contained in AS-15 gives option to the bank, to charge the transitional liability as an expense in its Profit and Loss Account spread over a period of 5 years. Bank has exercised this option and accordingly made an incremental provision for employee benefits such as pension, gratuity, leave encashment and other retirement benefits to the extent of 1/5th of the total transitional liability which is crystallized on Actuarial valuation at Rs. 901.00 crores.

Gratuity

The Bank pays gratuity to employees who retire or resign from Bank�s service. The Bank makes contributions to an in-house trust, towards funding this gratuity, payable every year. In accordance with the gratuity fund�s rules, actuarial valuation of gratuity liability is calculated based on certain assumptions regarding rate of interest, salary growth, mortality and staff attrition as per the projected unit credit actuarial method. The investment of the funds is made according to investment pattern prescribed by the Government of India. The gratuity payable is worked out by way of 3 different schemes and the entitlement is based on what is most beneficial to employees.

Pension

Bank of Baroda pays pension, a defined benefit and deferred retirement plan covering the employees who have opted for pension and also to the employees joining the bank�s service on or after 29.9.1995. The plan provides for a pension on a monthly basis to these employees on their cessation from Bank�s service based on the respective employees salary and years of qualifying service with the Bank. Employees covered under Bank of Baroda (Employees�) Pension Regulations, 1995 are not eligible for Bank�s contribution to Provident Fund.

Pension fund is managed by in-house trustees.

Provident Fund

Bank of Baroda is statutorily required to maintain a provident fund as a part of its retirement benefits to its employees. This fund is managed by in-house trustees. Each employee contributes 10% of his or her basic salary and Bank of Baroda contributes an equal amount to the fund. The investment of the fund is made according to investment pattern prescribed by the Government of India.

Leave Encashment

An employee is entitled to encash privilege leave standing to his/her credit subject to a maximum of 240 days on the date of superannuation/Voluntary Retirement/death.However, on resignation, an employee is entitled to get encashment of 50% of the privilege leave standing to the credit subject to a maximum of 120 days.

Additional Retirement Benefit

The scheme for additional retirement benefit provides that an officer on his Retirement/ Voluntary retirement/ death shall be eligible for payment of �6- months emoluments as additional retirement benefit, provided he had completed 25 years of service in the Bank. In the same manner, award staff member on Retirement / Voluntary Retirement / Death shall be eligible for additional retirement benefit, provided he had completed �30- years of service in Bank. However, in case of dismissal, discharge, termination, compulsory retirement and resignation additional retirement benefit shall not be payable, irrespective of any number of years of service.

Principal Acturial Assumptions [Expressed as Weighted Averages]

	PENSION	LEAVE ENCASHMENT	GRATUITY	ARB
Discount rate	8%	8%	8%<