XVIII. Provisions, Contingent Liabilities and Contingent Assets

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 beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. The Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. No provision is recognized, and a disclosure of contingent liability is made when there is:

i. 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 i i. a present obligation arising from a past event which 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 expect the outcome of these contingencies to have a materially adverse effect on its financial results.

Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. If a favourable Judgement/ Order is already there in respect of disputed items of taxation, no provisions or disclosures would be made in the books, in respect of such matters. Bank do not create provision for the cases pending at first appellate authority and where there are no adverse judgements decided on such disputed matters by the High Court/Supreme Court/Jncome Tax Appellate Tribunal/ or other such Appellate Authorities.

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.

XIX. Share Issue Expenses

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

XX. Corporate Social Responsibility

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

XXI. Cash Flow

Cash flow statement has been prepared under the indirect method.

XXI. Priority Sector Lending Certificates (PSLC)

The fee paid for purchase of the PSLC would be treated as an 'Expense' and the fee received for the sale of PSLCs would be treated as 'Miscellaneous Income'.

1. DISCLOSURE REQUIREMENTS AS PER RBI'S MASTER DIRECTION ON FINANCIAL STATEMENTS - PRESENTATION AND DISCLOSURES

Amount in notes forming part of the financial statements for the year ended March 31,2024 are denominated in Rupees Crore to conform to extant RBI guidelines except, where stated otherwise.

1. CAPITAL

1.1 Capital Infusion

a) During the year ended March, 31,2024 there was no infusion of capital.

1.2 Regulatory Capital

The Bank is subject to the Basel-III Capital Regulations stipulated by Reserve Bank of India (RBI) effective from April 1, 2013. Transition to the Basel-III Capital Regulations was in a phased manner. Bank has to comply with the regulatory limits and minima as prescribed under Basel III capital regulations, on an ongoing basis.

As per the Reserve Bank of India (RBI) guidelines, the total regulatory capital consists of sum of the following;

1) Tier-1 Capital (Going Concern Capital*)

a. Common Equity Tier-1(CET-1)

b. Additional Tier-1

2) Tier-2 Capital (Gone Concern Capital**)

* From Regulatory perspective, Going Concern Capital is the Capital, which can absorb losses without triggering bankruptcy of the Bank.

** From Regulatory perspective, Gone Concern Capital is the Capital, which will absorb losses only in a situation of liquidation of the Bank.

Capital Reserve

It is the reserve created from Capital profit. Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of taxes and the amount required to be transferred to Statutory Reserves). Amount transferred to Capital Reserve during the year was '0.21Crores (Previous year Nil)

Investment Reserve (IRA)

When provisions created on account of depreciation in the 'AFS' or 'HFT' categories are found to be in excess of the required amount in any year, the excess shall be credited to the Profit & Loss Account and an equivalent amount (net of taxes, if any and net of transfer to Statutory Reserves as applicable to such excess provision) shall be appropriated to an IRA. During the year, transfer to Investment Reserve Account is '12.77 Crores (Previous year Nil).

Investment Fluctuation Reserve (IFR)

Investment fluctuation reserve (IFR) is to be created with an amount not less than lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. During the year, Bank has transferred '2.81 Crores amount (Previous year Nil) to Investment Fluctuation Reserve Account with a view to building up of adequate reserves to protect against increase in yields in future.

Draw down from reserves

The draw down from the reserves for the year ended March 31,2024 are as follows:

The Bank has not undertaken any drawdown from reserves during the years ended March 31,2024 and March 31,2023, except:

1. Nil (Previous year '10.79 Crore) is drawn from revenue reserves being the remaining unprovided amount of one fraud account as permitted by the RBI DBR No.BPBC.92/21.04.048/2015-16 dated April 18, 2016.

2. An amount of '0.74 crore (previous year '0.54 crore) draw down from revaluation reserves was made and credited to revenue reserves, being depreciation on the revalued assets.

Credit to Reserve

3. Bank credited back '10.79 Crore (Previous year Nil) drawn down from revenue and other reserves relating to unamortized amount of one fraud account as permitted by the RBI DBR No.BPBC.92/21.04.048/2015-16 dated April 18, 2016.

2. ASSET LIABILITY MANAGEMENT

a) Maturity pattern of Assets and Liabilities

Disclosure format of maturity pattern has been revised by RBI vide circular DBR.BPBC.No. 86/ 21.04.098/2015-16 dated March 23, 2016. In compiling the information of maturity pattern, estimates and assumptions have been made by the management and have been relied upon by the auditors.

ii) Qualitative Disclosure

The Bank measures and monitors the LCR in line with the Reserve Bank of India's circular dated June 09, 2014 on “Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards” as amended for “Prudential Guidelines on Capital Adequacy and Liquidity Standards” dated March 31,2015. The LCR guidelines aim to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30-calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated timelines. The maintenance of LCR, both on end of period and on an average basis, has been on account of multiple factors viz, increases in excess SLR, existing eligibility in corporate bond investments, increase in retail deposits and increase in noncallable deposits. Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows) except where otherwise mentioned in the circular and LCR template. Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows). Board of Directors of the Bank has empowered ALCO (Senior Management Executive Committee) to monitor and strategize the Balance Sheet profile of the Bank.

e) Disclosure of Divergence in the Asset Classification and Provisioning

The divergence observed by RBI for the financial years 2022-23 and 2021-22 in respect of the Bank's asset classification and provisioning under the extant prudential norms on income recognition, asset classification and provisioning are below the regulatory requirement for disclosure and hence the disclosure as required under RBI Master Direction on 'Financial Statements-Presentation and Disclosures' on 'Divergence in the asset classification and provisioning', is not required to be made.

f) Disclosure of transfer of loan exposures

During the year 2023-2024 and previous year 2022-2023:

(i) The Bank has not transferred any Non-Performing Assets (NPAs).

(ii) The Bank has not transferred any special mention accounts (SMA) & Loan not in default.

(iii) The bank has not transferred any loans in default acquired through assignment.

(iv) The Bank has not acquired any loans from SCBs, RRBs, Co-operative Banks, AIFIs, SFBs and NBFCs including Housing Finance Companies (HFCs) or ARCs.

g) Fraud Accounts

RBI vide DoS. CO. FMG. No. S332/23.04.001/2022-23 dtd.13th January, 2023 has advised all member Banks to report all the Digital Payment related Financial Fraud incidents to RBI through FMR, which includes the instances where either the credentials have been compromised by customers themselves, or no loss has been caused to the Bank. In compliance of the above, Bank has started reporting all cyber fraud incidents to RBI through FMR, from 1st January 2023 onwards.

Out of the total 421 numbers of fraud incidents reported to RBI during the year 2023-2024, 415 numbers are cyber frauds, amounting to '1.61 Crores, where frauds had happened due to the compromise of confidential customer credentials by customers themselves/customer negligence and in these cases, there is no loss to the Bank. During the FY 2023-2024, material Fraud cases of 6 numbers amounting to '4.11 crores occurred and reported, out of which in one account, full amount of '0.20 crores was recovered.

e) Factoring Exposures

Bank has no factoring Exposures

f) Intra-Group Exposures

Bank does not have any group entities.

g) Unhedged Foreign Currency Exposure

The Bank has a policy on managing credit risk arising out of foreign currency exposure of its borrowers. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. The Bank has fixed a maximum limit on unhedged position on borrowers, while sanctioning limits for all clients. The unhedged portion of foreign

currency credit exposure of large corporate/SMEs are monitored and reviewed on a monthly basis. Any sanction of fresh loans/ adhoc loans/ renewal of loans to new/ existing borrowers is done after obtaining/ sharing necessary information. The Bank also maintains incremental provision towards the unhedged foreign currency exposure of its borrowers in line with the extant RBI guidelines. The Bank has maintained a provision of ?0.96 (previous year - '0.12 crore) and no additional capital on account of unhedged foreign currency exposure of its borrowers as at March 31,2024.

c. Disclosures on risk exposure in Derivatives i) Qualitative disclosure

Structure and Organization for Management of risk in derivatives trading: Operations in the Treasury are segregated into three functional areas, namely Front office, Mid office and Back-office, equipped with necessary infrastructure and trained officers, whose responsibilities are well defined. The Bank enters into plain vanilla forward forex contracts only to backup / cover customer transactions as also for proprietary trading purpose. The Bank also enter in to foreign exchange swaps with other banks for hedging own balance sheet items like FCNR/ EEFC etc. The Treasury Management Policy of the Bank clearly lays down the scope of usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for trading.

The Mid Office is handled by Risk Management Department, Daily report is generated by Risk Management Department

for appraisal of the risk profile to the senior management for Asset and Liability management,

1, Scope and nature of risk measurement, risk reporting and risk monitoring systems:

Outstanding forward contracts are monitored by Risk Management Department against the limits (Counterparty, Stop Loss, Open Position, VaR, Aggregate Gap) fixed by the Board and approved by RBI (wherever applicable) and exceeding, if any, are reported to the appropriate authority / Board for ratification,

2, Policies for hedging and / or mitigating and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants,

The Bank's policy lays down that the transactions with the corporate clients are to be undertaken only after the inherent credit exposures are quantified and approved for customer appropriateness and suitability and necessary documents like ISDA agreements etc, are duly executed, The Bank adopts Current Exposure Method for monitoring the credit exposures, While sanctioning the limits, the competent authority stipulates condition of obtaining collaterals / margin as deemed appropriate, The derivative limits are reviewed periodically along with other credit limits,

3, Accounting policy for recording the hedge and non-hedge transactions, recognition of Income premiums and discounts, valuation of outstanding contracts, provisioning, collateral and credit risk mitigation,

Valuation of outstanding forward contracts are done as per FEDAI guidelines in force, Marked to market profit & loss are taken to Profit & Loss account, MTM profit & loss calculated as per Current Exposure method are taken into account while sanctioning forward contract limits to customers and collaterals / cash margins are prescribed for credit and market risks, The Bank undertakes foreign exchange forward contracts for its customers and hedges them with other banks, The credit exposure on account of forward contracts is also considered while arriving at the total exposure of each customer / borrower and counter party banker, The Bank also deals with other banks in proprietary trading duly adhering to risk limits permitted by RBI, set in the policy and is monitored by mid office, The Marked to Market values are monitored on daily basis for foreign exchange forward contracts, The credit equivalent is computed under current exposure method, The operations are conducted in terms of the policy guidelines issued by Reserve Bank of India from time to time and as approved by the Board of the Bank,

d. Credit Default Swaps

The bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year March 31,2024 and March 31, 2023,

e. OIS (Overnight Index Swap) position

The Bank has not entered into OIS (Overnight Index Swap) during FY 2023-24, The bank had NIL outstanding OIS position at the end of March 2024 and March 2023,

f) Un-hedged / uncovered foreign currency exposure of the Bank

The Bank's foreign currency exposures as at March 31,2024 that are not hedged/ covered by either derivative instruments or

ii) Revaluation Reserve

There has been no revaluation of assets during the year ended March 31, 2024. An appreciation of '22.58 Crore in the value of land and building consequent upon revaluation by approved valuer was credited to Revaluation Reserve during the year ended March 31,2023. l) Corporate Social Responsibility (CSR)

Due to losses incurred by the bank from FY 2013 to 2018, in compliance with the provision outlined in Section 198, these losses were offset against profits in subsequent years. Consequently, no profits were available under Section 198 of the Companies Act, for Corporate Social Responsibility purposes. Therefore, the Bank did not undertake any projects under Corporate Social Responsibility for the financial year 2023-24.

17. Comparative Figures

Previous year figures have been re-grouped/ re-classified wherever considered necessary to conform to current year's classification.

18. Disclosure as to Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014

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(s), including foreign entities (“Intermediaries”) with the understanding, whether recorded in writing or otherwise, that the intermediary shall lend or invest in party identified by or on behalf of the Bank (“Ultimate Beneficiaries”). The Bank has not received any fund from any party(s) (Funding Party) with the understanding that the Bank shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Bank (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

Signatories to Schedule 1 to 18

For and on behalf of Board of Directors

K. N. Madhusoodanan Shivan J. K. G. Rajagopalan Nair

Part-Time Chairman Managing Director & CEO Director

D. K. Kashyap C. Nageswara Rao Sreesankar Radhakrishnan

Director Director Director

Dr. Nirmala Padmanabhan Vardhini Kalyanaraman

Director Director

Kavitha T. A. Venkatesh H. John Varughese

Chief Financial Officer Company Secretary General Manager

As per our Report of even Date

For Krishnamoorthy & Krishnamoorthy, For Sagar & Associates,

Chartered Accountants, Chartered Accountants,

Firm Registration No. 001488S Firm Registration No. 003510S

CA. K. J. Narayanan, CA. B. Aruna,

Partner Partner

Membership No. 202844 Membership No. 216454

Place : Thrissur Date : 22nd May 2024