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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532134ISIN: INE028A01039INDUSTRY: Finance - Banks - Public Sector

BSE   ` 137.05   Open: 129.50   Today's Range 128.70
+9.55 (+ 6.97 %) Prev Close: 127.50 52 Week Range 90.70
Year End :2018-03 

As per letter RBI/2017-18/147:DBR No. BPBC 102/21.04.048/2017-18 dated 02.04.2018, RBI has permitted banks to opt for spread over provisioning for Mark to Market (MTM) losses on investment held in AFS and HFT for the quarters ended December 31, 2017 and March 31, 2018. The losses can be spread over four quarters, commencing from the quarter in which the loss has been incurred. However, Bank has not incurred any MTM loss during the year 2017-18.

A-1.1.1 Disclosures on risk exposure in derivatives

(i) Qualitative Disclosure

The Off Balance Sheet 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 transaction. 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, Value at Risk (VaR) and PV01, and to set appropriate risk limits. These are monitored by means of reliable and up to date Management Information Systems by the Risk Management Department of the Bank from time to time who, in turn, appraises the risk profile to the Risk management Committee of Directors, which is presided over by the Bank’s 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:

The hedge/non-hedge (market making) transactions are recorded separately. In cases where the underlying is not subject to mark to market the hedging derivatives are accounted for on an accrual basis. Trading derivative positions are marked-to-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.

A.1.1.2 Credit Default Swaps (CDS)

Valuation Methodology- As per RBI guidelines on CDS dated 23rd May, 2011 the banks are required to value their CDS contracts by using daily CDS curve published by FIMMDA Or any other proprietary model if it results in a more conservative valuation. The Bank uses the FIMMDA curve for valuing our CDS positions, The Bank do not use any internal proprietary model for CDS valuation. However, the Bank do not have any CDS deal outstanding as of 31st March 2018

E. As per the RBI letter DBR.BPBC.No.53/21.04.018/2016-17 dated April 18, 2017 banks are required to disclose the divergence in the asset classification and provisioning if the additional provisioning requirements assessed by RBI exceeds 15% of published net profit after tax or additional Gross NPAs identified by RBI exceed 15% of published incremental Gross NPA during reference period.

During the year, RBI has assessed divergence in respect of financial year 2016-17. Reclassification of standard loans as Non-Performing and reclassification of NPAs amounting to Rs.42,718.71 crore and additional provision on account of short provisions on existing NPAs net of tax amounting to Rs.429.95 crore (Before tax Rs.657.50 crores) have been annexed. Details of such divergences are as below:

A-1.2.1 Disclosure of penalties imposed by RBI / Overseas Regulators

During the year, penalties of Rs.71201329/- (93 cases) [Previous Year Total Rs.54051869] were imposed by RBI on account of irregularities in currency chest.

Total penalties of Rs.58727000/- [Previous Year Total Rs.7241000] were levied on overseas territories by their respective regulator for non-compliances as under:-

RBI vide letter RBI/2017-18/131: DBR. No.BP BC.101/21.04.048/2017-18 dated February 12, 2018 issued a revised framework on Resolution of Stressed Assets and withdrew the existing guidelines/instructions on resolution of stresses assets such as framework for revitalizing Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A), etc. with immediate effect. Accordingly, the Joint Lenders Forum (JLF) as an institutional mechanism for resolution of stressed accounts also stands discontinued. Under the revised framework, the stand-still benefits for accounts where any of these schemes had been invoked but not yet implemented were revoked and accordingly these accounts have been classified as per the extant RBI prudential norms on Income Recognition and Asset Classification.

A-1.3 Accounts under Insolvency and Bankruptcy Code (IBC)

As per RBI directions for initiating Insolvency Process - Provisioning Norms vide letter No. DBR. No. BO. 15199/21.04.048/2016-17 dated June 23, 2017 in respect of 10 borrower accounts covered under the provisions of Insolvency and Bankruptcy Code (IBC), the Bank was required to make additional provision. Similarly, as per RBI direction vide letter No. DR.No.BP 1906/21.04.049/2017-18 dated August 28, 2017 in respect of 18 borrower accounts covered under the process of IBC, the Bank was required to make additional provision. As per RBI vide letter DBR. No. BP 8756/21.04.048/2017-18 dated 02.04.2018, the provisioning requirements in respect of NCLT accounts is reduced from 50% of secured portion as at March 31, 2018 to 40%. Bank has availed the relaxation permitted and provided at 40%. As per the above RBI communication with respect to spreading the provisions covered in Ist and IInd list under the provisions of IBC, the Bank has availed the option of dispensation available, and as a result the additional provision of Rs.309.37 crores has been made as on March 31, 2018. Had the Bank not opted for the relaxation, the provision requirement would have been Rs.829.23 crore.

As on 31.03.2018, the amount of bank’s credit exposure against Unhedged Foreign Currency Exposure of borrowers attracting 80 bps provisions was Rs.2925.35 Crores. The additional RWA on this exposure is Rs.595.02 crores against this additional minimum capital requirement is Rs.64.71crores.

A-2.1 Draw Down from Reserves

During the Financial Year 2017-18, there has been no draw down from the reserves (Previous Year - NIL).

A-3 Disclosure of complaints

I. Customer Complaints

II. ATM Complaints

A-4. Status of Letters of Comfort

I Letters of Comfort (LOC’s) issued during the Current Financial Year

During the current financial year, the Bank has not issued any Letter of Comfort to meet the requirements of the overseas/domestic regulators to support the operations of its overseas subsidiaries/ Joint ventures.

II Cumulative position of LOC’s outstanding as on 31.03.2018

The Bank has issued the following Letter of Comforts

(i) LOC issued during 2008-09 to Reserve Bank of New Zealand guaranteeing entire indebtedness of the wholly owned subsidiary - Bank of Baroda (New Zealand) Ltd to its depositors and other creditors. As on 31st March 2018 the subsidiary’s deposits (net of overdraft and loan against Bank’s own deposits) are Rs.269.35 crore and outside liabilities are Rs.4.95 crores (i.e. total liabilities of Rs.274.30 crore). The net worth of the subsidiary as on 31st March 2018 is Rs.221.57 crore (Previous year Rs.208.50 crores). The net contingent liability on Bank is Rs.52.73 crore in this regard.

(ii) LOC was issued during the year 2010-11 to Bank Negara Malaysia upto our bank’s 40% shareholding in the Joint Venture Bank - ‘India Internation Bank (Malaysia) Bhd. (IIBMB). As on 31st March, 2018, the deposits of IIBMB are Rs.193.93 crore and other liabilities are Rs.11.61 crore (i.e. Total liabilities of Rs.205.54 crore). The net worth of the IIBMB as on 31st March 2018 is Rs.540.45 crore. As the financial year end of IIBMB is 31st December, figures of 31st March 2018 have been taken from unaudited statement.

A-5.1 Qualitative Disclosure:

From 1st January 2015, the bank has implemented guidelines on Liquidity Coverage Ratio (LCR) of the Reserve Bank of India.

The LCR standard aims to ensure that a bank maintains an adequate level of unencumbered 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. The LCR and monitoring tools are applicable for Indian banks initially w.e.f. 1st January 2015 at whole bank level only i.e. on a stand-alone basis including overseas operations through branches and subsequently at consolidated basis w.e.f. 1st January 2016 i.e. including domestic and overseas subsidiaries.

The LCR has two components:

(i) The value of the stock of high-quality liquid assets (HQLA) in stressed conditions- the numerator.

(ii) Total net cash outflows: The term "Total net cash outflows" is defined as "Total expected cash outflows" minus "Total expected cash inflows" in the specified stress scenario for the subsequent 30 calendar days (the stressed period) the denominator.

LCR = Stock of High Quality Liquid Assets/Total Net Cash Outflows over the next 30 calendar days > = 100%

According to RBI, the LCR will be introduced in a phased manner starting with a minimum requirement of 60% from January 1, 2015 and reaching minimum 100% on January 1, 2019

*As per the RBI guidelines dated 31st March 2015, the Bank has made LCR disclosure on solo basis for the financial year ending March 2016. In terms of extant guideline disclosure on consolidated basis is applicable to the Indian banking system from 1st January 2016 and onwards. As starting from January 2017, banks has to disclose LCR on daily average basis, hence bank has computed LCR on daily average basis both for Solo and Consolidated Level since March 2017. Bank has also disclosed LCR for the financial year ending March 2017, which consisted of monthly averages for Q1, Q2, Q3 and daily averages for Q4.

Composition of HQLA

Based on daily averages for the quarter ended March 2018, Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion of HQLA i.e 40.02% followed by excess SLR securities which constitute 34.51%. Level 2 assets which are lower in quality as compared to Level 1 assets, constitute nominally 0.74% of total stock of HQLA against maximum mandated level of 40%.

Intra-period changes as well as changes over time:

LCR were 91.84%, 124.90% and 107.44% as at the months ended January 2018, February 2018 and March 2018 respectively as against the minimum regulatory requirement of 90%

Concentration of funding sources

There has been no undue concentration of funding sources and no counterparty is significant in terms of concentration risk in sources of funds. No counterparty contributes more than 1% of the bank’s total liabilities. A significant counterparty is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the bank’s total liabilities.

Similarly no instrument/product constitutes more than 1% of the bank’s total liabilities. A "significant instrument/product" is defined as a single instrument/product of group of similar instruments/products which in aggregate amount to more than 1% of the bank’s total liabilities. Example of funding instruments/products - wholesale deposits, certificates of deposits, long term bonds, etc. Top 20 depositors of the bank on solo basis constitute 4.85% of our total deposits.

Currency mismatch in the LCR:

Bank calculates currency wise LCR for all significant currencies. A significant currency is one where aggregate liabilities denominated in that currency amount to 5 per cent or more of the bank’s total liabilities viz USD, EURO, GBP and others.

Description of the degree of centralization of liquidity management and interaction between the group’s units:

The liquidity management for the Bank on enterprise wide basis is the responsibility of the Board of Directors. Board of Directors has delegated its responsibilities to a Committee of the Board called as the "Risk Management Committee of Board”. The Committee is responsible for overseeing the inter linkages between different types of risk and its impact on liquidity.

Bank has Group ALM Policy which provides the broad guidelines under which all the entities within the Group operate in terms of liquidity and interest rate risk. The bank’s entities operating in foreign countries manage their operational liquidity or liquidity in the short-term on their own on an ongoing basis as per both respective territory’s ALM policy and Group ALM policy. The monitoring of liquidity and interest rate risk management of the overseas operations of the bank is being done by the Bank’s Global Mid-Office (ALM Cell) of Risk Management Department.

The guidelines of the Group ALM policy, unless otherwise specifically exempted, apply to overseas operations as well. All the legal entities of the bank i.e.-subsidiaries, joint ventures and associates manage their operational liquidity on an ongoing basis at their own according to their business models and liquidity requirement. As to the legal entities carrying out banking business, they have their own ALM Policy in line with the host country guidelines as well as RBI guidelines whichever is more stringent

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

B-1 AS-5 Net Profit or Loss for the period, Prior Period Items and Changes in Accounting Policies

Change in Accounting Policy (AS-5)

During the year, the bank has changed the method of appropriation of recovery in NPA accounts, where recoveries are now being adjusted against charges, interest reversed, unapplied interest and lastly against principal as against the earlier method of adjusting recoveries against principal, expenses and unapplied interest. This has resulted in increase of Gross NPA by Rs.1496.71 crore, increase of interest income by Rs.1496.71 crore and increase in provision and tax approximately by Rs.1085.65 crore. This has resulted in the loss for the year being lower by Rs.411.06 crore.

B-2 AS-15 Employee Benefits

B-2.1 The Bank has adopted the Accounting Standard (AS-15) issued by ICAI, effective from 07.12.2006. The standard has been revised and notified on 17.12.2007.

B-2.2 Gratuity

The Bank pays gratuity to employees who retire or resign from Bank’s service, after initial service period of five years. Accordingly, the Bank makes contributions to an in-house trust, towards funding this gratuity, payable every year. In accordance with the rule of Gratuity Fund, 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 three different schemes and the entitlement is based on what is most beneficial to employees

B-2.3 Pension

B-2.3.1Bank pays pension, a defined benefit 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 but before 01.04.2010. The plan provides for a pension on a monthly basis to these employees on their cessation from service of the Bank in terms of Bank of Baroda (Employees’) Pension Regulations, 1995. Employees covered under Bank of Baroda (Employees’) Pension Regulations, 1995 are not eligible for Bank’s contribution to Provident fund

B-2.3.2 New Pension Scheme

In terms of Bipartite Settlement and Joint Note dated 27.04.2010 between IBA and Employees Organizations’ on extending another option for pension, employees joining the services of the Bank on or after 01.04.2010 are eligible for the Defined Contributory Pension Scheme, which was introduced by the Bank in terms of the Joint Note / Settlement dated 27.04.2010, similar to the one governed by the provisions of New Pension Scheme introduced for the employees of Central Government w.e.f. 01.01.2004 and as modified from time to time. Hence they are not eligible for becoming members of Bank’s Provident Fund Scheme and Pension Scheme. In respect of the employees of the Bank, who have joined the services of the Bank on or after 01.04.2010, deduction towards New Pension Scheme at the rate of 10% of the basic pay and dearness allowance from the salary with a matching contribution by the Bank is being made.

B-2.4 Provident Fund

The Bank is statutorily required to maintain a provident fund as a part of its retirement benefits to its employees who joined Bank’s service on or before 31.03.2010. This fund is administered by a trust managed by the Bank. Each employee contributes 10% of their basic salary and eligible allowances and the Bank contributes an equal amount to the fund. The investment of the fund is made according to investment pattern prescribed by the Government of India.

B-2.5 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 to the tune of 50% of the privilege leave standing to the credit subject to a maximum of 120 days.

B-2.6 Additional Retirement Benefit (ARB)

The scheme for additional retirement benefit provides that an officer on Retirement/ Voluntary retirement/ Death shall be eligible for additional retirement benefit, provided the officers satisfy the conditions mentioned in BOB officer’s service regulations.

In the same manner, award staff member on Retirement/ Voluntary Retirement/ Death shall be eligible for additional retirement benefit, provided the staff member had completed thirty-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.

2.8 RBI vide letter DBR No. BP 9730/21.04.018/2017-18 dated 27.04.2018 permitted Banks to spread the additional liability on account of the enhancement in gratuity limits over four quarters beginning with the quarter ended March 31, 2018. The bank has availed the relaxation permitted and has provided an amount of Rs.97 crore being one fourth of the liability during the quarter ended March 31, 2018. The balance of Rs.291 crore has been deferred to the subsequent three quarter

B-7 AS-24 Discontinuing operations

As a part of strategic initiatives for rationalization of International Operations, which is also in consonance with the Government of India directives, the Bank has decided to exit from certain geographies. During the year 2017-18, the Bank has initiated closure of its operations in the Kingdom of Bahrain, Bahamas and Republic of South Africa. The closure of these territories is at an advance stage. In the opinion of the Management, adequate provisions have been made in the books and the amounts stated in the financial statements are not less than at their realizable values. The impact of closure of operations in these territories on the business of the Bank, is not material.

B-8 AS-28 Impairment of Assets

In view of the absence of indication of material impairment within the meaning of clause 5 to clause 13 of AS 28 Impairment of Assets, no impairment of fixed assets is required in respect of current financial year.

B-9.1 Contingent Liabilities

Such liabilities as mentioned at Serial No (I) to (VI) of Schedule 12 of Balance Sheet are dependent upon the outcome of court judgment / arbitration awards / out of court settlement/disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties respectively. No reimbursement is expected in such cases

C. Other Notes to Accounts

C-1 Balancing of Books and Reconciliation

Initial matching of debit and credit outstanding entries in various heads of accounts included in Inter office Adjustments has been completed up to 31.03.2018, the reconciliation of which is in progress.

C-2 Capital Reserves

Capital Reserve includes appreciation arising on revaluation of immovable properties and amount subscribed by Government of India under the World Bank’s Scheme for Export Development Projects for small / medium scale industries.

C-3 Investments

C-3.1 In terms of RBI Guidelines, during the year, the bank has transferred a portion of Investment from “Available for Sale (AFS)” category to “Held to Maturity (HTM)” category and from HTM to AFS category. The resultant depreciation of Rs.5.27 Crores (previous year Rs.12.38 Crores) has been charged to the Profit & Loss Account.

C-3.2 FCNR (B) Swap with RBI

RBI introduced US Dollar-Rupee concessional swap window for fresh FCNR (B), funds mobilized in any permitted currency for a minimum tenor of three years and above. In this window RBI offered a concessional rate of Swaps to banks only for fresh FCNR (B) deposits mobilized in any of the permitted currencies.

Bank has swapped USD 1,710 Million mobilized with RBI for the corresponding tenor. As the swaps done with RBI were at 3.5% as against the prevailing rate of around 8% there would have been a distortion in profits on the first year as well as on maturity date. To avoid this inherent distortion, and as prescribed by RBI, we have adopted the method of amortization of swap points to even out expenses throughout the tenor of swaps.

C-3.3Profit on sale of investment held under “Held to Maturity” category amounting to Rs.251.61 crores has been transferred to Profit & Loss Account and NIL amount transfer to Capital Reserve due to inadequate profits.

C-4 Provision for Taxes

C-4.1 Provision for Taxes has been arrived at after due consideration of decisions of the appellate authorities and advice of counsels.

C-4.2 Tax paid in advance/tax deducted at source appearing under “other Assets” amounting to Rs.2007.25 (Previous year Rs.2857.69 Crores) is inclusive of Rs.1704.80 Crores (previous year Rs.2405.95 crores) which represents amount adjusted by the department / paid by the bank in respect of disputed tax demands for various assessment years. No provision is considered necessary in respect of the said demands, as in the bank’s view, duly supported by counsels opinion and/or judicial pronouncements, additions / disallowances made by the assessing officer are not sustainable

C-5 Premises

C-5.1 Execution of conveyance deeds is pending in respect of certain properties amounting to Rs.23.86 Crores (Previous Year Rs.23.86 Crores).

C-5.2 Premises include assets under construction amounting to Rs.178.10 Crores (Previous Year Rs.113.41 Crores).

C-6 BOB Fiscal Services Limited (BOBFSL), erstwhile wholly owned subsidiary of Bank of Baroda (BOB), had passed a special resolution for voluntary winding up of the Company on 24.09.1990 and the Liquidator was appointed for the same.

BOBFSL had entered into an agreement with BOB pursuant to which entire assets and liabilities of BOBFSL were transferred to BOB as a going concern / as sale in liquidation of the entire business w.e.f. 28.2.1991. As the Company could not be liquidated due to pending legal cases, a decision to merge BOBFSL with BOB was taken in the Annual General Meeting of BOBFSL held on 30th March 2007.

The Board of Directors of BOB has approved the merger of BOBFSL with BOB in its Board meeting on 28.01.2009 and authorized the Management to file necessary petition for merger of BOBFSL with BOB before the Bombay High Court. The matter is still pending before the judiciary.

C-7 Pursuant to the Accounting Standard-10 (revised) on Property Plant & Equipment depreciation of Rs.359 crores for the year on revalued portion of fixed assets has been transferred during the year from the Revaluation Reserve to Revenue Reserve. Accordingly, the depreciation on fixed assets for the year is higher by Rs.359 crores and the loss for the year is also higher to that extent.

C-8 The 11th Bipartite Settlement entered into by the Indian Banks’ Association on behalf of the member Banks with the All India Unions of Workmen expired on 31st October 2017. In accordance with the pending execution of agreement for wage revision, to be effective from 1stNovember 2017, a provision of Rs.100.00 crores (previous year NIL) has been made during the year.

C-9 The Reserve Bank of India (RBI) vide DBR.BPBC. No. 76/21.07.001/2015-16 dated 11th February 2016, has prescribed the roadmap for implementation of Indian Accounting Standards (Ind-AS) in the Banks and the Banks need to disclose the strategy for Ind-AS implementation, including the progress made in this regard. The Bank accordingly, has appointed a consultant to assist in implementation of the Ind-AS. The Bank has also constituted a Steering Committee to oversee the progress made and the Audit Committee of the Board is being apprised of the same from time to time. In terms of the requirement stipulated vide said circular, the Bank has submitted proforma Ind-AS financial statements to the RBI for the period ended 30th June, 2017. As per the ‘Statement of Development and Regulatory Policies’ issued by the RBI on 05.04.2018, the implementation of Ind AS is deferred by one year (i.e. earlier from 01.04.2018 to 01.04.2019).

C-10 In compliance with the RBI circular No.DBR.No.BP BC.64/21.04.048/2016-17 dated April 18, 2017, bank has made an additional provision Rs.142.34 Crores for the year ended March 31, 2018, in respect of standard advances to stressed sectors of the economy.

C-11 RBI Circular DBOD.NO.BPBC.1/21.06.201/2015-16 dated July 01, 2015 on Basel III Capital Regulations read together with RBI circular no DBR.NO.BPBC. 80/21.06.201/2014-15 dated March 31, 2015 on Prudential Guidelines on Capital Adequacy and Liquidity Standards Amendments requires banks to make applicable Pillar 3 disclosures including leverage ratio and liquidity coverage ratio under the Basel- III framework. These details are being made available on our website "". These disclosures have not been subjected to audit by the auditors.

C-12 Figures of previous year have been regrouped/ rearranged wherever necessary, so as to make them comparable with those of the current period.