4.12.PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
In accordance with AS-29 "Provisions, Contingent Liabilities and Contingent Assets", provision is recognised when the Bank has a present obligation as a result of past event where it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
A disclosure of contingent liability is made when there is:
• 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
• a present obligation arising from a past event which is not recognised as 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.
When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.
Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and endorsements denominated in foreign currencies and outstanding as at the Balance Sheet date are translated at year end rates notified by the FEDAI/FBIL.
Contingent assets are not recognised 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 recognised in the period in which the change occurs.
4.13.SEGMENT REPORTING
The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with Accounting Standard 17.
Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations and revenues /expenses allocated in accordance with the RBI guideline. Further, 'Digital Banking' has been identified as a Sub-segment under Retail Banking as required in extant guidelines of the Reserve Bank of India (RBI)
Geographical Segment consists only of Domestic Segment since the Bank does not have any foreign branches.
4.14. LEASE TRANSACTIONS
Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Operating Lease payments are recognised on SLM basis as an expense in the Profit & Loss Account, over the lease term in accordance with AS-19.
4.15. ACCOUNTING FOR DIVIDEND
As per AS-4 'Contingencies and Events occurring after the Balance Sheet date' as notified by the Ministry of Corporate Affairs through the Companies (Accounting Standards) Rules, 2021, the Bank does not account for the proposed dividend as a liability through an appropriation from the Profit and Loss Account. The same is recognised in the year of actual payout post approval of the shareholders. However, the Bank considers the proposed dividend in determining capital funds in computing the capital adequacy ratio.
4.16. CASH AND CASH EQUIVALENT
Cash and cash equivalents include cash in hand, balances with the RBI, balances with other banks and money at call and short notice.
4.17. CORPORATE SOCIAL RESPONSIBILITY
Expenditure towards Corporate Social Responsibility is recognised in the Profit and Loss Account in accordance with the provisions of the Companies Act, 2013.
b) Liquidity Coverage Ratio (LCR)
Qualitative Disclosure:
Bank is computing LCR on a daily basis in line with the RBI circular dated June 9, 2014 on "Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards". These guidelines ensure that banks maintain sufficient amount of High Quality Liquidity Assets (HQLAs) to survive 30 days stress scenario so that banks can take corrective measures within such period. These HQLAs have to be 100% of the net cash outflows w.e.f. January 1,2019.
Necessary system has been put in place to compute LCR.
The Bank during the three months ended March 31,2024, maintained average HQLA (after haircut) of H20,918.91 Crore (H21,493.14 Crore as on March 31,2023). HQLA primarily includes government securities in excess of minimum statutory liquidity ratio (SLR), 2% of NDTL under "marginal standing facility (MSF)", 16% of NDTL under "facility to avail liquidity for LCR (FALLCR)", investments under Corporate bonds & commercial papers rated "AA- and above".
The weighted cash outflows are primarily driven by deposits from retail & small business customers, unsecured wholesale funding which includes non-operational deposits and unsecured debt. During the three months ended March 31, 2024, funding from "retail & small business customers" and "non-operational deposits" contributed 52.94% & 37.05% to the total weighted cash outflows respectively. The other contingent funding obligations primarily include bank guarantees (BGs) and letters of credit (LCs) issued on behalf of the Bank's clients.
The average LCR of the Bank for the three months ended March 31,2024, was 212.34% (March 31,2023: 31 1.59%).
As of March 31, 2024, top liability products/instruments and their percentage contribution to the total liabilities of the Bank were term deposits: 57.47%, savings account deposits: 21.68% and current account deposits: 5.32%. The Bank has consistently maintained a robust funding profile with a significant portion of funding through deposits. Top 20 depositors constituted 3.73% of total deposits of the Bank as of March 31,2024, indicating a healthy and stable deposit profile.
In addition to daily/ monthly LCR reporting, Bank prepares daily Structural Liquidity Statements to assess the liquidity needs of the Bank on an ongoing basis.
Bank's Asset Liability Management Committee (ALCO) is empowered to monitor and form suitable strategies to maintain stipulated levels of LCR by channelizing funds to target good quality asset and liability profile to meet Bank's profitability as well as liquidity requirements. Funding strategies are formulated in accordance with ALCO guidance and executed. The objective of the funding strategy is to achieve an optimal funding mix which is consistent with prudent liquidity, diversity of sources and servicing costs. Accordingly, Integrated Treasury estimates daily liquidity requirement. With the help of structural liquidity statement prepared by Bank, Integrated Treasury evaluates current and future liquidity requirement and takes necessary action.
f) Implementation of IFRS converged Indian Accounting Standards (Ind AS)
In order to implement Indian Accounting Standards (Ind AS), the Bank has set up a Steering Committee headed by the Managing Director and a sub-committee called IFRS Working Group having members across cross-functional business verticals, to work towards effectively implementation of Ind AS in the Bank. Bank has been submitting the Proforma Ind AS financials to RBI every half year as per the RBI guidelines. Also, as a prudent measure, Bank is preparing Proforma Ind AS financials on quarterly basis and the estimated impact along with latest update on the Ind AS implementation in the Bank is placed to the Audit Committee of the Board. Towards effective implementation of the Standards, Bank has also endeavoured on onboarding - Oracle Financial Services Analytical Application (OFSAA) which includes IFRS-9 Module to compute Effective Interest Rate (EIR) and Expected Loan Loss Provisioning (ECL) through the Core Banking System.
The Reserve Bank of India (RBI), vide its communication Ref: DBR.BP.BC.No.29/21.07.001/2018-19 dated 22nd March, 2019 has deferred implementation of Ind AS for all Scheduled Commercial Banks till further notice.
ii) Gratuity: In accordance with the applicable Indian Laws, the Bank provides for defined gratuity benefit retirement plan ('the Gratuity Plan') covering eligible employees. This plan provides for a lump sum payment to the eligible employees on retirement, death, incapacitation or termination of employment of amounts that are based on the last drawn salary and tenure of employment. Liabilities with regard to the gratuity plan are determined by actuarial valuation and contributed to the gratuity fund trust. Trustees administer the contribution made to the trust and invest in specific designated securities as mandated by law, which generally comprise of Central and State Government Bonds and debt instruments of Government owned corporations.
iii) Leave Encashment (PL): The Bank permits encashment of leave accumulated by the employees. The liability for encashment of such leave is determined and provided on the basis of actuarial valuation. For the current financial year, Bank has provided an amount of H73.90 crore (Previous year H13.40 crore).
iv) Provident Fund: The Bank pays fixed contribution to Provident Fund at predetermined rates to a separate trust, which invests the funds in permitted securities. The contribution to the Fund is recognised as expense and is charged to the Profit and Loss Account. The obligation of the Bank is limited to such contributions. As on 31st March 2024, there was no liability due and outstanding to the Fund by the Bank.
v) Other Employee Benefits: Other than the benefits listed above, the Bank also gives certain other benefits to the employees, which include Medical Aid, Sick Leave, Casual Leave etc.,
vi) During the year ended March 31,2024, the Bank has provided H 271 crore towards 12th Bipartite Settlement of wage revision including retirement benefits and total provision held as at 31st March 2024 towards the same amounts to H 334 crore . (Previous year H63.43 crore)
vii) The summarised position of post-employment benefits and employees' long term benefits are recognized in the financial statements in accordance with Accounting Standard - 15 and are as under:
17. Litigations and claims
A sum of H1634.94 crore (Previous year H1630.03 crore) is outstanding on account of demands raised by the Income Tax Department in the earlier years, out of which an amount of H846.86 Crore (Previous year H 956.13 Crore) has been paid under protest by debit to Sundry Assets - Protested Tax Account and for the balance of H788.08 crore (Previous year H673.90 Crore) stay from collection of demand has been granted.
In addition to the above, the Income Tax Department has gone on appeal on various issues wherein Appellate Authority has given decisions in favour of the Bank to the extent of H475.74 crore(Previous year H486.55 crore).
The Bank has preferred appeal against certain service tax demands to the extent of H193.15 crore (Previous year H193.15 crore) and paid pre deposit of H1.06 crore (Previous year H1.06 crore) by debit to Sundry Assets - Service Tax Paid under Protest.
In addition to above , the department has gone on appeal in respect of certain matters wherein appellate authority has given decision in favour of the bank to extend of H17.49 crore.
The Bank has also preferred appeal against certain GST demands to the extent of H1.42 crore (Previous year nil) and paid pre deposit of H 0.15 crore by debit to Sundry Assets - Service Tax Paid under Protest.
The Bank has been advised by its Tax Consultants and Experts that there are good chances of success in these appeals, considering legal provision favourable judicial pronouncements and / or appellate orders on identical issues for earlier years. Hence, the Bank does not consider it necessary to make any provision or include the same under Schedule 12 - Contingent Liability, to the Balance sheet.
All pending litigations which may have an impact on its financial position have been estimated and provided for. In respect of other pending litigations, no provision is required since these pending litigations have no impact on its financial position.
18. Employee Stock Option
The shareholders of the Bank, on July 21, 2018, have approved 'KBL Employee Stock Option Scheme-2018' (ESOS-2018) with a total of 50,00,000 stock options available for grant each of which is convertible into one equity share. The scheme has been framed in accordance with SEBI (Share Based Employee Benefits) Regulations, 2014 as amended from time to time. Further, to give effect to the corporate action by way of Bonus issue in the ratio of 1:10, additional 1,07,147 options have been accounted and hence, the total available options under the scheme stand increased to 51,07,147 stock options.
The options granted under ESOS 2018 would vest after one year from the date of grant of such options in a graded manner over a period of three years (i.e. 40%, 30% & 30% respectively on completion of 1st, 2nd & 3rd year), as determined by the Nomination & Remuneration Committee (NRC), a committee of the Board of Directors, subject to continued employment with the Bank on the date of vesting.
During the year ended March 31, 2024, no modifications were made to the terms and conditions of ESOS - 2018 as approved by the NRC.
The Shareholders of the Bank on March 30, 2023 have approved 'KBL Employee Stock Option Scheme-2023' (ESOS-2023) with a total of 15,00,000 Stock options available for grant each of which is convertible into one equity share catering partially towards the disbursal of share linked portion of variable pay as per RBI guidelines relating to compensation payable to MD & CEOs/ Whole Time Directors/Material Risk Takers (MRTs) in banks vide DOR.Appt.BC.No.23/29.67.001/2019-20 dated November 4, 2019. The Scheme, which is in lieu of ESOS-2018, has been framed in accordance with Securities and Exchange Board of India (Share Based Employee Benefits & Sweat Equity) Regulations, 2021. The old Scheme ESOS 2018 will continue to be operative for the limited purpose of permitting exercise of already granted options.
The Options granted under ESOS 2023 would vest after one year from the date of grant of such options in a graded manner over a period of three years (i.e. 30%, 30% & 40% respectively on completion of 1st, 2nd & 3rd year), as determined by the Nomination & Remuneration Committee (NRC), a committee of the Board of Directors.
During the year ended March 31, 2024, no modifications were made to the terms and conditions of ESOS - 2023 as approved by the NRC.
To ascertain the ESOP compensation cost at fair value for the purpose of accounting/ disclosures in the financial statements, Bank has adopted Black Scholes Valuation Methodology to determine the fair value of stock options. Black Scholes model is a mathematical formula used to estimate the value of stock options based on several factors. Some of the key factors that are considered when computing the fair market value of an ESOP under the Black Scholes model are stock price, exercise price, time to expiry, volatility risk-free interest rate, dividend yield, etc.
19. The Board of Directors of the Bank have proposed a dividend of H 5.50 per Equity share of H10/- each (55% of Equity Share Capital) for the year ended March 31st 2024 (Previous year H 5.00 per Equity share of H 10 each), subject to the approval of the members at the ensuing Annual General Meeting. In terms of Accounting Standard (AS) 4 Contingencies and Events occurring after the Balance sheet date, the Bank has not appropriated proposed dividend aggregating to H 207.49 crore from the Profit and loss account for the year ended March 31st, 2024. However, the effect of the proposed dividend has been reckoned in determining capital funds in the computation of Capital adequacy ratio as on March 31st, 2024.
20. Reconciliation of Branch Adjustments and Balancing of Subsidiary Ledgers
i) Balancing of Subsidiary Ledgers is completed at all the Branches/ offices
ii) Reconciliation of Branch Adjustments/Interbank accounts has been completed up to 31st March 2024 and steps are being taken to give effect to consequential adjustments of pending items.
21. Disclosure under Rule 11(e) of the Companies (Audit & Auditors) Rules, 2014
The Bank, as part of its normal business, grants loans and advances (including loans against third party deposits or NonBanking Finance Company or Real estate promoters / developers loan, other margins / security), makes investment, provides guarantees (including against margin / guarantees received from third parties / banks) to and accepts deposits and borrowings from its customers, other entities and persons. These transactions are part of Bank's authorised normal business, which is conducted ensuring adherence to regulatory requirements.
In the course of the transactions carried out as described above
(a) 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(ies), including foreign entities ("Intermediaries") with the understanding, whether recorded in writing or otherwise, that the Intermediary shall whether directly or indirectly lend or invest in other persons or entities identified by in any manner whatsoever by or on behalf of the Bank ("Ultimate Beneficiaries") or provide any guarantee, security or like on behalf of the Ultimate Beneficiaries.
(b) The Bank has not received any funds from any person(s) or entity(ies) including foreign entity(ies) ("Funding Party") with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
23. Previous year's figures have been regrouped/rearranged wherever necessary.
Sham K Abhishek S Bagchi Gokuldas Pai Y V Balachandra
Company Secretary Chief Financial Officer Chief Business Officer Chief Operating Officer
For and on behalf of Board
Sekhar Rao Srikrishnan H P Pradeep Kumar
Executive Director Managing Director & CEO Chairman
DIN 06830595 DIN 00318563 DIN 03614568
B R Ashok A V Chandrashekar Uma Shankar D S Ravindran
Director Director Director Director
DIN 00415934 DIN 08829073 DIN 07165728 DIN 09057128
Balakrishna Alse S Jeevandas Narayan K Gururaj Acharya Harish Hassan Visweswara
Director Director Director Director
DIN 08438552 DIN 07656546 DIN 02952524 DIN 08742808
Attached to our report of even date
For Kalyaniwalla & Mistry LLP For Sundaram & Srinivasan For Ravi Rajan & Co. LLP
Chartered Accountants Chartered Accountants Chartered Accountants
Firm Regn. No. 104607W/W100166 Firm Regn. No. 004207S Firm Reg. No.009073N/N500320
Anil A Kulkarni P. Menakshi Sundaram Sumit Kumar
Partner Partner Partner
M No 047576 M No. 217914 M. No. 512555
Place : Mangaluru Date : 24-05-2024
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