ICICI Bank 2005 Annual Report Download - page 73

F13
forming part of the Accounts (Contd.)
schedules
categories is the market price of the scrip as available from the trades/quotes on the stock exchanges, SGL
account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with
Fixed Income Money Market and Derivatives Association (“FIMMDA”), periodically.
The market/fair value of unquoted SLR securities included in the ‘Available for Sale’ and ‘Trading’ categories is
as per the rates published by FIMMDA.
The valuation of non-SLR securities, other than those quoted on the stock exchanges, wherever linked to the
Yield-to-Maturity (“YTM”) rates, is with a mark-up (reflecting associated credit risk) over the YTM rates for
government securities published by FIMMDA.
Unquoted equity shares are valued at the book value, if the latest balance sheet is available or at Re. 1.
Securities are valued scrip-wise and depreciation/appreciation aggregated for each category. Net appreciation
in each basket if any, being unrealised, is ignored, while net depreciation is provided for.
d) Costs such as brokerage, commission etc., pertaining to investments, paid at the time of acquisition, are
charged to revenue.
e) Broken period interest on debt instruments is treated as a revenue item.
f) Investments in subsidiaries/joint ventures are categorised as Held to Maturity in accordance with RBI guidelines.
g) Profit on sale of investments in the ‘Held to Maturity’ category is credited to the revenue account and is
thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve.
h) At the end of each reporting period, security receipts issued by asset reconstruction company are valued in
accordance with the guidelines applicable to non-SLR instruments prescribed by RBI from time to time.
Accordingly, in case where the security receipts issued by the asset reconstruction company are limited to the
actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Bank
reckons the Net Asset Value (“NAV”), obtained from asset reconstruction company from time to time, for
valuation of such investments at each reporting year end.
3. Provisions/Write-offs on loans and other credit facilities
a) All credit exposures are classified as per RBI guidelines, into performing and non-performing assets (“NPAs”).
Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI.
Provisions are made on substandard and doubtful assets at rates prescribed by RBI. Loss assets and unsecured
portion of doubtful assets are provided/written off as per the extant RBI guidelines. Additional provisions are
made against specific non-performing assets over and above what is stated above, if in the opinion of the
management, increased provisions are necessary.
In accordance with RBI guidelines on graded higher provisioning norms for the secured portion of doubtful
assets, the Bank makes a 100% provision on the secured portion of assets classified as doubtful for more than
three years. Further, as permitted by the said guidelines, assets classified as doubtful for more than three years
at March 31, 2004 are fully provided for assets in a graded manner over three years (i.e. 60% by March 31, 2005,
75% by March 31, 2006 and 100% by March 31, 2007).
b) For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by RBI, which
requires the present value of the interest sacrifice be provided at the time of restructuring.
c) In the case of other than restructured loan accounts classified as NPAs, the account is reclassified as “standard”
account if arrears of interest and principal are fully paid by the borrower.
In respect of non-performing loan accounts subjected to restructuring, asset category is upgraded to standard
if the borrower demonstrates, over a minimum period of one year, the ability to repay the loan in accordance
with the contractual terms.
d) The Bank has incorporated the assets taken over from erstwhile ICICI Limited (“ICICI”) in its books at carrying
values as appearing in the books of ICICI with a provision made based on a fair valuation exercise carried out by
an independent firm. To the extent provisions are required in respect of the assets taken over from ICICI, the
provision created on fair valuation of the assets at the time of the amalgamation is used.
e) Amounts recovered against other debts written off in earlier years and provisions no longer considered necessary
in the context of the current status of the borrower are recognised in the profit and loss account.
f) In addition to the specific provision on NPAs, the Bank maintains a general provision on performing loans. The
general provision adequately covers the requirements of the RBI guidelines.
g) In addition to the provisions required to be held according to the asset classification status, provisions are held for
individual country exposure (other than for home country). The countries are categorised into seven risk categories
namely insignificant, low, moderate, high, very high, restricted and off-credit and provisioning made on exposures
exceeding 90 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less
than 90 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect
of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure.
4. Transfer and servicing of financial assets
The Bank transfers commercial and consumer loans through securitisation transactions. The transferred loans are
de-recognised and gains/losses are recorded only if the Bank surrenders the rights to benefits specified in the loan
contract. Recourse and servicing obligations are reduced from proceeds of the sale. Retained beneficial interests in
the loans is measured by allocating the carrying value of the loans between the assets sold and the retained
interest, based on the relative fair value at the date of the securitisation.