ICICI Bank 2009 Annual Report Download - page 89

F15
7. Accounting for derivative contracts
The Bank enters into derivative contracts such as foreign currency options, interest rate and currency swaps, credit default
swaps and cross currency interest rate swaps.
The swap contracts entered to hedge on-balance sheet assets and liabilities are structured such that they bear an opposite
and offsetting impact with the underlying on-balance sheet items. The impact of such derivative instruments is correlated
with the movement of underlying assets and accounted pursuant to the principles of hedge accounting. Hedged swaps
are accounted for on an accrual basis.
Foreign currency and rupee derivative contracts entered into for trading purposes are marked to market and the resulting gain
or loss (net of provisions, if any) is accounted for in the profit and loss account. Pursuant to RBI guidelines, any receivables
under derivative contracts, which remain overdue for more than 90 days, are reversed through profit and loss account.
8. Employee Stock Option Scheme (“ESOS”)
The Employees Stock Option Scheme (“the Scheme”) provides for grant of equity shares of the Bank to wholetime directors
and employees of the Bank and its subsidiaries. The Scheme provides that employees are granted an option to subscribe
to equity shares of the Bank that vests in a graded manner. The options may be exercised within a specified period. The
Bank follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation cost
is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date.
The fair market price is the latest closing price, immediately prior to the date of the Board of Directors meeting in which
the options are granted, on the stock exchange on which the shares of the Bank are listed. If the shares are listed on more
than one stock exchange, then the stock exchange where there is highest trading volume on the said date is considered.
Since the exercise price of the Bank’s stock options are equal to fair market price on the grant date, there is no compensation
cost under the intrinsic value method.
The Finance Act, 2007 introduced Fringe Benefit Tax (“FBT”) on employee stock options. The FBT liability crystallises on
the date of exercise of stock options by employees and is computed based on the difference between fair market value on
date of vesting and the exercise price. FBT is recovered from employees as per the Scheme.
9. Staff Retirement Benefits
Gratuity
ICICI Bank pays gratuity to employees who retire or resign after a minimum period of five years of continuous service and in
case of employees at overseas locations as per the rules in force in the respective countries. ICICI Bank makes contributions
to four separate gratuity funds, for employees inducted from erstwhile ICICI Limited (erstwhile ICICI), employees inducted
from erstwhile Bank of Madura, employees inducted from erstwhile The Sangli Bank Limited (erstwhile Sangli Bank) and
employees of ICICI Bank other than employees inducted from erstwhile ICICI, erstwhile Bank of Madura and erstwhile Sangli
Bank.
Separate gratuity funds for employees inducted from erstwhile ICICI, erstwhile Bank of Madura and erstwhile Sangli Bank
are managed by ICICI Prudential Life Insurance Company Limited. The gratuity fund for employees of ICICI Bank, other
than employees inducted from erstwhile ICICI, erstwhile Bank of Madura and erstwhile Sangli Bank is administered by Life
Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited.
Actuarial valuation of the gratuity liability for all the above funds is determined by an actuary appointed by the Bank. In
accordance with the gratuity funds’ 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 method.
Superannuation Fund
ICICI Bank contributes 15.0% of the total annual basic salary of each employee to a superannuation fund for ICICI Bank
employees. The employee gets an option on retirement or resignation to commute one-third of the total credit balance in
his/her account and receive a monthly pension based on the remaining balance. In the event of death of an employee, his
or her beneficiary receives the remaining accumulated balance. ICICI Bank also gives an option to its employees, allowing
them to receive the amount contributed by ICICI Bank along with their monthly salary during their employment.
Upto March 31, 2005, the superannuation fund was administered solely by Life Insurance Corporation of India. Subsequent
to March 31, 2005, both Life Insurance Corporation of India and ICICI Prudential Life Insurance Company Limited are
administering the fund. Employees had the option to retain the existing balance with Life Insurance Corporation of India or
seek a transfer to ICICI Prudential Life Insurance Company Limited.
Pension
The Bank provides for pension, a deferred retirement plan covering certain employees of erstwhile Bank of Madura and
certain employees of erstwhile Sangli Bank. The plan provides for a pension payment on a monthly basis to these employees
on their retirement based on the respective employee’s salary and years of employment with the Bank. For erstwhile Bank
of Madura and erstwhile Sangli Bank employees in service, separate pension funds are managed in-house and the liability
is funded as per actuarial valuation. The pension payments to retired employees of erstwhile Bank of Madura and erstwhile
Sangli Bank are being administered by ICICI Prudential Life Insurance Company Limited, for whom the Bank has purchased
master annuity policies. Employees covered by the pension plan are not eligible for benefits under the provident fund
plan.
forming part of the Accounts (Contd.)
schedules