ICICI Bank 2010 Annual Report Download - page 145

F65
schedules
forming part of the Consolidated Accounts (Contd.)
zIn the case of general insurance business, premium is recorded for the policy period at the commencement of risk and
for instalment cases, it is recorded on instalment due dates. Premium earned is recognised as income over the period
of risk or the contract period based on 1/365 method, whichever is appropriate, on a gross basis, net of service tax.
Any subsequent revision to premium is recognised over the remaining period of risk or contract period. Adjustments
to premium income arising on cancellation of policies are recognised in the period in which the policies are cancelled.
Commission on re-insurance ceded is recognised as income in the period of ceding the risk. Profit commission under
re-insurance treaties, wherever applicable, is recognised as income in the period of final determination of profits and
combined with commission on reinsurance ceded.
zIn the case of general insurance business, insurance premium on ceding of the risk is recognised in the period in which
the risk commences. Any subsequent revision to premium ceded is recognised in the period of such revision. Adjustment
to re-insurance premium arising on cancellation of policies is recognised in the period in which it is cancelled. In case
of life insurance business, cost of reinsurance ceded is accounted for at the time of recognition of premium income
in accordance with the treaty or in-principle arrangement with the reinsurer. Profit commission on reinsurance ceded
is netted off against premium ceded on reinsurance.
zIn the case of general insurance business, premium deficiency is recognised when the sum of expected claim costs
and related expenses exceed the reserve for unexpired risks and is computed at a business segment level.
3. Stock based compensation
The following entities within the group have granted stock options to their employees:
zICICI Bank Limited
zICICI Prudential Life Insurance Company Limited
zICICI Lombard General Insurance Company Limited
zICICI Venture Funds Management Company Limited
The Employee Stock Option Scheme (the Scheme) of ICICI Bank 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
acquire equity shares of the Bank that vests in a graded manner. The options may be exercised within a specified period.
ICICI Prudential Life Insurance Company and ICICI Lombard General Insurance Company have also formulated similar stock
option schemes for their employees.
The Group 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.
The banking subsidiaries namely, ICICI Bank UK and ICICI Bank Canada account for the cost of the options granted to
employees by ICICI Bank using the fair value method based on Black Scholes model. In the case of ICICI Prudential Life
Insurance Company and ICICI Lombard General Insurance Company, the fair value of the shares is determined based on
an external valuation report.
Since the exercise price of the Bank’s stock options is equal to the fair value price there is no compensation cost under the
intrinsic value method.
The Group’s venture capital subsidiary i.e. ICICI Venture Funds Management Company has settled carried interest trusts for
the benefit of its employees. These trusts have investment in a separate class of units of certain fully consolidated funds.
These carried interest entitlements are treated as employee compensation and are accounted for at the time of granting
of the awards by the trust to the employees. The liability is re-measured at each reporting date and the carried interest
entitlements are recognised as expense in the period of realisation of proceeds from the underlying investments of the
funds.
The Finance (No.2) Act, 2009 has abolished fringe benefit tax (FBT) and introduced tax on the Scheme in the hands of the
employees as perquisites which is computed on the difference between the fair market value on date of exercise and the
exercise price with effect from April 1, 2009.
4. Income taxes
Income tax expense is the aggregate amount of current tax and deferred tax expense incurred by the Group. The current
tax expense and deferred tax expense is determined in accordance with the provisions of the Income Tax Act, 1961 and as
per AS 22 on ‘accounting for taxes on income’ issued by ICAI, respectively. The levy of FBT is not applicable as the Finance
(No. 2) Act, 2009 has abolished the tax with effect from April 1, 2009. Deferred tax adjustments comprise changes in the
deferred tax assets or liabilities during the year.
Deferred tax assets and liabilities are recognised on a prudent basis for the future tax consequences of timing differences
arising between the carrying value of assets and liabilities and their respective tax basis and carry forward losses. Deferred
tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at
the balance sheet date. The impact of changes in the deferred tax assets and liabilities is recognised in the profit and loss
account.
Deferred tax assets are recognised and re-assessed at each reporting date, based on the management’s judgement as to
whether their realisation is considered as reasonably certain.
In the consolidated financial statements, deferred tax assets and liabilities are computed at an individual entity level and
aggregated for consolidated reporting.