In accordance with Accounting Standard - 29 “Provisions,Contingent Liabilities and Contingent Assets" issued by ICAI,as notified under Section 133 of the Companies Act, 2013read together with the Companies (Accounting Standards)Rules, 2021, a provision is recognized when the Bank has apresent obligation as a result of past event, it is probable thatan outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can bemade of the amount of the obligation.
Provisions (excluding retirement benefits) are not discountedto its present value and are determined based on managementbest estimate required to settle the obligation at the BalanceSheet date, supplemented by experience of similar transactions.These are reviewed at each Balance Sheet date and adjusted toreflect the current best estimates. If it is no longer probable thatan outflow of resources embodying economic benefits will berequired to settle the obligation, the provision is reversed.
No provision is recognized, and a disclosure of contingentliability is made when there is:
I. a possible obligation arising from a past event and theexistence of which will be confirmed only by occurrenceor non-occurrence of one or more uncertain futureevents not wholly within the control of the Bank; or
II. a present obligation arising from a past event which isnot recognized because:
a) it is not probable that an outflow of resourcesembodying economic benefits will be required tosettle the obligation; or
b) a reliable estimate of the amount of the obligationcannot be made.
The Bank does not expect the outcome of thesecontingencies to have a materially adverse effect on itsfinancial results.
No provision or disclosure of contingent liability ismade when there is a possible obligation or a presentobligation in respect of which the likelihood of outflow ofresources is remote.
Contingent assets, if any, are not recognized nordisclosed in the financial statements since this mayresult in the recognition of income that may never berealized. However, contingent assets are assessedcontinually and if it is virtually certain that an inflowof economic benefits will arise, the asset and relatedincome are recognized in the financial statements of theperiod in which the change occurs.
The disclosure relating to segment information is in accordancewith Accounting Standard 17 - “Segment Reporting" issued bythe ICAI, as notified under Section 133 of the Companies Act,2013 read together with the Companies (Accounting Standards)Rules, 2021 and as per as per RBI Master Direction on FinancialStatements-Presentation and Disclosures, (as amended fromtime to time). As per the Master Direction, the reportablesegments are identified as 'Treasury', 'Corporate / WholesaleBanking, 'Retail Banking' and 'Other banking operations.
• Treasury' includes the entire investment portfolio of the Bank.
• Retail Banking include exposures which fulfill the fourcriteria of orientation, product, granularity, and low valueof individual exposures for retail exposures laid downin Master Directions on Basel III: Capital Regulations.Individual housing loans also form part of Retail Bankingsegment. Further, 'Digital Banking' has been identified asa sub-segment of the existing 'Retail Banking' segmentas per Reserve Bank of India (RBI) guidelines.
• Corporate / Wholesale Banking include all advancesto trusts, partnership firms, companies, and statutorybodies, which are not included under 'Retail Banking'.
• Other Banking Business includes all other bankingoperations not covered under 'Treasury, 'WholesaleBanking' and 'Retail Banking' segments. It also includesall other residual operations such as para bankingtransactions / activities.
In terms of Accounting Standard 4 - "Contingencies and Eventsoccurring after the Balance sheet date" issued by the ICAI, asprescribed under Section 133 of the Companies Act, 2013read together with the Companies (Accounting Standards)Rules, 2021, the Bank does not account for proposed dividendor Dividend declared after balance sheet date as a liabilitythrough appropriation from Profit and Loss Account incurrent year balance sheet. This is disclosed in the notes toaccounts. The same is recognized in the year of actual payoutpost approval of shareholders. However, the Bank reckonsproposed dividend in determining capital funds in computingthe capital adequacy ratio.
Cash and cash equivalents include cash in hand, balanceswith Reserve Bank of India and Balances with Other Banks/ institutions and money at call and short notice (includingthe effect of changes in exchange rates on cash and cashequivalents in foreign currency).
‘Capital Infusion: During the previous year, the Bank had issued 230,477,634 equity shares of H 2 each for cash pursuant to aQualified Institution Placement (QIP) as per the relevant provisions of Securities and Exchange Board of India (Issue of Capitaland Disclosure Requirements) Regulations, 2018 at H 131.90 per share aggregating to H 3,040.00 Crores (including sharepremium). This resulted in an increase of H 46.10 Crores in share capital and H 2,954.17 Crores (net of issue expenses) in sharepremium account.
During the previous year, Bank had issued 72,682,048 equity shares of H 2 each for cash pursuant to a preferential allotment asper the relevant provisions of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,2018 at H 131.91 per share aggregating to H 958.75 Crore (including share premium). This resulted in an increase of H 14.53 Crorein share capital and H 943.62 Crore (net of share issue expenses) in share premium account.
**During the year ended March 31, 2025 and March 31,2024, the Bank had not raised Tier 2 capital by way of issuanceof Tier 2 Bonds.
During the year ended March 31, 2025 the Bank has redeemed Unsecured Basel III compliant Tier 2 Bonds amounting toH 300 Crore. (Previous Year : Nil)
In accordance with RBI Guidelines banks are required to make Consolidated Pillar 3 and Net Stable Funding Ratio (NSFR)disclosures under Basel III capital regulations. The Bank has made these disclosures and the same is available in Bank'swebsite at the following link: https:Zwww.federalbank.co.in/regulatory-disclosures. The disclosures have not beensubjected to audit.
1.1. B. Reserves and Surplus
a) Statutory Reserve
During the year ended March 31, 2025, the Bank had appropriated H 1,012.97 Crore (previous year: H 930.15 Crore) out ofprofits for the year ended March 31, 2025 to the Statutory Reserve in terms of sections 17 of the Banking Regulation Act,1949 and RBI guidelines.
b) Capital Reserve
During the year ended March 31, 2025, the Bank had appropriated H 83.55 Crore (previous year: H 81.76 Crore), being theprofit from sale or redemption of investments under HTM category, gain / profit arising on the reclassification/ sale of aninvestment in associate and profit on sale of immovable properties, net of taxes and transfer to statutory reserve, from theProfit and Loss Account to the Capital Reserve.
c) Revenue Reserve
During the year ended March 31, 2025, the Bank implemented the RBI Master Direction - Classification, Valuation, andOperation of Investment Portfolio of Commercial Banks (Directions), 2023, dated September 12, 2023. This directive isapplicable to banks from April 01, 2024. Consequent to the transition provisions, the Bank's revenue reserve increased byH 105.02 crore, on account of revision in the carrying value of investments to the fair value as on such date. Inaddition, duringthe year ended March 31, 2025, the Bank had appropriated H 606.72 Crore (previous year: H554.25 Crore) out of profits forthe year ended March 31, 2025 to the Revenue Reserve.
d) Investment Fluctuation Reserve
During the year ended March 31,2025, the Bank had appropriated H 151.93 Crore (previous year: H 66.84 Crore) to InvestmentFluctuation Reserve in compliance with RBI Master Direction - Classification, Valuation, and Operation of InvestmentPortfolio of Commercial Banks (Directions), 2023, dated September 12, 2023.
In addition, pursuant to implementation of the RBI Master Direction - Classification, Valuation, and Operation of InvestmentPortfolio of Commercial Banks (Directions), 2023, dated September 12, 2023, the Bank had transferred H 16.24 Crore fromInvestment Reserve to Investment Fluctuation Reserve.
e) Special Reserve
During the year ended March 31, 2025, the Bank had appropriated H 195.65 Crore (previous year: H 173.68 Crore) out ofprofits for the year ended March 31, 2025, to the Special Reserve as required under Income Tax Act, 1961.
f) Investment Reserve
As per RBI Master Direction - Classification, Valuation, and Operation of Investment Portfolio of Commercial Banks(Directions), 2023, dated September 12, 2023 which is effective from April 01, 2024, the balance in Investment ReserveAccount , if any, as of March 31, 2024, shall be transferred to the Revenue/ General Reserve if the bank meets the minimumregulatory requirements of Investment Fluctuation Reserve (IFR). If the bank does not meet the minimum IFR requirements,the balances in IRA shall be transferred to IFR. Accordingly, during the year ended March 31, 2025, the Bank has transferredthe balance of H 16.24 Crore from Investment Reserve to Investment Fluctuation Reserve. During the previous year, theBank had appropriated H 16.24 Crore from the Profit and Loss Account to Investment Reserve.
g) Foreign Currency Translation Reserve
As at March 31,2025, the Bank has recognised H (22.02) Crore (previous year: H (17.74) Crore) as Foreign Currency TranslationReserve on account of translation of foreign currency assets and liabilities of non-integral foreign operations.
h) Employees Stock Options Reserve
During the year ended March 31,2025, the Bank has recognised H 8.49 Crore (previous year: H 1.58 Crore) as Employees StockOptions Reserve on account of fair valuation of share-linked instruments and an amount of H 0.21 Crore (previous year:H 0.65Crore) is transferred from Employees Stock Options Reserve on exercise of share-linked instruments, to share premium.
i) AFS Reserve
During the year ended March 31, 2025, pursuant to implementation of the RBI Master Direction - Classification, Valuation,and Operation of Investment Portfolio of Commercial Banks (Directions), 2023, dated September 12, 2023, the Bank hasrecognised H 226.05 Crore (previous year: nil) as AFS Reserve.
j) Cash Flow Hedge Reserve
As at March 31, 2025, the Bank has recognised H 67.91 Crore (previous year: nil) as Cash Flow Hedge Reserve on derivativecontracts designated as cash flow hedge.
Draw down from Reserves
The Bank has not drawn down any amount from any reserves during the years ended March 31, 2025 and March 31, 2024.
As per Master Direction - Classification, Valuation and Operation of Investment Portfolio of Commercial Banks (Directions), 2023,Investment fluctuation reserve (IFR) is to be created with an amount not less than lower of net profit on sale of investments duringthe year or net profit for the year less mandatory appropriations until the amount of IFR is at least 2 percent of the AFS and FVTPL(including HFT) portfolio on a continuing basis.
As on March 31, 2025 the Bank is maintaining an IFR of H 425.70 Crore (previous year: H 257.53 Crore) and considered it as part ofTier II capital for capital adequacy purposes.
In accordance with the RBI guidelines, Sales and transfers to/from HTM category does not include one-time transfer of securities to/from HTM category with the approval of Board of Directors undertaken by banks at the beginning of the accounting year, direct salesfrom HTM for bringing down SLR holdings in HTM category consequent to a downward revision in SLR requirements by RBI, sales toRBI under open market operation auctions (OMO) and government securities acquisition program (GSAP), Repurchase of GovernmentSecurities by Government of India from banks and Repurchase of State Development Loans by respective state governments underbuyback or switch operations, additional shifting of securities explicitly permitted by the Reserve Bank of India.
During the years ended March 31, 2025 and March 31, 2024, Bank has not participated in GSL transactions.
Disclosure in respect of Outstanding Interest Rate Swaps (IRS) and Forward Rate Agreement (FRA)
1.3.1. B) The Bank had dealt in exchange traded currency futures during the financial year ended March 31, 2025 and March 31, 2024. As
at March 31, 2025, the notional principal amount outstanding on open contracts is Nil (previous year: H 15,243.70 Crore).
1.3.1. C) The credit exposure with clients, as compared to inter-bank counterparties, are generally secured by permitted collaterals. The
credit exposure includes exposure arising out of swap contracts. However, generally, the collaterals provided by the clients are notspecifically earmarked towards derivatives or swaps. Hence the amount of exposure is arrived conservatively without netting withthe collateral.
1.3.3. Disclosure on Risk exposure in Derivatives
Qualitative disclosures:
(a) Structure and organization for management of risk in derivatives trading, the scope and nature of risk measurement, riskreporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoringthe continuing effectiveness of hedges/ mitigants:
Derivatives are financial instruments whose characteristics are derived from underlying parameter's like interest rates,exchange rates or indices. The Bank undertakes over the counter and exchange traded derivative transactions for Balance Sheetmanagement and also for proprietary trading. Bank offers derivative products to the customers to enable them to hedge theirexposure within the prevalent regulatory guidelines. Proprietary trading includes Interest Rate Futures, Currency Futures, NonDeliverable Forwards and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR etc.) in over the counter/exchange traded derivatives.
The Bank also undertakes transactions in Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them toits customers. These transactions expose the Bank to various risks primarily credit, market, operational, legal and reputational.The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.
The derivative transactions are governed by the Policy for Investment, Forex and Derivative Activities and Market Risk ManagementPolicy of the Bank as well as by the extant RBI guidelines. Various operational/risk limits are set up and actual exposures aremonitored vis-a-vis the limits allocated. These limits are set up taking into account market volatility, risk appetite, businessstrategy and management experience. Risk limits are in place for risk parameters viz. Value at Risk (VaR), Net loss, deal size andPrice Value of a Basis Point (PVBP). Actual positions are monitored against these limits on a daily basis and breaches if any arereported promptly. Risk assessment of the portfolio is undertaken periodically.
The Treasury front office enters into derivative transaction with customers and interbank counterparties. The Bank has anindependent back office and mid office as per regulatory guidelines. The MTM position of the derivative portfolio is monitored ona regular basis. The impact on derivative portfolio on account of the probable market movements are assessed on regular basis.The risk profile of the outstanding portfolio is reviewed by the Board at regular intervals.
Interest rate contracts
Interest rate swaps involve the exchange of interest obligations with the counterparty for a specified period without exchangingthe underlying (or notional) principal.
Interest rate futures are standardised interest rate derivative contracts traded on a recognised stock exchange to buy or sell anotional security or any other interest bearing instrument or an index of such instruments or interest rates at a specified futuredate at a price determined at the time of the contract.
Exchange rate contracts
Cross currency swaps are agreements to exchange principal amounts denominated in different currencies. Cross currency swapsmay also involve the exchange of interest payments on one specified currency for interest payments in another specified currencyfor a specified period.
Currency options (including Exchange Traded Currency Option) give the buyer on payment of a premium, the right but not anobligation to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
Currency futures contract is a standardised contract traded on an exchange to buy or sell a certain underlying currency at a certaindate in the future at a specified price. The contract specifies the rate of exchange between one unit of currency with another.
Non-Deliverable Derivative Contracts
Non Deliverable Forwards are foreign exchange derivative contract involving the Rupee, entered into with a person residentoutside India and which is settled without involving delivery of the Rupee.
(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, Premiums and discounts, valuationof outstanding contracts and provisioning
Bank deals in derivatives for hedging domestic or foreign currency assets/liabilities subject to the prevailing regulatory guidelines.Transactions for hedging and trading are recorded separately. For hedge transactions the Bank identifies the hedged item (assetor liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge andperiodically thereafter. Transactions related to foreign exchange forward / Interest rate Future/IRS/Currency futures are markedto market daily and the MTM is accounted in the books.
(c) Collateral Security
Bank has provided sufficient collateral to central counter parties and exchanges wherever applicable. As per market practiceno collateral is insisted on for the contracts with counter parties like Banks/Primary Dealers (PDs) etc. but if a Credit SupportAnnexure (CSA) is signed then collateral is insisted as per the terms of CSA agreement. For deals with Corporate Clients appropriatecollateral security/margin etc. is stipulated wherever considered necessary as per the CSA agreement.
(d) Credit Risk Mitigation
In the Interbank Space the Bank deals with other major banks and the default risk is perceived as low in this segment. Whereverthe Credit Support Annexure (CSA) is signed the collateral is insisted as per the terms of the CSA agreement. This risk is managedunder the limit framework laid down by the policy on Sovereign and Counterparty Bank Limits. Exposure against clients is mitigatedby collecting proper collateral securities / margin as envisaged by the credit sanctioning team as per the CSA.
# excludes forward exchange contract and includes Non-deliverable forwards.
• The notional principal amount of forward exchange contracts (excluding Cash, tom and spot contracts) classified asHedging and Trading outstanding as on March 31, 2025 amounted to H 2,441.51 Crore (previous year H 2,209.73 Crore) andH 80,366.74 Crore (previous year H 21,292.74 Crore) respectively. For the trading contract, as at March 31 2025 the markedto market position was asset of H 514.52 Crore and liability of H 603.38 Crore (previous year asset H 301.30 Crore and liabilityof H 278.56 Crore). Credit exposure on forward exchange contracts classified as Hedging and Trading as at March 31, 2025amounted to H 53.70 Crore (previous year H 57.24 Crore) and H 4,577.49 Crore (previous year H 1,001.24 Crore) respectively.The notional principal amounts of derivatives reflect the volume of transactions outstanding as at the Balance Sheet dateand do not represent the amounts at risk.
• Interest rate derivative represents interest rate swaps and bond FRA.
• The Bank has computed the maximum and minimum of PV01 for the year based on the daily balances for Interest rateDerivatives and Currency Derivatives.
• In respect of derivative contracts, the Bank evaluates the credit exposure arising therefrom, in line with RBI guidelines. Creditexposure has been computed using the current exposure method which is the sum of:
a) The current replacement cost (Marked to Market value including accruals of the contract) or zero whichever is higher.
b) The Potential Future Exposure (PFE) is a product of the notional principal amount of the contract and a factor that isbased on the grid of credit conversion factor prescribed in RBI Guidelines, which is applied on the basis of the residualmaturity and the type of contract.