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NOTES TO ACCOUNTS

Federal Bank Ltd.

You can view the entire text of Notes to accounts of the company for the latest year
Market Cap. (₹) 16435.53 Cr. P/BV 1.22 Book Value (₹) 67.78
52 Week High/Low (₹) 110/77 FV/ML 2/1 P/E(X) 12.49
Bookclosure 25/07/2019 EPS (₹) 6.61 Div Yield (%) 1.70
Year End :2019-03 

4.1. Earnings per Share ('EPS')

Particulars

March 31, 2019

March 31, 2018

Weighted average number of equity shares used in computation of basic earnings per share (in 000's)

1,980,208

1,902,184

Weighted average number of equity shares used in computation of diluted earnings per share (in 000's)

1,992,628

1,926,275

Nominal Value of share (in Rs)

2

2

Basic earnings per share (in Rs)

6.28

4.62

Diluted earnings per share ( in Rs)

6.24

4.56

Earnings used in the computation of basic and diluted earnings per share Rs in '000)

12,438,883

8,788,458

4.2 A. Equity Issue

During the year ended March 31, 2019, the Bank has allotted 12,905,764 equity shares consequent to exercise of ESOS which resulted in an increase of Rs 2.58 Crore in Share Capital and Rs 52.79 Crore in Share premium account.

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2019 (CONTD...)

During the year ended March 31, 2018, the Bank has issued 21 5,517,241 equity shares of ? 2 each for cash pursuant to a Qualified Institution Placement (QIP) as per the relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations at Rs 116.00 per share aggregating to Rs 2,500.00 Crore (including share premium). This resulted in an increase of Rs 43.10 Crore in Share Capital and Rs 2,420.78 Crore (net of issue expenses) in Share premium account.

Further during the year ended March 31, 2018 the Bank had allotted 32,577,034 equity shares consequent to exercise of ESOS and 4,750 equity shares pertaining to Rights issue of 2007, which resulted in an increase of Rs 6.52 Crore in Share Capital and Rs 129.03 Crore in Share premium account.

B. Subscribed and paid up capital includes:

(i) 16,590 shares of Rs 21- each (Previous Year 16,590 shares of Rs 21- each) issued for consideration other than cash.

(ii) 29,273,675 underlying equity shares of Rs 2/- each (Previous Year 32,925,590 equity shares of Rs 2/- each) held by custodian on behalf of holders of Global Depository Receipts (GDRs).

C. The following allotments are kept pending following orders from various courts

(i) Allotment of 6,530 shares of Rs 2/- each (Previous year 6,530 shares of Rs 2/- each) pertaining to the Right issue of 1993 issued at premium of Rs 5/- per share

(ii) 262,100 shares of Rs 2/- each (Previous year 262,100 shares of Rs 2/- per share) pertaining to the Rights issue of 1996 issued at a premium of Rs 28/- per Share

(iii) 1,075,665 equity shares of Rs 2/- each (Previous year 1,075,665 shares of Rs 2/- per share), at a premium of Rs 48/- per share pertaining to Rights issue of 2007

Issue of certificates/credit in demat account in respect of the following Bonus issues are kept in abeyance consequent to injunction orders from various courts.

a) 407,670 shares of Rs 21- each (Previous year 407,670 shares of Rs 21- each) out of the Bonus issue of 2004 and

b) 613,505 bonus shares of Rs 21- each (Previous year 613,505 bonus shares of Rs 21- each), out of the Bonus issue of 201 5.

D. Employee Stock Option Scheme ("ESOS"):

(i) Employee Stock Option Scheme 2010 (ESOS 2010)

Shareholders of the bank had approved Employee Stock Option Scheme 2010 (ESOS 2010) through postal ballot, the result of which was announced on December 24, 2010, enabling the Board and/or the "Compensation Committee" to grant such number of equity shares, including options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of

SEBI. Pursuant thereto, the Compensation Committee of the bank granted the following options:

Number of Options

March 31, 2019

March 31, 2018

Outstanding at the beginning of the year

38,476,532

71,802,986

Surrendered during the year

-

-

Granted during the year

-

100,000

Exercised during the year

12,903,339

32,577,034

Forfeited/lapsed during the year

1,425,680

849,420

Outstanding at the end of the year

24,147,513

38,476,532

Options exercisable

23,640,013

35,889,722

As per SEBI guidelines the accounting for ESOS can be done either under the 'Intrinsic value basis' or 'Fair value basis'. The Compensation Committee in their meeting dated May 10, 2012 decided to adopt 'Intrinsic value method' for accounting of ESOS, in terms of the power vested on them as per the resolution of EGM dated December 24, 2010.

In accordance with the SEBI Guidelines and the guidance note on "Accounting for Employee Share based payments" issued by the ICAI, the

March 31, 2019

March 31, 2018

Outstanding at the beginning of the year

15,770,539

Surrendered during the year

-

-

Granted during the year

37,231,307

22,318,348

Exercised during the year

2,425

-

Forfeited/lapsed during the year

2,663,140

6,547,809

Outstanding at the end of the year

50,336,281

15,770,539

Options exercisable

7,766,862

-

As per SEBI guidelines the accounting for ESOS can be done either under the 'Intrinsic value basis' or 'Fair value basis'. As per the approval of shareholders, the Bank has adopted 'Intrinsic value method' for accounting of ESOS.

In accordance with the SEBI Guidelines and the guidance note on "Accounting for Employee Share based payments" issued by the ICAI, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period. iii) Effect of Fair value method of accounting ESOP:

If "Fair Value Method" had been adopted based on "Black-Scholes pricing model" for pricing and accounting of options, net profit would be lower by Rs 70.36 Crore (Previous Year: Rs 25.79 Crore). The modified basic and diluted earnings per share for the year, had the Bank followed Fair Value Method of accounting for ESOS compensation cost would be Rs 5.93 and Rs 5.80 (Previous Year: Rs 4.48 and Rs 4.43) respectively. E. Proposed Dividend and Tax on Proposed Dividend

In terms of revised Accounting Standard (AS) 4 "Contingencies and Events occurring after Balance sheet date" as notified by the Ministry of Corporate affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend (including tax) aggregating to Rs 335.03 Crore from the Profit and loss account for the year ended March 31, 2019, also the same has not been shown as an Other Liabilities. (Schedule 5). However, the effect of the proposed dividend has been reckoned in determining capital funds in the computation of the capital adequacy ratios.

4.3. Fixed Assets:

A) Fixed Assets as per Schedule 10 include Intangible Assets relating to Software and System Development Expenditure which are as follows:

Particulars

March 31, 2019

March 31, 2018

Gross Block

At the beginning of the year

205.50

174.01

Additions during the year

43.25

34.36

Deductions/ Adjustments during the year

2.87

At the end of the year

248.75

205.50

Rs in Crore)

excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period.

ii) Employee Stock Option Scheme 2017 (ESOS 2017)

Shareholders of the bank had approved The Federal Bank Limited Employee Stock Option Scheme 2017 (ESOS 2017) AGM held on July 14, 2017, as a Special Resolution, enabling the Board and/or the "Compensation Committee" to grant such number of equity shares, including options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the bank granted the followinq options:

Number or Options

Particulars

March 31, 2019

March 31, 2018

Depreciation / Amortisation

At the beginning of the year

153.37

120.27

Charge for the year

37.13

35.97

Deductions /Adjustments during the year

2.87

Depreciation to date

190.50

153.37

Net Block

58.25

52.13

B) Revaluation of Fixed Assets

During the year 1995-96, the appreciation of Rs 9.65 Crore in the value of land and buildings consequent upon revaluation by approved valuer was credited to Revaluation Reserve. There has been no revaluation of assets during the year ended March 31, 2019 and March 31, 2018.

4.4. Operating Leases:

Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms. During the year an amount of Rs 1 54.67 Crore (Previous year: Rs 143.17 Crore) was charged to Profit and loss account.

4.5 Provisions and Contingencies

a) Movement in provision for non-credit related* frauds included under other liabilities:

(Rs in Crore)

March 31, 2019

March 31, 2018

Opening balance at the beginning of the year

4.71

4.05

Additions during the year

0.31

1.97

Reductions during the year

0.56

1.31

Balance at the end of the year

4.46

4.71

* Provision for credit related frauds included in Provision for Bad and doubtful debts.

March 31, 2019

March 31, 2018

Opening provision at the beginning of the year

4.60

4.08

Provision made during the year

15.61

10.25

Reductions during the year

15.02

9.73

Closing provision at the end of the year *

5.19

4.60

* The closing provision is based on the actuarial valuation of accumulated debit card reward points. This amount will be utilized towards redemption of the debit card reward points.

March 31, 2019

March 31, 2018

Opening provision at the beginning of the year

34.33

60.06

Provision made during the year

4.28

14.92

Reductions during the year

9.58

40.65

Closing provision at the end of the year

29.03

34.33

b) Movement in provision for debit card reward points: (Rs in Crore)

c) Movement in provision for other continaencies:

4.7 Description of contingent liabilities:

a) Claims against the Bank not acknowledged as debts

These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.

b) Liability on account of forward exchange and derivative contracts

The Bank presently enters into foreign exchange contracts and interest rate swaps with interbank Counterparties and Customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows in the same currency based on fixed rates or benchmark reference. The notional amounts of such foreign exchange contracts and derivatives provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank's exposure to credit or price risks. The fluctuation of market rates and prices cause fluctuations in the value of these contracts and the contracted exposure become favorable (assets) or unfavorable (liabilities). The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly as the aggregate contractual or notional amount of derivative financial instruments on hand can vary and the market rate fluctuations can decide the extent to which instruments are favorable or unfavorable.

c) Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.

d) Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank's customers that are accepted or endorsed by the Bank.

e) Other items for which the bank is contingently liable

Includes Capital commitments and amount transferred to RBI under the Depositor Education and Awareness (DBA) Fund. (Refer schedule 12 for amounts relating to contingent liability.)

Particulars

March 31, 2019

March 31,2018

No. of frauds reported during the year

96

44

Amount involved in fraud (Rs in crore)

175.60

5.34

Amount involved in fraud net of recoveries/write offs/unrealised interest as at the end of the year (Rs in crore)

35.82

3.56

Provision made during the year (Rs in crore)

35.82

3.56

Amount of unamortised provision debited from "other reserves" as at the end of the year (Rs in crore)

-

-

4.6 Amount of Provisions made for income-tax during the year

(Rs in Crore)

Particulars

March 31, 2019

Year ended March 31, 2018

Provision for Income tax

a) Current tax

687.64

461.03

b) Deferred tax

(24.28)

3.98

Total

663.36

465.01

4.8 Provisioning Pertaining to Fraud Accounts

4.9 Inter-bank participation with risk sharing

The aggregate amount of participation purchased by the Bank, shown as advances as per regulatory guidelines, outstanding as of March 31, 2019 was Rs 2,672.22 Crore (Previous Year: Rs 1,444.50 Crore).

The aggregate amount of the participation issued by the Bank, reduced from advances as per regulatory guidelines, outstanding as of March 31, 2019 was Rs 973.73 Crore. (Previous Year: Rs Nil).

4.10 Factoring Exposure

The factoring exposure of the Bank as on March 31, 2019 is Rs 409.03 Crore (Previous Year: Rs 805.63 Crore)

4.11 Priority Sector Lending Certificates (PSLC)

As per RBI Circular FIDO.CO.PIan.BC.23/04.09.01/2015-16 dated April 7, 2016 the PSLCs purchased and sold is given below: (Rs in Crore)

Particulars

March 31, 2019

March 31, 2018

Purchased (Face value)

Sold (Face value)

Purchased (Face value)

Sold (Face value)

PSLC-Agriculture

-

-

-

-

PSLC-SF/MF

-

-

-

-

PSLC- Micro Enterprises

PSLC- General

3,750

4.12 Provision for Long Term contracts

The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the bank has reviewed and recorded adequate provision as required under any Law/Accounting Standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.

The Bank has spent of 1.52 % of its average net profit for the last three financial years as part of its CSR activities for the year ended March 31, 2019. As a responsible Bank, it has approached the mandatory requirements of CSR spend positively by utilizing the reporting year to lay a foundation on which to build and scale future projects and partnerships. The Bank is currently in the process of evaluating strategic avenues for CSR expenditure in order to deliver maximum impact. In the years to come, the Bank will further strengthen its processes as per requirement.

4.14 Investor education and protection fund

There has been no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Bank.

Particulars

March 31, 2019

Year ended March 31, 2018

Amount required to be spent

22.47

23.65

Amount spent during the year

17.04

14.02

4.13 Corporate Social Responsibility (CSR) (Rs in Crore)

4.15 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

4.16 Figures for the previous year have been regrouped and reclassified, wherever necessary to conform to current year's presentation.

For and on behalf of the Board of Directors

Krishna kumar K

Girish Kumar Ganapathy

Ashutosh Khajuria Shyam Srinivasan

Senior Vice President

Company Secretary

Executive Director & CFO Managing Director & CEO

(DIN:051 54975) (DIN:02274773)

Dilip G Sadarangani Chairman

(DIN:06610897)

As per our report of even date

Directors:

For B S R & Co. LLP

For M. M. Nissim & Co.

Nilesh S Vikamsey

(DIN :

00031213)

Chartered Accountants

Chartered Accountants

Grace Elizabeth Koshie

(DIN :

06765216)

Firm's Reg. No: 101248W/W-100022

Firm's Registration No: 107122W

Shubhalakshmi Panse

(DIN :

02599310)

C Balagopal

(DIN :

00430938)

A P Hota

(DIN

: 02593219)

Akeel Master

Sanjay Khemani

K Balakrishnan

(DIN

: 00034031)

Partner

Partner

Membership No. 046768

Membership No. 044577

Place: Mumbai

Date : May 4, 2019

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