Suryoday Small Finance Bank Limited
Annexure to the Financial Statements for the period ended December 31, 2020

Significant accounting policies (Contd.)

Net depreciation in the value, if any, compared to the acquisition cost, in any of the groups, is charged to the Profit and Loss Account.
The net appreciation, if any, in any of the groups is not recognised except to the extent of depreciation already provided.

Investments classified under HTM category are carried at their acquisition cost and not marked to market. Any premium on acquisition
is amortised over the remaining maturity period of the security on a constant yield-to-maturity basis. Such amortisation of premium is
adjusted against interest income under the head “Income from investments” as per the RBI guidelines.

Non-performing investments are identified, and depreciation / provision are made thereon based on the RBI guidelines. The depreciation
/ provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest
on non-performing investments is not recognised in the Profit and Loss Account until received.

As per the RBI circular RBI/2017-18/147 DBR. No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, to build up adequate reserves to
protect against increase in yields in future, the Bank has created an Investment Fluctuation Reserve (IFR) to the extent of the lower of
following: a) net profit on sale of investments during the year; b) net profit for the year less mandatory appropriations. As per the RBI
circular, this reserve will be created until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis and
where feasible this should be achieved within a period of three year.

 

Investment Reserve Account

In accordance with the RBI Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by
Banks, in case the provision on account of depreciation in the HFT and AFS categories is found to be in excess of the required amount,
the excess is credited to the Profit and Loss Account and an equivalent amount net of taxes, if any, and adjusted for transfer to Statutory
Reserve as applicable to such excess provision is appropriated to the Investment Reserve Account.

Repo and Reverse Repo Transactions

In accordance with the RBI guidelines, repurchase and reverse repurchase transactions in government securities including those
conducted under the Liquidity Adjustment Facility (‘LAF’) and Marginal Standing Facility (‘MSF’) with RBI are accounted as borrowing
and lending transactions respectively.

Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo transactions is accounted for as
interest income

B. Advances

Advances are classified as performing and non-performing advances (“NPAs”) as per the RBI guidelines on Income Recognition and
Asset Classification and are stated net of specific provisions made towards NPAs and inter-bank participation with risk. Further, NPAs
are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made for
sub-standard and doubtful assets at rates as prescribed by the RBI. NPAs are identified by periodic appraisals of the loan portfolio by
management.

NPA accounts are written off in accordance with RBI guidelines and Bank’s Policy post approval from Board of Directors (BOD).
Amounts recovered against debts written-off are recognised in the Profit and Loss account.

For restructured/rescheduled assets, provision is made in accordance with guidelines issued by RBI. The restructured accounts are
classified in accordance with RBI guidelines.

The Bank maintains a general provision on standard advances at the rates prescribed by RBI. Provision made against standard assets is
included in “Other liabilities & provisions”.

Provisions made in excess of the Bank’s policy for specific loan provisions for non-performing assets and regulatory general provisions
are categorised as floating provisions. Creation of floating provisions is considered by the Bank up to a level approved by the BOD. In
accordance with the RBI guidelines, floating provisions are used up to a level approved by the BOD and RBI only for contingencies
under extraordinary circumstances and for making specific provisions for impaired accounts as per these guidelines or any other
regulatory guidelines as applicable. The floating provision is netted-off from advances.

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