Annual Report 2012-2013 - HDFC Bank

2.8. Employee benefitsi) Short termShort term employee benefits include salaries andperformance incentives. A liability is recognised for theamount expected to be paid under short-term cash bonusor profit sharing plans if the Company has a present legalor informal obligation to pay this amount as a result of pastservice provided by the employee, and the obligation can beestimated reliably. These costs are recognised as an expensein the Statement of Profit and Loss at the undiscountedamount expected to be paid over the period of servicesrendered by the employees to the Company.ii) Long termThe Company offers its employees long term benefits byway of defined-contribution and defined-benefit plans, ofwhich some have assets in special funds or securities. Theplans are financed by the Company and in the case of somedefined contribution plans by the Company along with itsemployees.Defined-contribution plansThese are plans in which the Company pays pre-definedamounts to separate funds and does not have any legal orinformal obligation to pay additional sums. These compriseof contributions to the employees’ provident fund, familypension fund and superannuation fund. The Company’spayments to the defined-contribution plans are reported asexpenses during the period in which the employees performthe services that the payment covers.Defined-benefit plansExpenses for defined-benefit gratuity plan are calculatedas at the balance sheet date by an independent actuary ina manner that distributes expenses over the employee’sworking life. These commitments are valued at the presentvalue of the expected future payments, with considerationfor calculated future salary increases, using a discount ratecorresponding to the interest rate estimated by the actuaryhaving regard to the interest rate on government bonds witha remaining term that is almost equivalent to the averagebalance working period of employees. The fair values ofthe plan assets are deducted in determining the net liability.When the fair value of plan assets exceeds the commitmentscomputed as aforesaid, the recognised asset is limited tothe net total of any cumulative past service costs and thepresent value of any economic benefits available in the formof reductions in future contributions to the plan.Actuarial losses or gains are recognised in the Statement ofProfit and Loss in the year in which they arise.iii) Other employee benefitsCompensated absences which accrue to employees andwhich can be carried to future periods but are expected tobe availed in twelve months immediately following the yearin which the employee has rendered service are reported asexpenses during the year in which the employees performthe services that the benefit covers and the liabilities arereported at the undiscounted amount of the benefits.Where there are restrictions on availment of such accruedbenefit or where the availment is otherwise not expectedto wholly occur in the next twelve months, the liability onaccount of the benefit is actuarially determined using theprojected unit credit method.(iv) Share-based payment transactionsEquity settled stock options granted under the Company’sEmployee Stock Option Schemes are accounted for as perthe accounting treatment prescribed by the Guidance Noteon Employee Share-based Payments issued by the Instituteof Chartered Accountants of India. The intrinsic value ofthe option being excess of fair value of the underlying shareimmediately prior to date of grant over its exercise priceis recognised as deferred employee compensation with acredit to employee stock option outstanding account. Thedeferred employee compensation is charged to Statementof Profit and Loss on straight line basis over the vestingperiod of the option. The options that lapse are reversedby a credit to employee compensation expense, equal tothe amortised portion of value of lapsed portion and creditto deferred employee compensation expense equal to theunamortised portion.2.9. LeasesLeases in terms of which the Company assumes substantiallyall the risks and rewards of ownership are classified asfinance leases. Upon initial recognition, the leased asset ismeasured at an amount equal to the lower of its fair valueand the present value of the minimum lease payments.Subsequent to initial recognition, the asset is accountedfor in accordance with the accounting policy applicable tothat asset.Other leases are operating leases and the leased assets arenot recognised in the Company’s Balance Sheet. Leaseexpenses on such operating leases are recognised in theStatement of Profit and Loss on a straight line basis over the17