Your Directors are pleased to present the Annual Report of DCB Bank Ltd (hereinafterreferred to as the Bank/Your Bank/DCB Bank) together with the audited accounts for FY2016. In FY 2016 the Bank has posted an Operating Profit of Rs.349.03 crore (FY 2015Rs.277.45 crore) and a Net Profit of Rs.194.52 crore (FY 2015 Rs.191.18 crore). TotalAssets have increased by Rs.2986.23 crore and reached Rs.19118.52 crore as on 31stMarch 2016 (Rs.16132.29 crore as on 31st March 2015). Customer Deposits have increasedby Rs.1702.08 crore and Advances have increased by Rs.2456.33 crore. The Bank hasachieved the overall Priority Sector Lending (PSL) target as required by Reserve Bank ofIndia (RBI). The Net Interest Margin (NIM) has improved to 3.94% in FY 2016 from 3.72% inFY 2015 and the Current and Savings Accounts (CASA) ratio stood at 23.4% as on 31st March2016.
Cost to Income Ratio has decreased to 58.4% in FY 2016 from 58.8% in FY 2015. TheBank's total cost increased mainly due to increase in number of branches higher businessvolumes and increase in number of staff. Total Branch network stood at 198 as on 31stMarch 2016 (154 as on 31st March 2015) and ATM network increased to 410 as on 31stMarch 2016 (328 as on 31st March 2015).
Provisions Other Than Tax have increased to Rs.87.91 crore in FY 2016 from Rs.69.42crore in FY 2015. The increase was mainly due to provision for existing and Fresh NPAslippages higher Floating provision and Provision against Standard Assets. Gross NPAshave increased to Rs.197.38 crore as on 31st March 2016 from Rs.186.07 crore as on 31stMarch 2015. The overall NPA Provision Coverage Ratio as on 31st March 2016 was 77.55%.Net NPAs have decreased to Rs.97.46 crore as on 31st March 2016 as against Rs.105.70crore as on 31st March 2015. Capital Adequacy Ratio (CAR) under Basel III as on 31stMarch 2016 stood at 14.11% (14.95% under Basel III as on 31st March 2015). In March2016 the Bank issued Basel III compliant Tier II Bonds and raised Tier II capital of Rs.86.60 crore.
(Rs. in crore)
| ||As at March 31 2016 ||As at March 31 2015 ||Increase / (Decrease) |
|Balance Sheet || || || |
|Customer Deposits ||12801.89 ||11099.81 ||1702.08 |
|Inter Bank Deposits ||2124.10 ||1509.32 ||614.78 |
|Total Deposits ||14925.99 ||12609.13 ||2316.86 |
|[Including Total CASA] ||[3489.87] ||[2950.06] ||[539.81] |
|Advances ||12921.39 ||10465.06 ||2456.33 |
|Gross NPA ||197.38 ||186.07 ||11.31 |
|Net NPA ||97.46 ||105.70 ||(8.24) |
|Provision for Standard ||63.38 ||51.04 ||12.34 |
|Assets || || || |
|Total Assets ||19118.52 ||16132.29 ||2986.23 |
| ||For the year ended March 31 2016 ||For the year ended March 31 2015 ||Increase / (Decrease) |
|Profit & Loss || || || |
|Net Interest Income ||619.50 ||508.22 ||111.28 |
|Non Interest Income ||220.46 ||165.72 ||54.74 |
|Total Operating Income ||839.96 ||673.94 ||166.02 |
|Operating Cost ||490.93 ||396.49 ||94.44 |
|Operating Profit ||349.03 ||277.45 ||71.58 |
|Provisions ||87.91 ||69.42 ||18.49 |
|Net Profit Before Tax ||261.12 ||208.03 ||53.09 |
|Tax ||66.60 ||16.85 ||49.75 |
|Net Profit After Tax ||194.52 ||191.18 ||3.34 |
Since 2009 the Bank has a stated intention to maintain Tier I Capital Adequacy Ratioof more than 10.50 percent which the Bank would like to continue. Branch expansion planfor the next 18 to 24 months expected requirement of additional capital for Advancesgrowth Basel III regulations increase in Income Tax rate from FY 2017 etc. necessitateconsolidation of Bank's Tier I Capital. Your Board therefore has taken a concerted viewto focus on strengthening the Balance Sheet and Tier I Capital and has chosen not torecommend any dividend for FY 2016.
MANAGEMENT DISCUSSION AND ANALYSIS
The Bank's vision is to be the most innovative and responsive neighbourhood bank inIndia serving entrepreneurs individuals and businesses. In line with our vision we beganimplementing a new strategy in FY 2010 which has now completed 6 years. The Bank continuesto make good progress and improvements are visible in all aspects of its business. Inorder to accelerate the business momentum further in October 2015 the Bank announced itsplan to increase its branch network by 150 more branches in 24 months.
Keeping in view its inherent strengths branch network and expertise the Bank's targetmarket is mainly self-employed / small business segment (traders shop keepers MSMEs andSMEs). The Bank has chosen to have limited presence in the salaried segment. The MSME /SME sector plays a very important role in the growth of the Indian economy. In the comingyears our Honourable Prime Minister's remarkable initiative "Make in India" islikely to have a very favourable impact on our country's MSME / SME sector.
MSME sector plays a pivotal role in the economic and social development of the country.Some important information on MSME sector is given below:
Number of Working Enterprises 49 million Employment 111 million
Urban 45% Rural 55%
Manufacturing 32% Service 68%
Sole Proprietor 94%
Market value of Fixed Assets INR 13637 billion
(Source: Annual Report 2014-15 Government of India Ministry of Micro Small and MediumEnterprise)
Also as per DNA survey June 2013 the Indian workforce consists of 51% self-employed.
DCB Bank Customers
Your Bank deals with all types of self-employed / small businesses for example -Trader Commodity Gold Trader Vegetable Trader Commission Agent Retailer RestaurantOwner Caterer Baker Vending Machine Supplier Consultant Doctor Contractor InteriorDecorator Software Designer Salon Beauty Parlor Printer Electrical Engineer SawMill Flour Mill Rice Mill Grocery Store Brick Maker Builder Fabricator ArtistWriter Auto Repair Ship Repair Pharmacy Computer Specialist Furniture Maker UniformMaker Garment Shop Fashion Tailor Hardware Shop Agri Processor Pesticide Dealer AutoDealer Scrap Dealer Stationery Supplier FMCG Dealer Tool Maker Agri Input DealerTractor Dealer Plastic Manufacturer Mattress Manufacturer Water Supplier ComputerClasses Internet Caf Coaching Classes Tour Operator Hotel Owner TransporterTicketing Agent C&F Agent etc. The list of Self Employed occupation is endless. Thetarget market is essentially Micro Small and Medium Enterprises both in Manufacturing andServices. (Please refer to MSMED Act 2006). Majority of lending to MSME sector qualifiesfor Priority Sector Lending. It is estimated that 89% of CASA accounts and 87% of Mortgageloans are in the self-employed segment for the Bank.
During FY 2016 ICRA gave A+ (hyb) (stable) rating to DCB Bank Long Term Subordinated Debt. Your Bank continues to enjoy CRISIL A1+ rating for Certificate ofDeposits and Short Term - Fixed Deposits as well as ICRA A1+ rating for Short Term Fixed Deposits.
Your Bank received a number of awards and recognition in FY 2016:
"Excellence in Transformation" award for Project Neo from IDC Insights
"Digital Business Leader" award to Mr R. Venkattesh (Head
Operations Technology and Human Resources) from IDC Insights
"Innovative Product" award for DCB Zippi by Banking Frontiers Finnoviti 2016
Award for "Virtualization of Servers" from Data Quest BusinessTechnology Awards 2016
Award for "Data Center Optimization" from Data Quest BusinessTechnology Awards 2016 Besides the above your Bank's Managing Director and ChiefExecutive Officer Mr. Murali M. Natrajan was featured on the cover page of BankingFrontiers in the article "DCB Bank Steering on the right course!"
Branch Expansion / ATMs
In October 2015 the Bank announced its intention to increase the number of branches by150 in 24 months. Accordingly in FY 2016 your Bank increased its branch network by 44branches - 22 in Retail and 22 in Agri and Inclusive Banking (AIB). The year ended with198 branches (120 in Retail and 78 in AIB) in 18 states and 2 union territories.Approximately 24 percent of the branches were in rural areas and 27 percent in semi-urbanareas. The Bank's intention is to create a uniform appearance in all branches in order toprovide customers with a familiar "look and feel" and pleasant experience. Asper existing business model the new branches are expected to achieve break even between 18to 22 months. In order to increase business volumes and provide excellent service tocustomers the Bank has embraced the concept of selling all products (relevant to thecatchment area) at all branches. The Bank has a competent training unit in Human Resourcesto provide comprehensive training across all locations. In order to improve the overallperformance controls and customer service the Bank strengthened the organisationstructure of managing branch network. The concept of Cluster Services Operations Managers(CSOM) has been introduced. The entire network has been grouped into manageable clustersfor closer supervision. This has also provided new career opportunities to Tellers andOperations Managers. In FY 2016 Branch Operations team simplified and automated severalprocesses in order to improve productivity and provide better customer experience. Riskmanagement and process controls were also strengthened.
The Bank has increased its ATMs from 328 in FY 2015 to 410 in FY 2016. The ATMs areperforming well and usage is increasing steadily. In March 2016 your Bank launchedIndia's first Aadhaar based biometric fingerprint ATM on a pilot basis. For using theAadhaar based biometric fingerprint ATM customers need to input their Aadhaar numberregistered with the Bank and simply put their fingerprint when prompted by the ATMmachine. There is no need to remember ATM PIN. In the coming year many of the existingATMs are likely to be upgraded to Aadhaar based biometric ATM.
Retail Banking has a comprehensive range of Deposits and Advances products. Retail has120 branches at the end of FY 2016. A large part of the retail banking responsibility isto steadily increase CASA balances. In FY 2016 as compared to the previous year CAbalances grew by 13 percent and SA balances grew by 21 percent while overall CASA growthwas 18 percent as compared to the previous year.
Mortgage and Micro Mortgage Business:
Mortgage is the lead product of the Bank addressing primarily the self-employed segmentoffering tailor made solutions. It contributes approximately 43 percent of Advances of theBank. Both home loans and business loans are offered. Almost all branches offer Mortgage/Micro Mortgage loans. In order to support business growth dedicated sales teams arepresent in 99 locations across India. Micro or small ticket mortgage loans are most usefulfor customers in the Tier 2 to Tier 6 locations. Many in the rural and semi-urban areasare deriving incomes from unorganized sector. At times it becomes difficult to get proofof their capacity to repay. Therefore the Bank needs to have the ability to assess thehousehold income in order to determine eligibility. Personal discussion with the customeris an essential part of the credit assessment. The purpose of the loan inter alia mayinclude home construction home purchase home repairs business enhancement marriage andeducation. In FY 2016 the Bank made tremendous efforts in enhancing the productsimproving processes and controlling portfolio quality. In FY 2016 the retail MortgagesAdvances grew by approximately 25 percent as compared to the previous year.
Construction Finance Business
Construction of flats and providing housing is a critical part of a growing economy.India has a huge population which does not own flat/house. For banks financingconstruction is a good opportunity. However there are numerous risks that need to betaken into consideration. In the last 12 months the Bank has cautiously built up a smallexposure in Construction Finance Business. The focus is on reputed builders with a strongtrack record who are targeting the end users with a reasonably priced homes cateringmainly to middle and lower incomes. The Construction Finance Business has also helped insupporting CASA growth in the nearby branches of the Bank.
Commercial Vehicle (CV)
CV business was restarted in FY 2013 and is offered in 53 locations. The main objectivebehind re-entering the business was to improve the Bank's ability to achieve PSL. Morethan 85 percent of CV portfolio falls under PSL. Although economic conditions were weakso far the portfolio quality has been maintained at an acceptable level. CV is still asmall part of the overall Bank's Advances. It grew by approximately 67 percent incomparison to the previous year.
Loan against Gold
Loan against Gold is offered in almost all branches (Retail and AIB). In FY 2016 aspart of process improvement initiatives the Bank embarked upon a 1 hour loan approval /disbursal process in many branches. Customers were delighted with the new process and gavethe Bank excellent feedback.
In FY 2016 as compared to the previous year Cards in Force (CIF) increased by 4percent. However the number of Point of Sale (POS) transactions increased by 24 percentin comparison to the previous year. The number of e-commerce transactions increased by 66percent in comparison to the previous year. As required by RBI the Bank has startedissuing chip based Debit Cards for relevant schemes with effect from February 1 2016.
DCB Payless Cards
This is a unique product offered by the Bank and is a preferred card for thoseself-employed segment that are unable to provide sufficient income proof or do not have anacceptable credit track record. In FY
2016 as compared to the previous year CIF increased by 27 percent the number oftransactions on POS increased by 33 percent and the number of e-commerce transactionsincreased by 55 percent.
DCB Janajeevan Prepaid Card
The Bank launched India's first co-branded prepaid card for disbursal of small loans byJanalakshmi Microfinance in FY 2014. The product is administered in association with JanaUrban Foundation. The program aims to provide cashless disbursal which has a majorpositive impact on financial inclusion. In FY 2016 the total cards issued crossed 36lakhs. As mentioned in the previous year report the program also won two prestigiousawards (a) "The Best Prepaid Product of the Year" at the 5th IAMAIDigital Awards (b) "The Most Innovative Prepaid Card" at the Finnoviti 2015.
Distribution of Mutual Funds and Insurance
The Bank distributes Mutual Funds Life Insurance and General Insurance products to newand existing customers. This helps in deepening relationship with Deposit and Advancescustomers.
Traditional Community Banking
With a vision of strengthening neighbourhood banking the Bank set up a separatevertical in FY 2010 with the aim of providing personalized attention to the communitycustomers and winning back lost relationships. In FY 2016 as compared to the previousyear Traditional Community Banking Deposits grew by 10 percent and Advances increased by41 percent.
Non-Resident Indian (NRI) business
In FY 2016 NRI deposits contribution was approximately 10 percent. The Bank is makingsteady progress by leveraging on the relationship with Diamond Trust Bank Group (DTB) inEast Africa. During the year approximately 1300 new customers were acquired. The businesscontinues to increase its tie-ups with other banks in East Africa and Middle East. This islikely to improve correspondent banking facility remittances and trade finance business.The Bank has customers across 127 countries. The NRI deposits achieved growth ofapproximately 25 percent in FY 2016 as compared to the previous year.
Collections is an important function for the Bank. It helps to provide timely remindersto customers and also ensure portfolio quality. The Bank's in-house Collection which is acommon utility for all products is present in 117 locations across India. In order toassist field collections the Bank introduced m-Collect a smart phone basedapplication that helps in providing system generated receipts on the field. Theapplication also instantly provides real time updates to the loan system helping improveefficiency and provide customer convenience.
In order to enhance product and distribution the Bank is constantly looking foropportunities to form fruitful alliances with entities that may have similar businessobjectives. Your Bank at present has several alliances:
Birla Sunlife Insurance Corporate Agency - Life Insurance
ICICI Lombard General Insurance Corporate Agency - General Insurance
Annapurna Microfinance Lok Management Services New Opportunity ConsultancyPahal Financial Services People's
Forum Taraashna Services Business Correspondents - JLG/SHG/Microenterprise/Livestock/Savings/Deposits
Western Union Business Solutions (USA) Technology Services - ForeignExchange Remittances
Weizmann Forex Referral Agent Trade Related Outward Remittances
Paul Merchants Thomas Cook Referral Agent Trade Related OutwardRemittances
TVS Credit Services Referring Auto Loan Customers
Janalakshmi Financial Services IIFL SKS Microfinance Madura Microfinance Co-branded Prepaid Card
Satin Creditcare Network Utkarsh Microfinance Annapurna MicrofinanceSwabhimaan Microfinance Taraashna Services
Bajaj Allianz Death Claim Settlement on Prepaid Card
Slonkit Co-branded Prepaid Card cum Wallet
MSME and SME
The importance of MSME and SME to India's economy and the Bank's strategy of pursuingthis segment have already been mentioned earlier in this discussion. The Bank has createdrobust sales underwriting and portfolio monitoring capability for growing the MSME/SMEbusiness offering a wide range of products and personalized services including ForeignExchange Cash Management Trade Finance and Internet Banking. The Bank has establishedmany new branches in Tier 2 to Tier 6 locations to specially target MSME/SME. The aim isto become the business partner of this vibrant entrepreneurial segment of the economy.Indian economy is going through a tough period and MSME/ SME are impacted. In view of thecurrent situation the Bank has adopted a very cautious approach. In FY 2016 MSME/ SMEAdvances grew by approximately 17 percent as compared to the previous year.
Corporate Banking is present across India with regional offices in AhmedabadBengaluru Chennai Delhi Hyderabad Kolkata and Mumbai. The business objective is toprovide a complete range of commercial banking solutions including Foreign Exchange TradeFinance and Cash Management. In FY 2016 the Bank added 23 new relationships in CorporateBanking. Your Bank has a strong underwriting team and credit systems to address theinherent risks in Corporate Banking exposure. The emphasis is on building a securedadvances portfolio and building a long term relationship with high quality large andmid-corporate houses. Regular review of the existing exposure is done with the aim ofinitiating timely action in case of any emerging risks. As economic conditions continuedto be under stress for many sectors in FY 2016 we exited a few exposures leading todecrease in overall Corporate Banking Advances. As a result of the early warning systemsin place and timely management of risky exposures Corporate Banking portfolio qualityremained stable.
AGRI AND INCLUSIVE BANKING (AIB)
AIB is a separate business unit formed to achieve financial inclusion. At the end of FY2016 this unit had 78 branches. There are many opportunities to offer simple yetinnovative products backed by superior technology in the rural and semi-urban areas ofIndia. Many of the new branches are located in Tier 2 to Tier 6 locations. There is aconstant endeavor to cater to under and unbanked population of the country through a widerange of products for example zero balance savings accounts small recurring depositaccount small loans to match the income and cash flow cycle. AIB also coordinates theentire PSL efforts for the Bank and is primarily responsible for achieving the financialinclusion targets. In FY 2016 AIB Advances grew by approximately 39 percent as comparedto the previous year.
Pradhan Mantri Jan-Dhan Yojana (PMJDY)
In FY 2016 your Bank actively participated in PMJDY and opened 19413 accounts. TheBank has enabled RuPay Debit Cards for PMJDY account holders. In the coming months theBank is planning to continue to vigorously promote PMJDY across all branches.
Pradhan Mantri Suraksha Bima Yojana (PMSBY) Pradhan Mantri Jeevan Jyoti Bima Yojana(PMJJBY) Atal Pension Yojana (APY)
The Bank successfully reached out to unbanked and economically weaker populationthrough PMSBY PMJJBY and APY programs that are designed to bring social security. In FY2016 your Bank enrolled 5319 customers under PMSBY 3500 customers under PMJJBY and1228 customers in APY.
Basic Savings Bank Deposit Account (BSBDA)
BSBDA has replaced "No frills account". This is a wonderful product forachieving financial inclusion especially those who have limited transaction needs in thelow income group and may not have proper identity address date of birth or signatureproofs. In FY 2016 the Bank opened 59508 BSBDA accounts.
"Kisan Mitra" as the name suggests is a liability product which fulfils therequirement and enhances the saving habit in rural areas. It is a product speciallydesigned for members of co-operative institutions (example dairy co-operative sugarco-operative). It is a modified Classic Savings Account with zero account opening amountand no Average Quarterly Balance maintenance charges. Co-operative institution paymentsare routed through this account.
Warehouse Construction Loan
There is a huge need in the country to provide farmers with scientific storage so thatwastage and stock deterioration can be reduced. Also proper warehousing helps famers toretain their produce and obtain fair pricing for their produce instead of selling indistress. Gramin Bhandaran Yojana a Capital Investment Subsidy Scheme for Construction /Renovation of Rural Godowns was introduced in FY 2002. In this scheme the borrower getsthe benefit of subsidy amount subject to availability of the scheme and borrower meetingNABARD prescribed guidelines.
Retail Agriculture Loan and Kisan Credit Card
In order to meet the credit needs of the farmers the Bank has several retail agriproducts namely Crop loans (example purchasing seeds fertilizers pesticides manuresirrigation) Animal Husbandry loans and loans for investment purpose like landimprovement irrigation and hi-tech agriculture.
Tractors form an integral part of the total agricultural equipment sector and is anindirect indicator of growth in the agricultural sector.
The Bank started Tractor Loans more than about 3 years ago and has steadily built upits business across Tier 2 to Tier 6 branches. Unseasonal rains and hailstorms inNorthern Central and Western parts of the country for continuous two seasons haveresulted in crop loss. Therefore the rural sentiment is somewhat negative. Overall in FY2016 Tractor sales in the country were down by approximately 12 percent as compared tothe previous year.
The Bank lends directly to Micro Finance Institutions (MFIs) who in turn lend to endborrowers/ customers. Over a period of time the Bank has created a strong network ofMFIcustomers across India.
Commodity Based Finance (CBF)
The Bank is engaged in lending to farmers and agri processors against agriculturalproduce stored in the designated warehouses. The Bank has a list of approved commoditiesagainst which the loans are given. The commodity market continued to be weak in FY 2016and therefore the Bank adopted a cautious approach.
Business Correspondent (BC)
The Bank is providing unsecured loans through BCs in four states namely ChhattisgarhGujarat Madhya Pradesh and Odisha. The loans are given to members of SHGs and JLGs forlivelihood activities thereby enabling them to avail small loans from banking sectorinstead of high cost borrowing from informal channels. These loans are primarily providedto small farmers and weaker sections mainly in rural areas. The Bank has financed 12539groups under lending to SHGs and JLGs. In FY 2016 in order to support the volume growthyour Bank introduced new software system for managing BC Loans. This software helpsmaintain detailed information about the borrowers under SHG JLG and Microenterprisescategories. It provides a common platform to both Bank and BCs for smooth processing ofloans and has added immense value by reducing the loan disbursal cycle time.
TREASURY MONEY MARKET AND FOREIGN EXCHANGE
Treasury actively manages liquidity Fixed Income Securities Trading Investment inEquity IPOs FX Trading and Customer Sales. Treasury ensures compliance with regulatoryrequirements such as CRR and SLR. As the Bank's performance continues to improve manyreputed Financial Institutions (FIs) have started subscribing to Certificate of Deposits(CDs) issued by the Bank. In FY 2016 the Bank also cautiously made gains by utilizing thetrading opportunities in G-Sec presented by declining interest rates.
RBI continued its accommodative stance on monetary policy to support growth and controlinflation. The Index of Industrial Production (IIP) remained weak due to slow growth inmanufacturing sector. WPI inflation remained in negative territory on account of lowercommodity prices however CPI remained higher mainly on account of high food prices andservices. Overnight liquidity was in deficit mode for most part of the year and RBIprovided liquidity support by way of overnight and term repo auctions. The ten year G-SECyield moved up from 7.60 percent to 7.75 percent despite 75 bps rate cut by RBI.
This was on account of high supply of Bonds through auctions from both Central andState Governments. However towards the end of FY 2016 G-Sec yields came down to around7.50 percent on account of rate cut expectations from RBI.
In FY 2016 major currencies including emerging market currencies faced significantdownward pressure on account of strengthening of US Dollar and fall in oil/commoditiesprices. Currencies like Russian Rouble Brazilian Real and South Africa Rand fell by 10percent to 30 percent. US Dollar appreciated against major currencies on account ofexpectation of rate hike by US Fed on the back of robust payroll data. The Indian Rupeewas under pressure and fell by 8 percent against the US Dollar. However the Indian Rupeeappreciated against other major currencies on account of lower Current Account Deficit andbetter growth prospects. India's Foreign Exchange reserves increased in comparison to theprevious year. Sensex was under pressure on account of continued selling by ForeignInstitutional Investors (FIIs) though this selling was somewhat offset by investment inG-Sec due to increase in FII limit provided by RBI. ECB and Japanese Central Bank loweredtheir benchmark interest rates to negative to support growth.
Cash Management Services (CMS)
The Bank provides Corporates MSME / SMEs and Retail customers sophisticated and costeffective CMS. This helps customer to manage their payment logistics in a hassle freemanner. In the last few years the Bank has steadily increased CMS customers. At the endof FY 2016 the Bank had 3528 customers using the Bank's CMS platform.
Business Internet Banking (BIB)
The Bank offers state-of-the-art BIB features especially designed for MSME / SMEcustomers. At the end of FY 2016 BIB facility was used by 16170 customers. The Bankplans to upgrade BIB in the coming months.
The credit risk policy supports and is aligned with the objective of achieving growthwhile maintaining portfolio quality by balancing risk and reward. The idea is to ensurelong term sustainable profits across business cycles. The Bank endeavours to continuouslyenhance its internal risk assessment capabilities. The Risk Function over time hasdeveloped capabilities to assess the risks associated with various products and businesssegments (example MSME SME Mortgages Corporate and AIB). The effort is to standardizethe credit approval process so that the outcomes are predictable. The Bank has implementeda rating model that takes into account both quantitative and qualitative factors andproduces a rating that becomes one of the key inputs to credit decisions. The CreditAdministration Department (CAD) is responsible for disbursement documentation andsecurity creation database management MIS and analytics.
The Credit Risk Analytics & Monitoring (CRAM) unit reviews key customer exposurescentrally to spot early warning signals based on the conduct of account and otherqualitative inputs. In FY 2016 one of the main highlight in Credit function is theintroduction of FinnOne Neo contemporary and comprehensive instalment loansoftware. This was a cross functional effort between Credit Technology Business andFinance. Your Bank is the first bank in India to embrace FinnOne Neo. This new software ishelping improve credit decisions productivity and customer experience. Credit alsointroduced "Hunter" software to detect potential fraud loan applications. Inorder to speed up loan processing a straight through "One Click" integration wasachieved to obtain credit bureau information. Several new products were introduced forexample Car Loan Smart Credit Personal Loan Two Wheeler and SME Flexi. In FY 2016proactive policy interventions through advanced use of analytics customer behaviourtrends application scoring was used to ensure healthy portfolio in the growing retailadvances. There was a lot of focus on training upskilling and process standardization.This helped in scaling up the credit workforce to meet the growing needs of the businessin terms of increase in locations and volumes.
Concentration risk is monitored and managed both at the customer level and at theaggregate level. The Bank continuously monitors portfolio concentrations by segmentratings borrower group sensitive sectors unsecured exposures industry and geography.The Bank adopts a conservative approach within the regulatory prudential exposure norms.
Besides the usual monitoring of Structural Liquidity Interest Rate Sensitive Gaplimits and Absolute Holding limits the Bank also monitors interest rate risks using Valueat Risk limits. Exposures to Foreign Exchange and Capital Markets are monitored withinpre-set exposure limits margin requirements and stop-loss limits.
Country Exposure Risk
The Bank has established specific country exposure limits which is capped at 1.5% ofTotal Assets. The limit also depends upon rating of individual countries. The Bank usesthe mitigant of insurance cover available through the Export Credit and GuaranteeCorporation (ECGC) where appropriate.
As part of the liquidity management and contingency planning the Bank assessespotential trends demands events and uncertainties that could result in adverse liquidityconditions. The Bank's Asset Liability Management (ALM) policy defines the gap limits forthe structural liquidity and the liquidity profile is analysed on both static and dynamicbasis by tracking cash inflow and outflow in the maturity ladder based on the expectedoccurrence of cash flow. The Bank undertakes behavioural analysis of the non-maturityproducts namely CASA Cash Credit and Overdraft accounts on a periodic basis to ascertainthe volatility of balances in these accounts. The renewal pattern and prematurewithdrawals of Term Deposits and drawdowns of unavailed credit limits are also capturedthrough behavioural studies. The liquidity profile is estimated on an active basis byconsidering the growth in Deposits Advances and investment obligations. The concentrationof large deposits is monitored on a periodic basis. Emphasis has been placed on growingRetail deposits and avoid as far as possible bulk deposits. The Bank periodically conductsliquidity stress testing.
Operational risk is the risk of loss resulting from inadequate or failed internalprocesses people or systems or external events. The Bank's operational risk managementframework is defined in the Operational Risk Management Policy approved by the Board ofDirectors. While the policy provides a broad framework Operational Risk ManagementCommittee (ORCO) oversees the operational risk management in the Bank. The policyspecifies the composition roles and responsibilities of the ORCO. The framework comprisesidentification assessment management and mitigation of risks through advanced tools andanalysis.
New products or services introduced are subject to a risk review and sign-off processso that relevant risks are identified and assessed independently from the unit proposingthe product. There is a separate Management Committee for Approval of Process (MCAP)constituted to approve and review various processes in the Bank. The said committeeconsists of experienced bankers and subject matter experts. Internal Audit also reviewsthe processes that are implemented as part of the audit function.
The Bank pays special attention to issues that may create a Reputational risk. Eventsthat can negatively impact the Bank's position are handled cautiously ensuring utmostcompliance and in line with the values of the Bank.
Implementation of Basel III guidelines
In accordance with RBI guidelines the Bank has migrated to Basel III capital adequacydisclosures with effect from Q1 FY 2014. The Bank continues to review and improve on itsrisk management systems and practices to align them with international best practices. TheBank has successfully implemented Standardized Approach for Credit Risk StandardizedDuration Approach for Market Risk and Basic Indicator Approach for Operational Risk.
INFORMATION TECHNOLOGY (IT)
Technology has been changing rapidly in the banking industry and customers are alwaysexpecting value added services across multiple channels. Banks have to keep pace else risklosing loyalty of customers. Our intention is to be part of this transformational journeyand stay ahead of competition. The Bank's IT strategy has four pillars a) CoreApplications continuously upgrade to support digital transformation b) Mobile/Tab create customer convenience by optimum use of mobile devices c) Payments offer innovative solutions that are dynamic secure and fast d) Infrastructure modernize to support business growth in a cost effective and secure manner. In FY 2016the Bank launched several new applications and upgrades a) Pilot launch of India'sfirst Aadhaar and fingerprint biometric ATM b) FinnOne Neo instalment loan systemc) Gold Loan Management System d) user friendly and comprehensive Mobile Banking DCB On The Go e) Missed Call Facility f) IMPS for internet mobile and branch bankingg) Straight Through RTGS/NEFT h) NACH for managing customer mandates i) RuPay on Point ofSale (POS) j) Smart Credit for reducing credit cards interest cost k) Online MutualFunds l) Enhanced Business Internet Banking m) e-DSR to manage frontline sales force n)m-Collect for easing field collections activity o) m-Credit to speed up MSME/SME loanprocessing p) Aadhaar e-KYC at select branches q) user friendly and responsive DCB
Bank website r) Talisma email solution s) BR Net for managing BC expansion t) AMLOCKnew version to improve AML/KYC monitoring u) network upgrade to provide better speed andresponse at branches v) Server Virtualization to facilitate business scale up and w)migration to state-of-the-art Data Center.
The Bank's focus is on creating a cost effective scalable Operations unit that candeliver superior customer experience. The Bank intends to achieve optimum centralizationof activities to National Processing Center (NPC) Chennai with the idea of creating acentre of excellence. Initiatives in FY 2016 include centralisation of Inward Clearinginsourcing of CTS scanning for Outward Clearing NACH mandate management insourcing ofcustomer letters and statements and cards migration from magnetic stripe to chip basedcard. In the coming months the Bank intends to further simplify its processes in order toprovide superior experience to the customers in the growing branch network.
INTERNAL AUDIT (IA)
IA has a team of professionals experienced bankers domain experts and new comers withaudit and finance background. The Audit Committee of the Board (ACB) provides directionand monitors the effectiveness of the IA function. IA forms the third line of defence inthe overall risk management framework of the Bank. IA is independent and continuouslyevaluates and tests the internal controls to identify gaps inadequacies and residualrisks. The IA function incorporates RBI guidelines aims to embrace the best practicesfrom the industry professional bodies and strives to follow high standards. IA has put ina detailed risk assessment and audit planning process in place. In FY 2016 branch auditmodel was revamped audit program/ scope enhanced scoring and reporting revised. Furtherrealizing the importance of IT IA strengthened the audit process of the IT unit.Concurrent audit engagement and scope was revised and additional efforts were put in toimprove the quality and efficiency of audits. IA focused on data analytics to improve riskidentification and accordingly 60 plus exception reports were introduced for monitoringthe branches. IA has a follow up process to ensure issues identified are rectified in atimely manner. IA conducts regular in-house training to improve the competency of theinternal audit team. IA continues to appraise the Board the Audit Committee of the Board(ACB) and the Management teams in terms of newer emerging threats and recommendappropriate mitigating measures.
HUMAN RESOURCE (HR)
In FY 2016 the HR unit continued the people agenda of developing caring engaging andbuilding a culture that supports performance and growth. The Bank's headcount went up from3352 in FY 2015 to 4248 in FY 2016. The HR unit ensured that 70 percent of newcomerscomplete their induction program within 15 days of joining. In order to attract "GenY" candidates a new modern interactive youthful career website was launched. The Bankbelieves in hiring and grooming "freshers". Accordingly HR created "DCBBootcampers program". The Bank already has an innovative mobile app called "DCBConnect" which has so far witnessed almost 3000 downloads. A unique concept ofengaging the freshers' parents was launched by the HR team.
The freshers' parents were pleasantly surprised with a welcome card from the Bank alongwith the newcomer's business card. This had a super impact on the entire family. In FY2016 the HR training team was operating at full steam. A total of 1243 training programswere conducted in which 3635 staff participated. In order to help improve the supervisionquality "DCB Ascend" a five step certification program was launched. Theprogram is intended to improve people competency at all levels of supervision. Anotherinnovation was the online training module called "DCB Lumos" which has become abig success. Lumos has now been adopted by almost 67 percent of the staff and it containsover 45 key modules including product process and compliance. The entire HR system hasbeen revamped with the introduction of "E-vu". This will help achieve paperlessHR processes and also provide employees with superior experience. In the spirit ofimproving benefits Group Medical Claim policy was substantially improved with theintroduction of a) Sum Insured enhancement b) Introduction of concept of"floater" c) Inclusion of parents (with co-pay). In the Corporate Office"Doctor-On-Board" service was introduced. The city of Chennai witnessedunprecedented rains causing flood and havoc. The entire city suffered terrible hardshipfor many days. The HR unit swung into quick action and helped provide fast emergency loansto 116 employees to support rehabilitation. HR organised "DCB Allympics" a megasports event across many cities. All the houses participated with huge enthusiasm. The dayended with a staff fashion show. The HR unit conducted "Family @ Work" apainting competition for employees' children. The theme was "Save the Planet".The best of the paintings were chosen for the Bank's yearly diary and calendar. Throughoutthe year enthusiasm was created and festive mood sustained with events such as KiteFlying Independence Day Celebration Manco Food Fest Dandiya Night Cricket TournamentRangoli Competition Mother's Day Celebration Fun Quiz Stepatholon Diwali Christmasand Id. For the welfare of the employees HR organized Eye Check Up Medical Camp and"Straight from the Heart" programs.
Ensuring customer delight in every interaction remains the Bank's core desire forgrowth and success. Customer complaints and satisfaction levels are closely monitored bythe MD & CEO and Senior Management team. An independent Service Excellence teamanalyses customer complaints identifies the root cause makes suggestions for processimprovements and follows up with the respective units for rectification. The Bank has a"Centralised Complaint Management" system to ensure that customer queries andcomplaints are not missed out. Customer queries and complaints are vigorously followed upto ensure timely resolution and stringent quality standards are imposed on the Bank'sstaff. The Bank continues to make good progress on the concept of Power of Three -Empathy Speed and Quality (ESQ) initiative launched four years ago. The Bank's ambitionis to make ESQ the defining character of the Bank. The ESQ quotient displayed by theprospective employee is a key parameter for recruitment just as demonstrated ESQ is a keyingredient of the performance appraisal of every employee. In order to enhance customerservice the Bank has embarked on six pillars of Service Excellence Voice ofCustomer Service Recovery Attrition Calling Process Simplification Service Culture andMeasures & Metrics. The Service Excellence team regularly conducts customer complaintmeetings review of progress on six pillars with key stakeholders weekly calls withfrontline staff to obtain feedback make surprise visits to branches conduct customermeetings focus groups with branch staff and mystery shopping to understand frontlineservice culture and competence. DCB Esquire magazine was launched to recognize ESQchampions. In this monthly magazine 154 ESQ stories were published and 155 champions wererecognized. The progress on Service Excellence is regularly monitored by the CustomerService Committee (CSC) of the Board.
Your Bank provides customers the choice of accessing DCB 24 hour Customer Care PhoneBanking ATMs Internet and Mobile Banking for completing their banking needs. The Bankstrives to provide best-in-class technology and service platform and hence introduced theMissed Call Facility which enables customers to complete their basic banking by simplygiving a missed call. "DCB on the Go" the Bank's mobile banking platform hasbeen upgraded and is now available in Android and iPhone smart phones. The Bank providesinstant fund transfer facility through Inter Bank Mobile Payment System (IMPS). In FY2016 the Bank's Customer Care Associates attended to almost 9 lakh calls. At DCB Bank's24 Hour Toll Free Customer Care customers directly get connected with the Bank officer(Customer Care Associate) without going through the pain of IVR. Thus customers receivepersonal care. The Bank offers 6 different languages that customers can choose frommaking it one of the best in the industry.
Marketing / Brand Awareness
FY 2016 witnessed hectic activity in the Marketing/Brand Awareness unit. Throughout theyear lots of programs were conducted to create brand visibility. It helped to improvestaff morale as well. The Bank tied up with BITS Pilani and presented "Conquest2015" a prestigious start-up competition where young companies in the IT spacecompeted for funds visibility mentoring incubation and investments. This was in linewith the Bank's strategy of engaging with "Fintech". The Bank was the OfficialPartner - Kings XI Punjab for IPL in 2015 and received immense visibility in the entireNorth region of India. Some of the Bank's customers also got a chance to meet with selectplayers of Kings XI Punjab in official customer events. The Bank was associated with theninth edition of the World Sacred Spirit Festival (WSSF) 2016 an international artsand cultural extravaganza in Mehrangarh Fort Jodhpur Rajasthan featuring eminent worldfamous artists. This program also helped to promote local artists and exceptional youngtalent. Besides the above the Bank participated in "Kalyanamalai" organized bySun TV sponsored KGA Republic Day Golf in Bangalore and Navy Golf Tournament in Delhi. Afabulous Sufi music night "Hamsafar Hamsar" was also organized in Delhi forselect customers. In FY 2016 around the branch neighbourhood the Bank conductedapproximately 2500 micro marketing events. This below-the-line marketing strategy helpedin generating valuable business leads and also created plenty of brand visibility. Someexamples of micro marketing activities were musical festivals residential contactprogram marathon customer meets golf event movie shows club programs blood campsfree health checkups car rally city clean up distribution of drinking water at placesof worship and festival celebrations.
PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS BY THE BANK.
Not applicable being a banking company.
PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All the transactions with related parties are in the ordinary course of business and onarm's length basis; and there are no material' contracts or arrangement ortransactions at arm's length basis and thus disclosure in from AOC-2 is not required.
POLICY ON RELATED PARTY TRANSACTIONS OF THE BANK
The Bank has a policy on Related Party Transaction and the same has been displayed onthe Bank's website: http://www.dcbbank.com/pdfs/Policy-on-Related-Party-Transactions-2014-15.pdf
CORPORATE SOCIAL RESPONSIBILITY (CSR)
A Board Level Committee of CSR has been constituted and the Board has adopted a CSRPolicy as recommended by the Committee. The thrust areas of CSR Policy are a) Conservationof water / water storage / water usage / protecting water bodies; b) Waste Management; andc) Recycling. The Bank's thrust area is also in keeping with the Government of India'sSwachh Bharat initiative.
Your Bank CSR project is located at Hirwe village in Mokhadda block of Palghar districtin Maharashtra. This project has two fold objectives. Firstly the near term impact ofsupply storage and judicious use of water for irrigation and other use. The longer termimpact aims to bring about a salutary change in the health income and overall quality oflife indicators.
Due to lack of sustainable agriculture and natural resource management rural India hasoften fallen into the trap of either droughts or flooding for lack of technical knowhowabout rain water harvesting or water recharging which benefits small and marginal farmerswith better quality life and livelihood. The project at Hirwe aims to achieve watersupply storage and irrigation developed through the installation of a solar powered liftirrigation system which will lift water from a perennial water source. This will enablethe marginal farmers grow at least two crops and possibly an intercrop too.
The enhanced production of horticulture produce has a ready market - local at Nasikand upto Navi Mumbai. Use of non fossil fuel as a power source by the use of solar panelsis a pollution abatement measure. Use of natural gravity to supply water from storagepositioned on hills surrounding the village unshackles the villages from unreliable gridpower. The project also incorporates drip irrigation. Thus during monsoon season rain fedirrigation will be used while during the non monsoon season drip irrigation will resultin judicious use of water. Website link for DCB Bank CSR policy is athttp://www.dcbbank.com/pdfs/DCB-Bank-CSR-Policy.pdf
CORPORATE SOCIAL RESPONSIBILITY (CSR)
A Board level committee for CSR has already been in place as stated in the section onCorporate Governance. The report on CSR is given below: Report on Corporate SocialResponsibility (CSR) Activities during the FY 2015-16:
|Sr. No. ||Description ||Particulars/Details |
|1. ||A brief outline of the Bank's CSR policy including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs ||Outline: CSR Activities shall mean all the Corporate Social Responsibility activities / programs / initiatives of the Bank either ongoing or new dealing with the activities mentioned in thrust areas. The activities shall conform to those specified in Schedule VII to the Act (as amended from time to time) and as recommended by the CSR Committee and approved by the Board. |
| || ||The Bank's thrust area is also in keeping with the Government of India's Swachh Bharat initiative. |
| || ||Thrust areas or activities ascribed to them are defined in the Policy as amended by the Board from time to time. |
| || ||Projects/ Programmes to be undertaken: |
| || ||CSR Thrust Areas for DCB Bank |
| || ||Thrust areas shall mean and include any one or more of the following CSR activities: |
| || ||a) Conservation of water/water storage/water usage/protecting water bodies |
| || ||b) Waste Management |
| || ||c) Recycling |
| || ||Project/s supported: |
| || ||Due to lack of sustainable agriculture and natural resource management rural India has often fallen into the trap of either droughts or flooding. This is further aggravated due to lack of technical knowhow about rain water harvesting or water recharging structures which can give small and marginal farmers a better quality of life and livelihood. |
| || ||DCB Bank's CSR Project at Hirwe village Mokhada block Palghar District Maharashtra. |
| || ||Irrigation facilities will be developed through the installation of a solar powered lift irrigation system which will lift water from a perennial water source and disburse it to cultivable lands. The water will be lifted to a height by means of a solar powered water pump and stored in 4 tanks of 5000 litres at 2 locations (on hills) http://www.dcbbank.com/pdfs/DCB-Bank-CSR-Policy.pdf |
|2. ||The Composition of the CSR Committee. ||The members of the CSR Committee are Mr. Nasser Munjee (Chairman) Mr. Keki Elavia Mr. S. Sridhar Ms. Rupa Devi Singh and MD & CEO Mr. Murali M. Natrajan. Majority of the members are Independent Directors. |
|3. ||Average net profit of the Bank for last three financial years (after adjusting for brought forward accumulated losses) ||Rs. 50.70 crore |
|4. ||Prescribed CSR Expenditure (two per cent. of the amount as in item 3 above) ||Rs. 1.01 crore |
|5. ||Details of CSR spent during the financial year: || |
| ||a) Total amount to be spent for the financial year; || |
| ||b) Amount unspent if any; || |
| ||c) Manner in which the amount spent during the financial year. ||- See the table on the following page - |
Manner in which the amount spent during the financial year 2015-16
|(1) ||(2) ||(3) ||(4) ||(5) ||(6) ||(7) ||(8) |
|S. No ||CSR project or activity identified. ||Sector in which the Project is covered ||Projects or programs ||Amount outlay (budget) Project or programs wise ||Amount spent on the Projects or programs Sub-heads: ||Cumulative expenditure up to the reporting period ||Amount spent Direct or through implementing agency * |
| || || ||(1) Local area or other || || || || |
| || || ||(2) Specify the State and district where projects or programs were undertaken || ||(l) Direct expenditure on projects or programs. || || |
| || || || || ||(2) Overheads: || || |
|1 ||Provision of water storage facility for farm & community use. Solar powered lift water storage & drip irrigation ||Water resource management & sustainable livelihood for farmers ||(1) Project located in other area. ||Rs. 4097612 ||(1) Direct expenditure Rs. 3414677 (2) Expenditure on overheads Rs. 682935 ||Of the total outlay Rs.4097612 has been disbursed to the Project ||CSR project amount spent through implementing agency. Concern India Foundation is the NGO partner. Aerohan is the Implementing Agency. |
| || || ||(2) Project site is in the State of Maharashtra Palghar District. The village Hirwe is located in Mokhadda Block. || || || || |
| ||TOTAL ||- ||- ||Rs. 4097612 ||Rs. 4097612 ||- ||- |
* Details of implementing agency to be given
6. Reason for not spending the two per cent of the average net profit of the last threefinancial years or any part thereof:
In FY 2015-16 DCB Bank introduced the CSR Policy. The Bank's approach has been measuredand nuanced; therefore the initial few projects will also be a learning process for theCSR team. It is also a means of assessing capabilities of the Implementation Agency andPartner. The intent is to ensure positive impact of CSR projects and allocate the limitedresources in a calibrated manner. Aided by the learning from the measured rollout of CSRprojects initially the Bank intends to expand the scope and allocation of funds graduallyin due course.
7. Responsibility Statement:
The CSR Committee of the Bank hereby states that the implementation and monitoring ofCSR Policy is in compliance with the CSR objectives and Policy of the Bank.
|Sd/- ||Sd/- |
|(Chief Executive Officer or Managing Director or Director) ||(Chairman- CSR Committee) |
POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FOR DETERMININGQUALIFICATIONS POSITIVE ATTRIBUTES INDEPENDENCE OF A DIRECTOR KEY MANAGERIAL PERSONNELAND OTHER EMPLOYEES
The Board shall have minimum 3 and maximum 15 directors unless otherwise approved. Noperson of age less than 21 years shall be appointed as a director on the Board. The Bankshall have such person on the Board who complies with the requirements of the CompaniesAct 2013 the Banking Regulation Act 1949 Provisions of the Listing Regulations theFit & Proper' criteria prescribed by the Reserve Bank of India (RBI) Memorandumof Association and Articles of Association of the Bank and all other statutory provisionsand guidelines as may be applicable from time to time. Composition of the Board shall bein compliance with the requirements of Regulation 17 of the Securities and Exchange Boardof India (Listing Obligations and Disclosure Requirements) Regulations 2015 (the ListingRegulations). Majority of the Directors as required under the Banking Regulation Actshall have specialised knowledge/experience in the areas like Agriculture Banking SSILegal Risk Management Accountancy Finance etc. Except for the Chairman and the MD &CEO no other directors are paid remuneration but are paid only sitting fees. TheChairman and the MD & CEO are paid remuneration as approved by RBI and otherapplicable authorities but are not paid sitting fees. MD & CEO Company Secretary andChief Financial Officer shall be the Key Managerial Personnel (KMPs) of the Bank. Allpersons who are Directors / KMPs members of Senior Management and all other employeesshall abide by the Code of Conduct. Independent Directors are not entitled for ESOPs.Directors/KMPs shall not acquire any disqualification and shall be persons of soundintegrity and honesty apart from knowledge experience etc. in their respective fields.
PARTICULARS OF EMPLOYEES
The Bank had 4248 employees as on March 31 2016. 17 employees employed throughout theyear were in receipt of remuneration of more than Rs. 60 lacs per annum and 1 employeeemployed for part of the year was in receipt of remuneration of more than Rs. 5 lacs permonth. The details of such employees in terms of Section 197(12) of the Companies Act2013 read with Rule 5 (2) and 5(3) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are appended separately (Annexure-I) and form part ofthis
Report. The Report and Accounts are being sent to the shareholders excluding theseparticulars and any shareholder interested in obtaining the said details may write to theCompany Secretary at the Registered Office of the Bank.
EMPLOYEE STOCK OPTIONS
The information pertaining to the Employee Stock Options is given in ANNEXURE-II tothis Report.
PARTICULARS PURSUANT TO SECTION 197(12) AND THE RELEVANT RULES :
a) The ratio of the remuneration of each director to the median employee's remunerationfor the financial year and such other details as prescribed are as given below:
|Name ||Ratio |
|Nasser Munjee (Chairman) ||6 : 1 |
|Murali M Natrajan (Managing Director & CEO) ||146 : 1 |
|b) The percentage increase in remuneration of each director Chief Financial Officer Chief Executive Officer Company Secretary or Manager if any in the financial year: || |
|Mr. Nasser Munjee (Chairman): ||0% |
|Mr. Murali M Natrajan (Managing Director & CEO):* ||7% |
|Mr. Bharat Laxmidas Sampat (Chief Financial Officer):* ||7% |
|Mr. Hemant Vinayak Barve (Company Secretary):* ||0% |
|* Excludes Bonus || |
|c) The percentage increase in the median remuneration of employees in the financial year : ||4% |
|d) The number of permanent employees on the rolls of Bank: ||4248 |
e) The explanation on the relationship between average increase in remuneration andBank performance: The Bank's Profit After Tax has grown from Rs.191.18 Cr to Rs.194.52 Cran increase of 1.75% against which the average increase in remuneration is 10%; and thisincrease is aligned with the Compensation Policy of the Bank. f) Comparison of theremuneration of the Key Managerial Personnel against the performance of the Bank:
|Name ||Designation ||CTC* (Rs.) ||% Increase in CTC ||PAT (Rs. in crore) ||% Increase in PAT |
|Murali M Natrajan ||Managing Director & CEO ||**45838396 ||7% || || |
|Bharat Laxmidas Sampat ||Chief Financial Officer ||10139200 ||7% ||194.52 ||1.75% |
|Hemant Vinayak Barve ||Company Secretary ||4000000 ||0% || || |
* Excludes Bonus and Perquisite value of ESOPs exercised during the Financial Year2015-16.
** Consists of Salary/Allowance & Benefits as approved by the Reserve Bank ofIndia.
As per the Bank's Compensation Policy the compensation of the Key Managerial Personnelis based on various parameters including Internal Benchmarks External BenchmarksFinancial Performance of the Bank and Regulatory guidelines. g) Variations in the marketcapitalisation of the Bank price earnings ratio as at the closing date of the currentfinancial year and previous financial year and percentage increase or decrease in themarket quotations of the shares of the Bank in comparison to the rate at which the Bankcame out with the last public offer:
|Date ||Issued Capital (Shares) ||Closing Market Price per shares Rs. ||EPS ||PE Ratio ||Market Capitalisation (Rs. in million) |
|31.03.2015 ||282012273 ||110.95 ||7.21 ||15.39 ||31289.26 |
|31.03.2016 ||284436073 ||79.25 ||6.86 ||11.55 ||22541.56 |
|Increase /(Decrease) ||2423800 ||(31.70) ||(0.35) ||(3.84) ||(8747.70) |
|% of Increase/(Decrease) ||0.86 ||(28.57) ||(4.85) ||(24.95) ||(27.96) |
|Issue Price of the share at ||- ||26.00 ||- ||- ||- |
|the last Pubic Offer (IPO) || || || || || |
|Increase in market price ||- ||53.25 ||- ||- ||- |
|as on 31.03.2016 as || || || || || |
|compared to Issue Price || || || || || |
|of IPO || || || || || |
|Increase in % ||- ||204.81 ||- ||- ||- |
h) Average percentile increase already made in the salaries of employees other than themanagerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and any exceptionalcircumstances for increase in the managerial remuneration : Average increase inremuneration is 11% for Employees other than Managerial Personnel & 8% for ManagerialPersonnel (KMP and Senior Management)
i) The key parameters for any variable component of remuneration availed by thedirectors: Except for the Chairman Mr. Nasser Munjee and the Managing Director & CEO(MD & CEO) Mr. Murali M Natrajan none of the directors has been paid any remunerationas only Sitting Fees are paid to them. Mr. Nasser Munjee is not paid any variableremuneration. However with respect to MD & CEO variable component is paid in the formof Bonus as per the Compensation Policy of the Bank which is based on the Reserve Bank ofIndia guidelines on the Compensation Policy. Any payment of this nature is made only withthe prior approval of the Reserve Bank of India and the Board of Directors.
j) The ratio of the remuneration of the highest paid director to that of the employeeswho are not directors but receive remuneration in excess of the highest paid directorduring the year: Not Applicable
k) If remuneration is as per the remuneration policy of the Bank: Yes
PARTICULARS REGARDING CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGNEXCHANGE EARNINGS AND OUTGO
The provisions of Section 134(3)(m) of the Companies Act 2013 relating to conservationof energy and technology absorption do not apply to the Bank. However as mentioned inearlier part of the Report the Bank has been continuously and extensively usingtechnology in its operations. Foreign Exchange earnings and outgo are part of the normalbanking business of the Bank.
ESTABLISHMENT OF VIGIL MECHANISM
The Bank has in place a vigil mechanism pursuant to which a Whistle
Blower Policy has been in vogue for the last several years. The policy was lastreviewed in FY2016.This Policy inter alia provides a direct access to a WhistleBlower to the Chairman of ACB on his dedicated email-ID firstname.lastname@example.org. The WhistleBlower Policy covering all employees and directors is hosted on the Bank's website at"http:// www.dcbbank.com/cms/showpage/page/whistle-blower-policy".
THE DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS
The Bank has designed and implemented a process driven framework for Internal FinancialControls ("IFC") within the meaning of the explanation to Section 134 (5) (e)IFC of the Companies Act 2013. For the year ended 31 March 2016 the Board is of theopinion that the Bank has sound IFC commensurate with the nature and size of its businessoperations wherein controls are in place and operating effectively and no materialweaknesses exist. The Bank has a process in place to continuously monitor the existingcontrols and identify gaps if any and implement new and /or improved controls whereverthe effect of such gaps would have a material effect on the Bank's operation.
DIRECTORS' RESPONSIBILITY STATEMENT
Based on the framework of internal financial controls and compliance systemsestablished and maintained by the Bank the work performed by the internal statutory andsecretarial auditors and the reviews performed by the Management and the relevant BoardCommittees including the Audit Committee of the Board the Board is of the opinion thatthe Bank's internal financial controls were adequate and effective during the year ended31 March 2016. Accordingly pursuant to Section 134 (5) of the Companies Act 2013 basedon the above and the representation received from the Operating Management the Board ofDirectors to the best of their knowledge and ability confirms that: (i) in thepreparation of the annual accounts the applicable accounting standards have been followedand that there were no material departure therefrom; (ii) they have in the selection ofthe accounting policies consulted the statutory auditors and have applied theirrecommendations consistently and made judgements and estimates that are reasonable andprudent so as to give a true and fair view of the state of affairs of the Bank as at 31March 2016 and of the profit of the Bank for the year ended on that date; (iii) they havetaken proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Companies Act2013 for safeguarding the assets ofthe Bank and for preventing and detecting fraud and other irregularities; (iv) they haveprepared the annual accounts on a going concern basis; (v) they have laid down internalfinancial controls to be followed by the Bank and that such internal financial controlsare adequate and were operating effectively during the year ended 31 March 2016; and (vi)proper systems have been devised to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively during theyear ended 31 March 2016.
EXTRACT OF THE ANNUAL RETURN
An extract of the Annual Return as of 31 March 2016 pursuant to the sub-section (3) ofSection 92 of the Companies Act 2013 and forming part of the report is attachedseparately as ANNEXURE-III to this report..
The Bank has been continuously observing the best corporate governance practices andbenchmarks itself against each such practice. A separate section on Corporate Governanceand a Certificate from the Statutory Auditors M/s. B S R & Co. LLP CharteredAccountants (Registration No.101248W/W-100022) regarding compliance of the conditions ofCorporate Governance as stipulated in Schedule V of the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 form part of this Annual Report.
During FY 2016 there was no change in the Board of Directors. A brief resume relatingto Mr. Munjee who is to be re-appointed as Director is furnished in the notice of the 21stAGM as well as in the report on Corporate Governance. Based on the Disclosures provided byhim he is not disqualified from being appointed as a Director as specified in terms ofSection 164 of the Companies Act 2013. He is not related to any other director.
A STATEMENT INDICATING THE MANNER IN WHICH FORMAL ANNUAL EVALUATION HAS BEEN MADE BYTHE BOARD OF ITS OWN PERFORMANCE AND THAT OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS;
1. The Chairman of the Nomination and Remuneration Committee of the Board sent a draftparameterized feedback forms for evaluation of the Board the Independent Directors andthe Chairman.
2. Independent Directors at a meeting without anyone from the non-independent directorsand management considered/evaluated the Board's performance performance of the Chairmanand other non-independent Directors.
3. The Board subsequently evaluated performance of the Board the Committees andIndependent Directors (without participation of the relevant director)
THE DETAILS OF FAMILIARISATION PROGRAMME ARRANGED FOR INDEPENDENT DIRECTORS HAVE BEENDISCLOSED ON WEBSITE OF THE BANK AND ARE AVILABLE AT THE FOLLOWING LINK: http://www.dcbbank.com/pdfs/Familarisation_Programme_for_Independent_Directors.pdf
M/s. B S R & Co. LLP Chartered Accountants (Registration No.101248W/W-100022) whowere re-appointed as Statutory Auditors at the last Annual General Meeting have completedtheir consecutive term of four years. Section 139 of the Companies Act 2013 and the Rulesmade there under provide that a company can appoint a firm as auditor for maximum twoterms of five consecutive years. In other words a company can make appointment of auditorfor five years at a time. However the Bank is also governed by the provisions of theBanking Regulation Act 1949 and the circulars/ notification/guidelines issued by theReserve Bank of India (RBI) from time to time. As per the extant provisions RBI givespermission for appointment of auditor on year-to-year basis. Further as per RBI'sdirective it is mandatory to rotate the Auditor after completion of four years. SinceM/s. B S R & Co. LLP have already completed their term of four years appointment ofM/s. Deloitte Haskins & Sells Chartered Accountants (Registration No. 117365W) asthe Statutory Auditors of the Bank has been approved by RBI vide letter Ref. DBS.ARS.No.11937/08.37:005/2015-16 dated April 12 2016 for the year 2016-17 for their firstyear and their appointment is recommended by the Board for approval of shareholders atthe ensuing Annual General Meeting for a period of up to four financial years i.e. tillthe 25th AGM.
SECRETARIAL AUDIT REPORT
Pursuant to the requirements of the Companies Act 2013 the Bank has appointed M/sAnanthasubramanian & Co. Practicing Company Secretaries (CoP 1774) as the SecretarialAuditor for FY 2016 and their report of April 11 2016 is attached separately to thisreport.
Your Board wishes to thank the principal shareholder and promoters the Aga Khan Fundfor Economic Development S.A. (AKFED) and all the other shareholders for the confidenceand trust they have reposed in the Bank. Your Board also acknowledges with appreciationthe Reserve Bank of India (RBI) for its valuable guidance and support to the Bank. YourBoard similarly expresses gratitude for the assistance and co-operation extended by SEBIBSE NSE NSDL CDSL NPCIL Central Government and the Governments of various StatesUnion Territories and the National Capital Region of Delhi where the Bank has itsbranches.
Your Board acknowledges with appreciation the invaluable support provided by theBank's auditors lawyers business partners and investors. Your Board is also thankful forthe continued co-operation of various financial institutions and correspondents in Indiaand abroad.
Your Board wishes to sincerely thank all its customers for their patronage. Your Boardrecords with sincere appreciation the valuable contribution made by employees at alllevels and looks forward to their continued commitment to achieve further growth and takeup more challenges that the Bank has set for the future.
| ||On behalf of the Board of Directors |
|Place: Hyderabad ||Nasser Munjee |
|15 April 2016 ||Chairman |
Annexure-II to Directors' Report
[Details of the Employee Stock Option Scheme (ESOS) as of March 31 2016 pursuant tothe requirements under Regulation 14 of the Securities and Exchange Board of India (ShareBased Employee Benefits) Regulations 2014]
The Bank has only one ESOS viz. DCB Bank Ltd. Employee Stock Option Planconsisting of Sub- Plans I (MANCO) and Sub-Plan II (Non-MANCO).
During the year under review the Bank has extended the exercise period from 5years to 8 years from the date of vesting for all the un- exercised options in force ason July 1 2015.
The ESOS is in compliance with the Securities and Exchange Board of India (ShareBased Employee Benefits) Regulations 2014.
The following details have been disclosed on the Bank's website athttp://www.dcbbank.com/cms/showpage/page/disclosures
A. Relevant disclosures in terms of the Guidance note on accounting for employeeshare-based payments' issued by ICAI or any other relevant accounting standards asprescribed from time to time. B. Diluted EPS on issue of shares pursuant to all theschemes covered under the regulations in accordance with Accounting Standard 20 -Earnings Per Share' issued by ICAI or any other relevant accounting standards asprescribed from time to time. Details related to ESOS:
(i) The Bank had in existence only one ESOS during the year viz. DCB Bank Ltd.Employee Stock Option Plan consisting of Sub- Plans I (MANCO) and Sub-Plan II(Non-MANCO). The general terms and conditions of the same as given below:
|Description ||Sub- Plans I (MANCO) ||Sub-Plan II (Non-MANCO) |
|(a) Date of shareholders' approval (b) Total number of options approved under ESOS ||December 15 2006 4% of the Issued Capital of the Bank on an ongoing basis. ||December 15 2006 3% of the Issued Capital of the Bank on an ongoing basis. |
|(c) Vesting requirements ||30%30%20% and 20% at end of 2nd 3rd 4th and 5th year respectively from the date of grant subject to the conditions of vesting for death permanent disability or retirement of an employee. ||30%30%20% and 20% at end of 2nd 3rd 4th and 5th year respectively from the date of grant subject to the conditions of vesting for death permanent disability or retirement of an employee. |
|(d) Exercise price or pricing formula ||The Exercise price of the Option shall be at a price related to the Market Price as decided by the Board/ Nomination Committee. ||The Exercise price of the Option shall be at a price related to the Market Price as decided by the Board/ Nomination Committee. |
|(e) Maximum term of options granted ||Vesting would be within 5 years from the date of grant and shall be exercised within 8 years from the date of vesting subject to conditions of vesting and exercise for death permanent disability or retirement of an employee. ||Vesting would be within 5 years from the date of grant and shall be exercised within 8 years from the date of vesting subject to conditions of vesting and exercise for death permanent disability or retirement of an employee |
|(f) Source of shares (primary secondary or combination) ||Primary ||Primary |
|(g) Variation in terms of options ||The exercise period was extended from 5 years ||The exercise period was extended from 5 years |
| ||to 8 years from the date of vesting for all the ||to 8 years from the date of vesting for all the un- |
| ||un- exercised options in force as on July 1 2015. ||exercised options in force as on July 1 2015. |
(ii) Method used to account for ESOS - Intrinsic value.
(iii) Where the Bank opts for expensing of the options using the intrinsic value of theoptions:
|The difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options. The impact of this difference on profits and on EPS of the Bank ||Had the Bank followed fair value method for accounting the stock options compensation expense would have been higher by Rs. 2.30 crore. |
| ||Consequently profit after tax would have been lower by that extent. The basic EPS of the Bank would have been Rs. 6.78 per share and the Diluted EPS would have been Rs. 6.69 per share. |
(iv) Option movement during the year :
|Particulars ||Details |
|Number of options outstanding at the beginning of the period ||11035040 |
|Number of options granted during the year ||500000 |
|Number of options forfeited / lapsed during the year ||393415 |
|Number of options vested during the year ||1334785 |
|Number of options exercised during the year ||2423800 |
|Number of shares arising as a result of exercise of options ||2423800 |
|Money realized by exercise of options (INR) if scheme is implemented directly by the Bank ||70816854 |
|Loan repaid by the Trust during the year from exercise price received ||Not Applicable |
|Number of options outstanding at the end of the year ||8717825 |
|Number of options exercisable at the end of the year ||5317025 |
(v) The Weighted-average exercise prices of the Options granted during the year is Rs.114.95 and the weighted-average fair value is Rs. 47.04. (vi) Employee wise details (nameof employee designation number of options granted during the year exercise price) ofoptions granted to:
|a) senior managerial personnel ||Mr. Murali M. Natrajan-MD & CEO was granted 500000 Options during the year at the exercise price of Rs. 114.95 per option |
|(b) any other employee who receives a grant in any one year of option amounting to 5% or more of option granted during that year ||None |
|(c) identified employees who were granted option during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Bank at the time of grant. ||None |
(vii) A description of the method and significant assumptions used during the year toestimate the fair value of options including the following information:
|(a) the weighted-average value of share price exercise price expected volatility expected option life expected dividends the risk-free interest rate and any other inputs to the model; ||(i) weighted-average value of share price- Rs. 114.95 |
| ||(ii) weighted-average exercise price- Rs. 114.95 |
| ||(iii) expected volatility- 53% |
| ||(iv) expected option life- 6 years |
| ||(v) expected dividends- No dividend expected |
| ||(vi) risk-free interest rate- 7.75% |
|(b) the method used and the assumptions made to incorporate the effects of expected early exercise; ||The method recognizes that employees' exercise behavior is correlated with the price of the underlying share. Pricing model assumes that option holder voluntarily exercises early if the stock price is greater than the exercise price. To incorporate the effects of expected early exercise assumptions also include employee exit rate pre-vesting employee exit rate post-vesting. |
|(c) how expected volatility was determined including an explanation of the extent to which expected volatility was based on historical volatility; and ||Expected volatility was determined based on historical volatility data; historical volatility includes data since listing. |
|(d) whether and how any other features of the option grant were incorporated into the measurement of fair value such as a market condition. ||As aforesaid various features were incorporated into the measurement of fair value |
Disclosures in respect of grants made in three years prior to IPO under the ESOS:
All the Options granted in the three years prior to the IPO have either been exercisedor have lapsed.