The Board of Directors of the Bank have pleasure in presenting the Twenty-third AnnualReport covering business and operations of the Bank together with the Audited FinancialStatements for the year ended March 312017.
The financial performance for the year ended March 312017 is summarized as under:
| || ||(' in crores) |
|Particulars ||As on March 312017 ||As on March 312016 |
|Deposits ||126572.22 ||93000.35 |
|Advances ||113080.51 ||88419.34 |
|Operating Profit (before Depreciation and Provisions and Contingencies) ||5641.71 ||4297.94 |
|Net Profit ||2867.89 ||2286.45 |
During the year under review despite a persistently challenging operating environmentthe Bank improved its business with Deposits growing by 36.10% and Advances by 27.89%over the previous year.
The Bank continued to focus on increasing earnings from its core banking businessstrengthening the fee income streams and maintaining control on operating costs.
Operating Profit (before Depreciation and Provisions and Contingencies) rose robustlyby 31.27% to ' 5641.71 crores as compared to ' 4297.94 crores in the previous year.
The Net Profit of the Bank after considering all expenses and necessary Provisions andContingencies was higher by 25.43% at ' 2867.89 crores as against ' 2286.45 crores inthe previous year.
The Directors recommend appropriation of Profit as under:
| ||(' in crores) |
|Operating Profit before Depreciation and Provisions and Contingencies ||5641.71 |
|Less: Depreciation on Fixed Assets ||190.69 |
|Less: Provisions and Contingencies inclusive of Income Tax ||2583.13 |
|Net Profit ||2867.89 |
|Profit Brought forward ||5013.45 |
|Amount available for Appropriation ||7881.34 |
|Transfer to Statutory Reserve ||716.97 |
|Transfer to Capital Reserve ||45.54 |
|Dividend (including Tax on Dividend)(pertaining to shares allotted after March 312016 until Record Date for the 22nd AGM held on July 12016) ||0.45 |
|Total Appropriations ||762.96 |
|Balance carried over to Balance Sheet ||7118.38 |
The Earning Per Share (EPS) of the Bank rose to ' 48.06 during the year 2016-17 from '39.68 in the previous year.
In view of the overall improvement in performance as well as the need to conserveCapital for continued growth the Directors recommend Dividend of ' 6.00 per Equity Shareof ' 10 each for the year ended March 312017. (Dividend for the year 2015-16 was ' 4.50per Equity Share of ' 10 each).
Considering the Equity Shares outstanding as at March 31 2017 the total amount ofDividend payable including Taxes to be borne by the Bank amounts to ' 431.95 crores. Inaccordance with the revised AS 4 - Contingencies and events occurring after theBalance Sheet Date' this amount is not accounted for as Liabilities' as at March312017.
Financial Performance and State of Affairs of the Bank
The year under review marked the end of the third Planning Cycle (2014-17) themedMarket Share with Profitability' to Double the Bank in 3 years. The Bank has nowcommenced implementation of Planning Cycle 4 covering the period 2017-20 with the theme:Digitize to Differentiate Diversify and Create Domain Leadership' with a strategyto gain Market Share with Profitability'.
Backed by improved volumes the Total Income ofthe Bank forthe year under review grewby 22.47% to ' 18577.16 crores from ' 15168.69 crores.
The healthy rise in profitability was the result of growth in Net Interest Income (Nil)as well as Non-Interest Income. Net Interest Income improved robustly by 34.23% to '6062.60 crores from ' 4516.57 crores while Non-Interest Income rose to ' 4171.49crores from ' 3296.95 crores registering growth of 26.53%.
Core Fee Income such as commission exchange loan processing and account managementfees fees on Investment Banking and distribution of third-party products and earningsfrom foreign exchange business grew by 24.17% to ' 3488.59 crores from ' 2809.59 croresearned during the previous year.
In view ofthe softening of interest rates yield on Advances dropped to 11.71% duringthe year as against 12.24% in the previous year while the Cost of Deposits fell to 6.41%from 7.25% in the previous year. The Net Interest Margin (NIM) for the year improved to3.99% as compared to 3.81% in the previous year due to the composition of the AssetPortfolio benign interest rate movements during the year and judicious mobilization offunding resources through deposits and borrowings including overseas borrowings andrefinance from institutions.
The Bank expanded its branch network steadily to reach 1200 branches as against 1000branches at the beginning of the year. Revenue per employee during the year remainedsteady at ' 40 lakhs.
The quality of the Loan Book remained stable with Net Non-Performing Assets (Net NPAs)standing at 0.39% as at March 31 2017 as against 0.36% a year ago. The ProvisioningCoverage Ratio (PCR) stood at 58.39% as compared to 58.58% in the previous year.
The year under review witnessed a number of significant events some of which arelisted below:
International Financial Services Center (IFSC) Banking Unit (IBU) went live onJune 28 2016atthe GIFT City.
Upper Tier II Bonds issued in 2006 were redeemed in November 2016 and January2017 as these bonds are not Basel Ill-compliant and carried a stepped up coupon after theinitial run of 10years.
A follow-on issue of Rated Listed Senior Unsecured RedeemableNon-Convertible Long-Term Infrastructure Bonds for ' 1500 crores was made in December2016.
The first issue of Basel Ill-compliant Additional Tier I Non-ConvertiblePerpetual Subordinated Unsecured Bonds for ' 1000 crores was made in March 2017.
Digitization initiatives continued to be a key thrust area of the Bank during the yearunder review amplifying the agility in responding to market forces. The IndusPayapplication on the Unified Payments Interface (UPI) platform a step to boost Digital andMobile Banking service was launched during the year. The Bank introduced several newproducts and services for select client segments through its Consumer Banking TransactionBanking and Global Markets Groups. The Bank kept up its focus on deepening as well asstrengthening of the fee-based income streams resulting in smart growth in Non-InterestIncome.
Performance of Subsidiary and Associate Company
ALF Insurance Services Private Limited a wholly owned subsidiary of the Bank which wasset up to do the business of Insurance Broking was under Voluntary Winding-up. OnFebruary 24 2016 the Liquidator had approved repayment of the entire Share Capital andsubsequently the Company was liquidated vide Order dated June 14 2016 issued by theHon'ble Madras High Court.
Induslnd Marketing and Financial Services Private Limited (IMFS) is an AssociateCompany of the Bank and is engaged in the business of providing manpower services.Pursuant to Section 129(3) of the Companies Act 2013 read with Rule 8 of Companies(Accounts) Rules 2014 the Bank has drawn up a Consolidated Financial Statement includingthe Financial Statement of its Associate Company which also forms a part of this AnnualReport.
During FY2016-17 IMFS earned Revenue ofRs. 217.21 crores as against Revenue of '179.43 crores in the previous year. IMFS earned Profit ofRs. 0.93 crore in FY 2016-17.
A statement containing the salient features of the financial position of the Subsidiaryand the Associate Company in Form AOC-1 is enclosed as an Annexure to the FinancialStatements.
During the year under review the Bank has agreed with Infrastructure Leasing &Financial Services Ltd. (IL&FS) the Promoter shareholder of IL&FS SecuritiesServices Ltd. (ISSL) to acquire 100% of ISSL along with acquisition of the securitiesfinancing portfolio from IL&FS Financial Services Ltd. (IFIN).
The above transaction is subject to execution of definitive agreements respectiveBoard approvals and regulatory approvals including from Reserve Bank of India.
The Paid-up Equity Capital of the Bank as at March 312017 consisted of 598148705Equity Shares ofRs. 10 each.
During the year under review the Bank allotted 3162370 Equity Shares of ' 10/- eachpursuant to exercise of Options under its Employee Stock Option Scheme 2007.
The Bank has not issued any Equity Shares with differential voting rights.
During the year the Bank issued Long-Term Bonds and Additional Tier I Bonds in thenature of Debentures on private placement basis. The details are as under:
(i) 15000 Rated Listed Senior Unsecured Redeemable Non-Convertible Long-TermInfrastructure Bonds in the nature of Debentures of Face value of ' 1000000 (Rupees TenLakhs each) for cash at par amounting to ' 1500 crores allotted on December 9 2016.
(ii) 10000 Rated Listed Non- Convertible Perpetual Subordinated & UnsecuredBasel Ill-Compliant Additional Tier I Bonds in the nature of Debentures of Face Value of'1000000 (Rupees Ten Lakhs each) for cash at par amounting to ' 1000 crores alloted onMarch 22 2017.
Pursuant to Regulation 53 of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 the names of the Debenture Trustees and their contact details are givenbelow:
|Trustee I: || |
|Name of Debenture Trustees ||CatalystTrusteeship Limited (formerlyGDATrusteeship Ltd.) |
|Address ||GDA House S. No.94/95 Plot No.85 Bhusari Colony (Right) Kothrud Pune-411 038 Maharashtra India. |
|Website ||www.catalysttrustee.com |
|E-mail ||email@example.com |
|Trustee II: || |
|Name of Debenture Trustees ||Beacon Trusteeship Limited |
|Address ||Prabhat Kunj Prabhat Colony 3 Santa Cruz (East) Mumbai - 400 055 |
|Website ||www.beacontrustee.co.in |
|E-mail ||firstname.lastname@example.org |
|Trustee III: || |
|Name of Debenture Trustees ||IDBI Trusteeship Services Limited* |
|Address ||Asian Building Ground Floor 17 R. Kamani Marg Ballard Estate Mumbai - 400 001 |
|Website ||www.idbitrustee.com |
|E-mail address ||email@example.com |
*IDBI Trusteeship Services Ltd. acted as Trustee for Upper Tier II Bonds issued in 2006amounting to ' 308.90 crores. During the year under review these Bonds were redeemed bythe Bank pursuant to exercising Call Option.
Tier II Capital
The Bank did not raise any Tier II Capital during the year.
Upper Tier II Bonds (Series VIII IX and X) amounting to ' 308.90 crores issued in2006 were redeemed during the year by exercising the Call Option after obtainingnecessary approvals.
The Bank is a banking company governed by the Banking Regulation Act 1949 and as suchthe provisions in the Companies Act relating to acceptance of Public Deposits are notapplicable.
The Bank continues to be adequately capitalized. The Capital Adequacy Ratio of theBank calculated under the Basel III Capital Regulations mandated by RBI is set outbelow:
|Particulars ||March 312017 ||March 312016 |
|i) Capital Adequacy Ratio (CRAR) ||15.31% ||15.50% |
|ii) CRAR- Common EquityTier 1 Capital ||14.02% ||14.92% |
|iii) CRAR- Tier 1 Capital ||14.72% ||14.92% |
|iv) CRAR- Tier 2 Capital ||0.59% ||0.58% |
|Instruments ||Rating ||Rating Agency |
|Infra Bond program ||AA+ ||CRISIL |
|Additional Tier 1 Bond program ||AA ||CRISIL |
|Certificates of Deposit ||A1 + ||CRISIL |
|Senior Bonds program ||AA+ ||India Ratings and Research |
|Additional Tier 1 Bond ||AA ||India Ratings and Research |
|Short-Term Debt instruments ||A1 + ||India Ratings and Research |
Bank's Board comprised nine Directors as on March 31 2017 viz. Mr. R. SeshasayeePart-time Non-Executive Chairman six Independent Directors. Mr. Yashodhan M. KaleNon-Executive Non-Independent Director and Mr. Romesh Sobti Managing Director & CEO.
(a) Independent Non-Executive Directors
In terms of Regulation 16 of SEBI (Listing Obligation and Disclosure Requirements)Regulations 2015 and based on the declarations received under Section 149(7) of theCompanies Act 2013 by the Bank for the financial year ended March 312017 the followingNon-Executive Directors continue to be identified as Independent Directors as on March312017:
(i) Mrs. Kanchan Chitale
(ii) Mr. VijayVaid
(iii) Mr. T. Anantha Narayanan
(iv) Mr. Ranbir Singh Butola
(v) Mr. Shanker Annaswamy
(vi) Dr. T. T. Ram Mohan.
(b) Woman Director
In terms of the provisions of Section 149 of the Companies Act 2013 read with Rule 3of Companies (Appointment and Qualification of Directors) Rules 2014 and Regulation 17of SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 specifiedcompanies are required to have at least one Woman Director in their Board.
Mrs. Kanchan Chitale (DIN: 00007267) who joined the Board on October 18 2011 is anIndependent Woman Director in the Board and Chairs some important Committees.
(c) Chairman of the Board
Mr. R. Seshasayee (DIN: 00047985) has been Part-time Non-Executive Chairman of theBank since July 24 2007.
Shareholders of the Bank had in the 21st AGM held on August 17 2015 approved there-appointment of Mr. R. Seshasayee as Part-time Non-Executive Chairman for a period of 2years with effect from July 24 2015 and accordingly his current term shall expire onJuly 23 2017.
Approval ofthe shareholders is requested for re-appointment of Mr. R. Seshasayee asPart-time Non-Executive Chairman of the Bank for a period of two years with effect fromJuly 24 2017 subject to approval of the Reserve Bank of India.
(d) Managing Director & CEO
Mr. Romesh Sobti (DIN: 00031034) has been Managing Director & CEO ofthe Bank sinceFebruary 12008.
Shareholders of the Bank had in the 21st AGM of the Bank held on August 17 2015approved the re-appointment of Mr. Romesh Sobti as Managing Director & CEO of the Bankfor a period of three years w. e. f. February 12015.
Reserve Bank of India have also conveyed their approval for the re-appointment of Mr.Romesh Sobti as Managing Director and CEO of the Bank for a further period of three yearsw.e.f. February 12015 until January 312018.
(e) Retirement of Directors by rotation and Appointment / Re-appointment of Directors
(i) In order to ensure compliance with Section 152(6) ofthe Act the Board hasconsidered Mr. Romesh Sobti Managing Director & CEO as liable to retire by rotation.
Mr. Romesh Sobti (DIN: 00031034) Managing Director & CEO shall accordingly retireat the ensuing AGM and being eligible offers himself for re-appointment.
(ii) In terms of requirements of the Companies Act 2013 applicable provisions of theBanking Regulation Act 1949 and guidelines issued by the Reserve Bank of India approvalof the shareholders by way of Ordinary Resolution is requested for re-appointment of Mr.R. Seshasayee (DIN: 00047985) as Part-time Non-Executive Chairman' of the Bank fora period of two years with effect from July 24 2017 subject to approval of the ReserveBank of India.
In terms of provisions of Regulation 36(3) of SEBI (Listing Obligation and DisclosureRequirements) Regulations 2015 and SS-2 issued by the Institute of Company Secretaries ofIndia brief profile of the Directors seeking appointment / re-appointment at the ensuingAnnual General Meeting have been furnished in the Notice convening the 23rd AGM.
During the year under review Dr. T. T. Ram Mohan (DIN: 00008651) was appointed asAdditional Director' in the category of Independent Non-Executive' bytheBoard in its meeting held on May 12 2016.
In terms of requirements ofthe Companies Act 2013 approval ofthe shareholders hasbeen obtained in the 22nd AGM of the Bank held on July 1 2016 for appointment of Dr. T.T. Ram Mohan in the category of Independent Non-executive Director' for a period offour years to hold office up to May 112020.
Board and Committee Meetings
During the year nine meetings of the Board and six meetings of the Audit Committeewere held the details of which are given in the Corporate Governance Report which formsan integral part ofthe Annual Report.
The Board has constituted the Audit Committee of the Board with Mr. T. AnanthaNarayanan as Chairman and Mrs. Kanchan Chitale Mr. Ranbir Singh Butola Mr. Yashodhan M.Kale and Mr. Shanker Annaswamy as Members. There have not been any instances during theyear when recommendations of the Audit Committee were not accepted by the Board.
Details of the composition of the Board and all its Committees and of the Meetings heldand attendance of the Directors at such Meetings are provided in the Corporate GovernanceReport. The intervening gap between the Meetings was within the period prescribed underthe Companies Act 2013 and the Listing Regulations.
Performance Evaluation of the Board and its Committees
Pursuant to the provisions of the Companies Act 2013 and Listing Regulations theNomination & Remuneration Committee of the Board had laid down the criteria forPerformance Evaluation of the Board as a whole Committees of the Board Directorsindividually and ofthe Chairman as well as the process of evaluation.
The Bank has aligned its Board Evaluation Framework in line with the Guidance Note onBoard Evaluation issued by SEBI under their Circular dated January 5 2017.
The Board of Directors have carried out annual evaluation of its own performance (Boardas a whole) Individual Directors including Independent Directors Non-IndependentDirectors and Managing Director & CEO and of the Chairman and the Committees oftheBoard.
The performance ofthe Board as a whole Committees ofthe Board Directors individuallyand ofthe Chairman has been evaluated by the Committee of Independent DirectorsNomination & Remuneration Committee and by the Board of Directors in their meetingheld on May 9 2017.
The Statement indicating the manner in which the evaluation exercise was conductedalong with other relevant details is included in the Report on Corporate Governance whichforms an integral part of the Annual Report.
System for Internal Financial Controls and its Adequacy
The Bank operates in a fully computerized environment with a Core Banking Solutionsupported by diverse application platforms for handling special businesses such asTreasury Trade Finance Credit Cards Retail Loans etc. The process of recording oftransactions in each of the application platforms is subject to various forms of controlssuch as in-built system checks Maker - Checker authorizations independentpost-transaction reviews etc. The Financial Statements are prepared based on computersystem outputs. The responsibility of preparation of Financial Statements is entrusted toa dedicated unit which is completely independent of business risk audit or otherfunctions. This unit does not originate accounting entries except for limited matters suchas Share Capital taxes and transfers to Reserves. The Bank has implemented adequateprocedures and internal controls which provide reasonable assurance regarding reliabilityof financial reporting and preparation of financial statements and that such internalfinancial controls were adequate and were operating effectively during the year.
Conservation of energy and technology absorption and foreign exchange earnings andoutgo
Considering the nature of its activities as an entity in the Financial Services sectorthe Bank has voluntarily taken steps towards conservation of energy and technologyabsorption thus ensuring compliance with the provisions of Section 134 (3) oftheCompanies Act 2013 read with Rule 8(3) ofthe Companies (Accounts) Rules 2014. Detailsofthe same are furnished in the Management and Discussion Analysis Report which formspart of the Annual Report. The Bank has made optimum use of Information Technology in itsoperations. The details of foreign exchange earnings and outgo are also mentioned in thesection on Management and Discussion Analysis.
The Bank has an Enterprise-wide Risk Management (ERM) framework in place. Theintegrated Risk Management Department covers Credit Risk Market Risk Assets-LiabilitiesManagement (ALM) Operations Risk and Information Security Risk across all verticalsindependent of business functions.
Risk Management functions in the Bank have been aligned with best industry practicessupported by advanced risk measurement and analytical systems which enables proactiverisk management and monitoring.
The Bank has a comprehensive framework of risk management policies which specify therisk appetite risk measurement methodologies and monitoring and control measures for therespective business segments. The policies have been designed keeping risk appetite as thecentral objective and business strategies have been aligned to risk policies.
The Bank has set up a Board-level Committee viz. "Risk ManagementCommittee" to examine risk policies and procedures developed by the Bank and monitoradherence to risk parameters and prudential limits set for different portfolios / products/ segments.
Details of Risk Management models and frameworks implemented by the Bank are mentionedunder Management Discussion and Analysis'.
Vigil Mechanism / Whistle Blower Policy
The Bank has in place the "Whistle Blower Policy" since 2009.
The said Policy is in compliance with RBI Guidelines provisions of the Companies Act2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.The Vigil Mechanism at the Bank requires submission of Quarterly Reviews before the AuditCommittee of the Board and placing of Annual Reviews before the Audit Committee and theBoard of Directors.
The Policy also incorporates suggestions of the Protected Disclosure Scheme for PrivateSector and Foreign Banks instituted by Reserve Bank of India.
The Board of Directors of the Bank have constituted a Board-level Committee viz. theVigilance Committee which conducts overview of cases of vigilance nature arising out ofactions of the employees of the Bank. The Committee meets at least twice a year.
The Bank has been awarded Certificate of Commitment' bythe Central VigilanceCommission.
The Bank's Whistle Blower Policy is in sync with all statutory and regulatoryguidelines on Vigil Mechanism.
Further details about the Vigil Mechanism are furnished in the Report on CorporateGovernance and the current Whistle Blower Policy of the Bank is available on the Bank'swebsite at the under-mentioned link:
M/s Price Waterhouse Chartered Accountants LLF! Chartered Accountants Mumbai (Firm'sRegn. No. 012754N / N500016) who have audited the accounts of the Bank for the year2016-17 shall retire at the conclusion of the ensuing Annual General Meeting and areeligible for re-appointment.
Members are requested to consider the re-appointment of M/s Price Waterhouse CharteredAccountants LLF! Chartered Accountants as the Statutory Auditors of the Bank from theconclusion of this Annual General Meeting until the conclusion of the next Annual GeneralMeeting at a remuneration to be decided by the Board of Directors based on therecommendations of the Audit Committee. Approval of the Reserve Bank of India for theirappointment has been received . A certificate has been received from M/s Price WaterhouseChartered Accountants LLP (PW) to the effect that their appointment if made would bewithin the prescribed limits under Section 141 of the Companies Act 2013.
Independent Auditors' Report
M/s Price Waterhouse Chartered Accountants LLF! Statutory Auditors of the Bank haveaudited the accounts of the Bank for the year 2016-17 and their Report is annexed.Pursuant to Section 143(3)(i) of the Companies Act 2013 the Statutory Auditors have alsoreported on the adequacy and operating effectiveness of the internal financial controlssystem overfinancial reporting which has been enclosed as Annexure A' toIndependentAuditors' Report.
Significant Audit observations if any and corrective actions taken by the Managementare presented to the Audit Committee of the Board from time to time.
There are no qualifications reservations or adverse remarks or disclaimers made in theAuditor's Report.
In terms of Section 204 of the Companies Act 2013 and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Bank has appointed M/s Bhandari& Associates Company Secretaries in Practice to undertake Secretarial Audit of theBank for the FY 2016-17. The Secretarial Audit Report submitted by M/s Bhandari &Associates is furnished at Annexure I and forms an integral part of this Report.
The Secretarial Audit Report submitted by M/s Bhandari & Associates for FY 2016-17does not contain any qualification reservation or adverse remark.
The information on conservation of energy technology absorption and foreign exchangeearnings and outgo pursuant to Section 134(3)(m) of the Companies Act 2013 read with theRule 8(3) of the Companies (Accounts) Rules 2014 is given in the Management Discussionand Analysis Report. Also the other Statutory Information / Disclosures required to begiven under the Banking Regulation Act 1949 and the Companies Act 2013 as applicable tothe Bank have been laid out in the Schedules / Notes attached and forms part of theBalance Sheet and the Profit and Loss Account.
Details pursuant to remuneration of Directors and employees in terms of Section 197(12)of the Companies Act 2013 read with Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 including the Companies (Appointment andRemuneration of Managerial Personnel) Amendment Rules 2016 are given at Annexure II andform an integral part of this Report.
Information relating to employees required to be furnished under the Companies Act2013 and the Rules made thereunder is given under the head "Particulars ofEmployees" later in this Report.
Employee Stock Option Scheme
The Bank had instituted the Employee Stock Option Scheme (ESOS- 2007) to enable itsemployees including Whole-1 time Directors to participate in the futuregrowth of the Bank. Under the Scheme Options can be granted which upon exercise couldgive rise to the issuance of a number of shares upto 7% of the issued Equity Capital ofthe Bank from time to time. The eligibility and number of Options to be granted to anemployee is determined on the basis of criteria laid down in the Scheme and is approvedbythe Compensation Committee ofthe Board of Directors.
An aggregate of 39839800 Options comprising 6.66% of the Bank's Equity Capitalhave been granted under the Scheme. Statutory disclosures as required by SEBI (Share BasedEmployee Benefits) Regulations 2014are given at Annexure III and form an integral partof this Report.
The Annual Certificate on compliance with SEBI (Share Based Employee Benefits)Regulations 2014 issued by Statutory Auditors of the Bank is being placed beforeMembers in the ensuing AGM.
The Employees Stock Option Plan is administered bythe Compensation Committee oftheBoard.
Directors' Responsibility Statement
To the best of their knowledge and belief and according to the information andexplanations obtained by them the Directors make the following statement in terms ofSection 134(3)(c) and 134(5) of the Companies Act 2013:
(i) that in the preparation of the Annual Accounts for the year ended March 312017the applicable Accounting Standards have been followed along with proper explanationrelating to material departures if any;
(ii) that such accounting policies as mentioned in the Notes to the FinancialStatements have been selected and applied consistently and that judgements and estimateshave been made that are reasonable and prudent so as to give a true and fair view of thestate of affairs of the Bank as at March 312017 and of the profit of the Bank for theyear ended on that date;
(iii) that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Bank and for preventing and detecting frauds and otherirregularities;
(iv) that the Annual Financial Statements have been prepared on a going concern'basis;
(v) that proper internal financial controls were in place and that the financialcontrols were adequate and operating effectively;
(vi) that systems to ensure compliance with the provisions of all applicable laws werein place and were adequate and operating effectively.
Extract of Annual Return
The details forming part of the extract of the Annual Return in Form MGT-9 as requiredunder Section 92(3) of the Companies Act 2013 and Rule 12(1) of the Companies (Managementand Administration) Rules 2014 are included in this Report as Annexure IV and form anintegral part of the Annual Report.
Particulars of Employees
The Bank had 25314 employees on its rolls as on March 312017.
51 employees who had been employed throughout the year were in receipt of remunerationof ' 1.02 crores per annum or more and 6 employees employed for part of the year were inreceipt of remuneration of ' 8.50 lakhs per month or more.
The information containing particulars of employees pursuant to Section 197 of theCompanies Act 2013 read with Rule 5 (2) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 forms part of this Report. However the above Annexureis not being sent along with this Annual Report to the Members of the Bank in line withprovisions of Section 136 ofthe Companies Act 2013. Members who are interested inobtaining the particulars may please write to the Company Secretary at the Secretarial andInvestor Services Office of the Bank. The aforesaid Annexure is also available forinspection by Members at the Registered Office of the Bank up to the date of this AnnualGeneral Meeting during business hours on working days.
None of the employees hold (by himself or along with his spouse and dependent children)more than two percent of the Equity Shares of the Bank.
Policy on Remuneration to Non-Executive Directors
Until the Financial Year ended 2015-16 all Non-Executive Directors including Part-timeChairman ofthe Bank received remuneration only by way of Sitting Fees for attending themeetings of the Board and of various Board Committees.
In view of the guidelines contained in RBI Circular dated June 1 2015 on compensationof Non-Executive Directors of private sector Banks the Board of Directors have on thebasis of the recommendations of Human Resource and Remuneration Committee (since named as"Nomination & Remuneration Committee") in their meeting held on May 122016 approved the payment of remuneration of ' 25 lakhs per annum w.e.f. April 1 2016 toMr. R. Seshasayee Part-time Non-Executive Chairman of the Bank (subject to approval ofReserve Bank of India) which has since been received and to the Non-Executive Directors(other than the Part-time Chairman) in the form of Profit-related Commission not exceeding' 10 lakhs per annum for each Director in such manner as may be decided by the Board ofDirectors.
Shareholders had in the 22nd Annual General Meeting of the Bank held on July 12016accorded their approval for payment of above-mentioned remuneration in the form ofProfit-related Commission to the Non-Executive Directors including to the Part-timeNon-Executive Chairman ofthe Bank for FY 2016-17 effective from April 12016.
Accordingly during theyear under review all the Non-Executive Directors includingPart-time Chairman ofthe Bank received remuneration in the form of Profit-relatedCommission in addition to Sitting Fees for attending meetings of the Board and ofvariousBoard Committees.
As per the Bank's policy no Stock Options were granted to the Non-Executive Directors.
During the year the Board of Directors have on the recommendations of the HR andRemuneration Committee (since renamed as "Nomination & RemunerationCommittee") formulated the Policy on Remuneration to Non-Executive Directors'including the Part-time Non-Executive Chairman.
The Policy on Remuneration to Non-Executive Directors' as approved by the Boardof Directors is hosted on the Bank's website at the below givenlink:http://www.indusind.com/important-links/other-useful-information.html
The Board of Directors have also formulated a Policy in relation to Key ManagerialPersonnel and Senior Management personnel of the Bank. The said Policy is given under"Disclosure on Remuneration" at Note No. 12.6 of the Notes in Schedule 18 to theFinancial Statements which forms an integral part of this Annual Report.
Details on compensation to Whole-time Directors are given under Report on CorporateGovernance and form an integral part of this Report.
Particulars of Loans Guarantees or Investments outstanding
Pursuant to Section 186(11) of the Companies Act 2013 the provisions of Section 186of the Companies Act 2013 except sub-section (1) do not apply to a loan made guaranteegiven or security provided by a banking company in the ordinary course of business. Theparticulars of loans made guarantees given and investments made by the Bank are disclosedin the Financial Statements as per the applicable provisions of Banking Regulation Act1949.
Particulars of Contracts or Arrangements with Related Parties
All transactions entered with Related Parties' during the year under review wereon "arm's length basis" and in the ordinary course of business' andtherefore do not attract the provisions of Section 188 of the Companies Act 2013.
Further there are no materially significant Related Party Transactions during the yearwith any of the Related Parties viz. Promoters Directors and Key Managerial Personneland other related entities including IMFS an Associate Company which may have potentialconflict with the interest of the Bank at large.
In view of the above disclosure under Form AOC-2 is not applicable to the Bank.
The Policy on Related Party Transactions as approved by the Board of Directors ishosted on the Bank's website at the below given link:http://www.indusind.com/content/home/important-links/other-useful-information.html
Consolidated Financial Statements
In accordance with Section 129(3) of the Act Consolidated Financial Statement of theGroup comprising Induslnd Bank Limited (the Bank') and Induslnd Marketing andFinancial Services Private Limited (the Associate') has been prepared and isincluded in the Annual Report.
In terms of AS 23 the Bank has prepared the Consolidated Financial Statements for theyear ended March 312017 wherein the Standalone Financial Statements of the Bank as ofthat date are consolidated with that of IMFS an associate in which the Bank has a 30%stake by adopting the "Equity Method".
Indian Accounting Standards (Ind AS)
The Reserve Bank of India (RBI) issued Circular No. DBR.BRBC.No.76/ 21.07.001/ 2015-16on February 11 2016 requiring scheduled commercial banks to comply with the IndianAccounting Standards (Ind AS) for accounting periods beginning April 1 2018 onwards withcomparatives for periods ending on or after March 31 2018. Ind AS would be applicable toboth Standalone Financial Statements and Consolidated Financial Statements.
The Circular reiterates the timeline for Ind AS implementation by banks that was issuedby the Ministry of Corporate Affairs (MCA) in its Press Release dated January 18 2016.The MCA notified the Companies (Indian Accounting Standards) Rules 2015 on February 162015. On September 29 2015 RBI recommended a roadmap to MCA for implementation of Ind ASfrom 2018-19 onwards for banks and Non-Banking Financial Companies (NBFCs). Further inOctober 2015 RBI issued the Report of its Working Group on implementation of Ind AS bybanks in India which provided recommendations on key areas with a focus on financialinstruments as well as formats for financial statements.
Pursuant to the RBI Circular the Bank has formed a Steering Committee headed by theChief Financial Officer comprising members from cross-functional areas for the purposeof reviewing and monitoring the progress of implementation. The Bank has set up a WorkingGroup under the guidance of the Steering Committee to conduct
Gap Assessment to identify the differences between the current accounting framework andInd AS including the identification ofthe accounting policy options provided under Ind AS101 First Time Adoption.
Besides augmenting skilled resources within the financial reporting team the Bank hasalso engaged the services of leading professionals with international experience to assistin the project. Training programs have been organised for the team members in theBusiness Credit and Finance Teams. The Bank is also in the process of identifying thechanges required to be made to its systems and processes.
The Audit Committee ofthe Bank's Board of Directors oversees the progress ofthe Ind ASimplementation process. Some of the areas of significant accounting impact pursuant to theapplication of Ind AS are summarised below:
(a) Accounting impact on account of application of Ind AS at the date of transitioni.e. April 1 2017 will be recognised in equity or other components of equity.
(b) The classification and measurement of financial assets will be driven by the Bank'sbusiness model for managing those assets and the characteristics of the contractual cashflows of the assets. All financial assets will be classified as subsequently measured atamortised cost Fair Value through Other Comprehensive Income (FVOCI) or Fair ValueThrough Profit or Loss (FVTPL).
(c) Financial Statements would be derecognised on transfer of significant risks andrewards and not based on the legal form of the arrangement.
(d) Interest will be recognised in the Income Statement using the effective interestmethod and any directly attributable fees and costs would be considered to be anadjustment to the effective interest rate.
(e) All Derivatives would be required to be fair-valued and recognised on the Bank'sBalance Sheet.
(f) Expense for Stock Options will be recognised in the Statement of Profit and Lossbased on the Fair Value of the Options.
(g) Impairment requirements forfinancial assets carried at amortised cost or at fairvalue through other comprehensive income including certain off Balance Sheet items arebased on an Expected Credit Loss (ECL) model. The Bank will be required to recogniseeither a 12-months' or lifetime ECL depending on whether there has been a significantincrease in Credit Risk since initial recognition. This will be significantly differentfrom the current methodology for calculating the provision for Standard Assets andNon-Performing Assets (NPAs). The Bank has developed models for computation of ECL and istesting the same.
Corporate Social Responsibility
The Bank has voluntarily undertaken various initiatives in the area of Corporate SocialResponsibility (CSR) by focusing on sustainability-driven growth.
In terms of the requirements of Section 135 of the Companies Act 2013 and CSR Rules2014 the Bank has set up a Board-level CSR Committee to look after the CSR initiatives ofthe Bank. The Committee is headed by Mrs. Kanchan Chitale as Chairperson with Mr. VijayVaid and Mr. Romesh Sobti as Members. The composition ofthe CSR Committee is inaccordancewith Section 135 ofthe Companies Act 2013.
The Bank has also framed the CSR Policy and strategy that will guide and govern theBank's activities in focus areas namely rural development and inclusivenessenvironmental sustainability preventive healthcare and other areas of special interest.
During the year under review the Bank has introduced non-banking Sports VerticalInduslnd for Sports' through which the Bank supported the Para-Championsrepresenting the country at the Paralympics and adopted the Indian Blind Cricket Team whowon accolades for the country.
The CSR Initiatives / Projects undertaken by the Bank are largely in accordance withSchedule VII of the Companies Act 2013.
Companies on the basis of criteria prescribed under Section 135 of the Act arerequired to spend at least Two per cent of their Average Net Profits made during the threeimmediately preceding financial years in pursuance of their Corporate SocialResponsibility Policy. Accordingly the Bank was required to spend '55.27 crores towardsCSR activities during FY 2016-17 out of which '33.81 crore (i.e. 1.22% of the AverageNet Profits) was utilized on activities specified in Schedule VII of the Companies Act2013. Some of the CSR projects are being executed in a phased manner.
Our social and community outreach programmes are gaining scale and momentum every yearand hence the absorption of CSR Spend will be better in the coming years as most oftheprojects are long-term.
The Report on CSR activities undertaken by the Bank is set out at Annexure V and formsan integral part of this Report.
Details of the CSR Policy and initiatives adopted by the Bank on CSR are available onBank's website at the link mentionedbelow:http://www.indusind.com/content/csr-home/our-approach/csr-policv.html
Business Responsibility Report (BRR)
The Securities & Exchange Board of India have vide their Circular dated December222015 mandated Top 500 Listed entities to include the Business ResponsibilityReport' (BRR) as part of the Annual Report describing the initiatives taken by the listedentity from an environmental social and governance perspective in the format asspecified by the Board.
In view ofthe above and in compliance with Regulation 34(2) ofthe Listing Regulationsthe Business Responsibility Report (BRR) of the Bank has been enclosed as Annexure VI andforms an integral part of this Report.
Pursuant to Regulation 34(3) read with Schedule V of the Listing Regulations aseparate section on Corporate Governance practices followed by the Bank together with aCertificate from M/s Bhandari & Associates Practising Company Secretaries confirmingcompliance with the conditions of Corporate Governance as stipulated in the ListingRegulations forms an integral part of this Report.
A copy of Certificate issued by the Practising Company Secretary is attached asAnnexure VII and forms an integral part of this Report.
Management Discussion and Analysis Report
The Management Discussion and Analysis Report as prescribed under Regulation 34(2) ofthe Listing Regulations forms part of the Annual Report.
Significant and Material Orders passed by the Regulators or Courts
There are no significant and material orders passed by the Regulators / Courts thatwould impact the going concern' status of the Bank and its future operations.
Awards and Accolades
During the year under review the Bank has received many awards and accolades forexcellence in managing Risk in marketing and communications CSR initiatives InformationTechnology and for Innovations etc.
Mr. Romesh Sobti Managing Director & CEO won the most prestigious Business AwardThe Best CEO (BFSI)' at the Business Today Best CEO Awards 2016.
He also received the "Banker of the Year" award by FE India's Best BankAwards 2016.
Brief details of various awards are covered in the initial pages of this Annual Report.
Certain statements in the "Directors' Report" and in the "ManagementDiscussion and Analysis" describing the Bank's objectives estimates and expectationsmay be forward-looking statements' within the meaning of applicable Securities Lawsand Regulations. Actual results could differ substantially from those expressed orimplied. Important factors that could make a difference include economic conditions in thedomestic and overseas markets changes in Laws / Regulations and other incidentalfactors.
Material events that have happened after the Balance Sheet date
No material changes and commitments affecting the financial position of the Bank haveoccurred between the end of the financial year of the company to which the FinancialStatements relate and the date of the Report.
Policy on Prevention Prohibition and Redressal of Sexual Harassment of Women atWorkplace
The Bank has zero tolerance for sexual harassment at the workplace and has adopted aPolicy on Prevention Prohibition and Redressal of Sexual Harassment of Women at theWorkplace' inline with the provisions of the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 and the Rules made thereunder.
The Policy aims to provide protection to women employees at the workplace and preventand redress complaints of sexual harassment and for matters connected or incidentalthereto with the objective of providing a safe working environment.
The Bank has also constituted the Internal Complaints Committees to enquire into thecomplaints of sexual harassment and recommend appropriate action.
The Bank received 9 complaints alleging sexual harassment at work place during thefinancial year 2016-17. The status of the same is as under.
|No. of cases received during the year ||No. of cases closed during the year ||No. of cases pending for investigation at the end of the year |
|9 ||9 ||Nil |
The Directors are grateful to the shareholders of the Bank for the trust and confidencereposed by them in the Bank.
The Directors are also grateful to the Reserve Bank of India the Ministry of CorporateAffairs Securities and Exchange Board of India Insurance Regulatory and DevelopmentAuthority and the Stock Exchanges for the guidance and support extended by them to theBank.
The Board expresses its deep sense of appreciation to all employees for their excellentperformance strong work ethic and unswerving commitment which qualities havecontributed to the Bank's continued progress in a challenging environment.
The Board thanks its valued customers for their patronage and looks forward to thegrowing of this mutually supportive relationship in future.
| ||For and on behalf of the Board of Directors |
|Place: Mumbai ||R. Seshasayee |
|Date: May 9 2017 ||Chairman |
ANNEXURE II TO THE DIRECTORS' REPORT
The details pursuant to Section 197(12) of the Companies Act 2013 read with Rule 5(1)of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014(Including Amendment Rules 2016)
> The ratio of the remuneration of each Director to the median remuneration of theemployees of the Bank for the financial year is given below:
|Name ||Ratio |
|Romesh Sobti Managing Director & CEO ||129x |
|R. Seshasayee Part-time Non-Executive Chairman# ||7.14x |
# The ratio of remuneration paid to Mr. R. Seshasayee is based on payment ofProfit-related Commission of '25 lakhs per annum and does not include the Sitting Feespaid.
Details about Remuneration paid to the Managing Director & CEO are given in theReport on Corporate Governance under the heading Compensation to Whole-timeDirectors' which forms an integral part of the Annual Report.
From April 2016 in addition to the Sitting Fees paid for attending the meetings of theBoard and of various Committees of the Board all Non-Executive Directors (other than theChairman) received remuneration in the form of Profit-related Commission of '10 lakhs perannum in line with RBI Guidelines and on the basis of Members' approval in the 22nd AGMheld on July 12016.
Mr. R. Seshasayee Part-time Non-Executive Chairman received remuneration of '25 lakhsin FY 2016-17 in the form of Profit-related Commission as approved by the Reserve Bank ofIndia and by Members in the 22nd AGM of the Bank.
In view of the guidelines on Compensation to Non-Executive Directors of Private Sectorbanks contained in RBI Circular dated June 12015 remuneration to Non-Executive Directors(other than the Chairman) in the form of Profit-related Commission is capped at '10 lakhsper annum and the same has been paid with effect from April 2016.
The ratio of remuneration to Non-Executive Directors to the median remuneration of theemployees of the Bank for the financial year is 2.86x.
> Percentage increase in remuneration of Chief Executive Officer Chief FinancialOfficer and the Company Secretary in the Financial Year :
|Name ||Percentage |
|Romesh Sobti Managing Director & CEO ||7% |
|S. V. Zaregaonkar Chief Financial Officer ||23% |
|Haresh Gajwani Company Secretary ||13% |
> The percentage increase in the median remuneration of employees in the FinancialYear:
The median of fixed remuneration of the employees in the financial year increased byabout 7.9%.
The calculation of % increase in median of fixed remuneration of employees covers onlythose employees who received increments in the financial year.
> The number of permanent employees on the rolls of the Bank:
There were 25314 employees on the rolls of the Bank as on March 312017.
> Average percentile increase already made in the salaries of employees other thanthe managerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and point out if thereare any exceptional circumstances for increase in the managerial remuneration:
- All employees in the Bank are under Managerial Cadre categorized into Grade Bands ofTop Management Middle Management and Junior Management. Hence this section is notapplicable to the Bank.
> We affirm that the remuneration paid to the Directors Key Managerial Personnel(KMP) and Employees is as per the Remuneration Policy of the Bank.
Remuneration of KMPs is as per Form 16 (on an annualised basis) excluding StockOptions exercised since Options do not form part of total cost to the Bank.
Statutory Disclosures Regarding ESOPs ( Forming part of the Directors' Report for theyear ended March 312017)
|SI. No. ||Particulars ||ESOP 2007 (Upto March 312017) ||Options Granted on May 12 2016 ||Options Granted on July 11 2016 ||Options Granted on August 23 2016 ||Options Granted on October 10 2016 ||Options Granted on November 16 2016 ||Options Granted on January 27 2017 ||Options Granted on March 24 2017 |
|1 ||No. of options granted ||39839800 ||13500 ||25000 ||276000 ||1851000 ||33500 ||21500 ||49000 |
|2 ||No. of options surrendered (cancelled) ||1952124 ||4000 ||0 ||0 ||0 ||0 ||0 ||0 |
|3 ||Pricing Formula || |
Options granted at market price except some options granted on July 182008 January 282010 February 7 2011 January 29 2014 and January 12 2016 are at discount to market price.
|4 ||No. of options Vested ||32687349 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|5 ||No. of options Exercised ||26151565 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|6 ||No. of shares arising as a result of exercise of options ||26151565 ||0 ||0 ||0 ||0 ||0 ||0 ||0 |
|7 ||Options Lapsed ||Nil ||- ||- ||- ||- ||- ||- ||- |
|8 ||Variation in terms of ESOP ||N.A. ||- ||- ||- ||- ||- ||0 ||- |
|9 ||Money realised by exercise of options (Rs. In Lakhs) ||36606 ||- ||- ||- ||- ||- ||- ||- |
|10 ||Total No. of Options in force ||11736111 ||9500 ||25000 ||276000 ||1851000 ||33500 ||21500 ||49000 |
|11 ||Employee-wise details of options granted to; || || || || || || || || |
| ||(a) Key Managerial Personnel i.e. Managing Director & CEO Chief Financial Officer and Company Secretary ||5443000 || || || || || || || |
| ||Mr. S. V. Zaregaonkar Chief Financial Officer ||- ||- ||- ||- ||150000 ||- ||- ||- |
| ||(b) Any other employee who receives a grant in any one year of options amounting to 5% or more of the options granted during the year. (Refer Table A) ||4460000 || || ||250000 ||1450000 || || || |
| ||(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. ||Nil || || || || || || || |
|12 ||Diluted Earnings per share (EPS) pursuant to issue of shares on exercise of option calculated as per Accounting Standard (AS) 20- "Earning Per Share" || |
The Diluted EPS of the Bank calculated after considering the effect of potential equity shares arising on account of exercise of Options is Rs.47.56.
|13 ||Where the company has calculated the employee compensation cost using the intrinsic value of the stock options 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 options shall be disclosed. The impact of this difference on profits and on EPS of the company shall also be disclosed || |
The Bank has charged Rs.3.29 crores to the Profit and Loss account being the intrinsic value of stock options granted for the year ended March 31 2017. Had the Bank adopted the Black Scholes model based fair valuation compensation cost for the year ended March 31 2017 would have increased by T70.05 crores and the proforma profit after tax would have been lower by Rs.45.80 crores. On a proforma basis the basic and diluted earnings per share would have been Rs.47.29 and Rs.46.80 respectively.
|14 ||Weighted average exercise prices and weighted average fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock || |
The weighted average market price of options exercised during the year is Rs.1129.96 Grants whose Exercise Price equals market price: The weighted average exercise price of options granted during the year is Rs.1216.73 The weighted average fair value of options granted during the year is Rs.441.07 Grants whose Exercise price is less than market price: N.A.
|15 ||A description of the method and significant assumptions used during the year to estimate the fair value of Options including the following weighted-average information: || |
The fair value has been calculated using the Black Scholes Option Pricing model.
| ||Risk Free Interest Rate || ||7.29% ||7.18% ||6.98% ||6.65% ||6.34% ||6.52% ||6.74% |
| ||Expected Life || ||4.51 ||4.51 ||4.51 ||4.51 ||4.51 ||4.51 ||4.51 |
| ||Expected Volatility || ||32.38% ||31.68% ||31.34% ||31.05% ||30.94% ||30.53% ||29.31% |
| ||Dividend Yield || ||0.43% ||0.40% ||0.38% ||0.37% ||0.41% ||0.36% ||0.33% |
| ||Price of the underlying share in the market at the time of option grant. || ||1053.75 ||1126.70 ||1186.75 ||1220.85 ||1093.10 ||1265.40 ||1383.90 |
| ||Table "A" Any other employee who receives a grant in any one year of Options amounting to 5% or more of the Options granted during the year || || || || || || || || |
| ||Name ||Number of Options granted: || || || || || || || |
| ||Sumant Kathpalia || || || || ||300000 || || || |
| ||Paul Abraham || || || || ||175000 || || || |
| ||Arun Khurana || || || || ||150000 || || || |
| ||Sanjay Mallik || || || || ||150000 || || || |
| ||Roopa Satish || || || || ||150000 || || || |
| ||Sanjeev Anand || || || || ||125000 || || || |
| ||Zubin Mody || || || || ||125000 || || || |
| ||Ramaswamy Meyyappan || || || || ||125000 || || || |
| ||Samir Dewan || || || ||250000 || || || || |
| ||S.V. Parthasarathy || || || || ||150000 || || || |
| || || || || || || || || || |
| ||Note to "Table A" || || || || || || || || |
| ||33% of these Options will vest on || || || ||23.08.2017 ||10.10.2017 || || || |
| ||33% of these Options will vest on || || || ||23.08.2018 ||10.10.2018 || || || |
| ||34% of these Options will vest on || || || ||23.08.2019 ||10.10.2019 || || || |