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Lakshmi Vilas Bank Ltd.

BSE: 534690 Sector: Financials
NSE: LAKSHVILAS ISIN Code: INE694C01018
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VOLUME 78299
52-Week high 209.80
52-Week low 125.10
P/E 14.19
Mkt Cap.(Rs cr) 2,939
Buy Price 153.20
Buy Qty 75.00
Sell Price 0.00
Sell Qty 0.00
OPEN 152.70
CLOSE 152.35
VOLUME 78299
52-Week high 209.80
52-Week low 125.10
P/E 14.19
Mkt Cap.(Rs cr) 2,939
Buy Price 153.20
Buy Qty 75.00
Sell Price 0.00
Sell Qty 0.00

Lakshmi Vilas Bank Ltd. (LAKSHVILAS) - Director Report

Company director report

TO THE MEMBERS

The Directors of your Bank have great pleasure in presenting this 90th AnnualReport on the business and operations of your Bank together with the Audited Accounts forthe year ended 31st March 2017 (FY 2016-17).

1. FINANCIAL PERFORMANCE:

The highlights of the financial performance of your Bank for the year ended 31stMarch 2017 are as under:

For the year ended

Particulars

(Rs in crore)

31st March 2017 31st March 2016
Deposits 30553.35 25430.96
Advances (net) 23728.91 19643.74
Investments (net) 8651.73 6545.40
Total Income 3349.42 2872.83
Operating Profit 634.06 407.12
Provisions & Contingencies 377.98 226.88
Net profit 256.07 180.24

Your Bank registered appreciable growth in business volumes that compares veryfavorably with the industry average. The Bank attained total business of Rs 54282.26crores in FY 2016-17 a growth of 20.43% over Rs 45074.70 crores in FY 2015-16.

Deposits grew by 20.14% from Rs 25430.96 crores as at 31st March 2016 to Rs30553.35 crores as at 31st March 2017 and total advances (net) expanded by20.80% from Rs 19643.74 crores in FY 2015-16 to Rs 23728.91 crores in FY 2016-17. TheBank rolled out a new retail banking strategy for liabilities consisting of growth in CASAand Retail Term Deposits. Under this strategy the bank is targeting consistent growth inCASA through the metric of Cumulative Daily Average Business or CDAB. This strategy hashelped the bank to achieve smooth growth in CASA on CDAB basis to 17.50% of total depositswhich is a growth of 3.29% Y-o-Y.

The overall Priority Sector advances during the year increased by Rs 840.97 Crores fromRs 7349.81 Crores to Rs 8190.78 Crores. Your Bank has achieved 41.27% of Adjusted NetBank Credit (ANBC) against the regulatory prescription of 40% of ANBC on Priority Sectorlending requirements.

The Total Agricultural advances stood at Rs 3572.72 Crores as at 31st March2017 forming 18% of ANBC. Of which loans to Small and Marginal Farmers stood at Rs1815.31 Crores forming 9.15% of ANBC against the mandatory requirements of 8% of ANBC.The Bank's advances to Micro Enterprises and Weaker Sections were at 7.83% and 10.17%respectively against the mandatory requirements of 7.50% and 10.00%.

The Bank continues to comply with the regulatory guidelines under Priority SectorAgricultural lending Micro Enterprises and Weaker Section advances.

The Bank's exposures to sensitive sectors including Real Estate and Capital Market weremaintained well within the regulatory limits.

As at the end of the year under review the total investments (net) of the Bank stoodat Rs 8651.73 crores as against Rs 6545.40 crores as on 31st March 2016.

Your Bank's Treasury continues to focus on sound Asset-Liability Management and onservicing clients with appropriate treasury products and was managed well in a systematicway in a year when yields were constantly decreasing. Your Treasury also took activetrading positions to derive advantage from the fall in yields in the Indian debt market.

2. PROFIT:

The Bank has posted operating profit of Rs 634.06 crores in FY 2016-17 against Rs407.12 Crores in the previous year FY 2015-16 registering a growth of 55.74%. The netprofit for the year after provisions and taxes amounts to Rs 256.07 crores as against Rs180.24 Crores recorded in 2015-16 recording a growth of 42.08%.

3. APPROPRIATIONS:

For the year ended
Particulars (Rs in crore)
31st March 2017 31st March 2016
Profit brought forward 0.00 0.08
Transfer from Investment Reserve 0.00 0.73
Amount available for appropriation 256.07 181.04
Transfer to Statutory Reserve 64.10 45.20
Capital Reserve 77.16 6.04
Other Reserve 46.55 50.00
Investment Reserve 0.00 0.00
Special Reserve u/s 36(i)(viii)of the IT Act 1961 6.00 15.00
Proposed Dividend 0.00 53.84
Corporate Dividend Tax 0.00 10.96
Balance of profit carried forward 62.26 0.00

4. DIVIDEND:

Your Board of Directors are pleased to recommend a dividend of Rs 2.70 (27%) per sharefor the year ended 31st March 2017 as against Rs 3.00 (30%) per share forprevious year ended 31st March 2016. The total out go in the form of dividendincluding taxes will be Rs 62.21 Crores. Considering the conservation of capital forfunding the further growth plans of the bank your bank decided to recommend a dividend of27% to the shareholders.

In accordance with revised Accounting Standards (AS) 4-Contingencies & Eventsoccurring after the balance sheet date notified by the MCA on March 30 2016 the proposeddividend including corporate dividend tax amounting to Rs 62.21 crores has not been shownas an appropriation from the profit & loss appropriation account as of March 31 2017and consequently not reported the same under Other liabilities and Provisions as of March31 2017.

Your Bank has a Board approved Dividend Distribution Policy which has been formulatedin line with Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 and extant RBI Circulars/Directives. The Dividend Distribution Policyhas been enclosed as Annexure J to the Directors' Report. The Policy has also been madeavailable in the website of the Bank and can be accessed at www.lvbank.com.

5. DETAILS OF SHARES ISSUED ON QIP BASIS:

During the year 11985138 equity shares were allotted to Qualified InstitutionalBuyers (QIBs) in line with Chapter VIII of the Securities and Exchange Board of India(Issue of Capital and Disclosure Requirements) Regulations 2009. These shares were issuedat a premium of Rs 130 to the face value of Rs 10.

As on March 31 2017 the post-issue paid-up capital of your Bank stood at Rs1914467470 comprising 191446747 equity shares of Rs 10 each.

6. STATEMENT OF DEVIATION OR VARIATION:

During the year the Bank had issued equity shares to Qualified Institutional Buyersthrough Qualified Institutional Placement on 03.01.2017. The issue was done in order toenhance the capital adequacy ratio in line with the RBI norms and the proceeds of theissue were used primarily to enhance the Bank's Capital Adequacy Ratio and to increase ourcapacity to lend and for general corporate purposes subject to compliance of applicablelaws. There was no variation prompting disclosure under Regulation 32 of the Securitiesand Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015.

7. EPS / BOOK VALUE:

Earnings per Share stood at Rs 14.07 for the year ended 31st March 2017 ascompared to Rs 10.05 as on 31st March 2016. Book Value of the share stood atRs 102.74 on 31st March 2017 as compared to Rs 88.70 as on 31stMarch 2016.

8. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO:

Net Owned Funds (NOF) of the Bank increased from Rs 1591.86 Crores as at the end of FY2015-2016 to Rs 1966.85 Crores as at the end of FY 2016-2017 reflecting a growth of23.56%.

The Capital Adequacy Ratio (CAR) as on 31st March 2017 as per BASEL III is10.38%. The bank has been consistently maintaining Capital Adequacy Ratio well above theregulatory minimum of 9% stipulated by the Reserve Bank of India.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 8.75%and 1.63% respectively. The Bank is working out capital raising plans in order to ensurethat it meets capital requirement for meeting its business plan.

9. STRATEGY OF IND-AS IMPLEMENTATION:

Ministry of Corporate Affairs (the "MCA") has given a roadmap on convergenceto Ind AS by banks mandating them to converge with Ind AS from April 1 2018. Consequentlyopening balance sheet needs to be drawn as on April 1 2017.

RBI vide circulars DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11 2016 andRBI/2015-16/429 DBR.BP.BC. No.106/ 21.07.001/2015-16 dated June 23 2016 directed banksto be in preparedness to submit the proforma Ind AS Financial Statements from thehalf-year ended September 30 2016 onwards. The Bank has formed an interdepartmentalSteering Committee to oversee the implementation process under the guidance of the AuditCommittee of the Board. The Bank has engaged a consultant for the smooth implementation ofInd AS. The Bank has prepared the Proforma Statement (Unaudited) for the half year ended30.9.2016 and submitted to RBI.

The country is gearing up to roll out Goods and Services Tax (GST) which is a landmarktaxation reform bringing in a consolidated set of tax laws to administer tax on sale ofgoods and services. The Bank is gearing up to meet the rollout deadline of 1stJuly 2017. The new tax regime is expected to improve efficiencies for all economic agentsin the country and also help to keep a check on inflation and leakage of income.

10. NON-PERFORMING ASSETS (NPA):

There is no respite in asset quality deterioration for the Indian Banking industry andalmost all banks have been affected by this phenomenon during the FY 2016-17 though byvarying degrees. The NPA portfolio of banks enticed more attention as the RBI undertookAsset Quality Review (AQR) in commercial banks and directed banks to clean their balancesheet. Asset quality slippage and the consequent provisioning have dented theprofitability of most of the Indian banks during the financial year. The situation isexpected to remain challenging throughout FY 2018 as well due to the twin factors of flatGDP and debt overhang on the corporate balance sheets. It remains to be seen how the newInsolvency and Bankruptcy Code along with steps from RBI would help address the largestock of bad debts in the banking system.

Against this backdrop your Bank reported GNPA Percentage of 2.67% as at the end of theFY 2016-17 against 1.97% as on 31.3.2016. The Bank has also sold some hardcore NPAs toARCs which has also enabled it to maintain the NPA at this level during the FY. At thesame time other stressed accounts were upgraded through efficient recovery follow-upwhich was significant during the period.

During the year your bank has taken steps to improve borrower selection and creditassessment. The Bank is implementing a relationship-based corporate business model and isimplementing a transformation of its MSME business model in order to derive value from itsstrong leadership in various geographies and to gain entry in quality companies. Creditmonitoring has been strengthened and the follow up methodology was further improved.Conduct of high value credit portfolio was put under constant monitoring. Monitoringprocess has been guided by technology. Wherever stress was noticed immediate remedialsteps were taken and stressed assets were nursed.

11. BRANCH AND ATM NETWORK:

The Bank continued to expand its distribution network which remains an integral partof the Bank's strategy for tapping CASA deposits lending to retail & MSME segmentsand cross selling third-party products.

During the fiscal 2016-17 the Bank added 21 new branches to its network across thecountry and as on 31st March 2017 the Bank had a network of 480 branches 1satellite branch and 7 extension counters spread across 16 states and the union territoryof Puducherry. The Bank also has ATM network of 958 (362 Onsite & 596 Offsite) invital / major locations for better service to our customers.

The enhanced network of branches and service outlets contributes to sizeable increasein the business. As more and more branches are opened the clientele base improvesvis--vis the business levels. The branch expansion in the recent past has contributedsignificantly to the increase in the business level.

The Bank's focus is on customer delight by maintaining its known high levels ofcustomer service. The Bank has a strong and wide base in the southern states of India andis focusing on retail and MSME sector by technology-based solutions.

12. FINANCIAL INCLUSION:

Financial Inclusion may be defined as the process of ensuring access to financialservices including timely and adequate credit facilities to vulnerable groups such asweaker sections and low income groups at an affordable cost where needed. The essence offinancial inclusion is to ensure that a range of appropriate basic financial services aremade available to every individual and enabling them to understand and access thoseservices.

The Bank has implemented the financial inclusion plan in 363 villages and wardsallotted by SLBC in Tamilnadu. The Bank has opened 174872 Basic Savings Bank DepositAccounts (BSBDA) including 96274 accounts under Prime Minister Jan Dhan Yojana (PMJDY).

13. INTERNATIONAL BUSINESS:

During the year the Indian Rupee outperformed its peers and touched its highest levelsince October 2015. The Rupee appreciated by around 4% in 2017 compared to depreciation of2% in 2016 against USD. With rising interest rates in the US Dollar remainedfundamentally supported against all major currencies including emerging market currencies.The uptrend in Dollar gained momentum after the US Presidential election on expectationsthat the new President's plan to boost fiscal stimulus would benefit the currency. Duringthe year the Bank achieved foreign exchange turnover of Rs 6416.29 Crores as against Rs5219.18 Crores in the previous year.

14. LIABILITIES PRODUCTS:

The liabilities business grew significantly during FY 17. Total deposits over achievedthe Annual Target of Rs 30500 crores showing a Y-o-Y growth of 20%. CASA the low-costcomponent of deposits also grew beyond its Annual Target of Rs 5800 crores registering aY-o-Y growth of 32% contributing substantially to a lower cost of deposits. The growth ofCASA on a CDAB basis is much more (42%) indicating that the balances grew at a healthypace. In fact during the year percentage of CASA (as a part of total deposits) on CDABbasis grew by an unprecedented 329 basis points.

The growth has been spectacular even in the field of account opening. From 2.25 lacsaccounts opened during 2015-16 the bank reached a level of 3.26 lacs accounts by end of2016-17. Of the various products in the Liabilities suite "Crown" the specialtyproduct for HNI customers has been a big success. As at March-end there are almost 10000Crown customers with a total book of Rs 369 Crores at an average balance of Rs 3.70 lacs.The Bank has expanded the crown franchise to introduce LVB crown NRE & NRO accounts.

LVB Saanvi: An updated and refurbished product for women.

Lakshmi Dynamic Current Account: Gives convenience of automatically transferringbalances from current account to savings bank account.

LVB Vyapaar Current Account: A specialised current account for small traders andmerchants with a zero balance facility and connected along with a POS terminal.

The constantly evolving suite of products and services have also been backed with awell thought out resourcing and training strategy to assure that our teams are able toprovide optimal service to all our esteemed customers.

The Bank is well geared up to proceed aggressively on the growth path along withmaintaining services of the highest order.

15. LISTING AGREEMENT WITH STOCK EXCHANGES:

The Equity Shares of the bank are listed with the National Stock Exchange of India LtdMumbai and BSE Ltd Mumbai which is enhancing the liquidity of your equity shares.

16. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE:

Payments:

The Bank is leveraging its mobile banking applications to address fast-paced customerbehaviour in the payments space. The government has given clear mandate to banks to pushdigital payments and reduce dependence of economy on cash mode of payments. Your bank hastaken steps in this direction. Further the Bank is investing resources to improve itsapplications with a view to offering more delight and convenience to customers.

LVB Mobile:

Your bank had launched the LVB Mobile app in January 2016 and has since then releasedvarious updates with new features. The Bank is in the continuous process of enriching theLVB Mobile App and as part of the same the following features were enabled during thefinancial year 2016 - 2017:

1. Introduced enhanced security feature to identify and authenticate customer during onboarding process.

2. To have mass reach across the nation the App was enhanced with multilingualfacility of regional languages such as Hindi Telugu Tamil Kannada and Malayalam inaddition to default English language.

3. During the demonetisation episode it enabled LVB Merchants to accept payments fromLVB customers through LVB Mobile QR based scan and pay feature.

4. Enabled On-boarding of customers to devices like Android Tablets & Apple iPadsthrough QR code based flow from their registered device.

5. Enhanced with features of bill payment facility to Tamil Nadu Electricity Boardwhich is in addition to various other states electricity bill payments.

6. Customers were provided with features of demat details like Statement of AccountStatement of Holding Statement of Billing and Latest transaction details.

LVB UPAAY:

Your bank had successfully launched an app called LVB UPAAY during February 2017 basedon the NPCI Unified Payments Interface platform in line with the Government's initiativesof "Go Digital" as well as your Bank's business objectives.

The app is the latest in a series of technology initiatives launched by the Bank. Itwould significantly facilitate payment and collection of amounts across multiple accountsmultiple banks and multiple account holders. It can be used by LVB customers as well asnon-customers so that the Bank's visibility reach and fee based income can improve.

Salient features of LVB UPAAY:

• Users can link manage and transact on several accounts of multiple banks(participating in UPI) from a single app.

• Users can do various kinds of transactions like viewing balance in accountsremitting funds collecting funds etc. from all the linked accounts.

• Facilitates users to do the transactions using Virtual Payment Address- VPA.

• However transactions can also be carried out using Account Number & IFSCcode or Mobile Number & MMID

• Facility to collect funds from others in addition to usual remitting.

• Other features like Recharge of Mobile & DTH are also available which onlyvery few UPI apps in the market are having.

In addition the bank has kicked off important projects such as CRM and BusinessAnalytics which are expected to deliver strong business value in years to come.

Technology Award:

Your bank has bagged CIO100 award from M/s. IDG Media Pvt. Ltd. for effectivelyimplementing Mobility platform.

17. WEALTH MANAGEMENT / PARABANKING ACTIVITIES: Life Insurance:

Bank has progressed with 31% growth Y-o-Y in this business line and insured 5600 liveslast year. To further enhance our product basket we have partnered with "Birla SunLife Insurance" and "DHFL Pramerica" under the open architecture adding afew new products thus providing a diversified set of options to our clients to satisfytheir specific needs.

Following life insurance products will complement our present product suit through thenew tie-up's

• School Fees Protection Solution

• Rakshak Gold - Life cover for Defense segment

• Dengue Group Shield

• ULIPS

General Insurance:

Collected premium of Rs 16.22 Crores during the FY by covering the assets of ourcorporate and retail customers and registered Y-o-Y growth of 37% in premium collections.

Health Insurance:

The Bank has tied up with M/s. Cigna TTK Standalone Health Insurance Company Ltd tooffer Health Insurance Products to the customers; the Bank has collected health insurancepremium of Rs 5.16 Crores during the year and covered around 5800 customers.

Wealth Management:

1. FISDOM - Bank has tied up with M/s. Finwizard Technology Pvt Ltd (widely known asFISDOM) to offer mobile based wealth management services to our customers.

• Fisdom enables end-to-end digital transactions for mutual funds for the firsttime in India.

• Here our customers can invest in equity debt and liquid instruments throughFisdom and Fisdom has covered almost all leading AMCs.

2. The Bank has tied up with M/s. Centrum Wealth Management Limited offering end to endwealth management solutions to our Ultra HNI clients. CWML is an established player inmarket with AUM of Rs 10000 Crores and expertise in area of complete Private Banking.

18. RISK:

The risk management objective of the Bank is to balance between risk and return whileoperating within acceptable level of risk appetite. The Bank has an independent riskmanagement function which is tasked with managing risk through policies and processesapproved by the Board of Directors. These encompass identification measurement andmanagement of risks across the various businesses of the Bank. The risk managementfunction in the Bank strives to scientifically study vulnerabilities of process acrossbusiness portfolios through quantitative or qualitative examination of the embedded risksand controls. The function continues to focus on refining and improving its riskmanagement systems through automation of processes and building and strengtheningcontrols.

The Bank has in place a Risk Management Committee of the Board of Directors. The Bankhas formulated and adopted a robust risk management framework. The Bank has in placecommittees such as Credit Risk Management Committee (CRMC) Asset Liabilities Committee(ALCO) Operational Risk Management Committee (ORMC) Business Continuity ManagementCommittee (BCMC) Information Systems and Security Steering Committee (ISSC). Thesecommittees discuss risk related issues arising from businesses and processes and haveactive participation from Top Management of the Bank.

The overall risk appetite and risk philosophy of the Bank is articulated by its Boardof Directors. The risk appetite framework provides guidance to the management on thedesired level of risk for various types of risks in the long term and helps steer criticalportfolio decisions. Further the Internal Capital Adequacy Assessment Process (ICAAP) ofthe Bank assesses all the significant risks associated with various businesses. Theindependent risk management structure within the Bank is responsible for managing thecredit risk market risk liquidity risk operational risk other Pillar II risks likereputation risk and strategic risks and exercising oversight on risks associated withoutsourcing. The Bank has in place well-defined policies appropriate for the various riskcategories viz credit risk market risk operational risk liquidity risk counterpartyrisk country risk reputational risk strategic risk and outsourcing risk supplementedby monitoring. These are reviewed periodically in order to benefit from internal andexternal experience.

19. INTERNAL CONTROLS:

Bank has a separate Audit and Inspection Department which subjects all the branches ofthe Bank besides the Treasury Currency Chests Service Branches Regional Offices andevery department of the Corporate Office to regular inspection. All the branches aresubjected to IS Audit.

Key Functional areas including Treasury at Mumbai Central Processing Centre at KarurCentral Processing Cell Chennai Depository Participant Cell Technology Centre Chennaiand 105 branches are under Concurrent Audit which covers 61% of the total deposits and 75%of the total advances of the Bank.

The Audit Committee of the Board constituted in line with RBI guidelines and as per therequirements of SEBI Regulations reviews the adequacy of the audit and compliancefunctions including the policies procedures and techniques. The Composition of AuditCommittee of the Board is provided elsewhere in the report.

During the year there were no instances wherein the Board has not accepted therecommendations of the Audit Committee of the Board.

20. HUMAN RESOURCES:

The Staff strength of the Bank was augmented during the year 2016-17 with recruitmentof 40 executives 280 officers 133 junior officers 319 clerks and 9 subordinate staff.Further 526 Sales Personnel were also engaged to boost sales. Total number of employeesas on 31.03.2017 was 4043 as against 3565 as on 31.03.2016.

The Bank's focus on training the human resources on a continual basis gained momentumby conducting online e-learning duly leveraging technology. The Bank has trained aconsiderable number of resources in offsite training programmes conducted by reputedinstitutions such as RBI CAB Great Lakes Institute of Management SIBTC IIBF NIBM& FEDAI. The introduction of competency based interview model and psychometric toolsare helping in hiring the right person for the right role.

21. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS BY THE BANK:

Disclosure under Section 186 of the Companies Act 2013 does not apply to BankingCompany.

22. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

There were no related party transactions during the year under review and Form AOC-2 isnot applicable to the Bank. During the FY 2016-17 the Bank did not have any materialRelated Party Transaction.

The Bank has an approved policy on Related Party Transactions which has been disclosedon the website and can be viewed athttp://www.lvbank.com/UserFiles/File/RelatedPartyTransactions_Policy.pdf

23. OUTLOOK 2017-18:

Risks are evenly balanced around the inflation trajectory at the current juncture.There are upside risks to the baseline projection. The main one stems from the uncertaintysurrounding the outcome of the south west monsoon in view of the rising probability of anEl Nio event around July-August and its implications for food inflation. Proactivesupply management will play a critical role in staving off pressures on headlineinflation. A prominent risk could emanate from managing the implementation of theallowances recommended by the 7th CPC. In case the increase in house rentallowance as recommended by the 7th CPC is awarded it will push up thebaseline trajectory by an estimated 100-150 basis points over a period of 12-18 monthswith this initial statistical impact on the CPI followed up by second-order effects.Another upside risk arises from the one-off effects of the GST. The general governmentdeficit which is high by international comparison poses yet another risk for the path ofinflation which is likely to be exacerbated by farm loan waivers. Recent globaldevelopments entail a reflation risk which may lift commodity prices further and passthrough into domestic inflation. Moreover geopolitical risks may induce global financialmarket volatility with attendant spillovers. On the downside international crude priceshave been easing recently and their pass-through to domestic prices of petroleum productsshould alleviate pressure on headline inflation. Also stepped-up procurement operationsin the wake of the record production of foodgrains will rebuild buffer stocks and mitigatefood price stress if it materialises.

GVA (Gross Value Added) growth is projected to strengthen to 7.4 per cent in 2017-18from 6.7 per cent in 2016-17 with risks evenly balanced. Several favourable domesticfactors are expected to drive this acceleration. First the pace of remonetisation willcontinue to trigger a rebound in discretionary consumer spending. Activity incash-intensive retail trade hotels and restaurants transportation and unorganisedsegments has largely been restored. Secondly significant improvement in transmission ofpast policy rate reductions into banks' lending rates post demonetisation should helpencourage both consumption and investment demand of healthy corporations. Thirdly variousproposals in the Union Budget should stimulate capital expenditure rural demand andsocial and physical infrastructure all of which would invigorate economic activity.Fourthly the imminent materialisation of structural reforms in the form of the roll-outof the GST the institution of the Insolvency and Bankruptcy Code and the abolition of theForeign Investment Promotion Board will boost investor confidence and bring in efficiencygains. Finally the upsurge in initial public offerings in the primary capital marketaugurs well for investment and growth.

The global environment is improving with global output and trade projected bymultilateral agencies to gather momentum in 2017. Accordingly external demand shouldsupport domestic growth. Downside risks to the projected growth path stem from the outturnof the south west monsoon; ebbing consumer optimism on the outlook for income the generaleconomic situation and employment as polled in the March 2017 round of the Reserve Bank'sconsumer confidence survey; and commodity prices other than crude hardening further.While economic conditions are unlikely to change significantly factors like oil pricesand geo-political disruptions are unknown factors that can have negative impact in2017-18. Though India is expected to maintain GDP levels above 7 pct which would possiblybe the highest in the world credit demand is unlikely to recover significantly as newcapacity creation in the industrial sector is still some time away and borrowers continueto grapple with leverage on their balance sheet.

24. CORPORATE GOVERNANCE:

Corporate Governance of the Bank continues to rest on the fundamental pillar of highethical values designed to enhance and protect the interests of all the stakeholders. TheBank has complied with the Corporate Governance provisions as specified in SEBI (ListingObligation and Disclosure Requirements) Regulations 2015. All the Directors on the Boardhave executed deed of covenant and undertaking individually inline with therecommendations of Dr. Ganguly Committee Report.

Further pursuant to SEBI (Listing Obligation and Disclosure Requirements) Regulations2015 a Management Discussion and Analysis is presented in Annexure-A and Report on BoardCommittees is furnished in Annexure-B. Composition of the Board of Directors together withthe attendance of Directors at various meetings of the Board its Committees and AnnualGeneral Meeting and the number of directorships held by them alongwith the details ofAudit Committee and Stakeholders Relationship Committee are furnished in Annexure-Cincluding composition of the Audit Committee. General Shareholders' information isfurnished in Annexure-D.

25. NUMBER OF MEETINGS OF THE BOARD:

During the financial year the Board met 13 times. The Board meetings were held inaccordance with the provisions of the Companies Act 2013. The details of the meetings heldare provided in the Corporate Governance Report that forms part of this Annual Report.

26. POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL:

According to the Articles of Association of our Bank the number of Directors of theBank shall not be less than three and more than fifteen and not less than fifty-onepercent of the total number of Directors shall be persons who satisfy the requirements ofSection 10A of the Banking Regulation Act. The process of Due Diligence is undertaken incompliance of Directives/Guidelines/Circulars issued by RBI from time to time in thematter of appointment/re-appointment of Director. The Non-Executive Chairman of the Bankthe Managing Director and the Executive Director of the Bank are appointed with priorapproval of the RBI. Based on the vacancies that may arise in the Board from time to timethe Board follows a due process of appointment of directors through prior due diligence inline with the regulatory advice given by RBI SEBI and MCA by way of Circulars /Guidelines / Regulations / enactments. The Nomination Remuneration and CompensationCommittee of the Board has formulated criteria for evaluation for the appointment orre-appointment of directors including Independent directors. The Whole Time Directors ofthe Bank i.e. the Managing Director & CEO and the Executive Director & CFO of theBank are paid remuneration as approved by the RBI but are not paid any sitting fees. Otherthan the MD&CEO and ED&CFO no other directors are paid any remuneration apartfrom sitting fees for attending Board and Board Committee Meetings. The details ofremuneration of the MD&CEO and ED&CFO and that of the sitting fees paid to theother directors are available elsewhere in the report. The Senior Management and the otherKMP being the Company Secretary of the Bank along with other employees are paidremuneration based on internal HR policies of the Bank. The senior management of the Bankalong with the KMPs abide by the Code of Conduct prescribed by the Bank. The code ofconduct has been disclosed at the Bank's website and can be viewed athttp://www.lvbank.com/UserFiles/CODEOFCONDUCT.pdf.The MD&CEO ED&CFO and CompanySecretary are the Key Managerial Personnel (KMPs) of the Bank as stipulated by theCompanies Act 2013. Other than MD&CEO and ED&CFO there are no other whole timedirectors in the bank.

27. DECLARATION BY INDEPENDENT DIRECTORS:

The Company has duly obtained necessary declarations from each independent directorunder Section 149(7) of the Companies Act 2013 that he/she meets the criteria ofindependence as laid down in Section 146(6) of the Companies Act 2013 and Regulation 16of SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 and the Companyhas also obtained the 'Fit and Proper' declaration as prescribed by the Reserve Bank ofIndia.

28. BOARD EVALUATION:

The Board discussed in detail and reviewed the performance of the Board as a whole andthat of the individual Directors and of various Committees of the Board based on theCriteria for evaluation of Independent Directors and the Board as formulated by theNomination Remuneration and Compensation Committee of the Board. The Board had alreadytaken note of the evaluation made by the Independent Directors on the Board at theirmeeting held on 28.02.2017. During the evaluation the Independent Directors had notedthat the performance of the Non-Independent Directors the Board the Managing Director& CEO and Executive Director & CFO in the Board was satisfactory during the year2016-17.

Based on the inputs received from the evaluation conducted by the Independent Directorsand also considering certain specific criteria depending on the role of thedirector/committee in the Bank and the criteria for evaluation framed by the NominationRemuneration and Compensation Committee of the Board the subject of board evaluationconsisted of the following:

1. Evaluation of Board as a whole.

2. Evaluation of Board Committees

3. Evaluation of Individual Directors of the Board.

• Evaluation of Managing Director and Executive Director.

• Evaluation of non-Independent Directors.

• Evaluation of Independent Directors

While evaluating the performance of the Board Board Committees and IndividualDirectors the Directors considered various parameters including those formulated by theNomination Remuneration and Compensation Committee of the Board and the Guidance Note onBoard Evaluation prescribed by SEBI. Some of the factors considered include the Structureof the Board the mix of qualification the Functions of the Board etc. Being governed bythe Banking Regulation Act 1949 SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 and Companies Act 2013 the mandatory Committees of the Board have beenentrusted with specific roles and responsibilities under the relevant regulatoryprovisions. Besides the mandatory Committees as prescribed by the regulators the Boardhas separately constituted certain Committees with specific reasons viz. the HR Committeeof the Board and the Capital Raising Committee of the Board.

The evaluation of Board Committees was done taking into account their mandatecomposition frequency of their meetings independence of the Committees from the boardcontribution of the Committees to the decisions of the Board through recommendations andto the Management through decisions etc. The Managing Director & CEO and theExecutive Director & CFO of the Bank were evaluated based on the Business targets setand the Bank's overall performance during the year managing and executing the Boardapproved business plans operational plans risk management and financial affairs of theorganization; ensuring proper coordination between the Board and the Senior Management;Motivating employees and resolving major employee related issues thus maintaining ahealthy work environment; Ensuring strict monitoring of the internal control processes.

The non-executive Directors (both Independent and non-Independent) of the Bank wereevaluated based on their attendance and active participation in the Board and Committeemeetings openness to new ideas and ability to challenge old practices and throwing up newideas for discussion; Coordination and rapport with the fellow Board Members; the positivecontribution of the individual Directors who come from a professional background and thequality of suggestions and guidance given by them through their participation in themeetings with an understanding of the business of the Bank and an understanding of theirrole and responsibilities and the overall effectiveness; the broad based discussions atBoard/Committee Meetings the understanding of the regulatory requirements; remainingabreast of various developments in the Indian banking arena and keeping up with thevarious modifications / re-enactments of statutory enactments applicable to the Bank likethe Companies Act SEBI Regulations and the Banking Regulation Act 1949; approach towardsconflicts resolution and their contribution in enhancing the Board's overall effectivenessand integrity and maintaining of confidentiality. The Independent Directors of the Bankwere also provided a familiarisation program about the bank and their ability to bring inan independent judgment to the issues handled by the Board without getting influencedotherwise. The evaluation with respect to individual non-executive directors revolvedaround various factors as mentioned above and it was ensured that the Board membersevaluated their fellow member Directors in the absence of the Director being evaluated.

29. CHANGES IN THE BOARD OF DIRECTORS & KEY MANAGERIAL PERSONNEL:

Resignations/Cessation of tenure of appointment:

• Shri K. Babuji RBI Nominee Director's nomination was withdrawn by RBI(appointing authority) on 13.05.2016 after having served on the Board for about a year.

• Shri P.A. Shankar attained superannuation as per RBI Directive on 03.06.2016 ashe had attained 70 years of age.

• Shri DLN Rao retired on 14.08.2016 as per the provisions of Section 10A (2A) ofthe Banking Regulation Act 1949 after serving on the Board continuously for a period ofeight years.

• Shri K.R. Pradeep retired on 27.02.2017 as per the provisions of Section 10A(2A) of the Banking Regulation Act 1949 after serving on the Board continuously for aperiod of eight years.

• Shri Vivek Srivastava RBI Nominee Director's nomination was withdrawn by RBI(appointing authority) on 17.05.2017 after having served on the Board for about a year.

Appointments:

• Shri Vivek Srivastava General Manager RBI was appointed as Nominee Directorby the RBI on 13.05.2016 for a period of two years or till further orders whichever isearlier.

• Shri Y.N. Lakshminarayana Murthy was appointed as an Additional Director on10.06.2016 pursuant to the provisions of Section 149 (4) and Section 161 of the CompaniesAct 2013 and classified under Independent category in terms of Regulation 16(1)(b) of theSecurities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015 and representing Agriculture & Rural Economy under majority sectoras per Banking Regulation Act 1949.

• Shri N.S. Venkatesh was appointed as the Executive Director of the Bank by RBIvide its letter no.DBR.Appt.No.10514/08.44.001/ 2015-16 dt. 22.02.2016 as per Section 35Bof BR Act 1949 for three years from date of his taking charge. Shri N S Venkatesh assumedoffice as the Executive Director of our Bank on 01.07.2016.

• Shri B.K. Manjunath was appointed as the Part-Time Chairman of the Bank by RBIvide its letter no DBR. Appt.No. 4061/ 08.44.001/2016-17 dated 05.10.2016 as per Section10 B(1A)(i) of the Banking Regulation Act 1949 for three years from the date of histaking charge. Shri B.K. Manjunath was inducted to the Board on 06.06.2017 and classifiedunder Independent category in terms of Regulation 16(1)(b) of the Securities and ExchangeBoard of India (Listing Obligations and Disclosure Requirements) Regulations 2015 andrepresenting Accountancy under minority sector as per Banking Regulation Act 1949.

• Shri Kusuma R. Muniraju was appointed as an Additional Director on 01.07.2016pursuant to the provisions of Section 149 (4) and Section 161 of the Companies Act 2013and classified under Independent category in terms of Regulation 16(1)(b) of theSecurities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015 and representing Law under majority sector as per Banking RegulationAct 1949.

• Smt. Anuradha Pradeep was appointed as an Additional Director on 21.03.2017pursuant to the provisions of Section 161 of the Companies Act 2013 and classified asNon-Executive and Non-Independent Director in terms of Securities and Exchange Board ofIndia (Listing Obligations and Disclosure Requirements) Regulations 2015 and representingLaw under minority sector as per Banking Regulation Act 1949.

• Shri Hemant Kaul was appointed as an Additional Director on 26.04.2017 pursuantto the provisions of Section 149 (4) and Section 161 of the Companies Act 2013 andclassified under Independent category in terms of Regulation 16(1)(b) of the Securitiesand Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 and representing Banking under majority sector as per Banking Regulation Act 1949.

• Shri Rajnish Kumar General Manager RBI was appointed as Nominee Director bythe RBI on 17.05.2017 for a period of two years or till further orders whichever isearlier.

Shri Pankaj Vaish and Shri Prakash P Mallya were appointed as Independent Directors bythe shareholders of the Bank at the 87th Annual General Meeting held on26.09.2014 for a period of two years in line with the provisions of Sections 149 152 andother applicable provisions if any of the Companies Act 2013 read with the Companies(Appointment and Qualification of Directors) Rules 2014 read with Schedule IV to theCompanies Act 2013. Their term of office came to an end on 25.09.2016 after whichconsidering the knowledge and rich experience they were appointed as Additional Directorson 27.09.2016 under Independent category.

Re-appointment of Director retiring by rotation:

Shri N. Malayalaramamirtham Director will be retiring by rotation at the ensuing 90thAnnual General Meeting and being eligible offers himself for re-appointment.

Key Managerial Personnel

• Shri M. Palaniappan Chief Financial Officer of the Bank vacated office as perthe terms of appointment with effect from 31.10.2016 after serving the Bank as the ChiefFinancial Officer for about six years.

• Shri N.S. Venkatesh who took charge as the Executive Director of the Bank on01.07.2016 was additionally designated as the Chief Financial Officer of the Bank witheffect from 26.12.2016 in addition to the responsibilities as Executive Director of theBank.

Apart from the above there were no changes in the Key Managerial Personnel during theyear.

30. DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO SEC 134(3)(C) OF COMPANIES ACT2013:

The Board of Directors of your Bank confirms that in the preparation of the annualaccounts for the year ended March 31 2017:

• The applicable accounting standards have been followed along with properexplanation relating to material departures if any;

• The Directors had selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and of the profit and loss of the Company for that period;

• The Directors had taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of applicable laws governingbanks in India for safeguarding the assets of the Company and for preventing and detectingfraud and other irregularities;

• The Directors had prepared the annual accounts on a going concern basis;

• The Directors had laid down internal financial controls to be followed by thecompany and that such internal financial controls are adequate and were operatingeffectively; and

• The Directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.

31. SOCIAL INITIATIVES 2016-2017:

Your bank as a responsible corporate citizen has been supporting various philanthropicactivities by donating such initiatives to the tune of Rs 4.51 Lakhs. Further your bankhas also taken several initiatives in the area of CSR.

Corporate Social Responsibility (CSR)

In accordance with the directives of Government of India the Bank is required to spend2% of the average net profit of the last 3 Financial Years or any part thereof on CSRactivities. The Bank has disclosed its CSR policy in the website and the same can beviewed at www.lvbank.com/download/Corporate_Social_Responsibility_policy.pdf. The AnnualReport on the CSR activities undertaken during the year as per the format specified by theMinistry of Corporate Affairs is forming part of this Report and is annexed to this Reportas Annexure E.

32. BUSINESS RESPONSIBILITY REPORT:

The Business Responsibility Report prepared in accordance with the Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 has been made available on the Bank's website at www.lvbank.com.

33. EXTRACT OF ANNUAL RETURN:

Pursuant to Section 134(1)(a) the extract of Annual Return in Form MGT 9 as providedunder Sub-Section (3) of Section 92 is appended to this Annual Report as Annexure F.

34. PARTICULARS OF EMPLOYEES:

The disclosures pursuant to the provisions (as amended) of Section 197 read with Rule 5of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 andthe Disclosures pursuant to the provisions of Section 197 (12) read with Rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 are enclosedas Annexure-G.

35. EMPLOYEES STOCK OPTION SCHEME:

In the year 2010 the shareholders of the Bank have approved the issue of sharesthrough Stock Option Scheme. Employees of the bank including the ED&CFO have beengranted with options of 2010190 in the FY 2016 - 17. Statutory disclosures regardingESOS have been furnished in Annexure H to this report and can be viewed atwww.lvbank.com/annualreport.aspx.

36. PARTICULARS REGARDING CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGNEXCHANGE EARNINGS AND OUTGO:

The provisions of Section 134(1) (m) of the Companies Act 2013 and the applicable ruleunder the Companies (Accounts) Rules 2014 relating to conservation of energy andtechnology absorption do not apply to your Bank. The Bank has however used InformationTechnology extensively in its operations. The Bank continues to encourage the country'sexports and will endeavor to enlarge its export financing.

37. DETAILS OF MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIALPOSITION OF THE BANK WHICH HAVE OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR OF THE BANKTO WHICH THE FINANCIAL STATEMENT RELATE AND THE DATE OF THE REPORT:

There were no material changes and commitments affecting the financial position of thebank which have occurred between the end of the financial year of the bank to which thefinancial statement relates and the date of the report.

38. DETAILS OF SIGNIFICANT MATERIAL ORDERS PASSED IMPACTING THE GOING CONCERN STATUSAND COMPANY'S OPERATIONS IN FUTURE BY REGULATORS OR COURTS OR TRIBUNALS:

During the year under review no significant or material Orders were passed by anyregulators or courts or tribunals against the Bank other than those disclosed separatelyin the financial statements directors report and in the Corporate Governance Report.

39. OTHER PENALTIES IMPOSED BY REGULATORS:

• Reserve Bank of India ("RBI") vide order dated 30.12.2016 had imposeda penalty of Rs 3 crores towards "Unauthorised Bill discounting in Cathedral RoadBranch Chennai".

• RBI had imposed a penalty of Rs 7600/- relating to soiled currency remittancesmade to RBI by our currency chest for defective/ counterfeit currency detected.

40. NUMBER OF CASES FILED IF ANY AND THEIR DISPOSAL UNDER THE SEXUAL HARASSMENT OFWOMEN AT WORK PLACE (PREVENTION PROHIBITION AND REDRESSAL) ACT 2013:

In order to provide protection against sexual harassment of women at workplace and forthe prevention and redressal of complaints of sexual harassment and for matters connectedthere with or incidental thereto as sexual harassment results in violation of thefundamental rights of a woman to equality under Articles 14 and 15 of the Constitution ofIndia and her right to life and to live with dignity under Article 21 of the Constitutionand right to practice any profession or to carry on any occupation which includes a rightto a safe environment free from sexual harassment a well-defined policy in line with theprovisions of Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013 has been adopted by the Bank. The complaints registered under theAct on actions covered under the ambit of Sexual Harassment at work place are handled bya committee represented by a senior executive of the Bank a lady Law Officer and anexternal member. Redressal of such complaints are dealt with in a prudent manner givingequal opportunity to both the aggrieved and the accused for representation of the case andwithout affecting the dignity and self-esteem of the women employee (permanentcontractual temporary trainee).

Number of complaints pending as on the beginning of the financial year - Nil Number ofcomplaints filed during the financial year - Nil Number of complaints pending as on theend of the financial year - Nil

41. VIGIL MECHANISM:

Disclosure of information in the public interest by the employees of an organisation isincreasingly gaining acceptance by public bodies for ensuring better governance standardsand probity in the conduct of affairs. Large scale corporate frauds had necessitatedinternationally various legislative measures for safeguarding public interest throughenactments.

As a proactive measure for strengthening financial stability and with a view to enhancepublic confidence in the robustness of the financial sector RBI has formulated a schemecalled "Protected disclosures scheme for private sector and foreign banks".

In the above perspective our Bank has formulated and implemented a "WhistleBlower Policy" which is made available in the Bank's Website and local internet.During the year 2016-17 no personnel has been denied access to the audit committee. TheWeb link thereto is https://www.lvbank.com/UserFiles/File/WhistleBlowerPolicy_2015.pdf.

42. FAMILIARISATION PROGRAMME:

Pursuant to the Regulation 25(7) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 the Bank has to conduct a familiarization programme fornewly inducted Independent Directors and the Bank has done accordingly. In compliance withRegulation 46 (2) (i) of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 the details of the familiarisation programme conducted are disclosed inthe website of the Bank and can be viewed at http://www.lvbank.com/Independent_Directors-TnC.aspx.

43. CODE OF CONDUCT TO REGULATE MONITOR AND REPORT TRADING BY INSIDERS IN SECURITIESOF THE LAKSHMI VILAS BANK LIMITED:

The Bank has formulated a Code of Conduct pursuant to the SEBI (Prohibition of InsiderTrading) Regulations 2015 to regulate monitor and ensure reporting of trading by theemployees and other connected persons towards achieving compliance with the SEBIRegulations and is designed to maintain highest ethical standards of dealing in securitiesof the Bank by persons to whom it is applicable. The code of conduct and related policyare available in the Bank's website and can be viewed at http://www.lvbank.com/Insider_Trading.aspx

44. AUDITORS:

Statutory Auditors:

The Statutory audit of the Bank was carried out by M/s. R. K. Kumar & Co CharteredAccountants Chennai whose report is annexed and forms part of this report. The StatutoryCentral and Branch Auditors have audited all the branches and other offices of the Bank.With regard to the observations made by the Auditors 'without qualifying' their reportdated 26.04.2017 our response to the same are furnished hereunder: -

Observation:

Quote: "We draw attention to

(i) Note No.2.4.4.C of the financial statements regarding deferment of charging off toProfit and Loss account the loss of Rs 31.29 Crores on sale of advances to AssetReconstruction Companies; (ii) Note No. 4.27 of the financial statements regardingdeferment of charging off to Profit and Loss account the loss of Rs 19.15 Crores relatingto advance accounts reported as fraud; Our opinion is not qualified in respect of thesematters.

Response:

(i) As permitted by RBI the bank has opted to provide for the net shortfall on accountof sale of assets to Reconstruction Companies over a period of eight/four quarters.Consequently Rs 74.90 Crores has been charged to the Profit & Loss account for theyear ended 31st March 2017. The unamortised amount on this account as on31st March 2017 is Rs 31.29 crores and is debited to 'Other Reserves' and creditedto 'Other Provisions' as per RBI guidelines vide no.DBR.No.BP.BC.102/21.04.048/2015-16dated 13.06.2016.

(ii) As permitted by RBI vide its circularRBI/2014-15/535/DBR.No.BP.BC.83/21.04.048/2014-15 dated 01.04.2015 the outstandingbalance in fraud accounts relating to advances amounting to Rs 31.72 crores is beingprovided over a period of four quarters.

Consequently Rs 12.51 crores has been charged to profit & Loss account for theperiod ended 31st March 2017. The unprovided amount on this account as on 31stMarch 2017 is Rs 19.15 crores and is debited to 'Other Reserves' and credited to 'OtherProvisions' as per RBI circular no.DBR.No.BP.BC.92/21.04.048/2015-16 dated 18.04.2016.

Details of frauds reported by auditors:

There were no offences involving fraud committed against the Bank by its employees orofficers that required immediate reporting to the central government as per Section 143(12) of the Companies Act 2013.

Secretarial Auditor

Pursuant to the provisions of Companies Act 2013 the Bank has appointed Mr. K.Muthusamy Practicing Company Secretary Coimbatore (CoP 3176) as the Secretarial Auditorfor the FY 2017. The Secretarial Audit Report dated 22.05.2017 is annexed to this reportas Annexure-I. There are no qualifications reservation or adverse remark or disclaimer inthe report.

45. ACKNOWLEDGMENTS:

Your Directors would like to thank the shareholders and customers for their continuedgoodwill and support. The Board also gratefully acknowledges the guidance and co-operationreceived from the Reserve Bank of India and other regulatory and government authoritieslike SEBI NSE BSE NSDL CDSL and Department of Income Tax.

Your Directors would also like to express their sincere appreciation of thecontribution made by the management and staff including the Employees' Union and Officers'Association for their support in delivering a significantly improved performance and lookforward to a more evolved relationships as steps are taken to re-orient the bank for thefuture.

For and on behalf of the Board of Directors
B.K. Manjunath Parthasarathi Mukherjee
Chairman of the Bank Managing Director & CEO
Place : Chennai
Date : 06.06.2017

Annexure - G

Information required under Sub Rule (2) of Rule 5 of Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014:

Name (Sarvashree) Designation of Employee Remuneration received ( Rs ) Nature of Employment whether contractual or otherwise Qualifications and experience of employee Date of commencement of employment The age of such employee The last employment held by such employee before joining the Bank The percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above Whether any such employee is a relative of any director or manager of the company and if so name of such director or manager Details of the no of Employee Stock Options granted during the year

Top ten employees in terms of remuneration drawn

Akkidas Jacob President & 6091968.00 Regular M.Sc CAIIB 29.09.2014 58 DGM Nil No 18000
Vidya Sagar Head - Retail Banking 33 years State Bank of India
Palaniappan M Ex-CFO Advisor 5584470.48 Contractual B.COM CA 25.02.2010 62 DGM 0.03% No 100000
36 years Canara Bank
Meenakshi President & Head- 5574732.00 Regular B.E CAIIB 01.07.2014 59 General Manager Nil No Nil
Sundaram R.M Corporate Banking 34 years Canara Bank
Peeush Jain Sr. Vice 5125904.00 Regular B.Sc 14.05.2014 42 Vice President & Nil No 13500
President - TPP & 20 years Sr. Private Banker -
Transformation The Royal Bank of Scotland
Gurumurthy R.K Sr. Vice President 4666517.67 Regular M.COM CAIIB 30.01.2014 57 Treasurer Bank Nil No 21000
(Treasury) 25 years One Ltd. Mauritius
Sridhar R V S President & CRO 4379661.22 Regular B.Com MBA 11.07.2016 55 President - Nil No 300000
32 years Internal Audit
Axis Bank
Nedumaran B SVP - Human 4075404.00 Regular B.E MHRM 01.10.2015 50 Vice President - Nil No 14250
Resources Diploma in HR SPI Global
24 years
Shankar A SVP - MSME & 3994976.00 Regular B.ScCA 22.07.2013 55 Sr. Vice President Nil No 13500
Rural Banking 27 years HDFC Bank
Padmanabhan SVP - 3777358.00 Regular M.SC M.B.A 02.06.2014 54 Vice President- Nil No 13500
Premkumar Branch Banking 31 years Banking &
Treasury -
Punj Lloyd Ltd.
Madhusudana SVP & Chief 3677708.78 Contractual B.Sc (MPC) 29.02.2016 61 Advisor Nil No Nil
Rao V Customer Service M.Sc (Physics) SBI Mutual Fund
Officer CAIIB DIB DBM
DFS 39 years

Employees who were employed throughout the financial year and was in receipt ofremuneration for that year which in the aggregate was not less than one crore and twolakh rupees: NIL

Employees who were employed part of the financial year and was in receipt ofremuneration for any part of that year at a rate which in the aggregate was not lessthan eight lakh and fifty thousand rupees per month:

Name (Sarvashree) Designation of Employee Remuneration received ( Rs ) Nature of Employment whether contractual or otherwise Qualifications and experience of employee Date of commencement of employment The age of such employee The last employment held by such employee before joining the Bank The percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above Whether any such employee is a relative of any director or manager of the company and if so name of such director or manager Month / Gross
Akkidas Jacob President & Head- 6091968.00 Regular M.Sc CAIIB 29.09.2014 58 DGM Nil No June & August-
Vidya Sagar Retail Banking 33 years State Bank of India 2016/967300.00 & 911170.00
Gurumurthy R.K Sr. Vice President (Treasury) 4666517.67 Regular M.COM CAIIB 25 years 30.01.2014 57 Treasurer Bank One Ltd. Mauritius Nil No August-2016/ 883026.67

Details of every employee if employed throughout the financial year or part thereofwas in receipt of remuneration in that year which in the aggregate or as the case maybe at a rate which in the aggregate is in excess of that drawn by the Managing Directoror Whole Time Director (Executive Director) and holds by himself or along with his spouseand dependent children not less than two percent of the equity shares of the Company:

No employee in the Bank holds by himself or along with his spouse and dependentchildren not less than two percent of the equity shares of the Bank.

Annexure - H

Employee Stock Option Schemes (ESOSs)

Disclosure Pursuant to Regulation 14 of SEBI (Share Based Employee Benefits)Regulations 2014

Disclosure under Guidance Note on Accounting for Employee Share Based Payments EmployeeStock Options Scheme ('the Scheme')

The Employee Stock Option Scheme (ESOS) of the Bank (known as LVB ESOS 2010) wasformulated as per Regulation 5 of Securities and Exchange Board of India (Employees StockOption Scheme and Employees Stock Purchase Scheme) Guidelines 1999. The scheme wasapproved by the shareholders through Special Resolution on 04.08.2010 to create issuegrant / allot upto 50 lakhs equity stock options to the eligible present and futureemployees including Directors of the Bank which entitles the option holders to subscribeto 1 (one) equity share of the Bank of Rs10/- each and in aggregate 5000000 equityshares of the face value of

Rs10/- at such price in such manner during such period and on such terms andconditions and in the manner as may be determined by the Board.

Stock option activity under the Scheme for the year ended 31st March 2017is set out below:

Total for all grants No. of Options Weighted average exercise price (Rs)
Outstanding at the beginning of the year 1200000 55.00
Granted during the year 2010190 90.52
Forfeited during the year 110132 95.00
Expired during the year
Exercised during the year
Outstanding at the end of the year 3100058 76.61
Exercisable at the end of the year 360000 55.00

The weighted average share price in respect of options exercised during the year was RsNil.

Fair Value Methodology

On applying the fair value based method in Guidance Note on 'Accounting for EmployeeShare- based Payments' the impact on reported net profit and EPS would be as follows:

31st March 2017
Net Profit (as reported) (Rs ) 2560721805
Add: Stock based employee compensation expense included in net income (Rs) under intrinsic value method 41443089
Less: Stock based employee compensation expense determined under fair value based method (proforma) (Rs) 55875371
Net Profit (Proforma) (Rs) 2546289524
Earnings per share: Basic (Rs )
As reported 14.07
Proforma 13.99
Earnings per share: Diluted (Rs)
As reported 13.95
Proforma 13.88

The fair value of the options is estimated on the date of the grant using theBlack-Scholes options pricing model with the following assumptions:

31st March 2017
Dividend yield 2.28%
Expected life 4.51 years
Risk free interest rate 6.68%
Volatility 35.96%

Volatility is the measure of the amount by which a price has fluctuated or is expectedto fluctuate during a period. The measure of volatility used in the Black-Scholes optionspricing model is the annualised standard deviation of the continuously compounded rates ofreturn on the stock over a period of time. For calculating volatility the dailyvolatility of the stock prices on the National Stock Exchange over a period prior to thedate of grant corresponding with the expected life of the options has been considered.

The weighted average fair value of options granted during the year ended 31 March 2017is Rs 60.78.

Diluted EPS

Diluted Earnings Per Share pursuant to issue of shares on exercise of optionscalculated in accordance with Accounting Standard (AS) 20 'Earnings Per Share' for FY2016-17 is Rs13.95 per share.

Scheme Specific Disclosures

i) General Disclosures:

Description of each ESOS that existed at any time during the year including thegeneral terms and conditions of each ESOS -The Employee Stock Option Scheme (ESOS) of theBank (known as LVB ESOS 2010) was formulated as per Regulation 5 of Securities andExchange Board of India (Employees Stock Option Scheme and Employees Stock PurchaseScheme) Guidelines 1999. The scheme was approved by the shareholders through SpecialResolution on 04.08.2010 to create issue grant / allot upto 50 lakhs equity stockoptions to the eligible present and future employees including Directors of the Bank whichentitles the option holders to subscribe to 1 (one) equity share of the Bank of Rs10/-each and in aggregate 5000000 equity shares of the face value of Rs10/- at such pricein such manner during such period and on such terms and conditions and in the manner asmay be determined by the Board.

Particulars Disclosures
1 Date of shareholder's approval 04-08-2010
2 Total number of options approved under ESOS 5000000
3 Vesting requirements Options granted under LVB ESOS 2010 would vest not less than one year and not more than three years from the date of grant of such options
4 Exercise price or pricing formula The exercise price shall be the Market price of the equity shares discounted by such percentage not exceeding 50% as determined by the Compensation Committee of the Board
5 Maximum term of options granted 8 years from the date of grant (3 years of vesting and 5 years of exercise period)
6 Source of shares (primary secondary or combination) Primary
7 Variation in terms of options No variation during the year 2016-17
8 Method used for accounting of ESOS (Intrinsic or fair value) 9 Fair Value Related Disclosure Intrinsic Value method for accounting
• Increase in the employee compensation cost computed at fair value over the cost computed using intrinsic cost method • The employee compensation cost would increase by Rs 14432281
• Net Profit if the employee compensation cost had been computed at fair value • Net profit if the employee compensation cost had been computed at fair value Rs 2546289524
• Basic EPS if the employee compensation cost had been computed at fair value • Basic EPS if the employee compensation cost had been computed at fair value Rs 13.99
• Diluted EPS if the employee compensation cost had been computed at fair value 10 Weighted average exercise price of the options whose: • Diluted EPS if the employee compensation cost had been computed at fair value Rs 13.88
• exercise price equals market price Nil
• exercise price exceeds market price Nil
• exercise price is less than market price Weighted average exercise price of the stock options granted during the year is Rs 90.52
11 Weighted average fair value of the options whose:
• exercise price equals market price Nil
• exercise price exceeds market price Nil
• exercise price is less than market price Weighted average fair value of the stock options granted during the year is Rs 60.78

 

ii) Option movement during 2016-17:
Particulars ESOS 2010
Number of options outstanding at the beginning of the year 1200000
Number of options granted during the year 2010190
Number of options forfeited during the year 110132
Number of options expired during the year
Number of options exercised during the year
Number of options outstanding at the end of the year 3100058
Number of options vested during the year 360000
Number of shares arising as a result of exercise of options
Money realized by exercise of options during the year (Rs lacs)
Number of options exercisable at the end of the year 360000
Loan repaid by the Trust during the year from exercise price NA

iii) Details of key managerial personnel & senior managerial personnel who weregranted the options during the year:

Sr. No. Particulars Name of employee Designation of employee Number of options granted during the year Exercise Price (Rs)
1(a) Details of grants to key managerial personnel Mr Venkatesh N S Executive Director & CFO 300000 70
Mr N Ramanathan Company Secretary 10000 95
1(b) Details of grants to senior managerial personnel Mr Sridhar R V S Chief Risk Officer 300000 90
Mr Palaniappan M Advisor 100000 95
Mr Akkidas Jacob Vidya Sagar President (Retail Banking) 18000 95
Mr Gurumurthy R.K Sr. Vice President (Treasury) 21000 95
Mr Nedumaran B Sr.Vice President (HR) 14250 95
Mr Shankar A SVP (SME Rural Banking Retail) 13500 95
Mr Padmanabhan SVP (Branch
Premkumar Banking RB Ops IT) 13500 95
Mr Peeush Jain SVP (TPP Trans- formation RB) 13500 95
Mr Manmadha Head - Transaction
Rao Boyina Banking 10500 95
Mr Sudhir Kaushik Sr. Vice President
(RH) 10500 95
Mr Venkatesh S. Head - Relation-
ship Mgt (WB) 10500 95
Mr Vasant Shukla Senior
Vice President 10500 95
Mr Manikandan M. Vice President (IT) 7125 95
Mr Rajendran A. Vice President
(Strategy) 5000 95
Mr Sathyananda Head - Audit
Prabhu & Inspection 5000 95
Mr Ravindra Vice President
Kumar G. (Law) 5000 95
Mr Adithya B.S VP (Corporate
RM Group WB) 5000 95
Mr Chanthirashekar V. Vice President (RH) 4800 95
Mr Raghunathan N. Vice President (Alt. Channels) 4750 95
Mr Prabakaran S. Vice President (CCO) 4750 95
Mr Panneerselvam A. Vice President (Treasury) 4500 95
Mr Murali S.Y. Vice President
(Credit Mont.) 4500 95
Mr Yogish K. Vice President (RH) 4200 95
Mr Ramanan S. Vice President
(RH) 4200 95
Mr Pradeep Kumar Vice President
(RH) 4200 95
Ms Neena Anand Vice President
(Liabilities RB) 4000 95
Mr Palaniappan M. Vice President
(RH) 3600 95
Ms Devyani Baidya Head - Saving
Account 3500 95
Mr Venkatesha N.D Vice President
(Credit Mont.) 3500 95
Mr Srinath M Head -
Operational Risk 3500 95
Mr Sushanta Roy Head -
Operations 3500 95
Mr Saravanan B Head - MSME
Rural &
Commercial 3500 95
Mr Nandakumar Head -
S.D. Current Account 3500 95
Mr Ramesh S Vice President & Head -
Administration 3500 95
Mr Govind Ravindran Head-Consumer lending & Retail Bkg 3500 95
2 Employees who were granted during any one year options amounting to 5% or more of the options granted during the year Mr Venkatesh N.S. Executive Director & CFO 300000 70
Mr Sridhar RVS Chief Risk Officer 300000 90
3 Identified employees who were granted options during any one year equal or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Bank under the grant

iv) Accounting method and assumptions:

The fair value of the options is estimated on the date of the grant using theBlack-Scholes options pricing model with the following assumptions:

As of 31st March 2017
Dividend yield 2.28%
Expected life 4.51 years
Risk free interest rate 6.68%
Volatility 35.96%
Price of the underlying share in market at the time of the option grant.(Rs) 132.27

Volatility is the measure of the amount by which a price has fluctuated or is expectedto fluctuate during a period. The measure of volatility used in the Black-Scholes optionspricing model is the annualized standard deviation of the continuously compounded rates ofreturn on the stock over a period of time. For calculating volatility the dailyvolatility of the stock prices on the National Stock Exchange over a period prior to thedate of grant corresponding with the expected life of the options has been considered.

Annexure - J

DIVIDEND DISTRIBUTION POLICY

I. Introduction:

The Lakshmi Vilas Bank Limited ("LVB") is a listed private sector bankincorporated under the provisions of Companies Act and operating under the provisions ofthe Banking Regulation Act 1949. As on 31st March 2017 the equity shares ofthe Bank are listed and traded in the National Stock Exchange of India Limited("NSE") and BSE Limited ("BSE").

II. Purpose:

Being a Banking entity the Bank is required to ensure compliance with the provisionsof the Banking Regulation 1949 guidelines and circulars issued by the Reserve Bank ofIndia on declaration and payment of dividend. Besides the same being a public limitedcompany listed with NSE and BSE and having ranked within Top 500 of the listed entities interms of Market Capitalization as on 31st March 2017 the Bank is also requiredto ensure compliance with the provisions of Companies Act 2013 and Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 to the extent applicable to Banking Companies in terms of a policy with regard toDividend Distribution.

Accordingly this policy is framed under Regulation 43 A of the SEBI ListingRegulations approved and adopted by the Board of Directors of the Bank.

III. Policy:

The Policy will be called as RsLakshmi Vilas Bank Dividend Distribution Policy' andshall be effective from the Financial Year 2016-17.

IV. Criteria for recommending Dividend:

The intent of the Bank is to reward the shareholders of the Bank by sharing a portionof the profits whilst also ensuring that sufficient funds are retained for growth of theBank.

The Bank shall declare and pay dividend only in compliance with the provisions of theBanking Regulation Act regulatory guidelines/directions issued by the Reserve bank ofIndia on declaration and payment of dividend by Banks from time to time the provisions ofthe Companies Act and SEBI Listing Regulations to the extent applicable to BankingCompanies.

The term Dividend includes both Interim and Final Dividend.

a) Circumstances under which the shareholders may or may not expect dividend:

The recommendation of dividend by the Board is dependent on various factors includingeligibility criteria imposed by the regulators for recommendation & declaration ofdividend capital and reserve position of the Bank and other key financial parameters.Based on the applicable regulatory framework and financial position the Board ofdirectors may or may not decide to recommend dividend.

b) Financial and other parameters:

The Board of directors would consider the following financial parameters along with thestatutory restrictions and directions applicable to Banks before recommending dividend toshareholders:

• Profitability and Key Financial Metrics.

• Any interim dividends paid.

• Auditors' qualifications pertaining to the statement of accounts if any;

• Bank's capital position and requirements as per Internal Capital AdequacyAssessment Process (ICAAP) projections and other regulatory norms.

• Any other parameters as may be imposed by the regulators from time to time.

c) Internal and External factors:

The Board of Directors of the Bank would take into account both internal and externalfactors as may be applicable at the time of considering the proposal on the declaration ofthe dividend. Some of the major aspects are as under:

• The state of the economy of the country;

• Statutory and regulatory provisions/restrictions;

• Tax regulations including the treatment of deferred tax assets;

• Capital market conditions;

• Expectation of shareholders;

• Business Growth plan of the bank;

• Future Capital requirement;

• Cost of Raising funds;

• Replacement of Capital Assets;

• Ability to make timely coupon payments/redemption towards debt instrumentsissued by the Bank;

• Such other factors and material events which the Board may consider as relevant.

d) Utilization of Retained Earnings:

The Bank may utilize its retained earnings in the manner beneficial to the interest ofthe Bank and its stakeholders. The Bank would utilise the retained earnings for generalcorporate purposes including organic growth. The Board may decide to employ the retainedearnings in ensuring maintenance of an optimal level of capital adequacy meeting theBank's future growth/ expansion plans other strategic purposes and/or distribution toshareholders subject to applicable regulations.

e) Parameters that shall be adopted with regard to various classes of shares:

Since the Bank has only one class of shareholders and does not have any other class ofshares (including shares with differential voting rights) the dividend declared will bedistributed among the shareholders based on their shareholding on the record date fixedfor ascertaining the dividend entitlement.

V. Quantum of Dividend payable:

The Quantum of dividend payable would be subject to the Bank fulfilling the eligibilitycriteria set out by the relevant Acts andthe Reserve Bank of Indiaand the same shall bedecided by the Board of Directors from time to time.

VI. Amendments and Review:

This policy will be reviewed annually by the Board of Directors of the Bank and thisPolicy will be in force till the time it is not amended or revoked by the Board.

VII.Disclosure:

The policy will be made available in the Bank's website - www.lvbank.com and will alsobe disclosed in the Annual Report as required under the SEBI Listing Regulations.