Equitas Small Finance Bank limited
Your Directors have pleasure in presenting the Fifth Annual Reporttogether with the audited accounts of the Bank for the financial year ended March 31 2021(FY 2020-21).
1. Financial Results
The summary of Bank's financial performance for the FY 2020-21compared to the previous year 2019-20 is given below:
( Rs.in lakhs)
|Particulars ||For the Year ended March 31 2021 ||For the Year ended March 31 2020 ||Y-o-Y % |
|Deposits & Other Borrowings ||2055729.17 ||1592327.91 ||29.10% |
|Advances ||1684794.67 ||1372824.15 ||22.72% |
|Total Income ||361246.79 ||292779.55 ||23.39% |
|Operating Profits (Profits before Provision Depreciation and Taxation) ||96301.96 ||69403.33 ||38.76% |
|Less: Depreciation ||7643.32 ||9645.45 ||(20.76%) |
|Less: Provision and contingencies ||37531.96 ||24663.85 ||52.17% |
|Less: Provision for Taxation ||12704.36 ||10730.49 ||18.39% |
|Net Profit ||38422.32 ||24363.54 ||57.70% |
|Add: Profit brought forward from previous year ||64313.84 ||46800.88 ||37.42% |
|Total Profit Available for Appropriation ||102736.16 ||71164.42 ||44.36% |
|Appropriations || || || |
|Transfer to Statutory Reserve ||9605.58 ||6090.89 ||57.70% |
|Transfer to Special Reserve ||742.44 ||483.39 ||53.59% |
|Transfer to Capital Reserve ||2366.08 || || |
|Transfer to/ (from) Investment Reserve ||0 ||0 || |
|Transfer to/ (from) Investment Fluctuation Reserve ||198.20 ||276.30 ||(28.27%) |
|Proposed Dividend ||0 ||0 || |
|Tax including Surcharge and Education cess on Dividend ||0 ||0 || |
|Balance carried over to Balance Sheet ||89823.86 ||64313.84 ||39.66% |
The Reserve Bank of India (RBI) vide its notification reference RBI/2021-22/ 23/ DOR.ACC.REC.7/ 21.02.067/ 2021-22 dated April 22 2021 stated that in viewof the continuing uncertainty caused by the ongoing second wave of COVID-19 in thecountry it is crucial that banks remain resilient and proactively raise and conservecapital as a bulwark against unexpected losses. While allowing banks to pay dividend onequity shares at the half of that permitted vide circular dated May 4 2005 the saidcircular requires the Board of Directors of the Bank to consider projected capitalposition and requirements adequacy of provisions etc. before deciding upon payment ofdividend. Accordingly considering the need to preserve capital in these uncertain timesthe Board did not recommend any dividend for the financial year ended March 31 2021.
3. Transfer to Reserves
As per the requirement of RBI Regulations the Bank has transferred thefollowing amount to various reserves during FY 2020-21
|Amount transferred to ||Rs.in lakhs |
|Statutory Reserve ||9605.58 |
|Special Reserve ||742.44 |
|Capital Reserve ||2366.08 |
|Investment Fluctuation Reserve ||198.20 |
Being a Banking Company your bank receives and accepts deposits. Thedetails of the deposits are enumerated in the financial statements for FY 2020-21.
5. Capital Adequacy
The Capital Adequacy ratio stood at 24.18% as on March 31 2021 asagainst the minimum requirement of 15% stipulated by RBI. The Net Worth of the Bank as onthe said date was Rs. 339634.11 lakhs.
6. Material changes after the Balance Sheet Date as at March 312021
There have been no material changes and commitments between the end ofFY 2020-21 and the date of this report affecting the financial position of the Bankexcept the impact of COVID-19 pandemic and enforced lockdown on the business of the Bankdetails of which are covered under Management Discussion & Analysis forming part ofthis Report.
7. Share Capital
During the year the Bank has raised Rs. 28000 lakhs through anInitial Public Offer (IPO) to meet the the terms and conditions of the grant of SmallFinance Bank (SFB) license. The Equity Shares of the Bank were listed on BSE Limited andNational Stock Exchange of India Limited on November 2 2020.
The Bank has also allotted in aggregate 1028164 Equity Shares toemployees of the Bank under the ESFB Employees Stock Option Scheme 2019.
Except for the above there is no capital infusion and as on March 312021 total paid up share capital stood at Rs. 11392782500 (One thousand One Hundredand thirty nine crores twenty seven lakhs eighty two thousand five hundred) comprising of1139278250 equity shares of Rs. 10 each
8. Information about Financial Performance / Financial Positionof the Subsidiaries Associates and Joint Venture Companies
The Bank does not have any subsidiaries associates and Joint VentureCompanies.
9. Operational highlights
The details of operations and state of affairs are given in theManagement Discussion and Analysis [MD&A] Report.
10. Management Discussion and Analysis Report on Corporate Governanceand Business Responsibility Report
The enclosed MD&A Report Report on Corporate Governance andBusiness Responsibility Report form part of this Report.
11. Corporate Social Responsibility (CSR)
The Bank has laid down a Corporate Social Responsibility (CSR) Policywhich is available on our website. A CSR Committee of the Board has been set up torecommend CSR contributions monitor and review progress of CSR activities. In accordancewith the Policy the Bank contributes higher of 5% of its net profits or 2% of average netprofits made during the preceding three financial years to Equitas Development InitiativesTrust (EDIT) and Equitas Healthcare Foundation (EHF) registered public charitable trustsfor carrying out CSR activities on its behalf. A report on Corporate Social Responsibilityis enclosed as Annexure I.
12. Listing of Equity Shares of the Bank
During the year the Equity Shares of the Bank got listed on November 22020 to meet the the terms and conditions of the grant of Small Finance Bank (SFB)license. The Equity Shares of the Bank were listed on BSE Limited and National StockExchange of India Limited on November 2 2020. The entire proceeds of the IPO of the Bankhave been utilized in the manner specified in the prospectus as detailed in Schedule no.1 of the financial statements for FY 2020-21.
13. Meetings of the Board
During FY 2020-21 our Board met Fourteen (14) times. The details ofMeetings are given in the Report on Corporate Governance. The maximum interval between anytwo Meetings did not exceed 120 days as prescribed in the Act.
14. Directors and Key Managerial Personnel
As on the date of this Report the Bank has Ten Directors out of whichthere are nine Independent Directors including a Woman Independent Director.
Change in Directors
14.1 Section 152 of the Act provides that two-thirds of the totalnumber of Directors are liable to retire by rotation out of which one-third shall retirefrom office at every AGM. In terms of Section 149(13) the provisions of retirement ofDirectors by rotation shall not be applicable to Independent Directors and an IndependentDirector shall not be included in the total number of Directors liable to retire byrotation.
The Bank has only one Director viz. Mr. P N Vasudevan MD & CEOliable to retire by rotation. Mr. P N Vasudevan will retire in the ensuing AGM of the Bankand being eligible offers himself for reappointment. The Directors recommend hisre-appointment and the same is being placed for approval of the shareholders at theensuing Annual General Meeting.
14.2 During the year Ms. Lalitha Lakshmanan Independent Director andMr. Nagarajan Srinivasan Non-executive Non-Independent Director resigned from the Boardciting personal reasons w.e.f. July 1 2020 and November 17 2020 respectively.
The Board of Directors place on record their appreciation for thevaluable services rendered by Ms. Lalitha Lakshmanan and Mr. Nagarajan Srinivasan duringtheir tenure as Directors of the Bank.
14.3 The Board of Directors of the Bank at its Meeting held on November9 2020 appointed Mr. Ramesh Rangan as Additional Director (Independent) of the Bankw.e.f. close of business hours of November 09 2020.
The Bank has familiarised the Independent Directors of the Bank oftheir roles and responsibilities in the Bank nature of industry in which the Bankoperates business model of the Bank etc. The details of the familiarisation programmeimparted to Independent Directors are available on the website of the Bank link.
The terms and conditions of appointment of Independent Directors arealso available on the website of the Bank www.equitasbank.com
The appointment of Independent Directorduringtheyearwasmadewithsatisfactionofthe Board after ascertaining the integrityexpertise experience and proficiency of the Directors. Appropriate resolutionrecommending his appointment as Independent Director for a period of five years witheffect from November 9 2020 is placed for approval of shareholders at the ensuing AnnualGeneral Meeting.
There were no change in the Key Managerial Personnel during the year.
15. Declaration from Independent Directors
The Board has received declarations from the Independent Directors asrequired under Section 149(7) of the Act and the Board is satisfied that the IndependentDirectors meet the criteria of independence as mentioned in Section 149(6) of the Act.
16. Evaluation of Board Performance
The performance of the Board Committees of the Board ChairmanIndividual Directors & the Key Managerial Personnel were evaluated on the basis ofcriteria as approved by the Board for the FY 2020-21. All the Directors were provided thecriteria for evaluation and forms which were duly filled. The feedback from the Directorswas collated and were shared with the respective Directors and feedback relating to theCommittees and the Board were discussed in the Board.
17. Policy on Directors' appointment remuneration and otherdetails
Pursuant to the provisions of Section 178 of the Companies Act 2013the Bank has formulated and adopted a Policy on selection of Directors and Remunerationwhich are disclosed in our website www.equitasbank.com.
18. Directors' Responsibility Statement
The Board of Directors of the Bank to the best of their knowledge andbelief confirm that:
i) in the preparation of the annual accounts for the year ended March31 2021 the applicable accounting standards have been followed along with properexplanation relating to material departures
ii) such accounting policies as specified in Schedule 17 to theFinancial Statements have been selected and applied consistently and judgements andestimates have been made that are reasonable and prudent so as to give a true and fairview of the state of affairs of the Bank as at March 31 2021 and of the profit of theBank for the year ended on that date
iii) proper and sufficient care has been taken for maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of the Bank and for preventing and detecting frauds and otherirregularities
iv) annual accounts have been prepared on a going concern basis v)internal financial controls to be followed by the Bank were laid down and that the samewere adequate and were operating effectively and
vi) proper systems to ensure compliance with the provisions of allapplicable laws was in place and the same were adequate and operating effectively.
19. Key Managerial Personnel (KMP)
There were no changes in KMPs during the Financial Year 2020-21. As atMarch 31 2021 the Bank had the following KMPs:
|Name of the Key Managerial Person ||Designation |
|1 Mr. P N Vasudevan ||MD & CEO |
|2 Mr. Sridharan N ||Chief Financial Officer (CFO) |
|3 Mr. Sampathkumar K R ||Company Secretary (CS) |
20. Overall Remuneration:
Details of all elements of remuneration of all the Directors are givenin the Corporate Governance Report. The Non-Executive Directors of the Bank are notentitled to stock options.
Details of remuneration as required under Section 197 (12) of theCompanies Act 2013 read with Rule 5 of Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are given below.
|(i) Ratio of Remuneration of Each Director with Median Employees Remuneration. ||The ratio of remuneration of each Director to median employee remuneration is as below: || |
| ||Chairman ||4.72 : 1 |
| ||Chairman Audit Committee ||3.54 :1 |
| ||MD & CEO ||50.93:1 |
| ||Mr. Ramesh Rangan (who joined on November 9 2020) ||1.92 :1 |
| ||Other Directors except Mr. Nagarajan Srinivasan** ||2.36:1 |
| ||** Mr. Nagarajan Srinivasan resigned Director had waived his right to receive remuneration payable to him as a Director of the Bank. || |
|(ii) the percentage increase in remuneration of each Director Chief Financial Officer Chief Executive Officer Company Secretary or Manager if any in the financial year; ||There has been no increase in remuneration* of Independent Directors during FY 2020-21 as compared to FY 2019-20. || |
| ||The increase in remuneration of Key Managerial Personnel is provided below: || |
| ||Chief Executive Officer - Nil# || |
| ||Chief Financial Officer 6% || |
| ||Company Secretary - 6% || |
| ||*does not include sitting fees || |
| ||#excluding the variable pay component as the separate application needs to be made to RBI every year seeking approval. During the year 2020-21 the Board approved an increase in remuneration of MD & CEO to align the same with RBI Circular dated November 4 2019. The proposal is submitted to RBI and awaiting approval. || |
|(iii) the percentage increase in the median remuneration of employees in the financial year; ||3.03% || |
|(iv) the number of permanent employees on the rolls of the Bank as on March 31 2021 ||16556 || |
|(v) Average percentage increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial Remuneration. ||There was no increase in the remuneration of managerial person viz MD & CEO during FY 2020-21. || |
| ||The average percentage increase in salaries of employees other than the managerial personnel in the last financial year was 8.6%. || |
|(vi) affirmation that the remuneration is as per the remuneration policy of the Bank. ||The remuneration is as per the Remuneration Policy of the Bank. || |
In accordance with Section 136 of the Act the report and accounts isbeing sent to the Members and others entitled thereto excluding the statement prescribedunder rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014. The aforesaid information is available for inspection at theregistered office of the Bank during the business hours on working days of the Bank. Ifany member is interested in obtaining a copy such member may write to the CompanySecretary in this regard.
21. Whistle Blower Policy/ Vigil Mechanism
The Bank has adopted a Whistle Blower Policy and Vigil Mechanism incompliance with the relevant provisions of Companies Act 2013 and Rules thereunder andSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. This Policyprovides an opportunity to address concerns of employees & Directors relating tofraud malpractice or any other activity or event which is against the interest of theBank or society as a whole. The Policy is available in the Bank's website https://www.equitasbank.com/regulatory-disclosure.php
During the year under review the Bank received nine complaints underthe Whistle Blower Policy of the Bank all of which were redressed and reported to AuditCommittee. The functioning of the Mechanism is reviewed by the Audit Committee from timeto time. No employee of the Bank has been denied access to the Audit Committee for raisinga whistle blower complaint.
22. Ratings of Debt Instruments
|Instrument ||Rating ||Rating Agency ||Amount |
|Long Term Borrowings ||CRISIL A+ Stable ||CRISIL Ratings Ltd ||Rs. 600 crores |
|Non-Convertible Debentures / Subordinated Debt ||CRISIL A+ Stable / CARE A+ Stable / IND A+ Stable ||CRISIL Ratings Ltd ||Rs. 220 crores |
| || ||CARE Ratings Ltd || |
| || ||India Ratings & Research P Ltd || |
|Certificate of Deposit ||CRISIL A1+ ||CRISIL Ratings Ltd ||Rs 1000 crores |
M/s T R Chadha & Co LLP (TRC) Chartered Accountants wereappointed as Statutory Auditors of the Bank for four years till the conclusion of theeighth Annual General Meeting (AGM) to be held in the year 2024.
RBI has issued a circular on April 27 2021 providing Guidelines onAppointment of Statutory Auditors of Banks. In accordance with the said circular for theBank the statutory audit should be conducted under joint audit of a minimum of two auditfirms. The said circular has also prescribed eligibility requirements for being appointedas statutory auditors of the banks.
Subject to approval of RBI and shareholders and after ascertainingtheir eligibility under applicable statutesnotificationsandrulesthereunderincluding theaforesaid RBI Circular the Board of Directors in the Meeting held on April 29 2021 hasapproved the appointment of existing Statutory Auditors TRC as one of the jointauditors of the Bank for FY 2021-22 to hold office from the conclusion of the ensuingfifth AGM of the Bank scheduled in the year 2021. The Bank is in the process ofidentifying and seeking approval of RBI for the second joint auditors for FY 2021-22. Uponreceipt of RBI approval necessary resolutions for appointment of joint auditors will beplaced for approval of shareholders at the ensuing AGM.
24. Details of Employee Stock Options Scheme (ESOS)
The Bank pursuant to the resolutions passed by the Board and theShareholders of the Bank on January 31 2019 adopted the ESFB Employee Stock OptionScheme (ESOS) 2019. The Bank has amended the ESFB ESOP Plan 2019 pursuant to theresolutions of the Board and Shareholders of our Bank dated November 7 2019 and November22 2019 respectively. The Bank may grant an aggregate number of up to 110000000employee stock options under ESOS. The objective is to enable the Bank to attract andretain the best available talent to contribute and share in the growth of the Bank. Duringthe year the ESFB ESOP plan 2019 was ratified by the shareholders of the Bank postlisting as required under SEBI (SBEB) regulations through postal ballot.
The Scheme is administered by the Nomination and Remuneration Committeeconstituted by the Board of Directors of the Bank.
Information as required under Section 62 of the Act and Rule 12 of theCompanies (Share Based
Employee Benefits) Regulations 2014 (SEBI SBEB Regulations)
|Particulars ||Total |
|Number of options granted during the year ||9694716 |
|Number of options forfeited / lapsed during the year ||4892349 |
|Number of options vested during the year ||31281672 |
|Number of options exercised during the year ||1028164 |
|Number of shares arising as a result of exercise of options ||1028164 |
|Money realized by exercise of options (`) if scheme is implemented directly by the Company ||27852332 |
|Loan repaid by the Trust during the year from exercise price received ||NA |
|Option Granted but not vested ||14555437 |
|Options Vested but not exercised ||29262683 |
|Options Available for Grant ||65159220 |
Employee Wise details of the options granted to
A) Key Managerial Personnel
|Name of Employee ||Designation ||No of options granted ||Exercise Price ||% of options granted |
|1 Sridharan N ||CFO ||Nil ||Nil ||Nil |
|2 Sampathkumar KR ||Company ||26960 ||56 ||0.27% |
| ||Secretary || || || |
B) any other employee who receives a Grant of options in any one yearof options amounting to 5% or more of options granted during that year
|Name of Employee ||Designation ||No of options granted ||Exercise Price ||% of options granted |
|Nil Nil ||Nil ||Nil ||Nil ||Nil |
C) identified employees who were granted option during any one yearequal to or exceeding one percent of the issued capital (excluding outstanding warrantsand Conversions) of the Company at the time of Grant. - Nil
Other details relating to Stock Options as required under SEBI (ShareBased Employee Benefits) Regulations 2014 are displayed on the Bank's websitehttps://ir.equitasbank.com/reports-and-presentations
25. Secretarial Auditors
The Secretarial Audit Report of M/s B Ravi & Associates PractisingCompany Secretaries (C.P. 3318) is enclosed as Annexure II. The Bank hascomplied with the applicable Secretarial Standards relating to Meetings of the Boardof Directors' and General Meetings' during the year.
26. Explanations or comments by the Board on every qualificationreservation or adverse remark or disclaimer made by Statutory Auditors or SecretarialAuditors
There are no qualifications reservations adverse remarks ordisclaimers made either by the Statutory Auditors or Secretarial Auditors.
27. Information as per Section 134 (3) (q) of the
Companies Act 2013 read with Rule 8 of the Companies (Accounts) Rules2014
27.1 During FY 2020-21 the Bank had no activity relating toconservation of energy or technology absorption.
27.2During FY 2020-21 the Bank had incurred foreign currencyexpenditure of ` 37.97 lakhs.
28. Particulars of contracts or arrangements with
During FY 2020-21 there were no transactions requiring reporting underSection 188(1) of the Act in Form AOC-2.
29. Details in respect of frauds if any reported by Auditors:
There have been no frauds reported by Auditors during FY 2020-21.
30. Risk Management
The Bank has formulated and adopted a robust Risk Management framework.The Bank has also constituted Risk Management Committee of the Board which periodicallyreviews the risks faced by the Bank and the practices/ processes followed to manage them.Details of the same are covered in the MD&A report.
31. Internal Financial Controls
The Bank has clear delegation of authority and standard operatingprocedures which are reviewed periodically by the Audit Committee. These measures help inensuring adequacy of internal financial controls commensurate with the nature and size ofoperations of the Bank. The Board also reviews the adequacy and effectiveness of theBank's internal financial controls with reference to the financial statements. Theprocedures and internal controls relating to the latter provide reasonable assurance onthe preparation of financial statements and the reliability of financial reporting. TheBank also ensures that the internal controls are operating effectively.
32. IND AS Implementation
The Ministry of Corporate Affairs (MCA) Government of India hasnotified the Companies (Indian Accounting Standards) Rules 2015 on February 16 2015.Further a Press Release was issued by MCA on January 18 2016 outlining the roadmap forimplementation of Indian Accounting Standards (IND AS) converged with InternationalFinancial Reporting Standards (IFRS) for banks. Banks in India were required to complywith the Indian Accounting Standards (IND AS) for financial statements for accountingperiods beginning from April 1 2018 onwards with comparatives for the periods endingMarch 31 2018 or thereafter.
On April 5 2018 the RBI has announced deferment of implementationdate by one year for scheduled commercial banks. Subsequently on March 22 2019 RBI hasdeferred implementation of Ind AS for banks until further notice pending necessarylegislative amendments to the Banking Regulation Act 1949. The same is yet to benotified.
33. Loans / Guarantees / Investments
Pursuant to Section 186 (11) of the Companies Act 2013 the provisionsof Section 186 of Companies Act 2013 except sub-section (1) do not apply to a loanmade guarantee given or security provided by a Banking Company in the ordinary course ofbusiness. The particulars of investments made by the Bank are disclosed in Schedule 8 ofthe Financial Statements as per the applicable provisions of Banking Regulation Act 1949.
34. Disclosure under the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013
The Bank has in place a Policy on Prevention of Sexual Harassment atWorkplace in line with the requirements of the Sexual Harassment of Women at Workplace(Prevention Prohibition & Redressal) Act 2013. Internal Complaints Committee hasbeen set up for redressal of complaints. During FY 2020-21 six complaints were receivedunder the Policy out of which five complaints were resolved during the year. The onepending complaint has since been resolved.
35. Depository System
As the Members are aware the Bank's Equity Shares are tradable inelectronic form. As on March 31 2021 out of the Bank's total equity paid up sharecapital comprising of Equity Shares only 130 equity shares were in physical form and theremaining shares were in electronic form. In view of the numerous advantages offered bythe Depository
System the Members holding shares in physical form are advised toavail themselves of the facility of dematerialisation.
36. The Annual Return MGT-7 as required under the Act is availableat the website of the Bank https://ir.equitasbank.com/shareholder-services/. 37.There have been no significant and material orders passed by the Regulators or Courtsor Tribunals impacting the going concern status and the future operations of the Bank.
The Directors are grateful to RBI other Government and RegulatoryAuthorities other Banks and Financial Institutions for their support and guidance. TheDirectors gratefully acknowledge the excellent relationship with the Board of the HoldingCompany and the guidance provided to the various activities of the Bank. The Directorsalso place on record their sincere thanks to its valued constituents for their support andpatronage. The Board also expresses its deep sense of appreciation to all the employees ofthe Bank for their unstinted commitment to the growth of the Bank.
| ||For and on behalf of the Board of Directors || |
|Place: Chennai ||P N Vasudevan ||Arun Ramanathan |
|Date: June 01 2021 ||MD & CEO ||Chairman |