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Karnataka Bank Ltd.

BSE: 532652 Sector: Financials
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OPEN 75.00
VOLUME 203390
52-Week high 75.65
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P/E 5.68
Mkt Cap.(Rs cr) 2,227
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OPEN 75.00
CLOSE 73.60
VOLUME 203390
52-Week high 75.65
52-Week low 41.50
P/E 5.68
Mkt Cap.(Rs cr) 2,227
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Karnataka Bank Ltd. (KTKBANK) - Director Report

Company director report

Dear Stakeholders

Your Directors have the pleasure in presenting the 97th Annual Report of the Banktogether with the Audited Statement of Account for the year ended March 312021 and theAuditors' Report thereon. The highlights of the operational performance are as under:


(Rs.'in crore)

MARCH 312021 MARCH 31 2020
Business Turnover 127348.56 128749.42
Deposits 75654.86 71785.15
Advances 51693.70 56964.27
Investments 21635.18 17545.34
Gross Income 7727.48 7736.40
Net Interest Income (NII) 2183.18 2030.36
Operating Profit 1999.14 1656.77
Net Profit 482.57 431.78

Note: Since the Bank's wholly owned non-financial subsidiary has commenced itsoperations with effect from 30.03.2021 there is no significant reflection in theconsolidated financial statements and hence the same has not been produced here.


Despite a challenging COVID-19 impacted external business environment during the yearunder report with the business mantra - "Conserve Consolidate and EmergeStronger" your Bank was able to steer the business successfully and focused onfurther strengthening its fundamentals and the bottom line. As a part of this strategyseveral measures were taken including realignment of credit mix wherein the Bank focusedon increasing the share of retail and mid-corporate advances and restricted its exposureto the large corporates. The total business turnover of the Bank (i.e. Deposits plusAdvances) registered a marginal decline of 1.09 per cent due to sluggishness in the creditoff-take and also due to conscious de-growth in the Large Corporate advances on account ofrealignment of credit in favour of Retail and Mid-corporate sectors. The total assets ofthe Bank increased by 2.72 per cent i.e. to Rs.85581.34 Crore as on March 312021 fromRs.83313.49 Crore a year ago.


The CASA Deposits grew by 14.08 per cent and total deposits grew by 5.39 per centduring the FY and the share of low cost deposits of the Bank viz. Current Account andSavings Account (CASA) touched an all-time high of 31.49 per cent of the total deposits ofthe Bank as against 28.91 per cent as on March 312020.


The Retail and Mid-Corporate advances recorded a growth of 5.91 per cent and 6.91 percent (YoY) respectively. Due to continued sluggishness in the market and tepid creditgrowth and also due to de-growth in large corporate advances the overall advancesrecorded a de-growth of 9.25 per cent on year-on-year basis. The share of Retail/MidCorporate advances increased to 86.77 per cent as against 74.20 per cent as on March312020. The Credit-Deposit (CD) Ratio stood at 68.33 per cent.

The priority sector advances increased from Rs.25094 crore to Rs.28617 crore forming46.58 per cent of applicable Adjusted Net Bank Credit (ANBC) and agricultural advancesincreased from Rs.8568.24 crore to Rs.9071.32 crore which together with eligible depositsunder Rural Infrastructure Development Fund (RIDF) constituted 14.76 per cent of ANBC.Bank is also focusing on lending under various socio-economic schemes.


Your Bank has been focusing on improving the asset quality through better creditmonitoring as well as intensified efforts to address the problems posed by the impairedassets. In spite of the COVID19 pandemic related stress in the economy during the yearthe asset quality has further improved. In terms of absolute numbers the GNPAs reduced toRs.2588.41 crore as on March 312021 from Rs.2799.93 crore as on March 312020. Howeverthe degrowth of overall loans and advances reflected in slight increase in percentage ofgross NPAs to 4.91 from 4.82.

Similarly amount of Net NPAs (NNPAs) also reduced to Rs.1642.10 crore (3.18%) asagainst Rs.1755.01 crore (3.08%) as on March 31.2020. The Provision Coverage Ratio (PCR)improved to 70.05 percent as on March 312021 from 64.70 per cent as on March 31.2020thus further strengthening the fundamentals.


The total investments increased by 23.31 per cent and the ID ratio stood at 28.60 percent as on March 312021 as against 24.44 per cent as on March 312020.


The gross income of the Bank for the year ended March 31 2021 stood almost at the samelevel of last year. The total expenditure (excluding provisions and contingencies)declined by 5.78 per cent to Rs.5728.34 crore for the year ended March 312021 as againstRs.6079.63 crore for the last financial year. During the FY Net Interest Income (Nil) ofthe Bank grew by 7.53 per cent over the previous year. The Net Interest Margin (NIM) alsoimproved to 2.91 per cent from 2.84 per cent last year.


The operating profit registered a healthy growth of 20.67 per cent by increasing toRs.1999.14 crore for the year 2020-21 from Rs.1656.77 crore for the previous year. Theprovisions (other than tax) and contingencies for the year 2020-21 were Rs.1387.21 crorevis-a-vis Rs.1134.74 Crore as of previous year.

The net profit also reached an all-time high of Rs.482.57 crore from Rs 431.78 croreduring the previous year registering a growth of 11.76 per cent.


The net profit of Rs.482.57 crore which along with a sum ofRs.101.69 crore broughtforward from the previous year aggregating to Rs.584.26 crore has been appropriated asunder:

Appropriation Rs in crore
Transfer to Statutory Reserve 125.00
Transfer to Capital Reserve 199.69
Transfer to Revenue and Special Reserves 147.21
Transfer to Investment Fluctuation Reserve 26.89
Dividend of 2019-20 paid during the year* 0.00
Balance carried over to Balance Sheet 85.47

* As directed by the RBI vide circular DOR.BP.BC.No.64/21.02.067/2019-20 dated April172020 the Board of Directors had not recommended any dividend for the financial year2019-20.


In terms of RBI Circular DOR.ACC.REC.7/21.02.067/2021-22 dated April 22 2021 inpartial modification of the instructions contained in CircularDBOD.No.BP.BC.88/21.02.067/2004-05 dated May 42005 banks have been permitted to paydividend on equity shares from the profits for the financial year ended March 312021subject to the quantum of dividend being not more than fifty per cent of the amountdetermined as per the dividend payout ratio prescribed in paragraph 4 of the saidcircular.

Duly complying with the above guidelines the Board of Directors of the Bankrecommended a dividend of Rs.1.80 per share having face value of Rs.10/- each (i.e. 18%)for the year ended March 312021 .The dividend payout ratio for the year works out to11.60% as against NIL for the previous year. In accordance with the revised AccountingStandard (AS)-4'Contingencies and Events occurring after the Balance Sheet Date' notifiedby the MCA on March 302016 the proposed dividend amounting to Rs.55.96 Crore has notbeen shown as appropriation from the Profit for the year ended March 312021.


The Earnings Per Share stood at Rs.15.52 (basic) and Rs.15.48 (diluted) for the yearended March 312021.This was Rs.13.89 (Basic/ diluted) during the previous year. The BookValue per share has further improved to ^213.67 as on March 312021 as against Rs.192.06during the previous year.


The capital funds of the Bank increased from Rs.6789.35 crore to Rs.7387.05 crore.TheCapital to RiskWeighted Assets (CRAR) Ratio improved to an all-time high of 14.85 per centas on March 31 2021 (as per BASEL III norms) as against the previous year's 12.88 percent. The Bank has been consistently maintaining the CRAR ratio well above the minimumrequirement of 10.875 per cent including the Capital Conservation Buffer of 1.875 per centstipulated by the Reserve Bank of India and Bank's internal policy of maintaining the CRARone per cent over and above the regulatory requirement.


As on March 31 2021 the paid-up capital of your Bank stood at Rs.3108696890/-comprising 310869689 equity shares of Rs.10/- each.


With a view to maintain a healthy capital position on an ongoing basis. Bank raisedcapital funds in the earlier years by issuing subordinated debt instruments (i.e.Unsecured Non-Convertible Subordinated (Lower Tier-2) BASEL III Debt Instruments) as partof Tier 2 Capital under different series by private placement. These are listed onNational Stock Exchange of India Ltd. (NSE) Debt Segment and details of the debtinstruments outstanding as on March 312021 are as under:

Series Date of Issue Face Value per Bond (Rs) Number of Bonds Amount (Rs crore) Tenure from date of issue Coupon Rate (% p.a.) Credit Rating Listing ISIN of the Bonds
IV 17.11.2012 1000000 2500 250.00 120 months 11 ICRAA Listed on INE614B08021
V 16.11.2018 100000 40000 400.00 12 & CARE A NSE-Debt Segment INE614B08039
VI 18.02.2019 100000 32000 320.00 12 INE614B08047

Your Bank has paid interest on these debt instruments on time since the issue ofrespective debt instruments as per the terms of the issue. No Certificate of Deposits wereissued by the Bank during the year under report.


With the continued outbreak of COVID-19 pandemic the entire world witnessed anunprecedented health crisis and shut down of many activities. The pandemic resulted inhuge loss of lives and livelihoods across the globe negatively impacting the globaleconomy. The International Monetary Fund (IMF) in its World Economic Outlook-April 2021projected the global economy to grow at 6 per cent in 2021 which is expected to moderateto 4.4 per cent during 2022. Although the global economy is showing symptoms of revivalthere is a high uncertainty surrounding the global outlook which is mainly dependent onrecovery from the healthcare crisis vaccine powered recovery additional fiscal supportand the policy priorities of the governments going forward.

During the year 2020-21 the Indian economy also witnessed similar unprecedenteddisruptions. Several industries were impacted immediately and the impact on the financialsector was felt with a lag as is evidentfrom the quarterly GDP numbers. According to theReserve Bank of India's Annual Report 2021 the Second Advance Estimate (SAE) that werereleased by the National Statistical Office (NSO) in February 2021 revealed that aggregatedemand measured by real GDP contracted by 8.0 per cent in 2020-21 which is the firstcontraction experienced since 1980-81 and the severest ever. Plowever moderaterestoration in demand and supply was visible in the growth rate in Q2FY21 indicating arecovery in momentum. This was sustained in the next quarter as well reflected in anuptick in the three quarter moving average of GDP numbers in Q3FY21. Nevertheless the GSTCollection numbers as of March 2021 indicate that economic recovery post-pandemic has beennoteworthy.

With industries showing immense resilience through innovative ways during the pandemicaffected period growth sustainability in FY22 will depend on vaccination of people andeffective implementation of various measures announced in the Union Budget.


Bank credit growth which witnessed a slowdown in 2019-20 experienced a furthersetback in 2020-21 inthewakeofCOVID-19 induced lockdown however banks have beenmaintaining credit flows supported by capital and liquidity buffers. With the gradualresumption of economic activity credit to agriculture and services sectors has registeredan accelerated growth towards the end of the FY21. Even in the industrial sector creditgrowth to medium industries has accelerated indicating a positive impact of severalmeasures taken by the Government and the Reserve Bank of India. Even though in FY21 creditgrowth is estimated at 6.9% the credit is expected to grow at 8.9% in FY22.

The Government of India had announced a slew of measures to protect the economy fromthe pandemic driven crisis such as monetary and fiscal stimulus and also a host of othermeasures under AatmaNirbhar Bharat Abhiyan. Your Bank actively participated in all thesestimulus schemes of the Government which were aimed at handholding of borrowers duringthis crisis. The Bank acted swiftly in extending the moratorium benefits sanctioning ofGECL (Guaranteed Emergency Credit Line) to the eligible borrowers and One TimeRestructuring (OTR) MSME Restructuring etc. The Hon'ble Supreme Court of India uponhearing Writ petition(s) (Civil) No(s). 825/2020 had granted interim stay on September 32020 on classification of accounts as NPA and with the pronouncement of final Judgment onMarch 23 2021 NPA marking by Banks has resumed.


As economies re-opened and there was a pick-up in mobility the global economy begancoming out of the recession. Overall activity normalised faster than anticipated withprivate consumption rebounding the most vigorously. In some economies GDP out turnssurprised on the upside supported by public transfers and investment. Global trade beganrecovering with the restart of activity and a strong pickup in external demand.

Government of India has introduced Production Linked Incentive scheme (PLI) to enhanceIndia's Manufacturing Capabilities and Exports with an estimated outlay of Rs.1.97 lakhcrore for a period of five years commencing from FY 2021-22 for 13 key sectors which isexpected to benefit the MSME sector and the same also coincides with the Bank's strategyof realigning loan mix with a higher share of retail and mid corporate advances.

The India Meteorological Department (IMD) has forecast a normal monsoon which willaugur well for agriculture. Further the RBI in its Monetary Policy Statement 2021-22estimates that the strong rural demand and the expected normal monsoon will bode well forsustaining the rural economy. Moreover the vaccination process is expected to gathersteam in the coming months and should help to normalise economic activity quickly.

The business mantra of "Conserve Consolidate and Emerge Stronger" adopted byyour Bank at the beginning of the FY21 has been helping the Bank in further strengtheningits fundamentals. Further your Bank under its aspirational Transformation Project-KBLVIKAAS has put in place the digital infrastructure which provided necessary thrust inensuring the business continuity during the pandemic period. Bank's digital loanunderwriting capabilities coupled with digital on-boarding capabilities for the liabilityproducts demonstrated Bank's ability to quickly adapt to the external challenges. In thisdirection. Bank is further aiming to become the 'Digital Bank of Future'. Further RBI'sdecision to lift embargo on the private sector banks from conducting government businesswill provide an additional avenue for business generation for the Bank. In this directionyour Bank will make all round efforts in sourcing agency business from local Governments/authorities in the days to time.


'KBL-VIKAAS'has successfully completed 3 years of its journey with visibleaccomplishments and is surging ahead with various futuristic initiatives. The followingare some of the major new initiatives launched under the project:

1. Digital Centre of Excellence (DCoE): Establishing a state-of-the-art Digital Centreof Excellence (DCoE) in Bengaluru has been the most important outcome of this project.DCoE is now the digital innovation hub of the Bank powering the aunch of various digitalproducts harnessing the latest cutting-edge digital technology in the industry.

2. Digital Journeys:

Bank has already launched digital loan underwriting (in-principle approvals) for mostof its retail loan products. The introduction of Tab Banking and Web Banking for openingSB a/csare the recent launches of the DCoE. Bank today has

a bouquet of digital asset and liability offerings providing superior customerexperience. With the help of DCoE as part of the Digital transformation Bank haslaunched digitized journeys under'KBLXpress'series for both asset and liability products.For a unique digital experience Bank has also established a Digi Branch setup atBasavanagudi Bengaluru.

The adoption of digital sanctions has gained momentum and has helped the Bank inproviding contactless banking services during the pandemic affected period. The percentageof sanctions under Home loans Car loans and MSME loans through digital mode has exceeded90% of the eligible loans. Some of the digital initiatives under taken by the Bank duringthe year were as under:

• Digital journeys for Home Loans.

• MSME Business Quick Loan.

• E-Connect a digital facility for payment of loan installment/ dues forcustomers by adopting API technology.

• NCMC Card [National Common Mobility Card]

• Sales of general insurance policies through Mobile Banking and Internet Bankingfacility.

• Revised version of Tab banking [KBL Xpress SB] for opening of savings account inselect 235 branches.

• Web based Online Savings Account opening on pilot basis in select branches.

• Lead capture for Personal Loans through ATM on pilot basis.

• Regular digital customer surveys to understand the needs of the customers andeffectiveness of our products.

• Pilot launch of 'Digital Human Interactive Relationship Assistant (Dhira)' achatbot.

3. Operationalization of Subsidiary:

Your Bank's wholly owned non-financial subsidiary-KBL Services Ltd. (KSL) has beenoperationalized w.e.f. March 30 2021 and KSL is expected to play a major role inenhancing the operational efficiency of the Bank going forward.

4. Digital tools & Enablers:

The project has introduced a host of internal tools mainly KBL FORCE (Lead ManagementSystem) KBL e-Dashboard (Business Dashboard) KBL Kollect+ (for Real-Time Monitoring ofCollections) KBL Vasool So-Ft (NPA ManagementTool) KBL Rise (Performance ManagementSystem) e-TMS (an internal digital Ticketing Management Solution). These digital toolshave redefined the internal processes for further enhancing efficiency and effectiveness.

5. Digital Marketing and Digital Customer Survey:

Bankconducted digital marketing campaign-KBL Utsavfor marketing its products throughsocial media website mobile and internet banking and ATMs. Similarly branding exercisewas also conducted through hashtags blogs hosting of videos of CSR activities customerstestimonials etc. To understand the needs of the customers and effectiveness of ourproducts digital customer surveys are also conducted at frequent intervals.

As the digital is the way forward under the KBL VIKAAS 2.0 your Bank has placeddigital banking on fast forward mode to pursue the concept of'KBL NxT' which will redefinethe Bankas 'The Digital Bank of Future'.

In the KBL NxT the Bank has planned several digital transformational changes likedigital customer on-boarding end-to-end customer self-journey end-to-end journey for allthe loan products establishing Analytical Center of Excellence (ACoE) predictivebanking proving Omni-Channel experience to the customer and many other digitalinitiatives that will lead to the customer delight. Bank has already acquired "APIGateway" apart from providing Bank's own products. Bank has already enabled providingdigital mutual funds Demat and trading account insurance products and will furtherexpand the scope of these offerings and provide digital wealth management servicespersonal banking/ intuitive banking Robo advisories customer advocacy in a phasedmanner. Bank has already initiated steps to expand the scope of Digi-Branch to manylocations and will adopt the concept of "contact center as the new sales hub".


Your Bank was at the forefront of the initiatives at mitigating the spread of the virusand also to provide help to the affected. The Bank adopted a three pronged approach viz.(i) providing necessary help to the needy in the society (ii) addressing the bankingneeds of the customers and (iii) health & safety of the employees.

(i) COVID-19 relief measures through CSR initiatives:

Bank's contribution helped various district administrations in Karnataka to takepreventive and curative measures to arrest the spread of COVID-19 menace besides providingrelief measures to the affected in the states. Some of the initiatives are as under:

• Supplied Digital pulse oximeters worth Rs.10.00 lakh to the Dakshina KannadaDistrict Administration.

• Donated two BasicLifeSupportAmbulancesworthRs.39 Lakh to Udupi and DakshinaKannada District Administrators for safe transportation of infected patients.

• Supplied 1000 PPE Kits costing Rs.5.40 lakh to the Government District WenlockHospital Mangaluru.

• Supplied 3000 PPE kits to Udupi Kodagu and Chikkamagaluru DistrictAdministrations (1000 PPE kits each to these districts) costing Rs.10.50 lakh.

• Contributed a sum of? 5.00 lakh to the COVID-19 relief measures undertaken bythe Mandya District Administration.

• Sponsored five 'handycam' video cameras worth Rs.0.95 Lakh to the DistrictPolice Office Chitradurga to monitor the movement during pandemic related lockdownperiod.

• Supplied lifesaving ventilators and cardiac monitors to two hospitals inHubballi and Bengaluru.

• Supplied 5000 units of surgical gloves to Lady Goschen Hospital Mangaluru.

(ii) Banking needs of the Customers during COVID-19:

With a view to providing uninterrupted service to the Bank's customers Bank took thefollowing initiative during the reporting year:

• Being one of the essential services. Bank ensured its branches and offices keptopen during the pandemic period duly following the local/state/central governmentadvisories issued from time to time. Business Continuity was also ensured at variouslevels too.

• Uptime of the Alternate Delivery Channels (ADCs) like ATMs Internet banking(IB) and Mobile Banking (MB) was ensured.

• Bank's digital loan underwriting and digital account opening infrastructureensured business continuity for the customers.

• Branches encouraged the customers to use Alternate Delivery Channels (ADCs) toavoid crowding at the branches. SMSs were also sent and hosted several creatives on theBank's social media handles like Twitter Facebook and Instagram for creating COVID-19awareness.

• Bank actively participated in all the stimulus schemes of the Government whichwere aimed at handholding of borrowers during this crisis.

• The branches provided hand sanitizers for customers and also installedprotective plastic/polythene shields to ensure physical distancing.

(iii) Health and safety of the workforce:

• Your Bank took special care in ensuring health and safety of its workforceduring the pandemic period and initiated various employee welfare measures. A QuickResponse Team was formed at the central level supported by the nodal officers at all theDepartments/Offices of the Bankfor prevention and management of the pandemic locally.

• Timely advisories to the employees about the strategies to reduce the COVID-19cases- by testing of primary contacts keeping away those symptomatic and strictlyfollowing stipulated quarantine period for those tested positive etc. were issued. Thestaff members who were tested positive for COVID-19 were contacted individually by the HRDepartment and provided the required confidence and support and a 15 days'special leavewas granted in such cases.

• COVID-19 pledge was taken by all the branches and offices along with display ofCOVID-19 awareness messages at the branches/offices as advised by the Ministry of FinanceGovernment of India.

• A lot of emphasis was also laid on COVID-19 appropriate behavior to be adheredby all the staff members individually at any place besides branches and offices. In thisregard the Top Management led by Managing Director & CEO reached out to all the staffmembers from every available forum besides using electronic means of communication.

• Work From Home (WFH) facility was extended to most of the controlling officeprocesses and all internal meetings including the Board Meetings were held through virtualmeeting to avoid direct contact with other teams.

• In compliance with the advisories issued by various district administrationsalternative day as a holiday flexible working hours etc. were also permitted.

• During initial days of COVID-19 a cash allowance was given to all the staffmembers to eguip themselves with masks hand sanitizers etc. Well-designed cloth maskswere also distributed to all staff members.

• All the staff members were covered under additional Group Life Insuranceamounting toRs.20 lakh each providing life cover for death due to COVID-19 and a suitablejob to the next eligible'kith and kin'of the deceased staff is also provided oncompassionate grounds.

• COVID-19 testing camps for the staff members was arranged on several occasionsat various Branch/Offices and also at Head Office to control further spread.

• Vaccination camps were conducted by the Bank and also the Lead Banks for thestaff members and their family members.


In the normal course of business banks are exposed to various risks namely CreditRisk Market Risk and Operational Risk besides other residual risks such as LiquidityRisk Interest Rate Risk Concentration Risk Strategic Risk Reputation Risk etc. With aview to efficiently manage such risks your Bank has put in place various risk managementsystems and practices. In line with the guidelines issued by the Reserve Bank of Indiafrom time to time your Bank continues to strengthen various risk management systems thatinclude policies tools techniques systems and other monitoring mechanisms.

Your Bank aims at achieving appropriate trade-off between risks and returns. YourBank's risk management objectives broadly cover proper identification assessmentmeasurement monitoring controlling mitigation and reporting of the risks across variousbusiness segments of the Bank. The risk management strategy adopted by your Bank is basedon a clear understanding of the risks and the level of risk appetite which is dependenton the willingness of your Bankto take risks in the normal course of business. A Boardlevel committee viz. Risk & Capital Management Committee (RCMC) periodically reviewsthe risk profile evaluates the overall risks encountered by the Bank and developspolicies and strategies for its effective management.

Various senior management committees such as Credit Policy Committee (CPC)Asset-Liability Management Committee (ALCO) Operational Risk Management Committee (ORMC)etc. operate within the broad policy framework of the Bankto ensure and enhance the riskcontrol and governance framework within the Bank. The Risk Management Department at HeadOffice oversees the overall implementation of various risk management initiatives acrossthe Bank.

In line with guidelines issued by RBI your Bank has nominated a Chief InformationSecurity Officer (CISO) who is responsible for articulating and enforcing the policiesthat Bank uses to protect the information assets apart from coordinating security relatedissues in implementation of new systems under Information Technology in the Bank.

Gist of how the Bank manages the key risks associated with its operations is as under:

Type of Risk Mitigation Process Strategy
CREDIT RISK Your Bank has developed an online comprehensive credit risk rating system for quantifying and aggregating the credit risk of all borrower accounts across various exposures. Bank has introduced Specialized lending rating models Retail Score Card model (Pool based approach) and Facility Rating Model. Further score card models under Business Rule Engine (BRE) approach have also been introduced for digital underwriting process. Credit Audit Legal Audit and Stock Audit of large credit exposures are conducted to limit the magnitude of credit risk. Ensuring healthy asset quality by continuous monitoring and collection follow-ups through a separate department viz. Credit Monitoring Department (CrMD).
Credit risk is the possibility of a bank's borrower or counterparty failing to meet their obligations in accordance with agreed terms.
MARKET RISK Bank has put in place Board approved Integrated Treasury Policy Asset Liability Management (ALM) policy. Market Risk Management Policy and Fund Transfer Pricing policy for effective management of Market Risk in the Bank. Besides there are inbuilt thresholds for close monitoring of the market movement. Optimizing returns from various assets and market linked instruments treasury operations etc.
Market risk is the risk to earnings and capita resulting from movements in market prices particularly changes in interest rates foreign exchange rates and equity and commodity prices including the volatilities resulting from those changes.
LIQUIDITY RISK Proactive analysis of different circumstances viz. Funding risks. Time risks and call risks which would cause liquidity risk to the Bank. Liquidity risk is assessed using gap analysis for maturity mismatch based on residual maturity in different time buckets. Advance techniques such as stress testing simulation sensitivity analysis etc. are conducted at regular intervals to monitor the liquidity and to draw the action plan if required. Advance assessment of need of funds and coordinating with various sources of funds available to the Bank under normal and stressed conditions.
Liquidity risk arises when a bank fails to meet its contractual obligation in its daily operations due to inadequate funds flow.
% W INTEREST RATE RISK Analysis is conducted by applying various shocks on product-wise weighted average interest rates in each time band. The interest rate risk is viewed from different perspectives viz. 'Earnings Perspective' and 'EconomicValue Perspective'.Theformer is measured using Earnings-at-Risk (EaR) under Traditional Gap Analysis (TGA) while the latter is measured through changes in the Market Value of Equity (MVE) under Duration Gap Analysis (DGA). Ensuring appropriate trade-off between cost of deposits and interest rate on advances.
This is a risk that arises when the financial value of assets or liabilities (or inflows / outflows) is altered because of fluctuations in interest rates.
CYBER RISK Bank has taken adequate steps to address cyber risks by implementing 'Cyber Security Framework' as per RBI guidelines and has deployed various Information Security systems such as Application Firewall Web Security Gateway End Point Security systems Honey Pot systems and Privilege Identity Management (PIM) etc. to protect its information systems. Bank has also put in place in-house captive 'Security Operations Center (SOC)' wherein the logs are monitored through 'Security Information Event Management (SIEM)' tools. Strengthening Bank's internal cyber resilience system while keeping a watch on the cyber risk associated incidents in the outside world.
This is a risk associated with financial/data lossdisruption ordamageto the reputation of an organization from unauthorized / deliberate malafide or erroneous use of information systems.
imI OPERATIONAL RISK Bank has initiated several measures to manage operational risk through identification assessment and monitoring of inherent risks in all its business processes. Systems and controls have been built in the Core Banking Solution and also implemented ELFRMS (Enterprise Level Fraud Risk Management Solution) to avert probable fraud incidents. Monitoring of the operations with the help of various tools processes and mitigating risks and operational losses. Further now the Bank is in the process of adopting COLO (Colocation) model for its Data Centre.
Operational risk is the risk of direct or indirect loss resulting from breakdowns in internal procedures people system and external events.
During the reporting year Bank has participated in Cyber Security Drills conducted by IDRBT with a view to strengthen its internal cyber resilience system.

The Disclosure under Pillar III of Basel III accord has been annexed to the DirectorsReport as in Annexure-I.

Capital Adequacy Assessment Process (ICAAP):

In compliance with Basel guidelines Bank has put in place a policy document forInternal Capital Adequacy Assessment Process (ICAAP) to evaluate its capital adequacyrequirements. Stress testing framework for various stress scenarios is also put in placefor a better understanding of the likely impact of adverse market movements/events on thecapital and earnings. The results of the ICAAP and Stress testing are reviewedperiodically to assess the capital requirement for the projected business growth keepingin view the risk appetite and risk profile of the Bank. A Board level Risk & CapitalManagement Committee (RCMC) reviews the risk appetite risk profile business projectionsas well as capital assessments of your Bank at periodic intervals.

Fund Transfer Pricing (FTP):

Your Bank has further streamlined the in-house developed concept of FTP (Fund TransferPricing) mechanism to create awareness that each and every business decision/relation isremunerative and profitable. With the help of FTP Bank is closely monitoring the profitor loss of each of its branches business units products sectors clients businesslines etc. and appropriate remedial measures are initiated then and there. This isregarded as a great step forward in enhancing the overall efficiency and professionalismacross the Bank.


Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting)the Bank has identified four business segments viz.. Treasury Corporate / WholesaleBanking Retail Banking and Other Banking Operations for the year ended March 312021 asunder:

• Treasury Operations: Bank has earned total revenue ofRs.1814.17 crorefromTreasury operations with a contribution of Rs.778.23 crore to profit before tax andun-allocable expenditure.

• Corporate/Wholesale Banking: The revenue earned by the Bank during the yearunder report from this Segment was Rs.2739.23 crore with a contribution of Rs.450.64 croreto profit before tax and un-allocable expenditure.

• Retail Banking: This Segment has earned revenue of Rs.2741.26 crore with acontribution of Rs.813.81 crore to profit before tax and un-allocable expenditure.

• Other Banking Operations: This segment has generated revenues of Rs.427.80 crorewith a contribution of Rs.24.95 crore to profit before tax and un-allocable expenditure.

Details about aforesaid business segments are discussed hereafter:


Retail Banking:

Your Bank offers a wide spectrum of personal banking products in the retail segment.The retail credit products include home loans automobile loans personal loans educationloans loans against term deposits loans against securities gold loans small businessloans and agriculture loans. Retail Banking includes all credits toIndustry/Service/Agriculture/Forex and other Business Activities of less than and equal toRs.5 Crore. The Division has four specialized wings viz: Agriculture Forex SMEs andOthers. There is a separate Agriculture Credit Support Group that functions in the RetailFinance Division to exclusively deal in agriculture credit. Further as part of retailbanking your Bank also supports the MSME sector with a range of banking products such asWorking Capital Finance Term Loans Business Finance Products both fund-based andnon-fund based suited to all sectors of Industry. Bank has also registered as a financieron the TReDS platform set up to provide finance to MSMEs. The United Nations IndustrialDevelopment Organization (UNIDO) has identified in total 388 clusters having MSMEconcentration across the country. Your Bank has its presence in more than 200 suchclusters with Branches and dedicated teams delivering credit to the MSME sector units.Tofurther fine-tune the retail sanctioning process your Bank has implemented theCentralized Loan Processing Hub (CLPH) and Centralized Loan Sanctioning Centre (CLSC).

Corporate Banking

Your Bank's Corporate and Wholesale banking business (with an individual entityexposure of over Rs.5 crore) caters to the banking needs of all entities includingcorporate entities particularly large-sized corporations. Corporate banking products andservices include various fund and non-fund based products including loan products such asterm loans working capital facilities foreign exchange services and structured financeand trade financing products such as letter of credit and guarantees bill discountingetc.

Treasury Operations

Bank's treasury operations comprise primarily of statutory reserves management such asSLR and CRR liguidity management investment and trading activities and foreign exchangeactivities. As part of liquidity management the Treasury primarily invests in sovereigndebt instruments and other fixed income securities. Bank also deals with commercialpapers mutual funds certificates of deposits and floating rate instruments in order tomanage short-term surplus liquidity. Your Bank engages in foreign exchange operations froma centralized location in Mumbai as an extended wing of Integrated Treasury. Bank alsooffers a wide range of products and services for customers such as forward contractsforeign exchange products and services etc.

Other Banking Operations

Bank offers a wide range of products and services including savings accounts currentaccounts wholesale term deposits international debit cards Co-branded credit cardsdepository services online trading Application Supported by Blocked Amount (ASBA)facility for participation in public issuances physical and digital locker facilitiesmobile and internet banking services payment and remittance services etc. Bank offersthese services through physical banking channels as well as digital channels includingInternet or E-banking Mobile Banking E-lobbies etc.

Banking Outlets and Alternate Delivery Channels (ADCs)

As on March 31 2021 your Bank had 2337 service outlets including 858 banking outletsand one extension counter with a presence in 554 centres spread across 22 States and 2Union Territories.

Though the presence of your bankis predominant in South India your Bankhas beenjudiciously expanding its foot print at various parts of the country after examining thepotential for business and customer outreach.

The Alternate Delivery Channels (ADCs) like ATMs E-lobbys Internet Banking MobileBanking etc. act as a vital link between the Bank and its customers by providing seamlessand round the clock banking services. As on March 31 2021 your Bank had 1001 ATMs and477 cash recyclers spread across the country. Bank's Mobile Banking platform-'KBL MobilePlus'has been empowered with new value added features such as registration of Nominationand PAN updation Screen share facility Debit card Unblocking facility TDS CertificateDownload facility and Submission of 15G/H for better customer experience. As on March 312021 the share of ADC transactions to total CBS transactions stood at 90.66 % as comparedto 83.50 % last year. Apart from the above your Bank has 14 Regional Offices anInternational Division Data Centre Contact Centre 2 Service branches 4 CurrencyChests 2 Central Processing Centre's 7 Asset Recovery Management branches and a DCOE.During the year under report Bank has opened 16 Branches one Currency Chest at Mysuruand one Asset Recovery Management at Chennai. Further 6 branches were merged with thenearby branches and two service branches were closed and for a better ambience andimproved customer service your Bank has shifted 16 branches/offices to new premisesduring the year 2020-21.

Customer Service

Your Bank is continuously focusing on creating new benchmarks in customer service so asto make the Bank distinctly more competitive. This necessitates designing of innovativeand cost effective mechanisms of delivering banking services efficiently. Bank is activelyinvolved in putting in place system and procedures on banking services rendered tocustomers and an effective grievance redressal mechanism including an Internal BankingOmbudsman as per the guidelines received from RBI and IBA from time to time. Bank is alsoproviding doorstep banking services to the Senior Citizen customers of more than 70 yearsof age and differently abled or infirm persons including visually impaired at all branchesof metro centers and "on a best effort basis" at all other branches of the Bank.


Information Technology:

The Core Banking System (CBS) covers all the branches and offices of the Bank. FurtherAlternate Delivery Channels like Automated Teller Machines (ATM) Internet Banking MobileBanking Unified Payment Interface (UPI) App etc. have also been integrated with CBS.Disaster Recovery (DR) facilities for all the critical applications are established toensure business continuity in the event of primary site failure. A three-way datareplication aimed at zero data loss is also implemented for applications such as CBS ATMand Internet Banking and Bank's IT infrastructure as a whole is supervised by the CTO(Chief Technology Officer). Your Bank will continue to take note of technologicalrevolutions and take appropriate decision at the right time to provide premier bankingservices and also continue to be a tech-savvy Bank.

Human resources:

Banking industry is exposed to various changes/challenges with the digitalizationtaking the world by storm. The survival and prosperity of any industry depends upon thequality of its human resource and banking industry is not an exception. Human ResourceDevelopment is a continuous process to ensure development of employee competenciesdynamism motivation and effectiveness in a systematic and planned way. Accordingly yourBank attaches the greatest importance to employee satisfaction and human resourcedevelopment activities. Bank also has a Chief Learning Officer to oversee HR Departmentaspects. Bank has also introduced ECDS (Employee Career and Development System) byoperationalizing the RMS (Performance Management System).

Training & Development

Training plays a major role in Human Resource Development. Effective training isimportant for any organization that aims to gain competitive advantage through enhancedperformance and excellent service from its employees. It is essential that staff membersare acquainted with required knowledge and skills to meet current challenges so as toperform the tasks efficiently and prepare them to shoulder higher responsibilities. YourBank deputes its employees to various training and development programmes to upgrade theirskills competencies and contribution towards the growth of the Bank. The Bank has a well-established Staff Training College which is awarded with the prestigious ISO 9001:2015certification for the Compliance Quality Management Standards. Indian Institute ofManagement (IIM) Ahmedabad Centre for Advanced Financial Research & Learning (CAFRAL)Mumbai National Institute of Bank Management (NIBM) Pune Southern IndiaBanks'StaffTraining College (SIBSTC) Bengaluru IFBI Chennai Indian Institute of Bankingand Finance (IIBF) Mumbai College of Agricultural Banking (CAB) Pune Institute forDevelopment and Research in Banking Technology (IDRBT) Hyderabad Foreign Exchange DealersAssociation of India (FEDAI) at Mumbai Bankers Institute of Rural Development (BIRD)Mangaluru & Lucknow are some of the elite institutes where Bank deputes its officersand staffs for specialized training.

During the year 2020-214433 employees were nominated for varioustrainings/e-workshops/conferences covering 52.64% of the total staff strength. Your Bankhas implemented'e-learning'concept wherein the members of staff acquire knowledge ondiversified subjects at their location through easy learning techniques without thenecessity of attending classroom training. These modules are in simple & lucidlanguage and understandable to everyone and successful employee will also get ane-Certificate. As a part of Capacity Building initiative specialized areas like TreasuryOperations Risk Management Credit Management Accounting Human Resource Management andInformation Technology have been identified and the staff members are encouraged toacquire certification courses from institutions approved by IBA. Robotic ProcessAutomation (RPA) has been implemented for various HR Processes. Mandatory Leave hasalready been introduced for Executives/Officers posted in Sensitive positions/Areas ofoperation as a risk mitigation measure. In addition Sabbatical Leave Scheme is alsointroduced for women employees. Your Bank values opinions and suggestions from all theemployees and encourages their inputs thoughts and innovative ideas which help increating a highly productive competitive and reliable workforce thereby emerging as apreferred destination for the competent work force. Further your Bank has maintainedcordial industrial relations and effective employee discipline.

As on March 312021 Bank had 8421 employees of which 2493 are women employeesconstituting around 29.70% of the total strength. Your Bank has put in place aninstitutional mechanism for protection of women employees at the workplace and adopted apolicy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 providing for protection of women employees againstthe sexual harassment of women at the workplace and redressal of such complaints. Therewere no complaints pending at the beginning of the FYand also no complaints were receivedduring the year under report.

Employee Stock Options (ESOP)

During the reporting year Bank had granted 3619450 stock options to the eligibleemployees under the KBL-ESOS 2018 Scheme and the option grantees are yet to exercise anyoptions. (For information pertaining to ESOPs please refer Annexure-ll to theDirectors'Report).

Internal Control Systems - Adequacy and Compliance

Your Bank has put in place an effective and robust internal control apparatuscommensurate with its size geographical spread and complexity of operations. At the apexlevel guidance and direction on the control aspects is vested with the Audit Committee ofthe Board of Directors which takes an overall view on the internal control aspects andformulates all the related policy guidelines. Your Bank has put in place an independentCompliance Department headed by a Chief Compliance Officer who is In-Charge of the entirecompliance functions of the Bank to ensure effective implementation and compliance of allthe directives issued by various Regulators its Board of Directors and its own InternalControl Policy. Your Bank has adopted Risk- Based Internal Audit (RBIA) mechanism whichensures greater emphasis on the internal auditor's role in mitigating various risks. Whilecontinuing with the traditional risk management and control methods involving transactiontesting etc the Risk-Based Internal Audit would not only offer suggestions formitigating current risk but also on potential future risk thereby playing an importantrole in the risk management process of the Bank. The risk assessment under RBIA coversrisks at various levels (corporate and branch; portfolio and individual transactionsetc.) as also the processes in place to identify measure monitor and control the risks.The internal audit department has putin place the RBIA risk assessment methodology withthe approval of the Audit Committee of the Board of Directors keeping in view the sizeand complexity of the business undertaken by the Bank. The risk assessment processincludes identification of'lnherent Business Risk'in various activities undertaken by theBank and evaluate the effectiveness of the control systems for monitoring the InherentRisks of the business activities.

With a view to seek periodic assurances on the adequacy and efficacy of internalcontrol functions the Bank causes periodic Regular Inspections and Information System(IS) Audit of all the branches and Offices. Besides your Bank also covers select branchesunder concurrent audit as per the Concurrent Audit Policy of the Bank and Short Inspectionof all the branches as well. Concurrent Audit of Treasury functions (both domestic andforex) International Division Forex designated branches. Central Processing CentreCentralized Account Verification Cell SWIFT reconciliation. Regional Loan ProcessingCentres (RLPC) and external Integrated Audit of Centralised Reconciliation Cell is alsoundertaken. Further IS Audit of Data Centre and DR Site is done by CERT-ln empanelledexternal security auditing firm besides conducting other regular IS Audits by internalCISA qualified and ISO 27001 Lead Auditors etc. Besides the Bank has also been causingStock/Credit Audits and Legal Audits of large borrowal accounts by external professionalsin furtherance of effective credit administration. Bank's Credit Monitoring Department andRisk Management Department are acting as Risk resilient system for effectively monitoringand managing for mitigation of various risks. To appraise the effectiveness of managementat different levels in accomplishing the assigned tasks towards achieving the overallcorporate objectives Management Audit is being undertaken by your Bank for Departments atHead Office and Regional Offices.

As per the requirement of Companies Act 2013 Bank has formulated Internal FinancialControls framework by documenting risk and controls associated with each process in theBank and testing of Internal Financial Controls over Financial Reporting (ICFR) is doneannually. Your Bank has implemented 'Defense in Depth'security architecture withcontinuous monitoring by Securities Operations Centre (SOC) integrated with SIEMtosafeguard the interest of the bank's assets and its stakeholder. The systems and processesof the Data Centre NLS& IT departments of the Bank are ISO 27001:2013 Certified. YourBank has put in place the policies and procedures for ensuring an orderly and efficientconduct of its business safeguarding of its assets prevention and detection of fraudsand errors accuracy and completeness of the accounting records and timely preparation ofreliable and transparent financial information. The Audit Committee of the Boardperiodically assesses the effectiveness of the internal financial controls and theiradequacy and issues directions for its strengthening wherever found necessary. TheInternal Audit function of the Bank operates independently under the supervision of theAudit Committee of the Board thereby ensuring its independence.

Risk Based Supervision (RBS)

In view of the growing complexities in the processes product offerings and systems andprocedures in the Indian banking sector pursuant to the recommendation of the High LevelSteering Committee Reserve Bank of India has shifted supervisory stance to risk-basedapproach called Supervisory Program for Assessment of Risk and Capital (SPARC) which isfocusing on evaluating both present and future risks identifying incipient problems andfacilitating prompt intervention / early corrective action etc. Your Bank has beenincluded under the same and migrated to Risk Based Supervision since March 312015. A planof action for complying with various findings in RBS communicated to the Bank in RiskAssessment Report is also ensured.

Compliance Function

Compliance function is to help the bank in managing Compliance Risk. Compliancefunction in the Bank is one of the key elements in the Bank's Corporate Governancestructure along with internal control and risk management process. As an important elementin Corporate Governance structure the Bank has a robust Compliance Department withsufficient independence to promote healthy compliance culture within the Bank. Bankensures strict observance of all statutory provisions guidelines from RBI and otherRegulators standards and codes Bank's internal policies and fair practices code.Thecompliance function includes interpretation/dissemination of regulatory and statutoryguidelines and ensures that controls and procedures capture the appropriate information tothe Senior Management in their risk management function. The risk- based complianceprogramme of the Bank under the supervision of Chief Compliance Officer ensuresappropriate coverage across businesses besides verifying the level of compliance through'Compliance Testing' of branches/business units. The Bank carries out an annual compliancerisk assessment to identify and assess major compliance risk faced by it and take steps tomanage the risks effectively. Further the Bank also follows'Compliance First BusinessNext' principle in all its business initiatives.

Vigil Mechanism

The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) sincethe year 2007 intended to promote participation of employees at all levels and detectionof corruption misuse of Office criminal offences suspected/actual fraud failure tocomply with the rules and regulations prescribed by the Banks and any events/actsdetrimental to the interest of the Bank depositors and the public resulting in financialloss/operational risk loss of reputation etc. Further the mechanism adopted by the Bankencourages the Whistle Blower to report genuine concerns or grievances and provides foradequate safeguards against victimization of Whistle Blower who avails such mechanism andalso provides for direct access to the Chief of Internal Vigilance (CIV). Further therewas no occasion where a person was denied access to the Audit Committee. The details ofWhistle Blower Policy is posted in Bank's website and available at the link:

Corporate Social Responsibility

The Corporate Social Responsibility initiatives of the Bank are designed to make apositive impact on a wide range of areas of social life like healthcare educationlivelihood enhancement empowering women/socially and economically disadvantagedenvironmental sustainability/ green initiatives protection of heritage/ culturepromotion of sports rural development Swachh Bharath etc. aimed at promoting theoverall development of the society. Further to minimize the urban-rural divide your Bankhas been strengthening its rural orientation through initiatives aimed at impartingfinancial literacy and extending banking services to the people in rural unbanked areasin a fair and transparent manner at an affordable cost.

Further pursuant to Section 135 of the Companies Act 2013 read with Companies(Corporate Social Responsibility Policy) Rules 2014 the Board has constituted'CorporateSocial Responsibility'(CSR) Committee and has also put in place a Policy on CorporateSocial Responsibility (CSR Policy) to undertake projects/programmes in pursuance of thesaid Policy. The contents of the CSR Policy along with the report on amounts spent onvarious projects/ programmes during the financial year 2020-21 are detailed inAnnexure-lll to this report pursuant to Rule 8 of the Companies (Corporate SocialResponsibility Policy) Rules 2014. Under CSR activities Bank has so far funded 1356projects with a total financial outlay of Rs.50.59 crore and these projects have exhibiteda total positive impact on the society. Further considering COVID-19 relief measures asthe priorities for the FY your Bank extended timely financial support towards reliefmeasures undertaken by various stakeholders. Dedicated ambulances to carry COVID-19infected patients PPE Kits digital oxymeters ventilators etc. were donated to localdistrict administrations as well as hospitals elsewhere in the state of Karnataka. Duringthe FY2020-21your Bank's CSRspend towards healthcare wasRs.1.25 crore and major portionof this was towards COVID-19 related relief measures.

Financial Inclusion

Through the Financial Inclusion Plan your Bank aims at'connecting people'with the Bankand not just opening accounts. This includes meeting the small credit needs of the ruralpublic giving them access to the payments system providing remittance facility lifeinsurance and health insurance etc. Your Bank has 426 branches (including 35 Ultra SmallBranches) located in the rural and semi-urban areas and offers banking facilities to therural clientele. Our rural branches are also acting as Financial Literacy Centers (FLCs)and imparting banking literacy among the rural populace. In accordance with PrimeMinister's Jan Dhan Yojana (PMJDY) Bank has implemented the revised Strategy andGuidelines for Financial Inclusion activities. Your Bank is actively participating inDirect Benefit Transfer (DBT) Programme of Govt of India to transfer the benefits ofvarious Schemes / LPG Subsidy directly to the beneficiaries'Aadhaar enabled bank accounts.

As part of Financial Inclusion plan. Bank has been offering following services:

• Business Correspondent (BC) services: Bank has tied up with Sub-K ImpactSolutions Limited to provide the BC services and as on March 31 2021 120 BC Agents arecovering allocated villages in the states of Karnataka Andhra Pradesh and Chhattisgarh.

• Aadhar Enabled Payment System (AEPS): Bank has introduced AEPS transactionservices offered by National Payments Corporation of India (NPCI) at all BusinessCorrespondent (BQ locations of the Bank and with this Bank's customer having an Aadharenabled SB account can transact at the BC point.

• Financial Literacy and Credit Counseling Centers (FLCs): Bank has sponsored 5FLCs at B.C Road Tiptur Hangal Kundagol and Alur (Karnataka) jointly with M/s CanaraFinancial Advisory Trust (CFATLTill March 3120215 FLCCs have conducted 3632 FinancialLiteracy campaigns in which 141211 participants took part. In adherence to RBIguidelines all the rural branches of your Bank are also conducting financial literacyCamps.

• Social Security Schemes: Three Social Security Schemes-Prime Minister JeevanJyothi Bima Yojana (PMJJBY) Prime Minister Suraksha Bima Yojana (PMSBY) and Atal PensionYojana (APY) have been launched by Hon'ble Prime Minister on June 01 2015. All thebranches of your Bank are actively involved in providing these schemes to the customersacross the country.

• Prime Minister Jan Dhan Yojana (PMJDY): All the branches across the country areopening accounts under PMJDY and are issuing RuPay Debit Cards under PMJDY 249951accounts have been opened since August 15 2014 with an outstanding balance of Rs.69.06crore.

• Bank is one of the trustees of Karnataka Farmers Resource Center (KFRQ Bagalkotestablished to impart training and act as a resources center for farmers under theumbrella ofSLBC Karnataka. Bank has contributed Rs.50.00 lakh towards capitalexpenditure/corpus of KFRC.

• In line with the Pradhan Mantri Street Vendor's Atmanirbhar Scheme Bank hasrolled out KBL- PM Svanidhi scheme providing working capital loans up to Rs.10000/- tothe street vendors to support their businesses.


Your Bank has bagged the following awards during the year under report in recognitionof its achievement:

• 'Organization with Innovative HR Practices' award under Dream Companies to workfor category instituted by World HRD Congress.

• 'Dream Companies to work for' award under Dream Companies to work for categoryinstituted by World HRD Congress. Overall 8th Rank under Dream Companies to work forcategory instituted by World HRD Congress.

• "Karnataka Best Employer Brand Awards 2020" instituted by World HRDCongress and endorsed by CHRO Asia for having used marketing communications effectivelyin attracting retaining and developing talent and in retention policy.

• Bank's Staff Training College has been reaccredited with the prestigious ISO9001:2015 Certification byTVE Certification Services Pvt Ltd. Trichy.

• Certificate of Appreciation "Power to Persist (Sept 2020)" inrecognition of achievement of persistency target & Contribution towards Atal PensionYojana from PFRDA.

• 'Second Best Performed Branch at State Level- Under Private Sector Bank Categoryfor the year 2019-20' awarded by State Forum of Bankers' Clubs (Kerala) in SFBCK BankingExcellence Awards 2020.

• APY "Old Age Financial Freedom Fighters Campaign" Award 2020 heldbetween August & September 2020 by PFRDA - For Shivamogga Region which has beenawarded for being one of the toppers in "other Private Sector Banks" category.

The Bank's Managing Director & CEO received the following personal recognitionduring the last financial year:

• The prestigious 'CEO of The Year Award' in the 19th Global Edition of BusinessLeader of the year presented by 'World Leadership Congress & Awards'.

• 'Distinguished Alumni Award' from UASB (University of Agricultural SciencesBengaluru).

• AShama Rao Memorial Outstanding Achievement Award 2021.

Convergence with the International Financial Reporting System (IFRS)-'lnd AS'

As per the roadmap given by Reserve Bank of India (RBI) vide circular dated February112017 transition to "Indian Accounting Standards (Ind AS)' in banks were tocommence from the accounting period beginning April 12018 onwards. However the RBI videits circular No.DBR.BP.BC.No.29/21. 07.001/2018-19 dated March 22 2019 has deferredimplementation of Ind-AS in Banks till further notice.

However your Bank is prepared to implement Ind AS and towards this direction Bank hasconducted diagnostic study on various disparities between current accounting framework andInd AS and ascertained various areas having an impact on measurement accounting anddisclosure of financial assets & liabilities and provisioning requirements. Besideschanges required to be carried out in Core Banking Solution (CBS) and IT systems of theBank to accommodate Ind AS are also being looked into and as stipulated by RBI Bank hasbeen submitting the Proforma Ind AS Financial statements from time to time to RBI.


Your Bank has adopted a Policy on Distribution of Dividend to the shareholders pursuantto the Regulation 43A of the SEBI (LODR) Regulations 2015. Gist of the DividendDistribution Policy is as under:

• Being a Banking entity. Dividend Distribution is guided by the RBI CircularDBOD.No.BP.BC.8821. 02.67/2004-05 dated May 52005 with regard to eligibility criteria fordistribution of dividend.

• Factors considered for recommendation of dividend includes both internal factorssuch as financial performance dividend payout trends tax implications corporate actionsand external factors such as shareholders' expectations macro environment etc.

• Factors considered for determining the quantum of dividend include financialperformance capital fund requirements to support future business growth having regard tothe dividend payout ratio prescribed under the aforesaid RBI Guidelines etc.

The Dividend Distribution Policy of the Bank is available in Bank's website at corporate-governance

As discussed earlier Board of Directors have recommended for payment of dividend dulycomplying with the Reserve Bankof India directions for payment of dividend out of theprofit for the financial year ended March 312021.


Pursuant to Section 92(3) of the Companies Act 2013 read with Rule 12 of the Companies(Management and Administration) Rules 2014 copy of the Annual Return of the Company forfinancial year 2020-21 prepared in accordance with Section 92(1) of the Act has beenplaced on the website and is available at


In accordance with the provisions of Section 129(3) of the Companies Act 2013 readwith Rule 8 of Companies (Accounts) Rules 2014 the Bank has prepared its ConsolidatedFinancial Statement including its subsidiary-KBL Services Limited and pursuant to theprovisions of Accounting Standard ('AS') 21 the Consolidated Financial Statementsnotified under Section 133 of the Companies Act 2013 read together with Rule 7 of theCompanies (Accounts) Rules 2014 the Consolidated Financial Statements of the Bank alongwith its Subsidiary for the year ended March 31 2021 forms part of the Annual Report. Thefinancial position and performance of the subsidiary is given in Form AOC-1 attached tothis Report as Annexure-IV.

In accordance with third proviso to Section 136(1) of the Companies Act 2013 theAnnual Report of the Bank containing therein itsStandalone and the Consolidated FinancialStatements has been hosted on the website Further as perfourth proviso to the said Section the Audited Annual Accounts of the said subsidiarycompany of the Bank considered as part of the Consolidated Financial Statements have alsobeen hosted on the Bank's website: The documents/detailsavailable on the Bank's website will also be available forinspection by any Member at its Registered Office.


To maintain a regular connect with the investors your Bank has a dedicated InvestorRelation Cell at the Registered Office. Besides redressing the grievances if any fromthe investors the Cell proactively disseminates corporate information on a voluntarybasis to the shareholders through email (wherever made available) about financial resultsmajor events articles about the Bank in the media etc.

During December 2020 a "Reconnect Drive" was launched to reach out to theshareholders for payment of their unclaimed dividend (pertaining to 2019 and earlieryears) which elicited a good response. Under this initiative unclaimed dividendamounting to Rs.23.30 Lakhs was paid to about 200 shareholders/legal heirs. An awarenesscampaign through SMS/Email was also conducted about the benefits of availing nominationfacility and thereby reducing hardship at the time of transmission of shares.


As on March 312021 your Bank's Board comprised of 10 Directors including two womandirectors. All of them are Independent Directors except Mr. P Jayarama Bhat Part-TimeNon-Executive Chairman Mr. Mahabaleshwara M S Managing Director & CEO and Mr. B RAshok Non-Executive Director. The details of the criteria for appointment andremuneration of Directors are provided in the report on Corporate Governance underAnnexure-V.

During the year under report Mr. Ashok Haranahalli and Mr. U R Bhat retired from theoffice of the Independent Director on September 13 2020 and February 18 2021 uponcompletion of their respective tenure as per Banking Regulation Act 1949/Companies Act2013. Further Mr. D Surendra Kumar retired from office of Independent Director on May302021 upon completion of his term. The Board places on record its appreciation for thevaluable contributions and the guidance given by them during their tenure in office.

In order to ensure board level succession planning your Bank has inducted followingeminent personalities to the Board of Directors as Additional Directors:

SI No Name Area of Experience Date of Appointment
1. Mr. Justice A V Chandrashekar Law (former Judge High Court of Karnataka) 19.08.2020
2. Mr. Pradeep Kumar Panja Banking & Finance [former Managing Director (Corporate Banking) of State Bank of India (SBI)] 19.08.2020
3. Mrs. Uma Shankar Banking & Finance (Former Executive Director of RBI) 01.11.2020
4. Dr. DS Ravindran Agriculture IT and Administration (Retired IFS (Indian Forest Service 1986 Batch) Former Principal Secretary to the Government Khajane-2 Finance Department Government of Karnataka) 01.04.2021
5. Mr. Balakrishna Alse S Banking Agriculture (former Executive Director of the Oriental Bank of Commerce: 26.05.2021

The aforesaid Directors will hold office up to the date of 97th Annual General Meetingand the Board of Directors recommends their appointment as Independent Directors of theBank. Accordingly resolutions seeking shareholders'approval for their appointment havebeen included in the Notice of ensuing 97th Annual General Meeting.

As per Section 152(6) of Companies Act 2013 one of the Non-Executive Directors vizMr. B R Ashok is liable to retire by rotation and being eligible he has offered himselffor reappointment. Accordingly a resolution seeking reappointment of Mr. B R Ashok hasbeen included in the Notice of 97th AGM for approval of the members.

Pursuant to the provisions of Section 149(6) of the Companies Act 2013 your Bank hasreceived necessary declarations from all the Independent Directors confirming that theymeet the criteria of independence for Independent Directors as on March 312021.


Mr. Mahabaleshwara M S (DIN: 07645317) was reappointed as the Managing Director &CEO of the Bank upon receipt of approval from RBI to hold office from April 152020 for aperiod of three years i.e. till April 142023 in accordance with Section 35B of BankingRegulation Act 1949.


Your Board of Directors has laid down criteria for performance evaluation of DirectorsChairman MD & CEO Committees of the Board and Board as a whole and also theevaluation process for the same. The statement indicating the manner in which formalannual evaluation of the Directors the Board and Committees of the Board etc. are givenin detail in the report on Corporate Governance under Annexure V. In pursuance to theabove the Independent Directors in their separate meetings held on March 23 2021 havereviewed and evaluated the performance of Board as a whole Managing Director & CEOand Non-Executive Director.

Further the Board has also reviewed the performance of Committees of the Board andeach of individual Independent Directors at its meeting held on March 232021.


All transactions with the related parties that were entered into during the year underreport were in the ordinary course of the business of the Bank and were on an arm's lengthbasis. There were no materially significant related party transactions entered into by theBank with the Directors Key Managerial Personnel or other persons which may have apotential conflict with the interest of the Bank. As such disclosure in Form AOC-2 is notapplicable. The policy on dealing with Related Party Transactions as approved by the AuditCommittee/ Board has been placed in the website of the Bank under Investor Portal.


In accordance with Section 134(3)(c) 134(5) of the Companies Act 2013 read with Rule8 of the Companies (Accounts) Rules 2014 and other applicable provisions your Directorsstate that:

a) In the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures.

b) The Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Bank as at the end of financial year March312021 and profit and loss for that period.

c) The Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Bank and for preventing and detecting fraud and otherirregularities.

d) The Directors have prepared the annual accounts on a going concern basis.

e) The Directors have laid down the internal financial controls followed by the Bankand that such internal financial controls are adequate and are operating effectively.

f) The Directors have devised proper systems to ensure compliance with the provision ofall applicable laws and that such systems were adequate and operating effectively.


The disclosures under sub-section (3) of Section 134 of the Companies (Accounts) Rules2014 are furnished below:

a) Conservation of energy and technology absorption: The provisions of Section134(3)(m) of the Companies Act 2013 relating to conservation of energy and technologyabsorption are not applicable to your Bank. The Bank has however used informationtechnology in its operations extensively. Further to promote renewable sources of energyBank has installed solar panels at the Corporate Office few Regional Offices and also atBank's few owned premises.

b) During the year ended March 312021 the Bank has earned Rs.2.13 crore and spentRs.1.83 crore in foreign currency.

c) There were no significant and material orders passed by the regulators or courts oftribunals impacting the going concern status and Bank's operations in future.

d) Internal financial control systems and their adequacy: Your Bank has laid downstandards processes and structure facilitating the implementation of internal financialcontrol across the Bank and ensure that same are adequate and operating effectively.

e) Key Managerial Personnel: Mr. Mahabaleshwara M S MD & CEO Mr. MuralidharaKrishna Rao CFO and Mr. Prasanna Patil Company Secretary were the Key ManagerialPersonnel of the Bank as on March 312021 as per the provisions of the Companies Act2013. None of the Key Managerial Personnel has resigned during the year under report.

f) Remuneration of Directors: Disclosure pursuant to Section 197 (12) of the CompaniesAct 2013 read with Rule 5 of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 are given in AnnexureVI to this report.

g) During the financial year 2020-21 there was no employee who was in receipt ofremuneration requiring disclosure as per the limits prescribed under Section 197 of theCompanies Act 2013 read with Rule 5 of The Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014. However the remuneration (including variable paydetermined in the subsequent financial year) pertaining to the Whole Time Directors issubject to prior approval of the Reserve Bank of India. Mr. Mahabaleshwara M S ManagingDirector & CEO is the only Whole Time Director and his remuneration is subject toprior approval of the Reserve Bank of India. The details of remuneration paid to him isprovided under Corporate Governance Report.

h) There are no material changes affecting the financial position of the Bank whichhave occurred between the end of the financial year of the Bank to which the financialstatements relate and the date of this Report.


During the year under report the Board met 15 times and the details thereof areprovided in the report on Corporate Governance attached to this report.


The Bank had 9 Committees of the Board which were constituted to comply with therequirements of relevant provisions of the applicable laws and for operational efficiency.Details of the meetings of the Board and the Committees their composition (as on March312021) terms of reference powers roles etc. are furnished in the report on CorporateGovernance attached to this report in Annexure V.

Further in terms of RBI vide circular DOR.GOV.REC.8/29.67.001/2021-22 dated April262021 issued instructions on'Corporate Governance in Banks-Appointment of Directors andConstitution of Committees of the Board'interalia covering constitution of certain Boardlevel Committees and your Bank has already reconstituted the Committees in line with theseinstructions.


Your Bank is committed to follow the best practice of corporate governance to protectthe interest of all the stakeholders of the Bank viz. shareholders depositors and othercustomers employees and the society in general and maintain transparency at all levels. Adetailed report on corporate governance practices is given as Annexure V to this report.


Your Bank has prepared the Integrated Report on voluntary basis and the same is hostedon the Bank's website under Investor Portal at


Bank has adopted various policies that imbibe the best practices with regard toenvironmental social and governance principles. In this context Bank is presenting itsBusiness Responsibility Report (BRR) for the Financial Year 2020-21 prepared in accordancewith the requirements under Regulation 34(2)(f) of Securities and Exchange Board of India(Listing Obligations and Disclosure Requirements) Regulations 2015 and as per the formatdevised by the Securities and Exchange Board of India vide Circular CIR/CFD/CMD/10/2015dated November 4 2015 and the same is provided under Annexure VII.


a. Statutory Auditors

At the 96th Annual General Meeting held on July 17 2020 M/s. Badari Madhusudhan& Srinivasan (Firm Registration No. 005389S) Chartered Accountants Bengaluru and M/sManohar Chowdhry & Associates (Firm Registration No. 001997S) Chartered AccountantsChennai were appointed as the Joint Statutory Central Auditors of the Bank who at theconclusion of the ensuing Annual General Meeting will be completing the period of thirdyear (i.e. in the term commencing from FY 2018-19) of Statutory Central Audit of the Bankand their firms are subject to resting period/ cooling off period for a period of sixyears as per Reserve Bank of India Cir No. DOS.CO.ARG/SEC.01/08.91.001 /2021-22 datedApril 272021.

Hence Board of Directors proposes to the members the appointment of M/s Sundaram &Srinivasan Chartered Accountants (Firm Registration No. 004207S) New No.4 Old No. 23C. P. Ramaswamy Road Alwarpet Chennai-600018 and M/s. Kalyaniwalla & Mistry LLP(Firm Registration No./ LLP No. 104607W/W100166) Chartered Accountants RegisteredOffice: Esplanade House 29 Hazarimal Somani Fort Mumbai-400001 jointly as StatutoryAuditors of the Bank to hold office upto the conclusion of 98th Annual General Meeting.Pursuant to Section 30(1 A) of the Banking Regulation Act 1949 necessary approval fromReserve Bank of India has been obtained vide their letter dated July 01 2021 for the saidappointment. The Bank has received consent from the above auditors and also the necessaryconfirmation from them that they are not disqualified to be appointed as the auditors ofthe Bank pursuant to the provisions of the Companies Act 2013 and the Rules madethereunder.

b. Secretarial Auditor and Secretarial Audit Report

Pursuant to Section 204 of the Companies Act 2013 and the rules thereunder your Bankhad appointed M/s. Gopalakrishnaraj H H & Associates Practising Company SecretaryBengaluru as Secretarial Auditors to conduct the Secretarial Audit for the year endedMarch 312021. The audit report from the Secretarial Auditor is annexed to this report asa part of Annexure V.


The Board of Directors would like to place on record their sincere gratitude to theReserve Bank of India other government and regulatory authorities financial institutionsand correspondent banks for their continued guidance and support. Your Directors alsoplace on record their gratitude to the Bank's shareholders depositors and other customersfor their continued support patronage and goodwill. Your Directors express their deepsense of appreciation to all the staff members for their contribution in your Bank'squest for sustained growth and profitability and look forward for their continuedcontribution in scaling greater heights.

For and on behalf of the Board of Directors
Place: Mangaluru P Jayarama Bhat
Date: July 27 2021 Part-time Non-Executive Chairman