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Karnataka Bank Ltd.

BSE: 532652 Sector: Financials
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OPEN 116.00
VOLUME 37810
52-Week high 179.30
52-Week low 106.95
P/E 10.03
Mkt Cap.(Rs cr) 3,264
Buy Price 115.45
Buy Qty 190.00
Sell Price 115.60
Sell Qty 448.00
OPEN 116.00
CLOSE 115.35
VOLUME 37810
52-Week high 179.30
52-Week low 106.95
P/E 10.03
Mkt Cap.(Rs cr) 3,264
Buy Price 115.45
Buy Qty 190.00
Sell Price 115.60
Sell Qty 448.00

Karnataka Bank Ltd. (KTKBANK) - Director Report

Company director report

Your Directors have pleasure in presenting the Ninety Third Annual Report together withthe Audited Statement of Accounts for the year ended 31 March 2017 and the Auditors'Report.


Your Directors are pleased to inform that during the year ended 31 March 2017 yourBank has been able to achieve satisfactory growth in all the areas of operation.Performance highlights for the financial year in the key financial areas are as under:

(Rs in crore)

Particulars As on / for the year ended As on / for the year ended
31.03.2017 31.03.2016
Deposits 56733.11 50488.21
Advances 37003.65 33902.45
Investments 20219.73 16256.65
Gross Income 5994.74 5535.07
Operating Profit 995.80 854.53
Net Profit 452.26 415.29

The total business turnover of the Bank was Rs93736.76 crore as on 31 March 2017 anincrease of 11.07 per cent (Previous year Rs84390.66 crore). The total assets of the Bankincreased from Rs56500.33 crore to Rs 64126.55 crore recording a growth of 13.50 per centfor the year 2016-17.

The total deposits of the Bank grew from Rs50488.21 crore as on 31 March 2016 toRs56733.11 crore as on 31 March 2017 registering a growth of 12.37 per cent.

During the year low cost deposits of the Bank viz. Savings and Current AccountDeposits have shown growth of 24.23 per cent and constitute 29.04 per cent of the totaldeposits of the Bank. The market share of the Bank in deposits was 0.53 per cent.

The total advances grew from Rs33902.45 crore as on 31 March 2016 to Rs37003.65 croreas on 31 March 2017 an increase of 9.15 per cent. The priority sector advances increasedfrom Rs16149.99 crore to Rs17238.77 crore which together with the Rural InfrastructureDevelopment Fund (RIDF) exposure formed 48.13 percent of Adjusted Net Bank Credit (ANBC)and agricultural advances increased from Rs5836.74 crore to

Rs6582.77 crore which together with eligible RIDF exposure constituted 18.38 per centof ANBC. Lending under various socio-economic schemes has shown satisfactory progress. Themarket share of the Bank in loans and advances was 0.48 per cent. As on 31 March 2017 thetotal investments of the Bank stood at Rs20219.73 crore as against Rs16256.65 crore as on31 March 2016 showing an increase of 24.38 per cent.


In the backdrop of subdued credit offtake experienced by banks the performance of yourBank can be considered satisfactory for the year ended 31 March 2017. The gross income ofthe Bank was Rs5994.74 crore and total expenditure (excluding provisions andcontingencies) was Rs4998.94 crore. The net interest income was Rs1490.62 crore showing agrowth of 14.41 per cent over previous year.


Your Bank earned an operating profit of Rs995.80 crore for the year 2016-17 as againstRs854.53 crore for the previous year showing a growth of 16.53 per cent. The net profit ofthe Bank increased from Rs415.29 crore to an all time high of Rs452.26 crore showing agrowth of 8.90 per cent.


The net profit of Rs452.26 crore which along with a sum of Rs0.03 crore brought forwardfrom the previous year aggregating to Rs452.29 crore is appropriated as under.

Appropriation Rs in crore
Transfer to Statutory Reserve 125.00
Transfer to Capital Reserve 112.80
Transfer to Revenue General & Special Reserves 68.60
Transfer to Investment Reserve 8.75
Balance carried over to Balance Sheet (including proposed Dividend and tax) 137.14
Total 452.29


Having regard to the overall performance of the Bank expanded capital base on accountof the successful Rights issue in the ratio of 1:2 and also the positive outlook for thefuture the Board of Directors recommended a dividend of Rs4 per share i.e. 40 percent onthe paid up capital (previous year 50 per cent) for the reporting year. The dividendpayout ratio for the year works out to 24.99 percent as against last year's 22.69 percent.In accordance with the revised Accounting Standard (AS)-4 ‘Contingencies and Eventsoccurring after the Balance Sheet Date notified by the MCA on March 30 2016 the proposeddividend including dividend tax amounting to Rs136.05 crore has not been shown asappropriation from the Profit as of March 31 2017.


The earnings per share (basic) and the book value per share as on 31 March 2017 stoodat Rs19.38 and

Rs 177.12 respectively.


During the year under report with a view to augment common equity your Bank issued94235441 equity shares of Rs10 each at a price of Rs70 per share including the premiumof Rs60per equity share on Rights basis in the ratio of 1 (One) equity share for every 2(Two) equity shares held aggregating Rs659.65 crore as per SEBI (ICDR) Regulations 2009.The issue was subscribed by 1.85 times. After keeping in abeyance 98575 entitlementspertaining to equity shares kept under Suspense Account Board of Directors allotted94136866 equity shares on 08.12.2016. The Board of Directors wishes to place on recordits appreciation for the confidence reposed by the shareholders of the Bank and thank themfor their overwhelming response to the Rights Issue.


As permitted under the extant RBI Guidelines your Bank has revalued its Land andbuilding having existing book value of Rs119.39 crore. Appreciation of Rs423.53 crorearising out of such revaluation is accounted with corresponding credit to RevaluationReserves and the appreciation is reckoned for Tier-1 Capital after applying discount of 55per cent as permitted under Basel III guidelines.


The capital funds of your Bank increased from Rs4185.24 crore to Rs5172.16 croreregistering a growth of 23.58 per cent. The Capital Adequacy Ratio stood at 13.30 per centas on 31 March 2017 as per BASEL III norms (Previous year 12.03 per cent). The capitalfunds of the bank increased during the year under report due to the augmentation ofcommon equity capital through Rights Issue (Rs654.95 crore net of expenses) andrevaluation of Land & Building resulting in revaluation reserves to the extent ofRs190.59 crores after discounting etc. The Bank has been consistently maintaining theRatio well above the minimum of 10.25 percent stipulated by the Reserve Bank of India. Themarket capitalisation as on March 31 2017 was Rs3976.26 crore.


ICRA Limited ("ICRA") and Credit Analysis and Research Limited("CARE") who had rated the Unsecured Redeemable Non-Convertible Subordinated(Lower Tier-II) debt instruments issued during the earlier years aggregating Rs600 crorehave retained the rating "ICRA A" and "CARE A" respectively for theaforesaid instruments. The instruments with these rating are considered to haveadequate/high degree of safety regarding timely servicing of financial obligations. Suchinstruments carry very low credit risk.


In order to augment capital under Tier II Capital structure your Bank had issuedsubordinated debt instruments under four series namely Series I (Rs120.50 crore) SeriesII (Rs29.50 crore) Series III (Rs200.00 crore) and Series IV (Rs250.00 crore) issued on30.06.2007 29.03.2008 27.09.2008 and 17.11.2012 respectively with each Series having amaturity tenure of 120 months from the date of issue.

Series I (Rs120.50 crore) is due for redemption on 30.06.2017 (upon completion of 120months from the date of issue) and your Bank has ensured timely interest payment on thesaid debt instruments since the year 2007 and will redeem the said debt instruments as perthe scheduled timeline. The redemption value has already been factored into whileconsidering the capital adequacy ratio (CAR) for the financial year 2016-17 and thereforeis no impact on CAR post redemption.


During the year under report your Bank achieved a turnover of Rs14561.52 crore inforeign exchange business as against Rs14277.44 crore in the previous year. Theoutstanding advances to export sector stood at Rs1631.02 crore as on March 31 2017.


Your Bank has been focusing on containing the non- performing assets through bettercredit monitoring as well as intensified efforts to recover the impaired assets. Howeverin view of the continuing slowdown in the economy and delinquencies in select sectors theBank's Gross NPAs as on March 31 2017 has increased from Rs1180.40 crore (3.44 per cent)to

Rs1581.59 crore by the year end (4.21 per cent). The Net NPAs stood at Rs974.73 crore(2.64 per cent) as against Rs795.47 crore (2.35 per cent) as on 31 March 2016. HoweverProvision Coverage Ratio (PCR) improved to 54.00 percent as on March 31 2017 from 48.39per cent as on March 31 2016.


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 31 March 2017 asunder:

Treasury Operations

During the year ended 31 March 2017 your Bank has earned total revenue of Rs1642.55crore from Treasury operations with a contribution of Rs442.87 crore to profit before taxand un-allocable expenditure.

Corporate / Wholesale Banking

The revenue earned by the Bank during the year under report from this Segment wasRs1814.36 crore with a contribution of Rs-56.12 crore to profit before tax and unallocableexpenditure.

Retail Banking

During the year 2016-17 this Segment has earned revenue of Rs2281.72 crore with acontribution of

Rs165.19 crore to profit before tax and un-allocable expenditure.

Other Banking Operations

During the year ended 31 March 2017 this segment has generated revenues of Rs256.11crore with a contribution of Rs-34.23 crore to profit before tax and unallocableexpenditure.


The financial year 2016-17 evidenced revelation both in the international and nationalscenarios. The international events included political changes in the Advanced Economies(AE) fluctuations in the crude oil prices unsettled global political climate in some ofthe countries etc. Factoring the international developments India also witnessed exchangerate fluctuations sluggish growth leading to slower pace of exports impact on consumerprices due to fluctuations in the oil prices etc.

In order to contain the rising incidence of fake notes and black money on 08.11.2016the Government of India withdrew legal tender of specified bank notes (SBNs) (i.e.denominations of Rs500 and Rs1000) issued by the Reserve Bank of India and subject tocertain conditions SBNs held by a person could have been exchanged at the branches ofReserve Bank of India public sector banks private sector banks etc. upto December 302016. During the said period Bank played a crucial role in making the Government actionsuccessful and impact of demonetization was transitional in nature and momentum across allsectors has started picking up since February 2017.

The headline inflation declined to lowest levels during November 2016-January 2017.Drop in the prices of vegetables and pulses leading to downward trend in the inflation wasvisible during immediate months of post-demonetization. This was due to cash intensivetransactions in the agri-commodities in the market.

However remonetization started firming up in the month of January 2017 leading tofirmer food and fuel prices which drove the overall inflation in the month of Februaryi.e. Consumer Price inflation showed an upward trend and stood at 3.81 per cent in March2017 as against 3.65 per cent in February 2017 as against 3.17 per cent in January 2017.Pace of remonetization increase in oil prices are some of the reasons for upward trend inthe CPI.

With the Central Statistical Office' provisional estimates for 2016-17 real GVA growthfor 2017-18 have been projected at 7.3 per cent. Growth in the services sector andindustry and also implementation of uniform GST and other structural reforms is expectedto take the GVA rate to the expected level. Reserve Bank of India has revised theinflation to an average 4 per cent for the medium-term target of the FY 2017-18. Keyupside risks to inflation on the domestic front includes uncertain monsoons 7 PayCommission impact gap in government deficit led by states etc. besides fluctuations inthe international crude oil prices volatility in the global financial markets rise ininternational commodity prices etc.


The overall growth in bank deposits and credit during the year remained sluggishespecially during the second half of the financial year 2016-17. Banks faced unexpectedsurge in the flow of cash into their vault due to demonetization move by the Government.The credit off take witnessed downward trend. Post January 2017 the remonetizationstarted picking up which resulted in credit growth again and improvement in theconsumption.

Banking sector as such credit expanded by 5.1 per cent while deposits grew by 11.8 percent in the financial year 2016-17. Banking sector was embroiled in NPA issues whichdissuaded growth of credit to industry. On the whole the distressed assets is posingserious problems and the Central Government Regulator & banks are making coordinatedefforts to control the said menace.

In the recent past good number of Fin-tech companies small finance banks paymentbanks start up companies etc have emerged in the Indian financial sector and your banktreats it as an opportunity for cooperation and collaboration in furthering the agenda offinancial inclusion wherever necessary.


Based on the prediction of normal monsoon considering the pace of remonetization theeconomic growth is projected at 7.3 per cent. The Government's thrust on infrastructuredevelopment besides technological advancement in the manufacturing sector may open upavenues to Banks to finance these projects. The improved employment in the country higherincome levels etc. augur well for the long term sustainable growth of retail lending inthe Indian market. Government's inclusive growth agenda may also bring additional businessto banks.

The biggest opportunity for the Indian banking system today is the Indian consumer.Demographic shifts in terms of income levels and cultural shifts in terms of lifestyleaspirations are changing the profile of the Indian consumer. This is regarded as keydriver of economic growth going forward. The focus of Union Budget 2017-18 on reviving therural economy and doubling rural income could support rural consumption demand moreenduringly going forward which may ultimately lead to increased business opportunities forbanks.

With an aim to promote digital payments and less-cash society several initiatives arebeing taken by the Government of India. With the help of optimum utilization of technologyand telecommunication system ground-breaking methods are being encouraged for financialtransactions such as Aadhar Enabled Payment Systems (AEPS) Unstructured SupplementaryService Data for feature phone based financial transactions (USSD) Mobile walletsUnified Payments Interface (UPI) etc. and your Bank perceives ample opportunities toparticipate in the digital banking movement.

In order to consolidate the laws relating to insolvency resolution of corporatepersons partnership firms and individuals in a time bound manner the Government of Indianotified the "Insolvency and Bankruptcy Code 2016" (Code) on 28.05.2016. Thecode defines the institutional framework operative guidelines adjudicating proceduresfor time bound insolvency resolution process and liquidation. With the implementation ofthe Code Indian lending system gets advantages in dealing with stressed assets.


With the technological advancement sweeping the banking industry leading to steadymigration to digital banking the operational landscape of Banks is likely to change forthe better enhancing cost effectiveness and productivity. With the expected growth in theGDP and improvement in export momentum coupled with the growing service industry goodmonsoon etc. there are great opportunities for the banks to improve their business.However the continued deterioration in assets quality is haunting the banks and your bankis hopeful of containing the NPAs through vigorous monitoring efforts. The recovery ofNPAs is also expected to be aggressive. Further ordinance to amend the Banking RegulationAct 1949 promulgated by the Hon'ble President of India in the month of May 2017 is apositive move for the overall banking industry.


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 and forewarningmechanisms.

Your Bank aims at enhancing and maximizing the shareholder value by achievingappropriate trade-off between risks and returns. Your Bank's risk management objectivesbroadly cover proper identification assessment measurement monitoring controllingmitigation and reporting of the risks across various business segments of the Bank. Therisk management strategy adopted by your Bank is based on a clear understanding of therisks and the level of risk appetite which is dependent on the willingness of your Bankto take risks in the normal course of business. A Board level committee viz. IntegratedRisk Management Committee periodically reviews the risk profile evaluates the overallrisks faced by the Bank and develops policies and strategies for its effective management.

Various senior management committees such as Credit Policy Committee (CPC) AssetLiability Management Committee (ALCO) Operational Risk Management Committee (ORMC) etcoperate within the broad policy framework of the Bank to ensure and enhance the riskcontrol and governance framework within the Bank.

The Risk Management Department at Head Office oversees the overall implementation ofvarious risk management initiatives across the Bank.

In line with the guidelines issued by RBI your Bank has implemented the New CapitalAdequacy Framework and is Basel II compliant with effect from March 31 2009 by adoptingthe basic approaches available under the guidelines. While complying with all therequirements of the basic approaches under Basel II your Bank has taken the necessarysteps to move over to Basel II Advanced Approaches as per the Road Map approved by theBank's Board in this regard. As a part of the Basel III Pillar III Market Disclosurerequirement your Bank has made a detailed Pillar III Disclosure which is appended tothis report as Annexure II. The Bank conforms to the Basel III guidelines from April 12013 and has also assessed the future capital impacts.

In compliance with Basel guidelines the Bank has put in place a policy document forInternal Capital Adequacy Assessment Process (ICAAP) to evaluate its capital adequacyrelative to its risks. Stress testing framework for various stress scenarios is also putin place for better understanding of the likely impact of adverse market movements/eventson the capital 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 committee viz.Internal Capital Adequacy Assessment Committee (ICAAC) reviews the risk appetite riskprofile business projections as well as capital assessment of your Bank at periodicalintervals

To evaluate and review the performance of various business units/ products/ customersetc your Bank has introduced a scientific Fund Transfer Pricing (FTP) and CustomerProfitability Management System (CPMS) for better management of risk and return. FTP &CPMS enable the Bank to assess the profitability at various levels like branch productcustomers accounts regions etc. The system enables the Bank to perform variousprofitability related analysis and helps the Bank to make more business-focused decisionsto increase the long-term profitability.

For continuous monitoring of customer induced transactions under various AlternateDelivery Channels (ADC) and Core Banking Solution (CBS) your Bank has implementedEnterprise Level Fraud Risk Management System (ELFRMS) in September 2016. This is anautomated transaction monitoring system for detection of frauds in customer accounts.Based on a range of scenarios various alerts triggered by the system are monitored byELFRMS team from various risk and fraud angles. The system acts as a check on potentialfraud incidents as a preventive measure and is intended to identify the potentialfraudulent transactions covering various channels like internet banking mobile bankingdebit card POS CBS etc on real time basis based on predefined probable fraud scenarios.

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.


Your Bank has adopted the KBL Vision 2020 a five year business plan guiding the pathof the Bank for achieving set goals. Bank's Vision 2020 document reflects the aspirationsof all the stakeholders for achieving various targets by taking advantage of emergingopportunities upgrading IT infrastructure strengthening audit vigilance and riskmanagement practices and compliance culture and taking steps to improve efficiency ofpeople processes and products by continuously evolving new strategies and policies andcreate value for its shareholders by optimally utilizing capital resources. As per the KBLVision 2020 document Bank's total business turnover is projected to increase toRs180000 crore with deposits of

Rs100000 crore and advances of Rs80000 crore by March 2020 besides recordingsignificant improvement in key financial parameters. Bank is moving progressively towardsreaching above targets.


During the year under report your Bank opened 40 new branches in 9 States one each inthe States of Punjab and West Bengal 2 each in the states of Andhra Pradesh Delhi [U.T]Kerala and Tamil Nadu 3 in Gujarat 4 in Maharashtra and 23 in Karnataka. Out of these 40branches 10 branches [9 in the state of Karnataka and one in Kerala] have been opened inUnbanked Rural Centres under Financial Inclusion Initiatives of the Bank. Further yourBank has added 117 ATM outlets at various locations during the year 2016-17. Your Bank hasalso 24X7 e-lobby/mini e-lobby facility at 110 locations. Bank also has 10314 POS (Pointof Sale) machines across India (Previous year 3123 POS machines).

As at 31 March 2017 your Bank had 2148 Service Outlets i.e. 765 branches 1380 ATMsand 3 extension counters spread across 21 States and 2 Union Territories. Apart from theabove your Bank has 12 Regional Offices an International Division a Data Centre aCustomer Care Centre 4 Service branches 2 Currency Chests 2 Central Processing Centresand 3 Asset Recovery Management branches.

Further for better ambience and improved customer service your Bank shifted 17branches/offices to new premises during the year 2016-17.


Every customer is important to us. Keeping this in mind several customer-centricinitiatives have been introduced by your Bank during the year under report. To improvecustomer service and to reduce waiting time of customers at branches Bank has rolled outthe Single Window Service concept on a trial basis at 20 branches during 2016-2017. TheSingle Window Service for non-cash transactions with Queue Management System (QMS) hashelped in reducing the processing time at branches. Your Bank also introduced the NewPension Scheme (NPS) for the unorganized sector and facilitated investment to SovereignGold Bond Scheme-2016-17.

Bank is actively involved in putting in place systems and procedures to comply with therecommendations of the Damodaran Committee on Customer Service constituted by the ReserveBank of India to look into the banking services rendered to customers and the grievanceredressal mechanism prevalent in banks. Your Bank has complied with all therecommendations made by the said Committee.

Being a member of the Banking Codes and Standards Board of India (BCSBI) your Bankadheres to standards of banking practices while dealing with individual customers andmicro and small enterprises. BCSBI conducts survey of select branches of the member bankfrom time to time and provide its ‘Code Compliance

Rating' and your Bank is ranked 17 amongst 51 banks considered for the study during theyear 2016-17.


Bank has adopted the strategy of ‘Managing Channels instead of Managing Branches'and is always pioneer in adopting technology driven delivery channels i.e. digitalchannels and bringing out innovations & value additions in its existing digitalchannels. The major digital initiatives taken by the Bank during the FY 2016-17 are:

Introduction of "KBL POS Manager" Android mobile app for POS merchants tokeep track of in-store transactions;

Mobile Banking App "KBL mobile" to ensure instantaneous remittance;

"KBL SMARTz" Android mobile App on Unified Payments Interface (UPI) platformof NPCI facilitating Interoperability Push - Pull Payments & fund transfer throughvirtual address;

Fincale e-Banking Application (FEBA) with a host of new features such as IMPS bulkupload online term deposit account opening dashboard etc.

RuPay International Platinum Debit Card for privileged customers of the Bank withenhanced withdrawal / purchase limit coupled with bundled offers

Co-branded credit Card in collaboration with State Bank of India

Apart from the above Bank has also introduced "KBL Loan Junction" forsubmission of online loan application. Besides in order to promote entrepreneurshipamongst SC/ST women schemes viz. "Start-up India" "Stand-up India"were introduced. "KBL Contractor Mitra "; KBL Commodity pledge Loan were theother new Schemes initiated during the year. Your Bank will continue to put efforts in thedirection of introducing products/services to cater to the needs of present andprospective customer base and to be a ‘one-stop-shop' for all financial requirements.


With an aim to provide diversified financial products and services and to maximisevalue addition to the customers your Bank provides para-banking third party products suchas Bancassurance Mutual Funds Online Trading etc and during the year under report Bankhas tied up with 5 institutions.


Your Bank bagged the following awards during the year under report in recognition ofits achievement under technology initiatives social banking export performance etc.

ASSOCHAM Social Banking Excellence Awards 2016 under Small Banks category received on03-03-2017

1. Winner - Government Schemes.

2. Winner - Priority Sector Lending

3. Runner up - Agricultural Banking.

4. Runner up - Overall Best Social Bank.

IBA - Banking Technology Awards 2017 under the following categories.

1. Winner - Best Financial Inclusion Initiatives (Small Bank category).

2. Runner up - Best use of Digital and Channels Technology (Small Bank Category).

"Best MSME Bank Award 2016" under Priavate Sector instituted by theAssociated Chambers of Commerce & Industry of India (ASSOCHAM) New Delhi received on06-12-2016.

FIEO - Southern Region Export Excellence Award : Best Financial Institution (SouthernRegion) for the support extended to Export Business for the year 2013-14 under the GoldCategory instituted by Federation of Indian Export Organisations received on 08-10-2016.

Greentech Safety Award 2016 - GOLD AWARD for significant achievements made in thefield of safety and security instituted by Greentech Foundation received on 29-08-2016.

"Certificate of Special Mention for use of Technology for Financial Inclusionamong small banks" instituted by IDRBT received on 18-07-2016.

CFBP Jamnalal Bajaj Awards 2015 for Fair Business Practices - Certificate of Meritunder the category "Service Enterprises - Large" received on 14-06-2016.

Award of Excellence for Outstanding Performance in MSME Funding instituted byFederation of Industry Trade & Services [FITS] received on 03-05-2016.


Financial Inclusion means making available the full range of banking services at anaffordable cost to the people who do not have access to banking services. It mainlyfocuses on the section of society not having formal financial institutional support.Through the

Financial Inclusion Plan Bank aims at 'connecting people' with the Bank and not justopening accounts. This includes meeting the small credit needs of the rural public givingthem access to the payments system providing remittance facility and life and healthinsurance. Efforts are being made to optimize the resources to achieve the goal ofextending banking facilities to the unbanked areas/deprived sections.

All the branches of the Bank are under Core Banking Solution (CBS) and all the branchesto be opened in future will also be under CBS. Out of 765 branches Bank has 174 ruralbranches and all these branches are provided with CBS offering all banking facilities tothe rural clientele in the gram panchayats or villages where these branches are located.All the rural branches are also acting as Financial Literacy Centers (FLCs) and impartingBanking literacy among the rural Populace.

In accordance with announcement of Prime Minister Jan Dhan Yojana (PMJDY) on August 152014 revised Strategy & Guidelines of Department of Financial Services (DFS) Ministryof Finance Govt. of India has been considered for implementation of Financial Inclusionactivity of the Bank. PMJDY takes in to account both rural sub service areas (SSAs) andurban wards for Financial Inclusion. Under the revised financial inclusion plan in ruralareas Bank is allocated with 214 Gram Panchayats (GPs) for Financial Inclusion covering297 Sub service Areas (SSAs) consisting of 1039 villages in the states of KarnatakaChattisgarh Maharashtra and Andhra Pradesh and in urban areas 313 wards are allocated inKarnataka and other States. The Gram Panchayats are being financially included throughBrick and Mortar Branches and Business Correspondents (BC). Your Bank has been issuingRuPay PMJDY Debit Cards under the domestic card payment scheme launched by the NationalPayments Corporation of India (NPCI) and has also introduced Aadhaar Enabled PaymentsSystem (AEPS) at all BC locations of the Bank.


As on March 31 2017 Bank has covered 547 villages of 105 GPs through Brick &Mortar Branches.


Bank has entered into an agreement with M/s BASIX Sub-ki Transaction Ltd and M/sIntegra Micro Systems Pvt. Ltd. to provide online transaction facility and as on March 312017 113 GPs with 141 SSAs covering 517 villages of Karnataka Andhra Pradesh andChhattisgarh States were covered under the above arrangement.


As permitted by the Reserve Bank of India Bank had opened USBs where businesscorrespondents (BCs) could conduct operations and thereby boost confidence of customers touse their financial services. As on 31 March 2017 your Bank has 37 USBs.



Bank is participating in Govt. of Karnataka (GOK) EBT Pilot project for NREGA/SSPbeneficiaries under - "One District - Many Bank Model" and is disbursing thepayments under the above schemes to the beneficiaries using smart card and hand heldmachines at 5 Gram Panchayat locations in Chitradurga and Yadgir districts.


Bank is actively participating in Direct Benefit Transfer (DBT) Programme of Govt.India wherein the Govt. would transfer benefits of various Schemes directly to thebeneficiaries Aadhaar enabled bank accounts and also accounts seeded with LPG ID in caseof transfer of subsidy for LPG. For this purpose Bank has on boarded with NPCI forAadhaar Payment Bridge System (APBS) under National Automated Clearing House (NACH).Revised DBTL was introduced on November 15 2014 and launched throughout the country onJanuary 1 2015. Both the Aadhaar based and LPG ID based approaches are made available tocustomers across all branches of the Bank.



Bank has sponsored 5 FLCs at B.C Road Tiptur Hangal Kundagol and Alur in a jointventure with M/s Jnana Jyothi Financial Literacy and Credit Counseling Trust Manipal.During the financial year 5 FLCs sponsored by the Bank have conducted 1227 FinancialLiteracy campaigns and 50024 participants had been covered. In adherence to RBI guidelinesall the rural branches of our Bank are also conducting financial literacy Camps.


Three Social Security Schemes- Prime Minister Jeeven Jyothi Bima Yojana (PMJJBY) PrimeMinister Suraksha Bima Yojana (PMSBY) and Atal Pension

Yojana (APY) have been launched by Hon'ble prime Minister on 1 June 2015. All thebranches of your Bank are actively involved in providing the above benefits of the schemesto the customers across the country.

1) PMJJBY provides life Insurance coverage of Rs200000/- by paying yearly premium ofRs330/-. A person aged between 18 to 50 years holding account in a bank is eligible forthe scheme. A total of 136200 lives have been covered till 31.03.2017.

2) PMSBY provides Accidental insurance coverage of Rs200000 by paying yearly premiumof Rs12/-. A person aged between 18 to 70 years holding account in a Bank is eligible forthe scheme. A total of 199390 lives have been covered till 31.03.2017

3) APY : This scheme was launched by the Government of India on 9 May 2015 to addressthe old age income security needs of the citizen in an affordable manner linked to autodebit facility from the bankRss savings account of the subscriber. Your Bank is activelyparticipating in the scheme with all branches being registered as Point ofPresence-Service Provider (POP-SP) for APY. As on 31-3-2017 Bank has opened 23181 APYaccounts.


In accordance with announcement of Prime Minister Jan Dhan Yojana (PMJDY) on August 152014 revised Strategy & Guidelines of Department of Financial Services (DFS)Ministry of Finance Govt. of India has been considered for implementation of FinancialInclusion activity of the Bank. PMJDY takes in to account both rural semi urban urbanwards and metro for providing basic banking facilities to the unbanked populace. PMJDYalso provides scope for RuPay debit card that is inclusive of Rs1 lakh accidentalinsurance.

All the branches across the country have opened accounts under PMJDY and are issuingRuPay Debit Card under the domestic card payment scheme launched by the National PaymentsCorporation of India (NPCI).

A total of 2510929 accounts have been opened under PMJDY since 15.08.2014 till31.03.2017 with outstanding balance of Rs2545.80 crore. A total of 209197 RuPay cardshave been issued so far by the Bank.


The Bank has introduced AEPS transaction services offered by National PaymentsCorporation of India (NPCI) at all Business Correspondent (BC) locations of the Bank. Anybank customer having any type of SB account that is Aadhaar enabled can now transact atthe BC point.


Businesses play an important role in the growth of an economy. The growth of theeconomy becomes meaningful only when it translates to the welfare of the society. Towardsthis end business establishments have to align their objectives in such a way that theyalso contribute to the development of the society with special concern for uplifting themarginalized sections of the society. The Corporate Social Responsibility initiatives ofthe Bank are designed to ensure that the Bank adds social environmental and economicvalue in all its activities to make a positive sustainable impact on both society andbusiness. In this direction your Bank has been responding well over the years throughvarious social initiatives and has identified some core areas of intervention likehealthcare education/ livelihood enhancement empowering women/ socially and economicallydisadvantaged environmental sustainability/ green initiatives protection ofheritage/culture promotion of sports rural development etc. aimed at improving 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 setup a Committee ofDirectors namely 'Corporate Social Responsibility (CSR) Committee' and has also put inplace a Policy on Corporate Social Responsibility (CSR Policy) to undertakeprojects/programmes in pursuance to the above

Policy. The contents of the CSR Policy along with the report on amount spent on variousprojects/programmes during the financial year 2016-17 is detailed in Annexure VI to thisreport pursuant to Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules2014


In terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015your bank is one of the Top 500 listed entities based on the market capitalization as onMarch 31 2016 and is required to report Business Responsibility Reporting describing theinitiatives taken by the Bank from an environmental social and governance perspective asper the format prescribed by SEBI which is enclosed as Annexure VIII.



An effective and sound internal audit function provides independent assurance to theboard of directors and senior management on the quality and effectiveness of Bank'sinternal control risk management and governance systems and processes thus helping theboard and the senior management in protecting the organization and its reputation.

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. The Bank has put in place an independentCompliance Department in charge of the entire compliance functions of the Bank.

Historically the internal audit system in the Bank has been concentrating ontransaction testing testing of accuracy and reliability of accounting records andfinancial reports integrity reliability and timeliness of control reports and adherenceto legal and regulatory requirements. With the implementation of Risk-Based Internal Audit(RBIA) greater emphasis is placed on the internal auditor's role in mitigating variousrisks. While continuing with the traditional risk management and control methods involvingtransaction testing etc. the risk-based internal audit would not only offer suggestionsfor mitigating current risks but also on potential future risks thereby playing animportant role in the risk management process of the Bank.

The risk assessment under RBIA would cover risks at various levels (corporate andbranch; portfolio and individual transactions etc.) as also the processes in place toidentify measure monitor and control the risks. The internal audit department isdevising the RBIA risk assessment methodology with the approval of the Board ofDirectors keeping in view the size and complexity of the business undertaken by the Bank.The risk assessment process would include the identification of 'inherent business risks'in the various activities undertaken by the Bank and evaluate the effectiveness of thecontrol systems for monitoring the inherent risks of the business activities ('ControlRisk') and then draw up a risk-matrix by taking into account both the factors viz.inherent business and control risks.

In pursuance of seeking 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 the aggregate turnover of which account for over 64.03% of thegross bank credit and over 50.37% of aggregate deposits of the Bank. Short Inspection ofall the branches which are not subjected to concurrent audit is also caused besidesconcurrent audit of treasury functions (both domestic and forex) International DivisionForex designated offices Central Processing Centre Currency Chests Information Systemsaudit of Data Centre and DR Site etc. Besides the Bank has also been causing Stock andCredit audits of large borrowal accounts by external professional audit firms infurtherance of effective credit administration. The Bank has also taken prompt action onthe implementation of the RBI Guidelines on Information Security Electronic BankingTechnology Risk Management and Cyber Frauds.

To appraise the effectiveness of management at different levels in accomplishing theassigned tasks towards achieving the overall corporate objectives Management Audit isalso introduced by your Bank for Departments at Head Office & Regional Offices.

Your Bank has put in place the policies and procedures for ensuring orderly andefficient conduct of its business safeguarding of its assets prevention and detection offrauds and errors accuracy and completeness of the accounting records and timelypreparation of reliable and transparent financial information. The Audit Committee of theBoard periodically assesses the effectiveness of the internal financial controls and theiradequacy and issues directions for its strengthening wherever found necessary.

Your Bank is in the process of automating the internal audit processes during the year2017-18.

Considering the need for having a strong collection mechanism and to contain slippagesof borrowal accounts into NPAs and improve asset quality the Credit Monitoring Departmentat Head Office and Credit Monitoring teams at Regional Offices ensures adherence of postsanction compliance requirements and follow up of advance through effective control andcommunication mechanisms.


Under the ever-changing business environment and to stay ahead of times in terms ofproduct and services offering and pricing and positioning your Bank has setup an‘Economic & Statistical Research Cell' at the Head Office to provide strategicinputs to the Management in devising policies and also suggestions to various businessunits in the matter of pricing costing product launching positions etc.



To enable timely reconciliation of various transactions carried out through technologyenabled payment channels like NEFT RTGS IMPS UPI etc happening within the Bank andbetween banks and the settlement of these transactions between banks a separatecentralised cell is functioning at the Head Office.


In view of the growing complexities in the processes product offerings and systems& procedures in the Indian banking sector pursuant to the recommendation of the HighLevel Steering Committee Reserve Bank of India has shifted supervisory stance torisk-based approach called Supervisory Program for Assessment of Risk and Capital (SPARC)which is focusing on evaluating both present and future risks identifying incipientproblems and facilitating prompt intervention/ early corrective action etc. Your Bank hasbeen included under the same and migrated to Risk Based Supervision since 31 March 2015and the system is working satisfactorily. A plan of action for monitoring various risks asadvised by RBI has also been put in place.


As an important element in Corporate Governance structure the Bank has set up a robustCompliance department with sufficient independence to promote healthy compliance culturewithin the Bank. The compliance function in the Bank ensures strict observance of allstatutory provisions guidelines from RBI & other regulators standards and codesprescribed by regulatory bodies besides Bank's internal policies and fair practices code.Further the compliance function includes interpretation/ dissemination of regulatory andstatutory guidelines observing proper standards of market conduct managing conflicts ofinterest and treating customers fairly. The Bank's compliance function assists the topmanagement in managing the Compliance Risk effectively. The risk- based complianceprogramme of the bank under the supervision of head of compliance department ensuresappropriate coverage across businesses and coordination among risk management functionsbesides verifying the level of compliance through 'Compliance Testing' of branches. TheBank carries out an annual compliance risk assessment to identify and assess majorcompliance risks faced by it and takes steps to manage the risks effectively.


The growth of Bank's business introduction of prudential norms and Basel requirementsincreasing regulatory and internal reporting and the various business decision makingrequirements have necessitated the Bank to build a well-coordinated informationtransmission system. Management Information System makes available information for variousrequirements of branches/offices top management regulators and external agenciesBalance sheet reporting Capital computation Risk based supervision Internal businessreviews etc. The Bank has also implemented a Centralised Data Repository for AutomaticData Flow to RBI.


The Core Banking System (CBS) covers all the branches and offices of the Bank as on31.03.2017. Alternate delivery Channels like ATM Internet Banking Mobile Banking UPIApp etc. have also been integrated with CBS. Disaster Recovery (DR) facilities for allthe critical applications are established to ensure business continuity in the event ofprimary site failure. A three-way data replication aimed at zero data loss is alsoimplemented for applications such as CBS ATM and Internet Banking.

The other technology enabled initiatives include the Asset Liability Management System(ALM) Central Data Repository (CDR) Lending Automation Processing Solution (LAPS) andAnti Money Laundering (AML) system Mobile Banking Integrated Treasury Interactive VoiceResponse (IVR) System Solutions for managing Market Risk and Operational Risk etc.

During the year under report your Bank has undertaken several IT projects like settingup of new primary/secondary sites for SWIFT application New switches for ATM and CardManagement Newer version of e-Banking platform Live video streaming from Head Office tothe entire bank workforce Aadhar Enabled Payment System (AEPS) MicroATM management viaFI (Financial Inclusion) Gateway Alternative Network Lines for important business centresfor ensuring business continuity Introduction of Centralised Account Verification (CAVC)Process. Your Bank will continue to observe technological revolutions and take appropriatedecision at the right time to provide premier banking services.

With a view to enhance security measures under digital banking Enterprise Level FraudRisk Management Solution has been implemented.

Further in view of increased dependency on IT products and services and also increasein the volume of fraud/attacks observed in the industry Bank has put in place a robust‘Cyber Security Policy' and also initiated steps to further strengthen its IT Cyberand Information Security systems by putting in place required hardware/software/appliancesin line with the industry best practices.


The Banking industry across the country is now being exposed to various changes whichhave a direct impact on the existing systems and sphere of activities. The survival andprosperity of any industry depends upon the quality of its human resource and bankingindustry is not an exception to this. Accordingly your Bank attributes the greatestimportance to human resource development activities.

Your Bank deputes its employees to various training and development programmes toupgrade their skills and competencies and contribute towards the growth of the Bank. TheBank has a well-established Staff Training College having state of the art infrastructurefacilities and expertise in conducting training programmes. Besides Officers requiringspecialized training are being deputed to various programmes conducted at Southern IndiaBanks' Staff Training College Bangalore National Institute of Bank Management PuneReserve Bank's College of Agricultural Banking Pune Institute for Development andResearch in

Banking Technology Hyderabad etc. During the year 2016-17 the Bank has deputed theemployees to various trainings/workshops/ conferences to update/improve their knowledge.There were 1517 378 and 192 nominations to various programmes in the category ofOfficers Clerks and Substaff respectively during the year under report.

As on 31 March 2017 Bank had 7982 employees. The Business per employee (excludinginterbank deposits) has improved from Rs10.83 crore as on 31 March 2016 to Rs11.74 croreas on 31 March 2017. Further your Bank has maintained cordial industrial relations.

Your Bank has put in place an institutional mechanism for protection of women employeesat the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment ofWomen at Workplace (Prevention Prohibition and Redressal) Act 2013 providing forprotection of women employees against the sexual harassment of women at the workplace andredressal of such complaints. The details of the complaints under the above Policy for theyear under report are as under:

Number of complaints pending as at the beginning of the financial year NIL
Number of complaints filed during the financial year NIL
Number of complaints pending as on end of the financial year NIL


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 Bank 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

Chairman of the Audit Committee in exceptional cases. The Vigil mechanism is reviewedperiodically. The details of Whistle Blower Policy is posted in our website and availableat the link /ktk/ Protected Disclosure.jsp


Your Bank had implemented Employee Stock Option Scheme (ESOS 2006) and during the yearunder report a total of 13060 equity shares were allotted to the employees under thescheme. Out of the total 1500000 stock options granted 1209834 options were exercisedand the balance 290166 options lapsed due to non-exercise of the options vested in theemployees. The employee stock option scheme had exercise period of 5 years from the dateof last vesting date and accordingly the scheme has come to an end on 19.10.2016 uponcompletion of 5 years period. Disclosure in respect of Employee Stock Options Schemepursuant to SEBI Regulation/ guidelines is given in Annexure I to this report.


As per the roadmap given by Reserve Bank of India (RBI) transition to "IndAS" in banks will commence from the accounting period beginning April 1 2018onwards.


In order to facilitate effective Ind AS implementation in your bank the AuditCommittee of the Board has laid out the strategy for convergence and implementation of IndAS in the Bank which includes -

a) Diagnostic study to find out the differences between the current accountingframework and Ind AS framework.

b) Evaluating business impact on profitability budgeting taxation Capital planningand Capital adequacy

c) Identifying issues having significant impact on information systems includingInformation technology (IT) Systems.

d) Developing/ strengthening Data capturing systems for Data analytics and Data Mining

e) Analyse impairment issues revaluation of assets documentation and disclosurerequirements.

f) Explore the possibilities of availing the services of external resource persons/firms in connection with implementation of Ind AS

Your Bank has set up a Steering Committee headed by the Managing Director tofacilitate the Ind AS implementation process in the Bank. M/s Ernst & Young have beenappointed to provide assurance services for Ind AS implementation to carry out diagnosticstudy and to provide consultancy in the preparation and submission of Proforma Ind ASFinancial statements to RBI beginning from half year ended September 30 2016 onwards. Inthis regard your bank has duly submitted the Proforma Ind AS Financial statements for thehalf year ended September 30 2016 after obtaining the approval of the Audit Committee ofthe Board. Further your Bank would proceed to carry out the strategy laid out by itsAudit Committee of the Board for facilitating effective and successful implementation ofInd AS on the transition date in accordance with the relevant guidelines.


During the year under report your Bank has adopted a Policy on distribution ofDividend to the shareholders pursuant to the Regulation 43A of the SEBI (LODR)Regulations 2015. Gist of the Dividend Distribution Policy is as under:

Being a Banking entity Dividend Distribution Policy is guided by the RBI CircularDBOD.No.BP.BC.88 21.02.67/2004-05 dated May 5 2005 with regard to eligibility criteriafor distribution of dividend.

Factors considered for recommendation of dividend include both internal factors such asfinancial performance dividend payout trends tax implications corporation actions andexternal factors such as shareholders expectations macro environment.

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.

The Dividend Distribution Policy of the Bank is hosted on our Bank's website.


As on March 31 2017 your Bank had a total of eight Directors including a womandirector. All of them except Mr.D Surendra Kumar Additional Director and Mr. PJayarama Bhat Managing Director and CEO are Independent Directors. The details of thecriteria for appointment and remuneration of Directors are provided in the report onCorporate Governance forming part of this report. During the year under report fivedirectors retired from their office as under:

Name of the Director Designation Remarks
1 Mr. T R Chandrasekaran Independent Director Retired on 09.06.2016 upon attainment of upper age limit of 70 years as per RBI Guidelines.
2 Mr. S V Manjunath Independent Director Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A (2A) of Banking Regulation Act 1949
3 Mr. D. Harshendra Kumar Independent Director Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A (2A) of Banking Regulation Act 1949
4 Dr. H. Ramamohan Independent Director Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A(2A) of Banking Regulation Act 1949
5 Mr. Ananthakrishna Part Time Non-Executive Chairman (Independent Director) Retired on 26.10.2016 upon attainment of upper age limit of 70 years as per RBI Guidelines.

The Board places on record its appreciation for the valuable contributions and theguidance given by the above directors during their tenure in Office.

During the year under report Mr. D Surendra Kumar was appointed on the Board as anAdditional Director w.e.f. 29.12.2016 and as per Section 161 of the Companies Act 2013 hewould hold office upto the date of ensuing Annual General Meeting. Bank has receivednecessary notices under Section 160 of the Companies Act 2013 proposing his candidaturefor appointment as Independent Director of the Bank and having regard to his vastexperience rich knowledge and expertise your Directors recommend his appointment. Abrief resume of Mr. D Surendra Kumar is furnished in the notice of the Annual GeneralMeeting.

Upon attainment of upper age limit of 70 years of age Mr. Ananthakrishna retired fromoffice of the Part-time Non-Executive Chairman on 26.10.2016 as per extant guidelines ofReserve Bank of India. Thereafter the position of Chairman was vacant and Mr. P JayaramaBhat resigned from his position as Managing Director & CEO and the Board of Directorsat its meeting held on April 12 2017 has after inducting him as Additional Director onthe Board appointed him as Part time Non Executive Chairman (who assumed charge on12.04.2017) pursuant to the approval received from the Reserve Bank of India vide theirletter DBR Appt.No.12034/08.40.001/2016-17 dated April 10 2017 in accordance with Section10B (1A)(i) of the Banking Regulation Act 1949.

In terms of Section 161 of the Companies Act 2013 Mr. P Jayarama Bhat has beenappointed as an Additional Director and would hold office upto the date of ensuing AnnualGeneral Meeting. Considering his experience knowledge and expertise and the contributionmade during his tenure as MD & CEO of the Bank your Directors recommend for approvalof his appointment as a Director of the Bank. A brief resume and remuneration payable toMr. P Jayarama Bhat is furnished in the notice of the Annual General Meeting.



Consequent to the appointment of Mr. P Jayarama Bhat as the Non-Executive Chairmanposition of Managing Director & CEO of the Bank was vacant and the Board at itsmeeting held on April 12 2017 appointed Mr. Mahabaleshwara M S as Managing Director &CEO of the Bank pursuant to the approval received from the Reserve Bank of India videtheir letter DBR Appt. No.11838/08.40.001/2016-17 dated April 05 2017 in accordance withSection 35B of the Banking Regulation Act 1949 inducting him as an Additional Directoron the Board.

Considering his experience knowledge and expertise your Directors recommend forapproval of his appointment as Managing Director & CEO of the Bank. A brief resume andremuneration payable to Mr. Mahabaleshwara M S is furnished in the notice of the AnnualGeneral Meeting.



Pursuant to the provisions of Section 149(6) of the Companies Act 2013 your Bank hasreceived necessary declarations from all the non-executive directors confirming that theymeet the criteria of independence for Independent Directors. Mr. D Surendra KumarAdditional Director has also furnished similar declaration and subject to his appointmentat the ensuing Annual General Meeting he also meets the criteria of independence.


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 which forms part of this Annual Report.In pursuance to the above Independent Directors in their separate meeting held on March27 2017 have reviewed and evaluated the performance of Board as a whole and the ManagingDirector and CEO.

Further the Board also reviewed the performance of committees of the Board and that ofindividual Independent Directors at its meeting held on March 27 2017.



All related party transactions that were entered into during the financial year were inthe ordinary course of the business of the Bank and were on arm's length basis. There wereno materially significant related party transactions entered into by the Bank withDirectors Key Managerial Personnel or other persons which may have a potential conflictwith the interest of the Bank. As such disclosure in Form AOC-2 is not applicable. Thepolicy on dealing with Related Party Transactions as approved by the Audit Committee/Boardhas been placed in the website of the Bank.


In accordance with Section 134(3)c 134(5) of the Companies Act 2013 read with Rule 8of the Companies (Accounts) Rule 2014 your Directors state 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 judgments 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 March 312017 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 provisionsof all applicable laws and that such systems were adequate and operating effectively.


The disclosures under sub-section (3) of Section 134 of the Companies Act 2013 readwith Rule 8 (3) of the Companies (Accounts) Rules 2014 are furnished below:

a) Conservation of Energy and technology absorption: Considering the nature of theBank's business the provisions of Section 134(3)(m) of the Companies Act 2013 relatingto conservation of energy and technology absorption are not applicable to your Bank. TheBank has however used information technology in its operations extensively.

b) Foreign Exchange Earnings and outgo: During the year ended March 31 2017 theBank has earned Rs21.98 crore and spent Rs1.72 crore in foreign currency.

c) There were no significant and material orders passed by the regulators or courtsor tribunals impacting the going concern status and BankRss 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 Bank and ensure that same are adequate and operating effectively.

e) Key Managerial Personnel: Mr. P Jayarama Bhat MD & CEO Mr. ChandrashekarRao B CFO and Mr. Y V Balachandra Company Secretary of the Bank were the Key ManagerialPersonnel of the Bank as on March 31 2017 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: Disclosures pursuant to Section 197(12) of theCompanies Act 2013 read with Rule 5 of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are given in Annexure VII to this report.

g) During the financial year 2016-17 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.


Pursuant to Section 92(3) of the Companies Act 2013 read with Rule 12(1) of theCompanies (Management and Administration) Rules 2014 an extract of the Annual Return ofthe Bank as on March 31 2017 is annexed (Annexure IV).


During the year under report the Board met 17 times and the details thereof areprovided in the report on Corporate Governance forming part of this report.


The Bank has 12 Committees which were constituted to comply with the requirements ofrelevant provisions of the applicable laws and for operational efficiency. Details of themeetings of the Board and the Committees their composition terms of reference powersroles etc are furnished in the report on Corporate Governance forming part of this report.


Your Bank is committed to follow the best practices of corporate governance to protectthe interests 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 III to this report.


a. Statutory Auditors

M/s. Kamath & Rau Chartered Accountants Mangaluru and M/s. Abarna & AnanthanChartered Accountants Bengaluru would retire as joint Statutory Central Auditors of theBank at the ensuing Annual General Meeting after completing the term of fourth year andthird year respectively. Board of Directors propose to the members the appointment of M/s.R.K. Kumar & Co Chartered Accountants Chennai in place of retiring auditor M/sKamath & Rau Chartered Accountants who will be completing 4 years and will be restedfor two years jointly with M/s. Abarna & Ananthan Chartered Accountants Bengalurufor the first and the fourth year term respectively. The Bank has received consent fromthe above auditors and necessary confirmation from them that they are not disqualified tobe appointed as auditors of the Bank pursuant to the provisions of the Companies Act 2013and the Rules made thereunder.

b. Secretarial Auditor and Secretarial Audit


Pursuant to Section 204 of the Companies Act 2013 and the rules thereunder your Bankhad appointed M/s.Ullas Kumar Melinamogaru Practising Company Secretary Mangaluru asSecretarial Auditors to conduct the Secretarial Audit for the year ended March 31 2017.The audit report from the Secretarial Auditor is annexed to this report as Annexure V.


Your Directors would like to place on record their sincere gratitude to the ReserveBank of India other government and regulatory authorities financial institutions andcorrespondent banks for their continued guidance and support. Your Directors also place onrecord their gratitude to the Bank's shareholders depositors and other customers fortheir continued support patronage and goodwill. Your Directors express their deep senseof appreciation to all the staff members for their contribution in your Bank's quest forsustained growth and profitability and look forward to their continued contribution inscaling greater heights.

For and on behalf of the Board of Directors

Place : Hubballi Sd/-
P Jayarama Bhat
Date : June 17 2017