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Karur Vysya Bank Ltd.

BSE: 590003 Sector: Financials
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OPEN 93.80
VOLUME 26595
52-Week high 113.64
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P/E 29.17
Mkt Cap.(Rs cr) 7,346
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Sell Price 0.00
Sell Qty 0.00
OPEN 93.80
CLOSE 91.70
VOLUME 26595
52-Week high 113.64
52-Week low 73.85
P/E 29.17
Mkt Cap.(Rs cr) 7,346
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Karur Vysya Bank Ltd. (KARURVYSYA) - Director Report

Company director report

To the Members

Your Directors are pleased to present the 99th Annual Report of business and operationsof your Bank together with audited statement of accounts for the year ended 31st March2018.

Key Performance Indicators

Indian Banking Industry contended with multiple challenges tied to regulationsheightened asset quality stress levels new competitors and operating risks during theyear under report. In spite of this your Bank has been able to achieve reasonable growthin its operations. Performance highlights for FY18 in the key areas of operation are asdetailed under:

Particulars 31.03.2018 ( Rs in Cr) 31.03.2017 ( Rs in Cr)
Deposits 56890.09 53699.81
Advances 45973.14 41434.98
Investments 15992.25 14955.48
Total Income 6599.59 6404.57
Total Expenditure 4822.26 4833.60
Operating Profit 1777.33 1570.97
Net Profit 345.67 605.98

Total Business

The total business of your Bank stood at Rs 102863.23 Cr as on March 31 2018 asagainst Rs 95134.79 Cr a year before registering y-o-y growth of 8.12%.


Your Bank's Gross Deposits increased to Rs 56890.09 Cr as on March 31 2018 asagainst Rs 53699.81 Cr as on March 31 2017 by registering a growth of 5.94%. Demanddeposit stood at Rs 5576.38 Cr as on March 31 2018.

Savings Bank deposits grew by 10.36% from Rs 9968.28 Cr to Rs 11000.57 Cr. CASAdeposits recorded a healthy growth of 11.34% reaching Rs 16576.95 Cr from Rs 14888.63Cr. Term deposits increased to Rs 40313.14 Cr from Rs 38811.18 Cr by registering agrowth of 3.87%.


During this FY 2017-18 your Bank's Advances portfolio grew by 10.95% reaching Rs45973.14 Cr as against Rs 41434.98 Cr in the previous fiscal. Priority sector advancesof the Bank increased to Rs 18567.61 Crfrom Rs 17010.00 Cr and recorded a growth of9.16%. It constituted 46.31 % of Bank's Adjusted Net Bank Credit (ANBC) as against thestatutory prescription of 40%.

Classification of Advances Portfolio:

FY 2017-18 FY 2016-17 Y-o-Y
Particulars ( Rs in Cr) ( Rs in Cr) Growth %
Commercial 16095 14504 10.97
Corporate 14397 13612 5.77
Agriculture 7861 6979 12.64

(Personal Banking)

7620 6340 20.19
Total Advances 45973 41435 10.95

Classification of Retail Portfolio:

Segment March 2018 March 2017
Housing Loans 2795 2330
Mortgage Loans (LAP) 1393 965
Vehicle Loans 1017 921
Jewel Loans 578 596
Personal Loans 296 316
Education Loans 261 266
Others 1280 946
Total 7620 6340

Agriculture Advances

Average Agriculture advances of your Bank stood at Rs 8218.34 Cr constituting 20.50%of ANBC as at March 312018 against the regulatory stipulation of 18%. Your Bank's averageadvances to micro enterprises and weaker sections stood at 8.88% and 13.44% respectively.Your Bank continues to achieve the targets stipulated as per the regulatory guidelinesunder priority sector agricultural lending and weaker section advances.

Asset Quality

The Banking industry in India continued to face a challenging period with increase inNon-Performing Assets particularly from Corporate Segment due to various macro economicand other factors. Bank experienced higher slippages to Net Non-Performing Assets (Net NPAstood at 4.16% in FY18 as against 2.53% of earlier fiscal) mainly due to slippage inCorporate / Consortium accounts.

The Bank has taken numerous measures to arrest the fresh slippages and is in theprocess of strengthening its credit underwriting system. The net NPA stood at Rs 1862.83Cr for the FY18 compared to Rs 1033.46 Cr for the FY17. The Provision Coverage Ratio(PCR) stood at 56.50% as compared to 57.83% in the previous year.

Bank introduced a follow-up mechanism with Senior Executives dedicated for closemonitoring of NPA accounts having outstanding of Rs 50.00 lakh and above. In order toimprove penetration in NPA accounts Division-wise monitoring of daily recovery progresswas introduced. In addition the Bank initiated various steps to strengthen the recoverymechanism process including opening of specialised Asset Recovery Branches and recoveredRs 559.80 Cr out of which Cash Recovery was Rs 179.09 Cr.

For speedy decisions on One Time Settlement (OTS) the Bank delegated requisite powersto Branch Heads for sanction of OTS of NPAs up to Rs 5.00 lakh.

e-Auctions of immovable & movable properties secured to the Bank were carried outthroughout the year. Special thrust was given in taking physical possession of immovableproperties by moving application before the concerned authority under SARFAESI Act. Bankparticipated in Lok adalats actively during the year under report and recovered an amountof Rs 120 Cr through compromise from 1417 accounts.

NPA Accounts of above Rs 100 lakh are reviewed by the Senior Management throughConference call / video conference with the Divisional Managers / Branch Heads to guidethem in recovery initiatives.

Loan Monitoring is further enhanced and recovery efforts have been intensified. YourBank is optimistic on reduction in slippages.

During the fiscal 2017-18 your Bank has started 3 Asset Recovery Branches (ARB) atChennai Hyderabad and Madurai to ensure specific thrust on recovery and follow-up. ARBswill provide close follow up with their specialized skills and the Branches can nowconcentrate more on business growth. The ARB's handle NPA accounts above Rs 15 Lakhadhering to guidelines issued by RBI from time to time. A new initiative is taken toconduct settlements through Adalats in all Branches having large number / value NPAaccounts in every quarter. This thrust for recovery is giving encouraging results.

Outbound Calls

In order to cater the need for improving collection mechanism of retail loans Bank hasstarted Centralised outbound calls facility for SMA follow-up which is making areasonable impact on the retail segment. The outbound call facility is being used to callPre-delinquent customers i.e. 3 days prior intimation is given

to the customers about their repayment due date Delinquent accounts falling under SMAon PAN India basis. The outbound collection call services are introduced to support thebranches in reduction of SMA's & NPA's. Going forward your Bank is planning to usethis facility to commercial loan borrowers as well.


The investment portfolio of the Bank has reached Rs 15992.25 Cr as on March 312018 asagainst Rs 14955.48 Cr as on March 31 2017 y-o-y growth of 6.93%. The averageinvestment as on March 312018 stood at Rs 16030.61 Cr. The investment portfoliocomposition is consistent with the corporate requirement risk perception and InvestmentPolicy of the Bank.

Income earned on investments during 2017-18 was Rs 1122.93 Cr as against Rs 1106.04Cr in 2016-17 registering a marginal increase of Rs 16.89 Cr (i.e. 1.53%). Low growth ison account of overall fall in yields in the market and due to sale of securities from HTMcategory during the year. Profit on sale of investments was Rs 101.08 Cr for the fiscal2017-18 as against Rs 204.64 Cr recorded in the previous fiscal. Liquidity position wascomfortable throughout the year 2017-18.


Interest income of your Bank has increased by Rs 77.30 Cr and stood at Rs 5699.65 Cras on 31st March 2018. Net Interest Income of the bank increased to Rs 2298.11 Crfrom Rs2073.70 Cr registering a growth of 10.82%.

Non-Interest Income grew by 15.05% y-o-y from Rs 782.22 Cr to Rs 899.93 Cr.

Yield on advances dropped from 11.34% to 10.29% and Yield on investment slightlydecreased from 7.22% to 7.00%.


The interest expenditure reduced from Rs 3548.65 Cr in FY17 to Rs 3401.54 Cr in FY18registering a decline of 4.14%. Operating expenses increased from Rs 1284.95 Cr in FY17to Rs 1420.72 Cr in FY18 working out to an increase of 10.57% ( Rs 135.77 Cr).

Cost of Deposits reduced from 6.60% in FY17 to 5.99% in FY18 due to mobilisation of lowcost / no-cost deposits during the year under report. Increase of Net Interest Margin(NIM) from 3.70% in FY17 to 3.86% in FY18 and growth in spread on funds from 3.10% in FY17to 3.22% in FY18.


Your Bank earned an operating profit of Rs 1777.32 Cr against Rs 1570.97 Cr of lastfiscal registering a y-o-y growth of 13.14%.

The net profit of the Bank reduced from Rs 605.98 Cr to Rs 345.67 Cr due to highestprovisioning requirements.


The net profit of Rs 345.67 Cr which along with a sum of Rs 2.64 Cr brought forwardfrom the previous year aggregating Rs 348.31 Cr is appropriated as under:

Appropriation - Transfer to Amount

( Rs in Cr)

- Statutory Reserve 87.00
- Capital Reserve 12.05
- General Reserve 160.00
- Special Reserve 35.00
Balance carried to Balance Sheet* 54.26

* Including Proposed Dividend & dividend distribution tax amount of Rs 52.46 Cr.

Share Capital

The Authorised Capital of the Bank is Rs 200.00 Cr comprising of 100 Cr Equity Sharesof face value of Rs 21- each and the Paid-up Capital of the Bank is Rs 145.33 Crcomprising of 726639371 Equity Shares of face value of Rs 21- each fully paid-up.

During the fiscal 2017-18 the Bank has successfully raised capital by way of RightsIssue in the ratio of one Rights Share for every six shares held on the record date (i.e.October 13 2017) along with Employee Reservation Portion (collectively referred as"Rights Issue") of 117317101 Equity Shares of face value of Rs 21- each forcash at a price of Rs 76/- per Equity Share (including a premium of Rs 74/- per EquityShare) aggregating to Rs 891.61 Cr. The Rights Issue was over subscribed by 1.53 timeswhich shows the belief and confidence on the Bank's business and its future. The RightsShares allotment was made on 22nd November 2017. The paid-up share capital standsincreased to Rs 145.33 Cr. consequent to the allotment of Rights issue.

The net-owned funds of the Bank increased from Rs 4845.02 Cr to Rs 6211.71 Crregistering a growth of 28.21% with an increase of Rs 1366.69 Cr.

The market capitalization of your Bank at the end of March 2018 was Rs 7299.09 Cr.

Employee Stock Option Scheme

During the year under report your Bank has not granted any stock options underEmployee Stock Option Scheme (ESOS).

Debt Instruments

The Bank had issued Unsecured Redeemable Non-convertible Subordinated (Lower Tier II)Bonds to the value of Rs 150.00 Cr in September 2009. During the year under report Bankdid not raise any TIER II capital.

Capital Adequacy

Capital Adequacy ratio stood at 14.43% as per BASEL III norms. The Bank's CapitalAdequacy Ratio is well above the statutory limit of 9% (10.875% including CapitalConservation Buffer) prescribed by the Reserve Bank of India.

Credit Rating

ICRA Limited had rated the Unsecured Redeemable Non-convertible Subordinated (LowerTier II) debt instruments issued in the year 2009 by re-affirming itsA+ rating.Investments with such rating are considered to have adequate degree of safety regardingtimely servicing of financial obligations.

CRISIL has re-affirmed A1+ rating (pronounced as CRISIL A One Plus) for Rs 30 bnCertificate of Deposits Programme of your Bank. ICRA Limited has re-affirmed ICRA A1+(Pronounced as ICRA A One Plus) rating to the Bank's Certificate of Deposits Programme forRs 30 bn. Both the ratings indicate a very strong degree of safety regarding timelypayment of financial obligations.

Foreign Exchange Transactions

The merchant turnover of the Bank increased at 18.49% reaching Rs 26679 Cr in FY18from Rs 22516 Cr in FY17. Export credit grew by 9.93% reaching to Rs 1738 Cr in FY 18 asagainst Rs 1581 Crin FY17.

Income earned by the Bank through forex transactions is Rs 101.60 Cr in FY18 as againstRs 95.97 Cr in FY17 posting a growth of 5.87%. Of the total income earned to the tune ofRs 101.60 Cr exchange profit accounted for Rs 43.59 Cr and Commission and othersaccounted for Rs 58.01 Cr.


Bank had formulated Dividend Distribution Policy as per the Regulation 43A of SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 (‘ListingRegulations'). Dividend Policy of the Bank balances the objectives and retaining capitalin order to fund future growth of the Bank. Bank has a consistent track record in dividenddistribution. The dividend

distribution policy of the Bank is available in your Bank's website .

Consistent with this policy and in recognition of the overall performance yourDirectors are pleased to recommend a dividend of Rs 0.60 per Equity Share of face value ofRs 2 each i.e. 30% for the FY18. The total dividend payment works out to Rs 43.59 Crexcluding dividend tax and the pay-out ratio works out to 12.61% excluding dividend tax.The dividend is subject to the approval of the shareholders at the Annual General Meeting.This dividend will be subject to dividend distribution tax and is to be paid by the Bank.In terms of revised Accounting Standards (AS) 4 ‘Contingencies and Events occurringafter the Balance sheet date' as notified by the Ministry of Corporate Affairs throughamendments to Companies (Accounting Standards) Amendment Rules 2016 the Bank has notappropriated proposed dividend & tax thereon and the same is included in the balanceof profit.

Earnings Per Share / Book Value

The Earnings Per Share (Basic) and the Book Value per equity share of Rs 2/- each fullypaid as on 31 March 2018 were at Rs 4.98 and Rs 85.49 respectively.

Subsidiaries and Associates

Your Bank does not have any Subsidiaries or Associates to report during the year underreport.

Board Meetings

During the FY 2017-18 twenty one meetings of the Board were held the details of whichare given in the Corporate Governance Report which is forming part of this report.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and the Listing Regulations theBoard has carried out annual evaluation of its own performance (Board as a whole) all itsDirectors Committees of the Board its Non-Executive Chairman and MD&CEO.

The manner of evaluation conducted during the year under report is furnished in theCorporate Governance Report.

Disclosure to be made under Sub-Section 8 of Section 177 of the Companies Act 2013

The Board of the Bank had constituted the Audit Committee under the extant guidelinesof Reserve Bank of India (RBI) provisions of the Companies Act 2013 and ListingRegulations. The details of the composition of the Audit Committee is furnished in theCorporate Governance Report.

System for Internal Financial Control and its Adequacy

Your Bank is operating in a fully computerized environment with Core Banking Systemsupported by diverse application platforms for handling special business such as treasurytrade finance retail loans etc. The process of recording of transactions in eachapplication platform is subject to various forms of control such as in-built systemchecks maker checker authorisations and independent post transaction reviews etc. Thefinancial statements are prepared based on computer system outputs. Responsibility ofpreparations of financial statements is entrusted to a dedicated unit which is independentof business. The Bank has implemented adequate procedures and internal controls whichprovide reasonable assurance regarding reliability of financial reporting and preparationof financial statements and were operating effectively during the year.

Implementation of Indian Accounting Standards (Ind-AS)

As per RBI notification DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11 2016 Bankhas to disclose its strategy for Ind-AS implementation including the progress made inthis regard.

The Bank has set up a Steering Committee for implementation of Ind-AS. The SteeringCommittee of the Bank is analyzing the current accounting framework and Ind-AS for changesin significant accounting policies preparation of disclosures documentation. Assessmentof the software / solution offered by select vendors has been undertaken during the year.

Bank has submitted Proforma Ind-AS Financial Statement to RBI for the half-year ended30th September 2016 and also for the quarter ended 30th June 2017 as per RBI guidelines.

The Reserve Bank of India through its press release dated 5th April 2018 has deferredthe implementation of Ind-AS by one year for Scheduled Commercial Banks. In accordancewith the same the Ind-AS is applicable to banks from 1st April 2019.

Network of Branches

During the FY 2017-18 Bank has opened 79 branches including 2 Digital branches and 1Extension Counter. The Bank has also opened 6 Corporate Business Units (CBU) 5 CentralLoan Processing Cells (CLPC) 3 Asset Recovery Branches (ARB) and a Currency Chest atHyderabad. The total no. of branches as on 31.03.2018 stood at 790.

Your Bank has 1795 ATMs and 533 BNA Recyclers meant for serving the customers of theBank as on 31st March 2018 which includes 78 ATMs and 90 BNA Recyclers installed duringthe year under report.

Bank has installed 158 Self-service passbook Kiosks and 58

CTS enabled Cheque Deposit Kiosks during the FY 2017-18.

Currency Chest

Currency Chests are established by the Bank in Tamil Nadu Andhra Pradesh TelanganaKarnataka at 7 different locations for providing adequate cash supply to branches &ATMs. Currency Chests plays a vital role in providing effective customer service atbranches and help the branches to adhere Clean Note Policy of RBI.

Currency Chests help the branches to accept soiled & mutilated notes from generalpublic and from customers over the cash counters. Apart from conducting soiled note melasat the chest attached branches lower denomination currencies and coins are distributed tocustomers and general public by the Currency Chests through our various branches.

Technology Initiatives

Your Bank has always been a forerunner in implementing robust IT services which wouldenhance productivity and efficiency of our products and services besides delightingcustomers.

Your Bank introduced a number of significant IT-driven initiatives during the FY18covering various facets of banking system. They are as under:

• Digital Banking

During the year Bank has initiated digital transformation project and engaged BostonConsulting Group (BCG) to draw the road map and implement the project. We are glad toshare that in the first phase Bank has rolled out end-to-end paperless DigitalApplication for Home Loan processing and Digital Customer Portal for renewal of workingcapital limits up to Rs 100 lakh. Both the applications are well received by the marketand Bank is embarking on digitalising entire lending system of the Bank and creating aDigital Application for Customer on boarding and services.

• Bharat QR (BQR)

We have introduced a mobile application Bharat QR (BQR) a new initiative by NationalPayments Corporation of India (NPCI) in the payment system which aims to increase themerchant based digital transaction by displaying their QR at theiroutlets. The Mobileapplication is available forfacilitating both merchants and customers to make payments.

• Digital Village

Your bank has implemented the Digital village at Kathirampatty (Near Erode Tamilnadu)and Bandarupalli village (Near Guntur Andhra Pradesh) to promote financial literacy amongthe people and to create awareness of bank's digital services. The objective is to openaccounts for the residents of the village thereby enabling the villagers to do theirday-to-day transactions through their account by using the touch-points like CashRecycler Automatic Passbook Kiosk Micro ATM's Tablets etc. The day-to-day transactionscovered under this will range from withdrawal & deposit of cash payment of utilitybills subscription to purchase of goods and the users are encouraged to use the internetbanking in the Tablets available at the branch. Branch has been equipped with a Televisionfacilitating the villagers to view the agriculture related programme and to make use ofthe same in their daily life. Restricted Wi-Fi facility at a radius of 1.5 kms has beenprovided to the villagers at free of cost to make use of our Bank's Digital Applicationsin their own gadget and operating the same from their home or at any location within thevillage. In order to provide novel shopping experience in the village Bank has on-boardedfew shopkeepers in the village on Micro-ATM as Banking Correspondence wherein thecustomers use their Aadhaar cum Biometric details to authorize the transactions during thepurchase of household and grocery items. All these lead to the foundation for a less-cashsociety.

• ISO: 27001

Your Bank has been certified with ISO/IEC 27001:2013 conformance on 20th February 2018by the certifying body M/s.TUVSUD South Asia Pvt. Ltd Chennai. ISO 27001:2013 is a globalcertification which provide the standards for establishment implementation monitoring& review maintenance & improvement and an overall management & controlframework for managing an organization's information security risks.

It is indeed a privilege for the Bank to receive the ISO 27001:2013 InformationSecurity Management System (ISMS) certification for few offices which is a highlyrecognized trust mark for the highest levels of internal controls towards informationsecurity management business continuity and disaster recovery. Information Security is anintegral part of the overall Risk Management Framework at KVB. Through this certificationwe have taken a step forward towards its vision and strategy to establish the higheststandards of Corporate Governance benchmarked with global best practices ensuring thatthe organization is managed and monitored in a responsible manner.

• Near Line Data Centre

Your bank has established a Near DC (NDC) so as to have a synchronous replicationbetween DC & NDC and to ensure zero data loss. In case of any disaster at DC thelatest data can be retrieved from Near DC. The asynchronous replication between DC &DRS will still happen at the current time lag of 15-30 min to ensure cost effectiveness.

The NDC will be synchronously replicated from DC through storage based replicationwhich means that the data written at Data Centre Storage will be committed only after databeing written on the Near Data Centre Storage. Your Bank is now able to achieve zero dataloss on the critical applications being hosted in the Near Data Centre.

• National Electronic Toll Collection (NETC) - Acquiring

Electronic Toll Collection is a secure and interoperable solution for NHAI tollcollection. NETC system will reduce wait time at toll counters reduce fuel consumptionand cash handling considerably. NETC system will use RFID tag which is pasted on thewindshield of vehicle. The RFID Tag on the vehicle is read by the long range RFID readerhoisted on the NETC lanes which will allow vehicle without manual intervention.

We have taken one toll plaza at Rothak city towards acquiring of NETC tags and we areable to process the NETC tags affixed to the vehicles.

• e-Surveillance at offsite ATMs

During the FY 2017-18 your Bank has implemented remote monitoring of offsite ATMpremises through e-Surveillance for 422 locations. The solution is capable of monitoringthe ATM locations Energy management Incident control and alerting mechanism to alert theresponse team to take action on the incident monitored in the ATM premises. Centralizedteam is placed to monitor the ATM locations on 24x7 basis. Remote monitoring of ATMpremises through e-Surveillance is one of the best initiative through "Internet ofThings" to have better operational control with cost reduction. As on date 515 ATMsand its locations are monitored under e-Surveillance.

• Implementation of Green Pin at ATMs

Your Bank has implemented "Green Pin" which helps the customers to generatetheir ATM pin on their own and it is a trend set towards the Green Initiative.

Financial Inclusion

With the basic objective of bringing the large unserved population under the bankingmainstream the Bank is striving towards a more inclusive growth by making financialproducts and services available to financially excluded and marginalized sections of thesociety in particular. As per the Government of India and the Reserve Bank of Indiadirections the Bank has been actively pursuing the agenda of Financial Inclusion (FI).The Bank has 61 Financial Inclusion (FI) Branches and also engaged 117 BusinessCorrespondent Agents (BCAs) under Business Correspondents (BC) model. In addition 38Ultra Small Branches (USBs) are also operational in the Bank.

The business correspondents are paying the old age pension and the NAREGA payments tothe eligible persons at their door steps using the hand held devices.

Pradhan Mantri Jan Dhan Yojana (PMJDY):

PMJDY is the initiative from Government of India for comprehensive financial inclusionof the households hitherto excluded from the purview of banking and empowering them withbenefits and facilities provided by the banking industry. Accounts opened under PMJDY areissued with RuPay Debit card accidental Insurance coverage to the extent of Rs 1 lakhlife insurance cover of Rs 30000/-. The Bank was allotted 409 Urban Wards forimplementation of PMJDY.

Performance highlights under PMJDY:

• Opened 189296 accounts under PMJDY and mobilized a CASA deposit of Rs 17.65Crore.

• Hand-held devices are provided to Bank Mitras for facilitating payments whichare enabled for accepting RuPay Cards / Smartcard. The Bank has issued 186828 RuPayDebit Cards to all eligible account holders.

• Bank Mitras have done 11.52 lakh transactions amounting to Rs 123.53 Croreduring the year.

• Bank Mitra have done 801127 DBT transactions during the year.

Financial Literacy campaign:

Financial Literacy has been identified as pre-requisite for effective financialinclusion. Which is an integral part of Pradhan Mantri Jan-Dhan Yojana. In order to letthe beneficiaries make best use of the financial services your bank during the financialyear FY2017-18 has conducted 244 financial literacy campaigns in Rural Semi Urban / Urbanareas.

Aadhaar Enrolments Updating Centres:

As per the Directions of Ministry of Financial Service Karur Vysya Bank is the firstPrivate Sector Bank to start Aadhaar enrolment centre in India. The First Aadhaarenrolment / Updation centre was started In Nelson Manickam Road Branch in Chennai whichwas inaugurated by Mr. D M Gajare Asst. Director General UIDAI Regional OfficeBengaluru. Subsequently more centres were started to facilitate customers to enroll forgetting Aadhaar and to seed their Aadhaar number in their Bank account.

Performance under Sovereign Gold Bond Scheme 2015

Your Bank could mobilize total subscription denominated in units of gold of 62813grams amounting to Rs 17.92 Cr in three tranches.

Management Discussion and Analysis

The Management Discussion and Analysis Report for the year under review as stipulatedunder Regulation 34(2)(e) of the Listing Regulations is presented in a separate sectionforming part of this Annual Report.

Risk Management

Given the risks and challenges that the Bank faces having a robust Risk Managementsystem is of paramount importance for ensuring the financial stability and sustainedgrowth of the Bank. A well designed Integrated Risk Management system has been put inplace by the Bank to identify measure and manage the Risks faced by the Bank in the courseof conducting its business. The Board sets the Risk Appetite of the Bank and the overallRisk Management strategies to be adopted by the Bank. The Risk Management and AssetLiability Management Committee (ALCO) of the Board assists in formulating various RiskManagement Policies oversee the implementation of the Risk Management strategies andmonitor the risk levels across the Bank. The Bank has created a strong Risk Managementstructure at the Executive levels by forming Risk Committees with special focus - CreditRisk Management Committee (CRMC) Operational Risk Management Committee (ORMC) MarketRisk Management Committee (MRMC) and Asset & Liability Management Committee (ALCO).

The Bank has a Risk Management Department (RMD) headed by the Chief Risk Officer (CRO)with requisite independence to effectively discharge the Risk Management Function. WhileRMD acts as a nodal centre for co-ordinating the Risk Controls and mitigation measures inthe Bank other Departments / Offices / Branches manage the risks in their respectivebusiness areas.

The Bank has Board-approved Risk Management Policy covering various operational areasthat provides the foundation for formulating and approving business developmentinitiatives and the day-to-day functioning of the Bank in accordance with the RiskAppetite set by the Board. These policies are updated from time to time and reviewed atleast annually. It is also ensured that the policies are not only in line with the currentregulatory guidelines but also provide sufficient opportunity for the Bank to maximize itsgrowth and profits while maintaining the risks at acceptable levels.

Vigil Mechanism / Whistle Blower Policy

The Bank has in place the "Whistle Blower Policy" since 2011. The said Policyis in compliance with RBI Guidelines provisions of the Companies Act 2013 and theListing Regulations. The Audit Committee of the Board quarterly reviews the VigilMechanisms in the Bank.

The Policy also incorporates suggestions of the Protected Disclosure Scheme for PrivateSector Banks instituted by the Reserve Bank of India. In compliance with RBI guidelineson "Staff Empowerment" the Board of Directors has reviewed the Whistle BlowerPolicy of the Bank during the FY 18.

Related Party Transactions

All transactions entered with ‘Related Parties' during the year under review wereon "arm's length basis" and are in the ‘ordinary course of business'. Thereare no material related party transactions during the year under report. Therefore theprovisions of Section 188 of the Companies Act 2013 do not attract. Accordingly AOC-2 isnot applicable to the Bank.

Compensation Policy

The Bank has in place a Compensation Policy for its Whole Time Directors Chairman andPresident & COO in terms of the Section 178 of the Companies Act 2013 the rulesmade thereunder and Listing Regulations.

Particulars of Loans Guarantees and Investments

The provisions relating to Section 134(3)(g) of the Companies Act 2013 on particularsof loans guarantees and investments are not applicable to Banking Company and as such nodisclosures are being made in this regard.


Statutory Auditors

M/s Abarna &Ananthan Chartered Accountants Bengaluru have been the StatutoryAuditors of the Bank since the conclusion of

95th Annual General Meeting of the Bank and have to retire at the conclusion of theensuing Annual General Meeting. As per the regulations of Reserve Bank of India the sameauditors cannot be re-appointed for a period beyond four years. Hence they are noteligible for re-appointment. The Bank places on record their earnest appreciation of theprofessional services rendered by M/s Abarna & Ananthan Chartered AccountantsBangalore as Statutory Auditors of the Bank.

In terms of Section 139 of the Companies Act 2013 read with Sec 30 (1A) of the BankingRegulation Act 1949 it is proposed to appoint M/s Walker Chandiok & Co. LLP Mumbai(Firm Registration No. 001076N/N500013) as Statutory Auditors of the Bank from theconclusion of the this Annual General Meeting till the conclusion of next Annual GeneralMeeting of the Bank. Fees payable to the Statutory Audit is proposed at Rs 6800000 plusout of pocket expenses and applicable GST for the FY 2018-19 subject to approval of theRBI and shareholders of the Bank. M/s Walker Chandiok & Co. LLP have confirmed theireligibility to be appointed as Statutory Auditors in terms of Section 141 of the CompaniesAct 2013 and applicable rules. Accordingly the Bank sought the approval of Reserve Bankof India and RBI accorded their approval vide their letterDBS.ARS.No.1406/08.12.005/2017-18 dated 22nd June 2018 for appointment of M/s WalkerChandiok & Co. LLP Chartered Accountants Mumbai as the Statutory Auditors for theyear 2018-19.

Members are requested to consider the appointment of M/s Walker Chandiok & Co. LLPas Statutory Auditors of the Bank.

Pursuant to the Regulation 33(1 )(d) of the Listing Regulations the Statutory Auditorshave confirmed that they have subjected themselves to the peer review process of theInstitute of Chartered Accountants of India (ICAI) and that they hold a valid certificateissued by the Peer Review Board of ICAI.

Independent Auditors' Report

M/s Abarna & Ananthan Chartered Accountants Statutory Auditors of the Bank haveaudited the accounts of the Bank for the year 2017-18 and their Report is annexed.Pursuant to Section 143(3)(i) of the Companies Act 2013 the Statutory Auditors have alsoreported on the adequacy and operating effectiveness of the internal financial controlssystem over financial reporting which has been enclosed as "Annexure A" toIndependent Auditor's Report.

There are no qualifications reservations or adverse remarks made by the StatutoryAuditors in their report for the FY18.

During the FY 18 no frauds were reported by Auditors under sub-section (12) of Section143 of the Companies Act 2013.

Secretarial Audit

Pursuant to the provisions of Sec 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Bank with theapproval of its Board appointed M/s. Solaiyappan & Associates Company SecretariesSalem to conduct the Secretarial Audit of the Bank for the FY 18. The Bank produced allnecessary records to the Secretarial Auditors for smooth conducting of their Audit. TheSecretarial Audit Report is annexed herewith as Annexure 1.

There are no qualifications reservations or adverse remarks made by the SecretarialAuditors in their report for the FY18.

Statutory Disclosures

The Disclosures to be made under sub-section (3)(m) of Sec 134 of the Companies Act2013 read with Rule (8)(3) of the Companies (Accounts) Rules 2014 by your Bank areexplained as under:

Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

Conservation of Energy

Considering the nature of its activities as an entity in the Financial Services sectorthe Bank has voluntarily taken steps towards conservation of energy and technologyabsorption thus ensuring compliance of the provisions of Section 134 of the Companies Act2013. However the Bank has adopted the following in the areas of conservation of energytechnology absorption:

Your Bank has undertaken various energy efficiency improvement initiatives for energyconservation across all its premises. Your Bank owns 850 KW Wind Turbine Generator atGovindanagaram Theni District Tamil Nadu. Installed in the year 2011 the Bank isutilizing the power generated by Wind Turbine Generator for its Registered & CentralOffice at Karur and also its Divisional Office Chennai premises. 1708987 units weregenerated during the fiscal under report by wind mill.

Your Bank Installed LED lights in all the new branches opened during the FY 2017-18.VRF (Variant Refrigerant Flow) AC Units have been installed in new Divisional OfficeBuilding at Coimbatore and Back Offices in Chennai to save electricity by energyconservation technology.

Technology Absorption

Technology is now becoming the great facilitator in the Bank towards achieving thebusiness goals. Your Bank has adopted modern ways of banking practices with the help oftechnology along with the traditional ways of Banking which has still remained quitefundamental. Your Bank uses the sophisticated technologies to offer better services in asecure reliable and affordable manner and sustain competitive advantage over other banks.

Your Bank has been awarded ISO 27001 certification for the various IT offices inestablishing a framework of policies and procedures that includes all legal physical andtechnical controls involved in the organization's information risk management process.

In order to provide quick and efficient customer service your Bank has initiated theDigital Transformation Process through which the SME lending solution process is digitizedas on date with threshold of Rs 1 Cr and the required data is verified online from therespective entities. Your Bank is consistently maintaining the state of the artinfrastructure with optimum utilization of the resources.

Foreign Exchange Earnings and Outgo

Foreign exchange earnings and outgo form part of the normal banking operations. TheBank supports and encourages the country's export efforts through its export financingoperations. The details of foreign exchange earnings and outgo are mentioned elsewhere inthe report.

Material events that have happened after the Balance Sheet date

No material changes and commitments affecting the financial position of the Bank whichhas occurred between the end of the Financial Year of the Bank i.e. March 31 2018 andthe date of the Directors' Report i.e. June 25 2018.

There are no significant and material orders that were passed by the Regulators orCourts orTribunals against the Bank impacting the going concern status and Bank'soperations in future.

Extracts of Annual Return

Pursuant to sub-section 3(a) Sec 134 and sub-section 3 of Sec 92 of the Companies Act2013 read with Rule 12 of the Companies (Management and Administration) Rules 2014 theextract of the Annual Return as at March 312018 in Form MGT- 9 forms part of this reportas Annexure 2.

Particulars of Employees

The ratio of remuneration of each Director to the median employee's remuneration andother details and the statement containing particulars of employees in terms ofsub-section 12 of Sec 197 of the Companies Act 2013 read with Rules 5(1) and (2) of theCompanies (Appointment & Remuneration of Managerial Personnel) Rules 2014 forms partof this report as Annexure 3.

Further in terms of the said rules no employee of the Bank holds by himself or alongwith his / her spouse and dependent children not less than two percent of the equityshares of the Bank.

Corporate Social Responsibility (CSR)

The Bank has constituted the Corporate Social Responsibility (CSR) Committee of theBoard in accordance with the provisions of Section 135 of the Companies Act 2013 readwith Companies (Corporate Social Responsibility Policy) Rules 2014 as amended.

The brief outline of the CSR Policy overview of the programs undertaken by the Bankthe composition of the CSR Committee prescribed CSR expenditure and details of theamounts spent by the Bank on CSR activities during the year under review have beenprovided in Annexure - 4 to this report.

Your bank recognizes its responsibility towards the society and environment in which itoperates and accordingly had been working towards CSR and Sustainable Development. Theresources deployed and spent had increased significantly over the previous Financial Year.Bank is committed to identify and support outreach programmes aimed at developing andadvancing the community. A steady and cautionary approach was adopted in the initial yearsso that sufficient platform / expertise is built to take forward the Bank's CSRcommitment. The entire expenditure could not be spent in one particular year as theproposals that were received were not viable for implementation certain projects atevaluation stage could not ensure that the benefits reach a substantial number of peopleand hence were not considered and certain projects for which commitment given by the Bankcould not be spend due to lack of ability of implementation partners in identifyingscalable sustainable projects.

Committee expressed its desire to enhance CSR spending to meet the Bank's CSRcommitment under the provisions of the Act. Further it will continue to strengthen itsprocesses to evaluate all projects which will benefit the society in a large way as perthe requirements and is passionately committed towards CSR objectives.

Business Responsibility Report (BRR)

In compliance with Regulation 34(2)(f) of the Listing Regulations the BusinessResponsibility Report describing the initiatives taken by the Bank from an environmentalsocial and governance perspective in the format as specified by SEBI. The same has beenhosted on the website of the Bank at the link http://www

The Business Responsibility Report (BRR) of the Bank for the year 2017-18 forms part ofthis Report as Annexure 5.

Criteria for determining qualifications positive attributes forAppointment/Re-appointment of Directors

Pursuant to Section 178(3) of the Companies Act 2013 the Nomination and RemunerationCommittee (NRC) formulated the criteria for determining qualifications positiveattributes and independence of a Director to adhere the various provisions and guidelinesas detailed below:

• Fit and Proper criteria as per Dr Ganguly Committee Norms which stipulates ageeducational qualification experience track record integrity etc. and various circularinstructions and guidelines issued by Reserve Bank of India from time to time.

• Norms laid down by the Banking Regulation Act 1949 as amended from time to timewhich stipulates substantial interest sectorial representation as per Section 10A(2) (a)restrictions as per Section 16 and 20 of the Banking Regulation Act 1949 etc.

• Disqualification / Conflict of Interest of Directors and other norms as per theprovisions of the Companies Act 2013 and rules made thereunder from time to time.

• Criteria of Independence of a Director as per the provisions of Companies Act2013 and rules made thereunder and other applicable provisions as amended from time totime.

• Applicable regulations of Listing Regulations as amended from time to time.

• Articles of Association of the Bank.

• Any other factors as the NRC may deem fit and in the best interest of the Bankand its stakeholders.

The terms and conditions of appointment of Independent Director is disclosed on thewebsite of the Bank at the link http://www.kvb .

Appointment and Retirement of Key Managerial Personnel

Shri J Natarajan was appointed as President & Chief Operating Officer of the Bankand Key Managerial Personnel with effect from

01st April 2018 consequent to retirement of Shri K Venkateswara Rao President &Chief Operating Officer who demitted office at the close of the office hours on 31stMarch 2018 consequent to completion of his tenure of office.

Shri J Natarajan is a Post Graduate in Economics and a Certified Associate of IndianInstitute of Bankers (CAIIB). He has rich experience in all the facets of BankingOperations over 34 years.

Board of Directors

In terms of Sec 152 of the Companies Act 2013 Non-Executive Non-Independent DirectorsShri MKVenkatesan (DIN:00032235) and Shri M V Srinivasamoorthi (DIN: 00694618) retire byrotation and being eligible offer themselves for re-election at the ensuing Annual GeneralMeeting (AGM).

Shri M K Venkatesan (DIN:00032235) aged 61 years is a graduate in Economics. He isone of the Promoters of the Bank. He is engaged in ‘Mundy Business' dealing withagricultural commodities including seed processing and representing majority sector"MSME". He was co-opted as an Additional Director of the Bank on 09.12.2014 andwas elected as a Director at the 96th AGM held on 22.07.2015. Further he was re-appointedat the 97th AGM of the Bank. He had held two terms earlier as a Director of the Bank from22.02.1992 to 18.02.2000 and 26.11.2003 to 26.07.2009. He is liable to retire by rotation.

Shri M V Srinivasamoorthy (DIN: 00694618) aged 54 years is a graduate in Chemistry.He belongs to the promoter family of the Bank. He is engaged in textile business andexporting readymade garments home textiles for the past 20 years. He is representingmajority sector "MSME". He was co-opted as an Additional Director of the Bank on27.08.2015 and was elected as a Director at the 97th AGM held on 21.07.2016. He is liableto retire by rotation.

Managing Director and Chief Executive Officer

Consequent to completion of tenure of office Shri K Venkataraman (DIN: 02443410)Managing Director & Chief Executive Officer demitted office at the close of officehours on 31st August 2017. Board has co-opted Shri P R Seshadri (DIN: 07820690) as anadditional director of the Bank and appointed him as Managing Director & ChiefExecutive Officer of the Bank for a period of three years from the date of taking chargei.e 04th September 2017 on the terms and conditions approved by Reserve Bank of India. Hewould be representing Majority Sector - "Banking" in the Board of the Bank.

Reserve Bank of India vide its letter DBR.Appt. No. 1499/08.41.001/2017-18 dated 14thAugust 2017 has accorded their approval under the provisions of the Section 35 B of theBanking Regulation Act 1949 for the appointment of Shri P R Seshadri as the ManagingDirector & Chief Executive Officer of the Bank. In terms of the provisions of theSection 161 of the Companies Act 2013 and Article 24 of the Articles of Association ofthe Bank Shri P R Seshadri has been appointed as an Additional Director of the Bank andhold office upto the date of ensuing Annual General Meeting. Your Directors recommendedfor approval of the appointment of Shri P R Seshadri as a Director and Managing Director& Chief Executive Officer of the Bank. The terms and conditions approved by theReserve Bank of India are furnished in the Notice of the Annual General Meeting.

Shri P R Seshadri aged 54 years is a Bachelor of Engineering (B.E.-Electrical) withdistinction from Delhi College of Engineering and a Post Graduate Diploma in Managementfrom Indian Institute of Management Bangalore (IIM Bangalore). He is a senior Bankerwith Commercial and Retail Banking experience of over 25 years spanning multiplegeographies. He made significant contributions to Citibank's business in India. He hasproven track record of building and leading large teams to execute and deliver complexbusiness objectives. He has significant business success in leadership roles enabled bywide range of experiences intimate business knowledge ability to create inclusive andmotivated teams and an innate bias for measured action. He has working experience inhighly regulated banking environments across multiple geographies and interfaced withregulators from the USA (as an offshore branch of Citibank N.A. or a fully - ownedsubsidiary of it) UK Singapore Hong Kong India etc.

The relevant details including profile of the Directors who are seekingelection/re-election at this Annual General Meeting are furnished separately in the Noticeof the AGM.


Shri K Venkataraman (DIN: 02443410) Managing Director and Chief Executive Officer ofthe Bank demitted office at the close of office hours on 31st August 2017 consequent tocompletion of his tenure. Board places on record for the excellent and valuable servicesrendered and contribution made by Shri K Venkataraman for the growth of the Bank duringhis tenure of six years.

Shri G Rajasekaran (DIN: 00035582) Non-Executive

Non-Independent Director of the Bank demitted office after office hours on 19th June2018 consequent to completion his tenure of 8 years in terms of Section 10A(2A)(1) of theBanking Regulation Act 1949. Board places on record for the excellent and valuableservices rendered and contribution made by him during his tenure as Director of the Bank.

Apart from the above there were no changes in the directors holding office.

Declaration by Independent Directors

The Bank has received necessary declaration from each Independent Director under Sec149(6) of the Companies Act 2013 and the Listing Regulations that they met the criteriaof independence laid down in the Companies Act 2013 and Listing Regulations.

Familiarization Programmes of Independent Directors

All Independent Directors are familiar with their roles rights and responsibilities inthe Bank at the time of appointment and also on a recurrent basis. The details of variousprogrammes undertaken for familiarizing the Independent Directors are disclosed inCorporate Governance Report which forms part of this Annual Report.

Confirmation as to Compliance of applicable laws

It is hereby confirmed that the Bank has proper systems in place to ensure complianceof all laws applicable to the Bank.

Corporate Governance

A separate section on Corporate Governance standards followed by your Bank and therelevant disclosures as stipulated under Listing Regulations and Companies Act 2013 andthe rules made thereunder is enclosed as an annexure to this report.

A certificate from Shri CS S Solaiyappan Practicing Company Secretary confirmingcompliance to the conditions of Corporate Governance as stipulated under ListingRegulations is annexed to this report.

Directors' Responsibility Statement

Pursuant to Sec 134(5) of the Companies Act 2013 with respect to the Directors'Responsibility Statement it is hereby confirmed that:

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

b) The Directors had 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 at the end of the financial year and of theprofit and loss of the Bank for that period;

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

e) The Directors had laid down internal financial controls to be followed by the Bankand that such internal financial controls are adequate and were operating effectively; and

f) The directors had devised proper systems to ensure compliance with the provisions ofall applicable laws and that such systems were adequate and operating effectively.

Awards and Accolades

Your Bank received the following Awards and Accolades during

FY 2017-18:

1. Best Small Bank for 2016-Runner up Award from Business World in association withPricewaterhouseCoopers.

2. Award from Kamikaze Payments & Cards Summit 2017 for most disruptive paymentstechnology of the year for FASTag.

3. Best Payments Technology Initiative of the Year for application meant for turmericmundy dealers issued by Kamikaze Payments & Cards Summit 2017.

4. Best Bank Award for Innovative use of Technology among Small Banks from theInstitute for Development & Research in Banking Technology Hyderabad (IDRBT). YourBank receiving the award from IDRBT for the ninth year consecutively.

5. Top Performer Award for number of Demat Accounts opened under Bank Category fromNational Securities Depository Limited (NSDL) - Second Place.

6. Winner-up award given by National Payment Corporation of India at their nationalExcellence Awards 2017 towards the best performance in Cheque Truncation System (CTS)under small-sized Banks.


The Board of Directors places on record its sincere thanks to the Government of IndiaReserve Bank of India Securities and Exchange Board of India (SEBI) various StateGovernments and regulatory authorities in India for their valuable guidance support andco-operation. The Board also acknowledges with gratitude the co-operation and supportreceived from Stock Exchanges rating agencies and other banking / financial institutions.

The Board takes this opportunity to place on record its deep sense of gratitude to itsloyal shareholders for extending their support during the year and look forward to theircontinued association in the years ahead.

The Board thanks the valued customers for their goodwill patronage and continuedsupport and looks forward to their continued patronage in scaling greater heights.

During the fiscal the Bank has received various recognitions and accolades for itsexcellence in the Banking domain. The Board is thankful to all such organisations andagencies for formally recognising the Bank's efforts.

The Board appreciates the sincere and dedicated services displayed by its entire staffand highly values their commitment in improving the Bank's performance.

For and on behalf of the Board of Directors

B Swaminathan


Place: Karur Date: June 25 2018