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Kotak Mahindra Bank Ltd.

BSE: 500247 Sector: Financials
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OPEN 1374.00
VOLUME 305444
52-Week high 1424.00
52-Week low 1002.30
P/E 56.88
Mkt Cap.(Rs cr) 260,557
Buy Price 1358.00
Buy Qty 100.00
Sell Price 1375.00
Sell Qty 5.00
OPEN 1374.00
CLOSE 1370.00
VOLUME 305444
52-Week high 1424.00
52-Week low 1002.30
P/E 56.88
Mkt Cap.(Rs cr) 260,557
Buy Price 1358.00
Buy Qty 100.00
Sell Price 1375.00
Sell Qty 5.00

Kotak Mahindra Bank Ltd. (KOTAKBANK) - Director Report

Company director report

Directors' Report

To the Members of


The Directors present their Thirty-second Annual Report together with the auditedaccounts of your Bank for the year ended 31st March 2017. FINANCIAL HIGHLIGHTS

(A) Kotak Mahindra Bank Limited - Consolidated financial highlights:

31st March 2017 31st March 2016
Rs. crore Rs. crore
Total income 33983.77 28032.36
Total expenditure excluding provisions and contingencies 25702.92 22017.06
Operating Profit 8280.85 6015.30
Provisions and contingencies excluding provision for tax 948.92 991.56
Profit before tax 7331.93 5023.74
Provision for taxes 2382.85 1592.62
Profit after tax 4949.08 3431.12
Less: Share of minority interest 78.83 65.19
Add: Share in profit of Associates 70.18 92.92
Consolidated profit for the Group 4940.43 3458.85
Earnings per Equity Share:
Basic ( Rs. ) 26.89 18.91
Diluted ( Rs. ) 26.86 18.87

(B) Kotak Mahindra Bank Limited - Standalone financial highlights:

31st March 2017 31st March 2016
Rs. crore Rs. crore
Total Income 21176.09 18996.42
Total expenditure excluding provisions and contingencies 15191.28 14955.33
Operating Profit 5984.81 4041.09
Provisions and contingencies excluding tax provisions 836.74 917.37
Profit before tax 5148.07 3123.72
Provision for taxes 1736.57 1033.94
Profit after tax 3411.50 2089.78
Add: Surplus brought forward from the previous year 8214.12 5095.26
Add: Net Additions on Amalgamation - 1674.71
Amount available for appropriation 11625.62 8859.75

Statutory Reserve under Section 17 of the Banking Regulation Act 1949

852.88 522.45
General Reserve - -
Transfer to / (from) Investment Reserve Account (48.49) (41.52)
Transfer to Capital Reserve 10.55 9.17
Transfer to Special Reserve 55.00 45.00
Dividend / Proposed Dividend 0.07* 91.84
Corporate Dividend Tax (0.68)* 18.69
Surplus carried to Balance Sheet 10756.29 8214.12

* As per the requirements of pre-revised AS 4 - 'Contingencies and Events Occurringafter the balance sheet date' the Bank used to create a liability for dividend proposed /declared after the balance sheet date if dividend related to periods covered by thefinancial statements. As per AS 4 (Revised) with effect from April 2016 the Bank is notrequired to provide for dividend proposed / declared after the balance sheet date.


Your Directors are pleased to recommend a dividend of ' 0.60 per equity share (previousyear '0.50 per equity share) for the year ended 31st March 2017. This wouldentail a payout of '132.94 crore including dividend distribution tax (previous year '110.53 crore) based on the number of shares as at 31st March 2017. The dividendwould be paid to all the shareholders whose names appear on the Register ofMembers/Beneficial Holders list on the Book Closure date.

Pursuant to Regulation 43A of the Securities and Exchange Board of India (ListingObligations and Disclosure Requirements) Regulations 2015 the Board of Directors of theBank have adopted a Dividend Distribution Policy which is in line with the parametersprescribed by SEBI for distribution of dividend. The Policy is available on the Bank'swebsite viz. URL:http://ir .


During the year your Bank has allotted 5089746 equity shares arising out of theexercise of Employees Stock Options granted to the employees and whole-time directors ofyour Bank and its subsidiaries and 1425313 equity shares arising out of the exercise ofEmployee Stock Options under the adopted ESOP Schemes of the erstwhile ING Vysya Bank Ltd.(elVBL). Further in November 2016 your Bank allotted 660 equity shares in lieu of therights entitlement held in abeyance by elVBL and bonus entitlement thereon.

Post allotment of equity shares as aforesaid the issued subscribed and paid-up sharecapital of the Bank stands at ' 9204489385 comprising of 1840897877 equity sharesof ' 5 each as on 31st March 2017.

Your Bank has a Capital Adequacy Ratio ('CAR') under Basel Ill as at 31stMarch 2017 of 16.77% with Tier I being 15.90%.

During the year your Bank has not issued any capital under Tier II. As on 31stMarch 2017 outstanding Unsecured Redeemable Non-Convertible Subordinated Debt Bondswere ' 858.80 crore and outstanding Unsecured Non-Convertible Redeemable Debt CapitalInstruments Upper Tier II stood at '348.28 crore.

Pursuant to the approval of the Board of Directors on 30th March 2017 andapproval of the shareholders on 9th May 2017 your Bank undertook a QualifiedInstitutions Placement of up to 6.2 crore equity shares of ' 5 each of the Bank at anissue price of ' 936 per equity share which received an overwhelming response. Allotmentof the equity shares pursuant to the issue is pending and are proposed to be allotted on18th May 2017.

OPERATIONS Consumer Banking

The Consumer Banking business of your Bank services a wide spectrum of customersincluding domestic individual and households non-residents small and medium businesssegments for a range of products from basic savings & checking accounts to termdeposits credit cards unsecured and secured loans working capital and distribution ofinvestment products.

Your Bank completed integration of branches and technology of the merged network of theerstwhile ING Vysya Bank during the course of the year. This has enabled your Bank a widerfoot print coupled with the Digital push. Bank has engaged in a calibrated networkexpansion and as of 31st March 2017 had 1369 branches and 2163 ATMs covering689 locations. Of the 36 new branches commissioned this year 12 were in rural andsemi-urban locations. It added about 13.99 lac new customers this year across core bankingproducts of savings and checking accounts term deposits overdrafts and non-residentaccounts.

Your Bank rolled out several initiatives aimed at offering a superior anddifferentiated customer experience. Some key ones are:

Products and Services

• Enhanced its suite of products positioned at customer clusters and launched anew offer Flexi-Balance - a Current Account proposition tailored exclusively forSMEs having common/same family promoters. The proposition gives the benefit of pooling inbalances across related SMEs without each SME needing to maintain independent balance ineach of the Current Accounts.

• Overall strategy of segmented approach continues to yield benefits. Thesegmented Savings programs like Silk and Junior continue to show significant growth Y-o-Y.

• Launched a new program MY FAMILY focused on acquiring bankingrelationship of the whole family by giving proposition to pool the balances acrossmultiple savings accounts and get additional benefits. The Investment led Savings Account- Alpha was re-launched in the last quarter on this fiscal based on customer and channelfeedback.

• Instituted Customer life cycle management programs targeting key journeys ofthe customer. The New to Bank Customer life cycle management program was launched toensure a smooth and seamless on-boarding of new customers. The other significantjourney that was launched was Inactive / Dormant life cycle to manage attrition of thecustomers.

• Focused on activities like Aadhaar penetration and digital activation ofcustomers.

Business Lines

a) Non Resident Indian Business

Some of the key initiatives taken this year are:

• Extended C2R money transfer mode for UAE. NRI clients can now use this medium totransfer money from UAE to their Kotak Bank account in India.

• Further expanded the network of exchange house relationships and the count nowstands at 35 covering the following countries - Australia Canada GCC Hong KongMalaysia New Zealand Singapore UK and USA.

• Participated in various international business forums organized by the Indiancommunity in various countries as a platform to reach out to the overseas Indiancommunity.

• Signed MoU with Ecobank Nigeria for mutual customer referrals. Ecobank is aleading pan-African bank with operations in 36 countries across the continent.

b) Priority Banking Business

A new tier - "Maxima" was launched across semi urban and rural branches tocater to the aspiring and affluent segment in these locations. A Privy League brandedvariant of the "Delight" credit card with exclusive benefits was also launchedfor the Privy League Prima customers.

c) Corporate Salary Business

Corporate salary business introduced a niche team of Premier Acquisition Managers totap the every growing boutique and niche smaller firms in finance; technology and start-upsegment. With this initiative the corporate salary business on-boarded over 35 largeniche corporates this year.

d) Consumer Assets

Your Bank has continued to grow the product lines under the Consumer Assets business.

Credit Card: Credit card business has issued 9.03 lac cards by March 2017 and is in itseighth year of operations. The credit card business has clocked total spends of '6696crore for the year at 47.3% growth Y-o-Y with a book size of '1459 crore.

Home Finance: As on 31st March 2017 Home Loan disbursement volumes were up20% Y-o-Y while book growth was at 12% Y-o-Y. The Non Individual LAP book growth was 14%while disbursement volumes in LAP were up 18% Y-o-Y. Your Bank has expanded its homefinance business further in Tier II cities.

Cross Sell through Bank Branches Corporate Salary Priority Channel and Wealth Teamscontributed to around 44% of total volume.

This year also witnessed very low losses on account of effective recovery andcollection processes and policies adopted.

Commercial Banking

The Commercial Banking business focuses on meeting the banking and financial needs ofvarious segments. It partners Small and Medium Enterprises (SMEs) across the country andprovides financing in the manufacturing trading and service industry. The business hasspecialised units which offer financial solutions in the areas of commercial vehiclesconstruction equipment tractor gold loans and agriculture business. It services thepriority sector by providing finance for tractor crop loans small enterprises and alliedagricultural activities. The business plays a significant role in meeting financialinclusion goals and financing deep into 'Bharat' through an expanding network of branchesand associates.

Following the merger with the erstwhile ING Vysya Bank Ltd. the SME/Business Bankingportfolio was consolidated during the year which has resulted in creating efficiency anda wider customer base. While the stress levels in the sector went up in the first halfthey have stabilized considerably in the second half.

The Commercial Vehicle (CV) Construction Equipment (CE) and Tractor Finance businessesreported significant growth and gained market share in their respective businesses. Thedemand for commercial vehicles was primarily led by replacement and regulatory changessuch as revised body specifications and transition from BSIII to BSIV. Further Governmentspending in the infrastructure sector has led to a strong demand in the CE industry. Thegrowth in the tractor finance portfolio was driven by higher tractor sales following agood monsoon. The overall delinquency percentage of the CV CE and tractor financeportfolios has reduced.

The Agriculture Financing business continued its focus on the agriculture value chainfunding for various agro processing activities. It has registered growth despitevolatility and uncertainty in the commodities market. Further the Bank has expanded itscrop loan business so far concentrated in Punjab and Haryana to Western and CentralIndia.

Wholesale Banking

The Wholesale Banking business caters to the diverse needs of a wide range ofcorporate customer segments including major Indian corporates conglomerates financialinstitutions public sector undertakings multinational companies mid-market companiesand realty businesses. The business offers a comprehensive portfolio of products andservices to these customers including working capital finance medium term finance tradefinance foreign exchange services other transaction banking services custody servicesdebt capital markets and treasury services.

Having completed the integration of the erstwhile ING Vysya Bank last year theWholesale Banking division has been focused on maximizing the benefits of this transactionthrough higher growth in a profitable manner.

Given the slow credit off-take in the economy during the year the Wholesale BankingBusiness has targeted growth through growth of market share and this has been achievedthrough higher customer acquisition improved customer service and product innovations.

Some of the key initiatives to serve customers better are:

• Continue to have equally high focus on adding new customers as increasing itswallet share with the existing customers. The year saw a healthy addition ofNew-to-Bank customers across customer segments which in turn sets a strong foundation forfuture growth in the business.

• Set up a dedicated Service Solutions vertical to ensure faster customerresponse and improve customer experience. This vertical is the single point of contact forall service related and documentation issues with personnel present across the country.Focus on this area has helped your Bank significantly improve its Turn-Around-Time (TAT)across various processes including account opening and disbursals. Ongoing initiativessuch as digitization and Tablet Banking will help reduce TAT further in the coming year.

• Focus on improving its suite of product offerings. During the year theWholesale Banking business launched a number of new innovative state of the artbest in class product solutions sets. The Bank witnessed significant addition of assetsthrough higher focus on products such as LCBDs (discounting of Letters of Credit)Factoring external benchmarked linked loans and discounting of long term lease rentals(LRDs). Your Bank has set up its GIFT City branch this year which has helped it toparticipate in syndication of overseas loans.

Your Bank has continued to work on ensuring a healthy portfolio through a volatileeconomic environment and has kept a tight control on asset slippages. This has beenachieved through a proactive rebalancing of the portfolio to reflect economic situationsand reduction in exposure to situations with heightened risk. Your Bank's focus on riskmanagement has helped the business reduce its risk weighted assets (RWA) over the past fewyears despite an increase in its exposure. Bank has also put in place a pricingmechanism based on the Risk Adjusted Return on Capital (RaRoC) model which has helped tooptimize pricing and better utilize capital. Coupled with the reduction in RWA thebusiness has achieved a significant improvement in its return on equity.

It has an integrated Corporate and Investment Banking (CIB) coverage model for some ofthe top conglomerates and large corporate. The year saw a stabilization of the CIB modelwith the Bank being able to significantly increase its banking wallet share and alsoincrease its investment banking business with these large corporate. As a testimony toyour Bank's efforts in this area Asiamoney has awarded your Bank the Best Corporate andInvestment Bank in 2017 in India.

It has continued to focus on institutionalizing and improving practises leading tobetter efficiencies. A number of tools are being put in place to monitor the productivityand efficiency of the sales force. Given high focus in this area costs have been keptwell in control further improving profitability of the business.

The Integrated Global Transaction Banking Services has had a strong year across itslarge suite of products. Current Account & Savings Account balances saw significantgrowth through focused marketing efforts and early to launch products such as ASBA. Tradefunded book crossed '10000 crore this year. Bank's Cash Management System (CMS) has won anumber of awards this year including Best Cash Management Bank in India by the AsianBanker. A separate LCBD desk was set up which reduced TAT and helped grow this businesssignificantly.

Digitization and Automation are key pillars of your Bank's growth strategy and coupledwith ease of doing business and improvisations of our internal processes have led toefficiency improvements apart from improving TAT compared to competition across products& Services. The year saw a number of digital initiatives by the Wholesale Bankingdivision. The response to the Bank's Liquidity management product a state-of-the artintegrated treasury management solution for corporates has been encouraging. Your Bankalso launched All-Pay a one-stop shop for all payment needs of e-commerce and m-commercecompanies. A number of other Digital initiatives including a corporate mobility solutionan online trade portal and an integrated corporate portal are currently underimplementation. The business has also demonstrated proof of concept for transactions usingthe advanced block chain technology and further implementations are in progress.

Asset Reconstruction

The new bankruptcy code was introduced this year by the government to expedite theturnaround of the stressed assets. One needs to wait and watch the evolution of this newlegislation.

The Division continued to focus on last mile turn around financing due to cash flowbased recoveries possible in such cases.

The Bank is seeing signs of some green shoots in resolutions and turn around in thestress asset space. More opportunities are expected in the coming year and your Bank iswell positioned to play a pivotal role in providing financial and other turnaroundsolutions.


Your Bank's treasury actively contributes to your Bank by way of:

• Proprietary Trading: The various proprietary trading desks actively trade inproducts such as Fixed Income Money Markets Derivatives Foreign Exchange and Bullion.Primary Dealer Desk - part of the proprietary trading desk actively participates in theprimary auctions of government securities makes market in government securities andengages in retailing of government securities.

• CustomerTransactions:

o Facilitating access to foreign currency markets through cash & derivativesproducts and providing fine market rates to clients for remittance and trade transactions.

o Client solutions - standardised and structured pertaining to Debt Capital Marketsincluding Syndication of Loans Bonds Mezzanine financing Promoter funding andacquisition financing and Securitisation.

• Balance Sheet Management: The Balance Sheet Management Unit (BMU) ensuresmaintenance of regulatory reserves and adequate liquidity buffers and also manages theInterest rate risk & Liquidity risk within the Risk appetite of the Bank.

Human Resources

FY 2016-17 has been a year with increased focus on assimilation of integrated employeesthrough improved engagement with the organization.

To ensure a seamless alignment various initiatives were launched to internalizebehavioral parameters transitioning to the expected behaviors and ownership to the causeat the first line of leadership hierarchy in the organization.

Your Bank enhanced the focus to drive customer experience and service quality withinterventions in back office functions. Bank has been focused on improving productivitythrough process simplification automation and training. The talent base bank has reachedto 33013 employees. A proactive approach has been adopted to bring automation on querymanagement and engagement of employees with the aid of technology to manage thedistributed workforce.

With an average age of 33 years Bank continues to attract talent across all itsbusinesses and hierarchy and has put in place various processes and systems to ensurealignment of employee behaviors with the organization's core values. Pre-trained manpoweracquisition channels such as Kotak Sales Officer (KSO) and Junior Sales Officer (JSO)programs have been creating a sustainable workforce pipeline.

To enhance engagement and connect with workforce a dedicated team wasinstitutionalized to focus on employee connect engagement and communication. Focus ofengagement initiatives was driven from the internal model for improved connect. Bankcontinues its focus on engagement and retention through initiatives that provide aholistic environment where employees get opportunities to realize their potential. Talentmanagement as an integral part of overall performance management process in the Bank aimsto provide long term sustained and meaningful careers to employees across theorganization. 'Pulse' engagement survey along with other engagement initiatives providedinsights on distinct employee needs that helped developing appropriate interventions.

Your Bank is committed to developing its capabilities as an organization and asindividuals to meet current and future business challenges. In the year 2016-17 it hasinvested significantly in training and professional development - leveraging the latesttechnologies to deliver highly impactful and relevant training programs to its employees.These learning initiatives are designed around development of individual and team.Leadership Development Programs focused on developing the leadership capabilities of thesenior executives to help them prepare for future roles in the organization.

With the wave of digital employee touchpoints are also digitized with the launch ofdigital portal for all employee HR touchpoints. The portal facilitates simplificationsaccess to information and self-service for employees.

Guided by our value system that motivates our attitudes and action your Bank isfocused on forward looking policies lean processes and nurturing talent.


The merger of all technology systems of the erstwhile ING Vysya Bank Ltd. with theBank's systems was concluded. With this integration all staff in the merged entity have astandardised technology environment to work in; from call center telephony to desktops andnetworks. This has enabled seamless communication and collaboration amongst the Bank'spersonnel. The merger and rationalisation of four data centers down to two datacenters hasresulted in streamlined technology operations with financial gains ensuing from thesynergies. The Bank's customers are all now serviced out of a single set of businessapplications ensuring a consistent experience to all customers of the merged entity.


The introduction of Digital products and services was key a focus throughout the Bank.Some of the highlights being:

• The Bank's retail customers' mobile experience was enriched with a fullrange capabilities from online shopping restaurant payments movies ticket booking andmagazine subscriptions.

• Keeping up with the digital infrastructure introduced in the country the Bank'scustomers have been provided with a wide variety of payment mechanisms to choosefrom ranging from UPI Mvisa and Bharat QR code. While the traditional payment methods ofNEFT and RTGS continued to see growth the IMPs payment option available to the customers24 hours a day is a much appreciated feature showing constantly increasing adoptionthroughout the year.

• The Bank's (salaried) customers can now avail themselves of apre-approved Personal Loan on mobile app. A pre-qualified customer can apply for apersonal loan while logged into the Mobile app and the disbursed amount is instantlycredited to customer's banking account.

• Leveraging the digital infrastructure provided by the Government of India theBank's Netbanking now offers access to customers to a 'DigiLocker'. This is aplatform that enables a customer to store and verify personal documents online.

• The culmination of the digital offerings in the year has been the '811' producton the mobile application. Kotak 811 is a mobile based account opening platform usingAadhaar OTP where customers can open an account with their Aadhaar details. It enables anew customer to simply download an application on his/her mobile phone and open anaccount in less than 5 minutes. Customers can set their PINs for the mobile banking appduring the process and they also receive a virtual debit card. A first of its kind in thebanking industry the product has already seen much interest.

• On the lending side the commercial customers' experience of applying for aloan was enhanced by equipping the sales and relationship personnel with mobile andtablet applications to accept loan application details and even make immediate initialloan eligibility information available to the customers.

• The wealth management customers got a new mobile app for quick and easyaccess to investment information. In the digital arena the corporate banking businessfocused on online merchant acquisition capability for their customers.

• An Innovation Hub has been established to incubate ideas and develop proof ofconcepts in emerging technologies such as Artificial Intelligence and Blockchain.


As customers get more knowledgeable about security considerations they have beenempowered to directly control the access to their debit cards. The mobile application andnet banking provide functions that enable the customer to "turn off" his/herdebit card when not in use and "turn on" the card at the point of usage. Thusputting control directly in the customers' hands.

To keep pace with the Bank's digital initiatives there is a constant need to raise thebar on information security. Several advanced security monitoring measures that trackunrelated transactions and data streams for possible correlation and potential cyberthreats were implemented. In accordance with RBI guidelines released in the year yourBank's cyber security policies and procedures were enhanced.


Your Bank's subsidiaries are established players in the different areas of financialservices viz. car finance investment banking stock broking asset management and lifeinsurance.

As at 31st March 2017 your Bank has eighteen (18) subsidiaries as listedbelow:

Domestic Subsidiaries

Kotak Mahindra Prime Limited

Kotak Securities Limited

Kotak Mahindra Capital Company Limited

Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra Investments Limited

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Trustee Company Limited

Kotak Investment Advisors Limited

Kotak Mahindra Trusteeship Services Limited

Kotak Infrastructure Debt Fund Limited (formerly known as 'Kotak Forex BrokerageLimited')

Kotak Mahindra Pension Fund Limited

Kotak Mahindra General Insurance Company Limited

IVY Product Intermediaries Limited

International Subsidiaries

Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc.

Kotak Mahindra Financial Services Limited

Kotak Mahindra Asset Management (Singapore) Pte. Limited

During the year Kotak Forex Brokerage Limited changed its name to Kotak InfrastructureDebt Fund Limited to commence new business activity of an Infrastructure Debt Fund. Ithas received approval of Reserve Bank of India in April 2017 for commencing the newbusiness.

Your Bank has executed a Share Purchase Agreement in April 2017 for acquisition of the26% equity stake of Old Mutual plc in Kotak Mahindra Old Mutual Life Insurance Limited(KLI). The transaction is subject to obtaining all necessary regulatory and otherapprovals. Upon completion of the said acquisition the Bank along with its subsidiarieswill hold 100% beneficial interest in KLI.

The various activities of the subsidiaries and the performance and financial positionof the subsidiaries and associates are outlined in the Management Discussion and Analysissection appended to this Report.

The Bank's Policy for determining material subsidiaries is available on the Bank'swebsite viz. URL: As at 31st March2017 your Bank has following four (4) Associate companies:

ACE Derivatives & Commodity Exchange Limited Infina Finance Private Limited MatrixBusiness Services India Private Limited Phoenix ARC Private Limited

The Annual Report which consists of the financial statements of your Bank on standalonebasis as well as consolidated financial statements of the group

for the year ended 31st March 2017 has been sent to all the members of yourBank. Web link of the Annual Report has been sent to all members whose

email IDs are registered with the Bank/Depository Participant(s). For members who havenot registered their email IDs physical copies of the Annual Report are sent. It does notcontain Annual Reports of your Bank's subsidiary companies. Your Bank will make availablefull Annual Report (including the Annual Reports of all subsidiaries) either a hard orsoft copy depending upon request by any member of your Bank. These Annual Reports will beavailable on your Bank's website viz. URL: and willalso be available for inspection by any member at the Registered Office of your Bank.


The stock options and the stock appreciation rights granted to the employees of theBank and its subsidiaries currently operate under the following Schemes:

• Kotak Mahindra Equity Option Scheme 2007

• Kotak Mahindra Equity Option Scheme 2015

• Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2007

• Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme 2010

• Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2013

• Kotak Mahindra Stock Appreciation Rights Scheme 2015

The disclosures requirements under the Securities and Exchange Board of India (ShareBased Employee Benefits) Regulations 2014 for the aforesaid ESOP & SARs Schemes inrespect of the year ended 31st March 2017 are disclosed on the Bank's websiteviz. URL:


Pursuant to Regulation 27 of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 (SEBI LODR Regulations) a separate section entitled 'Report onCorporate Governance' has been included in this Annual Report. The Report of CorporateGovernance also contains certain disclosures required under the Companies Act 2013. ABusiness Responsibility Report containing the requisite details under Regulation 34 of theSEBI LODR Regulations is disclosed on the Bank's website viz. URL:


Directors retiring by rotation

Mr. Mark Newman retires by rotation as a Director at this Annual General Meeting andis eligible for re-appointment.

Directors appointed during the year

Mr. Uday Khanna (DIN 00079129) was appointed as an Additional Director of the Bank witheffect from 16th September 2016. Mr. Khanna who holds office as a Director upto the date of this Annual General Meeting is proposed to be appointed as an IndependentDirector not liable to retire by rotation for a term of 5 years from the date of hisappointment i.e. 16 September 2016 under Section 149 of the Companies Act 2013 at theensuing Annual General Meeting. In terms of Section 160 of the Companies Act 2013 yourBank has received notice in writing from a member along with requisite deposit of'100000 proposing candidature of Mr. Khanna for his appointment as an IndependentDirector of the Bank.

Prof. S. Mahendra Dev (DIN 06519869) was appointed as an Independent Director of theBank for a term of 5 years upto 14th March 2018. Based on the recommendation ofthe Nomination & Remuneration Committee the Board of Directors of the Bank at itsmeeting held on 15th May 2017 reappointed Prof. Dev as an Independent Directorfor a further term of 3 years pursuant to the provisions of Section 149 150(2) & 152of the Companies Act 2013 and Section 10-A(2-A) of the Banking Regulation Act 1949subject to the approval of the shareholders at the ensuing Annual General Meeting of theBank.

The Board of Directors of the Bank at the same meeting also re-appointed Mr. UdayKotak as Executive Vice-Chairman and Managing Director for the period from 1stJanuary 2018 to 31st December 2020 subject to the approval of the shareholdersand of the Reserve Bank of India. Further Mr. Dipak Gupta has been re-appointed asWhole-time Director of the Bank designated as Joint Managing Director for the period from1st January 2018 to 31st December 2020 subject to the approval ofthe shareholders and of the Reserve Bank of India. The approval of the shareholders inthis regard is being sought at the ensuing Annual General Meeting of the Bank.

The details of the Directors appointed/re-appointed are set out in the CorporateGovernance Report annexed to this Report.

Declaration from Independent Directors

The Board has received declarations from the Independent Directors as per therequirement of Section 149(7) of the Companies Act 2013 and the Board is satisfied thatthe Independent Directors meet the criteria of independence as mentioned in Section 149(6)of the Companies Act 2013.

Board Evaluation

The Nomination and Remuneration Committee of the Bank's Board under the expert adviceof an external agency specialised in human resource and management consultancy hasformulated the criteria for performance evaluation of the Directors and the Board as awhole. The criteria formulated broadly covers the Board role Board/Committee membershippractice & procedure and collaboration & style.

In line with the SEBI Guidance note on Board Evaluation a Board effectivenessassessment questionnaire was designed for the performance evaluation of the Board itsCommittees Chairman and individual directors and in accordance with the criteria set andcovering various aspects of performance including structure of the board meetings of theboard functions of the board role and responsibilities of the board governance andcompliance evaluation of risks grievance redressal for investors conflict of intereststakeholder value and responsibility relationship among directors director competencyboard procedures processes functioning and effectiveness. The said questionnaire wascirculated to all the directors of the Bank for the annual performance evaluation.

Based on the assessment of the responses received to the questionnaire from thedirectors on the annual evaluation of the Board its Committees Chairman and theindividual Directors the Board Evaluation Report was placed before the meeting of theIndependent Directors for consideration. Similarly the Board at its meeting assessed theperformance of the Independent Directors. The Directors were quite satisfied with theresults of the performance evaluation of the Board & its Committees Chairman andindividual directors.

Key Managerial Personnel (KMPs)

The following officials of the Bank continue to be the "Key ManagerialPersonnel" pursuant to the provisions of Section 203 of the Companies Act 2013:

• Mr. Uday Kotak Executive Vice Chairman and Managing Director

• Mr. Dipak Gupta Joint Managing Director

• Mr. Jaimin Bhatt President & Group Chief Financial Officer

• Ms. Bina Chandarana Company Secretary

Appointment & Remuneration of Directors & KMPs

The appointment and remuneration of Directors of the Bank is governed by the provisionsof Section 35B of the Banking Regulation Act 1949. The Nomination and RemunerationCommittee of the Bank's Board has formulated criteria for appointment of Senior Managementpersonnel and the Directors. Based on the criteria set it recommends to the Board theappointment of Directors and Senior Management personnel. The Committee considers thequalifications experience fit & proper status positive attributes as per thesuitability of the role independent status and various regulatory/ statutory requirementsas may be required of the candidate before such appointment.

The Reserve Bank of India ('RBI') vide its circular no.DBOD.No.BC.72/29.67.001/201 1-12dated 13th January 2012 has issued the Guidelines on Compensation of Whole TimeDirectors / Chief Executive Officers / Other Risk Takers of Private Sector Banks onCompensation Policy which inter alia cover the following:

• Proper balance between fixed pay and variable pay;

• Variable pay not to exceed 70% (Seventy Per Cent) of the fixed pay in ayear;

In accordance with the aforesaid RBI Circular the Board of the Bank has adopted aCompensation Policy for its Whole-time Directors Chief Executive Officer of the Bank andother employees which includes issue of stock appreciation rights as a form of variablepay linked to the Bank's stock price payable over a period of time. The salient featuresof the Compensation Policy are as follows:

• Objective is to maintain fair consistent and equitable compensation practicesin alignment with Kotak's core values and strategic business goals.

• Applicable to all employees of the Bank. Employees classified into 3 groups: oWhole-time Directors/Chief Executive Officer

o Risk Control and Compliance Staff

o Other categories of Staff

• Compensation structure broadly divided into Fixed Variable and ESOPs

o Fixed Pay - Total cost to the Company i.e. Salary Retirals and Other Benefits

o Variable Pay - Linked to assessment of performance and potential based on BalancedKey Result Areas (KRAs) Standards of Performance and achievement of targets with overalllinkage to Bank budgets and business objectives. The main form of incentive compensationincludes - Cash Deferred Cash/Incentive Plan and Stock Appreciation Rights.

o ESOPs - Granted on a discretionary basis to employee based on theirperformance and potential with the objective of retaining the employee.

• Compensation Composition - The ratio of Variable Pay to Fixed Pay and the ratioof Cash v/s Non Cash within Variable pay outlined for each category of employeeclassification.

• Any variation in the Policy to be with approval of the Nomination &Remuneration Committee.

• Malus and Clawback clauses applicable on Deferred Variable Pay.

• Ensuring no personal hedging strategies by employees which undermine riskalignment effects as part of their remuneration.

The details of the remuneration paid to the Non-Executive Chairman Executive andNon-Executive Directors of the Bank for the year ended 31st March 2017 isprovided in the Corporate Governance Report annexed to this Report.

The Non-Executive Chairman of the Bank receives a fixed amount of remuneration asrecommended by the Board and approved by the shareholders of the Bank and RBI from timeto time. He also receives remuneration by way of sitting fees for attending meetings ofthe Board or Committees thereof.

RBI vide its circular no. DBR.No.BC.97/29.67.001/2014-15 dated June 1 2015 has issuedguidelines on payment of compensation to the Non-Executive Directors (NEDs) of privatesector banks which inter-alia specifies the following:

• The Board of Directors of the Bank (in consultation with the Nomination &Remuneration Committee) needs to formulate and adopt a comprehensive compensation policyfor NEDs (other than part-time non-executive Chairman).

• Maximum amount of profit related commission not to exceed '10 lac per annum foreach director of the Bank.

Accordingly in line with the aforesaid RBI circular and pursuant to the relevantprovisions of the Companies Act 2013 the Board of the Bank has adopted a compensationpolicy for the NEDs (excluding the part-time Non-Executive Chairman). The salient featuresof the Compensation Policy are as follows:

• Compensation structure broadly divided into o Sitting fees

o Re-imbursement of expenses

o Commission (profit based)

• Amount of sitting fees and commission to be decided by the Board from time totime subject to the regulatory limits.

• Overall cap on commission for each director '10 lac per annum.

• NEDs not eligible for any stock options of the Bank.

At the Annual General Meeting of the Bank held on 22nd July 2016 theshareholders have approved the payment of commission to the NEDs of the Bank with effectfrom the financial year 2015-16.

Remuneration paid to the KMPs is in line with the Compensation Policy of the Bank whichis based on the RBI Guidelines.

Disclosures pursuant to Rule 5 of Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014

1. Ratio of the remuneration of each director to the median remuneration of theemployees for the financial year:

Directors Title Ratio
Mr Uday Kotak Vice Chairman & Managing Director 46.86x
Mr Dipak Gupta Joint Managing Director 46.38x
Dr Shankar Acharya Non-Executive Chairman 5.33x

2. Percentage increase in remuneration of each director Chief Financial Officer ChiefExecutive Officer Company Secretary or Manager if any in the financial year:

Directors/KMP Title % increase in remuneration % increase in remuneration excluding SARs
Mr Uday Kotak Vice Chairman & Managing Director 6.55 6.55
Mr Dipak Gupta Joint Managing Director 6.85 6.85
Dr Shankar Acharya Non-Executive Chairman 11.11 11.11
Mr Jaimin Bhatt Group CFO 1.18 5.84
Ms Bina Chandarana Company Secretary 5.48 13.08

3. Percentage increase in the median remuneration of employees in the financial year:

For employees who were in employment for the whole of FY 2015-16 and FY 2016-17increase in the median remuneration is 10.26%.

4. Number of permanent employees on the rolls of Bank at the end of the year: 33013

5. Average percentile increase already made in the salaries of employees other than themanagerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and point out if thereare any exceptional circumstances for increase in the managerial remuneration:

For employees other than managerial personnel who were in employment for the whole ofFY 2015-16 and FY 2016-17 the average increase is 10.34% and 11.95% excluding SARs.

Average increase for managerial personnel is 4.48% and 7.07% excluding SARs.

6. Affirmation that the remuneration is as per the remuneration policy of the Bank:

The Bank is in compliance with its Compensation Policy Notes:

1) Remuneration includes Fixed pay + Variable paid during the year + perquisite valueas calculated under the Income Tax Act 1961. Remuneration does not include value of StockOptions.

2) Stock Appreciation Rights (SARs) are awarded as variable pay. These are settled incash and are linked to the average market price/closing market price of the Bank's stockon specified value dates. Cash paid out during the year is included for the purposes ofremuneration.

3) The Non-Executive Directors of the Bank (other than the Non-Executive Chairman)receive remuneration in the form of sitting fees for attending the Board/Committeemeetings and in the form of an annual profit based commission. Such annual profit basedcommission was paid for the first time for FY 2015-16 during FY 2016-17.

4) Increase in remuneration of Mr. C. Jayaram who retired as Joint Managing Director on30th April 2016 but continues as non-executive director w.e.f. 1stMay 2016 has not been provided.


Pursuant to Section 204 of the Companies Act 2013 your Bank has appointed Ms. RupalD. Jhaveri a Company Secretary in Practice as its Secretarial Auditor. TheSecretarial Audit Report for the financial year ended 31st March 2017 isannexed to this Report.


Being a banking company the disclosures required as per Rule 8(5)(v) & (vi) of theCompanies (Accounts) Rules 2014 read with Section 73 and 74 of the Companies Act 2013are not applicable to your Bank.


In terms of Section 139 of the Companies Act 2013 Messrs S.R. Batliboi & Co. LLPChartered Accountants were appointed as statutory auditors of your Bank for a period offour years from the conclusion of the Thirtieth Annual General Meeting until theconclusion of the Thirty fourth Annual General Meeting of the Bank subject to the annualapproval of RBI and ratification by the members every year. Accordingly requisiteresolution forms part of the Notice convening the Annual General Meeting.


The Board of Directors confirms that your Bank has laid down set of standardsprocesses and structure which enables to implement Internal Financial controls across theorganization with reference to Financial Statements and that such controls are adequateand are operating effectively. During the year under review no material or seriousobservation has been observed for inefficiency or inadequacy of such controls.


The Ministry of Finance Government of India has vide its press release dated January18 2016 outlined the roadmap for implementation of International Financial ReportingStandards (IFRS) converged Indian Accounting Standards (Ind AS) for Banks Non-bankingFinancial Companies and Insurance companies. RBI has advised Banks videRBI/2015-16/315DBR.BPBC.No.76/21.07.001/2015-16 to follow the Ind AS as notified under theCompanies (Indian Accounting Standards) Rules 2015 subject to any guideline/directionissued in this regard. For Banking companies the implementation of Ind AS will begin fromApril 1 2018 onwards with comparatives for the year beginning April 1 2017. The Ind ASquarterly financials of FY 2017-18 will need to be published as Y-o-Y comparison from June2018 onwards.

As per Reserve Bank of India (RBI) directions your Bank has taken following steps sofar:

• Submitted Standalone Proforma Ind AS financial statements to the RBI for thehalf-year ended September 30 2016 as required.

• Formed Steering Committee for Ind AS implementation. The Steering Committeecomprises of representatives from Finance Risk Operations and Treasury. The Committeeoversees the progress of Ind AS implementation in the Bank and provides guidance oncritical aspects of the implementation such as Ind AS technical requirements systems andprocesses business impact people and project management. The Committee closely reviewsprogress of Ind AS implementation.

• Evaluating various IT solutions to automate Ind AS especially Expected CreditLosses (ECL) computation and other accounting changes in order to improve the robustnessof the process.

The Bank will continue to liaise with RBI and industry bodies on various aspectspertaining to Ind AS implementation.


All the Related Party Transactions that were entered into during the financial yearwere on arm's length basis and were in ordinary course of business.

Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules2014 there are no related party transactions to be reported under Section 188(1) of theCompanies Act 2013 in form AOC-2.

All Related Party Transactions as required under Accounting Standards AS-18 arereported in Note 23 of Schedule 17 - Notes to Accounts of the Consolidated financialstatements and Note 7 of Schedule 18 - Notes to Accounts of the Standalone financialstatements of your Bank.

The Bank's Policy on dealing with Related Party Transactions is available on the Bank'swebsite viz. URL:


Pursuant to Section 186(11) of the Companies Act 2013 loans made guarantees givensecurities provided or acquisition of securities by a banking company in the ordinarycourse of its business are exempted from the disclosure requirement under Section134(3)(g) of the Companies Act 2013.


Your Bank is committed to its "Vision Statement" of upholding its GlobalIndian Financial Services Brand creating an ethos of trust across all constituentsdeveloping a culture of empowerment and a spirit of enterprise thereby becoming the mostpreferred employer in the financial services sector.

Consistent with the Vision Statement your Bank is committed to maintain and provide toall its employees and directors highest standards of transparency probity andaccountability. The Kotak Group endeavours to develop a culture where it is safe andacceptable for all employees and directors to raise / voice genuine concerns in goodfaith and in a responsible as well as effective manner.

A vigil mechanism has been implemented through the adoption of Whistleblower Policywith an objective to enable any employee or director raise genuine concern or reportevidence of activity by the Bank or its employee or director that may constitute:Instances of corporate fraud; unethical business conduct; a violation of Central orState laws rules regulations and/or any other regulatory or judicial directives; anyunlawful act whether criminal or civil; malpractice; serious irregularities; improprietyabuse or wrong doing; deliberate breaches and non-compliance with the Bank's policies;questionable accounting/audit matters/financial malpractice. The same option has now beenextended to the vendors of the Bank also. The concerns can be reported on the website viz.URL: .

Currently an online mechanism enabling aforementioned reporting has been implementedover and above other modes of communication like e-mail or a letter sent by mail courieror fax to designated persons.

Safeguards to avoid discrimination retaliation or harassment and confidentialityhave been incorporated in the policy. All employees and directors have access to theChairman of the Audit Committee in appropriate and exception circumstances.

The Policy has been uploaded on the Bank's intranet as well as website viz. URL: and regular communication is made forsustained awareness.


Your Bank has constituted a Board Corporate Social Responsibility Committee (CSRCommittee). The CSR Committee presently consists of Mr. C. Jayaram Mr. Dipak Gupta andProf. S. Mahendra Dev.

Your Bank's CSR Committee drives the CSR programme of the Bank. Your Bank has a Boardapproved CSR policy charting out its CSR approach. This policy articulates the Bank's aimto positively contribute towards economic environmental and social well-being ofcommunities through its Corporate Social Responsibility agenda. The Bank's CSR agenda isdriven by its key focus areas:

a. Promoting education - primary focus area

b. Enhancing vocational skills and livelihood

c. Promoting preventive healthcare and sanitation

d. Reducing inequalities faced by socially and economically backward groups

e. Sustainable development

f. Relief and rehabilitation

g. Clean India

h. Sports

The Bank's CSR policy is available on the Bank's website viz. URL :

Pursuant to the provisions of Section 135 schedule VII of the Companies Act 2013 (theAct) read with the Companies (Corporate Social Responsibility) Rules 2014 the report ofthe expenditure on CSR by the Company is as under:

The average net profit u/s 198 of the Bank standalone for the last three financialyears preceding 31st March 2017 is ' 2746.24 crore.

The prescribed CSR expenditure required u/s 135 of the Act for FY 2016-17 is ' 5492lac.

The CSR expenditure incurred for the period 1st April 2016 to 31stMarch 2017 under Section 135 of Companies Act 2013 amounts to ' 1733 lac as against '1641 lac CSR spend in the financial year 2015-16. The unspent amount for FY 2016-17 is'3759 crore.

CSR expenditure of ' 1733 lac in FY 2016-17 as a percentage of average net profit u/s198 of the Bank standalone at ' 2746.24 crore is 0.63%.

The Bank has been spending on CSR focused themes and programmes which have beenapproved by the Board CSR Committee and the Board. The CSR spending is guided by thevision of creating long-term benefit to the society. The Bank is building its CSRcapabilities on a sustainable basis and is committed to gradually increase its CSR spendin the coming years The Bank's commitment to achieve the mandated spend can be seen fromthe

increasing CSR spends over the years. In FY 2014-15 Bank's CSR spend was '1197 lacin FY 2015-16 it was '1641 lac. In the reporting period FY 2016-17 the CSR expenditurehas been further increased to '1733 lac.

Though the Bank is eligible to consider upto 5% of total CSR spend as administrativeexpenditure towards building its CSR capacities etc. the Bank has taken a call not toconsider it as a part of CSR spend for the year FY 2016-17.

The details of CSR activities and report under Section 135 of the Companies Act 2013for FY 2016-17 are annexed to this Report.


Your Bank has in place a comprehensive Group Enterprise wide Risk Management (ERM)framework supported by detailed policies and processes for management of Credit RiskMarket Risk Liquidity Risk Operational Risk and various other Risks. During the yearthe Group ERM Policy was revised keeping in mind the advances in Risk Management over thepast few years and emerging / evolving guidelines. Details of identification assessmentmitigations monitoring and the management of these Risks are mentioned in the ManagementDiscussion and Analysis section appended to this Report.


The provisions of Section 134(3)(m) of the Companies Act 2013 read with Rule 8(3) ofthe Companies (Accounts) Rules 2014 are not applicable to your Bank.


The employee strength of your Bank standalone was over 33000 and along with itssubsidiaries was over 44000 as of 31st March 2017.

114 employees employed throughout the year and 56 employees employed for part of theyear were in receipt of remuneration of ' 1.02 crore or more per annum.

Organizational culture aspects like trust & inclusiveness were also reiteratedthrough cross functional meets conducted by senior business leaders for employees at midmanagement level under the "Meet 5" initiative.

In a very short span your Bank has crossed several milestones in its Gender Diversityagenda.

• A differentiated talent acquisition strategy to increase women employee baseacross various suitable roles has helped us to continue adding 21% women amongst all newhires in the Bank. While continuing with our philosophy of providing equal opportunitiesan aggressive push in this area will help us achieve a better balance in gender diversity.

• Prevention of Sexual Harassment (POSH): Bank continues with the belief on zerotolerance towards sexual harassment at workplace and continues to uphold and maintainitself as a safe and non-discriminatory organization. To achieve the same Kotak reinforcesthe understanding and awareness of Prevention of Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013. Bank has formulated Internal ComplaintsCommittee (ICC) at three regions for reporting any untoward instance. Any complaintspertaining to sexual harassment are diligently reviewed and investigated and treated withgreat sensitivity. The ICC members have been trained in handling and resolving complaintsand have also designed an online e-learning POSH Awareness module which covers the largeremployee base.

Following is a summary of sexual harassment complaints received and disposed off duringthe year 2016-17:

o No. of complaints received : 19

o No. of complaints disposed off : 12

In the case of 7 pending cases enquiries were in progress at the close of the year.

With our objective to identify build and nurture leaders across levels to deliversuperior business results and address individual career aspirations bank continues to putefforts through various interventions.

As Bank enters in its next phase of growth and expansion of footprint across urban andrural India Bank and its subsidiaries continued to carry out several initiatives toattract and retain a pool of highly skilled and motivated employees who are aligned to thefirm's vision of becoming the most trusted financial services provider.

In accordance with the provisions of Rule 5 of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the names and other particulars of theemployees are set out in the annexure to the Directors' Report. In terms of the Proviso toSection 136(1) of the Companies Act 2013 the Directors' Report is being sent to allshareholders excluding the aforesaid annexure. The annexure is available for inspection atthe Registered Office of your Bank. Any shareholder interested in obtaining a copy of thesaid annexure may write to the Company Secretary at the Registered Office of your Bank.


The Directors based on the representations received from the operational managementconfirm in pursuance of Section 134(5) of the Companies Act 2013 that:

(i) your Bank has in the preparation of the annual accounts for the year ended 31stMarch 2017 followed the applicable accounting standards along with proper explanationsrelating to material departures if any;

(ii) they have selected such accounting policies and applied them consistently and madejudgements and estimates that are reasonable and prudent so as to give a true and fairview of the state of affairs of your Bank as at 31st March 2017 and of theprofit of your Bank for the financial year ended 31st March 2017;

(iii) they have taken proper and sufficient care to the best of their knowledge andability for the maintenance of adequate accounting records in accordance with theprovisions of the Act for safeguarding the assets of your Bank and for preventing anddetecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis;

(v) they have laid down internal financial controls to be followed by the Bank and thatsuch internal financial controls are adequate and are operating effectively; and

(vi) they have devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems are adequate and operating effectively.


Following statements/reports/certificates are set out as Annexures to the Directors'Report:

• Extract Of Annual Return under Section 134(3)(a) of the Companies Act 2013 readwith Rule 12 (1) of Companies (Management & Administration) Rules 2014.

• Secretarial Audit Report pursuant to Section 204 of the Companies Act 2013.

• Certificate from the auditors regarding compliance of conditions of corporategovernance as stipulated in para E of Schedule V of the Securities

and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations 2015.


Your Directors would like to place on record their gratitude for the valuable guidanceand support received from the Reserve Bank of India Securities

and Exchange Board of India Insurance Regulatory and Development Authority and otherGovernment and Regulatory agencies. Your Directors

acknowledge the support of the members and also wish to place on record theirappreciation of employees for their commendable efforts teamwork and professionalism.

For and on behalf of the Board of Directors
Dr. Shankar Acharya Place: Delhi
Chairman Date: 16th May 2017