DirectorsTo the Members, Your Directors have pleasure in presenting the Seventh Annual Report of your Banktogether with the audited Balance Sheet, Profit and Loss Account and the report onbusiness and operations of the Bank for the year ended March 31, 2011. Financial Performance (Rs. in crore) | Particulars | April 1, 2010 to March 31, 2011 | April 1, 2009 to March 31, 2010 | | Deposits | 45,939 | 26,799 | | Borrowings | 6,691 | 4,749 | | Advances | 34,364 | 22,193 | | Total Assets/Liabilities | 59,007 | 36,382 | | Net Interest Income | 1,247 | 788 | | Non-Interest Income | 623 | 576 | | Operating Profit | 1,190 | 864 | | Provisions and Contingencies | 98 | 137 | | Profit before Tax | 1,092 | 727 | | Provision for taxes | 365 | 249 | | Net Profit | 727 | 478 | | Add: Surplus/(Deficit) brought forward from last period | 673 | 406 | | Amount available for appropriation | 1,400 | 884 | | Appropriations | | | | Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 | 182 | 119 | | Capital Reserve | 2 | 32 | | Investment Reserve | - | - | | Proposed Dividend and Tax thereon | 101 | 60 | | Surplus carried to Balance Sheet | 1,115 | 673 | | Key Performance Indicators | | | | Net Interest Margin | 2.9% | 3.1% | | Return on Annual Average Assets | 1.5% | 1.6% | | Return on Equity | 21.1% | 23.7% | | Cost to Income Ratio | 36.3% | 36.7% | | Non-Interest Income to Net Revenues | 33.3% | 42.2% | Your Bank posted net revenues (Net Interest Income and Other Income) of Rs. 1,870 croreand Net Profit of Rs. 727 crore for the Financial Year 2010-11. Net Revenues and NetProfit for the Financial Year 2009-10 was Rs. 1,364 crore and Rs. 478 crore respectively.Appropriations from the Net Profit have been effected as per the table on the earlierpage. Please refer to the section on Financial and Operating Performance in ManagementDiscussion and Analysis for a detailed analysis of financial data. Dividend In view of the excellent financial performance of your Bank and encouraging futureoutlook as well as the objective of rewarding shareholders with cash dividends whileretaining capital to maintain a healthy Capital Adequacy Ratio, to support future growth,the Board of Directors have recommended a Dividend at a rate of Rs. 2.50/- per equityshare. Capital Raising and Capital Adequacy Ratio (CAR) The paid-up capital of your Bank increased to Rs. 347.15 crore as at March 31, 2011from Rs. 339.67 crore as at March 31, 2010, post exercise of 74,79,855 employee stockoptions during the Financial Year 2010-11. Your Bank also raised a sum of Rs. 225 crore by way of Tier I Perpetual Bonds, Rs. 640crore by way of Upper Tier II capital and Rs. 306.40 crore by way of Lower Tier IISubordinated Bonds during the Financial Year 2010-11. Your Bank has utilised the proceedsof the issue of Tier I Perpetual Bonds and Upper & Lower Tier II capital to augmentthe long-term capital resources and to enhance the CAR for successfully implementing itsgrowth plans. In line with the RBI circular on Capital Adequacy Framework, your Bank has computedcapital charge for operational, market and credit risk and its CAR as per Basel II accordas at March 31, 2011. Your Bank is well capitalised with a CAR (as per Basel II) of 16.50% as at March 31, 2011; of which Tier I Capital Ratio was 9.65% and Tier II Capital Ratiowas 6.85%. Employees Stock Option Scheme Your Bank has instituted Stock Option Plans to reward and retain employees and toenable them to participate in your Bank’s future growth and financial success. TheStock Option Schemes also enable the Bank to hire the best talent for its seniormanagement and key positions. The Bank has five Employee Stock Option Schemes viz. JoiningStock Option Plan I (JSOP I), Joining Employee Stock Option Plan II (JESOP II), JoiningEmployee Stock Option Plan III (JESOP III), YBL ESOP (consisting of two sub schemes JESOPIV/PESOP I) and YBL JESOP V/PESOP II (Consisting of three sub schemes JESOP V/ PESOPII/PESOP II -2010). The Employee Stock Option Plans are administered by the Board Remuneration Committee ofthe Bank. The details of the grants/allocations under JSOP I, JESOP II, JESOP III, YBL ESOP andYBL JESOP V/PESOP II respectively are as follows: | JSOP I (Grants) | JESOP II (Grants) | JESOP III (Grants) | YBL ESOP (JESOP IV - Grants) | YBL ESOP (PESOP I - Grants) | YBL JESOP V - (Grants) | YBL PESOP II - (Grants) | YBL PESOP - II 2010 (Grants) | | Total No. of Options granted (during FY 2010-11) | Nil | Nil | Nil | Nil | Nil | 22,61,000 | Nil | 45,33,000 | | The Pricing Formula | At par | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | The closing price on the stock exchange with the highest trading volumes on the last working day prior to the date of grant. | | Options Vested (during FY 2010-11) | Nil | 3,32,500 | 42,500 | 11,59,500 | 10,60,375 | Nil | 40,79,550 | Nil | | Options Exercised (during FY 2010-11) | 6,53,279 | 4,99,880 | 9,39,061 | 5,58,700 | 9,72,820 | Nil | 38,56,115 | Nil | | Total No. of shares arising as a result of exercise of option | 6,53,279 | 4,99,880 | 9,39,061 | 5,58,700 | 9,72,820 | Nil | 38,56,115 | Nil | | Options lapsed/ Forfeited (during FY 2010-11) | Nil | 18,750 | 8,60,000 | 4,99,500 | 1,82,625 | 5,83,500 | 9,85,735 | 2,90,000 | | Variation in the terms of options | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | There is no variation in the terms of the options during the Financial Year ended March 31, 2011. | | Money realized by exercise of Options (during FY 2010-11) (in Rs. ) | 65,32,790 | 4,20,43,291 | 9,23,49,369 | 9,87,38,655 | 14,99,69,078 | Nil | 45,11,04,822 | Nil | | Total No. of Options in force | 4,61,500 | 10,53,320 | 11,25,900 | 28,35,300 | 28,49,855 | 35,12,500 | 88,04,300 | 42,43,000 | | (i) Senior Management Personnel (SMP) | Nil | Nil | Nil | Nil | Nil | Nikhil Sahni | Nil | Nikhil Sahni – | | | | | | | – 1,00,000 | | 30,000 | | | | | | | Sanjay Agrawal | | Rajat Monga – | | | | | | | – 1,00,000 | | 4,50,000 | | | | | | | Rajesh Gandhi | | Aditya Sanghi – | | | | | | | – 2,00,000 | | 3,00,000 | | | | | | | Vikram Kaushal | | Somak Ghosh – | | | | | | | – 50,000 | | 3,00,000 | | | | | | | | | Sumit Gupta – | | | | | | | | | 1,50,000 | | | | | | | | | Suresh Sethi – | | | | | | | | | 1,50,000 | | | | | | | | | R. Ravichander- | | | | | | | | | 45,000 | | | | | | | | | Sanjeev Kapoor | | | | | | | | | – 30,000 | | | | | | | | | Anindya Datta – | | | | | | | | | 50,000 | | | | | | | | | Sanjay Agrawal – | | | | | | | | | 25,000 | | | | | | | | | Devmalya Dey – | | | | | | | | | 60,000 | | | | | | | | | Varun Tuli – | | | | | | | | | 45,000 | | | | | | | | | Deodutta Kurane | | | | | | | | | – 45,000 | | | | | | | | | Umesh Jain – | | | | | | | | | 45,000 | | | | | | | | | Kavita Venugopal | | | | | | | | | – 60,000 | | (ii) Any other employee who received a grant in any one year of options, amounting to 5% or more of options granted during that year | N.A. | N.A. | N.A. | N.A. | N.A. | Amit Dhawan | N.A | N.A. | | | | | | | – 1,50,000 | | | | | | | | | Vinayak Prasad | | | | | | | | | – 1,50,000 | | | | | | | | | Devang Rawal | | | | | | | | | – 2,00,000 | | | | (iii) Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Bank at the time of grant | N.A | N.A | N.A | N.A | N.A | N.A | N.A | N.A | | Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options | Rs. 20.25 per share | | Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS | Had the Bank adopted the fair value method (based on Black-Scholes pricing method) for pricing and accounting options, | | Net profit after tax would have been lower by Rs. 2,24,012 thousands for FY 2010-11 | | Basic EPS – Rs. 20.47 per share instead of Rs. 21.12 per share | | Diluted EPS – Rs. 19.63 per share instead of Rs. 20.25 per share | | Weighted average exercise prices (in Rs. ) | 10.00 | 96.51 | 105.78 | 176.48 | 166.59 | 233.03 | 123.62 | 270.61 | | Weighted average fair values of the options (in Rs. ) | 5.29 | 45.75 | 52.10 | 91.77 | 82.17 | 131.75 | 60.82 | 146.04 | | The Securities and Exchange Board of India (‘SEBI’) has prescribed two methods to account for stock grants; (i) the intrinsic value method; | | (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options it grants to the employees. The Bank also calculates the fair value of options at the time of grant, using Black-Scholes pricing model with the following assumptions: | | i) Risk free interest rate | 6.54% ~ 6.81% | 6.73% ~ 7.45% | 7.27% ~ 8.23% | 7.48% ~ 8.55% | 5.98% ~ 8.51% | 5.20% ~ 8.55% | 4.96% ~ 8.51% | 5.83% ~ 7.49% | | ii) Expected life | 6.5 years to 7.5 years | 6.5 years to 7.5 years | 6.5 years to 7.5 years | 4.5 years to 7.5 years | 1.5 years to 6 years | 4.5 years to 7.5 years | 1.5 years to 4.5 years | 4.5 years to 7.5 years | | iii) Expected volatility | 50.58% | 35.97% ~ 49.92% | 35.82% ~ 41.74% | 39.94% ~ 64.92% | 40.74% ~ 82.76% | 54.63% ~ 82.76% | 61.31% ~ 82.76% | 39.75% ~ 63.71% | | iv) Expected dividends | 1.44% | 1.13% ~ 1.23% | 1.13% | 1.13% ~ 1.50% | 1.13% ~ 1.50% | 1.50% | 1.50% | 1.50% | | v) The price of the underlying share in market at the time of grant of option (in Rs. ) | Not Listed | 96.51 | 105.78 | 176.48 | 166.59 | 233.03 | 123.62 | 270.61 | Directors Mr. Sipko Schat, Nominee Director of Rabobank had resigned from the Board of Directorsof the Bank with effect from June 22, 2010 on account of partial dilution of holding byRabobank and consequently his alternate, Mr. Berend Du Pon was also deemed to vacateoffice simultaneously. In accordance with the provisions of the Companies Act, 1956 and the Articles ofAssociation of the Bank, Mr. Wouter Kolff and Mr. Bharat Patel shall retire by rotation atthe ensuing Annual General Meeting and being eligible, offer themselves forre-appointment. Corporate Governance Your Bank is committed to achieving the highest standards of Corporate Governance.Accordingly, your Board functions as trustees of the shareholders and seeks to ensure thatthe long-term economic value for its shareholders is achieved while balancing the interestof all the stakeholders. A separate section on Corporate Governance standards followed by your Bank asstipulated under Clause 49 of the Listing Agreement with the Stock Exchanges is enclosedas an Annexure to this report. Auditors M/s. B S R & Co., Chartered Accountants will retire at the conclusion of theforthcoming Annual General Meeting and are eligible for re-appointment, subject to theapproval of the Reserve Bank of India. Members are requested to consider theirre-appointment on a remuneration to be decided by the Board or Committee thereof for theensuing Financial Year i.e. 2011-12. Statutory Disclosures The statement containing particulars of employees as required under Section 217 (2A) ofthe Companies Act, 1956 forms part of this report. In terms of Section 219(1)(b)(iv) ofthe Act, the same is open for inspection at the Registered Office of your Bank. Copies ofthis statement may be obtained by the members by writing to the Company Secretary of yourBank. The provisions of Section 217(1)(e) of the Companies Act, 1956 do not apply to yourBank. Your Bank is constantly pursuing its goal of technological upgradation in a costefficient manner for delivering quality customer service. Directors’ Responsibility Statement Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, withrespect to the Directors’ Responsibility Statement, it is hereby confirmed that: (I) in the preparation of the accounts for the Financial Year ended March 31, 2011, theapplicable accounting standards have been followed along with proper explanation relatingto material departures; (II) the Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that were reasonable and prudent so as to give a trueand fair view of the state of affairs of the Bank as at March 31, 2011 and of the profitof the Bank for the year under review; (III) the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Bank and for preventing and detecting fraud and otherirregularities; and (IV) the Directors have prepared the annual accounts of the Bank on a ‘goingconcern’ basis. Acknowledgement Your Directors take this opportunity to express their deep and sincere gratitude to thecustomers of the Bank for their confidence and patronage, as well as to the Reserve Bankof India, Government of India and Regulatory Authorities for their co-operation, supportand guidance. Your Directors would like to express a deep sense of appreciation for thecommitment shown by the employees in supporting the Bank in its endeavour to create theBEST QUALITY BANK OF THE WORLD IN INDIA. Your Directors would also like to express theirgratitude to the members for their trust and support. | For and on behalf of the Board of Directors | | Rana Kapoor | S. L. Kapur | | Managing Director & CEO | Non-Executive Chairman | | Place: Mumbai | | | Date: April 20, 2011 | |
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