A. RETAIL & SME BANKING
DCB operates a network of 80 branches across 28 locations with a strong presence inMaharashtra, Gujarat and Andhra Pradesh. DCB has 110 ATMs and has tie ups with the Cashnetand Infinet networks that allows customers access to more than 35,000 ATMs (VISA ATMs)across India. DCB is a pioneer in providing free ATM access (VISA ATMs) to all itscustomers with no limit on the number of transactions.
There has been a robust performance in the Retail Banking business in FY 2010. Thestrategy of growing low cost deposits is yielding good results. In FY 2010, CASA growthwas consistent month on month.
Retail Term Deposits have increased by 27% in FY 2010. Further the composition of theRetail Term Deposits to the Total Term Deposits has gone up from 68% to 82% during thisperiod. This strategy has helped to reduce DCB’s dependence on bulk deposits.What’s more, the term deposit growth was achieved while reducing the overall cost ofdeposits.
DCB also distributes third party products such as life insurance, general insurance andmutual funds products through arrangements with insurance and mutual fund companies in thecountry. During the year, DCB tied up with ICICI Lombard GIC Ltd., the country’slargest private sector general insurance company. DCB also renewed its Bancassurancepartnership with Birla Sun Life Insurance (BSLI). DCB ranks amongst the top threeBancassurance partners of BSLI.
Wealth management is an integral part of our strategy to grow retail business. DCB aspart of its wealth management foray introduced free wealth management advisory serviceswith no bank charges or service fee for mutual fund investments and we are amongst thefirst private sector banks to waive advisory fee and service charge for these services.This unique facility is available to all account holders. DCB has also set-up a robustwealth management service that covers the full spectrum of financial planning including,risk profiling, asset allocation and portfolio selection. DCB has also established a linkwith ICRA online, enabling its customers to benefit from the quality research andfinancials service expertise of its partner. DCB has invested in training and skilldevelopment and has over a 100 wealth management certified advisors. During FY 2010,DCB’s high net worth customer base increased by 20%.
DCB rolled out the strategy of rebalancing the asset portfolio. The retail asset bookhas contracted during FY 2010; however, the composition of unsecured personal loans hasbeen reduced to a great extent replaced by mortgage loans, MSME and SME businesses in linewith the strategy of concentrating on secured lending. DCB launched the home loan productin September 2009 and has been able to create a quality franchise within a short time.
Customer service is a key focus area for DCB and it constantly strives to enhance theoverall customer experience. DCB perhaps is the only call centre offering services (bothphone banking officer and Interactive Voice Response) in four languages i.e. Tamil,Telugu, Marathi and Gujarati in addition to Hindi and English.
MSME and SME are important segments in every country especially India. Much of thebanking industry and DCB’s future will be determined by the growth of SMEs. DCBoffers a wide range of products and personalised services. The Bank has further expandedits product suite to include Cash Management, Trade Finance, Business Internet Banking andInsurance.
In FY 2010 DCB launched SME Banking in six major cities of the country to support thealready existing efforts by the branches. As the SME and branch banking have naturalsynergy we have re-aligned SME business with branch banking to exploit its vast potential.
B. CORPORATE BANKING
Corporate Banking is present across India with regional offices in Ahmedabad,Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. DCB’s strategy is toprovide complete range of products and services including structured trade solutions. DCBhas a diversified portfolio and principally targets companies with a turnover of Rs. 100Cr. to Rs. 700 Cr.
DCB has a team of experienced relationship managers and product specialists in TradeFinance, Cash Management Services, Capital and Commodity Markets. In FY 2010, DCBdecentralised its trade operations to improve response times to its clients.
DCB has a sophisticated software platform that provides Business Internet Banking andCash Management Services for efficient liquidity management. DCB uses advanced Credit RiskAssessment models for proper credit risk evaluation and has evolved internal mechanismsfor analysis and monitoring of the portfolio.
The recent turmoil in the global markets and the impact on international and domestictrade did impact credit off take. In the first half of the year, most companies in Indiaoperated cautiously and capacity expansion was slow. Further, there was a substantialliquidity overhang in the banking system as a result of which customer pricing was underconsiderable of downward pressure. Notwithstanding such difficult conditions, theCorporate Banking team achieved good growth in FY 2010.
C. AGRI, MICROFINANCE AND RURAL BANKING (AMRB)
The Indian agriculture sector is characterized by a low growth rate, high risk and yethas immense opportunities and untapped potential. This sector plays a critical role in theoverall growth of GDP. In recognition of the crucial role played by Agriculture in theIndian economy, and given the natural synergy with DCB, the Bank has established aseparate unit called AMRB to address the needs of this segment.
AMRB has been a significant contributor to DCB Advances in FY 2010. AMRB has postedimpressive growth on all parameters.
Microfinance Institutions (MFI)
The microfinance sector in India through the MFI route has witnessed rapid growthduring the last few years. DCB registered strong growth in the microfinance sector in FY2010 and has carefully built up a robust portfolio that helps to meet a part of the PSLregulatory targets. DCB is associated with 47 MFIs across India and caters to 250,000customers.
Besides participation through MFIs, DCB has a microfinance branch at Dediapada inGujarat which has been successful in growing both credit and savings in that region. Thisbranch directly serves 7,600 households and meets both deposits and advances needs.
Commodity based funding
DCB provides commodity finance to farmers, agri enterprises and processors againstpledge of stocks as per warehouse/storage receipts. Commodities can be stored in privatewarehouses and in storage managed by Central Warehousing Corporation and State WarehousingCorporation. DCB has appointed dedicated collateral managers for regular monitoring of thestock movement and operations.
DCB Treasury actively manages liquidity, fixed income securities trading, equityinvestment through IPOs, foreign exchange trading and customer sales. Treasury ensurescompliance with regulatory requirements such as CRR and SLR. In FY 2010, the market onceagain witnessed some degree of volatility arising out of the global situation. Risinginflation, increasing money supply, lower credit growth remained under the continuousattention of RBI.
The Treasury unit successfully managed the liquidity requirements of the Bank. Volatilebulk deposits were systematically replaced with more stable retail deposits. This helpedin improving cost of funds as well as Balance Sheet stability. The scope for trading ingovernment securities was limited due to rising interest rate environment. However,Treasury took this opportunity to improve its yields and in turn interest income. Anyexcess liquidity was deployed judiciously to maximize yield and reduce overall cost offunds. DCB has also been dealing in derivative products like Overnight Index Swaps (OIS)for both trading and hedging to a limited extent.
E. CREDIT & RISK
DCB has adopted a risk management framework that enables comprehensive and integratedmanagement of risks. Establishing well defined and independent risk management functionsin respective businesses and operations is a key requirement before undertaking any newactivity. Operating level risk committees viz. Asset Liability Management Committee(ALCO), the Operational Risk Management Committee (ORCO) and the Credit Risk ManagementCommittee (CRMC) under the chairmanship of the MD & CEO oversee specific risk areas.These committees in turn support the Risk Management Committee of the Board (RMC).
The credit risk policy of DCB is aligned with the Bank’s approach of achievingquality asset growth and ensuring long-term sustainable profitability over businesscycles. A healthy balance is maintained between risk and reward. DCB also undertakes theexercise of measuring the credit risks involved in the composition of its presentportfolio and realigning them to have better risk-reward position.
DCB strives to continuously strengthen its internal risk assessment capabilities. Foreach product, defining customer segments, underwriting standards, security structures andother criteria are specified to ensure consistency. There is a clear separation offunctional responsibilities that ensures that independence is maintained between sales,credit assessment & approval, loan administration and loan review portfolios.
The Credit Risk Analytics & Monitoring (CRAM) unit monitors all Corporate and SMEexposures centrally, to identify and reveal early warning signals. It also evaluatesimpact on the loan book arising or evolving because of specific market developments.Credit Audit unit undertakes an independent review of the loan book at periodic intervals.
Retail Credit Risk Management
Ensuring a stable risk adjusted earnings and keeping customer defaults within theacceptable range is key to quality retail asset portfolio. DCB continued to activelymanage the retail portfolio and this helped in lowering the provisions in FY 2010 ascompared to FY 2009. As per the new strategy, the Retail Banking focus is on Secured HomeLoans as DCB had stopped originating new Unsecured Personal Loans, Commercial Vehicle andConstruction Equipment.
Besides the usual monitoring of Structural Liquidity, Interest Rate Sensitive Gaplimits and Absolute Holding limits, DCB also monitors interest rate risks using Value atRisk (VaR) limits. Exposures to foreign exchange, and capital markets are monitored withinpre-set exposure limits, margin requirements, and stop-loss limits.
Country Exposure Risk
DCB has established specific country exposure limits capped at 1% of Total Assets foreach individual country, and uses the mitigant of insurance cover available through theExport Credit and Guarantee Corporation (ECGC), where appropriate.
Liquidity risk arises in any bank’s general funding of its activities. As part ofthe liquidity management and contingency planning, potential trends, demands, events anduncertainties that could result in an adverse liquidity conditions are assessed.DCB’s (Asset Liability Management) ALM policy defines the gap limits for thestructural liquidity and the liquidity profile is analysed on both static and dynamicbasis by tracking cash inflows and outflow in the maturity ladder based on the expectedoccurrence of cash flows. DCB undertakes behavioural analysis of the non-maturityproducts, namely CASA and Cash Credit/Overdraft accounts on a periodic basis to ascertainthe volatility of balances in these accounts. The renewal pattern and prematurewithdrawals of Term Deposits and draw downs of un-availed credit limits are also capturedthrough behavioural studies. The liquidity profile of DCB is estimated on an active basisby considering the growth in deposits and loans, and investment obligations.
The concentration of large deposits is monitored on a periodic basis. Emphasis has beenplaced on growing retail deposits by increasing the share of CASA within total deposits.With an appropriate thrust on CASA, DCB is able to reduce its dependence on short termbulk deposits. The Bank at periodic intervals does stress testing on liquidity.
Operational risk is the risk of loss resulting from inadequate or failed internalprocesses, people or systems, or normal external events. The business units put in placethe baseline internal controls to ensure a controlled operating environment throughout theorganisation. Each new product or service introduced is subject to a rigorous risk reviewand sign-off process where relevant risks are identified and assessed by various units.
Key Operational Risk Indicators (KORIs) have been defined and are regularly tracked.Self-assessment of Operational Risks within all business divisions has been done and lossreporting and data capturing systems have been implemented.
DCB has initiated a new process called Periodic Risk Identification and ControlsEvaluation (PRICE) as part of the self assessment of risks across all business andfunctional units whereby respective units have to assess and disclose risks and actionplan for corrective action.
Implementation of Basel II guidelines
DCB has taken the opportunity of implementation of the Basel II framework to reviewsystematically its risk management systems and practices, with an objective of aligningthem to international best practices.
DCB has migrated to New Capital Adequacy Framework (NCAF) under Basel II guidelines ason March 31, 2009. DCB is adopting the Standardised Approach for Credit Risk and MarketRisk and the Basic Indicator Approach for Operational Risk. DCB has put in place the keyrequirements for the implementation of Basel II guidelines, as given below:
• Comprehensive policies for managing the major regulatory risks - Credit, Marketand Operational Risk and their integration
• Policy on Internal Capital Adequacy Assessment Process (ICAAP) for managementand calculation of additional capital for risks other than regulatory risks
• External Credit Assessment Institutions have been approved, mapping of creditrating, strategies to ensure that the corporate portfolio externally rated
• System for capturing credit rating/ loan quality migrations
• Phased introduction of risk based pricing model to take care of the cost ofcapital based on the risk categorisation of the borrowers and the credit risks involved inthe exposure to these borrowers
• Policy on Credit Risk Mitigants and Collateral Management
• Disclosure policies and processes to ensure adequate disclosure
• Capital Assessment Model has been procured and is in the process of beingintegrated with the Bank’s system to ensure ongoing computation of capital on CreditRisk
• Parallel runs of capital assessment are being carried on a quarterly basis sinceJune 2006 which have so far indicated an improvement in DCB’s capital adequacy underthe proposed Basel II policy framework
Risk is managed at the individual exposure as well as at portfolio level withprudential limits fixed for individual and groups of borrowers, industrial sectors, assetclasses and unsecured exposures etc. The exposure norms adopted by DCB are conservative incomparison to the regulatory prudential exposure norms. Geographical concentration istracked on a regular basis.
DCB pays special attention to issues that may create a Reputational Risk for the Bank.Events that can negatively impact the Bank’s position are handled cautiously ensuringutmost compliance with regulations and in line with the values of DCB.
F. INFORMATION TECHNOLOGY AND OPERATIONS
DCB continues to leverage technology for supporting its business strategy and toimprove the level of customer service. The application landscape consists of a blend ofpackaged products as well as some in-house applications.
DCB continues to upgrade its network architecture to provide reliable and robustinfrastructure to branches and offices. In it’s endeavor to provide better customerservices, DCB enhanced the capabilities of alternate channels such as Retail and Businessinternet banking, 24 hour customer care center and SMS alerts. DCB will continue toimplement appropriate, cost-efficient technologies to support it’s business plans inFY 2011.
The Operations unit is the backbone of DCB’s internal and external servicedelivery. Operations are centralised at Vikhroli in Mumbai. This unit strives to adopt anempathetic approach to drive efficiencies and best in class customer service. Internalcontrols are constantly reviewed to ensure that risks are well managed. End to end processreviews are conducted periodically and automation is introduced wherever possible toreduce errors and cycle time.
G. INTERNAL AUDIT
Internal Audit (IA) is an independent unit that performs periodic audits to evaluatethe adequacy and effectiveness of internal controls and overall risk management. The AuditCommittee of Board (ACB) provides direction to the audit function and monitors theeffectiveness of this function. IA uses a comprehensive risk based approach taking intoaccount the guidelines of RBI and international best practices. IA reviews include snapaudits and thematic reviews of key functions or projects. IA also uses reputed audit firmsfor concurrent audits.
Many new measures including logical consolidation of auditable entities, and theintroduction of risk appraisal profiles among other initiatives have been put in place toimprove the effectiveness of risk based audits with focus of attention on continuous riskassessments. The risk assessment process has been strengthened to identify and assess DCBwide risks. These risks are captured in a ‘Heat Map’ for analysis and correctiveaction. The remedial action tracking has also been enhanced.
H. HUMAN RESOURCE MANAGEMENT, TRAINING & INDUSTRIAL RELATIONS
Human Resources (HR) unit continued to play a key role in FY 2010 when DCB faced manychallenges. In order to ensure strong staff morale substantial emphasis was placed on openand regular communication across all levels. This helped to improve employee engagement.
A key initiative undertaken was to re-launch an exercise to establish and review therange of DCB values. The core values of DCB were refreshed and communicated to all staff.Over the next financial year, staff events are planned to embed the DCB values deep withinthe organisation.
HR coordinated with all units to put in place an effective monitoring system ofemployee performance. Productivity improvement measures were undertaken which helped toreduce total costs. Certain key senior positions were integrated in order to lighten thetop heavy structure and provide flexibility for faster decision making. At the same time,HR facilitated hiring of a number of high quality experienced resources in senior andmiddle level positions to support the growth agenda of DCB. The recruitment process wasstrengthened in order to provide adequate and quality resources in frontline positions.
Regular training was imparted to staff at various levels keeping in view the need forimproving customer service, product knowledge and sales ability. Branch staff andOperations were given ongoing training on KYC and AML as well.
An integrated centralised system HumaNET was introduced to facilitate paperlessprocessing of recruitment, separation, leave management, transfers and performancemanagement. This helped to reduce costs and improved efficiency in the HR unit.
A retention plan for key human resources was put in place. This included structuredfeedback, development plans and training.
HR was instrumental in organising events that gave opportunities to staff toparticipate and contribute. Eye check up, birthday celebrations, Independence Daycelebration, Navratri, employee fitness test, badminton tournament, old age home visit,Republic Day collage competition, Christmas, Eid, Diwali, blood donation camp,Womens’ Day and DCB limited overs cricket tournament are examples of using everyoccasion to engage staff members.
DCB celebrated the 73rd birthday of His Highness, the Aga Khan on December13, 2009.
HR regularly facilitated Knowledge Exchange Forums where staff members share theirexpertise and skills with one another. This helped in building teamwork.
DCB is committed to Corporate Social Responsibility (CSR) as part of its core values.DCB staff made donations generated through staff activities to CRY and HelpAge India.
I. CUSTOMER SERVICE
The Bank believes that customer satisfaction is at the core of its existence andcustomers must be served proactively beyond their expectations. DCB has a dedicatedService Quality (SQ) team that is directly supervised by the MD and CEO along with thesenior management. The SQ team inter alia is responsible for – identifying problemsfaced by customers, coordinating speedy rectification of issues, actively looking forprocess improvement opportunities, scientifically tracking customer satisfaction,facilitating implementation of customer friendly automation.
DCB has implemented Centralised Complaint Management so that customerqueries/complaints are attended to on time and also to provide uniform quality of service.All complaints are tracked rigorously for timely closure and delays if any are escalatedto senior management.
DCB has Personal and Business Internet Banking that is at par with the best in theindustry. DCB mobile alerts are considered to be one of the best in the industry. In FY2010, this facility was further enhanced with more alerts added for customer conveniencethat reduces the need for the customer to visit a branch or contact the call centre.
The MD and CEO along with the senior management team launched a unique program called7P wherein regular structured conference calls are held with the branch teams.The purpose of these calls is to directly interact with the branch teams and provide thenecessary support for them to grow their business and improve customer service. The seniorteam strives to resolve all issues instantly. Items that are not resolved are followed-upregularly by the SQ team. The 7P program has been very well receivedthroughout the organisation.
DCB has a 24 hour customer care center that has been in operation for morethan two years. The main objective of this unit is to provide any time convenience thateliminates the need for customers to visit the branch. Over time, a number of activitieshave been migrated from the branches to the phone banking unit. This unit on a monthlybasis handles approximately 80,000 calls. More recently, this unit has also helped indeepening customer relationship through cross sell of value added products.
PARTICULARS OF EMPLOYEES
The information required under Section 217(2A) of the Companies Act, 1956 and the rulesmade there under, are given in the annexure appended hereto and forms part of this report.In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent tothe shareholders excluding the aforesaid annexure. Any shareholder interested in obtaininga copy of the said annexure may write to the Company Secretary at the Registered Office ofthe Bank. The Bank had 16 employees who were employed throughout the year and were inreceipt of remuneration of more than Rs. 24.00 lacs per annum and 19 employees who wereemployed for part of the year and were in receipt of remuneration of more than Rs. 2.00lacs per month.
EMPLOYEE STOCK OPTIONS
The information pertaining to the Employee Stock Options is given in an annexure tothis Report.
The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservationof energy and technology absorption do not apply to DCB. However, as mentioned in theearlier part of the Report, DCB has been extensively using technology in its operations.
DIRECTORS’ RESPONSIBILITY STATEMENT
In accordance with Section 217(2AA) of the Companies Act, 1956, your Board of Directorsconfirms that: a) in the preparation of the annual accounts, the applicable accountingstandards have been followed along with proper explanation relating to materialdepartures; b) the directors had selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the company at the end of thefinancial year and of the profit or loss of the company for that period; c) proper andsufficient care has been taken for maintenance of adequate accounting records as providedin the Companies Act, 1956, for safeguarding the assets of DCB and for preventing anddetecting frauds and other irregularities; and d) the annual accounts of DCB have beenprepared on a going concern basis.
The Bank continues to believe in observing the best corporate governance practices andbenchmarking itself against each such practice on an ongoing basis. A separate section onCorporate Governance and a Certificate from M/s S. R. Batliboi & Co., CharteredAccountants regarding compliance of conditions of Corporate Governance as stipulated underClause 49 of the Listing Agreements with the Stock Exchanges form part of this AnnualReport.
In accordance with the Companies Act, 1956 and the Articles of Association of DCB,Directors Mr. Amir A. Sabuwala, Ms. Nasim Devji and Mr. Shabir Kassam are retiring byrotation and, being eligible, offer themselves for reappointment.
The Board recommends the re-appointments of Mr. Amir A. Sabuwala, Ms. Nasim Devji andMr. Shabir Kassam as Directors at this Annual General Meeting. A brief resume relating tothe Directors who are to be re- appointed is furnished in the report on CorporateGovernance.
None of the above mentioned persons is disqualified from being appointed as a Directoras specified in terms of Section 274(1)(g) of the Companies Act, 1956.
Mr. Anuroop Singh ceased to be a Director w.e.f. August 31, 2009. Your Directors placeon record their sincere appreciation of the services rendered by Mr. Anuroop Singh.
Messers S. R. Batliboi & Co., Chartered Accountants were appointed as StatutoryAuditors at the last Annual General Meeting as per Banking Regulation Act, 1949. They areeligible for re-appointment for FY 2010-11 and their appointment is subject to RBIapproval. Your Board recommends their appointment as Statutory Auditors at the ensuingAnnual General Meeting, subject to approval of RBI.
Your Board wishes to thank the principal shareholder, the promoters Aga Khan Fund forEconomic Development (AKFED), and all the other shareholders for the confidence and trustthey have reposed in DCB. Your Board also thanks the RBI for its valuable guidance andsupport to DCB. Your Board acknowledges with gratitude, the assistance and co-operationextended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of variousStates where DCB has its branches.
YourBoardacknowledgeswithappreciation,theinvaluablesupportprovided by DCB’sauditors, lawyers, business partners and investors. Your Board is also thankful for thecontinued co-operation of various financial institutions and correspondents in India andabroad.
Your Board wishes to sincerely thank all its customers for their patronage. Your Boardrecords with sincere appreciation the valuable contribution made by employees at alllevels and looks forward to their continued commitment to achieve ambitious organisationalgoals that the Bank has set for the future.
| ||On behalf of the Board of Directors |
|Mumbai ||Nasser Munjee |
|April 16, 2010 ||Chairman |