MANAGEMENT DISCUSSION AND ANALYSISGlobal Economic Scenario
The global economy is recovering from the crisis it faced in 2008-09. But the recoveryis uneven and still there is uncertainty prevailing in the global market. Countries likeGreece, Portugal, Ireland and Spain is undergoing economic crisis. Japan has been affectedby the earth quake and tsunami which occurred in March 2011. US mortgage market stillremains weak and unemployment is still ailing the economy.
The IMF World Economic Outlook of April 2011 has forecasted the global growth estimateof 4.4 per cent for 2011 and 4.5 per cent for 2012. It has, however, projected aconsiderable rise in global crude oil prices in 2011 which is a key downside risk togrowth.
Impact of high oil prices and other commodity prices, the spillover from the Japanesenatural disasters, monetary tightening in Emerging Market Economies to containinflationary pressures, sovereign balance sheet risks in the Euro zone are cited asdownside risks to global growth prospects.
RBI's Monetary Policy review of June 2011 expressed the concern that global environmenthas changed for worse and growth expectations in advanced countries are visiblymoderating.
The Indian Scenario
Indian economy to a great extent could ward off the adverse impact of the global crisisdue to effective regulatory and control policies of RBI and the timely stimulus measuresby the Government of India. Indian economy continued to outperform most of the emergingmarket economies during the year 2010-11 retaining its position as the second fastestgrowing economy after China. Indian economy is estimated to have grown by 8.5% during2010-11 and GDP is forecasted to grow at 8% plus in 2011 -12.
A review of economy reveals that a rebound in agricultural growth is experienced. Therewas deceleration in interest sensitive sectors like automobiles but there is no evidenceof any sharp or broad based slowdown. The services sector maintained momentum in most ofits segments. Buoyant overall agricultural performance and continued services sectorgrowth momentum augur well for growth in 2011-12. However, risks to growth ahead, arisefrom rising prices of oil and industrial raw materials, decelerating investment demand andhigh inflation.
The headline WPI inflation rate remains elevated driven by fuel group and nonfoodmanufactured products. The consumer price inflation for industrial workers is also highand the overall position suggests a generalized inflationary pressure in the economy.
The challenge for the economy is to contain inflation and anchor inflationaryexpectations by reining in demand side pressures and mitigate the risk to growth frompotentially adverse global developments.
Liquidity conditions during the current fiscal year remained consistent with the antiinflationary stance of monetary policy. In its effort to contain the down side risk due toinflation RBI has tightened the monetary policy in a calibrated manner. RBI aims atbalancing the trade of between growth and inflation. The policy focused on containing thespillover of supply side inflation and anchoring inflation expectations. This wasimportant as cost push pressures were significant and pricing power prevailed amidststrong aggregate demand.
Fiscal deficit aggravated by financial stimulus introduced to counter the global crisisis also a concern for India and adhering to the Fiscal Responsibility Budget managementagreement may be difficult to materialise. Fiscal deficit is budgeted at 4.6% of GDP inFY2011-12 in accordance with Fiscal Responsibility Budget Management (FRBM). But thelarger subsidy outgo projected in the budget may cause slippage in the deficit from theprojected figures.
On the external front, current account deficit (CAD) is yet another concern for Indianeconomy. The picking up of exports could ease the pressure on the balance of paymentposition and on Indian rupee. But the spike in oil prices poses the risk of CAD wideningin 2011-12. Capital flows are expected to improve financing the CAD comfortably. However,the dominance of portfolio equity flows and the decline in FDI raise concern over thestability of capital flows.
The Banking Scenario
The banking sector has been resilient during the global financial crisis. The migrationto Basel II has ensured that banking system is sufficiently capitalized to absorb anyshocks or systematic risk in the financial sector. RBI has already indicated that it wouldimplement the reform measures under Basel III framework.
The strict income recognition, asset classification and provisioning norms of RBIensure that banks cannot but ensure the quality of its assets. With profitability beingmajor yard stick in the rating of the banks, they have given thrust in increasing theirlow cost CASA deposits so as to bring down the cost of the resources and have attempted tocreate a balanced portfolio in advances ensuring the volume, return and risk associatedwith lending.
Banks are giving ample thrust on the key areas of quality of assets, risk returnmanagement, liquidity management, introducing innovative products, leveraging ontechnology and adopting HR practices in tune with the changed economic scenario.
Developing the technology and introducing customer centric products, renderingpersonalized services and enhancing the channels of distribution will be the factors thatwill decide the success and growth of banks in the highly competitive banking scenario.
Monetary transmission strengthened during Q4 of 2010-11 with interest rates firming upgradually across the spectrum as liquidity remained in deficit mode. The policytransmission to deposit and lending rates is visible in the current base rate regime.
Savings boosted by the interest rates is bound to help in mobilizing deposits by banksin FY2012 but inflationary pressures and rising interest rates is likely to make slow themoment of the credit growth in fiscal 2012.
In the First Quarter Review of Monetary Policy 201112, RBI has further increased therepo rate under liquidity adjustment facility to 8% and the reverse repo rate standautomatically adjusted to 7% and the marginal standing facility rate to 9%
Besides changing the methodology of calculation of interest rate on savings deposits todaily balance basis, the rate of interest on savings deposit has been increased to 4%adding to the interest burden of the banks. Further deregulation of interest rate onsavings deposits seem to be on the anvil.
Banks have to maintain a provisioning coverage ratio intended to achieve a countercyclical objective by ensuring that banks build up a good cushion of provisions to protectthem from any macroeconomic shock in future.
RBI has further enhanced the provisioning requirements on certain categories ofnon-performing advances and restructured advances.
Overview of Business Performance
Federal Bank could achieve a total business in deposits and advances, Rs. 74968.01crore with deposit reaching Rs. 43014.78 crore and advance rising to the level Rs.31953.23 crore.
On the revenue front the Bank's net revenue for the financial year 2011 is Rs. 2263.39crore with an operating profit of Rs. 1427.25 crore and Net profit of Rs. 587.08.
Corporate Lending and Strategies
Corporate lending contributed to a solid foundation to the loan portfolio of the Bank.As on 31.3.2011 large corporate advances constituted about 42% of total advance portfolio.
The Bank provides comprehensive financial and risk management solutions to clientsgenerally with a turnover of over Rs. 500 Cr or with a credit requirement of Rs. 25 Cr andabove. Under Corporate Banking, the Bank offers financial solutions to the followingcategories:
• Large, mid and emerging Indian Corporate Groups
• Public Sector Enterprises
• Government Bodies
• Multinational Companies
• Financial Institutions
The Bank's strategy is to partner the growth of small corporate sector and aim to bethe most preferred banker for the mid corporate sector and also to have a fair share inthe large corporate sector.
The Large Corporate Department caters to various segments of corporate customers withan array of banking products and services covering their working capital, term finance,trade finance, specialized corporate finance products, structured finance, foreignexchange, syndication services and electronic banking requirements. All product offeringsare suitably structured after in-depth research and assessments, taking into account theclient's risk profile and specific needs. The Bank is committed to provide innovativefinancial solutions by leveraging on superior product delivery, knowledge-based advisory,industry benchmark service levels and a strong client orientation.
The Bank has made significant inroads into developing core relationships with a numberof Indian companies. New customer acquisition and relationship-strengthening constitutethe two-pronged growth strategy. With these objectives, the Bank has already set upCorporate Banking branches in Mumbai and Delhi, and more are being planned at other metrosand major centres, exclusively to cater to the requirements of large corporate clients.
The loan policy of the Bank has put in place a matrix of industry exposure limits witha view to de-risking the portfolio through diversification. The Bank has also stipulatedminimum entry-level exposure criteria based on credit rating for taking large newexposures. Prudential ceilings are prescribed for exposure in long-term assets, unsecuredadvances etc. Apart from subjecting each credit exposure to robust risk analysis atseveral levels it is also vetted by a Credit Risk Vetting Committee consisting of seniorexecutives. The exposures are periodically examined for signs of stress so that earlycorrective actions can be initiated.
Micro, small & medium enterprises
Federal Bank's forte has always been the small & medium entrepreneurs,industrialists, traders, businessmen and agriculturists. SME portfolio continues to be aprime pillar in building up the Bank's growth plans.
During the past financial year, SME advances grew by 27.60% and current account by34.65% on YoY basis to reach Rs. 9564 Cr and Rs. 2156 Cr respectively. Initiatives of theBank for the SME sector during FY 2011 included:
• SME Credit Hubs across major centers all over the country.
• Business alliance with various partners
• Product enhancement and customization to suit the requirement of target group.
• Settlement of Point-of- Sales transactions at T-0/ T-1 cycle
• Payment gateway solution for current account customers
• Fed Sahakari - a tailor-made Current Account scheme for Co-operatives
The Bank is in the forefront in lending under Priority Sector in tune with the nationalobjectives and could achieve the benchmark of 40% of Adjusted Net Bank Credit (ANBC)stipulated by RBI, mainly due to growth in exposure to SME sector. The Priority SectorAdvances as on 31.3.2011 reached Rs. 10586 crore.
Retail Business
The Bank achieved a growth of 23.12 % in resident retail deposits during financial yearended 31 March 2011 and reached Rs. 22822 Crore from Rs. 18537 Crore in FY 2010. TotalSavings Bank balances have also grown by 20 % reaching a figure of Rs. 9148 Crore.
As part of extending personalized and customized services to High Net worth customers,the Bank has been providing Priority Banking Services across various branches. The specialservice "FedSelect" is presently available at 35 branches and the Bank plans onextending this service to over 100 branches by the end of this Fiscal. This service hastaken our banking to a whole new level, complete with special banking lounges anddedicated Customer Relations personnel. Taking convenience to a never- before high, theBank also offer Home Banking services under this facility.
The Bank has also been actively involved in the sales of Third Party products. Duringthe year ended March 31, 2011, the Bank generated a total life insurance premiumcollection of Rs. 158 crore for the joint venture life insurance company, IDBI FederalLife Insurance Co. Ltd., as against a total premium collection of Rs. 134 crore during theprevious financial year.
The Bank had contributed 40% of the total Bancassurance channel business done by IDBIFederal. As a para banking service, the Bank sold Federal Pure Gold through selectbranches. The Bank also offers Depository Services and e-trade facilities for investors.The Bank now has associated with Bajaj Allianz General Insurance Company to distributeGeneral Insurance products across our branches.
In the fiscal 2011 the retail loan book of the Bank reached Rs. 9397 crore forming 29.4% of the total advances of the Bank. Housing Loans continued to be the major contributorin retail advances constituting 54.52% of the total retail loans, reaching Rs. 5123 croreas on 31 March 2011.
Auto Loans reported a growth of 12.80% and Gold Loans (excluding Agricultural GoldLoans) grew by 25%. As on March 31, 2011 there are 16000 Educational Loans outstandingwith balances totaling to Rs. 295.61 crore.
Agriculture
Agricultural Credit portfolio of the Bank stood at Rs. 3748.54 Crore as on 31st March2011 representing 13.56% of Adjusted Net Bank Credit (ANBC).
The Bank continues to expand the dispensation of credit to agricultural segment andprovides services to the farming community through Agricultural Credit Specialists indifferent centres.
The Bank offers various Agri Business Products including Federal Kissan Cards,Agricultural Cash Credits, Medium Term Loans, Long Term Loans etc. customized to suit therequirement of farmers under plantation, horticulture, land development, irrigation, farmmechanization, construction of rural godowns, cold storage, green house, floriculture,allied activities like dairy, poultry, fishery, goat rearing, agro processing, finance toAgri- input dealers etc.
The Bank has entered into a MOU with National Bank for Agriculture and RuralDevelopment (NABARD) for co-financing under Agricultural Projects/ Agro processing,High-tech agricultural and rural development schemes including major schemes forreplanting of tea, modernization of tea factories etc.
Financial Inclusion and Corporate Social Responsibility
a) Successful implementation in all SLBC-allotted villages
ICT model of Financial Inclusion was successfully implemented through BC agents in allthe 12 villages allotted to us by SLBC, Kerala, as on 15th March 2011.
b) First ever Financial Inclusion Branch
The first ever Financial Inclusion Bank Branch Grama Jeevan was opened at Thuruthy inthe state of Kerala allotted to the Bank for Financial Inclusion. The branch offersfull-fledged banking facilities to the public, including round-the-clock ATM facility.
Dr. D. Subbarao, Hon'ble Governor of Reserve Bank of India visited the Grama Jeevanbranch on the inaugural day itself.
c) Outreach programmes
Dr. D. Subbarao, Hon'ble Governor of Reserve Bank of India visited our stall put-upunder outreach programme conducted by RBI at Vengoor West Village, near Perumbavoor,Ernakulam District and appreciated the Financial Inclusion initiatives.
No Frills Accounts, GCC, KCC
As on 31/03/2011, 1.50 Lakh No-frills SB accounts have been opened and the balanceoutstanding comes to Rs. 45.14 Crore.
• 2466 General Credit Cards (GCCs) have been issued and Rs. 4.61 crore have beendisbursed under the scheme
• Rs. 1192.00 crore have been disbursed in 37,733 Kisan Credit Cards (KCCs)
d) Credit Counselling Centres
The Bank established "Federal Ashwas Trust" with the main objective of makingavailable financial education and credit counselling to the public. "Federal AshwasFinancial Literacy and Credit Counselling Centers" (FAFLCCs) were set up for thisend. Four such centers were started in Alappuzha District, Kerala - at Mararikulam,Alappuzha, Moncompu (Kuttanad) and the fourth at Vythiri, a tribal backward area inWayanad District, Kerala.
e) Business Correspondent / Business Facilitator Model
Business Facilitator Model
Branchless banking model of Financial Inclusion was implemented through individualBusiness Facilitators (BFs). In this model, Customer Service Points (CSPs) are manned bytrained BF agents. The Customer Service Point agents are responsible for sourcingaccounts, servicing such account holders in their jurisdiction, grievance escalation,feedback to nodal Branches etc. 57 BF agents have been engaged so far for financialinclusion programmes. These agents have been trained by the Bank in association withpartner NGOs for Business Correspondent/Business Facilitator services.
f) Business Correspondent (ICT) Model
Under the ICT (Information & Communication Technology) Model, Bank has adopted anend-to-end outsourced model for Financial Inclusion implementation.
The Bank's financial inclusion product "FEDJYOTHI" is a smart card basedsolution in which customer transactions are facilitated in the field using handheldterminals, called micro ATMs, by Business Correspondent agents.
The no-frill accounts opened under this model has an in-built OD facility with thecustomers eligible for General Credit Card (GCC) facility.
17 villages, including all those allotted to the Bank by SLBC, have been covered underthe ICT model as on 31/03/2011. As on 31st March 2011, 1355 FedJyothi Smart Cards havebeen issued.
g) "Sneha Bhavan"
The Bank contributed towards setting up of a rehabilitation centre for patientssuffering from Alzheimer's disease at Aluva. The centre, "Sneha Bhavan", is runby the Rotary Club of Aluva.
h) "Mid Day Meals"
The Bank also took the initiative to donate an amount to the Education Department ofKerala for implementing the project of "Mid day meals", to all children studyingin the government and aided schools in the Vadakkekara assembly constituency.
Recovery of Assets
LOAN ASSET QUALITY
The Bank has initiated various measures to contain the NPA. Maximum thrust is given forrecovery through SARFAESI Act proceedings and settlements are reached through compromiseas per RBI guidelines. Services of Recovery Officers/Agents are used strictly adhering toCodes of Conduct prescribed by RBI. During the financial year 120 recovery camps and 82Lok Adalaths were held at different centres and the results were overwhelming.
As on 31.03.2011, the Bank held a total provision of Rs. 942.34 Crore. This includes aFloating Provision of Rs. 179.52 Crore. The total provision coverage for NPAs as on March31, 2011 is 82.06%. As per the extant RBI directive, banks should hold a minimum provisioncoverage of 70% including technically written off accounts. As on 31st March 2011,Provision Coverage Ratio of our Bank including technically written off accounts is 89.77%.
NRI Business
During the fiscal 2011 the Bank registered a growth of 12.6% in NR business reaching alevel of Rs. 8277 Crore from a base of Rs. 7350 crore. The cream FCNR Portfolio grew by42%. The premium deposit product Rupee Plus launched during the latter part of the yearwas well accepted by the Bank's patrons. The representative office and young team ofIBTO's abroad could reach out to Bank's clientele offering services and support abroad.Going forward, beyond GCC & Kerala market, the Bank will be deputing Senior Executivesto capture the Europe and North America market.
Inward Remittance Business
The Bank continued to be a major player in channelizing / routing inward remittance andis much sought after by Exchange Houses and banks from Saudi Arabia & Qatar. TheBank's flagship product Fed Flash which is real time [server to server] launched duringthe year has attracted all major remittances. In the year 2011 an overall 7% of the panIndia remittance was routed through the Bank. SMS to remitter along with the beneficiarywas a value addition introduced to the customers by the Bank. Apart from drawingarrangements with 55 partners abroad, Bank is also acting as agents for Western Union, Xpress money etc. An overall Rs. 15K Crore was routed through Bank's books benefiting bothNR & Resident businesses.
Forex
The Bank undertakes all types of foreign exchange business. As on March 31, 2011, theBank has two 'A' Category branches and seventy eight (78) branches designated as 'B'category for handling the foreign exchange business. SWIFT connectivity has been extendedat the designated branches to facilitate faster and reliable communication with almost allmajor banks all over the world.
Export credit facilities are provided in rupee and in foreign currency for allpre-shipment activities and to meet the post-shipment fund requirement of exporters. TheBank has currently extended export credit facilities to cashew, seafood, garments,minerals, coir, spices, other food products, leather, rubber, pharmaceutical products,gems and jewellery.
Import credit facilities extended include chemicals, timbers, raw cashew nuts, paperand electronic goods. The Bank also arrange Buyers Credit for import customers fromvarious overseas banks.
The Bank has conducted regular one-to-one meetings with exporters/ importers forassessing the business position, credit needs. Updates on forex market movements are sentto the clients regularly.
Integrated Treasury Operations
The Bank's integrated Treasury Operations involved maintenance of Statutory Reserverequirements, Balance Sheet Management, trading in Money Market, Bonds and Debentures,Equity and Foreign Exchange. The Treasury operations were shifted to Mumbai from Kochiduring September 2008 and subsequently the Bank has dedicated and full-fledged dealingdesks for various segments like Foreign Exchange, Merchant Trading, Currency Futures,Money Market, Equity, Bonds and Debentures, CD/ CP, Interest Rate Swaps and GovernmentSecurities. The CSGL operations were made part of Treasury Operations and been workingalongside G-Sec desk.
During the year, the Forex Cell was shifted to Mumbai from Ernakulam. The MerchantBack-office operations were also shifted to Mumbai during June 2010. The Bank commencedtrading in Currency Futures in two more exchanges viz., Multi Commodity Exchange (MCX) andUnited Stock Exchange (USE) in addition to the existing trading in National Stock Exchange(NSE). Also, the Bank has revamped the Interest Rate Swap (IRS) desk which undertakesactivity of trading on IRS for proprietary purpose. The Bank aims to commence trading inCurrency Options in FY 2011-12. During the fiscal 2011 the Bank has held interactivesessions with its export/import clients.
The Bank has installed various trading platforms like Reuters, D2, FX Clear, BARX,AUTOBAHN and COMMERZ in the dealing room for a better and streamlined trading activity inForex.
To cope up with the dynamic changes taking place in the regulatory and technologicalfront, the Bank has migrated to a new and advanced Treasury Software Package, IntegratedTreasury Management System (ITMS) a product of Lasersoft (which is a part of PolarisSoftware).
Rating of the Instruments
Instruments issued by the Bank have received very good rating by the rating agencies.
| Instrument | Agency | Rating |
| Fixed Deposits(short term) | CRISIL | P1+ |
| Certificate of Deposit | CRISIL | P1+ |
| Bonds | FITCH | AA-(ind) |
| Bonds | CARE | AA |
Integrated Risk Management
Primary responsibility of laying down risk parameters and establishing an integratedrisk management framework and control system rests with the Board of Directors. A Boardlevel committee, viz. the Risk Management Committee (RMC) oversees management of Credit,Market and Operational risks. Three separate Executive level committees, viz. the CreditRisk Management Committee (CRMC), Asset Liability Management Committee (ALCO) andOperational Risk Management Committee (ORMC) ensure effective management of credit, marketand operational risks respectively.
Integrated Risk Management Department (IRMD) of the Bank is headed by the Chief RiskOfficer, who also functions as the Chief Compliance Officer, responsible for thecompliance functions of the Bank. Credit, Market and Operational risk management isfunctionally assigned to three separate cells under
IRMD.
The Bank has put in place the following policies for risk management and compliance,approved by the Board of Directors:
1. Integrated Risk Management Policy,
2. Credit Risk Management Policy
3. Asset Liability Management Policy,
4. Operational Risk Management Policy,
5. Stress Testing Policy,
6. Business Continuity Plan Policy,
7. Credit Risk Mitigation and Collateral Management Policy,
8. Policy on Internal Capital Adequacy Assessment Process (ICAAP),
9. Disclosure Policy,
10. Policy on fixing and monitoring of exposure ceilings, and
11. Compliance Policy.
The Bank has established an independent on site Mid-Office in Treasury Department,reporting directly to the Chief Risk Officer. The Mid-Office scrutinizes the treasurydeals and transactions from the point of view of market risk management.
Compliance with Basel II framework
As per the prudential guidelines issued by Reserve Bank of India, the Bank has migratedfrom Basel I norms to Basel II norms as on 31 March 2009 and Capital Adequacy Ratio underthe New Capital Adequacy Framework (NCAF) is being computed on a quarterly basis.
In tune with regulatory guidelines on Pillar I of Basel II norms, the Bank has computedcapital charge for credit risk as per the Standardized Approach, for market risk as perthe Standardized Duration Method and for operational risk as per the Basic IndicatorApproach. Under Pillar II, Bank is assessing the level of inherent risks and relatedcapital requirements on a quarterly basis using a well defined Internal Capital AdequacyAssessment Process approved by the Board. Additional disclosures under Pillar III of BaselII are also complied with.
Capital Adequacy Ratio
Bank's Capital Adequacy Ratio as on 31/03/2011 under Basel II norms is 16.79% asagainst 15.39% under Basel I framework. As the minimum level of CRAR prescribed by ReserveBank of India is 9%, Bank's CRAR of 16.79% under Basel II norms offers a commendable levelof comfort and cushion for further expansion and growth in asset portfolio.
Compliance function
In order to monitor the Compliance functions in the Bank and for Compliance riskmanagement, a Compliance cell is functioning in the Integrated Risk Management Department,headed by the Chief Compliance Officer.
Business Continuity Plan
In terms of the Business Continuity Plan Policy approved by the Board, BusinessContinuity Plan (BCP) Committees have been formed in Head Office, Regional Offices andBranches. Mock drills and Disaster Recovery drills are conducted to check the efficacy ofsystems. A Contingency Management Team (Task Force) has been formed at Head Office,functioning as a Central Crisis Management Team for ensuring business continuity.
Business Outlet Expansion
The year 2010-11 was an eventful one with The Bank growing by 71 branches and 73 ATMs,thus strengthening its national network with 743 branches and 805 ATMs. In the year next,the Bank has laid emphasis on opening branches in Tier 3 to Tier 6 centres, upholding theresponsibility towards Financail Inclusion, a measure to provide banking to the underbanked and the needy. The Bank is looking forward to reach the 1000 branch milestone inthe current fiscal to enhance its visibility and to create a strong foothold in thehitherto unexplored or unoptimised centers.
Business effectiveness through technology
All the branches and offices of the Bank are running on Core Banking Solution, offeringanywhere banking facilities from all its branches. Bank offers multiple delivery channelslike Internet Banking (FedNet), Mobile Banking, ATM network - (ATM strength 805 as on31.03.2011), Visa and Master Debit Cards, Mobile and E-mail alert service, Electronicbills payment system, Tele-Banking Facility, Point of Sale terminals etc.,
An express remittance facility - FedFast - is offered to NRIs for inward remittancefrom gulf countries. With 100% interconnectivity of its branches, the Bank offers the RTGS/ NEFT services across its entire branch network through our internet banking platform.
The Bank offers bill payment, e-ticketing and e-com facilities to its customers.Customers now have the convenience of being able to transact on any ATM in the country.Visa Money Transfer - a first of its kind in India - is a facility which allows customerto transfer money using credit/debit card .
The Bank is now a member of National Payment Corporation of India (NPCI) and all theATM interchange transaction for the NPCI member Banks are routed through NPCI. The Bank isalso the sixth member Bank to join the IMPS initiative of NPCI.
A 24x7 call centre with toll-free number has been set up for customer assistance andredressing grievances.
Human Resources
The Bank is looking to leap forward in terms of business growth, geographical coverageand profit in the coming year. To support this massive expansion, it needs the right kindof workforce. One that is motivated and constantly committed to the organizationalobjectives.
In an effort towards achieving this, the HR Department launched a slew of freshinitiatives aimed at awakening in each employee a sense of pride for being associated withthe Bank.
As first - ever exercise of its kind, the initiatives included;
• Work-life balance resolution to improve productivity levels
• Introduction of Sabbatical Leave
• Employee Stock Option scheme to inculcate a sense of ownership in the employee
• Events like Federal Champions Cup, Federal Idol, Founder's Day Celebration andWomen's Day Celebration were also conducted to promote a feeling of togetherness among theemployees.
The focus on HR front was to instill in everyone a sense of belonging, a feeling ofoneness. HR department conducted a pan India workshop to highlight the importance ofhaving an effective Performance Management System in place.
The other major challenge was meeting the huge manpower requirements, brought about bythe Bank's large scale expansion plans. With the massive recruitment drive, our strengthgrew from 7896 to 8270.
The Bank also took the radical step of decentralizing the HR functions and placed HRofficers at Regions. Several in-house and external training programmes were conducted todevelop the skill set of the people. Fed-e-HRM, an all-in-one HR platform was launchedthis year
The Business per employee and profit per employee figures of the Bank took a quantumleap by registering an increase of Rs. 110 lakhs and Rs. 1.25 lakhs reaching to Rs. 923lakhs and Rs. 7.26 lakhs respectively
A host of new Human Resource initiatives which moves in line with the new theme of"HR Transformation - Driving the change from within" will be rolled out in theyear 2011-12.
Training and Development
Training and Development was given ample thrust in line with the corporate objectives.
Training was imparted to 5541 employees on varied Banking, Management and InformationTechnology subjects by Federal Knowledge and Development Centre, the training institute ofthe Bank. In addition, 542 Officers/Staff were nominated to training programmes conductedby reputed institutions like NIBM, IIM, SIBSTC, IDRBT, CAB, NABARD etc .
To strengthen the skill sets of the officers posted at the newly introduced credithubs, four special programmes on "Credit Appraisal" were conducted by CRISIL atthe Bank's training institute which was attended by 119 officials.
E-learning
As part of e-learning initiatives, the Bank conducted 38 online quiz programmes forOfficers/Clerks and 9517 persons including probationers participated in the quizzes and204 winners were awarded cash prizes.
Mentoring
Mentoring is another area of the initiative of the Bank's training institute. AllProbationers were allotted mentors on completion of induction programmes
KYC / AML compliance
The Bank has centrally installed Anti Money Laundering software to ensure theregulatory compliance of Know Your Customer (KYC) norms and guidelines. The regulatorycompliance mandated to implement a Customer Identification Programme and perform duediligence checks before doing business with a person or entity.
KYC also fulfills the risk mitigation function. Beyond customer identification checks,the ongoing monitoring of transactions against a range of risk variables forms an integralpart of the KYC compliance mandate.
Inspection and Audit
The Bank has well established Inspection & Audit Department in place, that sees tothe adherence to systems, policies and procedures. The guidelines received on variousissues of control from Reserve Bank of India, Government of India, Board and AuditCommittee of the Board have become part of the Internal Control System for bettercompliance at all levels.
Audits and Inspections are carried out in the Bank as per the Board approved Auditpolicy. The Department conducts various purpose based audits also as per the necessity /periodicity as decided by the Audit Committee of Board from time to time. The scope ofvarious audits was modified suitably on a continuous basis to cope with the ever changingscenario of the banking system.
Internal Inspection comprises of risk-based audit of branches. Risk Based InternalAudit of Branches is being conducted by the Bank's own Inspectors.
All the branches are covered under Risk Based Internal Audit (RBIA). The assessment oflevel of risk and its direction is as per the Risk Matrix prescribed by the Reserve Bankof India which helps the Management in identifying areas of high risk that requireattention on a priority basis.
The position of the risk categorization of the branches is reviewed by Audit Committeeof the Board on a quarterly basis.
Under Concurrent Audit, as reckoned at 31 March 2011, 205 branches, TreasuryDepartment, International Banking Department (IBD), DP Division, RBD and 7 Fedfina offices(Retail Hubs) were subjected to Concurrent Audit covering 65.96% of the total business ofthe Bank (62.79% of deposits and 70.24% of advances) based on business data as on31-122010, as against the minimum requirement of 50% of deposits and advances separately,stipulated by
RBI.
The department also covers the Credit Audit function as part of Loan Review Mechanism,which examines compliance with extant sanction and post-sanction processes / procedureslaid down by the Bank from time to time, as per the RBI guidelines. The objectives ofCredit Audit are as follows.
• Improvement in the quality of credit.
• Review of sanction process and compliance status of large loans.
• Feedback on regulatory compliance.
• Independent review of Credit Risk Assessment.
• Pick up early warning signals and suggest remedial measures.
• Recommend corrective action to improve credit quality, credit administration andcredit skills of staff, etc.
The department has qualified personnel who also cover Information Systems Audit. Theservices of external Auditors are also utilized to conduct IS Audit of select branchesdepending on the necessity.
Besides Regular Inspection of Branches and Concurrent / Credit Audits, various otherinspections are also carried out in the Bank such as Management Audit of Regional officesand HO Departments, Forex Audit, Gold Loans Audit, Revenue Audit, Information SystemsAudit, Registration Authority Audit, Vulnerability Analysis & Penetration Testing,Quarterly concurrent basis certification of Internet Payment Intermediaries' Accounts etc.
Risk Based Internal Audit and Concurrent Audits are fully online modules with dedicateddatabases and systems which are managed under secure environments and by adequatelyauthorized and trained personnel. The compliance by branches/ offices and consolidationsof data etc are also managed and monitored through online rectification and appropriateapprovals of the controlling authorities or Regional offices. This has contributed inmajor ways to the Bank going green, by doing away with paper reports.
The Bank conducts training programmes for Inspecting Officers in a need based manner.Similarly, programmes were also conducted for the Concurrent Auditors to update theirknowledge base.
Agendas placed before the Audit Committee of the Board for review includes total auditfunction of the Bank. The compliance of direction of Audit Committee of the Board ismonitored through Action Taken Reports in all cases desired.
During FY 2010-11, the Bank has covered 600 Audits under Risk Based Internal Audit.Management Audits of Regional offices were completed in 10 eligible cases. ManagementAudits of 6 HO departments were conducted. 72 Audits were done under Forex Audit. RevenueAudit was covered in 366 branches and Gold Loan Audit was conducted in 345 branches CreditAudit was completed in the cases of 224 large borrowers.