IndusInd Bank Ltd

BSE: 532187 | NSE: INDUSINDBK | ISIN: INE095A01012 
Market Cap: [Rs.Cr.] 26,202 | Face Value: [Rs.] 10
Industry: Banks - Private Sector

 Discuss this stock

Management Discussions


Macro Economic Scenario and Banking Environment

The macro economic environment remained complex and uncertain throughout the year.Developed markets continued to face weakness, thereby sending strong headwinds towardsemerging markets. However, a strong combination of political and monetary supportprevented further deterioration in the global economic environment. Monetary authoritiesin developed nations ensured that enough liquidity was made available to financial marketsat near-zero interest rates. The impact on domestic market was mixed; while off-shoreliquidity flowed into the Indian asset markets, rise in commodity prices brought into playconflicts in growth-inflation dynamics. Monetary policy response towards addressing growthconcerns was constrained by the persistence of inflation and the growing Fiscal andCurrent Account Deficit risks that prevailed for most part of the year.

The economic data trend into FY13 was less than encouraging. GDP growth in Q3 slumpedto 4.5% (against the peak of 9.4% in 2011) while Fiscal Deficit shot up to 6%. HeadlineWPI inflation averaged 7.3% and retail CPI inflation was in double digits.

Authorities reacted to the threat from global rating agencies by focusing on fiscalconsolidation and monetary support to growth despite inflationary pressures. RBI infusedpermanent system liquidity with 0.75% cut in CRR and 1 % cut in SLR, and reduced policyrates by 1% to drive the operating policy rate of Reporate from 8.50% to 7.50%. RBI alsoconducted Open Market Operations by purchasing sovereign bonds to the tune of over Rs. 1.5trillion to administer deficit system liquidity at 1% of NDTL.

While the slippage in Fiscal Deficit remained at 5.2%, the Current Account Deficitincreased to 6.7% of GDP in 03 of FY13 widening trade deficit owing to weak exports andhigher commodity prices. However, into end of FY13, there has been significant improvementto economic risk perception with headline WPI inflation down at 6% and sharp reversal incommodity prices releasing the pressure on trade deficit.

The Reserve Bank of India, in its FY14 Annual Policy Review, continued to stay cautiouson inflation and policy reforms while recognising the down-side risks on growth, althoughdelivering a rate cut.

Despite contraction in the economy, most banks maintained productivity and efficiencylevels through judicious management of ALM to protect NIM. While large banks with exposureto projects in core and sensitive sectors had credit-risk and provision-related risks,banks with working capital related assets managed to contain NPAs and provisions.

The road into FY 14 is not clear despite dilution in headwinds from the externalsector. QE support in the US and in the Euro zone is likely to continue until the end of2014. The risk of sovereign rating downgrade is also diluted, in the wake of a strongcommitment to restrict Fiscal Deficit below 5% and to step up GDP growth momentum. Therecent developments in financial markets have diluted risks to inflation from fiscalconsolidation, with the need to prevent growth emerging as a risk to fiscal consolidation.

This shift in dynamics may influence monetary policy action to shift its focus frominflation control to spurring growth momentum. There is a general expectation thereforefor a move into further moderation in interest rates and a shift of system liquidity fromdeficit to surplus mode to revive investments and consumption. The lead and lag impact onthe ALM is expected to enable banks to improve the financial intermediation margin forbetter profitability.

Bank's Performance during 2012-2013

Business Performance

The salient features of the Bank's operating performance during the year 2012-13 aresummarized in the table below:

(Rs in crores)
2012-13 2011-12 Y-o-Y Growth I
Interest Earned 6,983.23 5.359.20 30.30%
Interest Expended 4.750.37 3.654.95 29.97%
Net Interest Income 2.232.86 1.704.25 31.02%
Other Income 1.362.96 1.011.78 34.71%
Total Operating Income 3.595.82 2.716.03 32.39%
Operating Expenses excluding Depreciation 1.682.93 1,268.04 32.72%
Operating Profit before Depreciation and Provisions 1.912.89 1.447.99 32.11%
Less: Depreciation 73.43 74.96 (2.04%)
Less: Provision & Contingencies 778.28 570.42 36.44%
Net Profit 1.061.18 802.61 32.22%

Despite the tough operating environment that prevailed through most part of thefinancial year, the Bank's Net Profit, after considering all expenses and necessaryProvisions and Contingencies, rose by 32.22% to Rs. 1,061.18 crores, as against Rs. 802.61crores in the previous year. The Operating Profit (before Depreciation and Provisions andContingencies) was higher at 7 1,912.89 crores as against Rs. 1,447.99 crores in theprevious year, a rise of 32.11 %.

The core earnings of the Bank through Net Interest Income improved by 31.02% to Rs.2,232.86 crores from Rs. 1.704.25 crores. Yield on advances remained steady at 13.77%. Thecost ol deposits showed a sharper increase at 8.49% as against 8.06% in the previous year,an increase of 43 basis points. With the capital infusion of about Rs. 2.000 crores inDecember 2012. the Net Interest Margin (NIM) improved to 3.43% during the year, ascompared with 3.33% in 2011 -12.

Fee and Miscellaneous Income during the year was Rs. 1.362.96 crores. as compared toRs. 1,011.78 crores previous year, showed a strong growth of 34.71% on a y-o-y basis.Increase in Core Fee Income such as commission, exchange, fees on distribution of thirdparty products and earnings from foreign exchange business, etc. was equally spectacularat Rs. 1,239.34 crores as against Rs. 913.24 crores, registering 36% growth.

The Bank expanded its branch network rapidly to reach 500 branches, as against 400 atthe beginning of the year. Revenue per employee during the year remained steady at Rs. 31lakhs.

Quality of the Bank's assets was stable, with Net Non-Performing Assets (Net NPAs) at0.31% at March 31. 2013 as against 0.27% the previous year. Provisioning Coverage Ratio(PGR) was adequately maintained at 70.13%, compared with 72.72% previous year.

During the year under review, the Bank allotted 30,67.705 shares, pursuant to theexercise of Options under its Employees Stock Option Scheme. 2007.

The Bank issued 5,21.00,000 equity shares of Rs. 10/- each at a price of Rs. 384.00 pershare, aggregating to Rs. 2.000.64 crores on December 5.2012 through a QualifiedInstitutions Placement (QIP).

Pursuant to the above, the Paid-up Share Capital and Share Premium Account increased byRs. 55.17 crores and 11.962.86 (Net) crores respectively.

As at March 31.2013. the Paid-up Equity Capital of the Bank consisted of 52,26.77.706shares of Rs. 10/- each, excluding forfeited shares.

Consumer Banking

During 2012-13, the Bank's Consumer Banking business showed healthy growth in revenue,a y-o-y rise of 47%. The Consumer CASA book grew by 27% and Fee Income grew by 44%, backedby aggressive growth in assets businesses.

The Bank's strategy on driving Savings book growth, continued to show results, with a50% y-o-y growth driven by the segmented client approach and a growing distributionnetwork.

The Home Loan distribution tie-up with HDFC Limited has been well established now withthe product being offered across all branches in the country. Housing Loan disbursals havegrown by 130% during the financial year. The Loans Against Property (LAP) book grew by250% during the year.

The Business Banking Group achieved growth of 67% in overall assets with substantialgrowth of 76% in Working Capital and 82% in Term Loan book.

The Bank continued to grow and scale-up the Credit Card business during this period byincreasing distribution in new cities and introducing new product variants.

The Bank has introduced Pre-Paid Forex Cards to offer a full suite of banking andpayment services to its growing affluent Retail client base. Forex cards are offered in 6currencies, viz.. US Dollar, Euro. Sterling Pound, Singapore Dollar. Australian DollarandSaudi Riyal.

In line with the theme of "Responsive Innovation", the Bank launchedSuperSaver packs, a first of its kind in the Indian banking industry. The packs are"need-based" solutions wherein multiple financial products / services arepackaged in a box and offer the client flexibility to choose across multiple options in atransparent and hassle-free manner, thereby saving cost and time.

The Bank successfully opened 100 new branches as part of the strategy of expandingbanking network to different locations in the country. 125 new branches are planned to beopened during the current year in select geographies and 250 ATMs to be set up across keymarkets.

The Bank embarked upon a unique initiative to certify its frontline staff through theIndusPro Certification Program, a 5-day intensive experiential program being conducted incollaboration with an international training organization.

The Bank focused on key service propositions such as client engagement and operatingprocess management to enhance the quality of delivery of banking products and services.The Bank also enhanced the Contact Centre support through IVR and agents across fourlanguages, including Hindi and English.

Credit Cards

The Credit Cards business acquired by the Bank from Deutsche Bank on June 1,2011 wasseamlessly transitioned to the Bank. The business achieved profitability in the first yearitself, and the focus of the business in 2012-13 was to take measured steps towardsscaling it up.

The business made significant progress during the year through distribution leverage innew centres where the Bank had branches but where the cards business was previously notpresent. The new cities wherein Credit Cards distribution was implemented during the yearincluded Coimbatore, Lucknow. Indore, Ahmedabad, Jaipur, Hyderabad. Kochi and Chandigarh.The business further deepened its distribution capabilities in the existing metropolitancities, to leverage the opportunities of cross-sell to customers in these centres. TheBank also introduced new product variants during the year, which helped scale up bookings.

The business has added significantly differentiated value propositions during the yearto continue to provide value to a discerning client profile in a competitive market, andhas successfully managed to grow customer outstandings and spends while controlling risk.

The Bank today has a vibrant portfolio of cards from both Visa and MasterCard. Thebusiness has added strong Point-of-Sale EMI programs during the period and has followedthe EMV Chip-based issuance strategy to provide enhanced transaction safety. The successof the portfolio transition effort from Deutsche Bank to the Bank can be exemplified fromthe fact that despite the change in brand, customer receivables from the acquiredportfolio have grown during the period.

The business has focused on enhanced service delivery and strong client engagementtools to ensure that service forms the key differentiator in the marketplace. Withsophisticated products, catering to affluent segments and a strong delivery platform inplace, the business is well placed to further leverage the strong branch network andseizing of the strong cross-sell distribution opportunities.

Consumer Finance

The Consumer Finance Division (CFD) extends funding for a wide range of vehicles /equipment which includes Commercial Vehicles, viz.. Heavy. Light and Small Vehicles usedboth for goods and passenger applications, Passenger cars, Utility vehicles, two-wheelersand construction equipment such as Excavators. Loaders, Tippers. Cranes, etc. Finance isextended for both new and used categories in all the above segments.

The thrust product during the year was used vehicles as this product line yields highreturns. During the year, used vehicle loans disbursed was Rs. 2,426 crore as against Rs.1,762 crore. a growth of 38%. The focus during the year was on optimizing the product mixto maximize yields, while maintaining portfolio quality despite the industry slowdown.

Aggregate disbursements made during the year rose by 18% to Rs. 14,808 crores asagainst Rs. 12,599 crores in the year 2011-12. New loan accounts added during the yearnumbered 8.40 lakhs, as against 7.10 lakh loans added in 2011-12. The growth in freshloans disbursed was healthy particularly in the background of slowdown in the vehiclesegment. Total Industry volume growth (all categories) was a mere 2.6%' and a negativegrowth of 2%' in the commercial vehicles segment. {'Source: SIAM data).

This Division also earned commission income of Rs. 23.31 crores, primarily throughdistribution of insurance products of Cholamandalam MS General Insurance, strategicpartner of the Bank for bancassurance under the General Insurance segment.

The operations of this Division are efficiently supported by document storage andretrieval facility at the Bank's Karapakkam Unit (near Chennai), which handles loandocument processing and record maintenance. This centre handled 1.3 million customer loanbooking and closure transactions and 18 million customer service / accounting transactionsduring the year 2012-13.

The Data Centre, also located at Karapakkam. has state-of-the-art facilities in termsof data / equipment protection mechanisms and is equipped with access rights with sensorsto monitor movement within the Centre.

During the year. Hand Held Terminals were deployed pan-India, to enhance processefficiency and facilitate real-time collection monitoring in collection activity.

Corporate and Commercial Banking Group

• Corporate and Investment Banking Group

The Corporate and Investment Banking group (C&l) covers large corporate clients andalso houses the Investment Banking Team of the Bank. The Bank is a Category I MerchantBanker.

Corporate Banking

Corporate & Investment Banking (C&l) provides Universal Banking Solutions tolarge Indian and multinational corporates. Over the last 4 years, this unit has become abanker to almost all the well-known industrial houses of the country, and activelyparticipates in their short term and longer term financing requirements.

• The Group specializes in executing structured solutions especially in TradeFinance and Foreign Exchange hedging for its clients. This involves drawing upon theknowledge of a team of specialists and delivering solutions to the client, tailor-made totheir needs.

• The Group increased penetration in the top corporate groups through a variety offunded and non-funded transactions including trade products, foreign exchange products andInvestment Banking activities.

• The Group consolidated on its strong reputation as a provider of innovativesolutions to complex funding requirements, with quick turnaround times.

Investment. Banking (IB)

• IB Fee grew by over 80% as a result of the Group's strong origination skills anddisciplined execution.

• Investment Banking at the Bank has 3 main businesses: Debt Capital Markets(DCM). Advisory (M&A and Private Equity) and Structured & Project Finance. Thispositions the Bank as a partner through the entire life-cycle of growth-orientedcorporates, providing both debt and equity solutions.

• The DCM Desk syndicates Project and Capital Expenditure loans for corporatesacross banks and financial institutions. This business grew well as the Bank wassuccessfully able to leverage relationships and get several prestigious loan syndicationmandates.

• Structured / Project Finance deals were successfully executed in sectors likeHealthcare. Infrastructure and Renewable Energy.

• The Advisory Team was set up during the year and is aimed at providing

M&A and Private Equity advisory services. Due to strong relationships, the Bank hasalready been able to secure profitable mandates in this space.

• The year also saw the Bank invest in issues of Commercial Paper and Bonds, whichwere sold down to capitalize on the opportunity of making capital gains.

Commercial Banking Group

Set up with a view to target the 'sweet spot' of the Indian corporate space, theCommercial Banking Group focuses on companies in the fast growing Mid-Market segments. TheBank's initiatives in Supply Chain Finance and Agri Business Finance are also housedwithin this business unit.

The broad business theme of the Group is centered on the following:

• Offering a full bouquet of customized products to clients, for their workingcapital requirements.

• Increasing the client-base to create a sustainable earnings stream for the Bank.

• Increased cross-sell through alignment of Relationship Managers and the ProductGroups, i.e.. Transaction Banking, Global Marketsand Investment Banking.

• Offering structured solutions through Transactional and Investment Bankingproducts to clients for specific needs.

• Meeting the stipulated PSL requirements through its Inclusive Business Group andAgri Business Group initiatives.

The highlights of the year are:

Focus had been laid on building a sustainable working capital client portfolio, and theyear saw further strengthening of this position. The Group's Loan Book crossed Rs. 7.000crores.

Special emphasis was laid on concluding structured Foreign Exchange (FX) as well asTrade Finance deals, thus showcasing the Bank's capability to offer innovative customizedsolutions.

The Inclusive Banking arm of the Group launched the "Partnership Model" withMicrotinance Institutions providing micro loans to weaker sections of society. This Groupactively works with more than 6,00,000 clients, all of which are women, providing themwith micro loans for productive purposes.

For providing specialized services to clients in the agriculture segment, an integratedAgri Business Group was initiated comprising specialized professionals to cover allsegments of the agriculture finance spectrum. This Division is scaling up innovative andcompliant products such as Farmer / JLG commodity finance, Agri Projects finance and AgriInfrastructure finance.

This Group also houses the Commodity Finance Team, which is focused on specific bankingrequirements of producers and traders of agricultural products and works on a fullycollateralized basis, managing financing against more than 35 commodities through anetwork of collateral managers in the key agricultural belts of the country.

Supply Channel Finance division of the Group works with over 550 dealers of automobilesand other products and provides short term inventory finance specially designed forcertain industries.

Financial Institutions and Public Sector Unit (FIPS)

The Financial Institutions & Public Sector Group, provides banking services toPublic Sector Undertakings (PSUs). both Central and State, Government Bodies and financialinstitutions like Banks, Insurance Companies and Mutual Funds. The Group manages businessfrom these client segments through a team of focused Relationship Mangers located acrossthe country. The broad focus area of the group, during the year, was to develop holisticrelationships with its clients, and increasing product penetration. FIPS revenue showed ahealthy growth, a y-o-y rise of 56%.

A large part of the Bank's wholesale deposit base is managed by this Group. The depositportfolio managed by this Group grew by 38% during the year. The FIPS Group has played akey role in de-risking the Bank's liquidity profile and ensured uninterrupted liquidity atall times.

Public Sector business of the Group showed healthy growth. The Public Sector unit ofthe Group now has relationships with more than 130 PSU clients including Maharatna andNavratna PSUs. The Group successfully executed several collection mandates for Bonds andDividend payments from key PSU relationships, and has been appointed as the leading cashmanagement banker for several of its clients.

The Correspondent Banking business which is also housed in this Group successfullymanaged relationships with over 350 correspondent banks across the globe. Theserelationships in different geographies support the scaling up of the Trade and Treasurybusiness of the Bank, and ensure seamless execution of cross-border deals. The Group alsosuccessfully raised foreign currency resources from key correspondents which helpedsupport the lending book in Foreign Currency, thus assisting in Bank's liquidity needs andfacilitating reduction in costs.

Capital & Commodities Markets Division

The Capital and Commodity Market Division focuses on serving Capital, Commodity andother Exchanges, besides associates of Exchanges and Members. The Bank has the distinctionof being a Clearing-cum-Settlement Banker to NSE and BSE for the Capital and FuturesMarket segments and for all the Commodity and Currency Futures Exchanges. The Bank is alsoClearing Bank to Commodity Spot Exchanges like National Spot Exchange and the NCDEX SpotExchange. The Bank has been a Depository Participant for NSDL and CDSL and is anempanelled DP, offering services to both the securities and the commodities segments. TheBank is currently a settlement banker to 14 Exchanges in both the capital and commoditiesspace. The Bank is also active in servicing the participants of these Exchanges.

Global Markets Group

The Global Markets Group (GMG) has three broad functional units, viz.. Money Marketsand Balance Sheet Management; Trading in Rates and Foreign Exchange; and Corporate RiskSolutions. The Group achieved overall revenue growth of 33% during the year.

The Money Markets and Balance Sheet Management Unit manages the regulatory requirementsrelating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), resourcemobilisation and liquidity management, Asset-Liability Management (ALM) and Funds TransferPricing (FTP) in order to manage and mitigate market and liquidity risks in the BalanceSheet.

The year started in the backdrop of tight liquidity with elevated interest rates acrossall tenor segments, with Certificate of Deposit issuance at rates higher than 10%, and the10-year benchmark Government Securities yield a tad higher than 8.75%. RBI eased the cyclefrom mid-April with a 50 bps cut in Policy Rate and an assurance to keep adequateliquidity in the system, which resulted in steady and gradual reduction in term structureof interest rates across all segments with the short term liability curve coming off by200 bps in first half of the fiscal.

The slump in Deposit growth rate coupled with demand supply mismatches drove the shortliability curve by 100 to 150 bps during mid-March 2013. The liquidity and resourcemobilisation strategy proactively addressed the changing domestic conditions to have asignificant cost reduction in Bank's sources of funds with a good mix of term deposits,market borrowings and refinance. In spite of the slow movement in interest rate cyclewitnessed during the year, the Trading Desk managed to generate trading profits by dynamicentry / exit strategies backed by smart short-term interest rate views and brought inimprovement in the yield of core SLR portfolio.

The Trading Desk in Rates and Foreign Exchange aims to maximise the Bank's revenue bytaking proprietary positions In the Rupee market as well as in G-7 currencies, juxtaposedto its timely entry / exit into the currency and interest rate markets. The Trading Deskhas curtailed its back-to-back covering of risk on swaps during the year and commencedhousing the IRS and MIFOR risks. This Desk also provides competitive rates to theclient-facing team in order to enhance client value, besides using trading techniques inincreasing the revenues in the inter-bank market.

The client-facing part of markets is broadly segmented into three parts - the CRS Team(Client Risk Solutions), the SRS Team (Structured Risk Solutions) and the Bullion Team.

The Client Risk Solutions (CRS) Desk advises institutional and corporate clients ontheir FX- and Interest Rate-related exposures, and provides tailor-made solutions to hedgesuch exposures. The spectrum of advisory services includes domestic as well ascross-border transaction flows and related risk management of the exposures on clients'Balance Sheet.

CRS covers the India geography through Dealers / Dealing Centres at Ahmedabad,Bangalore. Coimbatore, Chennai, Gurgaon, Hyderabad, Jaipur, Kolkata, Lucknow, Ludhiana andMumbai. It has extended its geographic reach via FastForex. the internet platform, to awider client-base and branch network, thereby ensuring faster delivery and access toreal-time market prices.

The Structured Solutions Team provides structured risk management solutions andadvisory to Bank's corporate clients using various derivatives products.

The Bullion Team helps clients of that segment with all hedging requirements for themetal.

During the year, the CRS Group successfully handled various large onshore FX flowtransactions of corporates and Financial Institutions clients as well as a few largecross-border trades related to capital market flows, with smooth execution having minimalimpact to the FX market. SRS Desk's timely advisory on structured derivatives solutionshelped increase mindshare amongst large and medium corporate and institutional clients andthis Group saw a healthy uptick in client volumes. Overall the client group saw a 46%growth in revenues y-o-y along with addition of large and medium blue chip clients.

The Bank has well laid-out operational policy guidelines, risk management policies(including Client Suitability Policy) and appropriate systems support to monitortransactions and risk on real-time basis.

The sustained growth of the Global Markets Group and its forays into new productscreated increasing need for automation and necessitated upgradation of the currenttechnological environment. The Bank placed an order to acquire an integrated Treasuryapplication, interfaced with the Risk Monitoring System. This Treasury solution will beimplemented, after stringent testing, in phases, in the course of the current financialyear.

Transaction Banking Group

The Transaction Banking Group provides solutions under Cash Management. Trade Services,Supply Chain Financing, Commodity Financing, Global Remittances, Electronic Banking and tothe Gems & Jewellery sector.

The Bank's Global Remittances business witnessed consolidation in transaction flows.This year saw good growth in Indus Fast Remit, the Bank's online remittance service forremittances from US and UK. The Bank continues to hold a position of dominance withGCC-based Exchange Houses, acting as the India corespondent for over 50 relationships.Strong growth was also achieved during the year in outward remittances from India. TheBank also launched an integrated secured data exchange model to enable inward remittancesfrom overseas partners.

The Bank opened two Currency Chests during the year, the first one in Thane (nearMumbai) and the second in New Delhi. This facility enables the Bank to manage cashholdings at its branches in a more efficient manner and increases the capacity to acceptcash deposits from its clients.

Under the Cash Management Services (CMS), the Bank offers products to its corporatecustomers facilitating their collections and payments, thus helping grow its CurrentAccount base. CMS throughput witnessed a 70% increase in transactions and 100 new clientswere added during the year. The Bank was ranked as the #1 Collecting Bank across allpublic issues that hit the market in the FY under 'Debt' category.

The Bank launched an integrated host-to-host corporate connectivity service toseamlessly integrate various corporate ERP platforms (SAP. Oracle Financials, etc.) withthe transaction processing systems. The volume of electronic transactions processed by theBank's corporate electronic channels grew by over 300% to 2.5 million perannum.

Under Trade Services, in addition to usual trade facilities such as Letters of Creditand Guarantees, the Bank offers customized working capital management solutions to clientsas per their business requirements. The Bank's ability to provide end-to-end Tradesolutions has enabled clients to unlock their capital funds leading to reduction ininterest cost and better profitability.

With a constant endeavour to assist its customers for their various trade financerequirements, the Bank has successfully built a diversified client-base ranging from largecorporate groups. SMEs. Business Banking and PSU / Government entities, resulting in arise in Trade business. During the year. Trade fees grew by over 40% and the non-fundbased Trade book more than doubled.

Supply Chain Finance solutions are a highly effective tool for manufacturing sectorclients in negotiating preferential purchase terms and strengthening channelrelationships. For suppliers, the Bank's solutions provide assured and cost-effectivefinancing of trade receivables, help improve Days' Sales Outstanding and provide BalanceSheet advantages by conversion of accounts receivable to cash. The Supply Chain Financebook has grown by over 40% during the year. Under Channel Finance, the Bank presentlyprovides Short Term Finance to over 550 dealers of large manufacturing companies.

Priority Sector Lending

The Bank has attained the distinction of achieving the RBI-prescribed target forPriority Sector Advances. Priority Sector Advances aggregated 114,323.55crores at the end of March 2013 representing 40.56 % of the Adjusted Net Bank Credit(ANBC) of the previous year, as compared to 48.11 % at the end of March 2012.

During the year, the Bank financed over 3,76,047 agriculturists, and its AggregateDirect Agricultural Advances stood at Rs. 4,058.57 crores, representing 11.49% of ANBC atthe end of March 2013. compared with 12.69% at the end of March 2012. However, the overallAgricultural Advances (i.e., Direct Agriculture and Indirect Agriculture) stood at Rs.4.347.50 crores, representing 12.31 % of the ANBC at the end of March 2013 compared to15.88% at the end of March 2012. owing to a drop in indirect agricultural advances.

During the year, Bank's finance to 'Weaker Sections' stood at Rs. 2,989.07 crores,representing 8.46% of ANBC as at the end of March 2013. Other Priority Sector Advancessuch as finance to small enterprises represented 28.25% of the ANBC at the end of March2013.

Risk Management

Banking business is exposed to a wide spectrum of risks, and it is imperative that thevarious risks faced by the Bank are effectively measured, monitored and managed. A robustEnterprise-wide Risk Management (ERM) framework enables effective and proactive managementof various risks while supporting business growth, helps reduce volatility in earnings andenhances shareholder value.

The ERM framework provides single-window view of the risks faced, and facilitateseffective management of associated risks in an integrated manner. The Bank has anintegrated Risk Management Department, independent of business functions, covering CreditRisk, Market Risk, Assets-Liabilities Management (ALM) and Operations Risk, including theInformation Security risk functions. Risk management practices adopted by the Bank arealigned with the best industry practices, and are adaptable to a dynamic operatingenvironment.

Reinforcement of Risk Management Practices - Basel II

The Bank has implemented New Capital Adequacy framework under Basel II w.e.f. March 31,2009, which enables allocation of capital based on risk sensitivity of respective assets.As a prudent measure, the Bank has been undertaking computation of capital requirementunder Basel II since June 2006. under a parallel run.

The Bank has implemented a highly sophisticated system which enables automatedcomputation of capital requirements under Basel II. The system also supports adoption ofadvanced approaches under New Capital Adequacy framework for computation of capitalcharge.

As part of Capital Adequacy framework, the Bank has also implemented the 'Policy onInternal Capital Adequacy Assessment Process' (ICAAP), which facilitates identificationand measurement of material risks other than the risks covered under Pillar I of Basel IIguidelines. During the year, the Bank further strengthened quantification and managementof the material risks under Pillar II of Basel II. The Bank has undertaken substantiveinitiatives to equip itself for migration to more advanced approaches of risk assessmentunder Basel II.

The Bank has acquired state-of-the-art Market Risk Management System for adoption ofInternal Model Approach for computation of Capital Charge towards market risk.

Credit Risk Management

Credit Risk is managed both at transactions level as well as at portfolio level. Thekey objective of Credit Risk Management is to achieve appropriate return in relation torisks assumed, while maintaining credit quality within the defined risk appetite.

Various measures adopted by the Bank for management of Credit Risk are mentionedhereunder:

• Gauging Credit Risk at the time of credit approval by means of risk ratingmodels implemented for different segments of obligors;

• Credit Portfolio Management analysis to monitor credit quality, composition ofportfolios, concentration risk, yield monitoring and business growth;

• Measurement and monitoring of credit quality regularly by means of WeightedAverage Credit Rating (WACR) of the credit portfolio;

• Prudential internal limits have been prescribed for assuming exposures oncounterparties, industries, sectors, etc.;

• Measurement of credit quality of Consumer Finance portfolios by means ofbehaviour modeling;

• Management of exposures to counterparty banks and countries by setting exposurelimits on the basis of risk profiles and monitoring the exposures regularly;

• Stress Testing of credit portfolios to measure shock absorbing capacity undermultiple stressed scenarios and assessment of impact of potential credit losses onprofitability and capital adequacy, thus enabling initiation of appropriate riskmitigation measures.

Market Risk Management

Market Risk arises from changes in interest rates, exchange rates, equity prices andrisk-related factors, such as market volatilities.

The Bank manages Market Risk in trading portfolios through a robust market riskmanagement framework prescribed in its Market Risk Management Policy. The frameworkincludes monitoring of PV01 limits, Value-at-Risk (VaR) limits for Forex, Investments,Equity and Derivatives Portfolios, besides Stop-Loss limits. Exposure limits, Deal-sizelimits and various operational limits.

The Market Risk Management Group functions independent of Treasury business, and isresponsible for:

• Designing and updating comprehensive policies, framework for Funds andInvestments, Foreign Exchange Dealing, Derivatives and Equities;

• Implementation of methodologies for measurement and monitoring the market risksassociated with respective portfolios;

• Monitoring market risk exposures in line with risk limits prescribed in thepolicies.

Asset-Liability Management

The Bank's Asset-Liability Management system supports effective management of liquidityrisk and interest rate risk, covering all of its assets and liabilities.

• Liquidity Risk is managed through Structural Liquidity Gaps, Dynamic Liquidityposition monitoring. Liquidity Ratios analysis, Behavioral analysis of liabilities andassets and prudential limits for negative gaps in various time buckets.

• Interest Rate Sensitivity is monitored through prudential limits for RateSensitive Gaps, Modified Duration of Equity and other risk parameters.

• Interest Rate Risk on the Investment portfolios is monitored through ModifiedDuration. PV01 and VaR on a daily basis. Optimum risk is assumed through duration, tobalance between risk containment and profit generation from market movements.

Detailed analysis of liquidity position, interest rate nsks, product mix. businessgrowth versus budgets, interest rate outlook, etc. is presented to the Asset-LiabilityManagement Committee (ALCO) which meets frequently and deliberates on liquidity positionand interest rate risk and reviews business strategies.

The ALCO provides directional guidance to Business Units towards effective managementof liquidity position, while achieving the business targets. The Bank evaluates itsstructural liquidity position on a daily basis for managing liquidity in a cost-effectivemanner.

Stress Testing - Liquidity Risk

The Bank carries out stress tests on liquidity position regularly to simulate theimpact ot stressed liquidity scenarios on funding and liquidity position. Stress testshelp the Bank to be better equipped to meet stressed situations and have contingency plansin place.

Contingency Planning

Contingency funding plans have been developed to respond swiftly to any anticipated oractual stressed market conditions. The Bank reviews its contingency plans considering theevolving market conditions. Contingency funding plan covers available sources tosupplement cash flow gaps in the event of stressed scenarios, rotes and responsibilitiesof those involved in execution of contingency plans and the contingency triggers.

Interest Rate Risk on Banking Book (IRRBB)

Interest Rate Risk on Banking Book largely arises on account of (i) Repricing Risk;(ii) Optionality; (iii) Basis Risk; and (iv) Yield Curve Risk.

From an economic value perspective, it is the Bank's policy to minimise sensitivity tochanges in interest rates on assets and liabilities. Interest Rate risk is measured basisthe re-pricing behaviour of each of the items under asset, liability and off-Balance Sheetproducts. The Bank's Assets and Liabilities Management Policy has laid down limits, basisits risk appetite, on the impact on Nil and Economic Value of Equity (EVE) for a givenchange in interest rate. The Bank has put in place the necessary framework to measure andmonitor Interest Rate Risk on Banking Book using the Duration Gap Approach, besidesTraditional Gap Approach.

Operational Risk Management

Operational Risk is the risk of incurring loss due to failure of systems, technology,processes, employees, projects, disasters, external factors, frauds, etc., including legaland regulatory risk. Operational Risk occurs on account of human error, failed processes,inadequate systems, fraud, damage to physical assets, improper behaviour or externalevents. The Bank seeks to ensure that key operational risks are managed in a timely andeffective manner through a framework of policies, standard operating processes andprocedures and tools to identify, assess, monitor and control such inherent risks in itsbusinesses.

The Bank's Risk Management Department provides necessary direction and undertakesvarious initiatives under its Operational Risk Management (ORM) Framework for mitigationof risks. The ORM Framework comprises Policy guidelines. Risk and Control Self-Assessment(RCSA), Loss Data Analysis, Key Risk Indicators (KRIs), Risk Profiling of branches,implementation of Basel II Guidelines, etc.

The RCSA of all major Operations functions have been carried out and necessary riskmitigation plans have been designed and implemented. Loss Data Analysis, basis internal aswell as external loss data, is carried out periodically to identify trends and reinforceoperational controls.

New products / processes are assessed for associated risks before their launch. All newproducts / processes are approved by the Operational Risk Management Committee (ORMC),which identifies the risks inherent in the products and prescribes necessary controls tomitigate such risks.

The Bank's Audit mechanism covers periodical on-site audit, concurrent audits, on thespot and off-site surveillance enabled by the Bank's advanced technology driven processesand the Core Banking System.

The Bank has implemented a comprehensive Bank-wide Business Continuity Plan to ensurecontinuity of its critical functions during disruption / disaster situations.

Systems Risk

As part of Systems-related Operational Risk Management initiatives, the Bank hasimplemented the following:

• Formulated and implemented a comprehensive Business Continuity Plan (BCP) toensure continuity of its critical business functions and extension of banking services toits customers;

• Established an effective Disaster Recovery site at a distant location, withon-line real-time replication of data, both in Mumbai and Chennai;

• A comprehensive Information Security Policy and the necessary framework havebeen put in place to ensure complete data security, confidentiality and integrity; and

• The Bank has housed its Data Centre in a professionally managed environment withsophisticated and fool-proof security features and assured supply of utilities.

Financial Restructuring and Reconstruction Group

All activities relating to recovery of non-performing loans and restructuring ofstressed assets are handled by the Financial Restructuring and Reconstruction Group(FRRG). The role of FRRG has assumed importance, given the challenging credit environmentfaced by banks in India during the past few years.

The Bank has actively utilized the Securitization and Reconstruction of FinancialAssets and Enforcement of Security Interest Act. 2002 for recovering its dues, whereverconsidered appropriate. The Bank is now a permanent member of the Corporate DebtRestructuring Forum, so as to efficiently handle restructuring of viable businesses incoordination with other lenders.

During the year, the Bank recovered an amount of 714.80 crores in written-off accounts(Previous Year: Z 9.45 crores). The Bank's Provision Coverage Ratio is nowat 70.13% (Previous Year: 72.72%). The Net NPAs of the Bank stand at 0.31% of the TotalAdvances (Previous Year: 0.27%). while the ratio of Gross NPAs as percentage of TotalAdvances amount is 1.03% (Previous Year: 0.98%).

Banking Operations

The Bank has strengthened the policy framework on "Know Your Customer" (KYC)norms and "Anti Money Laundering" (AML) measures from time to time, in line withthe policies of Reserve Bank of India. The Bank has implemented a simplified procedure of"Know Your Customer" which will benefit lower income group persons to openaccounts with minimal documentation.

The Bank had implemented a state-of-the-art Workflow and Imaging System during the year2009-10. The System has been implemented in the Account Opening process, automated theFixed Deposits opening and renewals. Trade Finance-related processing. Third Partyproducts sales operations and centralisation of Branch Expenses processing. The plan is tomigrate further processes on to the platform as per the operational needs.

The System enables faster turnaround times, movement of work from branch locationsacross the country to the Central Operations Unit in real time, thus reducing the time ittook for physical forms to arrive through courier. This has helped in freeing up manpowerat the branches to tend to customer service as well as help provide online status ofprocessing of customer requests / new applications.

As mandated in RBI directives, the Bank has undertaken review of risk categorisation ofall customers' accounts.

The Bank is a member of Banking Codes and Standards Board of India (BCSBI), which wasset up to ensure that banks in India adhere to a voluntary Code, which sets minimumstandards for fair treatment to customers availing of banking services. The Bank has madea commitment to adhere to all the provisions of the Code prescribed by BCSBI. The Bank hasimplemented almost all provisions of the Code. The Code is displayed at all the branchesand the same is also hosted on our website in thirteen languages.

In June 2008, the Hon'ble Finance Minister had released the "Code of Commitment toMicro and Small Enterprises" (MSE Code). MSE Code is also a voluntary Code, whichsets minimum standards of banking practices for banks to follow when they are dealing withMicro and Small Enterprises as defined in the Micro. Small and Medium EnterprisesDevelopment (MSMED) Act, 2006. It provides protection to MSE customers and explains howbanks are expected to deal with customers in day-to-day operations and in times offinancial difficulty. BCSBI has revised the MSE Code on August 09,2012. The revised MSECode was duly approved in Board of Directors' meeting in October 2012and disseminated tobranches.

The Bank has also formulated the Policy on 'Financing to Micro. Small and MediumEnterprises', and the same is made available on the Bank's website.

Centralized clearing has been implemented in Ahmedabad, Bangalore. Bhubaneswar,Chandigarh, Chennai, Coimbatore, Delhi. Hyderabad, Jaipur, Kochi, Kolkata, Ludhiana,Mumbai, Pune, Salem. Sural. Thiruvananthapuram and Vadodara for quicker and efficientprocessing. It will be the Bank's endeavour to bring more centres under CentralisedClearing in the near future. Automated ECS has been implemented at major centres.

Cheque Truncation System (CTS), which was implemented in New Delhi by RBI, wasoperationalised in March 2008 and has been fully stabilised and the Bank is participatingin clearing through CTS. Last year, the Bank had stabilised CTS operations in Chennai,Bangalore and Coimbatore through National Payment Corporation of India (NPCI). During theyear 2012-13, the Bank successfully implemented CTS operations in Chandigarh, Kolkata andLudhiana. Some branches in the States of Andhra Pradesh, Kerala and Tamil Nadu areindividually participating through National Payment Corporation of India.

The Bank has improved internal controls and compliance through the following:

• Separate and independent Compliance function has been set up for Bank-widecompliance;

• Vigilance function has been operational;

• Expenses management software has been deployed at all branches for facilitatingcost control:

• Standard Operating Procedures have been defined for processes at branches toensure consistency of delivery, with expanding branch network;

• Branch Monitoring Unit is operative for regular monitoring of branch operations;

• Voucher verification process has been operationalised for checking all theentries posted by the branches; and

• The Process Adherence and Quality function has been operationalised forattaining uniformity in processes followed by branches, to minimise operational risk.

The Bank has revised and adopted a "Comprehensive Policy", in pursuance ofRBI advices, on settlement of claims in respect of deceased depositors. The policy coversall types of deposits, and has simplified the procedure for settlement.

The Bank has adopted the "Best Practice Code", relating to transactionprocessing, with the objective of documenting the procedures in line with national andinternational best practices.

The Bank has put in place a "Deposit Policy" and a "Fair PracticeCode". While the former outlines the guiding principles in respect of variousproducts of the Bank, the terms and conditions governing the operations of the accountsand the rights of depositors, the Fair Practice Code is a voluntary code establishingstandards to be followed by all our branches in their dealings with the customers.

The Bank has framed the "Citizen's Charter" to promote fair banking practicesand to give information in respect of various activities relating to customer service.

The Bank has put in place "Compensation Policy" as part of the commitment tocustomers to compensate them in case of the Bank being unable to meet the service levelscommitted to the customers. The main objective of the policy is to establish a systemwhereby the Bank shall compensate the customer for any direct and actual loss by way ofinternal loss / payment of charges by customer due to deficiency in service, to the extentmentioned in the policy. The policy is based on principle of transparency and fairness indealings with customers.

The Bank has framed the "Unclaimed Deposit Policy" based on RBI guidelineswith objective of classification of unclaimed deposits and setting up the grievanceredressal mechanism for quick resolution of complaints and record-keeping.

Corporate and Global Markets Operations

Corporate & Global Market Operations (CGMO), which manages the operations relatedto Trade Services, Remittances. Supply Chain Finance, Global Markets, Cash ManagementServices, Payments. Depository and Capital Markets and servicing of all clients acrossboth the Corporate and Retail segments, continued to increase its focus on qualitydelivery, better risk management and increased efficiency.

Transition to the 'Finacle' environment was executed seamlessly for all host systemssupporting the above products, and there was no adverse business impact. Consolidation andcentralization of complex functions like Forward Contract Processing, Trade DocumentChecking and Bank Guarantees was carried out. resulting in increased efficiency,controlled risk and quality delivery. Implementation of the Reuters Electronic Trading(RET) platform for Branch / CPC initiated transactions. SFMS platform for securetransmission and receipt of Letters of Credit were some key projects. In all, over 75change projects were successfully implemented to support business initiatives and increaseoperational efficiency.

CGMO also embarked on a major 'Continuous Improvement' program with the objective ofbuilding a mindset of continuous improvement, and to deliver year on year efficiencybenefits. This program will also focus on increasing 'Engagement', 'Empowerment' and'Rewards & Recognition'. Under the 'Continuous Improvement' initiative, all staff haveundergone a half-day training session on the related tools and techniques. The team isconducting process reviews and implementing 5S across its processing centers. A 'Just DoIt' improvement program has been launched, empowering the staff to identify and implementimprovement opportunities. Focus is also being laid on structured training programs acrossall domains. A program for assessing training needs was completed for all staff andseveral in-house technical training programs were developed.

CGMO is currently leading a project for a complete revamp of the Treasury and MarketRisk Management System for the Global Markets Group. State-of-the-art systems have beenidentified after a detailed evaluation process. The Treasury system which will be capableof handling high volumes of complex Global Market products is under implementation.Further, commensurate with the Bank's plans to grow its Treasury and Derivatives products,and with a view to control and manage related risks effectively, a suitable Market RiskManagement system has also been finalized for implementation. Both these systems will golive in a phased manner over the next 12-15 months and will significantly boostcapabilities in these product segments.

Internal Control Systems and their adequacy

Operational Controls

The Bank has laid down the policy framework related to "Know Your Customer"(KYC) norms, "Anti Money Laundering Measures" (AML) and Combating of FinancingTerrorism (CFT>. The policy has been framed on the basis of recommendations of theFinancial Action Task Force and the Paper issued on 'Customer Due Diligence for Banks' bythe Basel Committee on Banking Supervision. The AML software that has been implementedeffectively has brought the operations risk under control. A systems solution has beenimplemented to operationalise Re-KYC guidelines and follow up on outstandingdiscrepancies.

In accordance with RBI's recommendations, a Committee on Procedures and PerformanceAudit on Public Service in Banks (CPPAPS), comprising senior functional heads of the Bankand a few customers, has been established. The Bank has also constituted a CustomerService Committee of the Board of Directors (CSCB) to review the performance of theCPPAPS.

Customer Service

The Bank has constituted Branch Level Customer Service Committees (CSC) at allbranches, comprising employees and customers. CSC meetings are convened every month toexamine complaints/ suggestions, cases of delay, difficulties faced / reported bycustomers / members of the Committee. Feedback and suggestions are submitted to CPPAPS.

CPPAPS examines and provides relevant feedback to the Customer Service Committee of theBoard for necessary policy / procedural action.

In May 2009. the Bank implemented 'Talisma". a 'Customer Requests. Complaints andRequests Management System'. The key objective of this solution is to have a single systemto track requests, complaints and queries at customer level so that the service standardsas set out by the Bank are managed and enhanced. The System has been implemented acrossalt branches and the Bank's Contact Centres in Mumbai and Chennai.

Grievance Redressal Mechanism

The Bank has designed an escalation process for all customer complaints received atbranches and at Corporate Office.

Aquarterly report related to complaints received and redressed is placed before theBoard of Directors. Based on the recurrence of complaints in specific areas, causativefactors are identified and necessary remedial measures are initiated.

The Bank maintains a dedicated page for lodging of complaints and complaint redressalmechanism on its website where information on the escalation process andthe details of the Nodal Officer / Regional Managers to receive complaints has beenfurnished.

These details are also displayed at the Bank's branches. Details of the BankingOmbudsman Scheme, 2006 are also displayed at Branches and provided on the website.

The Bank has also created a link on its website for a "Complaint Form", whichgives opportunity to all the Bank's customers to air their grievances in a simplified wayand get their complaints redressed without delay. Further, customers can contact therespective Branch Manager or call the Bank's Contact Center on toll free number or send anemail to customercare @ to lodge their grievances.


The Bank's Internal Audit function is adequately equipped to make an independent andobjective evaluation of the adequacy and effectiveness of internal controls on an ongoingbasis to ensure that business units adhere to compliance requirements and internalguidelines. To achieve this, comprehensive processes have been established for theInternal Auditors to ensure that all facets of the Bank's operations are subjected toscrutiny.

The Internal Audit function undertakes a comprehensive risk-based audit of all itsbusiness units. An audit plan is drawn up on the basis of risk-profiling of auditee units.Accordingly, the Bank undertakes internal audit of its business units at a frequencysynchronized to the risk profile of each unit in line with the spirit of guidelinesrelating to Risk-Based Internal Audit. The scope of risk-based internal audit, besidesexamining the adequacy and effectiveness of internal control systems and externalcompliance, also evaluates the risk residing at the auditee units.

In order to effectively address business concerns and to react with speed, the Bank'sInternal Audit function is operating as an integrated unit based out of differentlocations within the country, to cover all its operational activities. The Bank hasdeveloped an effective online surveillance system by using its fully networked CoreBanking Software, well-defined and strong internal controls, need-based access to computersystems and clear audit trails which have helped to mitigate operational risks. Tofacilitate ownership of the Quality Control mindset, all exception reports are availableon the system, for viewing and use by Business Units. There is a constant push to automateaudit activities in order to enhance transparency and standardization, as well as to speedup the availability of MIS to Top Management. Further, to complement the Internal AuditFunction and have real time supervision and control, critical units of the Bank arecovered under concurrent audits.

To ensure independence of the Audit function and in line with the best corporategovernance practices, the function has a reporting to the Audit Committee of the Board,which oversees the performance and reviews the effectiveness of controls laid down by theBank and compliance with regulatory guidelines, besides rendering effective guidance toensure conformity with best practices in the area of Internal Audit.

Compliance Function

The Board and Management of the Bank are continually committed to high standards inmaintaining a corporate culture of observing what is legally binding, and of embracingbroader standards of integrity and ethical conduct.

The Bank has a distinct Compliance Function that facilitates management of ComplianceRisk. The function independently monitors compliance aspects at various stages. Besidesthe system of Monthly Compliance Certificates from branches and various Corporate Officefunctions. Compliance Test Studies are carried out to assess the level of compliancecovering the branches, the Corporate Office functions, and also various associateagencies. Compliance Department vets the Bank's policies, new products and processes orany modifications in these, and also provides inputs on compliance aspects to variousbusiness / functional units.

The Bank has been continually strengthening its processes and controls to ensure bettercompliance at the execution stage and for early detection of any deviations.

To promote and strengthen compliance-culture among the workforce, the ComplianceFunction regularly conducts seminars for branch staff at all levels, viz., from thefrontline marketing / operations executives to the Branch Managers; circulates short noteson important topics and analysis of cases including the learnings; and also publishesmonthly newsletter containing inter alia regulatory highlights and a quarterly bulletincontaining compliance related matters and conducts Compliance Contests.

Human Resources

The Bank is on a high growth path and has exceeded business performance expectations.Human Resources continues to be a business enabler by partnering the Business Units intalent acquisition, development and retention.

The Bank's business performance has evoked enthusiasm amongst job-seekers, who want totake up employment to be a part of the growth story. Values such as entrepreneurship andresult-orientation draw people to the Bank.

The Bank draws upon the best talent in the industry and is already seen as a"preferred employer", which is exhibited by:

• High pedigree professionals from reputed peer banks (domestic as well asforeign) willing to make a long-term career.

• High 'offer acceptance' ratio, increased hires through employee referrals,higher employee life span within the Bank.

• Minimal attrition at leadership and strategic managerial layers, whichreinforces the belief that employees perceive the Bank favourably.

Key highlights:

• Hiring quality manpower, viz., high performers with right skills pan-India in acost effective and timely manner to create employee ownership and promote innovation andresponsiveness. In line with business objectives, the manpower strength increased to11.502 employees from 9.370 employees a year ago.

• Equipped employees with desired functional / behavioural competencies to enhanceproductivity through quality learning interventions. During FY13. the Bank conducted2,89.000 learning man-hours for over 34,000 participants through well designed classroomand e-learning initiatives. Several learning programs in areas of 'LeadershipDevelopment', 'Art of Collaboration & Team Building', 'Sales Processes', 'BusinessEffectiveness'. 'Banking Products and Operational Processes' were conducted during theyear. E-learning initiatives (on-line course modules and assessment tests) were usedextensively to offer standardized and cost-effective learning solutions to employees.

• A robust and transparent Online Performance Management System based on"SMART Goal setting"1 is running successfully across theorganisation. The intent of the Bank's Performance Management processes (Goal setting,Mid-year Review, Annual Performance Review) is to engage with employees, mentor, counseland link rewards to performance, identify and nurture leaders to spearhead businessgrowth. The annual performance appraisal for FY12 was executed seamlessly in alignmentwith the Bank's objective of rewarding performance against tangible goal achievements.Mid-year Performance Review for FY13 was used as a platform by the Line managers and HR toprovide developmental feedback and performance counselling to employees for achievement oftheir annual "SMARTs".

Rs. The Bank's compensation policy is driven by a 'Pay-for-Performance' philosophy.Compensation policies of the Bank are completely aligned to the regulatory compensationguidelines. They are market-driven and structured to facilitate, attract and retaincritical resources. As an approach towards building long-term employee ownership andassociation, the Bank continues to use Stock Options as a tool to attract, reward andretain critical employees.

• "Employee engagement initiatives" were pursued to channel employeecreativity towards innovation at work. Quarterly webcasts, Branch visits by HR and LineManagers, business off-sites, sports, festivals, quizzes, employee reward and recognitionprograms were conducted to create employee bonding and connect. The "I Solve"campaign continues to foster a culture of internal responsiveness. "My idea", anideation platform, is generating innovative ideas for business process improvement andenhancing customer delight.

• Technological interventions are driving the efficiency of HR operationalprocesses, which has resulted in scalability, better TATs, cost efficiency and higherresponsiveness towards the end-user needs. There was efficient management of all HRprocesses relating to Onboarding, Attendance, Payroll, Confirmations. Loans, Mediclaim,Gratuity, Exits, etc.

• The Bank espouses adherence to the Code of Conduct, which clearly outlines the"desired" employee professional and personal conduct. Any deviation from theacceptable norms such as to breach of employee integrity and non-conformance to the Bank'sCode of Conduct is treated as a deviation and results in action against the erringemployee.

The Bank realizes the importance of human capital and is conscious about creating acongenial workplace driven by values of compliance and discipline, where employees canactualize their potential.

HR's strategic agenda remains to delight employees by continuing to offer a fulfillingcareer, work-life balance, market-linked compensation and enhancing employee equitythrough several benchmark HR practices.

Employee Stock Option Scheme

The Bank had instituted an Employee Stock Option Scheme to enable its employees,including Whole-time Directors, to participate in its future growth.

The Scheme functions in accordance with the Securities and Exchange Board of India(Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines. 1999. Theeligibility of an employee and number of Options to be granted are approved by theCompensation Committee of the Board of Directors.

An aggregate of 2.79,55.200 Options, comprising 5.35% of the Bank's equity capital,have been granted. Statutory disclosures as required by the SEBI Guidelines on ESOS aregiven in the Annexure to the Directors' Report.

Other Initiatives underway


Quality is a prime differentiator in a service industry, and the Bank has had thedistinction of having had its entire Branch network certified as compliant with ISO9001:2000. However, with the passage of time, it was necessary to move beyond this, and toembed quality in every aspect of the activities.

The Bank's corporate ambition for the triennial 2008-11 had been to emerge as a TopPerformer among new generation private sector banks in 3 years, measured by Profitability,Productivity and Efficiency. This was to be achieved by doubling the branch network,client base and Balance Sheet size.

The catch slogan for the triennial 2011 -14 had been changed to 3-2-1. i.e., to benumber 1 in RoA. RoE and NIM; raise 2-fold the Profits, Clients and Branches; the periodtaken to achieve the same being 3 years. The mam target of the Bank is to grow faster thanthe market, with the underlying target of raising market share across all businesssegments.

The Bank had tied up with the Confederation of Indian Industry's (CM) Institute ofQuality. Bangalore to kick off the Quality Initiative with a series of workshopsfacilitated by CII-IQ faculty across the country, where Managers were sensitised to theneed for quality, and practiced converting quality concepts into definite action steps forregular implementation.

Thereafter, teams with relevant skills worked on specific projects under the leadershipof a Top Executive, and over time, this movement has continued to cover other aspects ofthe Bank's operations, products, people, the way employees relate with clients andcolleagues, communication with the external environment, etc.

Shareholder Satisfaction

With a view to promoting transparency and enhancing shareholder satisfaction, apartfrom frequent interaction with the Registrar & Transfer Agent, steps have been takento obtain contact details such as e-mail IDs, cell phone numbers and telephone numbers ofall shareholders so as to communicate to shareholders information about developments inthe Bank. This direct communication is in addition to the regular dissemination ofinformation through usual channels such as the Stock Exchanges. Press. Bank's website,etc.

Going forward, the Bank's shareholders shall continue to receive best-of-classshareholder services and be promptly informed of the developments in the institution.

As part of the Green Initiative in Corporate Governance, the Ministry of CorporateAffairs (MCA). Government of India, through its Circular Nos. 17/2011 and 18/2011, datedApril 21. 2011 and April 29. 2011 respectively, had allowed companies to send officialdocuments to their shareholders electronically.

The Bank has been at the forefront in "Green InitiativesRs.1, andthrough this process aspires to graduate to paperless compliances.

Shareholders are requested to furnish their e-mail IDs at orinform telephonically on 022 - 6641 2487 to help accelerate the Bank's migration topaperless compliances.

In line with Circular issued by MCA, the Bank seeks the consent of shareholders to sendthe Annual Report i.e.. Notice convening the Meeting, Financial Statements. Directors'Report, Auditors' Report, etc. in electronic form, to the e-mail address provided by you /made available to us by the Depositories.

The full text of these reports shall also be made available in an easily navigableformat on the Bank's website under the link Investor Relations /AnnualReports.

Shareholders have been intimated from time to time to claim the dividend amounts lyingunclaimed with the Bank.

Information Technology

Information Technology (IT) has provided a sustained thrust in operationalefficiencies. The Bank regularly invests in IT infrastructure and new technology, so thatbusiness innovations help stay ahead of competitors. This year, the focus was on CoreBanking migration and enhancing different applications to further the theme of customerdelight.

The Bank had initialed the Cote Banking Project two years ago, with the objective otbuilding a stronger core so as to enhance the Bank's ability to perform, deliver andexpand delivery of quality services across branches and online Interlaces. Finacle, asystem built on new generation technology, was selected to enable the Bank to accelerateinnovation and effectively meet emerging customer demands. By leveraging Finacle, the Bankintends to personalize offerings, bundle products and enrich its segment-specific productportfolio.

The key highlights of the Core Banking System (CBS) transformation project were:

• ATM services were available during the entire period of transition:

• Branches had a smooth transition from earlier CBS to Finacle with no majorissues;

• All interface came up seamlessly with Finacle with no customer issues:

• Cut-over was completed ahead of the scheduled time in a seamless manner;

• All branches have been upgraded to a minimum of 512 KBPS bandwidth to facilitatemaximum utilization of Finacle's capabilities;

• Key online interfaces have been moved to ESB to smoothen and streamline futureenhancements.

Customer Delight:

Rs. Multilingual support at Contact Centre: As part of constant endeavour to | improvecustomer experience and services, the Bank rolled out IVR support in Marathi and Tamil,thus increasing number of languages being supported to four.

• Retail e-Banking: Additional features for Exclusive customers which enable themto easily contact the Relationship Manager and Service specialist and also be able toupgrade to Premium Banking program.

• Direct Connect for select customers on IVR: Select customers can dial theGeneral Banking IVR from their registered mobile number to avail the Direct j Connectfacility and get personalized attention without the need to navigate through menu options.

• FastForex: It has been extended to branches along with the Treasury system, sothat branches can quote exchange rates to the customers without having to depend onCorporate Office resulting in faster turnaround time for the customer. '

Other initiatives:

• Micro Finance System: The Bank implemented the Micro Finance System, which workson a workflow-based system with options to create various loan products. Interface withthe Core Banking system has been developed for uploading daily GLtransactions.

• Credit Proposals Tracking and Monitoring System: It is a workflow system toenable quicker sanction of credit proposals. The queries and information required by theCredit Analyst are captured in the system for centralized control and analysis forefficiency.

• Biometric Attendance System: For employee convenience and better control, theBank instituted the 'Finger-print Biometric Attendance System', which searches throughemployee records instantaneously and completes a host of checks to deliver accurate anderror-free results in recording employee attendance.

• FRR (Financial Restructuring & Reconstruction) Tracker: To improve follow-upand early closure of pending suit files. Decreed / DRT / BIFR accounts, the FRR Trackerwas developed using SharePoint technology with single sign-on and e-mail escalationmechanism entries. This has helped in documents attachment facility at each stage,event-based e-mail escalation and issuance of reminders, and generation of Dashboard forthe management.

• Implementation of iCreate, Smart MIS system: The Bank replaced the earlier MISapplication with state-of-the-art MIS system to cater to customized requirements, androlled it out across all branches and Corporate Office locations. RBI reports are alsobeing developed on this platform.

The Bank conducts comprehensive Disaster recovery drills for critical applications likeCore Banking, ATM Switch, payment systems, etc. at regular intervals to maintaincontinuity of services to its customers.


During the year the Bank received the following technology-related awards.

• Five awards from Indian Banks' Association in the following categories: BestOnline Bank

• Best use of Business Intelligence Best Risk Management & IT Security

• Best use of technology in Training and E-leaming Best useof Mobility Technology in banking

• Best Bank Award under Small Banks Category for "IT for Operational ^V Effectiveness". \ v V

• Implementing Green IT Architecture initiatives by iCMG. a leading Global \Enterprise Architecture firm. \

• Innovation Award by 'Talisma' tor various innovative uses of Talisma such astwo-way SMS Integration. Client Engagement Module and e-Banking Integration.

• The Top 100 CISO Award from InfoSecurity Magazine and iViz Security for ITsecurity initiatives in the Bank, for the second year in a row.

Information Security Review

The Bank has made steady progress in implementation of RBI Guidelines on InformationSecurity. Technology Risk Management, Cyber Fraud and Electronic Banking.

Due care is taken to protect the complex technology environments from sophisticatedattacks and new approaches have been applied right from inception to implementation andoperations of systems. As part of IT Security governance, the Bank has enhanced securityframework and implemented mobile and grid-based One Time Password (OTP) for transactionauthorization. Various security controls have been implemented like real-time virus /malware protection, real-time website security checks, securing our systems and networksthrough various measures and controls.

Additionally customers and community are being made aware of information securitythrough various ways. The Bank has undertaken several initiatives to educate employees,customers and non-customers through variety of mediums like e-mails, SMSs, websites,online trainings and workshop.

No incident of Information Security breach occurred during the year.


The important legislative / regulatory changes during the year affecting the bankingindustry were the enactment of The Enforcement of The Security Interest and Recovery ofDebt Laws (Amendment) Act. 2012 thereby amended The Securitization and Reconstruction ofFinancial Assets and Enforcement of Security Act, 2002 and Recovery of Debts Due to Banksand Financial Institution Act. 1993.

The important amendments are as under:

• Provision has been made for filing Substitution Application by an AssetReconstruction Company before the Debts Recovery Tribunal or the Appellate Tribunal or anyCourt in place of the Originator after acquisition of financial assets from the bankingcompany / financial institution.

• The secured creditor (Bank) is now permitted to send communication to theborrower within a period of 15 days (earlier, one week) in response to the representationmade by the borrower in reply to the Notice issued by the Bank for enforcement of thesecurity interest under section 13 (3A) of the Securitisation Act. 2002.

• Banks have been allowed to participate in the second bid for purchase ofimmovable property of the defaulted borrower put under auction for recovery of the banks'dues. On purchase of such property, the same shall be treated as non-banking asset andwill have to be dealt with according to the provisions of the Banking Regulation Act,1949.

• In case of consortium / joint finance, banks can exercise the rights under theSecuritisation Act, 2002 after obtaining consent of the secured creditors representing 60%in value of the amount outstanding. Earlier, consent of secured creditors representingthree-fourth in value was required.

• Banks are permitted to file caveat before the Debt Recovery Tribunal or theAppellate Tribunal if the borrower is likely to file any application or appeal against theaction initiated by the bank under the Securitisation Act. 2002.

• Multi State Co-operative Banks have been included in the definition of bank.

Certain amendments have been carried out to the Banking Regulation Act. 1949, theimportant amendments are as under

• Banks can now issue preference shares in accordance with the guidelines framedby the Reserve Bank of India (RBI).

• Any person who wants to acquire directly or indirectly 5% or more of the paid-upshare capital of a banking company has to obtain previous approval of the RBI.

• Provision has been made whereby RBI shall establish a fund to be called as"Depositor Education and Awareness Fund" by utilizing the amounts lying ininoperative deposit accounts with banks.

• RBI has been empowered to direct at any time a banking company to annex itsfinancial statements or furnish to it separately such statements and information relatingto the business or affairs of any associate enterprise of the banking company. RBI hasfurther been authorized to cause an inspection of any such associate enterprise and itsbooks of accounts.

• RBI has been empowered to supersede the Board of Directors of a banking companyif it is satisfied that the same is required in the public interest or for preventing theaffairs of any banking company being conducted in a manner detrimental to the interest ofthe depositors or for securing the proper management of any banking company.

The Bank is not involved in any legal proceedings, and is not aware of any threatenedlegal proceedings, which if determined adversely, could result in a material adverseeffect on business. Further, there are certain legal proceedings in the context of bankingactivity which are not unusual for a bank of comparable size.

Corporate Communications

During the year 2012-13, the Bank took a number of initiatives to increase itsvisibility by ensuring clutter free communication in an interesting and innovativemarketing approach.

In an attempt to differentiate itself as a leading banking institution, the Bank laidfocus on below-the-line activities at branch levels which have not only enhanced itsvisibility quotient, image, and recall value, but have also established it as a young,progressive and agile brand. Simultaneously, looking to the need of the hour and to tapthe vast potential of online space, the Bank made a foray into digital space and createdits profiles on specific social networking sites, thereby creating a direct connect withcustomers. The Bank developed regular posts with interesting content to engage withcustomers. The Bank's fan base in these social networking sites has been steadily growing.

Another significant achievement during the year has been the opening of new branches atsemi-urban and urban locations. The Bank developed specific marketing plan for each suchlocation which entailed initiating communication with the local population in regionallanguages. In pursuance of the theme on 'Responsive Innovation', the Bank widened itsretail liabilities.This process was supported by aggressive advertising and a clearcommunication strategy, backed by interesting and power-packed client engagement andactivation programs to bring about a consistent approach in driving saliency to the Brandand building affinity.

The Bank acknowledges that no communication is complete without the wholeheartedsupport of its internal stakeholders. In this regard, the Bank developed interesting andengaging series of awareness-building e-direct mailers for specific campaigns, whichreceived overwhelming response from the employees.

On the external communication front, following initiatives were taken up:

• Sponsorships / events with reputed Associations / Trusts which in turn havegiven higher visibility and reinforced the brand image. Your Bank participated inactivities having multi-purpose objectives such as sports, philanthropy, music, etc. alongwith service organisations / NGOs and corporate Bodies to make the Bank's presence felt inthe community. Some of the major events were Pandit Chaturlal Memorial Music fi Concert,Kala Virassat, Design One by Sahachari Foundation, Annual Polo Event I organised byRajmata Vijaya Raje Scindia Centre for Development (RVRSCD) and many other events atvarious branch locations.

• Regular client engagement activities, debit and credit card promotions, regionallevel I promotions, branch launches, an extensive round of development of variouscollaterals for new products / services, and tactical promotions during festive / seasonaloffers.

• The Bank's activities have received extensive coverage both in the print andelectronic channels, which have enhanced the Bank's image amongst its stakeholders andcreating a strong perception of the Bank in industry circles.

• Periodic concalls, one-on-one investor meetings, roadshows and annual analysts'meets have all created a positive impact on the Bank's image. The Bank's scrip wasinducted in the National Stock Exchange's benchmark index "Nifty' from April 1,2013.This has reflected Bank's growing stature in the equity market.

• Increase in the number of ATMs at strategic / high traffic zones has given theBank the desired visibility.

• The Bank had a series of TV commercials in the US and UK markets for its 'IndusFas NRI community. The Bank also continued to emphasise the product in the digital arena.

Branch Network

During the year 2012-13, your Bank opened 100 new branches and 190 ATMs. As on March31,2013. the Bank had 500 branches spread across 358 geographical locations and 882 ATMsinclusive of 440 off-site ATMs.

The Bank has presence in 30 States and Union Territories, and has RepresentativeOffices in London and Dubai.


During the year 2012-13, apart from expanding its Branch network to reach a pan-Indianetwork of 500 branches, the Bank also refurbished / remodelled seven branches, set up sixnew administrative offices and relocated seven branches towards better business prospects.The two Currency Chests set up during the year are expected to significantly enhancein-house capabilities and provide support for increased business profitability.


Peer Comparison

Company Market Cap
(Rs. in Cr.)
HDFC Bank 172,383.77 21.44 4.76 15.19 20.3 0.0 0.00
ICICI Bank 145,762.50 15.40 2.19 13.58 13.1 0.0 0.00
Axis Bank 68,834.03 11.61 2.08 13.26 18.5 0.0 0.00
Kotak Mah. Bank 61,698.06 40.29 5.74 16.76 15.6 0.0 0.00
IndusInd Bank 26,201.74 18.61 3.03 12.17 17.8 0.0 0.00
Yes Bank 15,039.42 9.70 2.59 12.32 24.8 0.0 0.00
ING Vysya Bank 10,842.49 15.74 1.97 12.55 14.6 0.0 0.00
J & K Bank 8,275.29 7.00 1.70 12.17 23.6 0.0 0.00
Stand.Chart.PLC 8,180.56 2.77 0.51 9.35 19.0 0.0 0.00
Federal Bank 8,070.23 10.30 1.27 12.31 13.9 0.0 0.00
Karur Vysya Bank 3,973.70 8.48 1.29 11.82 19.0 0.0 0.00
South Ind.Bank 3,258.96 6.08 1.14 11.56 20.5 0.0 0.00
City Union Bank 3,128.67 9.04 1.90 10.90 22.3 0.0 0.00
Karnataka Bank 2,239.10 7.53 0.78 11.39 12.8 0.0 0.00
DCB Bank 1,600.80 10.57 1.46 13.48 8.8 0.0 0.00

Futures & Options Quote

Expiry Date
501.30 11.65  (2.4%)
Instrument: FUTSTK
Expiry Date: 24 Apr 2014
Open Price: 493.35
Average Price: 497.34
No. of Contracts Traded: 7,311,000
Open Interest: 4,892,000
Underlying: INDUSINDBK
Market Lot: 1000
Previous Close: 501.30
Day’s High | Low: 506.55 | 489.05
Turnover (Cr.): 363.61
Open Int. Change: -584,000.00 ( [10.7]% )
View detailed F& O quotes >>

Key Information

Key Executives:

R Seshasayee , Part Time Chairman  

Ajay Hinduja , Director  

S C Tripathi , Director  

Ashok Kini , Director  

Company Head Office / Quarters:
2401 General Thimmayya Road,
Phone : 91-20-26343227/28
Fax : 91-20-26343241
E-mail :
Web :

No data found


14 15 16 17 18 19 20
listNo IPO today
Economic Events
list No economic event today
list No result today