Management Discussion And Analysis
Macroeconomic Scenario and Banking Environment
Global economic activity remained subdued during the first half of the financial yearas a consequence of tapering of the asset purchase programme by the US Federal Reserve,and sluggish growth in developed markets. This, coupled with weaker economic output inEmerging Market Economies (EMEs), resulted in portfolio outflows from EMEs, includingIndia, contributing to currency volatility.
Demand from advanced economies registered a marked improvement in the latter half ofthe financial year, leading to a pick-up in EMEs growth to clock 4.7% in 2013. With theuncertainty arising from the US tapering having diminished, focus of policy makersglobally has shifted to tackling the residual risks to growth and inflationary pressuresfaced mainly by EMEs.
On the domestic front, the economy was confronted with structural headwinds in the formof the twin deficits (Fiscal and Current Account) and elevated inflationlevels. In order to curb volatility in forex markets, RBI announced exceptional policymeasures in July 2013. These measures included restricting access to funds under theLiquidity Adjustment Facility (LAF) while simultaneously increasing the Marginal StandingFacility (MSF) rate by 200 bps. These steps led to tightening of liquidity with anovernight spurt in rates, and rise in interest rates across the short and long end of thecurve by 200 - 300 bps. The measures succeeded in immediately calming the markets. The RBIannounced new measures on September 4, 2013 to further the soothing-effect on the market.These included concessional Swap Windows for FCNR Deposits and Foreign Currency Loansraised by Indian banks. These measures eased pressure on liquidity and strengthened theRupee.
During the year, the Government continued its fiscal consolidation process, resultingin lowering of FY14 Fiscal Deficit at 4.6% of GDP against the targeted 4.8%. Broaderstructural issues such as addressing the subsidy burden and augmenting revenue receiptswould have to be addressed by the political formation brought to office in GeneralElections 2014. Unless these broad issues are addressed, fiscal consolidation would haveto be undertaken through ad hoc cuts to spending, which may impair the productivity of theeconomy in the long-run.
With the twin-deficits (Fiscal and Current Account) under control, the RBIadopted the recommendations of Dr. Urjit Patel Committee Report in January 2014. Therecommendations included adopting headline Consumer Price Index (CPI) as the nominalanchor for Monetary Policy regime and suggested a disinflationary glide-path(bringing down inflation to 8% by January 2015 and 6% by January 2016). The operativeframework to ensure consistency with the broad policy theme included introduction of TermRepos of varying maturities and Open Market Operations (OMOs) being linked solely toliquidity management. CPI inflation which was above 10% (y-o-y) till November 2013 finallyfell below its double digit mark to 9.87% (y-o-y) for the month of December 2013 andcontinued to ease thereafter, and core CPI inflation had trended down to below 8% inFebruary 2014.
Against such a backdrop, most banks have had to manage productivity and efficiencylevels through liquidity and resource mobilisation strategies that proactively factor inthe changing market conditions.
Given weak growth, manageable Current Account Deficit, reasonably stable currency andmoderating inflation as indicated by data over the last couple of months, no significanttightening is expected over the next few quarters. With the Government of Indiascommitment to contain Fiscal Deficit below 4.6%, low GDP growth (4.7% for FY2013-14), coupled with possible achievement of a disinflationary glide path, themacro-economic environment may provide headroom for policy action with a focus onstimulating growth.
Banks Performance during 2013-2014
The salient features of the Banks operating performance during the year 2013-14are summarized in the table below:
| || |
|Interest Earned ||8,253.53 ||6,983.23 ||18.19% |
|Interest Expended ||5,362.82 ||4,750.37 ||12.89% |
|Net Interest Income ||2,890.71 ||2,232.86 ||29.46% |
|Other Income ||1,890.53 ||1,362.96 ||38.71% |
|Total Operating Income ||4,781.24 ||3,595.82 ||32.97% |
|Operating Expenses excluding Depreciation ||2,087.13 ||1,682.93 ||24.02% |
|Operating Profit before Depreciation and Provisions ||2,694.11 ||1,912.89 ||40.84% |
|Less: Depreciation ||98.15 ||73.43 ||33.66% |
|Less: Provisions & Contingencies ||1,187.94 ||778.28 ||52.64% |
|Net Profit ||1,408.02 ||1,061.18 ||32.68% |
Despite the tough operating environment that prevailed through most part of thefinancial year, the Banks Net Profit, after considering all expenses and necessaryProvisions and Contingencies, rose by 32.68% to Rs 1,408.02 crores, as against Rs 1,061.18crores in the previousyear.TheOperatingProfit(beforeDepreciation and Provisions andContingencies) was higher at Rs 2,694.11 crores as against Rs 1,912.89 crores in theprevious year, a rise of 40.84%.
Core earnings of the Bank through Net Interest Income improved by 29.46% to Rs 2,890.71crores from Rs 2,232.86 crores. Yield on Advances dropped by 21 bps at 13.56%, but Cost ofDeposits showed a sharper decrease of 32 bps at 8.17%, helping enhance the margins. NetInterest Margin (NIM) improved to 3.71% during the year, as compared with 3.43% in2012-13.
Fee and Miscellaneous Income during the year was Rs 1,890.53 crores, as compared to Rs1,362.96 crores in the previous year, showing a strong growth of 38.71% on a y-o-y basis.Increase in Core Fee Income such as Commission, Exchange, Fees on distribution ofthird-party products and earnings from Foreign Exchange business, etc. was equally robustat Rs 1,609.72 crores as against Rs 1,239.34 crores, registering 29.89% growth.
The Bank expanded its branch network rapidly to reach 602 branches, as against 500 atthe beginning of the year. Revenue per employee during the year remained steady at Rs 31lakhs.
Quality of the Banks assets was stable, with Net Non-Performing Assets (Net NPAs)at 0.33% at March 31, 2014 as against 0.31% the previous year. Provisioning Coverage Ratio(PCR) was maintained at a satisfactory level of 70.35%, compared with 70.13% in theprevious year.
During the year under review, the Bank allotted 27,68,778 shares, pursuant to theexercise of Options under its Employees Stock Option Scheme, 2007. An aggregate of3,10,18,700 Options, comprising 5.90% of the Banks equity capital, have been grantedunder the Scheme.
During the year, the Bank has received the IBA Award for "Best Use of Technologyin Training and eLearning" amongst Private Sector Banks, ACI Excellence Award 2014for Operational Excellence, Top Green IT Enterprise Award 2013, Top 100 CISO Award 2014,Infosec Maestros Award 2014 in recognition of the Information Security projectsimplemented by the Bank, Customer Management & Business Intelligence Award in theSmall Banks category and the VMWARE Award for virtualization of critical businessapplications.
During 2013-14, the Bank's Consumer Banking business showed healthy growth in revenue,recording a y-o-y rise of 36%, on the back of 40% rise in the Retail Book (Assets +Liabilities). The Bank's strategy of driving Savings book growth continued to showresults, with 41% y-o-y growth driven by the segmented client approach and a growingdistribution network.
The Bank continued its business segment led focus on Current Accounts by enhancing theexisting product suite. The Indus Infotech Current Account offers acomprehensive package with the best-in-class banking products and services that includeCurrent Account, Trade & Forex, Salary Account and Retail Forex Services.
Banks deposits grew during the year by 11.80%, to Rs 60,502.29 crores from Rs54,116.72 crores. CASA stood at 32.55% of Deposits, from the level of 29.32% last year.The number of branches doubled during the year, and the customer base expanded to about 5million from about 2 million.
The Home Loan distribution tie-up with HDFC Limited has been well established now, withtheir products being offered across all branches in the country. Housing Loan disbursalshave grown by 73% during the financial year. The Loans against Property (LAP)book grew by 77% during the year. The Bank launched Business Loans, Personal Loans andGold Loans.
With the aim of providing best-in-class products and services in the area of HealthInsurance, the Bank tied up with Religare Health Insurance to distribute comprehensiveHealth Insurance solutions through the Banks branch network.
The Business Banking Group achieved growth of 35% in overall assets, with substantialgrowth of 39% in Working Capital and of 16% in the Term Loan Book.
The Bank continued to scale-up the Credit Card business by increasing distribution innew cities and introducing new product variants, including the Iconia range ofCards on the American Express and VISA networks.
The Bank retained its No.1 ranking in the Prime Database statistics on public issuecollections.
In line with the theme of "Responsive Innovation", the Bank launched MyAccount My Number (MAMN), which allows a customer to choose an Account Number of his/ her choice when opening an account with the Bank. This service proposition has been wellreceived and substantial CASA deposits mobilization in the year was acquired under thisunique feature.
The Bank opened 102 new branches as part of the strategy of expanding banking networkto different locations in the country. 160 new branches are planned to be opened duringthe current year in select geographies and 250 ATMs to be set up across key markets.
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 Credit Cards business made robust strides during the year 2013-2014 with strong andattractive product launches, continued robust portfolio performance and strong increase inkey portfolio drivers such as customer spends and activity. The business continues to beprofitable and forms a key diversification in the overall assets strategy of the Bank. Thebusiness continues to be scaled up in a prudent manner, with measured growth in newaccounts and receivables given the unsecured nature of the portfolio.
New cities wherein Credit Cards distribution was opened up during the year includedLudhiana, Kanpur, Vadodara, Nagpur and Vishakhapatnam. The business deepened itsdistribution capabilities in the existing cities, to further leverage the opportunities ofcross-sell to the Bank's existing and new customers.
In addition to the existing issuance capabilities on the Visa and MasterCardbrands, the business also started issuing cards on the American Express (Amex) brandthrough a strategic tie-up with American Express GNS (Global Network Services). Issuanceon the Amex brand ties in with the overall affluent segment-targeted growthstrategy.
The Bank has successfully managed to grow customer outstandings and spends whilecontrolling risk. Risk underwriting is based on astute use of the CIBIL database, alongwith prudent underwriting norms, which has ensured that the portfolio continues to performwell.
The Banks Credit Cards are embedded with microprocessor chips, and are based onthe EMV (Europay, MasterCard, Visa) issuance platform as mandated by the regulator.
The business continues to be focused on maintaining enhanced service deliveryplatforms, and retains a focus on astute portfolio management through strong clientengagement programs with a view to ensuring that quality of customer service and strongvalue propositions forms the key differentiator for the businessin the marketplace.
The Consumer Finance Division (CFD) extends funding for a wide range of Vehicles /Equipment, which includes Commercial Vehicles, viz., Heavy, Light and Small vehiclesegments used both for goods and passenger applications, Passenger Cars, Utility Vehicles,Two-wheelers and Construction Equipment such as Excavators, Loaders, Tippers, Cranes, etc.Finance is extended for both new and used assets in all the above segments.
The year 2013-14 witnessed continued slowdown in the automobile segment with theoverall automobile segment witnessing growth of a mere 3.53%. Commercial Vehicles segmentdeclined by 20.23% over the previous year, Passenger Vehicles declined by 6.05%,Three-wheelers by 10.90% and only Two-wheelers grew by 7.31% (Source- SIAM data).Construction segment showed de-growth of 17.4% (Source - Manufacturer Data).
Aggregate disbursements made during the year 2013-14 were Rs 14,110 crores as againstRs 14,808 crores in 2012-13, a drop of 5%. New loan accounts numbering 9.26 lakhs wereadded in 2013-14 as against 8.40 lakhs in 2012-13. Growth in fresh loans disbursed (10%over previous year) was thus healthy, in the background of slowdown in the vehiclesegment.
The focus during the year was on optimizing the product mix to maximize yields, whilemaintaining portfolio quality despite the industry slowdown. During the year 2013-14, UsedVehicles loans amounted to Rs 2,693 crores as against Rs 2,426 crores in 2012-13, a growthof 11%. Loans for Two-wheelers, the flagship segment of the year, grew by 24%, withdisbursement of Rs 2,641 crores, up from Rs 2,134 crores in 2012-13. The number of loansdisbursed grew to 6.79 lakhs from 5.75 lakhs.
This Division also earned Commission income of Rs 23.69 crores, primarily throughdistribution of various third-party insurance products through Cholamandam MS GeneralInsurance, strategic partner of the Bank for bancassurance under the General Insurancesegment.
The operations of this Division are efficiently supported by document storage andretrieval facility at the Banks Karapakkam Unit (near Chennai), which handlesprocessing of Loan Documents and maintenance of records. This Unit handled 1.5 millionLoan bookings and closure transactions and 22 million customer service / accountingtransactions during the year 2013-14.
The Banks Data Centre, also located at Karapakkam, has state-of-the-artfacilities in terms of data / equipment protection mechanisms and is equipped with accessrights with sensors to facilitate monitoring of movement within the Centre. The DataCentre has a backup at the Banks G. N. Chetty Road premises, as part of BusinessContinuity Planning.
During the year, Hand-Held Terminals were deployed across India to handle CFDscollection activity, thus enhancing process efficiencies and facilitating real-timecollection monitoring.
Corporate and Commercial Banking Group
Corporate & Investment Banking (C & I) provides Universal Banking Solutions tolarge Indian and multinational corporates. Over the past 5 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 has built specialist capabilities in executing structured solutions inthe Trade Finance and Foreign Exchange hedging for its clients.
This has 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.
Public Sector Group:
The Group handles relationships with more than 150 Public Sector clientsincluding Maharatnas and Navratnas.
The business showed healthy growth in FY14. This unit is emerging as one of themajor contributors to the Banks revenue. The Group successfully executed severalcollection mandates for Bonds and Dividend payments from key Public Sector Units, and hasbeen appointed as the leading Cash Management Banker for several of its clients. Thisbusiness is also a large and stable source of liabilities for the Bank.
Investment Banking (IB):
IB Fee grew by over 74% as a result of strong origination skills and disciplinedexecution.
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.
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 likeAviation, Engineering Services, Real Estate and Financial Services.
The Advisory Business is aimed at providing M&A and Private Equity advisoryservices.
Financial Institutions Group (FIG):
FIG manages relationships with domestic and international banks and FinancialInstitutions.
The Group manages a large network of correspondent banks across the globe. Theserelationships in different geographies support the scaling up of the Trade and Treasurybusinesses 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 supporting the Banks liquidityneeds and facilitating reduction in costs.
Capital & Commodities Markets Division:
The Capital and Commodity Markets Division focuses on serving Capital andCommodity Exchanges and their Members.
The Bank is one of the Clearing-cum-Settlement Bankers to both NSE and BSE inthe Capital and Futures Market segments and to all the Commodity and Currency FuturesExchanges in the country.
Commercial Banking Group (CBG):
Set up with a view to target the sweet spot of the Indian corporate space,the Commercial Banking Group focuses on companies in the fast growing mid-market segments.
The Banks initiatives in Supply Chain Finance, Corporate & SME AgriculturalBusiness Finance and the Inclusive Banking Division are also housed within this BusinessUnit.
The broad business theme of the Group is centred 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., the Transaction
Banking, Global Markets and Investment Banking;
Offering structured solutions through Transactional and Investment Bankingproducts to clients for specific needs; and
Meeting the stipulated Priority Sector Lending requirements through itsInclusive Business Group and Agri Business Group initiatives.
The highlights of the year are:
Focus had been laid on building a sustainable working capital client portfolio andthe year saw further strengthening of this position. The Groups Loan Book crossed Rs11,000 crores.
Increase in product offerings to the clients. Special emphasis was laid onconcluding structured Foreign Exchange (FX) as well as Trade Finance offerings to clients.Cash Management, Bond Collections and Dividend Payments were successfully marketed andexecuted, showcasing the Bank's capability to offer efficient and customized solutions.
CBG ventured into newer sectors, viz., Real Estate, Healthcare and Education, whereprofitable relationships were built with established players.
The Inclusive Banking arm of the Group was the Market Leader in launching the"Partnership Model" with Microfinance Institutions providing micro loans toWeaker Sections of society. The program is now geographically well diversified, and hasspread to 49 districts across 9 States with a network of 206 MFI branches.
This Group actively works with more than 9,50,000 clients, all of which are women,providing them with micro loans for productive purposes.
For providing specialized services to clients in the Agriculture segment, anintegrated Agri Business Group was initiated, comprising specialized Agriculture Financeprofessionals to cover all segments of the agriculture finance spectrum. In its first yearof operations itself, the Group established significant presence in Dairy and other alliedsectors.
The Commercial Banking Group also houses the Commodity Finance Team, which is focusedon specific banking requirements of producers and traders of agricultural products andworks on a fully collateralized basis, managing financing against 36 commodities through anetwork of 8 collateral managers in the key agricultural belts of the country across 12States. The Group has been able to place the Bank amongst the Top 3 Private Sector Banksunder Commodity Finance and the only Bank with Nil overdues and NPAs.
Collateral Managers are engaged in providing Risk Management Services relating tocommodities and inventories, which includes Field Warehousing Arrangements, InventoryAudit services, Storage & Preservation Services, Procurement Services, Testing &Certification Services, etc., thus helping in mitigation of various risks associated withcommodities pledged as collateral for the facilities availed.
The Supply Channel Finance Division had 712 Channel Finance Dealers and 284 Vendors ofautomobiles and other products, and provides short term inventory finance through 36different specially designed programs for individual industries.
Global Markets Group
The Global Markets Group (GMG) comprises three main functions: Trading (Interest Rates,Government Bonds and Corporate Bonds), Sales (Client Risk Solutions across foreignexchange, interest rates and derivatives) and ALM (Asset Liability Management).
The year 2013-2014 has been one of the most volatile years for both, foreign exchangeand interest rates. The year started with a backdrop of improved economic conditions thatsaw the Reserve Bank lowering interest rates in the first quarter. The second quarter sawa rise in inflation coupled with a large Current Account Deficit, leading the Rupee todepreciate against the US Dollar by 29% to an all-time low, from 53.66 to 68.84.
Most emerging market currencies also fell in value during the period that saw varyingresponse from respective authorities, ranging from capital controls on the one hand totaking measures to attract relatively longer term flows on the other.
RBI hiked the Marginal Standing Facility (MSF) rate by 200 basis points on July 15,2013, from 8.25% to 10.25% to prevent slide of the Rupee. The spread of 300 basis pointsbetween MSF and Repo Rate resulted in a spike in short-term Money Market rates onSovereign and Corporate Debt, the yield on 3-Month Treasury Bills touching 12% and 3-MonthPSU Bank CDs touching 11.85%. RBI also modified the rules related to CRR maintenance.Import of Bullion was restricted and Customs Duty on imports was increased in steps to 10%from 6%. These measures had an immediate impact on the Rupee, but the effect was notsustained as the USD / INR level touched a low of Rs 68.84 by end-August.
RBI, with the new Governor in office, announced a slew of measures on September 4, 2013including offering a concessional Swap Window on FCNR deposits and Foreign Currency loansto banks. These measures eased the pressure on liquidity and strengthened the Rupee. Themarket however remained listless in the wake of continued high inflation and worry onCurrent Account Deficit. At the end of the financial year, market sentiments werepositive, with increased FII interest and a relatively stable Rupee and interest rateregime.
The Money Markets and Balance Sheet Management Unit manages the regulatoryrequirements:
Cash Reserve Ratio and Statutory Liquidity Ratio, Resource Mobilisation and LiquidityManagement, Asset Liability Management, and Funds Transfer Pricing, in order to manage andmitigate market and liquidity risks in the Balance Sheet.
The liquidity and resource mobilisation strategy proactively addressed to theseconditions to have a significant cost reduction in Banks sources of funds with anoptimal mix of Term Deposits, Market Borrowings and Refinance. The drive during September-November 2013 for raising FCNR Deposits and overseas borrowings increased the liabilityprofile of the Balance Sheet. Through a dynamic management of the liquidity requirementsof the Bank, the Desk could maintain a better cost of funding the assets.
In spite of the progressively hardening interest rate cycle witnessed during the year,right strategies backed by accurate short-term interest rate views brought in improvementin the yield of core SLR portfolio and the Trading Desk managed to pare the deteriorationof portfolio value.
The Trading Desk in Rates and Foreign Exchange aims to maximise the Banks revenueby taking proprietary positions in the Rupee market as well as in G-7 currenciesjuxtaposed to its timely entry / exit in the currency and interest rate markets. TheTrading Desk had curtailed its back-to-back covering of risk on swaps and the IRS andMIFOR risks during the year. The Desk also provides competitive rates to the client-facingteam in order to enhance client value, besides using trading techniques in increasingrevenues in the inter-bank market.
The Credit Trading and Sales Desk was set up during the financial year with a view toprovide to clients a complete suite of Fixed Income products and enhancing trading profitsand fees through arranging and trading Non-SLR products such as Corporate Bonds,Commercial Paper (CPs) and Certificates of Deposit (CDs). The Desk arranged and investedin various issuances of bonds and CPs of corporates.
The Desk focused on maximising profits and managing risk, rather than targeting leaguetables. Despite a challenging and highly volatile market during the year, in terms ofinterest rates and credit spreads, the Desk has been profitable and managed well the riskof the Banks Trading Book.
The client-facing team in Global Markets Group is broadly segmented into three parts the CRS Team (Client Risk Solutions), the SRS Team (Structured Risk Solutions) andthe 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 hed gesuch exposures. The spectrum of Advisory Services includes domestic as well ascross-border transaction flows and risk management of related exposures on clientsBalance Sheets. CRS covers the India geography through Dealers / Dealing Centres inAhmedabad, Bengaluru, Coimbatore, Chennai, Gurgaon, Hyderabad, Jaipur, Kolkata, Lucknow,Ludhiana and Mumbai. It has extended its geographical reach through FastForex, Banksinternet platform, to a wider Emerging Corporate Client base and branch network, therebyensuring faster delivery and access to real-time market prices.
The SRS team provides structured risk management solutions and advisory to Bankscorporate clients, using various Derivatives products. The Bullion Desk helped clients ofthat segment with hedging requirements for the metal, in accordance with the regulatoryenvironment prevailing from time to time.
During the year, the CRS Desk successfully handled various large onshore FX flowtransactions of corporate as well as Financial Institutional clients, and a few largecross-border trades related to capital market flows. SRS Desks timely advisory onstructured Derivatives solutions helped increase mindshare amongst large and mediumcorporate and institutional clients, and the Desk saw a healthy upsurge in client volumes.
The Bank has a well laid-out set of Operational Policy guidelines, risk managementpolicies, 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 ability to offer new productsand solutions encompasses need for automation and upgrading of the technologicalenvironment. The Bank is implementing an integrated Treasury application interfaced withthe Risk monitoring system, which will enable the Bank to expand its client offering andmarket making in certain Derivatives products, as well as manage the risk positionseffectively.
Transaction Banking Group
The Transaction Banking Group provides solutions under Cash Management, Trade Services,Supply Chain Financing, Commodity Financing, Global Remittances, Electronic Banking andthe Gems & Jewellery sector.
The Banks Global Remittances business continued to experience robust growth intransaction flows, with the business witnessing about 40% growth in flows in FY 2013-14.
The year saw high growth in Banks Online Remittances comingintoIndia,with Canadabeing the latest geography added to the Banks online offering. The Bank continues tohold a position of significance with partner-Exchange Houses, acting as the IndiaCorrespondent for over 60 relationships. The Bank features amongst the largestplayers in the industry for Inward Remittances under Rupee Drawing Arrangement of RBI.
Impressive growth was also witnessed in the Outward Remittances business handled by theBank. The overall revenues from cross-border remittance products grew over 80% during2013-14.
Under the Cash Management Services (CMS), the Bank offers products such as collectionsand payments of its corporate clients, thus helping grow the Current Account base andfees. The CMS throughput witnessed 73% increase in transaction volumes during the year,with several new CMS mandates added during the year.
The year 2013-14 saw the Bank focus on technology-enabled solutions offered to itscorporate clients, such as Payment Gateway solutions and Host-to-Host solutions. Focus onElectronic Payments saw the Bank bagging several corporate mandates involving Host-to-Hostintegration, a completely seamless solution enabling corporate clients to make theirpayments in a fully automated and secure environment. This places the Bank amongst thebest-in-class players offering corporate payments solutions, implementing such solutionswith flexibility to connect with platforms like SAP, Oracle, etc.
The Bank also launched during the year its global Host-to-Host service for seamlesslyintegrating with the processing systems of the Overseas Money Transfer operators. The Bankremains committed to pursuing the philosophy of STP (Straight Through Processing) in itstransaction handling. Last year, the Bank handled nearly 3.6 million STP transactionsoriginated on its Corporate & Remittance online channels, up by 35% over the previousyears volume.
The Bank was yet again ranked as the # 1 Collecting
Bank across all public issues that hit the market in 2013-14 under Debtcategory. (Source: Prime Database Rankings.)
The Bank had opened two Currency Chests during the last financial year and the year2013-14 saw the Bank capitalising on these to drive home significant benefits from thesefacilities. While on one hand, Currency Chests helped the Bank to efficiently manage cashholdings across its branches and ATMs, on the other hand, it has helped the Bank to makeimpressive inroads with various new corporate relationships. The fee generated at the Bankfrom Currency Chests showed a substantial jump in FY 2013-14. The Bank plans to open twomore Currency Chest's in the current year, which will further compliment its networkexpansion strategy as well as help grow its Cash Management Services. The Bank has beenproviding competitive structured solutions to customers under its Trade Services umbrella,thereby effectively assisting corporates in funds management and efficient management oftheir working capital flows. The Banks ability to provide Structured Trade solutionshas enabled clients to unlock their capital funds, leading to reduction in their interestcost and improvement in their profitability. To enhance the scope and reach of tech-savvycorporates, the Bank is proposing to launch a new state-of-the-art Trade Online Platformthat would enable clients to seamlessly interact with the Bank for their Trade Financerequirements in a secure and efficient environment.
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. This has reflected in the growth in Trade business,with trade fees growing by about 29% last year.
The Banks Supply Chain Business solutions are highly effective in strengtheningrelationships between corporate buyers, their strategic partners and core suppliers.Taking a commercial approach based on key market trends, these solutions help clients tounlock working capital, maximise returns and support sales efforts to develop new markets.The Supply Chain Finance solutions also help manufacturing sector clients in negotiatingpreferential purchase terms and strengthening channel relationships. Banks onlineportal enables clients to obtain finance in the most efficient and convenient manner.Under Channel Finance, the Bank presently provides Short Term Finance to over 712 dealersof large manufacturing companies.
Priority Sector Lending
The Bank has achieved the RBI-prescribed target for Priority Sector Advances. PrioritySector Advances aggregated Rs 18,270.44 crores at the end of March 2014, representing40.93 % of the Adjusted Net Bank Credit (ANBC) of the previous year, as compared to 40.56% at the end of March 2013.
Advances to Agriculture
During the year, the Bank financed over 6,12,946 agriculturists, and its AggregateDirect Agricultural Advances stood at Rs 4,089.60 crores, representing 9.16 % of ANBC atthe end of March 2014. The overall Agricultural Advances (i.e., Direct Agriculture andIndirect Agriculture) of Rs 5,216.56 crores, amounted to 11.69 % of the ANBC at the end ofMarch 2014. Although lower than March 2013 in terms of percentage of ANBC, this reflectsan absolute growth of Rs 868.66 crores, a sizeable increase in Advances to this importantsector.
Advances to other segments of Priority Sector
During the year, the Banks finance to Weaker Sections increased by Rs696.12 crores and stood at Rs 3,685.19 crores, representing 8.26% of ANBC as at the end ofMarch 2014. Finance to Small Enterprises represented 29.24% of the ANBC at the end ofMarch 2014.
Approach to Priority Sector Lending
To achieve this sizeable exposure to the sector, the Bank has:
Reached out to about 1.1 million households from the Base of the Pyramid (BoP)Segment, both through Direct and Indirect Channels.
Spread operations to 24 States, 393 districts in total whilst directly reachingout to about 560,000 clients spread over 9 States and 49 Districts covering more than11,000 villages and 182 slums mostly from under-banked districts and districts which ranklow on the CRISIL Financial Inclusion Index.
100% of these loans were to Women, organised in Joint Liability Groups (JLG).
About 43.4% of these loans were towards Farm (Agri and Agri-Allied) and thebalance towards Micro Enterprises (Manufacturing, Trade and Services). Activities coveredunder these include Vegetable Cultivation, Release of Land Mortgaged with moneylenders,Borewell digging, Pumpsets, Land Development, Livestock loans, i.e., Buffalo, Cows,Sheep-rearing, Kitchen poultry units, etc. On the Micro Enterprises activities, i.e.,Saree Trading, Fruits Business, Kirana stores, Snacks stores, Road Side Dhabas, Cyclerepair shops, Tea Stalls, Agarbathi-making, Tailoring, etc. In the process, we havetouched more than 1,000 economic activities. In terms of loan sizes, about 70% of theabove loans are for amounts less than Rs 15,000.
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. ERM helps reduce volatility in earningsand enhances shareholder value.
The ERM framework provides single-window view of the risks that the Bank is exposed toand facilitates effective management of associated risks in an integrated manner. The Bankhas an integrated Risk Management Department, independent of business functions, coveringCredit Risk, Market Risk, Asset Liability Management (ALM) and Operations Risk includingInformation Security risk functions. Risk Management practices have been aligned with bestindustry practices and are adaptable to a dynamic operating environment and marketconditions.
Reinforcement of Risk Management -Basel II / III
The Bank has implemented the New Capital Adequacy framework, which enables allocationof capital based on risk sensitivity of respective asset classes. During the year, theBank has implemented the new RBI guidelines on Basel III Capital Regulations, and has beenmaintaining capital requirements as per norms stipulated therein.
The Bank has implemented a highly sophisticated system which enables automatedcomputation of capital requirements under the Basel III framework.
As part of Capital Adequacy framework, the Bank has implemented Internal CapitalAdequacy Assessment Process (ICAAP) which facilitates identification and measurement ofmaterial risks other than the risks covered under Pillar I of Basel II guidelines. TheBank has further strengthened quantification and management of the material risks underPillar II. The Bank has undertaken substantive initiatives to equip itself for migrationto advanced approaches of risk assessment under Basel II.
The Bank has implemented state-of-the-art Market
Risk Management System which enables adoption of Internal Model Approach forcomputation of Capital Charge towards market risk.
Credit Risk Management
Credit Risk is managed both at transactions level as well as portfolio level. The keyobjective of Credit Risk Management is to maintain credit quality within the defined riskappetite, while achieving appropriate returns in relation to risks assumed.
Various measures adopted for management of Credit Risk are mentioned hereunder:
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 prescribed for assuming exposures on counterparties,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 basis their 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. Stress Testing of credit portfolios to measure shock absorbingcapacity under multiple stressed scenarios and assessment of impact of potential creditlosses on profitability 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 Bank has successfully implemented a state-of-the-art Market Risk system to enhancethe existing Risk Management Framework to keep in step with the new concepts in the MarketRisk Management domain. The Market Risk system has strengthened VaR, Stress Testing andCapital Computation framework, which has helped manage market risk effectively in avolatile market condition.
The framework includes monitoring of PV01 limits, Value-at-Risk (VaR) limits for Forex,Investments, Equity and Derivatives Portfolios, besides Stop-Loss limits, Exposure limits,Deal-size limits 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 and Investments,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 (ALM)
The Banks Asset Liability Management system supports effective management ofliquidity risk and interest rate risk, covering all assets and liabilities.
Liquidity Risk is managed through Structural Liquidity Gaps, Liquidity Simulation,Dynamic Liquidity monitoring, Liquidity Ratios analysis, Behavioral analysis ofliabilities and assets and prudential limits for negative gaps in various time buckets.
Interest Rate Sensitivity is monitored through prudential limits for Rate SensitiveGaps, Earning at Risk, Modified Duration of Equity and other risk parameters.
Interest Rate Risk on Investment portfolios is monitored through, PV01, VaR andModified Duration on a daily basis. Optimum risk is assumed through duration, to balancebetween risk containment and profit generation from market movements.
Detailed analysis of liquidity position, interest rate risks, 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 business goals. The Bank assesses its structuralliquidity position on a daily basis for managing liquidity in a cost-effective manner.
Stress Testing - Liquidity Risk
The Bank carries out stress tests on liquidity position regularly to simulate impact ofstressed liquidity scenarios on funding and liquidity position. Stress Tests help the Bankto be better equipped to meet stressed situations and have contingency funding plans inplace.
Contingency Funding Planning
Contingency funding plans have been developed to respond swiftly to any anticipated oractual stressed market conditions. Bank reviews its contingency plans considering theevolving market conditions. Contingency funding plan covers available sources of funds tosupplement cash flow gaps in the event of stressed scenarios, roles 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) Re-pricing Risk;(ii) Optionality; (iii) Basis Risk; and (iv) Yield Curve Risk.
From an economic value perspective, it is the Banks policy to minimisesensitivity to changes in interest rates on assets and liabilities. Interest Rate risk ismeasured basis re-pricing behaviour of each of the items under asset, liability andoff-Balance Sheet products. The Banks Assets and Liabilities Management Policy haslaid down limits basis risk appetite, and the impact on NII and Economic Value of Equity(EVE) for a given change in interest rate.
The Bank has put in place necessary framework to measure and monitor Interest Rate Riskon Banking Book using the Duration Gap Approach, besides the Traditional 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 Banks 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. An Incident Reporting tool has been implemented for reportingOperational Risk incidents across Bank and monitoring actions thereon for mitigation ofrisk.
The Bank has initiated scenario-based assessment of identified plausible OperationalRisks. The scenario analysis shall be used in creation of statistical models with respectto computation of Operational Risk Capital Charge under Advanced Measurement Approach ofBasel II.
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 Banks Audit mechanism covers periodical on-site audit, concurrent audits andoff-site surveillance enabled by the Banks advanced technology-driven processes andthe Core Banking System.
The Bank has implemented a comprehensive Bank-wide Business Continuity Plan to ensurecontinuity of its critical functions during disruption / disaster situations.
As part of Systems-related Operational Risk Management initiatives, the Bank hasimplemented the following:
Formulated and implemented a comprehensive Business Continuity Plan (BCP) to ensurecontinuity of its critical business functions and extension of banking services to itscustomers;
Established an effective Disaster Recovery site at a distant location, with on-linereal-time replication of data, both in Mumbai and Chennai;
A comprehensive Information Security Policy and necessary framework have been put inplace to ensure complete data security, confidentiality and integrity;
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 in coordinationwith other lenders.
During the year, the Bank recovered an amount of Rs 35.72 crores in written-offaccounts (Previous Year:
Rs 14.80 crores). The Banks Provision Coverage Ratio is now at 70.35% (PreviousYear 70.13%). The Net NPAs of the Bank stood at 0.33% of the Total Advances (PreviousYear: 0.31%), while the ratio of Gross NPAs as percentage of Total Advances is 1.12%(Previous Year: 1.03%).
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, automate 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 Standard 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 hastaken steps to implement the provisions of the Code of Commitment to the Customers(Individuals). The Code is displayed at all the branches and the same is also posted onBank's website in thirteen languages.
The Bank similarly has also adopted the "Code of Commitment to Micro and SmallEnterprises" (MSE code) issued in June, 2008 for customers belonging to Micro andSmall Enterprises segment. This Code was further revised in 2012 by BCSBI and dulyapproved by the Board of Directors. The MSE Code sets the minimum standards of bankingpractices and explains how to deal with these customers in day to day operations and intimes of financial difficulty.
The Bank has also formulated the Policy on Financing to Micro, Small and MediumEnterprises, and the same is made available on the Banks website.
Centralized clearing has been implemented in Ahmedabad, Bengaluru, Bhubaneswar,Chandigarh, Chennai, Coimbatore, Delhi, Goa, Hyderabad, Jaipur,
Jodhpur, Kochi, Kolkata, Lucknow, Ludhiana, Mumbai, Nagpur, Pune, Salem, Surat,Thiruvananthapuram, Udaipur, Vadodara and Vishakhapatnam for quicker and efficientprocessing. It will be the Banks constant endeavour to bring more centres underCentralised Clearing.
The Bank has also started participating in NACH (National Automated Clearing House)transactions both for Debit and Credit (ECS) at Mumbai, as also Aadhar-Based PaymentSystem (ABPS) transactions through NPCI.
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. In FY 2011-12, the Bank had stabilised CTS operations in Chennai,Bengaluru and Coimbatore through National Payment Corporation of India (NPCI). During theyear 2012-13, the Bank successfully implemented CTS operations in Chandigarh, Kolkata andLudhiana. During 2013-14, the Bank successfully implemented CTS operations in Mumbai andalso operationalized grid clearing for 18 locations connected to Mumbai grid. 102locations are covered under grid clearing through our three CTS centers at Mumbai /Chennai / Delhi, as on March 31, 2014.
The Bank has improved internal controls and compliance through the following:
Separate and independent Compliance function has been set up for Bank-widecompliance;
Instituting of the Vigilance function;
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 and forms areprovided on Website.
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 "Citizens Charter" to promote fair bankingpractices and to give information in respect of various activities relating to customerservice.
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.