MANAGEMENT DISCUSSION AND ANALYSIS
Macro Economic Scenario and Banking Environment
The Indian economy emerged smartly from the slowdown caused by the global financialcrisis of 2007-09 and continues to be one of the fastest growing economies of the world.
After receding to 6.8% in 2008-09, India's GDP growth had recovered well to 8%, butrecent economic and financial events have raised concerns about the sustainability of thegrowth momentum.
On the global front, even some of the developed economies that had shown incipientsigns of recovery appear to be facing strong headwinds, which could restrict their growthin the second half of 2011.
The structural irritants in the global financial space, viz., European countries' debtburden, weakness in the US mortgage market and sluggish growth in employmentopportunities, Japan's natural disaster and China's efforts to rein in its economy,continue to cast their shadow.
In the Indian context, despite sustained efforts by the Government at addressing them,obstinate inflation that has proliferated into the non-food-segment of the economy aswell, fiscal pressures and the current account deficit continue to threaten economicgrowth.
The banking sector witnessed a slowdown in deposit accretion in 2010-11 owing toseveral factors such as subdued net foreign funds inflows, higher capital outflows, higherpublic holdings of cash and the unusually high receipt of funds by the Central Governmentowing to the telecom spectrum auctions.
The Reserve Bank of India has worked towards containing inflation and temperinginflationary expectations since early 2010. RBI has, over the period, gradually shifted totightening of liquidity, looking to the growth trajectory and unabated high inflation. Thetight liquidity conditions have resulted in a large increase in cost of funds, forcingbanks to progressively increase lending rates, effects of which are being seen in slowerindustrial growth.
The year 2011-12 shows signs of being a challenging year: the country's growth storycontinues to hold out, even as vulnerabilities in the global economic and financial spaceremain a concern. Japanese recovery, Europe's fiscal consolidation and the liquidityoverhang in US will moderate growth in the second half of 2011, coupled with expectationsof hike in policy rates to contain rising inflation.
In India, inflationary pressures are likely to persist, resulting in a tighter monetarystance. While higher interest rates are likely to boost growth in bank deposits, creditgrowth may slacken owing to rising interest rates.
Bank's Performance during 2010-2011
The salient features of the Bank's operating performance during the year 2010-11 aresummarised in the table below:
| || || ||(Rs. in crores) |
| ||2010-11 ||2009-10 ||Y-O-Y Growth |
|Interest Earned ||3,589.36 ||2,706.99 ||32.60% |
|Interest Expended ||2,212.86 ||1,820.58 ||21.55% |
|Net Interest Income ||1,376.50 ||886.41 ||55.29% |
|Other Income: ||713.66 ||553.48 ||28.94% |
|Fee & Misc. Income ||692.71 ||531.25 ||30.39% |
|Bad Debts Recovery ||20.95 ||22.23 ||-5.76% |
|Total Operating Income ||2,090.16 ||1,439.89 ||45.16% |
|Operating Expenses excluding Depreciation ||947.94 ||690.70 ||37.24% |
|Operating Profit before Depreciation and Provisions ||1,142.22 ||749.19 ||52.46% |
|Less: Depreciation ||60.55 ||45.29 ||33.69% |
|Less: Provisions & Contingencies ||504.35 ||353.59 ||42.64% |
|Net Profit ||577.32 ||350.31 ||64.80% |
Despite the inflationary pressures and mixed growth signals in the Indian economycoupled with moderate recovery witnessed in the global outlook, the Bank's Net Profit,after considering all expenses and necessary Provisions and Contingencies, rose by 64.80%to Rs. 577.32 crores, as against Rs. 350.31 crores in the previous year. The OperatingProfit (before Depreciation and Provisions and Contingencies) was higher at Rs. 1,142.22crores as against Rs. 749.19 crores in the previous year, a rise of 52.46%.
The core earnings of the Bank through Net Interest Income improved by 55.29% to Rs.1,376.50 crores fromRs. 886.41 crores. Yield on advances was marginally lower at 12.36%during the year, as against the yield of 12.61 % in 2009-10. The Cost of Deposits,however, decreased more sharply to 6.32% during the year as against 6.82% in the previousyear. Accordingly, the Net Interest Margin (NIM) improved substantially to 3.47% duringthe year as compared with 2.88% in 2009-10.
Non-Interest Income rose to Rs.713.66 crores from Rs.553.48 crores,recording a year-on-year (y-o-y) rise of 28.94%.
Though the Bank expanded its branch network substantially to reach 300 branches asagainst 210 branches at the beginning of the year, higher revenue growth and better costmanagement resulted in Cost / Income (Efficiency) Ratio improving to 48.25% in 2010-11 asagainst 51.12% in 2009-10.
Quality of the Bank's assets continued to improve, with Net Non-Performing Assets (NetNPAs) falling to 0.28% as at March 31, 2011 from 0.50% last year. The ProvisioningCoverage Ratio (PCR) improved significantly to 72.61% as compared to 60.14% previous year.
On September 24, 2010, the Bank issued 5,00,00,000 equity shares ofRs. 10/- eachthrough a Qualified Institutional Placement (QIP), at a premium ofRs. 224.55 per share.During the year under review, allotment of 53,19,195 equity shares to employees was madepursuant to the exercise of options under its Employees Stock Option Scheme 2007.
Pursuant to the above, the Paid-up Share Capital and Share Premium Account increasedbyRs. 55.32 crores and Rs. 1129.19 crores, respectively.
As at March 31,2011, the Paid-up Equity Capital of the Bank consisted of 46,57,73,835shares ofRs. 10/-each, excluding forfeited shares.
During 2009-10, the Bank's Retail (Consumer) Banking business showed a healthy growthin revenue, a y-o-y rise of 69%. The Current Account book grew by 59% and the SavingsAccount book grew by 43% on y-o-y basis.
The Bank continued to focus on improving the quality of new customer acquisition andmobilising retail CASA balances during the year. The Bank set up the Emerging CorporateBusiness Group and launched innovative products like 'Indus EXIM' account to supportquality client acquisition and to enhance the Business Banking experience.
This business contributed more thanRs. 23 crores by way of revenue in the first year ofoperations, apart from adding significantly in Balance Sheet growth.
The year saw the re-launch of Non-Resident (NR) business, which acquired 12,000 new NRclients within a short span and also mobilised a significant FCNR book and Savings Accountbook. With constant technology upgradation and investment in support infrastructure, theBank was able to retain and deepen the profitable client-base. The Bank also made itspresence in the IPO collection business.
The bancassurance tie-ups with Aviva and Cholamandalam MS helped the Bank offer a widerarray of Life Insurance and General Insurance products to customers. This saw the Bank'srevenue from wealth-related products grow by 122% on y-o-y basis.
The Bank focused on key initiatives like client engagement, compliance and operatingprocesses management to enhance the quality of delivery of banking products and services.During the year, the Consumer Bank launched several customer-centric products (ATMdenomination choice, cheques imaging on Statements of Accounts etc., which reflect thetheme of "Responsive" customer service. These have been very well received andappreciated by the market.
The Bank has moved ahead in its strategy of building out a full service Universal Bankfor chosen segments. Being a full service Universal Bank provides consumers an ability toconsolidate all financial needs with one bank, ensuring simplicity in management ofpersonal finances and of getting relationship-based pricing and other advantages due tosuch consolidation.
A Credit Card is a financial product with high levels of customer involvement. For theBank, it forms a critical support product to the customer-centric product strategy andfulfills a critical customer need.
While the Credit Cards business could have been created organically, the Bank bid forthe Deutsche Bank Cards portfolio in India, as it provided a ready opportunity tojumpstart the business. The Credit Cards business typically takes time to start generatingrobust revenues, as revenue generation starts only from the time the customer startsspending on the product.
The key benefits provided by the acquisition include:
1. An evolved and stable systems platform;
2. Established processes ranging from sales delivery and customer fulfillment toservice delivery and collections; integrated strong riskdecisioning and loan originatingengines;
3. Trained manpower with best-in-class skill sets;
4. Strong product range with deep relationships with Credit Card programme partners;and
5. Historical and legacy knowledge of Credit and Risk.
With the Bank's focus on leveraging the branch infrastructure, and the well-segmentedcustomer base towards sourcing new accounts at a lower cost, the Bank aims at drivingefficiencies into the business.
The Credit Cards industry in India is still at a fairly nascent stage with creditbureaus starting to make their significance felt. The presence of CIBIL for the last fewyears, and the entrance of other major credit information service providers, speaks wellfor the industry and its inherent potential.
Card spends in India is less than 3.5% of Personal Consumption Expenditure and thegrowth opportunity continues to be strong given the emerging middle class and the latentneed for credit towards building assets and meeting lifestyle aspirations. With theGovernment's focus on moving more payments towards electronic media, consumer spends onplastic are expected to grow significantly. The emergence of organised Retail is alsoexpected to be a key factor which will drive electronic payments in the coming years.
The Consumer Finance Division (CFD) extends asset-backed financing for a wide range ofvehicles, spanning across heavy commercial vehicles, cars, three wheelers, two wheelersetc. Besides, specialty construction equipments like tippers, cranes, excavators andloaders are also financed.
The thrust during the year was towards small commercial vehicles, i.e., three-wheelerand entry level four-wheelers, as this product-line yielded high returns. The Bank hasestablished leadership position in finance of three-wheelers, which was identified as afocus area two years back.
Aggregate disbursements made during the year 2010-11 grew by 51% over the level of theprevious year. New loan accounts numbering 5.70 lakhs were added during the year.
This Division also earned a fee-based income of about Rs. 54 crores, primarily throughdistribution of various third-party insurance products and on distribution of CreditShield, which is a Personal Accident cover offered to customers through Cholamandalam MSGeneral Insurance, strategic partner of the Bank for bancassurance under the GeneralInsurance 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. The Data Centre, also located at Karapakkam,has state-of-the-art facilities in terms of data / equipment protection mechanisms and isequipped with access rights with sensors to facilitate monitor movement within the Centre.
Corporate & Commercial Banking
The Corporate & Commercial Banking Group (CCBG) comprises four Strategic BusinessUnits, viz., Corporate & Investment Banking, Commercial Banking, Business Banking andthe Financial Institutions & Public Sector Strategic Business Units (SBUs).
Each SBU is entrusted with the task of maximising revenue from its clients by deepeningrelationships and acquiring additional quality relationships from its focus area.
Corporate & Investment Banking Group
The Corporate & Investment Business Segment covers large corporate clients and alsohouses the Investment Banking Team of the Bank. The Bank is a Category I Merchant Banker.
Segment-wise highlights of the year:
The year 2010-11 saw rapid growth in the business done with large corporates withgrowth in various vectors such as loan book, cross-sell in Trade and Forex, Deposits, FeeIncome etc.
The Bank was able to conclude both domestic and cross-border structured trade and forexsolutions with several large groups, firmly showcasing the ability to meet the demandingrequirements of these top corporates. As a result, the Bank's exposure on marquee clientsand groups increased significantly improving the quality of the overall corporate bankingbook. This has also helped in creation of a stable and sizeable base forfuture growth.
The Investment Banking business significantly scaled up its operations during the year.Increased product capabilities with a highly qualified and specialised team wereresponsible for the success in growing the fee income by over three times. The unit nowhouses strong capabilities across four areas, viz., Loan Syndication, Project Finance,Structured Finance and Private Equity Advisory. The objective is to leverage the Bank'sclient-base and strong relationships to provide highly customised Investment Bankingsolutions so that effective partnership can be extended to clients in their growth. Thisunit is expected to be one of the major drivers of fee income in the coming years.
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 SME and mid-marketsegments. The Group today operates out of 20 locations in India, providing services tomore than 1000 clients.
The broad business theme of the Group is centered around the following:
Offering the full bouquet of customised products to the clients catering totheir working capital 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 and Global Markets Group, resulting in a greatershare of the clients'wallet; and
Offering structured transactional and Investment Banking services to the clientsfor their specific needs.
The highlights of the year are:
This Group is proud to be associated with many more esteemed names of the Indianmid-size corporate market, having added 180 new clients during the year. The focus was onmeeting standard credit quality requirements by handpicking the best-in-class industriesand sectors for fulfilling their banking requirements;
Special emphasis was laid on concluding structured Foreign Exchange (Fx) as wellas Trade Finance deals, which showcased the Bank's capability to offer customised productsto clients and to meet their needs with innovative solutions; and
This year, the CBG group also took up the Bank's 'Financial Inclusion'initiative forward in a big way. Business plans for 'Financial Inclusion' envisagereaching out to 5,000 villages covering 1.25 million households by Financial Year 2013.
Business Banking Group
The Business Banking Group (BBG) covers the small business segment. The country hasbeen divided into 5 zones, each being led by a Zonal Head and these zones are furtherdivided into 19 regions, which cover 79 cities across the country.
The core product range includes working capital facilities, viz., Cash Credit, ExportFinance, Working Capital Demand Loans etc. and Term Loans. Besides this, the BBG Team isalso responsible for distributing products relating to the banks initiatives in SupplyChain Finance, and Commodity Financing.
The highlights of the year are:
Acquisition of more than 1100 new customers in the year;
The Channel Finance portfolio was ramped up substantially witnessing growth of340% through more tie-ups with dealers of various leading anchor corporate. This willremain a key area of focus; and
The Commodity Finance Warehouse Financing portfolio has been growing steadilyand contributed significantly towards the bank meeting all its Priority Sector Lendingtargets.
Financial Institutions & Public Sector Group
The Financial Institutions & Public Sector (FIPS) Group takes care of the bankingneeds of Public Sector Undertakings (PSUs), both Central and State, as well as GovernmentBodies and financial institutions like Banks, Insurance Companies and Mutual Funds. TheGroup manages business from these client segments through a team of focused RelationshipManagers located across the country.
A large part of the Bank's wholesale deposit base is managed by this Group. The depositportfolio managed by this Group grew by 32% during the year. The FIPS Group has played akey role in de-risking the liquidity profile of the Bank and ensured uninterruptedliquidity at all times. Through enlargement of the depositor base and expansion ofactivity into new geographies, this Group has helped the Bank to successfully keep a checkon the cost of Time Deposits. The Group acquired several quality customers in the publicsector banks, co-operative banks and in the mutual funds space.
During the year, the Group successfully acquired and executed prestigious mandates fromCentral Public Sector companies, which created good brand value. Despite being new in thedividend and IPO business, several Navratna PSUs and Category-1 PSUs reposed confidence inthe Bank's ability to successfully execute mega dividend and IPO mandates.
During the year, the Group successfully established its Correspondent Banking businessand set up relationships with several correspondents in different geographies, whichhelped in scaling up Trade and Treasury business of the Bank.
Global Markets Group
The Global Markets Group (GMG) is one of the specialised groups having three functionalunits, namely, the Money Markets & Balance Sheet Management Unit, Corporate FX Unit,Bullion and Exchange Houses Unit and the Proprietary Trading Unit, with a mix of supportand business functions.
The core responsibility of the Money Markets & Balance Sheet Management Unit is tomanage the Statutory Reserve requirements of CRR and SLR; Resource and Liquiditymanagement; ALM / FTP management and mitigating Market and Liquidity Risks in the BalanceSheet. In addition to these core support functions, the Unit undertakes proprietarytrading in interest rate products such as bonds, Overnight Index Swaps and strategictrading in equity market. The Unit also undertakes non-SLR investments as a part of theBank's Cash Management strategy so as to contribute to Net Interest Income throughsourcing of low cost funds for deployment in better yielding assets. The Unit providesmarket intermediation and custodial services to clients investing in Government bondsthrough CSGL accounts. The services also include providing market information, advisory,and trade suggestions for investments with optimum yield.
The financial year 2010-11 witnessed continuation of the hardening interest rate cycle,driven by successive tightening in Policy rates. This, coupled with persistent deficit insystem liquidity targeted to improve the monetary policy transmission mechanism, resultedin volatility in domestic interest rates. As a result, there was a gradual steepeningacross the term structure of interest rates with the shorter end leading the move followedby mid and the longer end. Overnight call money rate moved up by 400 basis points from alow of 3.25% to a high of 7.25%. Interest rates on one year Certificate of Depositmobilised by nationalised banks moved up by 425 basis points from a low of 6% to a high of10.25%.
The liquidity and resource mobilisation strategy proactively addressed to theseconditions to have a significant cost reduction in Bank's sources of funds with a good mixof term deposits, market borrowing and refinance. In spite of the progressively hardeninginterest rate cycle witnessed during the year, trading desk managed to generate areasonable amount of trading profit by right entry/ exit strategies backed by accurateshort term interest rate views and also brought in improvement in the yield of core SLRportfolio riding the rising yield curve. The CRR / SLR / ALM portfolios were managed wellwithin the regulatory prescriptions and there have been no observations from the internaland external Auditors.
The Corporate Foreign Exchange (FX) & Derivatives Unit is a client-facing unit,which looks after merchant flows and provides tailor-made solutions through structuredproducts to clients who are looking to hedge their FX and interest rate exposure. Theresponsibility of the Corporate FX Unit is to generate core fee income for the Bankarising from cross-border business flows of its customers and related risk management ofthe underlying exposures on clients' Balance Sheets. The Unit is further subdivided intothree desks. The functions include market intermediation to clients for purchase and saleof foreign currencies which are 'delivery' in nature (merchant flows desk), advisoryservices on the FX market for dynamic management of exchange exposures (Client AdvisoryServices) and the Derivatives unit. The Unit has a dedicated advisory team called ClientAdvisory Services (CAS) which provides market research report on daily and weekly basis;market information through various communication channels and provides ideas on dynamichedging to safeguard against exchange rate and interest rate risk. This unit has grown interms of both revenue and volume and is identified as a special focus unit for the nextFY.
The Derivatives Unit provides risk management solutions using structured derivativeproducts. There was decent growth in this unit and the bank has established a good name inthe market for its capabilities on this product. The Bank has well laid-out operationalpolicy guidelines, risk management policies and systems support to monitor transactions onreal-time basis. Risk is significantly diluted as all client deals are coveredback-to-back with counter-party banks so as to mitigate market risk, with only credit riskon the Bank's books. The business strategies rolled out to increase the core fee incomefrom FX have paid well. There was more than 100% revenue growth in the Corporate FXbusiness as compared to FY 2010 and the Bank is looking to increase the contribution ofcorporate FX revenue in the overall FX revenue composition. Further, a stronginfrastructure has been built to ramp up income in the coming years. The infrastructureincludes feet-on-street product specialists through a separate sales vertical workingtogether with the Relationship Managers of Business Units to have better client tractionto get higher wallet share of business.
The Bullion and Exchange House Unit handle clients' bullion business on consignmentbasis and Vostro facilities for Exchange Houses.
For the current year, various initiatives have been lined up with focus on corporatebusiness, as this stream has been identified for contributing accelerated growth to theBank's Treasury. There are expansions planned both in terms of team size as well as interms of GMG presence across the country. Dealing Room will be opened at three outstationcentres to provide better support to customers. To support the high growth targeted,acquisition of high-end technology platform is envisaged during this FY. New products likeETF&Owill be rolled out to the clients. In addition, the Bank would be running theirproprietary book on USD-INR options during this year.
There is a full-pledged Proprietary Desk, which has made a significant contribution toTreasury's revenue. The Desk comprises a group of specialised traders in USD / INR Spot,USD / INR Forwards and G-7 currencies. The Proprietary Desk targets to maximise the Bank'srevenue through proprietary positions in domestic Rupee market as well as G-7 currenciestaking strategic view on currency and interest rate movements. The revenues from theProprietary Desk have substantially increased y-o-y through judicious trading strategiesin currency and interest rate markets.
Overall, the GMG has emerged as a significant contributor to the "OtherIncome" of the Bank, in addition to having close monitoring on the Balance Sheet tomitigate market risks and to enhance the spread from financial intermediation. The marketreport named "Market Pulse" sent by the Group commands great value among thestakeholders in the market and commands good recognition from print and visual businessmedia. There has been no instance of regulatory lapse or compliance violation owing to therobust checks and balances established through the Mid-Office of the Risk ManagementDepartment.
Transaction Banking Group
The Transaction Banking Group provides solutions under Cash Management, Trade Services,Supply Chain Financing, Commodity Financing, Global Remittances, Electronic Banking,financing Capital & Commodity Markets and Gems & Jewellery sector.
This year, the Bank launched several new products and services catering to specialisedneeds of clients. The Global Remittances business saw a 50% jump in transactions duringthe year. The Remittances business is now well diversified and contains eight productlines with remittances from ten countries and over sixty partners. The growth this yearwas led largely on account of adding new partners for both Inward & OutwardRemittances.
Under the Cash Management Services, the Bank offers to corporates products thatfacilitate their Collections & Payments and helps the Bank in its objective of growingits Current Account base. This year saw an increase of 130% in CMS throughput.
The Bank introduced in this year "Indus Online", an integrated CorporateInternet Banking portal. 'Indus Online' enables Bank's institutional customers to conductpayments, Cash Management, Trade Services and Supply Chain Financing transactions in asecure and efficient straight- through-processing environment. The Bank also acted asBanker to several IPOs, FPOs and Bond Collections and also handled several Dividendmandates during the year.
Under the Trade & Supply Chain services, the Bank offers its clients end-to-endtrade solutions across their value chain. Along with LCs, Guarantees and Export / DomesticTrade Finance, the bank is helping clients enhance cash flows by unlocking funds in theworking capital cycle. The international trade business saw over 50% growth compared tolast year. Our focus remains on increasing revenue streams by providing structuredproducts to clients while ensuring credit quality. The Bank provides Commodity Financeagainst various agricultural commodities and a strong focus has helped the portfolio growby over 35% compared to last year. The Bank is constantly looking at expansion ofgeographies and expansion of service partners with the objective of risk diversification.The Bank set up an exclusive group to cater to the specific export finance requirements ofGems & Jewellery sector and added several new clients to this portfolio.
The Supply Chain Finance solutions that were launched last year proved to be a highlyeffective tool for manufacturing clients in their negotiating preferential purchase termsand strengthening channel relationships. For suppliers, the Bank's solutions provideassured, cost-effective financing of trade receivables, improves Days' Sales Outstanding(DSO) and provides Balance Sheet advantages by faster conversion of accounts receivable tocash. The Bank also launched a Supply Chain Portal to enable its corporate partners toavail finance conveniently.
The Capital and Commodity Market Division focuses on serving Capital, Commodity andother Exchanges and their members. The Bank has the unique distinction of being aClearing-cum-Settlement Banker to NSE and BSE such as major commodity future Exchangessuch as MCX, NCDEX, NMCEand ICEX, Commodity spot Exchanges such as NSEL, NCDEX Spot; andthe Currency Derivative Segments of NSE and MCX SX. The Bank has also acquiredTrading-cum-Clearing memberships in the Currency Derivative Segments of NSE and MCX SX.The Bank is closely watching emergence of new participants / exchanges and shall considerparticipation in / association with such new entrants.
The Bank has been a Depository Participant for NSDL and CDSL and is an empanelled DPoffering services to both securities and commodities segments. The Bank has also becomeempanelled DP with Commodities Spot Exchanges and is launching lending products againstthe instruments traded on these Exchanges.
Capital markets were edgy during the previous two years and transaction volumes haddeclined. The Bank exercised requisite caution in the volatile environment. As marketsentiment improved last year, the Bank has judiciously expanded business in this segment,keeping a tight vigil on risks.
Priority Sector Lending
The Bank achieved the prescribed target for Priority Sector Advances.
Priority Sector Advances aggregated Rs. 9,431.16 crores at the end of March 2011,representing 45.89% of Bank's Net Bank Credit (NBC) of the previous year, as compared to44.34% at the end of March 2010.
During the year, the Bank financed over 1,54,220 agriculturists and the aggregateDirect Agricultural Advances stood at Rs. 2,435.52 crores, representing 11.85% of Bank'sNBC at the end of March 2011. The overall Agricultural Advances (i.e., Direct Agricultureand Indirect Agriculture) stood atRs. 3,381.84 crores representing 16.46% of the Bank'sNBC at the end of March 2011.
Additionally, the Bank's finance to 'Weaker Sections' stood at Rs.1,762.46 crores,representing 8.58% of the Bank's NBC at the end of March 2011 and finance to smallenterprises represented 27.09% of the Bank's NBC at the end of March 2011.
Banking business is exposed to a wide spectrum of risks and it is imperative that thevarious risks faced by the Bank are effectively monitored, measured and managed. A robustEnterprise-wide Risk Management (ERM) framework, a cornerstone of prudent banking, enableseffective and proactive management of various risks while supporting business growth,helps reduce volatility in earnings and enhances shareholders value.
ERM framework provides single window view of the risks faced by the Bank andfacilitates integration and coordination in management and monitoring of associated risks.The Bank has an integrated Risk Management Department, independent of business functions,covering Credit Risk, Market Risk, Operational Risk and Assets-Liabilities Management(ALM) functions. Risk management practices adopted by the Bank are aligned with the bestin the industry and are adaptable to a dynamic operating environment.
Indian Banks Association (IBA) has conferred on the Bank the Runner-up Award for the'Best Use of Technology in Risk Management' in the 'Private Banks' category. Theparameters of this Award were based on the steps undertaken to strengthen the riskmanagement framework during the year 2010. The risk management initiatives have brought intangible benefits in the form of proactive management of risk and ensuring compliancerequirements.
Reinforcement of Risk Management - Adoption of Basel II
The Bank has adopted the New Capital Adequacy Framework under Basel-ll w.e.f. March31,2009, for measurement and maintenance of capital adequacy.
The New Capital Adequacy Framework has enabled the Bank to allocate capital based onrisk sensitivity of the respective assets. As a prudent measure, the Bank has beenundertaking computation of capital requirement under Basel-ll since June, 2006 under aparallel run.
The Bank has implemented a highly sophisticated system to enable automated computationof capital requirements under Basel II. The system also supports adoption of advancedapproaches under New Capital Adequacy framework for computation of capital charge towardsCredit Risk, Market Risk and Operational Risk.
As part of New Capital Adequacy Framework, the Bank has implemented a Policy onInternal Capital Adequacy Assessment Process (ICAAP), which facilitates identification andmeasurement of material risks other than those covered under Pillar I. During the year,the Bank has further strengthened quantification of material risks under Pillar II ofBasel II Guidelines.
The Bank has undertaken various initiatives to equip itself towards migration to moreadvanced approaches of risk assessment under Basel II.
Credit Risk Management
Credit Risk is managed both at Transaction level and at Portfolio level. The keyobjective of Credit Risk Management is to achieve appropriate reward in relation to risksassumed whilst maintaining the credit quality within the defined risk appetite.
The various measures adopted by the Bank for managing Credit Risk are outlinedhereunder:
> Gauging Credit Risk at the time of credit approval, by means of risk-rating modelsimplemented for different segments of obligors;
> Credit Portfolio Management analysis to monitor credit quality, composition of itsportfolios, concentration risk, yield monitoring and business growth;
> Stress testing of credit portfolios to measure its shock absorbing capacity andits impact on profitability and capital adequacy;
> Measurement and monitoring of credit quality regularly by means of WeightedAverage Credit Rating (WACR) of the portfolios;
> Constituting the 'Risk Index'to measure the overall credit risk profile of theBank;
> Setting up of prudential internal limits for assuming exposures on acounterparties, industries, sectors etc.;
> Regular monitoring of prescribed portfolio level limits;
> Management of Bank Risk and Country Risk by setting up exposure limits on thebasis of respective risk profiles; and
> Assessing regularly the risks and controls at three different levels, viz., Low,Medium and High, and assessing the direction of risks and controls, viz., Increasing,Stable and Decreasing.
Market Risk Management
Market Risk arises from changes in interest rates, exchange rates, equity prices andrisk-related factors such as market volatility.
Market Risk is proactively managed and aligned with the Bank's risk appetite. The Bankmanages Market Risk in trading portfolios using a robust Market Risk Management Frameworkprescribed in its Market Risk Management policy. The framework includes monitoring of PV01limits, Value-at-Risk (VaR) limits for Forex, Investments, Equity and Derivativesportfolios, besides Stop-Loss limits, Exposure limits, Deal-size limits and variousoperational limits etc.
Market Risk Management Group functions independent of the Treasury business, and isresponsible for:
Creating and updating comprehensive policies framework and implementation ofmethodologies for measurement and monitoring the market risks;
Identification, measurement, monitoring, analysis and reporting of the marketrisks arising out of various trading portfolios; and
Ensuring compliance with Bank's Market Risk Management Policy and monitoringmarket risk exposures in line with risk limits set by the Board of Directors.
Prime objective of the Bank's trading activities is client facilitation and providingproducts / services at competitive prices. Further, the Bank also takes positions forproprietary activities. Financial instruments held in the Bank's trading portfoliosinclude debt securities, equities, foreign exchange and derivative financial instruments(forwards, swaps and options etc.).
Asset Liability Management (ALM)
The Bank's ALM system supports effective management of liquidity risk and interest raterisk, covering 100% of its assets and liabilities.
Liquidity Risk is managed through Structural Liquidity Gaps, DynamicLiquidity position 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 RateSensitive Gaps, Modified Duration of Equity and other risk parameters; and
Interest Rate Risk on 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.
Meetings of the Asset Liability Management Committee (ALCO) were convened frequentlyduring the year, wherein analytical presentations were made providing detailed analyses ofliquidity position, interest rate risks, product mix, business growth versus the budgets,interest rate outlook etc., which helped to review the business strategies regularly andundertake new initiatives.
Interest rate outlook projected in ALCO meetings have largely been in line with theactual interest rate trend taking place.
In order to adopt more advanced and sophisticated techniques of assets-liabilitiesmanagement, Bank has implemented state-of-the-art ALM system.
The ALCO is chaired by the Managing Director and includes the Chief Operating Officer,the Chief Risk Officer, the CFO, Heads of Business Units and Functional Heads. ALCO meetson a frequent basis and analyses the liquidity position and the interest rate risks. ALCOprovides directional guidelines to Business Units to manage liquidity position effectivelywhile achieving the Bank's targets.
The Bank evaluates its structural liquidity position on a daily basis and maintainsliquidity risk within its policy parameters.
Stress Testing-Liquidity Risk
The Bank performs stress tests regularly to simulate as to how the stressed events mayimpact its funding and liquidity position. The stress tests help the Bank to be betterequipped to meet the stressed situations, if they arise, and also overcome them throughwell planned contingent plans.
Contingency funding plans have been developed to anticipate and respond swiftly toapproaching or actual material deterioration in market conditions. The Bank reviews itscontingency plans in the light of evolving market conditions. The contingency funding plancovers available sources for contingent funding to supplement cash flow shortages, theroles and responsibilities of those involved in the contingency plans, and the ContingencyTriggers.
Interest Rate Risk in the Banking Book (IRRBB)
Interest Rate Risk on the Banking Book largely arises in four principal forms: (a)Repricing Risk; (ii) Optionality; (iii) Basis Risk; and (iv) Yield Curve Risk.
From an economic perspective, it is the Bank's policy to minimise the sensitivity tochanges in interest rates on assets and liabilities. Interest Rate Risk is calculated onthe basis of the repricing behaviour of each asset, liability and off-Balance Sheet items.Limits are laid down under the Bank's Assets and Liabilities Management Policy, as per itsrisk appetite, on the impact on Nil and Economic Value of Equity (EVE) for a specifiedchange in interest rate.
The Bank has put in place necessary framework to monitor Interest Rate Risk on theBanking Book using the Duration Gap Approach.
Operational Risk Management
Operational Risk is the potential for incurring loss due to failure of employees,technology, systems or processes, projects, disasters, external factors, frauds etc.,including legal and regulatory risk.
Operational Risk occurs on account of fraud, human error, failed processes, inadequatesystems, damage to physical assets, improper behaviour or external events. The Bank seeksto ensure that key operational risks are managed in a timely and effective manner througha framework of policies, procedures and tools to identify, assess, monitor, control andreport such inherent risks in the Bank's business.
The Bank's Risk Management Department provides necessary direction and undertakesmeaningful initiatives for implementation of the Operational Risk Management Framework.The Operational Risk Framework comprises of Policy guidelines, Risk & Control SelfAssessment (RCSA), Loss Data analysis, Key Risk Indicators (KRIs) and Risk Profiling ofbranches. Risk and Control Self Assessment of major operation functions namely, GeneralBranch Operations, Specialised Operations and Treasury Operations have been successfullycarried out and the risk mitigation plans have been designed. Loss Data Analysis (based oninternal as well as external loss data) is carried out periodically to draw riskmitigations plans.
New products/processes launched by the Bank are approved by the Operational RiskManagement Committee (ORMC), which identifies the risks inherent in the products /processes and prescribes controls to mitigate such risks.
The Bank has efficient audit mechanism, involving periodical on-site audit, concurrentaudits, on the spot and off-site surveillance enabled by Bank's advanced technology andCore 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 hasachieved the following:
The Bank has formulated and implemented a comprehensive Business Continuity Plan(BCP) to ensure continuity of its critical business functions and extension of bankingservices to its customers;
The Bank has established an effective Disaster Recovery site at a distantlocation, with on-line, real-time replication of data, both in Mumbai and Chennai;
Comprehensive IT security framework has been put in place to ensure completedata security and integrity; and
The Bank has housed its Data Centre in a professionally managed environment,with sophisticated 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 is critical, given the challenging credit environment faced bybanks in India during the past few years. The Bank has actively utilised theSecuritisation and Reconstruction of Financial Assets and Enforcement of Security InterestAct, 2002 for recovering its dues, wherever considered appropriate. The Bank has nowbecome a permanent member of the Corporate Debt Restructuring Forum so as to efficientlyhandle restructuring of viable businesses in coordination with other lenders.
During the year, the Bank has recovered an amount of Rs. 20.95 crores in written-offaccounts (Previous Year: Rs. 22.23 crores).
The Bank has also taken measures to improve Provision Coverage in accordance withregulatory prescriptions and the Provision Coverage now stands at 72.61 % (Previous Year:60.14%). This has also resulted in sharp reduction in the level of Net NPAs, which nowstand at 0.28% (Previous Year: 0.50%) of Net Total Advances, while the ratio of Gross NPAas percentage of Total Advances stands at 1.01 % (Previous Year: 1.23%).
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 & Imaging System during theyear 2009-10. 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 perthe 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 give online status of processing ofcustomer 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 bank services. The Bank has made acommitment 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 posted 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. As a member of BCSBI, the Bank has adopted MSE Code with all theprovisions.
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 Mumbai, Kolkata, Delhi, Chennai,Bangalore, Chandigarh, Ludhiana, Hyderabad and Kochi for quicker and efficient process. Itwill be the Bank's endeavour to bring more centres under Centralised Clearing in the nearfuture. 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.
The Bank has implemented various system upgrades which include the Teller Module,Expenses Management and others. The Bank has strengthened its branch processes andmonitoring capability to ensure smooth functioning of day-to-day activities.
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 set up;
Expenses management software has been deployed at all branches for facilitatingcost control;
Standard Operating procedures have been defined for processes at branches toensure consistent delivery with increasing 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 of RBI advices,on settlement of claims in respect of deceased depositors. The policy covers all types ofdeposits, 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 various depositproducts of the Bank, the terms and conditions governing the operations of these 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 of the Bank,to the extent mentioned in the policy. The policy is based on principle of transparencyand fairness in the treatment of customer.
Specialised Banking Operations (SPOPS)
The Specialised Banking Operations (SPOPS) Team handles processing and delivery ofTrade Services, Foreign Exchange, Cash Management Services, Depository, PortfolioInvestment Services for NRIs, Capital and Commodity Markets, RTGS, and Global Remittanceproducts, along with Treasury Back-Office Operations through the branch network as well asthrough the Centralised Processing Unit.
Various new business initiatives and huge volumes were efficiently handled by SPOPSusing image-based technology and optimised processes, with improved Turn-Around-Times. TheCorporate Client Servicing initiative at select branches has set a new high in customersatisfaction. The 'Safe Watch' system has been implemented to monitor Anti MoneyLaundering measures (AML)/Financial Action Task Force (FATF) check for all crossbordertransactions.
Internal Control Systems and their adequacy
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.
The Bank has constituted a Branch Level Customer Service Committee (CSC) at allBranches comprising employees and customers of the respective branches. CSC meetings areconvened every month to examine complaints / suggestions, cases of delay, difficultiesfaced / reported by customers / members of the Committee. Feedback and suggestions aresubmitted to CPPAPS. CPPAPS examines and provides relevant feedback to the CustomerService Committee of the Board for necessary policy / procedural action.
The Bank implemented in May, 2009 "Talisma", the Customer Requests,Complaints and Requests Management System. The key objective of this solution is to have asingle system to track requests, complaints and queries at customer level so that theservice standards as set out by the Bank are managed and bettered. The System has beenimplemented across all branches and the Bank's Contact Centre in Mumbai.
Grievance Redressal Mechanism
The Bank has designed an escalation process for all customer complaints received atbranches and at Corporate Office. A quarterly report related to complaints received andredressed is placed before the Board of Directors. Based on the recurrence of complaintsin specific areas, causative factors are identified and necessary remedial measures areinitiated.
The Bank maintains a dedicated page for lodging of complaints and complaint redressalmechanism on its website www.indusind.com 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 our website for a "Complaint Form", whichgives opportunity to all our customers to air their grievances in a simplified way and gettheir complaints redressed without delay. Further, customers can contact the respectiveBranch Manager or Call our Contact Center on toll free number or send email firstname.lastname@example.org to lodge their grievances.
Inspection and Audit
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 Bank's Internal Audit function undertakes a comprehensive risk-based audit of allits business units. An Audit Plan is drawn up on the basis of a risk-profiling of auditeeunits. Accordingly, the Bank undertakes internal audit of its business units at afrequency synchronized to the risk profile of each unit in line with the spirit ofguidelines relating to Risk-Based Internal Audit. The scope of risk-based internal audit,besides examining the adequacy and effectiveness of internal control systems and externalcompliance, also evaluates the risk residing at the auditee units. Credit portfolio of theBank is administered at Zonal levels and covered by Internal Audit Department.
To complement the Bank's Internal Audit function, the Bank has a strong ConcurrentAudit. Further, in order to effectively address business concerns and to react with speed,the Bank's Internal Audit function is decentralised, and has been functioning as anintegrated unit to cover all its operational activities. Regional Auditors at differentlocations are equipped to evaluate all aspects of the Bank's business.
The Bank has developed an effective online surveillance system by using its fullynetworked Core Banking Software, well-defined and strong internal controls, need-basedaccess to computer systems and clear audit trails which have helped to mitigateoperational risks.
To facilitate ownership of the Quality Control mindset, all Exception Reports areavailable on the system, for viewing and use by Business Units. There is a constant pushto automate audit activities in order to enhance transparency and standardisation, as wellas to speed up the availability of M IS to Top Management.
To ensure independence of the Audit function and in line with the best corporategovernance practices, the Internal Audit function has a reporting to the Audit Committeeof the Board, which oversees the performance and reviews the effectiveness of controlslaid down by the Bank and compliance with regulatory guidelines, besides renderingeffective guidance to ensure conformity with best practices in the area of Internal Audit.
The Board and Management of the Bank are committed to maintenance of high standards inmaintaining a corporate culture of not only observing what is legally binding but also toembrace broader standards of integrity and ethical conduct.
The Bank has a distinct Compliance Function that facilitates management of ComplianceRisk for the Bank. The function independently examines and monitors compliance aspects atvarious stages. Besides vetting the Bank's policies, new products and processes or anymodifications in these, it 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.
The Compliance Function has also taken steps to strengthen compliance-culture among theworkforce through Seminars for the branch level staff at all levels from frontlineexecutives to the Branch Managers; circulating short memos on important topics and casestudies; and publishing a quarterly bulletin containing compliance related matter.
The Bank has significantly scaled up its activities in the last three years throughrobust investments in people, products and infrastructure. HR has also moved in tandemwith the Bank's Business pursuits and created an enabling work culture, where employeesare able to actualise their potential. The Bank nurtures employees as its critical assetsand through employee centric policies seeks to offer a fulfilling career, work - lifebalance and benchmark rewards and compensation.
The Bank draws upon the best talent in the Industry. Passion and a very strongachievement orientation, bring people to the Bank. Our Bank is already a "PreferredEmployer" which is amply demonstrated by:
o Significant intake of quality professionals from reputed peer Indian / ForeignBanks and large corporates from the BFSI segment;
o A very high offer acceptance ratio, a positive word-of-mouth by job seekers,increased hires through employee referrals reinforce our belief that our Bank has become asought after career destination; and
o Lower attrition levels than the market reinforces the belief that employees now wantto be a part of the growth story of the Bank.
The key highlights of the year were:
o Hiring Quality Manpower across India for existing and new business initiatives. Inline with business objectives, the manpower strength increased from 5,383 employees in FY10 to 7,008 employees in FY 11;
o Continued emphasis on enhancing knowledge / skill levels of employees throughlearning initiatives for increasing productivity. During the year, the Bank conducted115,000 learning man-hours for more than 24,000 participants through Classroom /e-Learning initiatives. The participants were exposed to several learning programmes inareas of Internal Responsiveness, Leadership Development, Personal Effectiveness BankingProducts, and Operational Processes. The e-Learning initiative was intensified and over10,000 participants were covered through several online course modules and assessmenttests. Our Bank won the IBA award for Best e-Learning Initiatives in the Private SectorBankcategory;
o An objective Performance Measurement System based on "SMARTs" isrunning successfully across the Bank to facilitate, review and reward employeeperformance. In FY 11, all the Performance Management processes relating to Goal Setting /Mid-Year Review / Final Appraisal were conducted online. This was received with anoverwhelming response from employees with a very high hit-rate on the system. FinalPerformance Appraisal for FY 09 -10 was conducted timely in consonance with the Bank'sobjective of Rewarding Performance against tangible Goal Achievements. Mid-YearPerformance Review was also completed across the Bank and developmental feedback wasprovided to the employees for achievement of their Goals / SMARTs;
o The Bank's Compensation Policy is driven by a 'Pay-for-Performance'philosophy. Our compensation is also continuously benchmarked against market to ensureattraction and retention of critical performers. The Bank's Employees' Stock OptionsScheme was further broad-based by granting Options to 'must retain' employees in MiddleManagement grade levels also, making them co-owners of the Bank in the process;
o During the year, there was a focus on increased technological interventionsfor higher operational efficiencies in HR Processes for better TATs, cost-efficiency andscalability. There were improved TATs on HR processes relating to on-boarding, exits andfull and final settlements; and
o Several employee engagement initiatives such as branch visits, one-on-onemeetings, get- togethers, movies, and participation in sports events were undertaken, asalways, to create employee bonding and connect. The intent was to promote Empowerment,Openness, Cooperation and Collaboration.
HR would continue to be a partner to Business Units on enhancing the Bank's HumanCapital and build together a sustainable growth model through 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 the future growth of the Bank. Under theScheme, options upon which exercise or conversion could give rise to the issue of a numberof shares not exceeding the aggregate 7% of the issued equity capital of the Bank fromtime to time can be granted.
The Employee Stock Option Scheme is in accordance with the Securities and ExchangeBoard of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)Guidelines, 1999. The eligibility and number of options to be granted to an employee isdetermined on the basis of the criteria laid down in the Scheme and is approved by theCompensation Committee of the Board of Directors.
An aggregate of 2,36,25,450 options have been granted under the Scheme. Statutorydisclosures as required by the revised SEBI Guidelines on ESOS are given in theAnnexuretothe Directors' Report.
Other Initiatives underway
Quality is a prime differentiator in a service industry, and the Bank has had theunique distinction 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 Bank's activities.
The Bank's corporate ambition is now to emerge as a Top Performer among new generationprivate sector banks in 3 years, measured by Profitability, Productivity & Efficiency.
This shall be achieved by doubling the branch network, client base and Balance Sheetsize.
To meet this challenge, a multi-pronged strategy was spelt out at the commencement of2008-09, and in line with this strategy, efforts were initially concentrated on enhancingquality in a few select areas.
The Bank tied up with the Confederation of Indian Industry's (CI I) Institute ofQuality, Bangalore, to kick off this initiative with a series of workshops facilitated byCII-IQ faculty across the country, where Managers were sensitised to the need for quality,and practiced converting quality concepts into definite action steps for regularimplementation.
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 &colleagues, communication with the external environment etc.
With a view to promoting transparency and enhancing shareholder satisfaction, apartfrom frequent interaction by the Bank with the Registrar & Transfer Agent, steps havebeen taken to obtain contact details such as e-mail IDs, cell phone numbers and telephonenumbers of all shareholders so as to communicate to shareholders information aboutdevelopments in the Bank. This direct communication would be in addition to the regulardissemination of information through usual channels such as the Stock Exchanges, Pressetc.
Going forward, the Bank's shareholders shall continue to receive best-of-classshareholder services and be best informed about developments in the Bank.
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, has allowed companies to send officialdocuments to their shareholders electronically.
The Bank has been at the forefront in "Green Initiatives", and through thisprocess aspires to graduate to paperless compliances.
Shareholders are requested to furnish their e-mail IDs at email@example.com orinform telephonically on 022 - 6641 2487 to help accelerate the Bank's migration topaperless compliances.
In line with Circular issued by MCA, the Bank sought the consent of the shareholders tosend the Annual Report i.e., Notice convening the Meeting, Financial Statements,Directors' Report, Auditors' Report, etc. for the year ended March 31,2011, in electronicform, 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 our website www.indusind.com
Information Technology (IT) has been an integral part of the Bank. Technology, as astrategic tool has enabled the Bank to focus more on customer satisfaction. IT has helpedin reducing TAT in many processes, streamlining requests & complaints management,enhancing efficiency, reducing costs & time to market products, providing ease &comfort of banking for varied segments.
The Bank has always been at the forefront in deploying the latest, state-of-the arttechnology. In recognition of this strategy, the Bank has been awarded the prestigious'Best Use of Technology in Training & e-Learning lnitiative-2010' and Runner up for'Best Risk Management lnitiative-2010' awards instituted by IBA (Indian Bank'sAssociation). It has also been awarded 'Silver Winners for the 2010 Global Awards forExcellence in Business Process Management and Workflow'by Workflow Management Coalition(WfMC) and BPM in Australia & Asia Region.
Some of the key infrastructure initiatives completed to strengthen the network andsecurity are router and bandwidth upgrades, anti-phishing, anti-malware and infrastructurevulnerability assessment and penetration testing. Contributing to the Green cause, theBank deployed solar powered ATMs and embarked on projects like Virtualisation andConsolidation of Servers, Thin Clients, e-Archiving, e-Learning, e-Procurement, Paperlessfax etc.
The Bank has built an enterprise-wide IT architecture that is aligned with the changingbusiness environment. Apart from ensuring very high availability & BAU, some of themajor initiatives completed during 2010-11 are:-
Implemented 'Check-on-Cheque' a solution where the scanned image of the chequesissued by the customer appears on their statement of account, with signature masked. Thisis unique and first of its kind in India & enables customer to keep perfect record ofcheques issued;
The ATM Denomination Select Service (Choice Money ATM Services) enablescustomers to get notes of their choice only at Induslnd Bank ATMs. Acustomer can chooseany combination from a denomination of Rs.100,500 & 1000. Usage of this service insome ATMs going upto 80% clearly shows the value attached by customers to it;
In-house developed TASS-Tea Auction Settlement rolled out across all the six Teaboard Auction centers. Also introduced web based Indus Tea Portal to cater the customer'sMIS requirement;
Enhanced Corporate internet banking 'IndusOnline' to facilitate Trade Services& Supply Chain Finance workflow which is a single window service for corporatecustomers. This has been deployed with a unique & secure two-factor OTP solution(developed by NT-Madras) that was awarded the 'Meritorious Invention Award' by NRDC;
Bank has introduced new online internet based forex trading platform 'FastForex'for its Corporate and Exchange House customers;
For enhancing control and prohibit password sharing, we have implementedbiometrics based supervisory authorisation at the front-end branch teller system;
In the area of business line such as fee-based income, the bank has tied up withbusiness houses in the Insurance, Mutual Funds arena. To support & grow this line ofbusiness, the bank has developed in-house Systems, introduced new processes andimplemented new system mi-revenue to track the entire fee based income;
Rolled out Unified Communication Solution which will enable the users to chat(1-to-1 and multi-party) using an IM, perform an audio call (1 -to-1 and conference) andalso share a presentation or an entire desktop. This should help in improving productivityand reduce travel for meetings and discussions;
Strengthened Information Security monitoring and controls by engaging externalsecurity organisation on a managed services model;
Continued optimisation and consolidation of IT resources by Virtualisation inData Centres contributing to our Green initiatives;
Implemented Verified by Visa (VbV) to enhance security on net based paymentsthrough Visa debit card;
Introduced Master card ATM acquiring (all users of Master Card can now use 600odd ATMs of IBL);
Consumer finance Loan database/application merged into single database, singleapplication (Prolendz);
Implemented Mobile SMS OTP on Indus Direct;
Launched the new Speed Remittance with an interface with UOB, Singapore;
Added new processes to the Business Process Management system (Image &Workflow Solution) to reduce turnaround time & increase employee productivity and costefficiency;
Implemented new system Progold to handle bullion trade business;
Enhanced its treasury by migrating to Eikon, a market information system fromThomson Reuter and introduce new Financial Future modules; and
Implemented new enterprise-wide MIS System and Consumer Banking Data-warehouse.Leveraging IT
The Bank has embarked on new technology initiatives in the current financial year likeMobile Banking for retail customers, signed an agreement with Infosys for theimplementation of the core banking system, increased deployment of solar powered ATMs,enhancement and addition of new tools for robust security, infrastructure for Credit Cardbusiness, fraud management & transaction monitoring system, Basel II with IRBapproach, systems to support financial inclusion, infrastructure upgrade to cater to newbranches and ATMs.
The Banking Regulation Act, 1949 (Act) being the law relating to banking has been inforce for more than six decades. It, inter alia, empowers the Reserve Bank to regulate andsupervise the banking sector. The Banking Laws (Amendment) Bill, 2011 has been introducedto Lok Sabha on 22-03-2011. The Banking Laws (Amendment) Bill, 2011 seeks to amend theBanking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer ofUndertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer ofUndertakings) Act, 1980 to make the regulatory powers of Reserve Bank more effective andto increase the access of the nationalised banks to capital market to raise capitalrequired for expansion of banking business and also to make certain other consequentialamendments in certain other enactments.
It is proposed:
(a) To enable the nationalised banks to increase or decrease the authorised capitalwith approval from the Central Government and the Reserve Bank without being limited bythe ceiling of a maximum of three thousand crores of Rupees;
(b) To provide the nationalised banks to issue two additional instruments ("bonusshares" and "rights issue") for accessing the capital market to raisecapital required for expansion of banking business;
(c) To raise the ceiling on voting rights of shareholders of nationalised banks fromone per cent, to ten per cent;
(d) To make provisions to ensure that control of banking companies is in the hands offit and proper persons, it should be mandatory for the persons to obtain prior approvalfrom the Reserve Bank who propose to acquire five per cent, or more of the share capitalof a banking company;
(e) To confer power upon the Reserve Bank to impose such conditions as it deemsnecessary while granting such approval for acquisitions of five per cent, or more sharecapital of a banking company (including specifying acquisition of a minimum percentage ofshares in a banking company) if it considers necessary;
(f) To remove the existing restriction on voting rights limited to ten per cent, of thetotal voting rights of all the shareholders of the banking company;
(g) To confer power upon the Reserve Bank to call for information and returns from theassociate enterprises of banking companies also and to inspect the same, if necessary;
(h) To confer power upon the Reserve Bank to supersede the Board of Directors of abanking company for a total period not exceeding twelve months and appoint anadministrator to manage the banking company for certain period if the Reserve Bank comesto the conclusion that the banking company is functioning in a manner detrimental to theinterest of the depositors or the banking company itself;
(i) To insert a new section 2A in the Banking Regulation Act, 1949 so as to exemptmergers of the banking companies from the applicability of the provisions of theCompetition Act, 2002. The exemption of mergers of banking companies from the scrutiny ofthe Competition Commission of India would allow the Reserve Bank to approve mergers ofbanking companies in public or depositors' interest, in the interest of the banking systemin India and to secure the proper management of the banking company in a timely mannerwithout waiting for the approval of the Competition Commission of India;
(j) To enable the banking companies to issue preference shares subject to regulatoryguidelines of the Reserve Bank;
(k) To align the restriction on commission etc., on sale of shares to issue pricerather than to the paid-up value of shares;
(I) To establish a "Depositor Education and Awareness Fund" to take overinoperative deposit accounts which have not been claimed or operated for a period of tenyears or more;
(m) To substantially increase the penalties and fine for some violations of the BankingRegulation Act, 1949;
(n) To confer power upon the Reserve Bank to levy penal interest in case ofnon-maintenance of required cash reserve ratio; and
(o) To confer power upon the Reserve Bank to order a special audit of co-operativebanks in public interest for a more effective supervision of co-operative banks.
During the year 2010-11, the Bank took a number of initiatives to increase itsvisibility by developing clutter free communication in an interesting and innovativemarketing approach. The Bank has undergone a comprehensive transformation not only inprofitability / productivity and the health of its loan book but also witnessed asubstantial enhancement of its brand equity on various parameters like visibilityquotient, image, recall and overall communication.
This year too, a special focus was laid on increasing the quality and frequency ofcommunication with the various stakeholders. There was a flurry of activities in the Bankwith launches of new products and services. This was well supported by a 360 degreecommunication strategy on all media vehicles to ensure a multiplier effect. On theexternal communication front, following initiatives were taken:
Extensive dissemination of key value proposition through media;
Sponsorships /events with reputed Associations/Trusts which in turn gave highervisibility and good brand rub-off;
Regular client engagement activities, debit card promotions, regional levelpromotions, branch launches, short bursts of Fixed Deposit Rates at regular intervals onprint media and direct mailing exercises undertaken across the country furtherstrengthened the brand flavour;
Strong and consistent PR approach gave a lot of media coverage on Bank'sinitiatives both in print and electronic channels. This was supplemented by periodicconference calls, roadshows and one-on-one interactions with the investor and analystfraternity;
Increase in the number of ATMs at strategic / high traffic zones gave the Bankgood visibility;
Created a smart & contemporary looking website which further enhanced thebrand image; and
In the international market, released an interesting TV commercial for Bank'sremittance service - Indus Fast remit on a popular TV channel in US targeting the NRIcommunity. As a support medium, it was complemented by an innovative channel - the socialnetworking tool to subtly popularize Bank's remittance service to the targeted audiencecomprising of the young, trendy and upto date NRI community.
On the sponsorship front, the Bank participated in activities having multi-purposeobjectives such as sports, philanthropy, music etc. along with service organisations /NGOs and Corporate Bodies to make the Bank's presence felt in the community. Some of themajor events were Pandit Chaturial Memorial Music Concert, Kala Virasat, Ruhaniyat,Sahachari Trust-Design One and SMF Conference organised by MM Ahmedabad and many otherevents at various branch locations. _
During the year 2010-11, the Bank opened 90 new branches and set up 97 ATMs. As at theyear ended March 31, 2011, the Bank had a total of 300 branches spread across 212geographical locations and 594 ATMs, inclusive of 340 off-site ATMs. The Bank has presencein 28 States and Union Territories.
In addition, the Bankalso has Representative Offices in London and Dubai.
Apart from expanding its Branch network, the Bank also refurbished or remodelled 14branches and five administrative offices so as to provide enhanced levels of customerexperience and supervisory support.