allahabad bank Management discussions

A. Industry Structure and Development

The banking industry in India has a long history. Banking in India has been through a long journey and has achieved new heights with the changing times. The non-performing assets, the biggest hurdle of Indian banking industry, peaked at the end of the financial year 2017-18 and were more widespread in public sector banks (PSBs). The banks were unable to lend due to shortage of capital. However, some of the Government initiatives such as Insolvency and Bankruptcy Code, 2016 have had reasonable success in the last year. Along with this, timely capital infusion by the Government has assisted some banks to come out from PCA and carry on business as usual. At the same time, there has been action on the consolidation front with merger of few Banks. Mergers in India are essentially a bail-out exercise. But unlike in the past, where failed private banks were merged with public banks to protect the interest of depositors, the recent merger was consolidation of banks under the same promoter to achieve economies of scale.

The use of technology has brought a revolution in the operations of the banks and because of this development; banking industry has been able to deliver much faster and in a more efficient manner. India has significant potential with large part of population not utilizing banking services in spite of success of Jan Dhan Yojana. While Jan Dhan Yojana, Aadhar and mobile penetration puts India in a unique position, the fruits of this success need to be reaped. Fintech activity needs to pick up, especially in the payments space where the infrastructure made available through UPI is world class.

Growth in bank credit is considered to be one of the major factors in driving economic growth as it is assumed that higher borrowings are utilized for productive purposes resulting in economic advancement. There has been a structural shift in bank credit from Industry to retail sector. The latest data on SCBs position released by the RBI as on 10^th May 2019 shows that the aggregate deposits increased by 10.36% Y-o-Y while bank credit witnessed a robust growth of 12.97%. During FY19, higher credit off-take to retail segment (like personal, housing, vehicles) supported the robust pick-up in overall credit demand.

During FY19, the RBI has changed the policy rates three times. It increased repo rate by 25 basis points on 6^th Jun18 and again on 1^st Aug18. However, it reduced the rates by 25 basis points on 7^th Feb19 and also decided to change the monetary policy stance from calibrated tightening to neutral with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 3.2-3.4%, while supporting growth. Further, in its First Bi-monthly Monetary Policy for FY20, the RBI has reduced the repo rate by 25 basis points to 6.0% from 6.25%.

RBI has deferred the implementation of the last tranche of 0.625% of Capital Conservation Buffer (CCB) from March 31, 2019 to March 31, 2020. This one year window has afforded an opportunity to PSBs by an estimated relief of around Rs35,000-38,000 crore.

Government had infused Rs1.06 lakh crore as bank recapitalization during the FY19 as against the budgeted target of Rs65,000 crore. But no funds were allocated for bank recapitalization in FY20 interim budget. In the FY20 interim budget, the TDS limit on interest earned on bank deposits has been increased to Rs40,000 from Rs10,000 currently which is a win-win position for the Banks as well as its customers.

B. Opportunities and Threats

Indian banking sector may face various challenges and opportunities in coming years, like high transaction costs, IT revolution, timely technological up-gradation, intense competition, privacy & safety, global banking, financial inclusion etc. The competition from global banks and technological innovation has compelled Indian banks to rethink their policies and strategies. Different products provided by foreign banks to Indian customers have forced the Indian banks to diversify and upgrade themselves so as to compete and survive in the market. The biggest challenge for banking industry is to serve the mass and huge market of India. Companies have become customer centric than product centric. The better we understand our customers, the more successful we will be in meeting their needs. In order to mitigate above mentioned challenges Indian banks must cut the cost of their services.

Another aspect to encounter the challenges is product differentiation. Apart from traditional banking services, Indian banks must adopt some product innovation so that they can compete in gamut of competition. Technology up gradation is an inevitable aspect to face challenges.

C. Segment-wise or Product-wise Performance

The Banks business broadly comes from deposits, credit and investment. Some major business segments like Resource mobilization, Priority Sector Lending, Retail Lending, Financial Inclusion, MSME, etc. are analyzed in this section.

i. Resource Mobilization

The Banks total deposits stood at Rs214335 crores as at the end of 31^st Mar19 registering a Y-o-Y growth of 0.34%. The share to CASA deposits in aggregate deposits increased to 49.49% as at the end of Mar19 as compared to 46.50% a year ago.

The Bank reduced its bulk deposits by 43.87% Y-o-Y from Rs3247 crores to Rs1823 crores during Mar19. CASA deposits with special focus on SB deposits were the focus areas at the ground level. Consequently, CASA deposits increased by 7.77% Y-o-Y during FY19 and SB deposits increased by 6.89%.

ii. Credit Deployment and Delivery

Total advances of the Bank plunges by 1.73% to Rs163552 crores as on 31^st Mar19. Credit-Deposit ratio stood at 76.32% as against 78.64% in the last financial year. Yield on advances for the Bank stood at 8.07% during FY19. iii.Retail Credit

The portfolio under Retail Credit as on 31.03.2019 stood at Rs20149 crores as against Rs17599 crores as on 31.03.2018, registering Y-o-Y growth of 14.5%. Housing Loan, a key constituent under Retail Credit grew at a pace of 16% Y-o-Y.

The Bank has now a total of 53 Retail & MSME Processing Centres (RMPCs) spread over different parts of the country specially catering to specified retail & MSME loans for quick & hassle free disposal. iv. Priority Sector

Average Priority Sector Credit stood at Rs58000 crores as on 31^st Mar19, which was 40.34% of Adjusted Net Bank Credit (ANBC) against the stipulated norm of 40%.

(Rs in crore)R

	31.03.2018	31.03.2019
Priority Sector Credit, of which:	62265	56449
a)Agriculture	27782	26212
b) MSME	29574	24436
c) Others	10164	11601
Small FarmersMarginal Farmers	15015	16057
Micro Enterprises	12775	12304
Weaker Sections	19214	20260
Women Beneficiaries	9401	10526

** RsRsQuarterly average of Priority Sector Credit and Agriculture Credit has been Rs58000 Crore and Rs26721 Crore respectively in 2018-19.

# Priority Sector Credit as on 31.03.18 & 31.03.19 is reported after adjusting effect of PSLC trading. Previously reported figures were without taking effect of PSLC trading.

Target Achievements

% to ANBC	Target	31.03.2018 ##	31.03.2019**
Priority Sector Credit, of which:	40%	42.44%	36.84%
a) Agriculture	18%	18.94%	17.11%
b) SFMF	8%	10.23%	10.48%
c) Micro Enterprises	7.50%	8.70%	8.03%
d) Weaker Sections	10%	13.10%	13.22%
e) Women Beneficiaries	5.00%	6.41%	6.87%

** %%% %In terms of RBI Master Direction FIDD.CO.Plan.104.09.012016-17 dated July7, 2016 and updated as on Dec 4, 2018 quarterly average of PSC and Agriculture has been 40.34% against the Stipulated target of 40% and 18.08% against the Stipulated Target of 18% respectively during 2018-19 .

## Percentage Achievement against ANBC is reported after adjusting effect of PSLC trading. Previously it was reported without taking effect of PSLC trading.

Credit to Agriculture

Credit to Agriculture stood at Rs26212 crores as on 31^st Mar19, which was 17.11% of ANBC against the stipulated norm of 18%. However quarterly average achievement under Agriculture was 25997 crore which is 18.08% of average ANBC. Credit to Small & Marginal Farmers stood at Rs16057 crores, which was 10.48% of ANBC against the stipulated norm of 8%. Under Special Agricultural Credit Plan (SACP), the Bank disbursed Rs10506 crores agricultural credit against the target of Rs12660 crores for FY18-19.

Credit to Weaker Sections and SCST

Advances to Weaker Section stood at Rs20260 crores as on 31^st Mar19, constituting 15.80% of ANBC against the stipulated norm of 10.00%. Advances to SCST were at Rs6969 crores as on 31^st Mar19, share of advances to SCST under weaker section was 29% in the same period.

Credit to Women Beneficiaries

As on 31^st Mar19, credit to woman beneficiaries stood at

Rs10526 crores, which was 6.87% of ANBC against the stipulated norm of 5.00%.

Credit to Minority Communities

Credit to Minority Community stood at Rs10349 crores as on 31^st Mar19 which was 15.78% of total advances under PSC against the stipulated norm of 15.00%.

Micro Credit

Under Micro Credit during FY18-19, loan of Rs790.15 crore disbursed in 61314 Self Help Group (SHG) accounts against the target of Rs705.70 crore. Loan outstanding to SHG increased from Rs870.76 crores as on March18 to Rs1032.77 Crores as on March19 registering Y-o-Y growth of 18.61 %. The Bank was awarded for its outstanding performance in the State of West Bengal by the State Government.

Grading of Rural Self-Employment Training Institutes (RSETIs)

Out of 21 RSETIs 17 have been awarded graded as "AA" (Highest Grade) and remaining 4 have been graded BA by Ministry of Rural Development (MoRD) for Financial Year 2017-18. Both the targets against number of training programmes organized & number of candidates trained were surpassed by our RSETIs during FY18-19.

v. Micro, Small and Medium Enterprises

The portfolio of MSME loans of the Bank reduced from Rs31,547 crores as on 31^st Mar18 to Rs26385.54 crores as on 31^st Mar19. The reason for reduction in portfolio size is declassification of accounts from MSME portfolio as directed by RBI and some food processing units have been classified in agriculture. In spite of above the advance under Micro segment has shown positive growth. (i.e Rs14254.50 crore as on 31.03.2019 against Rs14015 crore as on 31.03.2018).

MUDRA Loans

The Bank extended MUDRA loans under Pradhan Mantri Mudra Yojana (PMMY) to the poorest of the poor amounting to Rs2958 crores during FY19 against Rs2766 crores during FY18.

vi. Asset Quality

As on 31^st Mar19, Gross NPA of the Bank stood at Rs28,705 crores as against Rs26,563 crores during FY18 and Net NPA was at Rs7,419 crores as against Rs12,229 crores a year ago. In terms of ratio, Gross NPA Percentage and Net NPA Percentage were 17.55% (FY18: 15.96%) & 5.22% (FY18: 8.04%) respectively. The provision coverage of the Bank improved to 79.85% during FY19 from 62.91% a year ago.

vii. Financial Inclusion

The Prestigious Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched on 28.08.2014 with basic objective of achieving inclusive growth in Mission Mode through the following Six Pillars:

Pillar-1: Universal Access to Banking facilities

- A total of 4580 Sub Service Area (SSAs) has been fully covered by the Bank through deployment of 4355 Bank Mitras and remaining 225 SSAs covered through Branches.

Additionally 750 Bank Mitras have been deployed in urban wards through SSA approach.

Pillar-2: Financial Literacy Programme

- The Bank provides financial literacy through Financial Literacy Centers (FLC) located in all our Lead Districts and Bank Mitras.

Pillar-3: Providing Basic Banking Accounts

- As on 31^st Mar19, the Bank opened 106.55 lakh accounts under PMJDY and the outstanding balance in these accounts stood at Rs3534.92 Crore registering 65.35% deposit growth.

Pillar-4: Micro Credit availability

Status of Overdraft facility to PMJDY customers as on 31^st Mar19 was as under:

Eligible	OD	OD	OD Availed
ACs	Sanctioned	Availed Ac	Amt (Lac)
2072391	2072391	643472	1238.95

Pillar-5: Micro Insurance (PMJJBY & PMSBY) - Insurance Premium cumulatively had been remitted to the Insurer for 36,06,820 customers involving premium amount of Rs.4.32 crore under PMSBY up to 31.03.2019. However, the eligible cases for renewal for the policy year 2018-19 stands at 22, 67,891.

- Fresh Enrolment from 01.06.2018 to till 31.03.2019 stands at 793816 and auto renewal of 22, 15, 557 policies happened at our bank till 31.05.2018-Annual cut-off date for Auto Renewal for the current year. Considering the total 30, 49, 017 no. of fresh and auto renewal policies our bank earned fee based commission of Rs65.54 Lakh up to 31.03.2019 for FY 2018-19. Auto renewal success percentage was 97.69%. - Insurance Premium cumulatively had been remitted to the Insurer for 10, 16,673 customers involving premium amount of Rs31.11 crore under PMJJBY up to 31.03.2019. However, the eligible cases for renewal for the policy year 2018-19 stand at 5, 05, 582. - Fresh Enrolment from 01.06.2018 to 31.03.2019 stands at 2, 07,479 and auto renewal of 5, 05, 582 policies happened at our bank till 31.05.2018-Annual cut-off date for Auto Renewal for the current year. Considering the total 7, 21,270 no. of fresh and auto renewal policies our bank earned fee based commission of Rs266.48 Lakh up to 31.03.2019 for FY 2018-19. Auto renewal success percentage was 85.92%. - A total of 3378 and 555 claims under PMJJBY and PMSBY respectively as on 31.03.2019 have been settled. The Claim settled disposed ratio for PMJJBY & PMSBY respectively stands at 93.31% & 91.88% of our bank.

Pillar-6: Unorganised sector Pension schemes like Atal Pension Yojana (APY) - Since inception, the Bank has mobilized 4.08 Lakh proposals under APY till 31.03.2019.

Performance of Bank under Financial Inclusion:

Sl. Particulars	31.03.2018	31.03.2019	Variation	%% Growth
1. No. of ACs opened under PMJDY (in Lakh)	75.98	106.55	30.57	40.23%
2. Rs Balance in the ACs ( Rs in Crore)	2137.90	3534.92	1397.02	65.34%
3. No of ACs with balance (in Lakh)	73.69	104.26	30.57	41.48%
4. % % of With Balance ACs	96.99%	97.85%	0.86	–
5. Cumulative AEPS Transaction (in Lakh)	411.19	741.35	330.16	80.29%
6. Aadhaar Seeded Accounts (in Lakh)	66.04	88.91	22.87	34.63%
7. % % of Aadhaar Seeding	86.93%	83.44%	–	–
8. Rupay Card Issued (in Lakh)	58.43	64.59	6.17	–

Basic banking through alternate delivery channels and new initiatives under Financial Inclusion:

- Online Inter-operable Kiosk Banking Solution at 5133 Bank Mitra locations using Micro ATMs through SSAStatutory approach. Bank has further set up 893 Rural & 80 Urban Bank Mitra led Banking Outlets through Non SSA approach.

Thus, the total bank mitras led Banking Outlets stood at 6106 as on 31.03.2019.

- For opening of account, e-KYC facility has been implemented for customer verification without any paper documents.

- Aadhaar Enabled Payment System (AEPS) for on-us & off-us transactions and RuPay ATM card acceptance at all Bank Mitra locations have been made mandatory along with Passbook printing facility, thus cutting down transaction cost, cost towards printing & stationery etc. and capital expenditure for setting up brick & mortar branches as well as reducing operational risk, as withdrawal and fund transfers happen either through Aadhaar or Card based.

- Under New Initiative Plan, Pass Book Printing Facility at Bank Mitra Locations has been implemented. This has resulted in reduction of cost towards printing & stationery etc. as well as there has been no capital cost as all fixed costs have been incurred by Bank Mitras.

- On line Funded Account Opening at Bank Mitra Locations implemented to improve per day SB account Opening of Branches and Reduce Cost of Deposit.

- RDFD Opening Functionality at Bank Mitra Locations have already been commenced.

- The Total Deposit Base through FI Channel has reached Rs7616.97 Crore with 174.24 Lakh No of accounts.

- Recovery of Banks Dues (Up to Rs15.00 Lakh) got operational from Bank Mitra Channel and Bank could recover Rs6.26 Crore against outstanding of Rs19.76 Crore in 818 Accounts.

D. Outlook

Asset quality, especially of PSBs has deteriorated drastically; a significant chunk of banks high-rated corporate business has switched to more cost-effective sources of funds such as bonds; the banks have shifted their focus to the retail segment. With digital banking becoming increasingly popular, especially in the urban areas and with the youth, banks are re-drawing their business models and expansion strategies.

There seems to have been an uptick in recovery of non-food bank credit growth, driven partly by the liquidity squeeze in the non-banking financial company (NBFC) sector. In the last few years, the retail credit was growing robustly. There are now expectations of corporate lending to make a comeback. Infrastructure (especially roads, metro etc), commodities (steel, cement etc) and consumption companies are expected to be benefitted. The NPAs are almost peaking. As the banks have made huge provisions for stressed assets, year 2019 may see writing back of some profits as resolution of assets will also gather steam. Along with these, government recapitalization plan of PSBs may increase credit flow to the economy which may push the growth momentum.

The possibilities meeting the fiscal deficit target of 3.4% of GDP will depend on whether government can achieve the budgeted revenue targets related to the goods and services tax, dividend income and disinvestment proceeds, as well as fund requirements for revised minimum support prices, the Ayushman Bharat scheme and bank recapitalization. But direct and indirect tax collection was not satisfactory. Along with this, populist measure ahead of general election like cash handouts to farmers and tax exemptions may further increase the fiscal burden. Possibilities of higher fiscal deficit may result in higher inflation and FIIs may pull out money from Indian economy.

Going ahead we expect inflation in primary products to start moving up. Lower inflation for manufactured products is also indicative of sluggish demand conditions in the market. The way the economics of oil develops may largely determine the movement in fuel prices in the coming months. The inflationary trajectory in the coming months may be contingent upon normal monsoon and global crude oil prices.

E. Risks and Concerns

The Risk Management Philosophy and Policy of the Bank is aligned with regulatory standards, industry best practices and proportional to the scale and complexity of Banks activity. This include optimizing the return by striking a balance between the risk and the return on assets, striving towards increasing market share to improve shareholders value, augmenting business through quality assets and ensuring conservation of capital. RBI guidelines on Basel III Capital Regulations have been implemented. An independent Risk Governance Structure, in line with Industry best practices has been put in place to ensure independence of Risk Measurement, Monitoring and Control functions.

The Bank has sound Credit Risk Management Framework and developed Credit Risk Rating Models (Risk Assessment Model-RAM) and score card covering both Corporate and Retail Client. These models provide scientific method of assessing credit risk. The validation of the Rating models are undertaken periodically to ensure their efficacy and conduct migration analysis for the robustness. The internal ratings of the clients are linked with Discretionary Powers at various levels, loan pricing, apart from portfolio review and monitoring on ongoing basis. The Probability of Default for the corporate portfolio is analyzed periodically and such PD is the basis for estimation of Expected Credit Loss under IndAs 109 and quantifying the credit risk premium. The Score Card Models for Banks retail products, small advances in Agriculture Sector, SME Sector and others are useful in achieving quick and accurate assessment of risk, smooth delivery of credit.

The monitoring of Prudential Exposure Norms for Single Borrower, Group Borrower, Unsecured and substantial exposure norms is being done regularly.

A Specialized Market Risk Management Division looks into Interest Rate Risk, Foreign Exchange Risk. The Market Risk is controlled through Net Overnight Open Position, Modified

Duration, PV01, Stop Loss, VaR etc. Bank is also having contingency funding plan so as to take care liquidity crisis, if at all arises.

The ALM Cell is monitoring various Regulatory ratios viz., Liquidity Coverage Ratio, Net Stable Funding Ratio, Asset Liability Mismatch, MCLR Calculation, Rate of Interest on various Deposit products, etc.

A dedicated Operational Risk Management division takes care of overall management of operational risk within well defined framework of operational risk management. The identification, measurement, monitoring and control of operational risk is done through root cause analysis of operational loss data, Risk and Control Self Assessment (RCSA), Key Risk Indicators (KRI) etc.

Regulatory Guidelines

The Bank has adopted Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk for computation of Risk Weighted Assets and Capital Adequacy Ratio under Basel II

& III. In terms of regulatory requirement, the frame work policies are in place, which include Credit Risk Management Policy, Credit Risk Mitigation and Collateral Management Policy, Investment Policy, Asset Liability Management Policy, consolidated Operational Risk Management Policy, Reputation Risk Management policy, Group Risk Management policy, Policy on exposure to Central Counterparties, Internal Capital Adequacy Assessment Process (ICAAP), Stress Testing Policy, Model Risk & Rating Guidelines, IT Security Policy etc.

Other major recent initiatives undertaken:

- Risk based pricing has been introduced in Bank.

- Bank has adopted the large exposure frame work guideline of the RBI. - Conservative internal credit exposure limits under large exposure framework, below the level prescribed by RBI are allotted for credit sanction in bank to manage the Credit concentration risk.

- In order to manage the concentration risk in bank, Industry wise exposure ceilings were revised and Industry wise aggregate exposure limits are prescribed.

- Per borrower maximum credit exposure cap in different industry sectors are also introduced in Bank. - A higher level rating validation process has been adopted in Bank in order to maintain arms length distance from credit sanction process and internal rating of the proposal.

- Risk limits on various parameters, like aggregate non-fund exposure, weighted average maturity of loan, schematic Retail loans, Agriculture loans, MSME loans and collateral security are fixed, monitored and reviewed on quarterly basis by the Bank covering different geographical areas.

- Zonal Risk Officers are posted at each controlling offices (Zonal Office & Field General Manager Office) to look after the risk management function at the field level. The ZROs are imparted with proper risk management inputs, training by the Head Office Risk Management Department.

- Various workshops are organized in Bank for the field level managers to impart the risk practices and culture in Bank.

Workshops in association with external training organizations are also conducted in Bank in order to impart industry best risk management practices.

- Various monitoring tools in form of Apps are developed to monitor the capital conservation measures and exposure management.

- As per IND AS guidelines, the Bank has developed methodology for computation of expected credit loss (ECL) for various stages of the assets, which include 12 months ECL and lifetime ECL. The frame work for counter party exposure is in place.

- System generated Key Risk Indicators (KRI) for all the branches across the country have been introduced in Bank for better monitoring and control of Operational Risk.

RCSA has been devised and conducted for all Controlling offices including FGMOs, and HO departments. The Health Index of these offices is compared with the Management Audit report.

F. Internal Control System and their Adequacy

i. Credit Monitoring

The Bank is classifying accounts into SMA as per the revised RBI guidelines and reporting them on CRILC as per their eligibility. Information about Non Cooperative borrowers, Willfull defaulters, RFA Fraud accounts (Rs 50 crore and above), written off accounts (Rs 5 crore & above) and current accounts (Rs1 crore & above) is also uploaded in CRILC portal. Monitoring of accounts is done right from SMA-0 level. The Branches Offices are continuously followed up from Head Office for stepping up credit monitoring as well as improving asset quality through use of various credit monitoring tools such as Unit Visit, Stock statement & DP assessment, Stock verification, End use verification, Security Visit & Valuation, QIS monitoring, Conduct of account, Stock Audit, Loan review Mechanism, Periodic Legal Audit, Inspection & Concurrent Audit, CRILC, Daily SMA tracking, Early Warning Signals, etc.

Document Electronic Verification & Archival (DeVA) is used as a pre -disbursement tool to check & verify documentation and to weed out irregularities if any to improve credit quality as well as documentation. LAMP is another online post-disbursement tool that captures data on all credit monitoring parameters, rates accounts and facilitates monitoring to be more precise accurate & meaningful. It also leads to generation of Early Warning Signals (EWS) to facilitate implementation of timely corrective measures.

The Bank has designated "Nodal Officers for Credit Monitoring" in its various controlling offices (FGMO and ZO), who oversee all the credit monitoring functions under their jurisdiction.

The Bank is committed to 360 Credit Monitoring to improve health of accounts and prevent slippage.

ii. Know Your Customer (KYC) Anti-Money Laundering (AML)

The Bank has implemented revised comprehensive policy guidelines on Know Your Customer (KYC) normsAnti Money Laundering (AML) standards Combating Financing of Terrorism (CFT) Obligations of Bank under PMLA 2002 for the period 2018-19 in pursuance with the directives of Reserve Bank of India and Govt. of India. This Policy is the foundation on which the Banks "implementation of KYC norms, AML standards, CFT measures and obligation of the Bank under Prevention of Money Laundering Act (PMLA) 2002" is based. The Bank strictly observes KYC and AML guidelines issued by RBI from time to time and only KYC compliant customers are accepted by the Bank. An upgraded AML Software has been installed which enables watch list scanning, verifies customer identity and facilitates generation of automated alerts for scrutiny of transactions of suspicious nature. The "AML Software" generates system-based STR alerts on the basis of transactions in the accounts of the customers is in place. The scope has been further widened with addition of more alert scenario definitions as per recommendations of IBA working group. Central Transaction Monitoring Team (AML & KYC Cell) is functioning at the Banks Head Office for exclusive monitoring of the transactionsalerts generated in AML Solution and filing of STRs, if found suspicious. This dedicated AML team screens alerts generated by the AML software, scrutinizes and submit Suspicious Transaction Reports (STRs) to the Financial Intelligence Unit-India (FIU-IND). Off-line STRs for attempted transactions at Branch level as well as STRs on the basis of information from Law Enforcing AgenciesNew Paper Reports are also submitted to FIU-IND if any account found in Banks database. Generation of other statutory reports viz., Non-profit Organizations Transactions Report (NTR), Cash Transaction Report (CTR), Cross-border Wire Transfer Report (CWTR), is also taken care by the AML software. These reports are in turn submitted to FIU-IND by Head Office AML & KYC Cell. Bank files Counterfeit Currency Report (CCR) every month to FIU-IND within the stipulated time frame.

System-based Risk Categorization of Banks each and every customer has been implemented and review of Risk Categorization is carried out on half yearly basis i.e. in August and February every year.

Regular monitoring is done by the Head Office AML & KYC Cell with active involvement of the Nodal Officers from all the Zonal Offices and FGMOs to ensure total KYC compliance of the Bank. Online verification of PAN from NSDL has been implemented as a major step to prevent submission of forged PAN cards and thereby to tackle money laundering activities. Bank has implemented Aadhaar based e-KYC in collaboration with UIDAI.

Functionality of Real-time scanning of names from UNSCR list while customer on-boarding has been implemented in CBS menu as a step forward towards CFT. The same name scanning is also performed by the system at the time of any modification of existing customer.

In our continuous endeavor to strengthen our AMLKYCCFT compliance programme, the Bank has developed a dedicated AML portal "AllWatch" to establish a formal reporting system for reporting of attempted suspicious transactions or activities detected at the Branch level.

In order to sensitizeeducate the field functionaries on KYC AML CFT issues, training is imparted through the Training CentersColleges (STCs) and through digital platform. One session on AML & KYC has been made mandatory in all the training programmes.

iii. Internal and Management Audit

Internal Inspection and Management Audit are supervisory tools for top Management to ensure the branches offices are following laid down systems and procedures. Building compliance culture is the need of the hour to mitigate risk associated with the operation of the Bank.

The Annual Audit Plan is chalked out based on the Risk profile of the branches. The audit resources are utilized for identifying the irregularities, evaluating the present and future risks, facilitating prompt intervention early corrective actions through Audit & Inspection of various branchesoffices. This provides a reasonable assurance to the Board & top Management about the adequacy & effectiveness of the risk management and control framework in the Banks operations.

2604 branches across the country were subjected to internal inspection during FY 2018-19. The Risk Based Concurrent Audit (RBCA) in 1194 Branchesoffices was conducted covering 76.86% of our total business of the Bank. By convergence of Concurrent Audit & Internal Inspection, it is ensured that all the inherent risks are managed within the acceptable levels.

All our 49 Zones and 8 FGM Offices are subjected to management audit once in two years.

Offsite Monitoring Cell at Head Office, FGM Offices & different Zones has been in operation to keep a track of business transactions with a birds eye view. The scope and coverage of the Cell has since been structured and broad based. The Cell is reviewing the transactions critical items like high value abnormal transactions and sensitizing the Branches Controlling Offices HO Departments for corrective action, if any deviation is observed.

The Bank has also identified certain areas as Zero Tolerance Areas & Fraud Sensitive Area. These will foster and ensure further robustness of the system and control in the branches as well as to keep the serious lapses and irregularities at minimum level. Inspection and Audit Policy, RBIA Module, Management Audit Format have been modified reviewed by the Operational Risk Management Committee Head office Audit Sub Committee Audit Committee of the Board Board of Directors of the Bank.

All our Inspecting Officials are subjected to a refresher course once in a year. Similarly, all our Concurrent Auditors are also given interactive locational training by top management from Zones Head Office.

Revision of RBIA scoring through changes in Risk Matrix to improve assessment of risk rating of the branches, calibration of credit framework, introduction of guidelines for verification of SWIFT transactions messages by Concurrent Auditors, emphasis on scrutiny of transactions involving foreign exchange & FEMA Audit are introduced for efficacy of RBIA and Concurrent Audit.

All efforts are being made to strengthen our Inspection & Audit function by deploying adequate & quality man power in the system.

iv. Compliance

The Compliance Cell at Head Office is headed by Chief Compliance Officer in the rank of Deputy General Manager who has been entrusted with overall responsibilities of coordinating identification and management of Compliance Risk of the Bank and supervising the compliance staff Bank wide. A comprehensive Compliance policy & Compliance manual in line with RBI Guidelines has been put in place. In pursuance of Banks compliance policy, Bank has instituted an independent Compliance structure which covers both domestic and overseas operations of the Bank. In terms of Banks Compliance Risk Management Policy, head of branch, controlling office and Head of Departments at HO have been designated as Compliance officer to look after the Compliance function of the Bank. The Bank is committed to the policy of zero tolerance with respect to non-compliance with regulatory guidelines and observations of regulatorsauditors are redressed on priority basis. Further, a robust compliance structure with well defined areas of compliance functions and reporting mechanism have been established at various levels. Bank wide Compliance functions are reviewed periodically and comprehensive report is placed to Board Audit Committee of the Board Senior Management for information and necessary directions. Requisite systems and procedures have been devised to ensure compliance with the provisions of all applicable laws, regulatory guidelines and Best practices codes etc. Compliance Cell conducts compliance audit by testing and verifying the compliance of regulatory directives and Banks internal guidelines in branches and Head Office departments periodically as per Banks policy. RBI has rolled out Risk Based Supervision in our Bank from w.e.f. 01.04.2016 and compliance cell conducted compliance audit of 290 regulatory directives of RBI as of 31.03.2018 and submitted the compliance position of the Bank through Tranche III report to RBI.

v. Vigilance

Vigilance in any organisation including Bank is an integral part of management. The objective of vigilance activity is not to cripple the functioning of the organisation but to enhance its efficiency and effectiveness in decision making. Effective vigilance is required for overall growth of an organisation. Bank function as custodian of customers money, and on the other hand, undertake risk by lending the said fund to different category of borrowers. The existence of two very different functions requires a vibrant and vigilant system in the organisation. An effective vigilance set up not only provides guard against financial erosions but also enhances the profit earning capacity of the organisation. It is an effective tool to enhance the efficiency of the management, create confidence amongst the stakeholders and inculcate the habit of good corporate governance for its multi-dimensional and sustained growth.

Vigilance focuses on identifying the areas prone to corruption and taking various proactive, participative and preventive measures to eradicate the evil of corruption and also emphasizes to ensure that various checks and balances are in place and systems & procedures are observed in day to day functioning of the bank. Vigilance set up has been examining the existing rules and procedures, in areas prone to fraud, to eliminate or minimize the scope for corruption or malpractices.

Various preventive vigilance initiatives taken by the Bank during the year 2018-19 :-

Workshop training programmes undertaken in area of Vigilance:-

A. During the year 2018-19, various special interactive sessions in the area of preventive Vigilance were conducted by the Bank and attended by CVO in centers like, Lucknow (with Zonal Level Vigilance Link Officer), at Chitrakut, UP (with officials of Allahabad UP Gramin Bank), Kolkata (Entry Level Probationary Officers), and for Branch Heads and officials of FGMO and ZO at Mumbai, New Delhi, Chennai, Amritsar, Patna, Siliguri etc.

B. To sensitize the workforce on anti-corruption measures preventive vigilance initiative whistle blower mechanism, 174 training programmes were conducted at our various training colleges and centers where more than 6500 officials were imparted training.

C. During the year, CVO has also attended a special workshop for Investigating Executives, and specials training programmes for EOPO (Officials of enquiry team) where focus was given on timely completion of investigation enquiry process.

D. Quarterly structured meetings with MD & CEO were held on 05.04.2018, 19.07.2018, 29.11.2018 & 07.03.2019 where various matters pertaining to vigilance were discussed and wherever required suitable advisories were given & reports were provided to vertical heads of sections for action to be taken at their level. Reports of these meets were submitted to CVC & DFS regularly.

Adoption of Integrity Pact- appointment of Independent External Monitors (IEMs)- In order to ensure transparency, equity and competitiveness in public procurement & also in line with the recommendation of the Central Vigilance Commission regarding adoption of integrity pact. On the basis of Commissions nominations, two retired IAS were appointed as IEMs in our Bank. Integrity pact has been adopted and implemented in our bank & instructions were circulated to all concerned on 17.11.2018 advising the provision for the integrity pact is to be included in all requests for proposal tenders documents in respect of procurement contract in future which are more than or equal to the threshold value of Rs50.00 lacs.

Observance of Vigilance Awareness Week- In pursuance to CVC directives, Vigilance Awareness Week was observed commencing from 29^th Oct, 2018 which ended on 3^rd Nov, 2018. Detailed report was submitted to CVC, however a brief is reiterated here.

The week commenced with the pledge, administered by MD & CEO Shri CH. S.S. H Mallikarjuna Rao at Mumbai and by Sri N.K.Sahoo, Executive Director & Shri A.K.Verma, CVO at the Head Office, Kolkata. Top Executives of the Bank, officers & employees participated in the pledge ceremony at Mumbai and Head Office, Kolkata at 11 a.m. on 29^th October2018. Similarly all Branchesoffices of the bank across the country observed Integrity Pledge with all employees of their respective branchesoffices at 11.00 AM on 29^th October, 2018.

Activities conducted during Vigilance awareness Week2018:-Apart from integrity pledge by employees and customers, Grievance redressal camps, competitions on Essay & Drawing and Slogan writing among students, workshops sensitization programmes were organized across the Country. The theme of VAW-2018 "Eradicate Corruption - Build A New India" was disseminated to public through 7200 Gram Sabhas, through various outreach activities among more than 20000 students. Bulk e-mailSMS to 3257337 customers and through marathon walkathon various centers with participation of employees and public. Bank also extensively used of social media like, Banks official Facebook page, Tweeter handle, electronic and print media etc for spreading awareness among citizens of country.

Right to Information Act

In pursuance of the enactment of Right to Information Act, 2005, the Bank has designated 50 Central Public Information Officers at all its Zonal Offices and Eight Appellate Authorities including Head Office . Further, as per the directions of Central Information Commission (CIC), a Transparency Officer for the Bank, has also been designated. The Bank is providing information to the citizens of India through suo-moto disclosures on website as well as through disposal of requests for information received under the Act. During FY 2018-19, the Bank received 3413 requests for information and 582 First Appeals under the Act, out of which 3317RTI applications and 558 RTI appeals were disposed of. The rest number of applications and appeals were under process and well within the stipulated period of disposal as allowed under the provisions of the Act.

G. Business of the Bank

The Banks total business decreased to Rs3,77,887 crores as on 31^st Mar19 as against Rs3,80,040 crores in the previous year, registering a Y-o-Y degrowth of 0.57%. The Banks overseas business declined by 74.37% Y-o-Y during the same financial year and its share to overall business came down to 0.01% as on 31^st Mar19 as compared to 3.39% a year ago.

H. Material Developments in Human Resources Industrial Relations front including number of people employed

Manpower Planning

During the year 2018-19, the Bank had taken into consideration, the number of impending retirements, expected attrition and other wastages while finalizing the Manpower Plan. A five year succession plan with a holistic approach is in place which is reviewed according to the requirements of the Bank keeping in mind, the direction from DFS, MOF regarding "Key areas of turnaround plan" clearly stating that no net employee addition will take place for next 3 years. These are keys to the annual Manpower Planning.

Recruitment Planning

Cadre wise manpower requirement was assessed through a meticulously planned Branchoffice wise requirement vis--vis deficit arising due to retirements, attrition and other wastages. Guidelines regarding no net employee addition was also considered while making recruitment plan for FY 2018-19. Recruitments during the last four years were as under:

Posts	2015-16	2016-17	2017-18	2018-19
Probationary Officers (PO)	138	452	474	226
Specialist Officers	18	145	91	64
Total Officers	156	597	565	290
Clerical Staff	624	660	793	323

The Bank has also initiated the process of recruiting 980 officers and 850 SWO-A during the FY 2019-20 out of which 92 officers will be recruited through Direct Recruitment project of Specialist Officers.

Age Profile of Employees

The strategic manpower planning has helped the Bank to maintain the average age of workforce at 39.54 years as on

31.03.2019. Cadre wise age profile (in years) in the last five years was as under:

Cadre	As on 31.03.2015	As on 31.03.2016	As on 31.03.2017	As on 31.03.2018	As on 31.03.2019
Officers	39.3	39.25	38.66	38.16	38.03
Clerical	43.2	42.17	41.2	40.29	39.62
Sub-staff	41.5	39.85	40.23	40.46	40.96
Employee as a whole	40.9	40.2	39.64	39.10	39.54

Welfare Scheme for Staff

During the financial year 2018-19, the Bank continued its various welfare schemes viz. Scheme for Group Life Insurance Policy for officersemployees of Allahabad Bank; Holiday homes at various places and transit quarters for treatment of patients at Mumbai, Kolkata, Lucknow and Vellore; Annual General Health Check up facility for officersaward staff and their spouse; Death Relief Scheme for payment of Ex-gratia to the family of OfficersEmployees who die in harness; facility of medical consultancy at Head Office, Zonal Offices, Staff Colleges and Staff Training Centers. The Bank also provides various loans to the employees viz. Housing Loan, Car Loan, Overdraft facility, flood loan, etc at concessional rate of interest.

Reservation Policy

The Bank meticulously follows the Government guideline regarding reservation and welfare of SCSTOBC employees. The representation of SCSTOBC employees in the total strength of the Bank as on 31.03.2019 was as under:

	Representation of SCSTOBC
Cadre	Total Strength	SC	%	ST	%	OBC	%
Officers	13557	2599	19.17	1142	8.42	3194	23.56
Clerks	5984	1644	27.47	495	8.27	1234	20.62
Sub-staff excluding sweepers	1888	975	51.64	84	4.45	213	11.28
Sweepers	1781	1038	58.28	146	8.19	430	24.14
Total	23210	6256	26.95	1867	8.04	5071	21.84

Industrial Relations

The industrial relations climate in the Bank is harmonious and the Bank maintains a cordial relationship with the unions associations. Formal and informal meetings are held regularly with the unions in Officers cadre as well as Award Staff cadre.

Promotions

During the FY18-19, Promotions from Clerical to Officers cadre and promotions in various scales of officer cadre were conducted in the first and second quarter of the financial year; the promotions effected over the last five years were as under:

Promotion To	2014-15	2015-16	2016-17	2017-18	2018-19
TEG Scale VII	7	4	4	5	6
TEG Scale VI	19	8	11	12	15
SMG Scale V	61	36	26	27	27
SMG Scale IV	117	164	83	76	78
MMG Scale III	209	600	319	253	306
MMG Scale II	530	899	451	370	529
Clerk to Officer	644	303	503	524	234
Sub-staff to Clerk	-	117	89	-	170

Training Activities

The HRD department has designed the training programs as per the corporate objectives and the priorities of the organization from time to time for capacity building of our officers employees.

The Bank has six training establishments, consisting of three Training Colleges at Kolkata, Lucknow and Panchkula and three Staff Training Centres located at Hyderabad, Bhubaneswar, Patna which cater to the training needs of Executives, Officers and Award Staff. All the training colleges staff training centres are having one IT lab. However, at present, all other channels are also being equipped with IT infrastructure so as to complement the theoretical training sessions with practical B@ncslinc exercises.

The newly recruited Probationary Officers (POs) and Single Window Operators (SWOs) are directly on-boarded at Staff Colleges and Staff Training Centres where they are imparted in-depth training. Further, they are also subjected to refresher courses during their probation period.

The officers employees belonging to SCSTPWD categories aspiring for promotion to higher grade Scale were provided Pre-promotional training at the training centres while the OBC MC candidates were given on-line pre promotional training through a specially designed e-program. Similarly newly promoted employeesofficers in different gradescale were provided training, so as to equip themselves to take up higher responsibilities.

In addition, for the existing officersemployees training in key subject areas like Credit, Retail lending, Agri-finance, MSME, Forex, IT, NPA Management, Risk Management, Credit Monitoring, Inspection etc. were imparted.

Newly promoted executives in the rank of AGMs and DGMs were also imparted Leadership Training with Competency Mapping at ASCI.

Customized programs in the areas of MSME, IT, Credit, Agri-finance and Forex were conducted at premier institutions like NIBM, CAB and Apex Colleges of State Bank of India.

A two-day special program for Sub-staff on motivation was conducted at all the training establishments.

A special program for women branch heads under FGMO, New Delhi was conducted on the International Womens Day.

To familiarize with the "Transition to Indian Accounting Standard (IND AS): Issues and Challenges" an In-Company program was conducted on IND-AS for the Credit Officers at Staff College, Kolkata and Lucknow by the experts from ICAI.

In-company program on Risk Management was conducted for the Risk Officers at Staff College, Kolkata by MS Resurgent India.

In order to enrich the faculties, "Faculty Development Program" was conducted for Principals & faculties of our training establishment. at State Bank Institute of Leadership, Kolkata.

The Bank also provided training to its officers in different centres in specialized areas through outside reputed training institutions like CAFRAL, NIBM, CAB, IDRBT, ASCI, FEDAI, IIBM, IIBF etc. for providing better exposure to the executives and officers.

Bank also nominated two (2) executives to attend overseas training programs to enrich their knowledge.

On Location Training

Locational programs were conducted by faculties of our training establishments to meet the training needs of the Zones in their respective ZO location.

e-Learning

The Bank has taken an initiative for capacity building of our employees through Digital Training. A WEB Portal on Digital Training, developed in-house, has been launched. Through this portal, e-programs and e-lessons have been made available covering Banking topics on various focus areas viz. Retail Banking, Priority Sector Credit, Financial Inclusion, Foreign Exchange, Delivery Channels, Risk Management, Security, Preventive Vigilance, Recovery & NPA Management, Customer Service etc.

The Portal provides high quality training and is available to our employees 24*7 on Desktop, Laptop and Mobile. This website is accessible to our employees both through Banks Intranet as well as internet.

This initiative has brought learning to people instead of people to learning. It helps our employees to develop with adequate knowledge and skills to cater to the varied needs of our customers.

Capacity Building

As per RBIIBA directives advices, a policy on "Capacity Building - Certification Courses" has been prepared. As per the proposed policy the acquiring of certification is mandatory for the officers working in 5 key areas viz. i) Treasury Operations, ii) Risk Management, iii) Accounts and Audit, iv) Credit Management, and v) Foreign Exchange Operations.

Accordingly, majority of the aforesaid officers are now enrolled and completing "Certification Courses" in the key areas.