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South Indian Bank Ltd

BSE: 532218 | NSE: SOUTHBANK ISIN: INE683A01023
Market Cap: [Rs.Cr.] 3,078.38 Face Value: [Rs.] 1
Industry: Banks - Private Sector

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Director's Report
DIRECTORS' REPORT

TO THE SHAREHOLDERS

To the Members,

The Board of Directors is pleased to place before you, the 86th Annual Report of the Bank along with the Audited Balance Sheet as at March 31, 2014 and the Profit and Loss Account for the year ended March 31, 2014.

PERFORMANCE OF THE BANK

The performance highlights of the Bank for the financial year ended March 31, 2014 are as follows:

Key Parameters Rs. in crore
2013-14 2012-13
Deposits 47491.00 44262.00
Gross Advances 36403.00 32014.00
Total Gross Business 83894.00 76276.00
Net Profit 507.50 502.27
Capital & Reserves 3368.05 3003.61
Capital Adequacy (%) - Basel-II 12.53 13.91
Basel-III Earnings Per Share (EPS): 12.42 NA
(a) Basic EPS (in Rs. ) [face valueRs. 1/-] 3.78 4.03
(b) Diluted EPS (in Rs. [face valueRs. 1/-] 3.77 4.00
Book Value per Share (in Rs. ) [face valueRs. 1/-] 25.06 22.44
Gross NPA as % of Gross Advances 1.19 1.36
Net NPA as % of Net Advances 0.78 0.78
Return on Average Assets (%) 1.00 1.17

FINANCIAL PERFORMANCE Profit

The Bank had achieved a net profit of Rs. 507. 50 crore during the year against the net profit of Rs. 502. 27 crore posted during the previous year. The Bank was able to achieve this growth in net profit essentially on account of higher scale of operations, better management of assets and liabilities and focus on enhancement of non-interest revenue of the Bank..

The Operating Profit for the year under review was Rs. 928. 95 crore before depreciation, taxes and provisions. Net profit was Rs. 507. 50 crore and the profit available for appropriation was Rs. 544. 46 crore as per details given below:

(Rs. in crore)
Profit before depreciation, taxes & provisions 928.95
Less: Depreciation 44.61
Provision for NPA/NPIs 137.12
Provision for FITL 5.64
Provision for depreciation on investments (28.47)
Provision for Income Tax/Wealth Tax 221.43
Provision for standard advances 31.09
Provision for restructured advances 9.70
Provision for Impaired Assets 0.33
421.45
Net Profit 507.50
Brought forward from last year 36.96
Profit available for appropriation 544.46
Appropriations (Rs.incrore)
Transfer to Statutory Reserve 126.88
Transfer to Capital Reserve 0.84
Transfer to Revenue & Other Reserves 220.00
Transfer to Special Reserve u/s 36(1) (viii) of The 17.00
Income Tax Act, 1961
Transfer to / (from) Investment Reserve 14.09
Proposed Dividend 107.52
Dividend Tax on Proposed Dividend 18.27
Carried over to Balance Sheet 39.86
Total 544.46

Dividend

The Board of Directors recommended a dividend of 80% (tax- free in the hands of shareholders), i. e., @ Rs. 0. 80 per Equity Share of face value of Rs. 1/- per share vis-a-vis 70%, i. e. Rs. 0. 70 per share declared last year.

EXPANSION PROGRAMME / POLICY OF THE BANK

During the last financial year, the Bank has opened 54 new branches and 200 ATMs across the country. The Bank has been successful in widening its presence pan India with 794 branches and 9 service branches. The branch network now covers 29 states / union territories and has a network of 1000 ATMs.

The Bank further plans to open 25 new branches, 25 Extension Counters, 250 ATMs, 3 USBs and increasing the network of branches to establish foot prints in the states not covered hither to, Arunachal Pradesh and Sikkim during the current financial year.

CAPITAL & RESERVES

The Bank's issued and paid up capital stood at Rs. 134. 39 crore as on March 31, 2014. During the year, 54, 09, 172 stock options granted under Employee Stock Option Scheme had been exercised by eligible employees.

The capital plus reserves of the Bank has gone up from Rs. 3, 003. 61 crore to Rs. 3, 368. 05 crore owing to plough back of profits during the year.

THE CAPITAL TO RISK WEIGHTED ASSETS RATIO (CRAR)- Basel III & Basel II

The Bank is subject to the capital adequacy guidelines mandated by RBI, which are based on the framework of the Basel Committee on Banking Supervision. As per Basel III guidelines, the Bank is required to maintain a minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9% {11. 5% including Capital Conservation Buffer (CCB)}, with minimum Common Equity Tier I (CET1) of 5. 5% (8% including CCB) as on 31st March, 2019. These guidelines on Basel III are to be implemented beginning 1st April, 2013 in a phased manner, the minimum capital required to be maintained by the Bank for the year ended 31st March, 2014 is 9% with minimum Common Equity Tier 1 (CET1) of 5%.

The Capital to Risk Weighted Assets Ratio (CRAR) of the Bank as on March 31, 2014 according to Basel III guidelines is 12. 42%, as against the statutory requirement of 9%. Tier I CRAR constituted 10. 79% while Tier II CRAR worked out to 1. 63%.

The Capital to Risk Weighted Assets Ratio (CRAR) of the Bank as on March 31, 2014 according to Basel II guideline is 12. 53%, as against the statutory requirement of 9%. Tier I CRAR constituted 10. 89% while Tier II CRAR worked out to 1. 64%. The Bank is following Standardized approach, Standardized Duration approach and Basic Indicator approach for measurement of capital charge in respect of credit risk, market risk and operational risk respectively.

LISTING AGREEMENT WITH STOCK EXCHANGES

The Bank's shares continue to be listed on The Cochin Stock Exchange Ltd., BSE Ltd., and The National Stock Exchange of India Ltd. The Bank confirms that it has paid the listing fees to all the Stock Exchanges for the year 2014-15.

BUSINESS ACHIEVEMENTS

The Bank has achieved a total gross business of Rs.83,894 crore, consisting of total deposit of Rs. 47,491 crore and gross advances of Rs.36,403 crore as on March 31, 2014 registering a growth of 9.99% over the previous year.

In CASA segment, the Bank has achieved a year on year growth of 19.34%. During the year, 2013-14, 8. 01 lacs new SB A/cs had been opened. The Bank has accorded priority to meaningful financial inclusion exercise during the period under reporting.

Deposits

The total deposits of the Bank increased to Rs. 47, 491 crore from Rs. 44, 262 crore as on March 31, 2013, registering a growth of 7. 30%.

The break-up of the deposit as on March 31, 2014 is as under:

Amount ( Rs. in crore) % to total Deposits
Current Deposits 1,888.27 3.98
Savings Deposits 7,936.63 16.71
Term Deposits 37,666.19 79.31
Total 47,491.09 100.00

Advances

Gross advances of the Bank registered an increase of 13. 71%, to touch a gross figure of Rs. 36, 403. 10 crores. Total Priority sector advances as at the end of the financial year stood at Rs. 13, 376. 72 crores, constituting 40. 66% of the Adjusted Net Bank Credit (ANBC). Exposure to agricultural sector amounted to Rs. 4, 556. 59 crores, forming 13. 85% of ANBC as at the end of the financial year. Break-up of exposure under Priority sector is furnished below:

Amount ( Rs. in crore)
Agriculture & Allied activities (including investments in RIDF) 4,556.59
Small Enterprises 6,509.26
Other Priority Sector 2,310.87
Total Priority Sector 13,376.72

* As per RBI guidelines, indirect lending in excess of 4. 5% of ANBC is not reckoned for computing achievement under 18 percent target for agriculture sector. Hence the achievement under 18 percent target comes to 10. 41%. However, same is reckoned for computing achievement under the overall priority sector target of 40 percent of ANBC.

INVESTMENTS

Financial Year 2014 was a challenging year with overall economic slowdown on the backdrop of halted investment cycle, firm inflation and tight monetary condition. Although market witnessed heightened volatility initially on the news of fed tapering, it got absorbed finally without major difficulties. We expect gradual economic recovery in 2014-15 with better investment prospect on the backdrop of improved current account deficit, global economic recovery and growth inducing policy initiatives of the new federal government. However, a weak monsoon could upset prospect of early economic recovery at the expected level.

Bank's gross investment portfolio stood at Rs. 14, 351. 77 crores as on March 31, 2014 compared with Rs. 12, 523. 47 crores as on March 31, 2013, registering a growth of 14. 60%. Investment Deposit ratio has increased to 30. 22% as on March 31, 2014 from 28. 29% as on March 31, 2013.

Even in the challenging environment, profit on sale of investment registered healthy growth from Rs. 57. 72 crores in FY2013 to Rs. 69. 88 crores in FY2014. Total interest income from investments for the FY2014 was Rs. 954. 48 crores as against Rs. 746. 39 crores for the FY2013, registering a growth of 27. 88%.

NON-PERFORMING ASSETS (NPA) MANAGEMENT

During the year 2013-14, as a result of the focused and sustained efforts like early recovery of NPAs, through prompt and effective measures under the SARFAESI Act, follow up of recovery cases pending before DRTs and civil courts, one time compromise settlements of accounts, etc., Bank has recovered NPAs to the extent of Rs. 532. 69 crore, (recovery including up- gradation Rs. 301. 16 crores) as against the target of Rs. 250. 00 crore. The recovery during the current year also surpassed the recovery of Rs. 270. 73 crore for the previous financial year ended March 31, 2013. The thrust on selection of credit, adequate due diligence and improvement in credit administration were maintained ensuring improvement in quality of assets.

During the year, the Gross NPA of the Bank declined from Rs. 433. 87 crore as on March 31, 2013 to Rs. 432. 62 crore as on March 31, 2014. But Net NPA marginally increased from Rs. 249. 53 crore as on March 31, 2013 to Rs. 281. 67 Crore as on March 31, 2014. Out of this GNPA of Rs. 432. 62 crores, Rs. 186. 28 crores is accounted by fresh slippage and provision requirement was only Rs. 38. 16 crores. In terms of percentage, GNPA improved from 1. 36 % as on March 31, 2013 to 1. 19 % as on March 31, 2014 and net NPA remain unchanged at 0. 78% as on March 31, 2014.

INFORMATION TECHNOLOGY (IT) AND IT ENABLED SERVICES

The growing competition, arising out of increasing customer expectations and increasing need of risk management pushed Indian Banks to adopt technology more vigorously for survival and growth.

Indian banking industry, today is in the midst of an IT evolution. A combination of regulatory and competitive reasons has led to increasing importance of total banking automation in the Indian Banking Industry.

Information Technology has basically been used under two different verticals in Banking. One is IT infrastructure and controls and other is Application of IT for improving business process and developing customer centric solutions. Information technology enables sophisticated and product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets.

The Bank, has been an early adopter of technology with a view to providing safe and convenient banking facilities to its customers, having introduced host of services and facilities for enhancing the customer satisfaction. The Bank has been successfully functional with Finacle Core Banking Solution (CBS) from Infosys for several years. CBS has been the key component in introducing the following technology services by the Bank for the benefit of its customers.

• Debit Card operations with VISA, MAESTRO and RuPay.

• Straight Through Processing (STP) for RTGS and NEFT payment systems.

• Internet Banking and E-Commerce including NEFT support for other bank remittances.

• Mobile Banking and M-Commerce (with support for other bank money transfer through IMPS).

• ASBA (Application Supported by Blocked Amount).

• Foreign Inward Instantaneous remittance with own Payment Hub system.

• Demat and On-line Trading Facility.

• Point of Sales (POS).

• Bullion Sales.

• Portfolio Investment Scheme for NRI community.

• Central Plan Scheme Monitoring System (CPSMS).

• Kiosk based Financial Inclusion Solution.

• Cash Deposit Machines.

IT initiatives/Solutions embarked during the year

The following list elucidates a few of the IT enabled services / solutions that the Bank has launched during the year to serve its customers in a better and efficient way.

• Various new products offered to customers which includes enhancements in delivery channels such as Internet Banking, Mobile Banking and ATM.

• Version migration of CBS with enriched features leading to increased internal efficiency of operations, augmented control over various functions through streamlined processes.

• Version migration of Internet Banking Application with augmented security controls and features.

• Captive Security Operation Centre in line with GKC (Gopalakrishna Committee) recommendations of RBI for monitoring and management of IT systems.

• Enterprise Wide Fraud Risk Management Solution in line with the recommendations of GKC.

• ISO 27001 implementation for DC/DR and IT Operations.

• Business Process Management solution leading to a paperless environment to a large extent.

• Technology solution for Basel II advanced approach/Basel III implementation.

• Integrated CRM solution to help business users for better understanding of Bank's customers.

• Rupay debit card - An NPCI initiative.

• Mobile Pass Book for customers on all platforms such as Andorid, iOS, Blackberry and Windows.

Information Security and Risk Management

As banks adopt technology as part of their ongoing strategic tool to face challenges in the emerging realities of business, they are increasingly exposed to technology risks. It is therefore imperative for each bank to work out appropriate IT risk management strategies to secure its most vital information asset and ensure that related risk management systems and processes are strengthened on continual basis to secure both present and future banking activities. SIB Rs. s Information Security Policy and other IT Policies - IT Operation Policy, IT Governance Policy, IT out sourcing Policy and Information Security systems have already taken these aspects into consideration. Further, the Information Security of banking IT functions is getting strengthened through implementation of a captive SOC (Security Operation Centre).

The Bank has been providing awareness on e-threats to its customers and staff on a continued basis so that both proactive and reactive measures can be initiated, as deemed appropriate to mitigate potential risks associated with e-threats.

The Bank has been implementing the stipulations and guidelines articulated and issued by RBI based on the working group recommendations on Electronic Banking, Technology Risk, Information Security and Cyber Frauds as part of the IT governance programme (Gopalakrishna Committee Report).

IT Training

During the year, many training programmes had been attended by the Bank's officers in premier institutions such as IDRBT, NIBM to keep themselves abreast with the advancements in IT, Information Security, CRM etc.

Awards and Accolades

During the period under review, the Bank has received the following awards for its achievements from different quarters/ agencies:

• Awards from the Sunday Standard, instituted by The New Indian Express Group, for Best Banker (mid-sized) 2013, Best Private Sector Banker, Best Banker - All round expansion and Best Banker - Efficiency and Profitability.

• Prestigious IBA Banking Technology Award 2012-13.

• The Business Excellence Award 2012-13 instituted by the Trivandrum Chamber of Commerce and Industry.

• Dr. V. A. Joseph, MD & CEO has been declared as one among the best 100 CEOs' of India by Business Today's ' Roll of Honour - CEOs' survey conducted in association with Price Waterhouse Coopers.

Gopalakrishna Committee Recommendations Management Philosophy and Measures

Gopalakrishna Committee Recommendations on Information Security, Electronic Banking, Technology Risk and Cyber Frauds as applicable to the Bank has been taken up for implementation. Effective measures have been taken to address the identified gaps in each area such as IT Governance, Information Security, IT Service out sourcing, IS Audit, IT Operations, Cyber Frauds, Business Continuity Plan (BCP), Customer Education and Legal issues. The IT Organization set up has been redrawn to suit the functions / roles specified in the recommendations with segregation of duties. Technology, Development, IT Operations and IT Assurance functions have been clearly divided and now independently headed.

IT Strategy Committee of the Board, IT Steering Committee, Information Security Committee and Chief Information Security Officer (CISO) reporting independently to Head Risk Management are in place.

Revamped Information Security Policy factoring the various guidelines and stipulations mentioned in the report has been approved by Board and is in place, besides other IT Policies such as IT Operation Policy, IT Governance Policy and IT Out Sourcing Policy.

The progress of implementation of GKC recommendations are reviewed by IT Strategy Committee of Board and the Board on quarterly basis. The major items which are under process which would enable the Bank to achieve full compliance to GKC are as follows:

1. Security Operation Centre

2. Comprehensive Fraud Risk Management Solution

3. ISO 27001 Implementation

4. Near line DR Center Solution

RISK MANAGEMENT

Risk is an integral part of the banking business and the Bank aims at delivering superior value to shareholders by achieving an appropriate trade-off between risk and return. Sound risk management and balancing risk-return trade-off are critical to a Bank's success. Business and revenue growth have therefore to be weighed in the context of the risks embedded in the Bank's business strategy. Of the various types of risks the Bank is exposed to, the most important are credit risk, market risk (which includes liquidity risk and price risk) and operational risk. The identification, measurement, monitoring and mitigation of risks, continued to be a key focus area for the Bank. The risk management function attempts to anticipate vulnerabilities at the transaction level or at the portfolio level, as appropriate, through quantitative examinations of embedded risks. The risk management strategy of the Bank is based on a clear understanding of various risks, disciplined risk assessment, risk measurement procedures and continuous monitoring for mitigation. The policies and procedures established for this purpose are continuously benchmarked with the best practices followed in the Industry.

The Bank's risk management structure is overseen by a Committee of the Board. Appropriate policies to manage various types of risks are approved by Risk Management Committee (RMC), which provides strategic guidance while reviewing portfolio behaviour. The senior level management committees like Credit Risk Management Committee (CRMC), Market Risk Management Committee (MRMC) and Operational Risk Management Committee (ORMC) develop the risk management policies and vet the risk limits. The Asset Liability Management Committee ensures adherence to the implementation of the above risk management policies, develop Asset Liability Management Policy within the above risk framework.

Compliance with Basel III and Basel II framework

In compliance with regulatory guidelines on Pillar I of Basel II norms, Bank has computed capital charge for credit risk as per the Standardized Approach, for market risk as per the Standardized Duration Method and for operational risk as per the Basic Indicator Approach. To address the issues of Pillar II, the Bank has implemented ICAAP (Internal Capital Adequacy Assessment Process), integrating capital planning with budgetary planning and to capture residual risks which are not addressed in Pillar I like credit concentration risk, interest rate risk in the banking book, liquidity risk, earnings risk, strategic risk, reputation risk etc. Bank has adopted a common framework for additional disclosures under Pillar III for adhering to market discipline of Basel II and Basel III guidelines. This requires the Bank to disclose its risk exposures, risk assessment processes and its capital adequacy to the market in a more consistent and comprehensive manner.

Risk Management Practices

It is imperative to have a robust and effective risk management practices not only to manage risks inherent in the banking business but also the risks emanating from financial markets as a whole. The Bank has put in place risk management architecture and practices that is overseen by a Committee of Directors. The Bank has in place a robust risk management structure which proactively identifies the risk faced by the Bank and helps in mitigating it, while maintaining proper tradeoff between risk and return thereby maximizing the shareholder value.

Business Continuity Plan which suits the present scenario covering all critical processes of the Bank is in place. The Bank has also set up an operationalised Disaster Recovery Centre for its Core Banking Operations.

In furtherance of the goals of effective risk management, the Bank has strengthened its risk management processes by tuning fine its internal rating models, internal rating migration study and also through introduction of comprehensive upgraded policies for credit and operational risk. Credit monitoring system was further streamlined for focused attention on improvement in asset quality. The Bank has also introduced risk management processes like Risk and Control Self Assessment (RCSA) framework, Stress Testing framework and risk based pricing model linked to rating during the year. The market situations, Bank's liquidity positions and the peer group pricing are closely monitored for revising the various interest rates.

Skill sets of mid-offices of the Bank were strengthened and its functions were made broad based further for effective monitoring of market risk.

Apart from the Risk Management Committee of the Board at apex level, the Bank has a strong Bank-wide risk management structure with Credit Risk Management Committee, Market Risk Management Committee and Operational Risk Management Committee at senior management level, operational risk management specialists in all Regional Offices and dedicated mid-office at Treasury Department/International Banking Division at operational level.

The Bank continued with the system of comprehensive risk profiling of the Bank in line with regulatory guidelines that will facilitate integrated risk management with assessment of the direction of risk.

The Bank has appointed consultants as part of moving into advanced approach under the Basel II framework as stipulated by the Reserve Bank of India. As per the scheduled road map, Bank is to move into the Advanced Approach by September 30, 2015.

The Bank has taken necessary steps to comply with the 'Guidelines on implementation of Basel- III capital regulations in India' in a phased manner as directed by the RBI.

INTERNATIONAL BANKING

The total forex business turnover for the year ended March 31, 2014 wasRs. 1,41,195.49 crore (comprising Merchant Turnover Rs.11840.48 crore and Interbank Turnover Rs.1,29,355.01 cr) recording an increase of 52.21% as compared to the level of previous financial year. The Bank earned an exchange profit of Rs.34.89 crores showing a year on year increase of 27.24%. The Bank has also earned a profit of Rs.3.78 crores from bullion business and has sold 168 kg of gold during the FY 2013-14.

At present the Bank is having rupee inward remittance arrangement with 5 Banks and 32 Exchange Houses and turnover for the year ended March 2014 was Rs.5,831.29 crore registering an increase of 23.30 % as compared to the previous financial year. During the FY 2013-14, Bank has concluded correspondent banking arrangement in Singapore Dollar (SGD) with HSBC, Singapore. The Bank continued providing managerial support to M/s. Hadi Express Exchange, UAE exclusively for marketing the remittance business of the Bank.

Considering the scope in scaling up remittance business through arrangements with EH's, the Bank has decided to depute its officers to various middle east countries. Presently the Bank has deputed four officers to UAE with UAE Exchange Centre, Al Ansari Exchange and Al Ahalia Money Exchange.

The Bank has shifted to new Integrated Treasury Management Software, 'Intellect - Tx' of M/s Polaris Financial Technologies Ltd on September 30, 2013.

NRI PORTFOLIO

The NRI Division of the Bank aims at personalized and dedicated services to NRI customers. It also extends support to branches and closely monitors the growth of NRI business. NRI deposit of the Bank constitutes 26% of the total bank's Core deposits. NRE/NRO savings bank deposits constitute 20% of the total CASA of the Bank.

Since FY 2012-13, NRI Division had successfully implemented Welcome kits to NRE privilege accounts enabling instant activation. Such accounts are now available at all branches of Hadi Express Exchange, Marketing Officers at UAE and at selected branches of SIB in Kerala. The initiative is widely accepted in the market and it added momentum in opening of NRE SB accounts, improving the share of low cost deposits of the Bank. NRI Division also extended yet another next generation service to the NRI customers by implementing ONLINE NRE/ NRO account opening which can be done at the comfort of their home / office. To increase the momentum of NRI business growth and valued customer retention, Overseas NRI meets were arranged at Kuwait & Oman, and in every Kerala regions. As part of focusing NRI customers outside Kerala region, one NRI meet was arranged in AHMEDABAD region also. The Bank had opened and managed a stall in the Indian Pavilion during the Dubai Shopping Festival, at UAE to promote NRI services. All those efforts had resulted in achieving a growth of 35% in the total NRI deposit business of

Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Amitabha Guha , Part Time Chairman

K Thomas Jacob , Director

Mohan Alapatt , Director

Jimmy Mathew , Company Secretary


Company Head Office / Quarters:

SIB House T B Road,
Mission Quarters,
Thrissur,
Kerala-680001
Phone : Kerala-91-487-2420020/2420058/2420113 / Kerala-
Fax : Kerala-91-487-2442021 / Kerala-
E-mail : head@sib.co.in
Web : http://www.southindianbank.com

Registrars:

BTS Consultancy Services Pvt L
No 4 Ramakrishna Ng,Nr Kumaran Matri Sch,Villivakkam,Chennai-600049

 
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