Bandhan Bank Ltd Directors Report.

To

The Members,

Your Board of Directors present the Seventh Annual Report on the business and operations of your Bank together with the Audited Financial Statements for the financial year (FY) ended March 31, 2021.

Financial Performance of the Bank

The financial highlights for the financial year under review, are presented below:

(Figures in Rs. Crore)

For the financial year ended
Particulars March 31, 2021 March 31, 2020
Deposits: 77,972.22 57,081.50
- Savings Bank Deposits 29,260.32 17,726.99
- Current Account Deposits 4,566.99 3,301.47
- Term Deposits 44,144.91 36,053.04
Advances (Net): 81,612.88 66,629.95
- Cash credits, overdrafts and loans repayable on demand 2,395.82 1,274.80
- Term loans 79,217.06 65,355.15
Total Assets/Liabilities 1,14,993.05 91,717.80
Net Interest Income 7,563.35 6,323.91
Non-Interest Income 2,109.06 1,549.20
Operating Expenses (excluding depreciation) 2,714.09 2,346.28
Profit before Depreciation, Provisions and Tax 6,958.32 5,526.83
Depreciation 103.06 80.26
Provisions 3,906.60 1,393.15
Profit before Tax 2,948.66 4,053.42
Provision for Tax 743.20 1,029.68
Profit After Tax 2,205.46 3,023.74
Balance in Profit & Loss Account brought forward from previous year 4,758.71 3,283.64
Opening Profit & Loss Account balance adjustment on account of amalgamation - (64.55)
Appropriations:
Transfer to Statutory Reserves 551.37 755.94
Transfer to Statutory Reserve u/s 36(1)(viii) of Income Tax Act 1961 74.37 103.12
Transfer to Capital Reserve 84.64 11.45
Transfer to Investment Reserve - 5.16
Transfer to Investment Fluctuation Reserve 82.79 -
Dividend Paid (Including Dividend Distribution Tax) pertaining to previous year paid during the year - 608.45
Balance carried over to Balance Sheet 6,171.00 4,758.71
EPS (Basic) 13.70 18.78
EPS (Diluted) 13.69 18.76

State of Affairs of the Bank

Your Bank had commenced its business on August 23, 2015, and within six years of its operation, the balance sheet size of the Bank has crossed a landmark of Rs. 1 lakh crore. The Total Liabilities (including capital and reserves) of your Bank stood at Rs. 1,14,993.05 crore and the Total Advances (Net) at Rs. 81,612.88 crore whereas banking outlets increased to 5,310 as on March 31, 2021. During the FY under review, the number of banking outlets that have been added to the network is 751. Out of thetotal 5,310 banking outlets, 34 per cent. were established in rural, 39 per cent. in semi-urban, 18 per cent. in urban and 9 per cent. in metro locations. The number of customers has increased from 2.01 crore as on March 31, 2020 to 2.30 crore as on March 31, 2021. With the expanding network of banking outlets and customers, the total deposits increased from Rs. 57,081.50 crore as on March 31, 2020 to Rs. 77,972.22 crore as on March 31, 2021 registering a promising climb of 36.60 per cent.

The Current Account and Savings Account (CASA) deposits have seen a significant increase of 60.86 per cent. from Rs. 21,028.46 crore as on March 31, 2020 to Rs. 33,827.31 crore as on March 31, 2021.

During the FY under review, the total income (net) of your Bank has increased by 22.85 per cent. to Rs. 9,672.41 crore as against the total income of Rs. 7,873.11 crore for FY 2019-20. However, during the FY the Bank has made additional provisions on NPA accounts resulting from elevated risk observed in certain geographies and the potential impact of the COVID-19 pandemic on certain loan portfolios. These provisions held by the Bank are based on the information available at the time of approval of accounts and are in excess of the RBI prescribed norms. Due to this, the profit after tax (PAT) for the financial year under review stood at Rs. 2,205.46 crore, a decline of 27.06 per cent. as compared to Rs. 3,023.74 crore for FY 2019-20. Consequently, Return on Average Equity (ROAE) was 13.24 per cent. for FY 2020-21 as against 21.07 per cent. for FY 2019-20 and Return on Average Asset (ROAA) was 2.13 per cent for FY 2020-21 as against 3.64 per cent for FY 2019-20. Correspondingly, basic earnings per share (EPS) decreased from Rs. 18.78 to Rs. 13.70 whereas diluted EPS decreased from Rs. 18.76 to Rs. 13.69 as at the end of FY 2020-21 in comparison to FY 2019-20.

Your Banks strength lies in priority sector lending (PSL) as it continues to focus on financial inclusion by providing various financial services to the underserved. The Reserve Bank of India (RBI) has mandated PSL of a minimum 40 per cent. of advances for all banks. During FY 2020-21, your Banks PSL went up from Rs. 60,640.98 crore (net of IBPC of Rs. 4,612.70 crore) as on March 31, 2020 to Rs. 74,369.51 crore (net of IBPC of Rs. 2,124.13 crore) as on March 31, 2021 of which Rs. 70,448 crore was sold to other banks falling short of PSL targets by way of Priority Sector Lending Certificate (PSLC) (as against the previous FY of Rs. 56,805.75 crore). At the end of FY 2020-21, PSL as a proportion of the gross advances of Rs. 84,509.60 crore (after IBPC) was 88 per cent. (including PSLC).

COVID - 19 pandemic

At the beginning of FY 2020-21, the COVID-19 pandemic was spreading across the world resulting in a global crisis. Almost all the countries in the world were significantly affected, infecting millions of people.

India also started to witness the impact of the pandemic with a rising number of people getting infected across the country. In order to enforce social distancing norms to contain the spread of this disease, a nationwide lockdown was imposed which affected various business segments in various manufacturing and service sectors. The Government of India (GoI) and the Reserve Bank of India (RBI) had announced several measures to minimise the adverse economic impact on the business caused by this pandemic.

Your Bank has diligently been abiding by the advisories issued by the GoI, State Governments and various statutory and regulatory authorities, from time to time. While enforcing the social distancing protocols and keeping the safety of employees in mind, banking outlets and offices of the Bank operated in accordance with the guidelines/directions issued by various statutory, regulatory and local authorities.

Your Bank has proactively leveraged its technology wherein a major portion of the workforce was benefitted through availing work from home facilities. Moreover, to effectively manage operations, and cater uninterrupted services to the customers during these difficult times posed by the impact of the COVID-19 pandemic, your Bank has triggered its business continuity plan (BCP). Your Bank managed to run its operations smoothly with limited staff across all its banking outlets. Despite this constraint, operations were as per the prescribed business hours during the day, and cash was made available in the ATMs so as to provide uninterrupted financial services to the customers. At all times during the COVID-19 pandemic, your Bank had managed to keep its services open to customers. Your Bank has engaged with its customers through digital channels and contact centres with the objective of catering to their banking needs, as well as, enquiring about their well-being during these extraordinarily difficult times.

Your Bank has taken multiple measures to ensure a safe environment for its employees and customers such as:

• Regular sanitisation of the branches, ATMs, currency notes, temperature checks at premises.

• Regular distribution of Hand Sanitizers at banking outlets.

• Maintaining social distancing norms through effective floor management.

• Touch base with all existing customers and enquiring about their well-being.

• Adopting new digital initiatives from time to time.

• Community outreach initiatives.

Your Bank has implemented necessary packages rolled out by RBI for its different segment of customers to provide the financial assistance which are enumerated hereinbelow under different heads.

The extent to which the COVID-19 pandemic would impact the Banks provision on assets and future results will depend on future developments, which are highly uncertain considering the impact of the second wave and the subsequent waves, if any. This uncertainty relates to, among other things, any new information concerning the severity of the COVID-19 pandemic, and any action to contain its spread or mitigate its impact. Some of these actions will be determined by policies at the national level, while others will be determined by measures adopted by the Bank. Given the uncertainty over the macro-economic condition, the impact of the global health pandemic may be different from that estimated as at the date of this report, and the Bank will continue to closely monitor any material changes in economic conditions.

Emerging Entrepreneur Business

Your Bank has been serving borrowers at the bottom of the pyramid with affordable and convenient loans to help them develop into entrepreneurs and transform their lives. As the Banks good microcredit customers expanded their businesses,

it supported them with enhanced banking facilities. Your Bank realised that these customers need more than just business loans to help them achieve their dreams and aspirations. Hence, providing them wholesome banking support is necessary.

With this backdrop, your Bank established a new vertical called Emerging Entrepreneur Business (EEB) for serving Micro Banking customers: Microcredit loans under JLG model, Individual Business Loans, Micro Bazaar Loans, Micro Home Loans and Two Wheeler Loans.

Your Bank has two types of banking outlets: Bank Branches catering to general banking customers and Banking Units (BU) catering to EEB customers. Your Bank offers a wide array of loans through EEB to benefit small business owners in need of financial assistance. It also helps in the growth of additional income generation avenues and offers enhanced opportunities to small entrepreneurs to achieve their business goals.

Each BU is linked to a bank branch for operational convenience. BUs are self-sufficient and empowered to open deposit accounts using TABs and also open loan accounts after necessary credit checks. The highlight of the BUs operations is the TABs that are connected to the Core Banking System (CBS) through cellular data. Your Banks Relationship Officers (RO) carry these TABs to their group meetings, and the entire instalment reconciliation for the customer happens through these TABs on realtime. To ensure timely and effective support to the BUs in their day-today functioning, the Bank has a structure comprising Circles, Territories, Divisions, Areas and Banking Unit Catchments. A central operations team maintain oversight of the quality of the operations and adherence to prevalent guidelines at all times. Your Bank lays significant emphasis on processes and controls to help maintain uniform and consistent standards in transaction processing and service delivery, as well as compliance with regulatory and statutory guidelines.

Your Banks EEB strategy is guided by its philosophy of financial inclusion and economic empowerment of the disadvantaged sections of society. During FY 2020-21, your Bank opened 618 new BUs pan-India with a sole focus on financial inclusion. Your Banks commitment towards financial inclusion is also reflected in the fact that it offered loans to 16,26,127 new borrowers during FY 2020-21. The growth of over 26 per cent. in the aggregate micro banking asset portfolio from Rs. 46,189 crore to Rs. 58,346 crore during FY 2020-21, is another indicator of your Banks commitment.

Your Bank now has EEB loans in 10 categories to cater better to the varied demands of the customers:

1. Suchana Loan: Loan size is from Rs. 1,000 to Rs. 25,000 (no processing fee) and is sanctioned for income-generating activities.

2. Srishti Loan: Loan size is from Rs. 25,001 to Rs. 1,50,000.

3. Suraksha Loan: Loan size is up to Rs. 15,000 and is sanctioned to help customers meet emergency medical/ sanitary/ drinking water needs.

4. Susikhsha Loan: Loan size is up to Rs. 10,000 and is sanctioned to help customers meet expenses towards the education of their children.

5. Su Briddhi: Sanctioned to help customers meet the extra business requirements during their ongoing loan.

6. Samadhaan: The COVID-19 pandemic and nationwide lockdowns affected the routine life of everyone in the country. It had an impact on the EEB customers of your Bank as normal business activities remained affected in the country. Your bank introduced Samadhaan Loan product from Rs. 5,000 to Rs. 15,000 to support these existing EEB borrowers.

7. Micro Bazaar Loan: Loan size from Rs. 25,001 to Rs. 1,50,000, for small entrepreneurs who have fixed place to deliver their services to meet their working capital requirements.

8. Samriddhi Business Loan: Loan size from Rs. 75,000 to Rs. 3,00,000, for matured EEB customers who have shown considerable success in their endeavour.

9. Micro Home Loan: Loan size from Rs. 1,00,000 to Rs. 10,00,000 to existing EEB borrowers for construction as well as renovation of their houses.

10. Two Wheeler Loan: Loan size from Rs. 30,000 to Rs. 80,000 sanctioned to existing EEB customers to meet their requirement of two-wheelers.

Your Bank has been taking many precautionary and corrective measures to improve its portfolio quality.

During FY 2020-21, with the advent of the COVID-19 pandemic, your Bank enhanced its workforce adding additional front end officers in its large BUs. Further, your Bank has also put in place certain operating controls from its learnings, in order to sustain a good portfolio quality in the future.

Your Bank is in the process of putting in place a comprehensive restructuring option for its stressed borrowers in the BU, including a moratorium option, under the Resolution framework 2.0 of the RBI. This will provide necessary time relief to borrowers whose livelihoods have been impacted, and will help them pay their instalments regularly at a later date.

Finally, your Bank has laid out a strategy to increase the share of its individual business loans in its overall portfolio. Your Bank has a large percentage of its borrowers who have successfully completed more than one loan cycle. The business of these borrowers are being evaluated by a dedicated individual loan team, so that these families can be offered an individual monthly instalment loan. As the collection from individual borrowers is through standing instruction given to the Banks, no physical collection is involved for regular paying borrowers.

Branch banking

The CASA Business of your Bank has grown by 60.86 per cent. during FY 2020-21 over FY 2019-20. The affluent business which consists of flagship savings products like Elite and Premium Saving products during the same periods has grown by 136 per cent. vis-a-vis FY 2019-20.

During FY 2020-21, your Bank has launched its first foray into the digital account opening journey- Neo+ Savings account, with an objective to digitise the liability on-boarding process. The launch was in view of the recent unprecedented challenges that your Bank officials are facing in terms of meeting new customers and new account acquisition. With its unique attributes such as low cost, ease of use, scalability and ubiquity, digital on-boarding is expected to truly accelerate account acquisition across all geographies.

Your Bank is immensely proud to launch its Corporate Salary offering "Shaurya", which will cater to the banking and financial needs of our Military, Paramilitary and Police estabilishments and help your Bank serve those valiant individuals who have dedicated their lives to serve our Nation.

Your Bank has recently launched "Biz Elite Current Account", a product proposition with enhanced features of a current account clubbed with additional benefits which help our Premium business segment customers enjoy the experience of Elite banking along with the features of Current Account.

Commercial Banking

RBI had announced on March 27, 2020 and April 17, 2020, COVID-19 Regulatory Package on asset classification and provisioning. In terms of the RBI guidelines, the lending institutions have been permitted to grant a moratorium of three months on payment of all instalments/interest as applicable, falling due between March 01, 2020 and May 31, 2020 (moratorium period). Further, RBI extended the COVID-19 Regulatory Package vide notification dated May 23, 2020, wherein the lending institutions were permitted to extend the

moratorium from June 01, 2020 to August 31, 2020. In respect of the working capital facilities sanctioned in the form of cash credit/overdraft ("CC/OD"), the Lending institutions were also permitted, at their discretion, to convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021. Also, the working capital financing was eased as a one-time measure by re-calculating the drawing power through margin reduction till August 31, 2021, provided the margins are restored to the original levels by March 31,

2021. In this regard, a Board approved policy duly incorporating the COVID-19 Regulatory Package has been implemented by your Bank with a suitable enabling clause to accommodate any further regulatory instructions in respect of the COVID-19 Package. Customers of the Bank can place their requests through banking outlets and call centres. Your Bank extended support to its deserving borrowers by granting moratorium and FITL facilities, in line with the Regulatory Package. As such, in respect of all accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted, shall be excluded by the lending institutions from the number of days past due for the purpose of asset classification under RBIs Income Recognition and Asset Classification norms.

As part of the COVID-19 Regulatory Package, operating guidelines on Emergency Credit Line Guarantee Scheme (ECLGS 1.0) were introduced by National Credit Guarantee Trust Company (NCGTC) on June 02, 2020, and was initially valid till October 31, 2020. The scheme was subsequently an extended till November 30, 2020 vide operating guidelines dated October 31, 2020. The introduction of ECLGS 2.0 along with extension of ECLGS 1.0, both schemes valid till March 31, 2021, were communicated vide operating guidelines dated November 26, 2020. Further, the introduction of ECLGS 3.0, modification in ECLGS 2.0 along with extension of all three schemes (ECLGS 1.0, 2.0 & 3.0) till June 30, 2021, were communicated vide updated operating guidelines dated April 16, 2021. Introduction of ECLGS 4.0 and modifications in ECLGS 3.0 were communicated vide updated operating guidelines dated June 07, 2021, along with an extension of all four schemes (ECLGS 1.0, 2.0, 3.0 & 4.0) till September 30, 2021.

The following are the brief details of ECLGS 1.0, ECLGS 2.0 & ECLGS 3.0, valid till September 30, 2021:

• ECLGS-1.0 refers to the scheme for providing 100 per cent. guarantee to member lending institutions in respect of eligible credit facility extended by them in the form of additional working capital term loan facility to its borrowers up to 20 per cent. of their total fund based credit outstanding up to Rs. 50 crore across all lending institutions and up to 60 days past due as on February 29, 2020. A moratorium period of one year on the principal amount shall be provided to borrowers under the scheme during which interest shall be payable. The principal shall be repaid in 36 instalments (three years) under ECLGS 1.0 after the moratorium period is over.

• ECLGS-2.0 refers to the scheme for providing 100 per cent. guarantee to member lending institutions in respect of eligible credit facility extended by them in the form of working capital term loan facility and/or non-fund based facility or a mix of the two, to its borrowers in the 26 sectors identified by the Kamath Committee on Resolution Framework vide its report dated September 04, 2020 and the Healthcare sector, up to 20 per cent. of their total fund based credit outstanding of above Rs. 50 crore and not exceeding Rs. 500 crore across all lending institutions and up to 60 days past due as on February 29, 2020. A moratorium period of one year on the principal amount (fund based portion) shall be provided to borrowers under the scheme during which interest shall be payable. The principal shall be repaid in 48 instalments (four years) under ECLGS 2.0 after the moratorium period is over.

• ECLGS 3.0 refers to the scheme for providing 100 per cent. guarantee to member lending institutions in respect of eligible credit facility extended by them in the form of working capital term loan facility and/or non-fund based facility to its borrowers in the Hospitality (hotels, restaurants, marriage halls, canteens, etc.), Travel & Tourism, Leisure & Sporting and Civil Aviation (scheduled and non-scheduled airlines, chartered flight operators, air ambulances and airports) sectors, up to 40 per cent. of their total fund based credit outstanding up to Rs. 500 crore across all lending institutions, subject to a cap of Rs. 200 crore per borrower, and up to 60 days past due as on February 29, 2020. Eligible Borrowers under ECLGS 3.0 who have already availed benefit under ECLGS 1.0 or ECLGS 2.0, shall be eligible for additional credit up to 20 per cent. of their total credit outstanding as on February 29, 2020. A moratorium period of two years on the principal amount (fund based portion) shall be provided to borrowers under the scheme during which interest shall be payable. The principal shall be repaid in 48 instalments (four years) under ECLGS 3.0 after the moratorium period is over.

• ECLGS 4.0 refers to the scheme for providing 100 per cent. guarantee to member lending institutions in respect of eligible credit facility up to Rs. 2 crore per borrower extended by them in the form of fund based (term loan) or non-fund based (LC for import of capital goods) facility to its hospitals/nursing homes/clinics/medical colleges/ units engaged in manufacturing of liquid oxygen, oxygen cylinders, etc., for setting up of on-site oxygen producing plants. A moratorium period of six months on the principal amount (fund based portion) shall be provided to borrowers under the scheme during which interest shall be payable. The principal shall be repaid in maximum of 54 instalments (four years and six months) under ECLGS 4.0 after the moratorium period is over.

In line with the Board-approved Credit Policy, the Bank extended support to the deserving and eligible borrowers based on requests.

Commercial Banking, despite the pandemic situation, grew by 15 per cent. year-on-year. Small Enterprise Loan (SEL) and Small and Medium Enterprises Loan (SME) Books have grown steadily during FY 2020-21. SEL has accounted for a total Book size of Rs. 3,095 crore as on March 31, 2021, registering a growth of 50 per cent. during the period. The SME book was at Rs. 1,504 crore as on March 31, 2021, registering a growth of about 102 per cent. during FY 2020-21. The Institutional book, comprising lending to NBFCs and MFIs depleted by 24 per cent. since your Bank was cautious in building incremental advances in this segment.

Housing Finance

Your Bank offers Loans for the purchase, construction, repairs and renovation of dwelling units. Loan against property (LAP), as well as loans against rent receivables, are also offered against self-occupied residential / commercial property. In line with your Banks objective of increasing financial inclusion, Home Loans and LAP loans are offered to Salaried as well as Self-Employed customers, including New to Bank (NTB) customers as well.

Post amalgamation of erstwhile GRUH Finance Limited with the Bank, your Bank has expanded its scope of housing activities and has additionally started offering home loan products from more than 125 bank branches across the nation. Your Bank continues to focus on the affordable housing space and has tied up with various Government projects as well as projects in the private sector in the Affordable Housing space. Consequently, a majority of the housing loans are also eligible under the PSL category.

As on March 31, 2021, your Bank had a total Housing plus LAP exposure to Rs. 20,213 crore constituting 23 per cent. of the total gross advances.

Retail Asset

Retail Assets portfolio currently comprises Gold Loan, Personal Loan, Two-Wheeler Loan and Loan/Overdraft against Term Deposits.

FY 2020-21 witnessed retail portfolio registering a growth of 63 per cent. to Rs. 1,193 crore, in which the primary product drivers were Gold Loan, Loan/Overdraft against term deposits and Personal Loan. FY 2020-21 also witnessed reengineering of Retail Assets Vertical both in terms of Organisational structure, product depth and laying the technology foundation.

During FY 2020-21, Gold Loan was strengthened as a product. The book size grew from Rs. 222 crore to Rs. 394 crore, with a disbursement of Rs. 443.27 crore to 31,541 customers. Gold loan is now being offered from 321 branches across the country up from about 100 branches in the previous year. The financial year also saw the reintroduction of Personal Loan (PL) with a new credit framework and PL attained book size of Rs. 91 crore at the end of FY 2020-21.

Third Party Products

The Bank currently distributes mutual funds, life insurance, general insurance including health insurance products and cobranded credit cards. During the financial year under review, your Bank has designed a strong customer proposition, on the retail health insurance segment in order to ensure the retail customers who bank with us, have the opportunity to build a safety net around their health/medical related risks. In the life insurance business, your Bank has added, annuity products across both immediate and deferred annuity options, in the product basket being offered for solicitation. In mutual funds distribution, your Bank has additionally empaneled a new asset management company with a vision of providing its customers more choices while planning for investments.

The total mutual fund AUM managed under your Banks code during FY 2020-21 was Rs. 324.23 crore earning an income of Rs. 2.32 crore. A total of Rs. 120.74 crore and Rs. 327.60 crore of general and retail life insurance business, respectively, was garnered through the branches during FY 2020-21 earning a fee income of Rs. 14.19 crore and Rs. 93.05 crore, respectively. During FY 2020-21, the life insurance business through the existing arrangement in all asset verticals amounted to Rs. 855.63 crore earning an income of Rs. 42.78 crore. Your Bank has distributed the co-branded credit cards and earned Rs. 1.03 crore as commission during FY 202021. Your Bank has also earned Re. 0.04 crore as commission for distribution of Atal Pension Yojana and NPS Lite Swavalamban schemes of PFRDA during FY 2020-21.

Corporate Social Responsibility

Your Banks core commitment to creating inclusive growth is reflected in its Corporate Social Responsibility ("CSR") initiatives, which focus on the empowerment of the marginalised sections of the society.

To address its societal commitments, your Bank has adopted a comprehensive CSR Policy that outlines the CSR programmes, in line with Schedule VII of the Companies Act, 2013 (the Companies Act). These programmes are being undertaken in the vicinity of your Banks operational areas.

For the seamless implementation and monitoring of the CSR programme, your Bank has constituted the Corporate Social Responsibility Committee of the Board (CSRCB), in accordance with the provisions of Section 135 of the Companies Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended. The composition of the CSRCB is given in the Report on Corporate Governance forming part of the Boards Report.

The marginalised communities residing in the vicinity of your Banks operational areas are faced with multi-dimensional and inter-alia vulnerabilities, at the core of which is the challenge to secure sustained livelihoods. Accordingly, the interventions of your Banks CSR initiatives are appropriately designed to build their capabilities for securing sustainable livelihoods.

Your Bank continues to engage itself with the marginalised sections of the society for inclusive growth. During the financial year under review, your Bank has contributed Rs. 54.17 crore towards 25 CSR programmes implemented through 14 Project Implementing Agencies (PIAs). The CSR programmes were spread across 671 project locations in 71 districts of 13 states across India, benefitting 2,94,550 individuals during the financial year, thereby taking the total beneficiaries to 11,32,490 individuals.

Outline of the CSR Policy of the Bank and the details of CSR activities/projects undertaken during the financial year are given as Annexure - 1 and forms part of this Boards Report. The CSR Policy is in line with the recent amendments to the Companies Act, as recommended by the CSRCB and approved by the Board, and is available on the Banks website: https://bandhanbank. com/pdfViewerJS/index.html#../sites/default/files/2021-07/CSR- Policy-2021_1.pdf

Some of the key programmes of your Banks CSR initiatives are:

Targeting the Hard-Core Poor Programme (THP)

During the financial year under review, your Bank has contributed Rs. 18.20 crore towards the THP programme - the flagship programme of Bandhan Konnagar, an organisation registered under the Societies of West Bengal Registration Act XXVI of 1961, Implementing Agency. The programme is designed for the ultra-poor women-headed households, providing them with a range of lucrative micro-enterprises (in the form of farm, non-farm and mixed assets, non-cash) along with handholding support and training on confidence building, enterprise skills, consumer interaction, marketing and financial skills. They are also provided with sustenance allowance to meet their daily needs till they start generating substantial income from the assets provided. In 18 to 24 months, these ultra-poor women start graduating, uplifting themselves from extreme poverty1 and get linked to mainstream society2.

During the financial year under review, 27,444 ultra-poor women were provided farm-based, non-farm and mixed assets to sustain their livelihoods. These women belonged to 133 locations under your Banks catchment area spread across 18 districts of Assam, Jharkhand, Madhya Pradesh, Odisha and West Bengal.

A long term study done by the Nobel Laureate, Dr. Abhijit Banerjee et.al.3, based on Randomised Control Trials (RCT) method, suggests that in seven years after the assets were first distributed, livestock revenue, income from non-agricultural entrepreneurial activities and daily wage income was 286 per cent., 100 per cent. and 25 per cent., respectively, higher in the treatment group as compared to the control group mean, and it was not because of more working hours, but because of the fact that the income per hour went up and they diversified their businesses and invested part of the gains from livestock into other activities.

The monthly consumption of those assigned to treatment increased by 25 per cent. as compared to the consumption of those assigned to control, which increased by 12 per cent. and the amount deposited in the savings account by the beneficiaries was more than doubled as compared to the control group. There was also an increase in formal borrowings.

The study also highlights the positive effects across all categories of outcomes. Compared to non-beneficiaries, the beneficiaries households of the programme have more assets, food security is higher, earn more, and are financially better off. The results for the adult-level indexed variables of the study indicated that the individuals are healthier, happier and less stressed. Furthermore, the effects (except for productive assets) almost always grows over time, suggesting that the programme may have put beneficiaries household on a different trajectory.

Health, Nutrition, Drinking Water and Sanitation

During the financial year under review, your Bank has contributed Rs. 15.67 crore towards seven health programmes of five PIAs covering 35 districts in nine states of India.

Health

Your Bank contributed towards creating health and hygiene- related awareness and behaviour change through a network of 3,440 village-level female health volunteers known as "Swasthiya Sahayikas" who reached out to 1,37,854 pregnant women and lactating mothers. The Swasthiya Sahayikas held 48,234 health awareness forums. These sessions were attended by 2,36,063 female participants belonging to the reproductive age group. The Swasthiya Sahayikas made 1,92,830 home visits to follow up on the health status of pregnant women, lactating mothers and children below five years and have taken 373 pregnant women for institutional deliveries during emergencies or in case of absence of any family members and referred 3,203 women for ante-natal check-ups (ANC) and institutional deliveries in 457 healthcare centres.

The Swasthiya Sahayikas of the health programme inducted menstrual hygiene behaviour change communication amongst the women especially the adolescent girls and infant-care behaviours to the pregnant women and lactating mothers. They provided 3,08,179 sanitary pads during door-to-door visits and have also started to supply infant diapers, soaps, hand sanitisers, moisturisers, etc.

These efforts resulted in improving the institutional deliveries to 90.25 per cent. compared to the national average of 78.90 per cent.4 and complete ANC to 91 per cent. compared to the national average of 51.20 per cent.4

A study conducted by Grameen Foundation and Freedom from Hunger India Trust from 2016 to 20 185, concluded that the programme has a visible positive impact amongst the participants of the health awareness programme on the level of awareness and health-related behaviour between and end-line, from <10 per cent to > 90 per cent of women know about Mother and Child Health (MCH) and from 20 per cent to 80 per cent of adolescent girls managing menstrual complications.

Healthcare

During the financial year under review, apart from the public health programme, 76,945 patients were provided treatment for various diseases like cataracts, hypertension, diabetes, cough and cold, etc., in three districts of four states of India through PIAs, taking the total to 2,47,602 patients.

Nutrition

During the financial year under review, 2,13,440 children, under the age of five years, were enrolled in the nutrition initiatives, of which 2,910 children were identified with severe acute malnutrition (SAM) and were supported for nutrition rehabilitation, whereas 13,060 children were found with moderate acute malnutrition (MAM) and were provided with nutritional supplements including support for a nutritional garden. 94 per cent. of the children, over 24 months completed their primary immunisation and 83.25 per cent. (National Average of 54.90 per cent.)4 of children from 0- 6 months were exclusively breastfed.

To provide round the year nutrition support, 27,444 households were provided planting materials of fruits and vegetables for setting up their nutrition gardens. These nutrition gardens helped families, especially women and children to consume pesticide- free fresh fruits and vegetables round the year. This initiative has helped in reducing the protein-energy malnutrition (PEM) amongst the children who are less than five years of age and is evident from the fact that wasting by children under-five has gone down to 9 per cent. as against the national average of 35.7 per cent.4 The awareness regarding a balanced and adequate diet during pregnancy coupled with the availability of fruits and vegetables from the nutrition garden resulted in reducing the low birth weight incidences to a mere 2 per cent. of the live births as compared to the national average of 18.2 per cent.4 live births being under 2.5 kilograms.

Drinking Water

During the financial year under review, 49 community-level reverse osmosis water treatment plants were set up, which provided 14,752 kilolitres of purified safe drinking water to 33,749 households.

Sanitation

Your Bank has contributed towards developing the community-led sanitation and school sanitation programme by two PIAs covering three districts in three states of India. The initiatives helped in improving the sanitation infrastructure of 502 households, 19 government schools, which included separate toilets for boys and girls using child-friendly engineering, RO drinking water stations, mid-day meal platform with shades, dishwashing stations, roof rainwater harvesting system, etc. The programme induced behavioural change amongst the school teachers and children through classroom sessions and demonstrations regarding sanitation and personal hygiene including hand-washing using soaps after using toilets, before and after a meal, before holding infants, after arriving, after playing outdoors, after playing with animals, after coughing, sneezing or blowing ones nose, cleaning toilets, flushing toilets after use, using sanitary pads for menstrual hygiene, etc. The programme also supported monitoring of the operation and maintenance of the facilities created.

Education

Your Bank has contributed towards education programmes which provides quality education to the children belonging to the marginalised section of the society in its catchment areas.

The education programme enables the children to improve their learning outcomes, especially in Science, Technology, English and Mathematics (STEM) subjects and increase their retention and classroom engagement. The programme also provides training to the teachers belonging to the communities, government schools and schools run by the various charitable trust who are providing free education to transform their pedagogy and integrate various teaching and learning tools in their lesson plans and track the comprehensive continuous assessment of each child. For inclusive learning, your Bank has also contributed to "Sammilit Pathshala" for providing education to children with special needs with other children. For creating a better learning environment, the programme also contributed to the creation of school education facilities including, setting up of computer labs, smart classrooms, furniture and fixtures, building as a learning aid (BALA) paintings, etc.

Your Bank contributed Rs. 14.80 crore towards the education programme by three PIAs benefiting 69,812 marginalised children in 33 districts of six states of India.

Support to Person with Disabilities

In line with the commitment to inclusive growth, your Bank has contributed Rs. 38.85 lakh to the initiatives of four PIAs who are dedicated to providing equal opportunities and a conducive environment to persons with disabilities (PwD). During the financial year under review, the initiatives have supported 732 PwDs in three districts of three states of India.

Skill Development

Skill development initiatives, supported by your Bank, provide market-linked and job-ready employable skills to the youths from the marginalised sections of the society in various domains. This initiative not only provides on-the job training, and job placement facilitation in the organised sector but also a follow-up of the placements so that the youths are settled in their job post-training.

During the financial year under review, your Bank contributed Rs. 4.89 crore toward the skill development initiatives of four PIAs in 17 districts of nine states of India. These PIAs operated 20 training centres in domains like Warehousing and Logistics, Retail and Customer Care, Sales and Marketing, ITeS and BPO, Refrigeration and Air Conditioning, Computer Accounting, Hardware and Networking, BFSI, Tailoring, Mason, Electrical, GDA (Nursing), Manual Metal Arc Welding, Fitter Fabrication, Security Guard and Driving.

During the financial year under review, 3,123 youths were trained, of which nearly 80 per cent. were placed with net salary ranging from Rs. 6,500 to Rs. 12,000 plus other performance-based allowances and social security benefits like Provident Fund (PF) and Employee State Insurance (ESI).

Water Conservation

The water conservation initiative, supported by your Bank, aims at water security and drought proofing to some of the high moisture stressed regions of India, thereby providing a safety net to agriculture and livestock-based livelihoods. The initiatives facilitate participatory watershed management by empowering the communities to participate in the planning and implementation of local water resource development. Measures such as building, reviving and maintaining water-harvesting structures, prioritisation and judicious use of water for every community member, crop planning and water-efficient farming, use of drought-resistant varieties, cultivation of high-value crop requiring less water, etc., creates a multiplier effect in drought proofing and climate change adaptation measures and higher income generation. The programme has supported the construction of 23 water-harvesting structures with a storage capacity of over 120,000 kilolitres of water in two states, which not only provided drinking water to over 1,500 families but also supported participatory irrigation of various crops and helped in generating an income of more than Rs. 123 lakh.

Afforestation

The afforestation initiatives, supported by your Bank, have contributed towards the project on establishing "Bio-shield" to save the mangroves in the Bharuch district of Gujarat. Mangrove plantation of 67,540 saplings was carried out in 20 Hectares in a stretch of one kilometre of coastline along with plantation of other medicinal plant species and fodder species, sequestering over 4,400 tonnes of CO2 annually. The fodder bank was created to offset the biotic pressure from the mangrove area. The project created 4,629 person-days of employment and benefited 9,123 beneficiaries with additional income generating avenues from fodder and medicinal plants harvesting.

Dividend

Your Bank has a dividend distribution policy that, inter-alia, balances the objectives of appropriately rewarding shareholders and retaining capital to maintain a healthy capital adequacy ratio. Pursuant to Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR), the Board of Directors of the Bank have adopted a dividend distribution policy. In additon to the Dividend Distribution Policy, the dividend payout ratio of the Bank is guided by the extant Circulars on dividend issued by RBI, from time to time. The Policy is available on the Banks website at https://bandhanbank.com/pdfViewerJS/index.html#../sites/ default/files/2021-07/Dividend_Distribution_Policy.pdf

The RBI vide its Notification No. RBI/2021-22/23 DOR.ACC. REC.7/21.02.067/2021-22 dated April 22, 2021, has directed that commercial banks may pay dividends on equity shares from the profits for the financial year ended March 31, 2021, subject to the quantum of dividend being not more than fifty per cent. of the amount determined as per the dividend payout ratio prescribed in paragraph 4 of RBI circular no. DBOD.NO.BP. BC.88/ 21.02.067/2004-05 dated May 04, 2005. Accordingly, in compliance with the above Circulars issued by RBI and keeping in mind the future capital requirements, the Board of Directors of the Bank has recommended a dividend of Rs. 1 on equity shares of Rs. 10 each (i.e. 10%) for the financial year ended March 31, 2021, for approval of the shareholders at the 7th Annual General Meeting (AGM) of the Bank. As per the amended Income Tax Act, 1961, the dividend shall be subject to applicable deduction of tax at source (TDS).

Transfer to Reserves

In line with the RBI regulations, your Bank has transferred an amount of Rs. 551.37 crore to the statutory reserve during the financial year ended March 31, 2021.

Issuance of Equity Shares & Capital Adequacy Ratio

During the financial year under review, your Bank has issued 3,51,358 equity shares of Rs. 10 each pursuant to exercise of stock options by the eligible Employees of your Bank aggregating to Rs. 35,13,580.

Post allotment of aforesaid equity shares, the issued, subscribed and paid-up share capital of your Bank stood at Rs. 16,10,59,92,010/- comprising 161,05,99,201 equity shares of Rs. 10 each fully paid-up as on March 31, 2021.

Your Bank has not issued any equity shares with differential voting rights during the financial year under review.

Your Banks capital adequacy ratio (CAR), calculated in line with the RBI Circular on Capital Adequacy Framework, stood at 23.47 per cent. as on March 31, 2021, well above the minimum regulatory requirements of 10.875 per cent., out of which Tier 1 CAR was 22.48 per cent. and Tier 2 CAR was 0.99 per cent.

Status on Dilution of Promoters stake

In order to comply with the Guidelines for Licensing of New Banks in the Private Sector issued by RBI on February 22, 2013, (Licensing Guidelines) and licensing conditions for the Bank, Bandhan Financial Holdings Limited (BFHL or the NOFHC), the Promoter of the Bank had, on August 03, 2020 through a secondary market sale, diluted its excess voting equity capital of 20.95 per cent. i.e. 33,73,67,189 equity shares of Rs. 10 (Rupees Ten only) each fully paid-up, in the Bank. Consequently, the shareholding of NOFHC in the Bank has been reduced to 40 per cent. of the total paid-up voting equity capital of the Bank. The Bank is now fully compliant with the aforesaid Guidelines and the licensing conditions, and consequently, the regulatory restrictions imposed by RBI has been lifted.

Performance and Financial Position of the Subsidiaries, Associates or Joint Venture

Your Bank did not have any subsidiaries, associates or joint venture companies during FY 2020-21. Accordingly, no statement is required to be reported in Form AOC-1.

Rating of Various Debt Instruments

Details of rating of various debt instruments of the Bank as on March 31, 2021 are as under:

Instruments Rating Rating Agency Amount (^ in Cr.)
Subordinated Tier II [ICRA]AA(Stable) ICRA
Non-Convertible Debentures CARE AA- Stable CARE 160
Term Loan from Banks [ICRA]AA(Stable) ICRA 80
Certificate of Deposit [ICRA]A1+ CRISIL A1+ ICRA CRISIL 6,000l1
Non-Convertible Debentures3 [ICRA]AA(Stable) CRISIL AA/Stable ICRA CRISIL 5,075l2
Fixed Deposits Programme3 FAAA / Stable CRISIL 1,600
Subordinated Debt3 CRISIL AA/Stable CRISIL 35

 

(1) rating of ICRA is for ^3000 crore only

 

(2) rating of ICRA is for ^196.40 crore only

 

(3) transferred from erstwhile Gruh Finance Limited pursuant to the effectiveness of the Scheme of Amalgamation.

Board of Directors

The composition of the Board of Directors of the Bank ("Board") is governed by the provisions of the Companies Act, the Banking Regulation Act, 1949 (the BR Act), the SEBI LODR, other applicable laws and the Articles of Association of your Bank. At the end of March 31, 2021, the Board of your Bank had twelve Directors, out of which nine were Independent Directors, two Non-Executive Non-Independent Directors including one Nominee Director of Caladium Investment Pte. Ltd, and one Managing Director and CEO.

Appointments

Mr. Suhail Chander (DIN: 06941577) and Mr. Subrata Dutta Gupta (DIN: 08767943)

Pursuant to the recommendations of the Nomination and Remuneration Committee of the Bank (NRC), the Board approved the appointment of Mr. Suhail Chander (DIN: 06941577) and Mr. Subrata Dutta Gupta (DIN: 08767943) as Additional Directors (Independent) of the Bank effective March 19, 2021, after ascertaining their fit and proper status and independence from the management of your Bank. Pursuant to the provisions of Section 161 of the Companies Act, they would continue to hold office as Additional Directors of the Bank, up to the date of the ensuing AGM or the last date on which the AGM should have been held, whichever is earlier. Your Bank has received notices in writing from members proposing their candidature as Director on the Board of the Bank. Further, the NRC and the Board have also recommended their appointment as Independent Director(s), not liable to retire by rotation, to the Shareholders at the ensuing AGM for a period of three years each effective March 19, 2021.

Mr. Suhail Chander, a Chartered Accountant, is having 37 years of rich experience in Banking Operations, Trade Finance, Retail and Wholesale Banking covering the entire gamut from retail, SME, mid-size corporate to large corporates including public sector undertakings and risk management.

Mr. Subrata Dutta Gupta, Master of Arts in Economics, has rich experience of more than 35 years in Asset Based Financing of which 20 years in the Mortgage Industry in India and 11 years in Development Finance with focus on Investment and Advisory Services in the mortgage sector covering areas like Strategic Planning, Business Plan, Underwriting and Policy Formulation, etc.

Re-appointments

Dr. Holger Dirk Michaelis (DIN : 07205838)

In terms of the provisions of Section 152 of the Companies Act, out of the two Non-Executive Non-Independent Directors, Dr. Holger Dirk Michaelis (DIN: 07205838), Nominee Director of Caladium Investment Pte. Ltd., being longest in office, shall retire at ensuing AGM and being eligible, offered himself for re-appointment.

Mr. Chandra Shekhar Ghosh (DIN : 00342477)

Mr. Chandra Shekhar Ghosh, was appointed as the Managing Director and Chief Executive Officer (MD & CEO) of the Bank effective July 10, 2015 for a period of three years. Thereafter, Mr. Ghosh, MD & CEO was re-appointed for a period of three years effective July 10, 2018. In terms of the RBI Circular dated March 31, 2020 on Appointment of Managing Director and Chief Executive Officer (MD & CEO) / CEO /part-time Chairperson (PTC) in Banks - Declaration and Undertaking and allied matters, the Bank submitted an application to RBI seeking re-appointment of the MD & CEO, for a period of five years effective July 10, 2021, as approved by the Board at its meeting held on November 02, 2020, on the basis of the recommendation of the NRC. RBI vide its letter dated June 08, 2021, has approved the re-appointment of the MD & CEO for a period of three years. Accordingly, as approved by RBI vide its letter dated June 08, 2021, and based on the recommendation of the NRC, the Board has approved the re-appointment of Mr. Chandra Shekhar Ghosh, MD & CEO of the Bank for a period of three years effective July 10, 2021, not liable to retire by rotation, subject to the approval of Shareholders at the ensuing AGM, and also designated him as the Key Managerial Personnel of the Bank.

Dr. A. S. Ramasastri (DIN : 06916673)

Dr. A. S. Ramasastri was appointed as an Independent Director of the Bank effective August 08, 2018 for a period of three years. Accordingly, considering the outcome of his performance evaluation, notice received under section 160 of the Companies Act from a member proposing his candidature for the office of Director and the recommendation of the NRC, the Board at its meeting held on June 25, 2021, has approved his re-appointment as an Independent Director of the Bank, not liable to retire by rotation, for a second term of five years effective August 08, 2021, subject to the approval of Shareholders of the Bank by way of a special resolution at the ensuing AGM.

Dr. Anup Kumar Sinha (DIN: 08249893)

Dr. Anup Kumar Sinha was appointed as an Independent Director of the Bank effective January 07, 2019 for a period of three years and his current term is expiring on January 06, 2022. RBI vide Circular dated April 26, 2021 on Corporate Governance of the Bank has increased the upper age limit for NEDs, including the Chair of the board of a bank, to 75 years and mandated that after attaining the age of 75 years no person can continue in these positions. Dr. Sinha would complete his 75 years on July 04, 2026. Accordingly, considering the outcome of his performance evaluation, notice received under section 160 of the Companies Act from a member proposing his candidature for the office of Director and the recommendation of the NRC, the Board at its meeting held on June 25, 2021, has approved his re-appointment as an Independent Director of the Bank, not liable to retire by rotation, for a second term from January 07, 2022 up to July 04, 2026 i.e. up to the date of his attaining the age of 75 years, subject to the approval of Shareholders of the Bank by way of a special resolution at the ensuing AGM.

Further, the current term of Dr. Sinha as the Non-Executive Chairman of the Bank would expire on January 06, 2022, as approved by RBI and Shareholders. Accordingly, pursuant to the recommendation of the NRC, the Board at its meeting held on June 25, 2021 has also approved his re-appointment as NonExecutive Chairman of the Bank from January 07, 2022 up to July 04, 2026 i.e. up to the date of his attaining the age of 75 years, subject to the approval of Shareholders of the Bank at the ensuing AGM and the approval of RBI, from time to time.

Mr. Santanu Mukherjee (DIN : 07716452)

Mr. Santanu Mukherjee was appointed as an Independent Director of the Bank effective January 07, 2019 for a period of three years and his current term is expiring on January 06, 2022. Accordingly, considering the outcome of his performance evaluation, notice received under section 160 of the Companies Act from a member proposing his candidature for the office of Director and the recommendation of the NRC, the Board at its meeting held on June 25, 2021, has approved his re-appointment as an Independent Director of the Bank, not liable to retire by rotation, for a second term of five years effective January 07, 2022, subject to the approval of Shareholders of the Bank by way of a special resolution at the ensuing AGM.

The resolution(s) in respect of appointment and re-appointment of the Directors, as aforesaid, have been included in the Notice convening the 7th AGM of the Bank. Brief profiles of these Directors have been annexed to the said Notice. None of the Directors as proposed for appointment / re-appointment will cross the age of 75 years during the tenure of their continuation on the Board of the Bank.

Shareholders approved appointments/ re-appointments

During the financial year under review, the following appointments/re-appointments were approved by the Shareholders at the 6th AGM of the Bank held on August 21, 2020:

• Appointment of Mr. NVP Tendulkar (DIN: 00869913) as an Independent Director of the Bank for a period of three years effective May 08, 2020.

• Appointment of Mr. Vijay N Bhatt (DIN: 00751001) as an Independent Director of the Bank for a period of three years effective May 08, 2020.

• Mr. Ranodeb Roy (DIN: 00328764), Non Executive Non Independent Director, being longest in office, liable to retire by rotation and being eligible, was re-appointed.

Cessations

During the financial year under review, the following four Independent Directors ceased to hold office by virtue of completion of their respective terms on the Board of the Bank, as under:

• Mr. Chintaman Mahadeo Dixit (DIN: 00524318) completed his second term as an Independent Director of the Bank on July 08, 2020. Accordingly, he ceased to be an Independent Director of the Bank effective July 09, 2020.

• Mr. Harun Rasid Khan (DIN: 07456806) completed his first term as an Independent Director of the Bank on March 26, 2021. He has requested the Board not to consider his re-appointment due to his other pre-occupations and priorities. Accordingly, he ceased to be an Independent Director of the Bank effective March 27, 2021.

• Mr. Bhaskar Sen (DIN: 03193003) completed his second term as an Independent Director of the Bank on March 31, 2021. Accordingly, he ceased to be an Independent Director of the Bank effective April 01, 2021.

• Mr. Sisir Kumar Chakrabarti (DIN: 02848624) completed his second term as an Independent Director of the Bank on March 31, 2021. Accordingly, he ceased to be an Independent Director of the Bank effective April 01, 2021.

Necessary disclosures in this regard have been made to the Stock Exchanges, RBI and the Ministry of Corporate Affairs.

The Board places on record its sincere appreciation for the contributions made by Mr. Dixit, Mr. Khan, Mr. Sen and Mr. Chakrabarti during their tenure as Independent Directors of the Bank.

Key Managerial Personnel

Mr. Chandra Shekhar Ghosh, MD & CEO, Mr. Sunil Samdani, Chief Financial Officer and Mr. Indranil Banerjee, Company Secretary of the Bank are the Key Managerial Personnel of the Bank as per the provisions of the Companies Act and rules made thereunder. Further, the Board at its meeting held on June 25, 2021 while approving the re-appointment of Mr. Ghosh as the MD & CEO of the Bank, also approved his re-appointment as Key Managerial Personnel of the Bank for a period of three years effective July 10, 2021, pursuant to provisions of Section 203 of the Companies Act.

Meetings of the Board and Board Committees

The Board met fourteen times during the Financial Year 202021 viz. on April 13, 2020, May 08, 2020, May 12, 2020, June 04, 2020, July 13, 2020, July 15, 2020, August 26, 2020, October 12, 2020, November 02, 2020, November 30, 2020, January 12, 2021, January 21, 2021, March 18, 2021 and March 19, 2021.

The details of the Board meetings held during the financial year, attendance of Directors at the meetings, and other details have been provided separately in the Report on Corporate Governance forming part of this Boards Report.

The Bank currently has the following nine Board Committees:

1. Audit Committee

2. Nomination & Remuneration Committee

3. Stakeholders Relationship Committee

4. Risk Management Committee

5. IT Strategy Committee

6. Customer Service Committee

7. Corporate Social Responsibility Committee

8. Committee of Directors

9. Special Committee for Monitoring High Value Frauds

Additionally, meetings of Independent Directors were also held during the financial year under review.

The details with respect to the composition, terms of reference, numbers of meetings held, attendance of members, etc., of these Board Committees are provided in the Report on Corporate Governance forming part of this Boards Report.

Declaration from Independent Directors

The Bank has received necessary declarations from all the Independent Directors under section 149(7) of the Companies Act and Regulation 25(8) of the SEBI LODR that they meet the criteria of independence laid down thereunder. The Board has reviewed the disclosures of independence submitted by the Independent Directors and is of the opinion that the Independent Directors of the Bank fulfil the conditions specified in the Companies Act and SEBI LODR and are independent of the management. In the opinion of the Board, Independent Directors possess requisite expertise, experience, integrity and proficiency as required under the applicable laws and policies of the Bank.

Familiarisation Programmes for Independent Directors

The familiarisation programme for the Independent Directors are disclosed in the Report on Corporate Governance forming part of this Boards Report.

Board Evaluation

Pursuant to the recommendation of the NRC, the Board has framed the Performance Evaluation Policy for the Board, Committees, Non- Independent / Whole Time Directors and Independent Directors (the Board PE Policy) in accordance with the relevant provisions of the Companies Act, the SEBI LODR and SEBI Guidance Note on Board Evaluation. In terms of the Board PE Policy, performance evaluation of the Board and its Committees, Chairman and individual Directors are done on various parameters. Parameters for the Board include various aspects such as structure, meetings, appointments, agenda, discussions, roles and responsibilities, evaluation of risks, strategy, governance and compliance, conflict of interest, etc.

Parameters for Board Committees include various aspects such as mandate and composition, effectiveness, meetings, agenda, minutes, discussion and dissent, independence, etc.

Parameters for the Directors include various aspects such as knowledge and competency, integrity, functioning, commitment, contribution, attendance, initiative, teamwork, communication, corporate governance, updates, etc., and in case of Independent Directors, additional parameters include fulfilment of the independence criteria and their independence from the management.

The evaluation process has been carried out electronically. The Board of Directors has done the evaluation of Independent Directors where the Independent Director who was subject to evaluation did not participate. Similarly, Independent Directors have done the evaluation of the Board as a whole, NonExecutive Chairman and Non-Independent Directors including the MD & CEO. The Chairman of Board Committees have done performance evaluation of respective Committees. Thereafter, the report on performance evaluation of Directors and Chairman was submitted to the NRC where the report on performance evaluation of the Board as a whole and Board Committees were submitted to the Board for necessary action. The NRC, after considering the performance evaluation report of Directors, made its recommendations to the Board for continuation / re-appointment of Directors. Thereafter, the Board considered the recommendations of the NRC, report on the performance evaluation of the Board as a whole and the Board Committees. The Board evaluation has provided some valuable inputs for optimising the roles and responsibilities, quality, quantity and timeliness of flow of information between the Banks management and the Board.

The Board of Directors of the Bank is satisfied with the outcome of the performance evaluation process. They were of the view that the Directors have been discharging their roles and responsibilities as expected by the Board and the regulatory provisions. Although the Board has undergone some change during the financial year, it continues to be duly constituted representing various expertise, skill sets, knowledge and qualification required for the banking business. There was no observation during the performance evaluation of the previous years; so is the case with the current year.

Appointment of Directors

Appointment of Directors on the Board is guided by the provisions of the BR Act and the guidelines/ circulars issued by the RBI, from time to time, the Companies Act and the SEBI LODR. In view of these provisions, your Bank has adopted a Policy on Appointment and fit and proper criteria for Directors.

In terms of this Policy, while appointing directors, the NRC / Board considers fit and proper criteria, various skill sets, professional knowledge, practical experience, integrity, gender diversity and additionally, status of independence in case of Independent Directors. The details of the same have been included in the Report on Corporate Governance forming part of this Boards Report. The Policy on Appointment and Fit & Proper Criteria for Directors of the Bank is available on the Banks website: https://bandhanbank.com/pdfViewerJS/index.html#../ sites/default/files/2020-12/Policy-Fit-Proper-Criteria-Director.pdf

Remuneration Policy

Your Bank has formulated and adopted a comprehensive Compensation Policy for its Directors, Key Managerial Personnel and Employees of the Bank, in terms of Section 178 of the Companies Act read with the relevant Rules made thereunder, Regulation 19 of the SEBI LODR and the Guidelines /Circulars issued by the RBI, in this regard, from time to time.

The details of the same have been included in the Report on Corporate Governance forming part of this Boards Report. The Compensation Policy of your Bank is available on the Banks website: https://bandhanbank.com/pdfViewerJS/index.html#../ sites/default/files/2020-12/CompensationPolicy.pdf

Employees Remuneration

As on March 31, 2021, your Bank had 49,445 employees. The statement containing particulars of employees as required under Section 197(12) of the Companies Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are appended separately as Annexure - 2(a) and forms part of this report. The ratio of the remuneration of each Director to the median remuneration of the employees of your Bank and other details in terms of Section 197(12) of the Companies Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are forming part of this report as Annexure - 2(b).

Employee Stock Options

Your Bank has instituted Employees Stock Option Scheme (ESOP), i.e., Bandhan Bank Employee Stock Option Plan Series 1 (ESOP Scheme) to enable its employees to participate in your Banks future growth and financial success. Your Bank provides its employees with a platform for participating in important decision making and instilling long-term commitment towards the future growth of the Bank by way of rewarding them through stock options. ESOP Scheme of your Bank is in compliance with the provisions of SEBI (Share Based Employee Benefits) Regulations, 2014 (SEBI SBEB) and no change has been made therein during the financial year under review. The ESOP Scheme is administrated by the NRC. In terms of the ESOP Scheme, the Options would vest not earlier than one year and not later than four years from the date of grant as decided by the NRC /Board. The Options granted shall be equally vested over four years. The exercise period shall be a maximum of five years from the date of the respective vesting of Options. Since your Bank has been allotting fresh equity shares upon exercise of Options, the source of the shares is of primary issuance.

In terms of the Shareholders approved ESOP Scheme and the Compensation Policy of the Bank, fresh grants have been made during the financial year under review to the eligible employees. None of the Directors was issued the stock options during the financial year under review.

The information pertaining to the ESOP Scheme as prescribed under SEBI SBEB read with SEBI Circular dated June 16, 2015 on requirements specified under the SEBI SBEB, is available on the website of the Bank at https://bandhanbank.com/annual-reports.

Further, as required under SEBI SBEB, the auditors certificate on the implementation of the ESOP Scheme, in accordance with SEBI SBEB, will be made available electronically at the AGM.

Deposits

Being a banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Companies Act are not applicable to your Bank. The details of the deposits received and accepted by your Bank as a banking company are enumerated in the financial statements for the financial year ended March 31, 2021 forming part of this annual report.

Internal Financial Controls, Audit and Compliance

Your Bank has an Internal Audit Department (lAD) and a Compliance Department (CD), which independently carry out evaluation of the adequacy of all internal controls. These departments ensure that operation and business units adhere to the laid down internal processes and procedures as well as to the regulatory/statutory and legal requirements.

The Compliance Function is one of the key elements in your Banks corporate governance structure. The compliance starts from the top and, the Board and Senior Management, play an importat role in driving the compliance culture. The Bank remains committed to adhere to the highest standards of compliance vis-a-vis regulatory prescriptions and internal guidelines. The Bank has a robust Compliance Policy, outlining the compliance philosophy, and roles and responsibilities of the CD.

The CD assists the Board and Senior Management in managing the compliance risk of the Bank. The department ensures that overall business of your Bank is conducted in strict adherence to the guidelines issued by RBI and other regulators, various statutory provisions, standards and codes prescribed by FEDAI, FIMMDA, etc. by evaluating the products / processes, guiding business departments on the various regulatory guidelines with a special emphasis on better understanding of the perspective.

It closely works with operational risk and internal audit functions and monitors various activities of your Bank with more emphasis on active risk management.

As the focal point of contact with RBI and other regulatory entities, the CD evaluates the adequacy of internal controls and examines any systemic correction that is required, based on its analysis and interpretation of regulatory guidelines and deviations observed during monitoring and testing. Your Bank has a robust Anti Money Laundering (AML) framework and tools to manage the AML risk. It periodically apprises the Audit Committee of the Board, (ACB), the Board and the Senior Management on compliance levels, based on the changes in the external regulatory environment. The CD submits the compliance report to the ACB at regular intervals providing the compliance

The IAD proactively recommends improvements in operational processes and systems. The Bank has put in place extensive internal controls including audit trails, appropriate segregation of front- and back-office operations, post-transaction monitoring processes at the backend to mitigate operational risks. To safeguard the independence, the performance evaluation of the Chief Compliance Officer (CCO) and the Chief Audit Executive (CAE) is carried out by the ACB. It further reviews the effectiveness of controls and compliance with regulatory guidelines. IAD further ensures independent checks and balances, and adherence to the laid down policies and procedures of the Bank that are in accordance with the regulatory guidelines.

Considering the internal financial controls, audit and compliance systems of the Bank and the work performed by the auditors, including the audit of internal financial controls over financial reporting by the statutory auditors and the reviews performed by management under the supervision of the ACB, the Board of Directors is of the opinion that the internal financial controls established and maintained by the Bank are adequate.

Related Party Transactions

There were no materially significant transactions with related parties during the financial year 2020-21, which could lead to a potential conflict of interest between the Bank and these parties. Prior omnibus approval is also obtained from the ACB for the related party transactions which are of repetitive nature as well as for the normal banking transactions which cannot be foreseen. The quarterly update on the details of transactions with the related parties, pursuant to the omnibus approval, were placed before the Audit Committee. The Related Party Transactions that were entered during the financial year under review were on an arms length basis and were in the ordinary course of business, pursuant to the approval of the ACB. Accordingly, there are no Related Party Transactions required to be reported in Form AOC-2. However, necessary disclosure as required under the Accounting Standards (AS 18) read with RBIs Master Circular- Disclosure in Financial Statements- Notes to Accounts dated July 01, 2015, has been made in the notes no. 18.13 to the annual financial statements for the financial year 2020-21. Your Banks Policy on dealing with Related Party Transactions is available on the Banks website: https://bandhanbank.com/pdfViewerJS/ index.html#../sites/default/files/2021-06/Details_of_Related_ Party_Transactions.pdf

Particulars of Loans, Guarantees or Investments

In terms of the provisions of Section 186 (11) of the Companies Act, the provisions of Section 186 of the Companies Act except sub-section (1), do not apply to any loan made, any guarantee given, security provided, or any investment made by a banking company in the ordinary course of its business. However, the particulars of investments made by the Bank are disclosed in the Financial Statements for the financial year 2020-21, as per the applicable provisions of the BR Act.

Whistle Blower Policy/Vigil Mechanism

The Bank has adopted the Board approved Vigilance Policy and Whistle Blower Mechanism, as required under Section 177 of the Companies Act, Regulation 22 of SEBI LODR and applicable circulars issued by RBI, in this regard. This Policy empowers the employees to raise their concerns relating to fraud, malpractice or any other activity or event, which is against the interests of the Bank or society as a whole. According to this Policy, the ACB has been entrusted with the responsibility of reviewing the complaints received and the action taken thereof. Detailed information on the Vigil Mechanism of the Bank is provided in the Report on the Corporate Governance which forms part of this Boards Report.

Significant and Material Orders passed by Regulators or Courts or Tribunals

During FY 2020-21, no significant or material orders were passed by any Regulators or Courts or Tribunals against the Bank impacting its going concern status and operations in future.

Statutory Auditors and their Report

The Members of the Bank at the 5th AGM held on June 28, 2019 had approved the appointment of Deloitte Haskins & Sells, Chartered Accountants (ICAI Firm Registration Number 117365W) as the Statutory Auditors of the Bank for a period of four years from the conclusion of the 5th AGM till the conclusion of the 9th AGM, subject to the approval of the RBI on an annual basis. In terms of the Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs) dated April 27, 2021 (RBI Guidelines) issued by RBI, banks shall appoint the Statutory Auditors for a continuous period of three years, subject to the firms satisfying the eligibility norms each year and the approval of RBI on an annual basis. Since Deloitte Haskins & Sells will complete two years as Statutory Auditors at the conclusion of the 7th AGM, they may continue as Statutory Auditors for one more year i.e. till the conclusion of the 8th AGM to be held in 2022, subject to the approval of RBI on an annual basis. Accordingly, on the basis of the recommendation of the ACB, the Board has recommended the reappointment of Deloitte Haskins & Sells as Statutory Auditors for a period of one more year to the RBI for approval.

The Report, given by the Auditors on the financial statements of the Bank for the financial year ended on March 31, 2021, forms part of this Annual Report. There has been no qualification, reservation, adverse remark or disclaimer given by the Auditors in their Report. Also, no offence of fraud was reported by the Auditors of the Bank under section 143(12) of the Companies Act.

Further, in terms of the RBI Guidelines and the Banks Policy for Appointment of Statutory Auditors, your Bank is required to appoint two statutory Auditors. Accordingly, the Board of Directors, on the recommendation of the ACB, has recommended the name of M. M. Nissim & Co. LLP, Chartered Accountants (ICAI Firm Registration No. 107122W/W100672) as the first preferred firm, to act as the joint Statutory Auditors of the Bank, to RBI for approval for a period of one year. The Board of Directors has also recommended the appointment of M. M. Nissim & Co. LLP, Chartered Accountants (ICAI Firm Registration No. 107122W/ W100672), as Joint Statutory Auditors of the Bank, for a period of three years to hold office from the conclusion of the 7th AGM until the conclusion of the 10th AGM of the Bank, for the approval of the shareholders at the ensuing AGM, subject to the approval of RBI on an annual basis. M. M. Nissim & Co. LLP shall act as the joint Statutory Auditors of the Bank along with Deloitte Haskins & Sells till the conclusion of the 8th AGM and thereafter act as joint Statutory Auditors of the Bank with such other new joint Statutory Auditor(s) who will be appointed by the Bank subject to prior approval from RBI and approval of the shareholders of the Bank.

Secretarial Auditors and their report

Pursuant to the provisions of Section 204 of the Companies Act, the Board has appointed CS Anjan Kumar Roy, Practising Company Secretary (C.P. 4557) as Secretarial Auditor to conduct Secretarial Audit of the Bank for FY 2020-21. Accordingly, the Secretarial Audit Report for FY 2020-21 is enclosed to this Boards Report as Annexure - 3. There are no qualifications, reservations, adverse remarks or disclaimers in the Secretarial Audit Report.

No offence or fraud was reported by the Secretarial Auditor of the Bank under section 143(14) of the Companies Act.

Cost Records

In terms of the provisions of Section 148(1) of the Companies Act read with Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, your Bank is not required to maintain cost records and accordingly is not required to undergo cost audit.

Corporate Governance

Corporate governance is based on the principles of conducting business with integrity, fairness and being transparent in all transactions, making necessary disclosures. Decisions are made in compliance with the laws of the land, with full accountability and responsibility towards the stakeholders, and a commitment to conducting all business in an ethical manner. Your Bank is committed to achieving the highest standards of Corporate Governance and adhering to the Corporate Governance requirements set by the regulators. A separate section on Corporate Governance standards followed by your Bank and the relevant disclosures, as stipulated under the SEBI LODR, the Companies Act and rules made thereunder, is enclosed to this Boards Report as Annexure -4.

A Certificate from CS Deepak Kumar Khaitan, Practising Company Secretary (C.P. No. 5207), confirming compliance by your Bank to the conditions of Corporate Governance as stipulated under SEBI LODR, is annexed to the Report on Corporate Governance, which forms part of this Boards Report.

Annual Return

Pursuant to the provisions of Section 92(3) read with Section 134(3)(a) of the Companies Act, the Annual Return as of March 31, 2021, is available on your Banks website at https:// bandhanbank.com/annual-reports.

Management Discussion and Analysis

The Management Discussion and Analysis report for the financial year 2020-21, as prescribed under SEBI LODR, forming part of this report as Annexure - 5.

Business Responsibility Report

In terms of the provisions of SEBI LODR, a Business Responsibility Report describing the initiatives taken by your Bank from an environmental, social and governance perspective is forming part of this report as Annexure - 6.

Integrated Reporting

The Bank has prepared an Integrated Report based on the principles enunciated by the International Integrated Reporting Council which has been hosted on the website of the Bank and can be accessed at https://www.bandhanbank.com/annual- reports. The report provides information including financial and non-financial parameters which would enable the members to make well informed decisions and have a better understanding of the Banks performance. It also deals with various aspects such as organisational strategy, governance framework, performance and prospects of value creation, based on the six forms of capital viz. financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital.

Compliance with Secretarial Standards

The Board of Directors affirms that your Bank has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India (SS-1 and SS-2) relating to Meetings of the Board, its Committees and the General Meetings.

Information Under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Bank has adopted zero tolerance towards any action on the part of any of its employees, which may fall under the ambit of sexual harassment at workplace and is fully committed to uphold and maintain the dignity of every woman constituent associated with your Bank. It takes all necessary measures to ensure a harassment free workplace and has instituted an Internal Committee for redressal of complaints and to prevent/ prohibit sexual harassment, in compliance with the guidelines enumerated in the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. At the beginning of the financial year under review, two complaints were pending and during the financial year, seven complaints were received, out of which six complaints have been closed during the financial year. Three complaints were pending at the end of the financial year, out of which two complaints have since been closed.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

Energy and natural resource conservation have been one of the focus areas for your Bank and conscious efforts are being made towards improving energy performance, year on year. In our endeavour to achieve aggressive goals to reduce carbon footprints, the conservation of energy has been integrated with the vision of the organisation and its operations. Some of the steps undertaken by your Bank towards conservation of energy are as under:

• Creating flexibility in the smart building systems to achieve the highest level of efficiency.

• At banking outlets, the focus is on insulation on walls and roof, optimum window wall ratio, premises shape and orientation, and re-engineering and retrofit of equipment.

• Tracking of energy consumptions at all levels and comparing with the best international benchmarks.

• Incorporation of smart meters for energy use monitoring and engagement with key stakeholders at regular intervals to drive energy conservation in the organisation culture.

• Inclusion of the latest technologies in air-conditioning and inductive equipment in terms of variable drives and improved IKW (Consumption per Ton) in HVAC.

Lighting: Incorporation of 100 per cent. LED for lighting, day light harvesting, timed illumination of signage through central monitoring system.

Daily operations and usage - Conservation through basic hygiene practices on energy usage through occupancy sensors, zoning of electrical circuits and master switches for premises.

Water Conservation: Ground water recharge facilities through rain water harvesting in upcoming projects, volume flow controls at each sink point, water recycling through STPs.

During the pandemic, the travel needs were met through video conferencing across the organisation using multiple platforms adding to your Banks contribution towards the carbon foot print reduction.

The details on the Information Technology used by your Bank in its operations have been provided under section on Information Technology at the Bank in this Report.

The foreign exchange earnings of the Bank was Rs. 47 lakh (including the net gains arising in all exchanges/derivatives transactions) whereas the foreign exchange outgo was of Rs. 76 lakh during the financial year 2020-21.

Human Resource Management

Your Bank understands the power of human motivation and dedicated efforts to achieve the desired goal. As a Bank, we are proud of our employees who have served throughout the year during this COVID-19 pandemic as an exemplar of customer service. Our focus includes rewarding and recognizing the performance, ensuring a safe and competitive work environment for the employees and providing a platform for sustainable growth. The Human Resource Department also drives the initiatives for the employees wellbeing, by way of subsidised loans and also, more importantly for their physical wellbeing.

During FY 2020-21, your Bank increased its employee strength to 49,445 from 39,750. Your Bank has also added 129 Retail Banking Branches, 618 Banking Units and 4 Home Loan Centres. Series of programmes were conducted to meet the on-going learning and development needs in the Bank and promote an environment of learning, self-growth and excellence. The learning architecture in your Bank focuses on:

• Developing tailor-made, competency based programmes for different sets of employees, based on their roles and functional area in the Bank.

• Induction and onboarding programmes for the new hires through online and offline mode.

• Training the front line bankers on several aspects of Compliance, AML, Risk and Regulatory norms.

• Specifically designed tailor made programme delivered by specialists for Leadership roles covering areas such as conflict management, people management, etc.

• Competency based succession plan for majority of the roles; overall 7,000 employees were identified for the higher role.

• Competency based promotion process to nurture identified talent.

• Identification of critical resources and differentiated career path for retaining the critical resources.

• Creating a fresh talent pool by adding resources from college campuses and the NextGen Bankers Programme.

• Introduction of the COVID-19 homecare programme for staffs, with approximately 600 impacted staffs utilized the professional service.

• Digitisation of the various HR processes to enhance employee experience.

Your Bank has completed the annual appraisal process during the financial year under review for all the eligible employes and amid all the crisis employees were paid their annual increments and performance-based variable pay/bonuses. Overall approximately 31,000 employees participated in the process. Your Bank has also taken various precautionary measures during the pandemic crisis and successfully executed the banking operations by optimizing workforce deployment.

The Bank provides training through a wide range of training programmes, to employees across departments and functions, to build their professional competence and improve their skill sets, and thus, enable them to contribute to your Banks mission.

Risk Management

Your Bank manages a variety of risks that can significantly affect its financial performance and ability to meet the expectations of its customers, shareholders, regulators and other stakeholders.

Risk is part of our Business Model. Your Bank measures and manages risk as part of its business, including in connection with the products and services it offers to its customers. The risks we take include financial such as credit, interest rate, market, liquidity and non-financial such as operational including compliance, strategic and reputation risks.

The Board of Directors has the overall responsibility for the Banks Risk Management, including culture and governance framework. The Risk Management Committee of the Board (RMCB) assists the Board in discharging these responsibilities effectively.

Risk Appetite & Risk Profile

The management defines and the Board approves your Banks risk appetite, which is the amount of risk your Bank is comfortable sustaining given its existing level of resources. Risk appetite defines which risks are acceptable and at what level and guides businesses and risk leaders. Risk appetite boundaries are set within the Banks risk-bearing capacity. Your Banks risk appetite is articulated in a statement of risk appetite, which is approved at least annually by the Board.

Your Banks risk profile is a holistic representation of all risks, that it holds at a point in time, in the form of a dashboard. Your Bank monitors its risk profile, and the Board quarterly reviews reports and analysis concerning its risk profile.

Your Bank continuously monitors its risk appetite, and the Board reviews periodic risk appetite reports and analyses.

Risk and Strategy

Your Banks risk profile, risk capacity, risk appetite, and risk management effectiveness (i.e., the holistic measure of the quality and effectiveness of your Banks risk management activities, including the functional or programmatic use of controls and capabilities to manage risks) are considered in the strategic planning process, which is closely linked with the Banks capital planning process (ICAAP).

Your Banks Integrated Risk Management Department (RMD) participates in strategic planning at several points and in the process, providing a challenge to an independent assessment of the Banks self-assessment of the risks associated with strategic planning initiatives. RMD also independently assesses the impact of the strategic plan on risk capacity, risk appetite, and risk management effectiveness at the principal line of business, enterprise function, and at an aggregate Bank level. Post effective review by the management, the strategic plan is presented to the Board every year for its review and approval thereon.

Everyone Manages Risk

Every employee creates risk in the course of performing business activities and is required to manage that risk. Risk is therefore everyones responsibility. Every employee is required to comply with applicable laws, regulations, and Bank policies.

Risk and Culture

Senior management sets the "tone at the top" by supporting a strong culture, defined by the Banks expectations, that guides how employees conduct themselves, work with colleagues,

and make decisions. The Board holds senior management accountable for establishing and maintaining the right culture and effectively managing risk. Employees are strongly encouraged and expected to speak up as and when they see something that could cause harm to any stakeholder of the Bank risking its reputation. This is because risk management is everyones responsibility, all employees are expected to challenge risk decisions when appropriate and to escalate their concerns when they have not been addressed appropriately. Your Bank has a well-defined Whistle Blower Policy in place.

Employee performance evaluations are tied to and take into account, effective risk management. Your Banks performance management and incentive compensation programmes are designed to establish a balanced framework between risk and reward under core principles that employees are expected to know and practice. The Board, through its respective Committees, plays an important role in overseeing and providing credible challenge to your Banks performance management and incentive compensation programmes.

Risk Management Framework

Your Banks risk management framework sets forth the core principles on how the Bank seeks to manage and govern its risk. Many Bank policies and documents anchor to the risk management frameworks core principles.

The RMCB annually reviews and approves the risk management framework. Your Banks utmost priority is to strengthen by building the right risk and control infrastructure. Your Bank continues to enhance its risk management programmes, including the non-financial risk management in accordance with Industrys best practices and regulatory guidelines. The Board assesses managements performance, provides credible challenges, and holds management accountable for maintaining an effective risk management programme and for adhering to risk management expectations.

Board Committee Structure

The Board carries out its risk oversight responsibilities directly and through its Committees. RMCB reviews and recommends the Banks risk management framework and oversees its implementation, including the processes established by the management to identify, assess, measure, monitor, and manage risks. It also monitors the Banks adherence to its risk appetite.

In addition, the RMCB oversees the Risk Management Department (RMD) and the performance of the Chief Risk Officer (CRO) who reports functionally to the RMCB and administratively to the MD & CEO.

Management Committee Structure

The Bank has established management committees, that support management in carrying out its governance and risk management responsibilities. Each management governance committee is expected to discuss, document, and make decisions regarding significant risk issues, emerging risks, and risk acceptances; review and monitor progress related to critical and high-risk issues and remediation efforts within its scope, including lessons learned; and report key challenges, decisions, escalations, other actions, and open issues to a Board committee, as appropriate.

In addition, the CRO has the authority to escalate risks and issues directly to the RMCB.

Risk Operating Model - Roles and Responsibilities

The Bank has three lines of defence: the Front Line, Independent Risk Management and Internal Audit. Your Banks risk operating model creates necessary interaction, interdependencies, and ongoing engagement among the lines of defence:

Front Line: The front line, which is composed of our five principal lines of business and certain activities of enterprise functions, is the first line of defence. In the course of its business activities, the front line identifies, measures and assesses, manages, controls, monitors, and reports on the risk associated with its business activities and balances risk and reward in decision making while remaining within the Banks risk appetite.

Risk Management Department (RMD) is the second line of defence. It establishes and maintains your Banks risk management programme and provides oversight, including the challenge to and independent assessment of the front lines execution of its risk management responsibilities

Internal Audit Department (lAD) is the third line of defence. It is responsible for acting as an independent assurance function and validates that the risk management programme is adequately designed and functioning effectively.

Risk Type Classifications

Your Bank uses common classifications, hierarchies, and ratings to enable consistency across all risk management programmes and aggregation of information. Risk type classifications permit the Bank to identify and prioritise its risk exposures, including emerging risk exposures.

Operational Risk Management: Operational risk, is the risk resulting from inadequate or failed internal processes, people and systems, or external events. The RMCB has primary oversight responsibility for all aspects of operational risk, including significant supporting programmes and/or policies regarding your Banks business resiliency and disaster recovery, and third- party risk management. As part of its oversight responsibilities, the RMCB reviews and recommend significant operational risk policies and oversees the Banks operational risk management programme.

At the management level, Operational Risk Management, which is part of RMD, has oversight responsibility for operational risk. Operational Risk Management reports to the CRO and provides periodic reports related to operational risk to the Operational Risk Management Committee (ORMC) as also to the RMCB.

Your Bank is committed to providing uninterrupted service to its customers. Therefore, it is essential to protect the critical infrastructure in the Bank from natural and manmade disasters / events and ensure business continuity of the various operational units. Business Continuity Management (BCM) Policy has been put in place with the objective to recover critical activities and systems within defined timelines; the safety of people and its assets; communicate with stakeholders during an emergency; manage reputation risk, etc. BCM Committee (BCMC) is responsible to ensure Business Continuity Plan (BCP) capabilities in the organization and their regular testing.

The Bank has the following framework in place to monitor Business Disruption Risk:

• Having trackers for identifying major risk due to Business Disruption.

• Assessment of BCP test results and DR Drill report to identify a gap.

• Identifying risk areas related to BCP while carrying out assessment of any product or process or during field visit or by any other means and raising the same with the concerned stakeholder for resolution.

• Identifying Business Disruption Risk (if any) during Risk and Control Assessments as per the defined calendar.

During the COVID-19 pandemic, the BCMC formed a QRT (Quick Response Team) to ensure business continuity and resilience.

The RMD continues to plan and monitor your Banks COVID-19 business Continuity and resilience in terms of

(i) Effectiveness of Business Continuity Plan;

(ii) Emerging Risks especially Information Security and Cyber-attacks with the onset of Work From Home (WFH) process;

(iii) Present and Emerging Liquidity position;

(iv) Communications/Awareness for staff and customers;

(v) Emerging Credit Risk on segmental portfolio;

(vi) Impact on other pillar 2 risks : Reputation, Strategic & Business Risk and

(vii) People Risk in terms of employee workplace safety; amongst others.

Regular reports on the same get reviewed by RMCB during the period.

Information security is a significant operational risk for financial institutions such as Bandhan Bank and includes the risk arising from unauthorised access, use, disclosure, disruption, modification, or destruction of information or information systems. The Information Security function, part of the RMD, is headed by the Chief Information Security Officer (CISO) reporting into the CRO.

The Board is actively engaged in the oversight of your Banks information security risk management and cyber defence programmes. The RMCB and the Information Technology Strategy Committee of the Board (ITSCB) have oversight responsibility for the same. A Technology Advisory Committee (TAC), comprising

Senior Executives from IT and Information Security Department (InfoSec) functions of the Bank and external experts analyses the technical requirements whereas the Information Security Committee (ISC) looks into the entire gamut of the Information Security and comprises the CRO, CISO, CIO and other senior functionaries. ISC reports into the ITSCB which provides oversight of technology, information security, and cybersecurity risks as well as data management risk.

Your Bank, like other financial institutions, continues to be the target of various evolving and adaptive cyber-attacks, including malware, ransomware, phishing, and denial-of-service, as part of an effort to disrupt the operations of financial institutions, potentially test their cybersecurity capabilities, commit fraud, or obtain confidential, proprietary or other information. Cyberattacks have also focused on targeting online applications and services, such as online banking, as well as cloud-based and other products and services provided by third parties, and have targeted the infrastructure of the internet causing the widespread unavailability of websites and degrading website performance.

Your Bank has not experienced any material losses relating to these or other types of cyber-attacks. Cybersecurity risk is a priority for Bandhan Bank, and we continue to develop and enhance our controls, processes and systems in order to protect our networks, computers, software and data from attack, damage or unauthorised access. Your Bank is also proactively involved in industry cybersecurity efforts and working with other parties, including our third-party service providers and governmental agencies, to continue to enhance defences and improve resiliency to cybersecurity threats.

Your Bank has started its in-house Cyber Security Centre (C-SOC), which is further enhancing better analyses and control.

Outsourcing Risk

Your Bank has outsourced a good part of the IT activities to a third party. Additionally, some of the non-IT activities have been also outsourced to external vendors. Considering the risk involved in these outsourcing arrangements, the Bank has put in place a well-defined outsourcing policy. The Central Outsourcing Committee of the Bank is responsible to manage outsourcing risk during the onboarding of new vendors and perform regular reviews of existing vendors and outsourced activities. Your Bank has also defined indicators for Outsourcing Risk including risk in IT Outsourcing. The indicators are regularly tracked and reviewed by the Risk Department. Adverse findings are reported to concerned authorities.

Compliance risk (a type of operational risk) is the risk resulting from the failure to comply with laws (legislation, regulations and rules) and regulatory guidelines, and the failure to appropriately address associated impacts, including to customers. Compliance risk encompasses violations of applicable internal policies, programme requirements, procedures, and standards related to ethical principles applicable to the banking industry. Your Bank has an independent Compliance Department, headed by the Chief Compliance Officer (CCO) who oversees such compliances. A Compliance Committee, comprising the senior business and control executives and chaired by the MD & CEO has been put in place from the year under review.

Fraud Risk: A comprehensive approach to combat fraud has become a prerequisite and any organization that fails to protect itself appropriately, faces increased vulnerability to fraud.

Your Bank has framed an effective fraud risk management framework to establish a strong internal control framework to detect, investigate, report and identify frauds at the earliest. The framework follows P-D-R (Prevention, Detection and Response) model.

Your Bank has also put in place a Fraud Prevention and Monitoring Committee (FPMC) which deliberates on the alleged incidents referred to it by respective departments, as fraud or not and direct concerned departments for necessary actions. Fraud risk indicators at the Enterprise Level and Business level (as applicable) get defined and tracked and reviewed by RMCB on a regular basis.

Conduct risk, a sub-category of Operational risk, is the risk of inappropriate, unethical, or unlawful behaviour on the part of employees or individuals acting on behalf of the Bank, caused by deliberate or unintentional actions or business practices.

The RMCB reviews the conduct risk components as part of your Banks risk culture. Apart from the annual review of the status of the Risk culture as part of CROs Annual Risk Report; the RMCB during this financial year has started reviewing the status on a quarterly basis and has approved the Banks overall approach to the Risk Culture.

Considering the legal risk involved in various activities of the Bank the following risk framework is in place to address legal risk in the Bank;

• Legal risk parameters with the threshold at Enterprise and Business level (as applicable) has been defined and get tracked.

• Legal department is a permanent member of the change management framework.

• Trend analysis of legal cases (against the Bank and by the Bank), identifying emerging legal risk in the Bank, analysis of legal cases to identify the concern areas that get reported to the ORMC and RMCB on a regular basis.

Credit Risk

Your Bank defines credit risk as the risk of loss associated with a borrower or counterparty default (failure to meet obligations in accordance with agreed upon terms). Credit risk exists with many of our assets and exposures such as debt security holdings and loans. At the management level, the Credit Risk function, which is part of RMD, has oversight responsibility for credit risk. Credit Risk reports to the CRO and supports periodic reports related to Credit Risk to the Credit Risk Management Committee (CRMC) consisting of senior executives from Business and Risk and chaired by the MD & CEO and also to the RMCB.

Your Bank manages credit risk by establishing what it believes are sound credit policies for underwriting new business, while monitoring and reviewing the performance of our existing loan portfolios. Your Bank employs various credit risk management and monitoring activities to mitigate risks associated with multiple risk factors affecting loans including:

• Loan concentrations and related credit quality;

• Counterparty credit risk;

• Economic and market conditions;

• Legislative or regulatory mandates;

• Changes in interest rates.

Your Banks credit risk management oversight process is governed centrally, but provides for direct management and accountability by the lines of business. The overall credit process includes comprehensive credit policies, disciplined credit underwriting, frequent and detailed risk measurement and modelling, regular credit training programmes, and a continual loan review and audit process. A key to the credit risk management is adherence to a well-controlled underwriting process, suited to the business segment and size of the loan.

Asset/Liability Management involves evaluating, monitoring and managing interest rate risk, market risk, liquidity and funding. Primary oversight of all these risks resides with the RMCB, which oversees the administration and effectiveness of risk management policies and processes used to assess and manage these risks. At the management level, the Asset Liability Management Committee (ALCO), which consists of senior management from finance, risk and business groups, oversees these risks and reviews periodic reports provided to the RMCB. For market risk activities of the Trading Book, a separate management level oversight committee Market Risk Management Committee (MRMC) has been constituted this financial year with senior executives from Finance, Treasury and Risk departments.

Interest rate risk is created in the role of a financial intermediary for customers based on investments such as loans and other extensions of credit and debt securities. Interest rate risk can have a significant impact to our earnings. Your Bank is subject to interest rate risk because:

• Assets and liabilities may mature or reprice at different times. If assets reprice faster than liabilities and interest rates are generally rising, earnings will initially increase;

• Assets and liabilities may reprice at the same time but by different amounts;

• Short-term and long-term market interest rates may change by different amounts. For example, the shape of the yield curve may affect yield for new loans and funding costs differently;

• The remaining maturity for various assets or liabilities may shorten or lengthen as interest rates change; or

• Interest rates may have a direct or indirect effect on loan demand, collateral values, credit losses, mortgage origination volume, and other financial instruments.

The objective of effective liquidity management is to ensure that the Bank can meet customer loan requests, customer deposit maturities/withdrawals and other cash commitments efficiently under both normal operating conditions and under periods of Bank-specific and/or market stress. To achieve this objective, the Board establishes liquidity guidelines that require sufficient asset- based liquidity to cover potential funding requirements and to avoid over-dependence on volatile, less reliable funding markets. These guidelines are monitored on a monthly basis by the ALCO and on a quarterly basis by the RMCB. Your Bank has always maintained a Liquidity Coverage Ratio (LCR), much above the minimum LCR requirement of 100 per cent., which is calculated as HQLA (High Quality Liquid Assets) divided by projected net cash outflows, as each is defined under the LCR rule.

Your Bank engages in trading activities to accommodate the investment and risk management activities of the customers and to execute economic hedging to manage certain balance sheet risks. Income earned on the financial instruments used in the trading activities include net interest income, changes in fair value and realized gains and losses.

Reputational Risk

Trust is the bedrock of any business relationship. As such, reputational risk has long been recognized as a key risk by business leaders and often tops the list of risks of most concern to the senior executives. In the wake of tremendous rise of social media, reputational risk has gained a new importance in the corporate world.

In your Bank, reputational risk is handled as mentioned in the External Communications Policy of the Bank. Your Bank uses a listening tool to monitor the brand mentions in the digital space. Through the PR agency, the Bank monitors media reports about the Bank. The branches reach out to the central office in case of any media queries in the branch.

Your Bank is fully aware of the importance of reputational risk, and has put reputation as one of the anchors (along with earning, capital and liquidity) for finalising its Risk appetite and from this financial year has included a Reputation Risk Dashboard as part of Enterprise Risk Dashboard which gets reviewed by the RMCB and the Board at quarterly intervals.

Strategic risk is the risk to Earnings, Capital, or Liquidity arising from adverse business decisions, improper implementation of strategic initiatives, or inadequate responses to changes in the external operating environment.

Your Banks strategic plan till 2020 focused mainly on defending core markets in microfinance, building a good liability franchise along with strong CASA ratios and building a customer base in adjacent segments in retail and SME assets. Post successfully traversing the path, the Bank has come up with a new 5-year Strategy Document (2020-25); which can help it to break into the next orbit.

Accordingly, the Board through the Risk Appetite Framework has put low tolerance towards any threats to the effective and efficient delivery of the Strategy plans.

Your Bank is monitoring the Strategic Risk by tracking the following parameters:

• Assumptions made by the Bank in forming its strategic plan and their alignment with the macro-economic environment

• Banks Strategy plans vis-a-vis achievements

Information Technology at the Bank

Information Technology has been a pivotal role player in the promising journey of the Bank. Few major initiatives are mentioned below:

• Integration of various applications through robust Middleware and API Gateway platform.

• Development of an Enterprise Data Lake as a Single Source of Truth for all Data elements. This application is being designed to house Internal, External, Structured, Unstructured and Semi-Structured Data.

• Modernisation of the Loan Origination Platform. Further, the Bank has implemented a new Tab Banking solution for its Micro Credit Business, as part of Financial Inclusion.

• Bank has set up its own Data Center (DC) and Disaster Recovery (DR) Center with state-of-the-art technology and has started migrating the Applications to the new DC & DR.

Material Changes and Commitment Affecting Financial Position of the Bank

There were no material changes and commitments, affecting the financial position of the Bank, which has occurred between the end of the financial year of the Bank i.e. March 31, 2021 and the date of this Boards Report.

Directors Responsibility Statement

Pursuant to the provisions of Section 134(3)(c) read with Section 134(5) of the Companies Act, the Directors hereby confirm that:

i. In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii. They have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the Banks state of affairs as on March 31, 2021, and of its profit for the financial year ended on that date;

iii. They have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities;

iv. They have prepared the annual accounts on a going concern basis;

v. They have laid down internal financial controls to be followed by the Bank and that such internal financial controls were adequate and were operating effectively; and

vi. They have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgements and Appreciations

The Board of Directors of your Bank extends its gratitude for the invaluable support and guidance received from the Reserve Bank of India, other government and regulatory authorities, and financial institutions. The Board also thanks the correspondent banks for their cooperation and help. The Board acknowledges the support of its shareholders, and also places on record its sincere thanks to its valued clients and customers for their patronage.

The Board also expresses its deep sense of appreciation to all the employees for displaying their strong work ethics, excellence at work, professionalism, teamwork, commitment and initiative, which has led to the Bank making commendable progress in todays challenging environment. Further, the Board extends its special thanks for the unmatched efforts put in by the employees of the Bank, during these testing times caused due to the COVID-19 pandemic, to provide uninterrupted services to the customers and is deeply grateful and have immense respect for everyone who risked their life and safety to fight this pandemic, and deeply regret the loss of life. Your Board will continue to strive for improvements as your Bank continues on its unique journey towards financial inclusion.

For and on behalf of the Board of Directors
Bandhan Bank Limited
Anup Kumar Sinha
Place: Kolkata Non-Executive (Independent) Chairman
Date: June 25, 2021 (DIN: 08249893)