City Union Bank Ltd Management Discussions.

Economic Scenario:


Global economic growth for the year 2019, as per IMF registered 2.4% with 90% of advanced economies and 60% of emerging market economies experiencing varying degrees of deceleration last year. The United Nations, Department of Economic and Social affairs in its report dated September 01, 2019 had highlighted that Global Trade Conflict is a serious issue to global growth. The trade disputes heightened policy uncertainty, throughout the world for most of 2019. Trade tensions between USA & China, Delay in Brexit, Geo Political tensions (Iran and North Korea), social unrest (Syria, Venezuela, and Libya), oil market disruptions (Saudi Arabia) posed significant risk to all emerging market economies, including advanced economies of Europe. As the year 2019 drew to a close, Business and Stock markets ended on a positive note with gain in equities by almost 30% in USA and 18% in Japan. Overall year 2019, turned out to be not-so-bad year for markets since last decade and markets had no material risks to worry going into 2020, until the onset of COVID-19 pandemic.

During the last quarter of 2019-20, global economic activity exhibited symptoms of deceleration, due to the impact of the COVID-19 pandemic and the lockdown measures undertaken by the Central Governments of Advanced Western economies & Developing countries. The World Health Organization (WHO) declared the Novel Corona virus disease (COVID-19) a global pandemic, indicating significant and ongoing person-to-person spread in multiple countries, and its major threat to the global economy. Since March 2020, global economic activity has remained standstill under COVID-19 related lockdowns and social distancing norms. Among the key Advanced Economies (AEs), economic activity has contracted in the Euro area, Japan, Great Britain and United States of America in the first half of 2020. Among the Emerging Market Economies (EMEs), the Chinese economy went into a decline due to COVID-19, and the data on high frequency indicators also suggest that economic activities may have also shrunk in other Emerging Market Economies (EMEs) such as South Africa and Brazil. As per the forecast made by IMF (International Monetary Fund) on April 14, 2020, the global economy during the year 2020, is expected to plunge into the worst recession since the Great Depression of the 1930s and has termed it much worse than the Global Financial crisis. Further, according to World Bank report, the world economy as a whole is set to witness its deepest recession since World War II, with a forecasted contraction of 5.2% this year. It is expected that tight financial conditions would persist around the world for longer, resulting in job losses and insolvency of firms.

The global pandemic has significantly impacted the economic growth of major economies. Amidst this gloom, majority of the Central Banks and Governments around the world have taken significant measures using various economic tools viz., easing of monetary, liquidity and regulatory policies etc., to deal with COVID-19 pandemic. The International Monetary Fund (IMF) & World Bank are facilitating financial aid to member countries to respond the crisis.


The Indian economy performed well in the first half of FY2020 mainly due to various policy measures taken by the New Government at the Centre. Indias GDP (Gross Domestic Product) grew at 5.2% in Q1, 4.4% in Q2, 4.1% in Q3 & 3.1 in Q4, aggregating to a growth of 4.2% for the full year. The slowdown in last quarter has been due to decline in economic activity because of the countrywide lockdown due to COVID19. With the economy hit by pandemic towards the end, the GDP for FY2020 would be below the government target of 5%. The retail inflation touched a high of 7.59% in month of January 2020 and declined thereafter to close at 5.81%. Crude Oil remained volatile with geopolitical events, supply-demand mismatches and resurgence of trade barriers. The Brent crude oil hovered between $74 / barrel and $20 / barrel in the year. The Agriculture sector however proved to be a silver lining, necessitated by sowing of pulses, rice and oilseeds in the summer months. Agriculture and Allied activities were buoyed by increase in Kharif and horticulture production. Domestic Air Traffic, Passenger and Commercial vehicle sales, Domestic Tourism, Hospitality & Trade experienced sizeable contraction. There has been a decline in private domestic consumption due to contraction of manufacturing activities. As per RBI reports, it is difficult to assess the depth of the damage caused by the pandemic and estimate how long will it take to return to normal levels.

The Indian Banking Sector which experienced mounting NPAs in FY 2018-19 started showing signs of revival in the first half of FY 2019-20. FY 2019 also saw a steady flow of Foreign Direct Investment of which the banking and

financial sector received the highest share for the first three quarters of 2019-20. Public Sector Banks had also collectively posted net profits in the First Quarter of FY 2019-20 as against 2018-19. However the Banking sector as of now is facing a tough task due to COVID-19 pandemic. The banking sector is likely to witness a partial recovery, following the revival of economy and gradual easing of lockdown. Fiscal measures by the government and significant Monetary and Liquidity measures by RBI would go a long way in mitigating the adverse impact on domestic economy and help boost economic activity once normalcy is restored.


The Reserve Bank of India on the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting held on May 22, 2020 made the following changes

• Reduced the policy repo rate under the Liquidity Adjustment Facility (LAF) by 40 bps to 4.0 per cent from 4.40 per cent.

• Marginal Standing Facility (MSF) rate and the Bank Rate were reduced to 4.25 per cent from 4.65 per cent.

• Reverse repo ratio under Liquidity Adjustment Facility (LAF) was reduced to 3.35 per cent from 3.75 per cent.

The Monetary Policy Committee (MPC) also decided to continue with its accommodative stance as long as it is necessary to mitigate the impact of COVID-19 on the economy and revive growth, and at the same time ensuring that inflation remains within the target. According to the Governor RBI, the Monetary Policy Committee (MPC) is of the opinion that the macroeconomic impact of the pandemic is more severe and various sectors of the economy are experiencing acute stress. The impact of the shock has been exacerbated by the interaction of demand compression and supply disruptions. Apart from the economic activity, health and livelihood are also severely affected. The MPC is of the view that the easing of financial conditions would facilitate the flow of funds at affordable rates and would pave a long way in reviving the economy and mitigate the impact of COVID-19, while ensuring that inflation remains within the target. The policy stance to address the growth concerns needs to be used to support the economy, and at the same time ensuring sufficient headroom for revival of activity in the future.

Towards the closing of the Financial Year 2019-2020, as the world was engulfed with Corona Virus pandemic, RBI came out with various measures like targeted long-term repo operation (TLTRO), reduction in daily CRR maintenance limits, moratorium on loans etc., to keep the economy afloat. Cash Reserve Ratio was reduced to 3.00% from 4.00% w.e.f March 28, 2020. CRR Daily Minimum maintenance changed to 80 % from 90 % upto September 25, 2020.


Utilizing the favourable market scenario, the bank had booked profit to the tune of 159.60 crore as against 32.56 crore during the previous year. The Banks gross Investments increased by 1373 crore to 9236 crore as on March 31, 2020 from 7863 crore as on March 31, 2019 and out of this, the investments in Government Bonds alone amounted to 8939 crore.

The financial year turned favourable for the bond market with the Government Securities yields starting to fall from the high of 7.47% to 6.07% during the year. The first half of financial year saw yield falling with various positive factors like the continuation of government in centre, benign inflation etc. The yield also saw spikes due to increase in core inflation and concerns about fiscal deficit which was offset by RBIs Open market intervention. The budget also helped with various measures like equity infusion in PSU banks and announcement of sovereign bond issue. However, the continued worries on growth and fiscal position of government, led the yields to reverse the trend. The various fiscal measures like surcharge hike and cut in corporate tax kept the yield volatile. The second half of the FY 2019-20 saw introduction of a new 10 year benchmark with a lower coupon. The continued support from the regulator with policy rate cut, and slew of measures like Operation twist capped the yield rise. The outbreak of the COVID 19 pandemic towards the closing of the year led the Reserve bank of India to advance its policy decisions. To ensure sufficient liquidity in the system under the pandemic situation, in addition to rate cuts, the central bank reduced Cash reserve ratio to 3% from 4%, daily maintenance of CRR reduced to 80% and moratorium of 3 months provided on loans. The yield of the 10 year benchmark closed at 6.14% for the year.


During the financial year 2019-20, Indian Rupee weakened against USD by 9.4% and the major reason being US China trade war and Corona Virus outbreak.

Indian Rupee against USD opened at 69.15 and closed at 75.66. The large FPI outflows towards the second half of FY aggravated the situation. Compared to other currencies, Indian Rupee performed better with RBIs intervention. The low crude oil prices kept the rupee from weakening further. With a healthy foreign exchange reserves, the Indian Rupee remained at a comfort zone against USD. During FY 2019-20, profit on our foreign exchange operations stood at 84.62 crore as against 54.46 crore during the previous year.


"The RBI announced additional regulatory measures on March 27, 2020, April 17, 2020 and May 22, 2020, to ease financial stress. Some of key directions are as follows:

a) Granting of Three months moratorium on term loan installments which were further extended till August 31, 2020 vide RBI notification dated May 22, 2020.

b) Easing of working capital financing requirements by reducing margins/ reassessment of working capital cycle.

c) Deferment of interest by six months on Working Capital facilities.

d) Extension of timelines for resolution of stressed assets.

e) Asset classification standstill by excluding the moratorium period of 3 months by lending institutions.

f) Exemption from defaulter classification in supervisory reporting and reporting to credit information companies.

• RBI has permitted the lending institutions to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e., March 01, 2020 till August 31, 2020) into a funded interest term loan which shall be repaid by the close of the current year ending March 31, 2021.

• RBI has increased the period of realization and repatriation of export proceeds to India from nine months to 15 months from the date of export in respect of exports made up to or on July 31, 2020 to offer relief to exporters who have been facing extreme difficulties such as postponement of export orders and delay in realization of export proceeds.

• In the recently announced Budget Honble Finance Minister has allowed DICGC (Deposit Insurance and Credit Guarantee Corporation) to raise deposit insurance coverage to INR 5 lakh from INR 1 lakh. The premium has since been revised from 10 paise to 12 paise per 100, per year for the premium payable covering 1st half of FY 2021.

• COVID-19 has created immense difficulties in raising resources from the capital market. RBI has therefore increased the Group exposure limit of banks from 25 per cent to 30 per cent of eligible capital base, for enabling corporate sector to meet its funding requirement from banks. The increased limit will be applicable up to June 30, 2021.

• In the wake of COVID 19 pandemic, the RBI, directed all Banks to conserve their capital at times of prevailing uncertainty and prevented all banks from making any dividend payments for FY 2019-2020, which shall be reviewed by RBI based on the financial position of banks as on September 30, 2020.

• RBI announced the creation of Payments and Infrastructure Development Fund (PIDF) on June 05, 2020 to encourage acquirers to deploy Points of Sale (POS) infrastructure, both in digital and physical mode in tier-3 to tier 6 centers and in North Eastern States. RBI would make an initial contribution of Rs.250 crores to the fund and the balance would be from the card issuing banks. As the payments ecosystem in the country developed with a wide array of options such as bank accounts, mobile phones, card etc., it was decided to give it further impetus to the digitization of payments systems across the country. The PIDF will be governed by an Advisory Council and administered by RBI.

• The Honble Prime Minister of India announced a special economic package called the "Aatmanirbhar Bharat Abhiyan" (Self Reliant India campaign) on May 14, 2020 amounting to 20 lakh crore, which is almost equal to 10% of Indias GDP. The special package mainly targets MSMEs which were either saddled with stressed accounts or non - performing assets but functioning. The Aatmanirbhar Bharat package included the following important measures

1. Collateral free automatic loans for business - MSMEs.

2. Subordinate debt for stressed MSMEs.

3. Equity infusion through MSME Fund of Funds.

4. 4000 crore provided to CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises).

5. Reclassification of MSME sector based on Investment criteria dated June 01, 2020.

6. Liquidity injection for Discoms.

7. Special Refinance facilities to Nabard, SIDBI, NHB at the policy repo rate.

• The Finance Ministry has allocated 40,000 crore to MGNREGA (Mahatma Gandhi Rural Employment Guarantee Scheme) as a relief measure to migrant workers returning home due to COVID-19 pandemic.


Given the market conditions, your Bank recorded a moderate growth rate during the year. The credit growth remaining subdued during the year, the biggest challenge faced by the Banking system was dealing with stressed assets, restructured debts and NPA accounts. Despite these challenges, the Bank was able to post a 5% growth in its total business, with Deposits growing by 6% and Gross Advances growing by 5%. The total business of the Bank as on March 31, 2020 stood at 75,408 crore.

The Bank has made efficient use of technology to fulfill various banking needs of its customers. The Bank offers wide range of customer centric services in order to deepen the customer relationship and attain overall business growth. It is committed to the best practices in terms of product offerings, technology, service levels, risk management, audit and compliance. The Bank is committed to do so by ensuring the highest levels of compliance, ethical standards, professional integrity and Governance practices. The Bank understands and respects its fiduciary role and responsibility to all stakeholders and strives to meet their expectations. The cardinal principles of independence, accountability, responsibility, transparency, fair and timely disclosures serve as the basis of our approach to good corporate governance.

Financial Performance

The performance of the Bank during the financial year ended March 31, 2020 remained stable with a total income of 4,848.55 crore as compared to 4,281.55 crore during the previous year recording growth of 13% and Net Interest Income recorded a growth of 4% to 1,675.19 crore from 1,611.49 crore last year.

As on March 31, 2020, the Deposits of the Bank increased to 40,832.49 crore as compared to 38,447.95 crore as at March 31, 2019. Total CASA improved by 5% from 9,698.19 crore last year to 10,196.95 crore in FY 201920. The proportion of CASA to total deposits was at 25% as on March 31, 2020. The cost of deposits stands slightly increased to 6.20% for FY 2020 against 6.17% as at March 31, 2019.

The Gross Advances of the Bank increased by 1,510.92 crore to 34,576.17 crore from 33,065.25 crore, posting a growth of 5% coupled with a Net Interest Margin (NIM) of 3.98% for the year ended March 31, 2020. The yield on advances declined to 10.76% from 10.95% during the financial year due to transmission of policy rates and also stiff competition among banks. Other income earned for the financial year ended March 31, 2020 has improved significantly to 679.95 crore from 514.39 crore last year mainly on account of treasury income. The Return on Assets as on March 31, 2020 was 1% and for March 31, 2019, it was 1.64%.

As the credit growth was slightly sluggish during the year, the investment of the bank rose to 9,236.25 crore against 7,863.33 crore in FY 2019. The yield on 10 year benchmark closed at 6.14% in March 2020, amidst surging crude oil prices, CPI being higher than RBI target for several months. Despite positive triggers provided by Government of India, overall negative sentiments weighed on markets. Through the timely sale of securities, the Bank had booked a profit to the tune of 159.60 crore as against 32.56 crore during the previous year.

During FY 2020, operating expenses increased by 14% to 1,013.74 crore from 885.89 crore in FY 2019. The staff expenses increased from 364.44 crore last year to 420.65 crore in FY 20. During the year, the Bank had opened 50 new branches and increased the number of ATMs to 1,793 which resulted in higher infrastructure and staffing expenses. The other operating expenses increased from 521.45 crore to 593.09 crore which was due to normal increase in expenses like rent, telephones and repairs & maintenance etc. The Cost to Income ratio was at 43.04% for the year ended March 31, 2020 as against 41.67% in the previous year.

Thus, the Bank has recorded a growth of 8% in Operating Profit from 1,239.99 crore in FY 2018-19 to 1,341.40 crore in FY 2019-20. The operating profit to NII constitutes 80%. The total provisions for FY20

increased to 865.08 crore from 557.14 crore in FY19. Tax provision decreased to 110 crore in FY 20 as against 242 crore last year on account of reduction in tax rate. The provision for NPA had increased to 631 crore in FY 2020 against 270 crore in FY 2019 on account of increase in slippages. The Bank had also made COVID provision to the tune of 102 crore over and above the regulatory requirement.

The Bank recorded a Net Profit of 476.32 crore as on March 31, 2020.

Return on Assets of the Bank for the FY 2019-20 stands at 1% and Return on Equity was at 9.47. The basic earnings per share stood at 6.48 per share as compared to 9.57 per share last year. The book value per share of the Bank increased from 65.91 to 71.83 as on March 31, 2020 as compared to previous year.

Operational Performance

The incremental growth in the operational performance as well as certain key percentages is are as follows :

Particulars FY 2020 FY 2019
Deposits ( in cr) 2,384.54 5,595.33
Gross advances ( in cr) 1,510.92 4,826.67
Net Interest Income ( in cr) 63.70 181.19
Number of Branches (in Nos.) 50 50
Staff productivity ( in cr) 13.13 12.96
Cost of Deposits (%) 6.20% 6.17%
Yield on Advances (%) 10.76% 10.95%
Total Yield on Investments (%) 8.44% 7.36%

Segmentwise Performance

A. Deposits of the Bank comprise of the following :

Sl. No. Particulars Amount ( in crore) Percentage to total (%)
1. Demand Deposit 2,924.40 7.16
2. Savings Deposit 7,272.55 17.81
3. Term Deposit 30,635.54 75.03
Total 40,832.49 100.00

The total investments stood at 9,236.25 crore as at 31st March, 2020 as against 7,863.33 crore as at 31st March, 2019.

B. Investments of the Bank consist of the following :

Sl. No. Particulars Amount ( in crore) Percentage to total (%)
1. Government Securities 8,939.49 96.79
2. Other Approved Securities NIL NIL
3. Shares, Debentures / Bonds and Mutual funds 49.18 0.53
4. Security Receipts 247.36 2.68
Investments in India 9,236.03 100.00
5. Investments in Equity Shares of SWIFT (Investment outside India) 0.22 NIL
Total Investments 9,236.25 100.00

C. Performance of various Business Segments

The Bank operates under four Business Segments namely Treasury, Corporate / Wholesale Banking, Retail Banking, an< Other Banking Operations. The segment wise contributions are as under :

Segments Gross Profit ( in crore) Percentage to total (%)
Treasury 472.58 35.23
Corporate Banking 359.06 26.77
Retail Banking 492.68 36.73
Other Banking Operations 17.08 1.27
Total 1,341.40 100.00

During the year the total revenue generated from Treasury Operations amounted to 908.95 crore as against 663.93 crore in previous year. The increase in Treasury income could be attributed to the fact that the Indian Rupee performed better with RBIs intervention and our bank booked significant profit through timely sale of securities. The total revenue generated from Corporate /Wholesale Banking amounted to 1,327.97 crore as against 1,251.84 crore last year. The Retail Banking

segment generated revenues of 2,588.82 crore as against 2,344.84 crore last year. This can be attributed to a good performance in the domestic Banking space by our Bank due to growth in Deposits and Advances. Revenues generated from other Banking operations rose to 22.81 crore this year, compared to 20.95 crore last year. Thus all the segments showed an increasing trend in revenue generation for our Bank.


The Gross NPA as at March 31, 2020 increased to 1,413.40 crore (4.09%) as against 977.05 crore (2.95%) in FY 2019. The Net NPA stands increased to 778.49 crore (2.29%) in FY2020 as against 591.46 crore in FY 2019 (1.81%). The first 9 months recovery was 254 crore and in Q4, the Bank has recovered 46 crore only because of the lockdown. The Provision Coverage was 65% as at March 31, 2020 (Previous year 63%).

As per the Reserve Bank of India guidelines, banks are required to make a provision of 10% (5% in Q4 FY 20 and 5% in Q1 FY21) for accounts where the asset classification benefit was extended. Accordingly, as a prudent measure our bank has made a provision of 125 crore in the current quarter, which includes an adhoc Covid-19 provision of 102 crore over and above the RBI prescribed norms.

Priority Sector Advances stood at 17,506.89 crore as on March 31, 2020 as compared to previous year amount of 16,413.06 crore. The total agricultural advances stood at 5,463.85 crore as on March 31, 2020 as against 4,878.47 crore as on March 31, 2020. During the year the bank had achieved all its targets / sub-targets as specified by RBI.

B. Loan Composition

The Bank closely monitors the performance of various Industrial Sectors periodically, to assess the sector- wise potential risks for facilitating informed decision making w.r.t. advances. As aforesaid, the Bank improved its Gross Advances to 34,576.17 crore as at March 31, 2020 of which 8,149.57 crore were directed to major industries and 26,426.60 crore to other sectors.

A comparative position of Banks Industrial & Sectoral Deployment portfolio is set out here under.

Industry Name

Amount ( in cr.)

% to Total Advances

31st March, 2020 31st March, 2019 31st March, 2020 31st March, 2019
Major Industries 8,149.57 7,972.21 24 % 24%
Textile 3,719.36 3,503.08 11% 11%
Metal 1,660.10 1,621.42 5% 4%
Paper & Paper Products 710.38 706.60 2% 2%
Food Processing 87.98 194.07 0% 1%
Chemicals 355.85 303.85 1% 1%
Rubber & Plastics 423.45 385.34 1% 1%
Engineering 576.05 622.29 2% 2%
Beverage & Tobacco 38.37 43.11 - -
Automobiles 192.15 235.69 1% 1%
Other Industries 385.88 356.76 1% 1%
All other Advances
(Agri., Trade Service, Gold Loan etc.) 26,426.60 25,093.04 76% 76%
TOTAL 34,576.17 33,065.25 100% 100%

Sectoral Deployment


Amount ( in cr.)

% to Total Advances

31st March, 2020 31st March, 2019 31st March, 2020 31st March, 2019
Agriculture 5,463.85 4,878.49 16% 15%
MSME 10,753.12 10,280.96 31% 31%
Large Industries 2,138.67 2,218.80 6% 7%
Retail Traders 943.08 1,137.17 3% 3%
Wholesale Traders 4,806.78 4,588.37 13% 14%
Commercial Real Estate 2,770.03 1,954.80 8% 6%
JL Non Agriculture 713.06 350.64 2% 1%
Housing Loans 2,283.29 2,109.07 7% 6%
Other Personal Loan 1,017.67 1,317.72 3% 4%
Loans Collateralized by deposits 585.87 582.88 2% 2%
Infrastructure 372.99 353.39 1% 1%
NBFC 288.59 249.37 1% 1%
Others 2,439.17 3,043.59 7% 9%
TOTAL 34,576.17 33,065.25 100% 100%


City Union Bank is a prominent and major player in Southern states of India. There is an ample opportunity for the Bank in the years to come to enlarge its presence across the length & breadth of India and become a major player in the National Banking Space.

The opening up of the domestic Banking sector to numerous Fin Tech Companies, Large Technology Companies (Big Techs) have led to multiple players offering banking services posing a threat to traditional banks. Post Offices which have a large presence in India are offering Banking services through their Postal network in the form of India Postal Payments Bank. With their vast network and large customer base they have been able to cater to the Banking needs of unbanked segments at lower cost compared to Banks.

Emergence of Large Technology Companies (Big Techs) have also further dented the Retail Banking space. Building on the advantages of their data-network activities, they are venturing into payments, money management, insurance and lending activities. Given their size and reach, they have the potential to bring about

rapid transformation of the financial sector landscape. Using big data, Big Techs can assess the riskiness of borrowers, reducing the need for collateral, thereby providing basic financial services to the unbanked population.

Harnessing, the Banks technological prowess, our Bank has adopted numerous digital platforms to offer Banking services to its clientele, such as Mobile Banking, PoS (Point of Sale), Social Media Banking, CUB Fastag, CUB Digital Insta Loans, CUB-SBI Co-branded Credit Cards, CUB Easy, CUB Spend Analyser, CUB Prepaid Travel Card and Wealth Management services.

In enabling customers to do their banking operations from their home, which is very much required, in the current COVID context, our Bank has launched Video KYC account opening app. - Yet another technology based solution. General public can open a Savings account instantly in few minutes. All they need is their Aadhaar, a registered mobile number and their PAN to open an account. Indian Banking Sector is poised to move forward to a higher orbit, the bank has to constantly reinvent itself to remain relevant in the changed economic landscape by designing new products, and redesigning existing ones

with a customer focus in mind on improving its efficiency. There is enormous potential in the banking arena and the bank should seize those opportunities to achieve a high growth trajectory in the years to come.


The main objective of risk management of the Bank is to balance between risk and return. The Bank operates within the Board approved risk policy, which is communicated to each of the departments. The Bank is exposed to various types of risks, the most important of which being Credit Risk, Market Risk and Operational Risk. The identification, measurement, monitoring and management of risks remain a key focus area for the Bank. Sound risk management and balancing risk-reward tradeoff are critical to the Banks success. Business and revenue growth are therefore to be weighed in context of the risks implicit in the Banks business strategy.

The Bank has in place, a sound Risk Management Architecture, established by the active involvement and supervision of Board of Directors. The Board of the Bank has constituted a Risk Management Committee, which assesses the Banks risk profile and key areas of risk in particular. The responsibility of the Committee is to develop and implement a proper risk management framework and internal control system in the Bank. Also, it articulates the Banks policy for the oversight and management of business risks. Under the supervision of the Risk Management Committee of the Directors, the Risk Management Committee of Executives functions to ensure that the policy guidelines approved by the Board are implemented and adhered to. It guides the policies, procedures and systems for managing and controlling various types of risks. The Committee reviews the level of risks involved in the business, portfolio composition, risk appetite for all risks and also conducting various stress tests and scenario analysis for each type of risk associated with the business.

The Bank has a Risk Management team headed by the Chief Risk Officer ("CRO), who reports to the MD & CEO / Board of the Bank. The overall risks faced by the Bank and the risk appetite are evaluated by the team which frames policies and procedures, verifying the models that are used for pricing products, identifying new risks etc. Risk Management practices have been aligned with the best industry practices and are adaptable to the dynamic operating environment and market conditions.

The Bank is BASEL II compliant since March 31, 2009. The Bank has implemented the BASEL III Capital Regulations from April 01, 2013 by computing the Capital and Risk weighted Assets as per RBI guidelines dated May 02, 2012. The Bank presently adopts Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk. Necessary initiatives have been taken for moving over to advanced approaches under BASEL III as per the timelines indicated by RBI. The Risk Management Department of the Bank effectively functions to measure, monitor and control all risks paving way for effective Enterprise-wide Risk Management.

The RBI vide notification no.DOR.BP.BC.No.45/ 21.06.201/2019-20 dated 27th March, 2020, notified Basel III Capital Regulations - Review of transitional arrangements, as per which the implementation of last tranche of 0.625% of Capital Conservation Buffer was deferred to September 30, 2020. Accordingly, CRAR required to maintain for the period ended is 10.875%. The Bank maintained Tier I CRAR of 15.80% and total CRAR of 16.76% as at March 31, 2020 which are well above the norm prescribed by RBI.

The Bank has formulated "Internal Capital Adequacy Assessment Process" (ICAAP) document and implemented the same in line with the Basel III requirement commensurate with the Banks size, level of complexity, risk profile and scope of operations. The ICAAP document includes the capital adequacy assessment and projections of capital requirement for the next three financial years from FY 2020, along with the plans and strategies for meeting the same. The purpose of the document is to inform the Board and the Reserve Bank of India about the Banks internal capital adequacy assessment process and the Banks approach to capital and risk management. The document also endeavours to furnish detailed information on the Banks assessment of the holistic risks, how the Bank intends to identify, assess, monitor, manage and control those underlying risks besides maintaining adequate capital necessary for its current and future internal capital requirements. Thus ICAAP is an important component of Supervisory Review Process (SRP) under Pillar 2 of Basel III framework.

The overall risk of the Bank is being managed through three committees viz. Credit Risk Management Committee (CRMC), Asset-Liability Committee (ALCO) and Operational Risk Management Committee (ORMC).

On the advice of the said three committees and based on the said policy norms, the Bank is able to identify, measure, monitor, analyze, control and mitigate the risks at every stage, prescribe and monitor prudential limits and manage them to face the changing risk environment.

The Bank has put in place certain policies / standards as mentioned hereunder to manage various types of Risks apart from the overall Integrated Risk Management Policy to measure, monitor and control all the enterprise-wide risks and with the objective of integrating all the risks of the Bank.

Policy on Credit Risk Management, Asset and Liability Management, Operational Risk Management, Stress Testing, Pillar 3 Disclosure, Business Continuity Plan, Inspection and Audit, Internal Capital Adequacy Assessment Process (ICAAP), Credit Risk Mitigation and Collateral Management, Integrated Risk Management, Loan (Including Recovery Policy), Integrated Treasury, Unhedged Foreign Currency exposures of corporates including SMEs, Market Risk Management, New Product Assessment, Risk & Control Self-Assessment standards (RCSA), Pricing and MCLR.

The above policies are subject to review on a periodical basis as and when guidelines / directions are given by RBI from time to time or whenever any situation warrants review.

The Pillar 3 Disclosures under Basel III framework are reported in the Banks website on Quarterly basis and also in the Annual Report in the prescribed format as per the Disclosure Policy and RBI norm.

Stress tests and scenario analysis are conducted on a periodical basis to gauge the level of risk in the assumed crisis situation and remedial / preventive steps have been taken to mitigate risks in all areas. Further, the results of Stress tests are duly being factored into, under Pillar 2 risks while preparing the Internal Capital Adequacy Assessment Process (ICAAP) document on annual basis.

For the year ended March 31, 2020, the Banks are expected to maintain a "Leverage Ratio" in excess of 3.50% (from 30.06.2019) on a quarterly basis under Basel III framework prescribed by Reserve Bank of India. The Basel III Leverage Ratio framework aims to prevent Banks from having an overreliance on leverage. This ratio is meant to be a supplementary measure to risk based capital requirements. Leverage Ratio of our Bank stood at 9.88%, the computation of which is duly disclosed in

Templates DF17 and DF18 of Basel III - Pillar 3 disclosure as per the extant guidelines of RBI.

RBI has introduced Liquidity Coverage Ratio (LCR) under Basel III guidelines from January 1, 2015. The LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Assets (HQLAs), which are unencumbered and can be converted into cash to meet its liquidity needs for a 30-calendar day time horizon under a significantly severe liquidity stress scenario. The Bank has been maintaining the LCR above 100% (which was the minimum requirement prescribed by RBI before April 17, 2020). Due to the COVID-19 pandemic, the minimum requirement has been reduced to 80% from April 17, 2020, which will be up to September 30, 2020, after which it will be 90% up to March 31, 2021. From April 01, 2021, the minimum requirement will be restored to 100%.

We have formulated the Risk & Control Self-Assessment RCSA standards (RCSA) and the same has been duly approved by the Board. As laid down in the RCSA standards, a Workshop & Questionnaire session with respect to Operational Risk covering one of the products has already been conducted in the Staff College and the results placed to the Board. More such workshops have been planned to be conducted during FY 2020-21 on various identified risk areas.


The Bank recognizes the importance of good internal control mechanism which is pivotal to long term sustainability of any organization. A good system of Internal control ensures that all the internal regulations and regulatory guidelines are strictly adhered to by all the departments while achieving the goals of the Bank.

The Inspection department of the Bank ensures adherences to the laid down systems and procedures of the Bank. The Banks Inspection function undertakes internal audit to assess the business and control risk of all branches and has formulated a risk based internal audit plan as recommended by the RBI. The inspection function provides an independent assurance to its Board of Directors and Senior Management as to the effectiveness of its internal controls, risk management systems, governance systems & processes on an on-going basis to ensure that the audited units comply with both internal and regulatory guidelines. There exists a system of periodical inspection of the branches, Credit Inspection, Jewel loan inspection and Concurrent audit. The system of

regular KYC inspection has been introduced in all the branches ensuring compliance of all KYC and AML Regulations.

In line with the RBIs guideline on Audit, the Bank has adopted a Risk-Based approach of Internal Audit (RBIA). The primary focus of the audit is on key risk areas, which are of substantial importance to the Bank. The Bank has in place adequate internal control systems and procedures and has taken into consideration the essential components of Internal Control as stated in the guidance note on Audit of Internal Financial Controls over Financial Reporting issued by The Institute of Chartered Accountants of India.

Further, the Bank also subjects its operations to Concurrent Audit by audit firms to complement its internal audit function. The concurrent audit covers core activities such as credit portfolio, general computer controls, fraud risk management, financial markets, operations, policies and procedures. For each component, various check list / risk control matrix are prepared to identify those which have a material bearing. These controls are then tested for their operating effectiveness.

Our Bank is having an exclusive Compliance Department headed by a Chief Compliance officer ("CCO") to ensure effective implementation and compliance of all the directives issued by various Regulators, its Board of Directors and its own Internal Control Policy.


The Human Resource function of the Bank has been taking various efforts to direct the employees in successfully implementing the banks vision in attaining sustainable business growth. During the reporting year, the human resource department continued its focus on talent acquisition, skill development, motivation and reward, retention and employee management.

Foreseeing the future expansion plans of the Bank, the human resource function has been constantly working on the manpower requirements. The employees are being groomed by imparting trainings at various centers of excellence like IIM, SIBSTC, NIBM, CAFRAL, IDRBT etc. The employees are also given exposure in different areas of banking through job rotation. For more details please refer Directors Report.


Fiscal year 2019-20 posed a serious challenge to the Banking sector especially in Q4 in view of the COVID 19 pandemic which engulfed the globe. Global banks are in the process of addressing numerous issues, exposed by the global financial crisis, which have posed numerous challenges posed by the traditional banking system. Banks across the world have adopted innovative digital system to combat the increasing competition from nontraditional players, such as NBFC"s which are slowly and steadily encroaching the customer base of the banking system. Numerous Fin Tech companies have been formed, spanning the banking and financial space. They are offering their services in trade finance, insurance, account aggregation, wealth management, peer to peer lending & crowd funding. Many banks have also tied up with Fin Tech companies where mobile services interact with banking services.

Indian banking system is seeing a transformation never witnessed before with the emergence of numerous segments. The first segment consists of large Indian banks with domestic and international presence. The merger of various Public Sector Banks as envisaged by the Government will lead to emergence of large banks in terms of business matrix and customer size. The second segment is likely to comprise of several midsized banking institutions including niche banks with pan India presence. The third segment comprises smaller private sector banks, small finance banks, regional rural banks, and co-operative banks, which significantly caters to the credit requirements of small borrowers, in the unorganized sector in rural areas. The fourth segment consists of digital players who act as service providers directly to customers or through banks by acting as their agents or associates. Banks and non- banks are partnering to offer an amalgam of trust and innovation to the Indian customer, which has phenomenally expanded the digital payments segment. In the light of these developments , traditional banking is making way for next-generation banking with a primary emphasis on modernization and digitization, thereby obviating the need for conventional brick and mortar branches as technology has brought banking services to customers doorstep, or in other words it can be termed as banking at fingertips.

In consonance with the idea of strengthening regulation and supervision, RBI has been constantly on the move to improve the efficacy of its supervisory and regulatory

functions. It has also been focusing on strengthening offsite surveillance along with on-site supervision. A Sup- tech web-based interface is being implemented as a part of integrated compliance management and tracking system to ensure seamless collection of data.

One of the challenges for regulators and policy makers in India is to ensure that innovations in banking sector serves the customer by offering wide range of financial products at reduced cost. Banks have to make best use of technology and innovation to bring down intermediation costs, while at the same time ensuring their profits. Technology can also help the banks in fraud detection and

in identifying better ways of monitoring use of funds by the borrowers; trace suspicious transactions by use of large datasets such as Artificial Intelligence (AI), Machine learning (ML) and big data. Indian Banking sector will have to strive hard to remain relevant in the changing economic environment by reworking their business strategies, designing innovative products, customer focus and efficiency in customer service. There is abundant opportunity and banks should seize those to move forward to a higher growth trajectory not only in the banks own interests but also in the interest of all its stakeholders.