city union bank ltd share price Management discussions


ECONOMIC SCENARIO Global

In the beginning of the year 2023 the Global economic activity remained subdued amidst turmoil in the banking system in some advanced economies, tight financial conditions and lingering geopolitical hostilities, supply chain disruptions and inflation in food, energy and commodities. The Central Banks across the globe remained cautious and continued to withdraw their accommodative stance in a calibrated manner which led to tight liquidity conditions across world markets accompanied by an increase in interest rates. The Financial Year FY 2023 towards the end was badly affected by the Global Banking crisis such as the collapse of Silicon Valley Bank ("SVB") and Signature Bank in US and Credit Suisse of Switzerland which was caused by a rapidly rising interest rates, high levels of uninsured deposits and regulatory rollbacks in the US and elsewhere and the negative impact of the prolonged Russia Ukraine war. These macroeconomic and geopolitical factors had significant ramifications on global growth. Weakening external demand, spillovers from the banking crisis in some Advanced Economies, volatile capital flows and debt distress in certain vulnerable economies weigh on growth prospects. Going forward, weak external demand, elevated debt levels and geo economic disintegration amidst tighter external financial conditions pose risks to growth prospects for several Emerging Market Economies ("EMEs") although capital flows in such economies are slowly returning on renewed risk appetite.

Indian

In India, the real GDP recorded a growth of 7.2 per cent in 2022-23 surpassing the previous estimate of 7.0 per cent primarily aided by fixed investment and higher net exports. On the supply side , the GVA (real gross value added) increased from 4.7 per cent in third quarter to 6.5 per cent in fourth quarter due to increase in manufacturing activity which has moved into expansion territory after two quarters of contraction. Fixed investment by manufacturing companies expanded in 2022-23, reversing the contraction seen in 2021-22.The contraction in merchandise imports towards the latter

half of 2022-23 outpaced that of merchandise exports resulting in a narrowing of the trade deficit. The headline CPI Inflation came down to 4.7 per cent in March 2023, the lowest since November 2021, primarily due to Monetary policy tightening and supply side measures. The easing of inflation was observed across food, fuel, and core categories (CPI excluding food and fuel).

For 2023-24 so far, domestic demand conditions remain supportive of growth on the back of improving household consumption and investment activity. Urban demand remains resilient with indicators such as passenger vehicle sales, domestic air passenger traffic and credit cards outstanding posing double digit expansion and rural demand is also on a revival path with an increase in two-wheeler and three-wheeler sales although tractor sales remained subdued. Growth in steel consumption, cement output and production and import of capital goods reflects buoyancy in investment activity. Higher rabi crop production backed by a normal monsoon should augment household consumption. Robust Government capital expenditure is also expected to nurture investment and manufacturing process. Taking all these factors into reckoning, the real GDP growth for 2023-24 is projected at 6.5 per cent with Q1: 2023-24 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent and Q4 at 5.7 per cent with the risks evenly balanced.

MONETARY POLICY AND INTEREST RATES

The Monetary Policy Committee ("MPC") of the Reserve Bank of India (RBI) noted that the pace of global economic activity is expected to decelerate in 2023 primarily due to elevated inflation, tight financial conditions and geopolitical tensions. However it is observed that the Indian economy and the financial sector stood strong and resilient amidst the uncertainty prevalent on the global horizon. Retrenchment in trade, technology and capital flows caused by geopolitical turmoil and economic fragmentation has further exacerbated the situation.

In these challenging times confronting the global order, the Reserve Bank of India (RBI) has continued to focus on preserving price and financial stability, and ensuring adequate flow of financial resources to all the productive sectors of the economy.

Following measures were taken by the MPC at its meeting held on June 08, 2023 based on the assessment of the macroeconomic situation and the outlook.

• Policy rate kept unchanged at 6.50 per cent

• Bank rate and Marginal Standing Facility rate kept unchanged at 6.75 per cent

• Standing Deposit Facility rate kept at 6.25 per cent

The MPC decided to remain focused on gradual withdrawal of accommodation to ensure that inflation remains within the target going ahead and at the same time supporting and augmenting growth.

NOTABLE UPDATES IN BANKING INDUSTRY

The RBI through its Statement on Developmental and Regulatory Policies initiated various measures. The notable among them are as follows:

• Introduction of Securities Lending and Borrowing in Government Securities thereby providing investors an avenue to deploy idle securities and enhance portfolio returns ensuring wider participation.

• Unified Payments Interface (UPI), an ubiquitous payment instrument for real electronic payments in India has been made available to all Inbound Travelers and non - resident Indians who have international mobile numbers linked to their NRE / NRO accounts for their merchant payments (P2M) while in India. To begin with, the facility has been offered for travelers from G-20 countries at select international airports.

• Unified Payments Interface has transformed retail payments in India. Recently even RuPay credit cards were permitted to be linked to UPI in addition to linkage of UPI with deposit accounts. The scope of UPI has been further expanded by permitting operation of pre-sanctioned credit lines at banks.

• QR Code based Coin Vending machine (QCVM) a pilot project has been initiated by RBI to improve distribution of coins among members of the public in collaboration with a few leading banks. The pilot project shall be rolled out at 19 locations in 12 cities across India at public places such as railway stations, malls, markets etc., to enhance ease and accessibility.

• PRAVAAH (Platform for Regulatory Application, Validation and Authorization) has been initiated by

City Union Bank Limited

RBI for Enhancing Efficiency and Regulatory processes and to reduce cost of compliance for all regulatory approvals.

• Bharat Bill Payment System (BBPS) an interoperable platform operated by NPCI Bharat Bill Pay Ltd., has been facilitating the bill payment needs of consumers and billers alike. Its scope has been expanded to include all categories of payments and collections, both recurring and non-recurring in nature, making it accessible to wider set of individuals and businesses.

• A centralized common Web Portal would be developed to enable the depositors to search for Unclaimed Deposits of multiple banks. This will enable the depositors to locate such deposits at ease.

• Credit Information Companies (CICs) has been included within the purview of Reserve Bank Integrated Ombudsman Scheme (RBI-IOS), wherein compensation mechanism for delayed updation /rectification of credit information reports has been provided for along with disclosures on customer complaints received by CICs.

• RBI had issued Master Direction on Acquisition and Holding of Shares/Voting Rights in Banking Companies on January 16, 2023.

• Framework for acceptance of Green Deposits was launched by RBI to develop a green finance ecosystem in India, as Climate change has been recognized as the most important challenge confronting the Global economy in 21st century.

• In pursuance of Clean Note Policy, the RBI on May 19, 2023 decided to withdraw 2,000/- denomination bank notes from circulation.

YOUR BANKS PERFORMANCE

The negative impact of the prolonged Russia Ukraine war continued throughout the Financial Year FY 2022-23 and the last quarter was further badly affected by the Global Banking crisis such as the collapse of Silicon Valley Bank (SVB) and Signature Bank which was caused by a rapidly rising interest rates, high levels of uninsured deposits and regulatory rollbacks in the US. Amidst this, your Bank followed a cautious approach and recorded a reasonable growth rate during the year. Despite the various challenges, your Bank was able to post 8% growth in its

City Union Bank Limited

total business with Deposits growing by 10% to 52,398 crore and Advances growing by 7% to 43,971 crore. The total business of the Bank as on March 31, 2023 stood at 96,369 crore.

Financial Performance

The performance of the Bank during the financial year ended March 31, 2023 remained stable with the Total Income of the Bank at 5,524.70 crore as compared to 4,863.86 crore last year recording a growth of 14%. The Net Interest Income stood at 2,162.80 crore as compared to 1,916.49 crore during the previous year recording a growth of 13%.

As on March 31, 2023, the Deposits of the Bank increased to 52,397.86 crores as compared to 47,689.67 crores as at March 31,2022 registering a growth of 10%. The total CASA deposits stood at 15,656.89 crores against 15,529.36 crores last year recording a marginal growth of 1%. The proportion of CASA to total deposits was at 30% as on March 31, 2023. The cost of deposits marginally decreased to 4.66% in FY 2023 against 4.68% for FY 2022.

The Gross Advances of the Bank increased by 2,814.79 crores to 43,970.80 crores from 41,156.01 crores, posting a growth of 7% in FY 2022-23. The Net Interest Margin (NIM) of the Bank stood at 3.89% for the year ended March 31, 2023 as against 3.98% in the previous year. The yield on advances declined to 9.23% from 9.36% during the financial year. Other income earned for the financial year ended March 31, 2023 has improved to

810.36 crore from 759.08 crore last year registering a growth of 7% mainly on account of recovery from Technical Write off accounts.

The investment of the bank rose to 14,360.18 crores in FY 2023 as against 12,294.26 crores in FY 2022 recording a growth of 17%. During FY 2023, operating expenses increased by 7% to 1,155.18 crores from 1,080.26 crores in FY 2022. The other operating expenses increased from 576.66 crores to 624.81 crores. The cost to Income ratio decreased to 38.85% for the year ended March 31, 2023 as against 40.37% in the previous year ended March 31, 2022. The staff expenses increased from 503.60 crore last year to 530.37 crore in FY 2023.

The Bank has recorded a growth of 14% in Operating Profit from 1,595.31 crores in FY 2021-22 to 1,817.98 crores in FY 2022-23. The operating profit to NII constitutes 84.06%. The total provisions for FY 2023 stood at 880.50 crore against 835.15 crore in FY 2022. Tax provision increased to 240 crores in FY 2023 as against 225 crores last year. The provision for NPA increased to 690.00 crore in FY 2023 as against 553.50 crore in FY 2022. The Bank recorded a Net Profit of 937.48 crores as on March 31, 2023 as against 760.16 crore in March 31, 2022 registering a growth of 23%.

Return on Assets of the Bank for the FY 2023 stands at 1.46% as against 1.35% last year and Return on Equity was at 13.42% for FY 2023 as against 12.31% for FY 2022. The basic earnings per share stood at 12.67 per share as compared to 10.29 per share last year.

Operational Performance

The incremental growth in the operational performance of the Bank and certain key percentages are as follows:

Particulars

FY 2023

FY 2022

Deposits ( in cr)

4708.19

3,152.31

Gross advances ( in cr)

2814.79

4,135.46

Net Interest Income ( in cr)

246.31

86.83

Number of Branches (in Nos.)

25

25

Cost of Deposits (%)

4.66%

4.68%

Yield on Advances (%)

9.23%

9.36%

Total Yield on Investments (%)

5.89%

5.71%

Segmentwise Performance

A. Deposits of the Bank comprise of the following :

FY 2022-23

FY 2021-22

Sl. No.

Particulars

Amount ( in crore)

Percentage to total (%)

Amount ( in crore)

Percentage to total (%)

1.

Demand Deposit

4,763.70

9.09

4,619.26

9.69

2.

Savings Deposit

10,893.19

20.79

10,910.10

22.88

3.

Term Deposit

36,740.97

70.12

32,160.31

67.43

Total

52,397.86

100.00

47,689.67

100.00

B. Investments of the Bank consist of the following :

Sl. No.

Particulars

Amount ( in crore)

Percentage to total (%)

Investments in India

1.

Government Securities

14,267.83

99.35

2.

Other Approved Securities

NIL

NIL

3.

Shares, Debentures / Bonds and Mutual funds

90.75

0.63

4.

Security Receipts

1.38

0.01

Investments outside India

14,359.96

99.99

5.

Investments in Equity Shares of SWIFT (Investment outside India)

0.22

0.01

Total Investments

14,360.18

100.00

The total investments stood at 14,360.18 crores as at March 31st , 2023 against 12,294.26 crores as at March 31st , 2022.

C. Performance of various Business Segments

The Bank operates under four Business Segments namely Treasury, Corporate / Wholesale Banking, Retail Banking, and Other Banking Operations.

The segment wise contributions are as under :

Segments

Total Revenue

FY 2023

( in crore)

FY 2022

Gross Profit ( in crore)

Percentage to total (%)

Treasury

1,033.87

892.54

574.61

31.61

Corporate Banking

964.06

1,013.96

298.97

16.45

Retail Banking

3,470.48

2,917.35

895.07

49.23

Other Banking Operations

56.29

40.01

49.33

2.71

Total

5,524.70

4,863.86

1817.98

100.00

ASSET QUALITY AND LOAN COMPOSITION

A. Asset Quality

The Gross NPA as at March 31, 2023 decreased to 1,920 crore as against 1,933 crores in FY 2022. The percentage of Gross NPA has decreased from 4.70% in 2022 to 4.37% in FY 2023. The Net NPA decreased to 1,018 (2.36%) crore in FY 2023 as against 1,191 crore (2.95%) in FY 2022. The Provision coverage was 69% as at March 31, 2023 (Previous year 64%).

Priority Sector Advances increased to 28,029.47 crores as on March 31, 2023 as compared to previous year amount of 25,484.08 crores. The total agricultural advances increased to 8,540.97 crores as on March 31, 2023 against 7,500.41 crores as on March 31, 2022. During the year the bank had achieved

all its targets / sub-targets as specified by RBI on Priority Sector Lending.

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 regarding advances. As aforesaid, the Bank improved its Gross Advances to 43,970.80 crores as at March 31, 2023 of which 11,272.70 crores were directed to major industries and 32,698.10 crores to other sectors. There has been a greater emphasis on Advances to MSME Sector by RBI & Government of India. As of March 31, 2023 our total credit to MSMEs amounts to 18,854.03 crores which constitute around 43% of Total Advances.

ANNUAL

— REPORT

2022 - 23

City Union Bank Limited

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

Industry Name

Amount ( in cr.)

% to Total Advances

31st March, 2023

31st March, 2022

31st March, 2023

31st March, 2022

Major Industries

11,272.70

9,818.48

26%

24%

Textile

4,649.24

4,205.64

11%

10%

Metal

1,968.27

1,698.06

4%

4%

Paper & Paper Products

662.95

585.76

2%

2%

Food Processing

620.65

472.43

1%

1%

Chemicals

498.37

433.44

1%

1%

Rubber & Plastics

410.26

395.35

1%

1%

Engineering

734.87

605.07

2%

2%

Automobiles

170.31

192.18

0%

0%

Other Industries

1,557.78

1,230.55

4%

3%

All other Advances

(Agri., Trade Service, Gold Loan etc.)

32,698.10

31,337.53

74%

76%

TOTAL

43,970.80

41,156.01

100%

100%

Figures of the previous period have been regrouped/ reclassified wherever considered necessary.

Sectoral Deployment

Sector

Amount ( in cr.)

% to Total Advances

31st March, 2023

31st March, 2022

31st March, 2023

31st March, 2022

Agriculture

8,540.97

7,300.41

19%

18%

MSME

18,854.03

17,305.91

43%

42%

Large Industries

668.70

656.33

2%

2%

Retail Traders

794.12

830.58

2%

2%

Wholesale Traders

1,569.42

2,856.97

4%

7%

Commercial Real Estate

3,091.29

3,035.50

7%

7%

JL Non Agriculture

4,027.72

3,174.96

9%

8%

Housing Loans

2,071.39

1,998.67

5%

5%

Personal Loan

947.34

934.49

2%

2%

Loans Collateralized by deposits

659.40

687.07

1%

1%

Infrastructure

319.75

348.41

1%

1%

NBFC

488.89

417.98

1%

1%

Others

1,937.78

1,608.73

4%

4%

TOTAL

43,970.80

41,156.01

100%

100%

Figures of the previous period have been regrouped/ reclassified wherever considered necessary.

OPPORTUNITIES AND THREATS

The Retail Banking space has generated tough competition to capture new business due to plethora of banks vying for the same business space. The banking entities have to be constantly on an innovative path not only to capture new market share but even to retain its existing clientele. Unlike the past, the new generation customers do not patronize any particular bank and are quick to switch over their banking needs to a new bank which offer better rates or services tailor made to suit their individual requirements. The presence of various Small Finance Banks catering to niche segments have intensified the competition in Retail Banking space over the last few years especially with the RBI policy on "On Tap" licensing of Small Finance Banks. In addition Urban Co-operative Banks (UCBs) have been permitted to extend doorstep banking services to their customers on par with scheduled commercial banks. All these leads to lot of competition in the retail banking space demanding better customer service.

The presence of innumerable Co-operative Banks and NBFCs (Non-Banking Finance Companies) has been giving tough competition to Commercial banks. Regional Co-Operative Bank with their rural connect have been successful in garnering huge deposit base, especially by offering tailor made products catering to the rural profile.

Presently our bank has a network of 752 branches of which 669 branches are in Southern States which constitutes around 89% of the total branch network and 83 branches in other states. It has 519 branches in the State of Tamil Nadu constituting about 69% of its total branch network. The bank has also enlarged its presence in the Northern states in recent times. Further, considering the need to achieve a broader Pan India presence, the Bank is exploring avenues to expand its operations beyond southern states to seize potential opportunities elsewhere.

AUTOMATION

Banking service now-a-days has moved from branch banking to palm of customer to do banking based on their convenience and comfort. The advent of digital payment due to advancement of information technology, availability of easy access of network through mobile banking has encouraged more cashless transactions. Thus digital banking becomes the order of the day. The concept of Digital Banking which has gained prominence in recent

City Union Bank Limited

years has been at the forefront in the banks growth. In order to meet the Digital challenges and enhance customer service, our bank has launched various digital initiatives such as Wearable Keychain and CUBFit Watch, All in one mobile App., Setting up of Neo-Bank as digital front line so as to enable our customer to open banking relationship, UPI Payment solution for feature phones - CUB UPI 123PAY. Customers of any bank can now do UPI transactions using feature phone / smart phone through CUB BHIM Voice IVR. The feature phone solution is expected to help in offering payment services to the unserved and underserved segment of the population.

During the financial year 2022-23, your Bank also tied up with M/s. 42 Card Solutions Pvt. Ltd., to issue CUB brand credit card Dhiand your Bank is expanding the credit card network to our customers also in a big way. Your Bank developed a new functionality Voice-Biometric in retail mobile banking for login to have new unique customer experience. Currently customers can log in to banks retail mobile banking application via MPIN or Fingerprint / Face ID apart from the Voice Biometric. Your Bank has provided Digital Signature Certificate (DSC) Hard token and Soft token for our corporate customers for transaction approval. Similarly for retail customers also DSC Soft token is introduced for transaction approval. This will facilitate seamless process approvals and avoid delay due to SMS delivery and can be used even in locations outside India where SMS may not reach.

As a general rule, any technology always contains inherent risks and banking transactions through digital channels are no exception. New types of cyber frauds are emerging with the introduction of new digital channels. As the Bankers are the custodians of Depositors money, your bank takes utmost care to ensure necessary security measures to protect public interest and necessary mitigation measures are implemented.

RISK MANAGEMENT

The Bank is exposed to a variety of risks in the normal course of business, mainly, Credit Risk, Market Risk and Operational Risk. The main objective of risk management department is to strike a proper balance between risk and return. The department operates within the Board approved Risk Policy, which is communicated to all the departments. The identification, measurement, monitoring and management of risks remain the main

CUB

ANNUAL

— REPORT

2022 - 23

focus areas of our Bank. Business and revenues are to be weighed in the context of the risks implicit in the banks growth.

A. Framework

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 of Directors which assesses the Banks risk profile and key areas of risk in particular. 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 duly implemented. It guides the policies, procedures and systems for managing and controlling various types of risks.

The Bank has a Risk Management team headed by the Chief Risk Officer, who reports directly to MD & CEO/ Risk Management Committee of Directors (RMCD) of the Board. The overall risks faced by the Bank and the risk appetite are evaluated by the team which frames policies and procedures. Risk Management practices have been aligned with the industry practices and are adaptable to the dynamic operating environment and market conditions.

B. Compliance to Standards

Capital Adequacy: The Bank has implemented the BASEL III Capital Regulations from 1st April, 2013, by computing the Capital and Risk weighted Assets as per RBI guidelines dated 2nd May, 2012. The Bank presently has adopted Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk. Under the Basel III Capital Regulations, banks are required to maintain a minimum Pillar 1 Capital (Tier-1 + Tier-II) to Risk Weighted Assets Ratio (CRAR) of 9% on an on-going basis. Besides this minimum capital requirement, Basel III also provides for creation of capital conservation buffer (CCB) to be implemented in phases. The CCB requirement of 2.50% are to be fully implemented from 01.10.2021 as per RBI circular dated 05.02.2021 to the extent of 2.5% of RWA. The required CRAR is 11.50% (9% +2.50%). The Bank is well placed in complying with Basel III Capital

City Union Bank Limited

Regulation and has maintained a CRAR of 22.34% as on March 31 2023 which is more than the minimum 11.50% as prescribed by RBI. For more details on CRAR, shareholders may kindly refer to the "Capital Adequacy" para under the Directors Report.

The Bank has prepared "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 2024, 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 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.

The Basel III leverage ratio is defined as the capital measure (the numerator) divided by the exposure measure (the denominator), with this ratio expressed as a percentage. Previously, the indicative benchmark Leverage Ratio prescribed was 4.50% (minimum), which has been reduced to 3.50% (minimum) as per the RBI circular dated 28.06.2019. For the year ended March 31, 2023, Leverage Ratio of our Bank stood at 10.40%, well above the prescribed norm of 3.50%, 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 1st January, 2015. The LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they

CUB

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 17.04.2020). The LCR for the position as of 31.03.2023 is arrived at 259.54%.

The final guidelines on "Net Stable Funding Ratio (NSFR)" under the Basel III Framework on Liquidity Standards was issued by RBI on May17, 2018. The NFSR promotes resilience over a longer-term time horizon by requiring banks to fund their activities with more stable sources of funding on an ongoing basis. It is defined as the amount of available stable funding relative to the amount of required stable funding. The Bank is maintaining NSFR of above 100 %, which is the minimum requirement prescribed by RBI. The NSFR for the position as of 31.03.2023 is arrived at 165.61%.

C. Risk Management-Process

The overall risk of the Bank is being managed through three committee of executives viz.

1. Credit Risk Management Committee (CRMC)

2. Asset-Liability Committee (ALCO)

3. Operational Risk Management Committee (ORMC)

4. Risk Management Committee of Executives (RMCE)

The Bank has put in place the following policies / standards 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.

1. Credit Risk Management Policy

2. Asset and Liability Management Policy

3. Operational Risk Management Policy

4. Stress Testing Policy

5. Pillar 3 Disclosure Policy

6. Business Continuity Plan Policy

7. Internal Capital Adequacy Assessment Process (ICAAP) Policy

8. Credit Risk Mitigation and Collateral Management Policy

9. Integrated Risk Management Policy

10. Loan Policy (Including Recovery Policy, MSME Policy, etc.)

11. Integrated Treasury Policy

12. Policy on Unhedged Foreign Currency exposures corporates including SMEs

13. Market Risk Management Policy

14. New Product Assessment Policy

15. Risk & Control Self-Assessment standards (RCSA)

16. Pricing Policy

17. Risk Rating Framework

18. MCLR/EBLR Policy

19. Information Technology Risk Framework

20. Financing Framework for Green Deposits

21. Climate Risk Policy

These policies are subject to review on a periodical basis depending upon the guidelines / directions as given by RBI from time to time or whenever any situations warranting review.

On the advice of the four Committees as mentioned above and based on the above policy norms, the Bank is able to identify, predict, 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.

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 being duly factored into, under Pillar 2 risks while preparing the Internal Capital Adequacy Assessment Process (ICAAP) document on an annual basis.

In order to further familiarize the operational staff with the various risk aspects Bank has formulated RCSA (Risk Control Self Assessment) standards. In order to minimize the Operational Risk the Bank has been conducting RCSA on various areas. In the past, workshops followed by questionnaires have been conducted for following products highlighting the operational risks involved in these areas:

of

CUB

1. Loan Against Deposit(LAD)

2. Jewel Loans

3. Cash Management and

4. KYC/AML

The Bank has planned to conduct more such workshops in the coming years covering other products.

Summary - The bank has, over the years, fine-tuned its approach to detect and control risk. In general controls are exercised closest to the point of risk origination - each department owner, through study of periodic data and MIS, proactively discuss potential risks.

This, we believe, will help establish a sound risk culture that enables prudent risk taking.

INTERNAL CONTROL SYSTEMS

Our Bank has an exclusive Compliance Department headed by a Chief Compliance officer to ensure effective implementation and compliance of all the directives issued by various Regulators, its Board of Directors and its Own Internal Control Policy. Our Bank has always recognized the importance of good internal control mechanism which is pivotal to long term sustainability of any organization.

The Inspection Department ensures the adherences to the laid down systems and procedures of the Bank. Moreover there exists a system of periodical inspection of the branches, Credit Inspection, Jewel loan inspection and Concurrent audit. The system of regular KYC inspection is being carried out to ensure compliance of all KYC and AML Regulations. Periodic cash inspection is carried out at our Currency Chest to test the accuracy of chest transactions. Risk Based Internal Audit (RBIA) conducted at branches focuses on prioritizing the audit assignment and audit resources based on the level of control risks and inherent business risks. Management audit focuses on identifying the adequacy and effectiveness of processes adopted for decision making at various departments in Head office, Currency chests, Computer System Department, Business Development Centre, International Banking Division, Central Processing Centers (CPCs) etc. The Concurrent Audit serves as an early warning system to ensure detection of lapses, irregularities and as a tool to prevent frauds. The Information Systems Audit (ISA) focuses on the risks and assesses the adequacy of controls implemented for mitigating the risks.

City Union Bank Limited

The Audit Committee of the Board provides direction and reviews the adequacy of internal audit function, including its reporting structure, coverage and frequency of audits. Inspection and Audit is responsible for self-assessment of the banks internal financial controls, by testing and validating the effectiveness of controls on an on-going basis. The Inspection Department organizes incognito visit to certain large and prominent branches on a yearly basis to ensure effective functioning of the branches and also to ensure adherence of RBI guidelines like display of information to public, issue of coins etc. Inspection and Audit independently evaluates the adequacy, operational effectiveness and efficiency of all internal controls, risk management, governance systems and processes of our bank.

Thus 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. A good system of Internal controls ensures that all the regulatory guidelines are strictly adhered to by all the departments of the bank which hugely helps the growth process of the bank mitigating the operational risk.

HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS

Human Resource Development and Industrial atmosphere plays a prominent role in an organizations growth and your Bank has always maintained cordial relations among its employees at all times. As a part of HR strategy, the Bank offers its employees various monetary and non-monetary benefits based on their performance in the form of ESOP, Performance Linked Pay (PLP) & Ex- gratia and ensures that each employee feels part of the Bank and strives to deliver to the best of his/her abilities.

In line with the Banks expansion plans, 25 new branches were opened in various States for which the Human Resources Department provided adequate manpower. Specific efforts were made towards talent acquisition, skill development and manpower training. Employees are identified and imparted trainings at various areas of banking. Job rotation is being followed to ensure every employee gains experience in all the areas of banking.

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City Union Bank Limited

In tune with the future expansion, the bank is constantly upgrading and revisiting its manpower requirements through developing a talent pool. The members of the talent pool are being groomed by giving trainings at various centers of excellence in our staff college at Chennai and Kumbakonam apart from SIBSTC, NIBM, CAFRAL, IRDBT etc. It is pertinent to note here that there has not been even a single occasion of employee unrest in the Banking history of CUB. Continuous efforts are being made to enhance the quality of existing personnel and to attract new talent.

As on March 31, 2023, the Bank has 6,019 on-roll employees, comprising of 66 employees in Executive cadre, 2,444 in Management cadre and 3,509 in Clerical and Subordinate cadre. The bank has a policy on Prevention of Sexual Harassment at workplace, which provides protection for Women employees working in the organization. An internal compliance committee has been set up to redress the complaints received under Sexual Harassment. Further, there exists a separate menu in the Banks Intranet portal wherein all Women employees of the Bank can lodge their grievances under the POSH Act. In addition, a separate menu has been provided for all employees to report their genuine concerns under Whistle Blower / Vigil mechanism.

OUTLOOK

The uncertainty caused by the evolving global scenario is weighing heavily on the outlook of major economies across the globe. However Indian economy continues to exhibit a positive outlook amidst the global uncertainties. The real GDP growth of India is projected at 6.5% in 202324. The prolonged conflict in Europe and a failure of few major banks in US, poses a new and overwhelming challenge to the old world order.

The Reserve Bank of India through its Monetary Policy has been fortifying the macroeconomic fundamentals, making the Indian financial markets and institutions

sound and resilient thus mitigating the impact of the turbulence in the global economy. The banking sector in India has responded in equal measures to the demand for credit. The Macro-stress tests conducted by RBI for credit risk reveals that Indian Banks are well- capitalized and would be able to comply with the minimum capital requirements even under adverse circumstances. Credit growth has been broad based across all the sectors mainly retail credit which has augmented the credit growth. Agricultural credit gained momentum due to higher agricultural credit target fixed by the Government. Positive benefits from the effective implementation of the Emergency Credit Line Guarantee scheme (ECLGS) along with the Production-Linked Incentive Scheme supported by the government.

The RBI Governor in his meeting with the Directors on the Boards of Public and Private Sector Banks acknowledged the important role played by the banking sector in supporting the economy and maintaining resilience along with improved financial performance in the face of several adverse scenarios in the global order. He emphasized the role played by the Board in the governance functions and emphasized on the need to further strengthen governance and assurance functions in banks such as risk management, compliance and internal audit. The Governor also asked the banks to ensure continued financial and operational resilience.

Domestic financial markets have moved broadly in sync with the accommodative monetary policy stance and remain conducive to growth as credit off -take is gaining momentum. The Banking sector being the pillar of economy has to play a role of catalyst in the development of the Indian economy if India has to become a developed nation by 2047 in line with the Governments vision of "Amrut Kaal". The Banking Sector in India at this juncture is financially sound and healthy and it is the best time for the sector to improve the governance frameworks, assurance functions and strategize for better times ahead.