City Union Bank Ltd Directors Report.

The Board of Directors of your Bank is pleased to present the Annual Report on business and operations of the Bank together with the Audited Financial Statements for the Financial Year ended 31 March, 2019.

STATE OF AFFAIRS OF THE BANK

The Bank continued to grow during the reporting year having recorded a total business of र71,513 crore, an increase of 17% over the previous year figure of र61,092 crore in FY 2018. The Bank has shown commendable progress despite various challenges faced by the Banking Industry during the reporting year. The Bank has posted a 15% increase in net profit figure to record र683 crore as compared to र592 crore during FY 2018. The Net Interest Income of the Bank stood at र1,611.50 crore, a 13% increase over FY 2018 position and the Net Interest Margin of the Bank stood at 4.32%. The key performance indicators i.e., the Return on Assets of the Bank stood at 1.64%, Return on Equity at 15.25% and the Cost to Income ratio at 41.67%. The performance of the Bank depicts an overall healthy growth. The financial performance has been discussed in detail in the forthcoming paras.

During the year the Bank has opened 50 additional branches to total 650 branches and has 1,685 ATMs as at 31 March, 2019. In the digital front, the Bank continued to upgrade and strengthen its Information Technology framework to ensure smooth and secure customer friendly Banking. Also, measures are being undertaken to comply with the directions issued by the Reserve Bank of India with respect to strengthening of the Cyber Security and Information Technology framework of the Bank.

As on the date of this report there have been various changes in the composition of your Board. Shri. R. Mohan, Independent Director on the Board of the Bank assumed charge as Part-Time Non-Executive Chairman of the Bank w.e.f., 4 May, 2019 pursuant to approval accorded by RBI consequent upon the retirement of Shri. S. Mahalingam from the close of business hours of 3 May, 2019. Further, Prof. V. Kamakoti retired from the Board on 26 April, 2019. Shri. K. Vaidyanathan and Shri. T. K. Ramkumar have been co-opted by the Board of the Bank as Additional Directors w.e.f., 3 May, 2019 and 17 June, 2019 respectively to hold the office upto the ensuing Annual General Meeting. As on date the Board has a total strength of 10 Directors, all Independent except the Managing Director & CEO.

During the year, the Bank has taken all possible measures to improve the Asset quality position of the Bank. Your Bank had resorted to constant monitoring of advances to reduce slippages and speeded up its recovery process. During the year, the recovery stands improved to र248 crore as against र206 crore in FY 2018. However, the Net NPA stood at 1.81% as compared to 1.70% in FY 2018 on account of fresh additions in NPA list. Thus, on account of sustained efforts in the matter of recovery the Bank was able to keep the slippage fairly under control. Based on the Limited Review conducted by Reserve Bank of India for FY 2018, the Bank does not have the requirement of reporting any divergence as per RBI circular

No.RBI/2016-17/283/DBR.BP.BC.No.63/21.04.018/ 2016-17 dated 18 April, 2017.

Further informations on the State of Affairs of the Bank have been discussed in detail in the Management Discussion and Analysis Report forming part of this Annual Report.

Financial Highlights (र in crore)
Particulars 2018-19 2017-18 Growth (%)
Share Capital 73 66 11%
Reserves & Surplus 4,767 4,097 16%
Deposits 38,448 32,853 17%
Advances (Gross) 33,065 28,239 17%
Investments (Gross) 7,863 8,015 -ve
Total Assets / Liabilities 45,259 39,937 13%
Total Income 4,282 3,935 9%
Total Expenses 3,042 2,727 12%
Net Interest Income 1,611 1,430 13%
Operating Profit 1,240 1,208 3%
Provisions & Contingencies 557 616 -ve
Net Profit (A) 683 592 15%
Appropriations
Balance of Profit brought forward (B) 37 33
Amount available for appropriations (A+B) 720 625
Transfers to:
- Statutory Reserve 200 150
- Capital Reserve 6 29
- General Reserve 340 334
- Investment Reserve Account 31
- Special Reserve under IT Act, 1961 60 50
- Dividend & Dividend Tax* 26 24
- Balance of Profit carried forward 57 38
Total 720 625

*Dividend & Dividend Distribution Tax reported as per MCA notification on revised AS 4 dated 30 March, 2016.

The deposits and advances for the current year stood at र38,448 crore and र 33,065 crore respectively. The total business stood at र 71,513 crore as compared to र 61,092 crore for the previous year registering a growth of 17%.

The size of the Balance Sheet as on 31 March, 2019 is र45,259 crore as compared to the previous year position of र39,937 crore recording an increase of 13%.

During the year the Bank earned a Gross Profit of र1,240 crore registering an increase of 3% as compared to previous years figure of र1,208 crore.

The Net profit of the Bank for the current year was र 683 crore as against र592 crore for the previous year, registering a growth of 15%.

A total income of र 4,282 crore was earned by the Bank in FY 2019 as against र 3,935 crore in FY 2018 registering a growth of 9%. The total expenditure of the Bank increased by 12% to record र 3,042 crore as compared to previous year figure of र 2,727 crore.

NET INTEREST INCOME (र in Cr)

The Net Interest Income for the year under review increased by 13% from र1,430 crore to र1,611 crore. The non-interest income of the Bank decreased from र532 crore to र514 crore registering 3% decline on account of non availability of opportunity under treasury operations.

DEPOSITS

The Banks total deposits for the year under review increased by र5,595 crore from र32,853 crore to र38,448 crore registering a growth of 17% over previous year. During the current year CASA increased by र1,741 crore from र7,957 crore to र9,698 crore recording a growth of 22%. The cost of deposit of the Bank decreased from 6.29% to 6.17% in the reporting year.

DEPOSITS (र in Cr)

ADVANCES

The Gross Advances of the Bank increased by र4,826 crore to र33,065 crore from र28,239 crore, posting a growth of 17%. The yield on advances declined to 10.95% from 11.46% during the reporting year due to stiff competition among Banks.

The Gross and Net NPA for the year under review stood at 2.95% and 1.81% respectively as compared to 3.03% and 1.70% in the previous year.

The provision for tax for the reporting year increased to र242 crore from र198 crore in previous year. The provision for NPA stood at र270 crore vis-a-vis र303 crore last year. The total provision reduced by र59 crore to र557 crore from र616 crore. During the reporting year, your Bank has earned an income of र12.38 crore by way of sale of Priority Sector Lending Certificate.

TREASURY OPERATIONS

Domestic Treasury

The yield on 10 year benchmark touched a high of 8.20% and closed at 7.35% in March 2019 on account of various factors viz., surging crude oil prices, CPI being higher than RBI target for several months, rate hike by the Central Bank of Advanced economies, protective trade policies by the USA disrupting global trade ties, sanctions by US over Iran, pressure to reduce imports of Iranian Oil, depreciation in rupee to historical low level and stance of

Central Bank on inflation targets, however, yield came off its high on Reserve Bank of Indias announcement of series of OMO purchases, easing inflation pressure after the sharp fall in global crude oil prices, optimism over the policy decisions of RBI, sharp fall in US treasury yields and strengthening rupee on strong domestic data. Through the timely sale of securities, the Bank had booked profit to the tune of र32.56 crore despite unfavourable market conditions. It was र93.83 crore during the previous year.

Forex Treasury

During the financial year 2018-19, the movement of rupee was driven by the global events. USD / INR moved from र65.01 in April, 2018 to र69.18 in March, 2019. Domestic

currency sharply fell to record low level of र74.48 on the

concerns of possible spill over of economic crisis in Turkey, Venezuela and Argentina to other emerging markets. Further, uncertainty over Brexit negotiations weighed on global currencies. However, with sustained intervention by RBI and the softening of global crude oil prices the rupee regained its strength and closed at र69.18. The profit on exchange stood at र54.46 crore as against र74.35 crore during the previous year.

NET WORTH & CAPITAL ADEQUACY RATIO

Net Worth

The paid up share capital of the Bank increased from र66 crore as on 31 March, 2018 to र73 crore as on 31 March, 2019. During the reporting period the Bank has allotted 6,65,35,268 bonus equity shares and 32,36,341 equity shares to employees under Employee Stock Options pursuant to CUB ESOS Scheme 2008.

The Net worth of the Bank improved to र4,808.27 crore as on 31 March, 2019 from र4,149.34 crore as of 31 March, 2018.

Capital Adequacy Ratio:

CRAR BASEL II BASEL III
Minimum Prescribed CRAR 9.00% 10.875% (P.Y. 10.875%)*
CUB CRAR 15.76% (P.Y. 16.46%) 15.55% (P.Y. 16.22%)

*As per the concept of Capital Conservation Buffer (CCB) under BASEL III norms, the Bank is required to maintain CCB of 2.50% at the end of March 2019 in a phased manner beginning from 31st March, 2016 @ 0.625% in st each year up to 31 March, 2019. The Reserve Bank of India vide notification No. DBR.BP.BC.No.20/21.06.201/ 2018-19 dt. 10 January, 2019 notified Review of transitional arrangement under Basel III Capital

Regulations under which it has been decided to defer the implementation of the last tranche of 0.625% of Capital Conservation Buffer (CCB) from 31 March, 2019 to 31 March, 2020. Accordingly, minimum capital conservation ratios under Capital Conservation Buffer Framework will apply till the CCB attains the level of 2.5% on 31 March, 2020. The CCB as on 31 March, 2019 is 1.875%. As aforesaid the Bank is maintaining CRAR well above the prescribed minimum by RBI.

SHAREHOLDERS RETURN

DIVIDEND

The Board of Directors of your Bank are pleased to recommend a dividend of र0.50 per equity share of Face Value of र1/- each for the year ended 31 March, 2019 (previous year र0.30 per equity share) subject to the approval of the shareholders at the ensuing Annual General Meeting. The dividend is subject to Dividend Distribution tax to be paid by the Bank. The dividend payout is in accordance with the Banks Dividend Distribution Policy.

BONUS

The Board at its meeting held on 24 May, 2018 recommended the issue of Bonus shares subject to the approval of shareholders through Postal Ballot, in the proportion of 1 Bonus equity share of face value of र1 each for every 10 equity shares of face value of र1 each already held by the shareholders (i.e. 1:10) as on the Record Date i.e. 11 July, 2018.

Based on the report of the Scrutinizers on the voting process, the result of the voting was announced by the Chairman of the Bank on 3 July, 2018 passed with requisite majority. Accordingly 6,65,35,268 Bonus equity shares were issued and alloted to the shareholders.

Further as reported in the previous years Annual Report on the entitlement of dividend on the aforesaid Bonus equity shares, the Bank has duly paid the dividend on such shares.

BRANCH EXPANSION

During the financial year the Bank expanded its branch network by adding 50 more branches and 64 ATMs across the country totaling 650 branches and 1,685 ATMs as on 31 March, 2019. The Bank has a major presence in the State of Tamil Nadu and is spreading its presence in other states too by taping potential markets. Out of the additional branches opened during FY2019, the Bank had opened 40 Branches in Tamil Nadu inclusive of 11 Banking Outlets, 4 branches in Karnataka, 4 Branches in

Telangana, 1 Branch each in Gujarat and Maharashtra. As on date, 90% of the Banks total branches are operational in South, 5% in West, 4% in North and 1% in Eastern parts of India.

The branches opened during the year were as per the guidelines issued by the RBI on opening of Branches in unbanked and under banked regions.

FINANCIAL INCLUSION

Financial Inclusion is defined as "the process of ensuring easy access of financial services to the vulnerable groups such as weaker sections / low income groups in the society at an affordable cost". It is an attempt for achieving inclusive growth of the society by making availability of finance to the deprived sections.

The concept of financial inclusion is being successfully implemented in the Bank by expanding its presence in India, not only through brick and mortar model of branches but also through Business Correspondent (BC) outlets in unbanked rural areas in order to have better outreach to the needy groups. A new scheme, Prime Minister Jandhan Yojana (PMJDY) has been introduced replacing the Basic Savings Deposit Accounts (BSBD). Also insurance linked schemes such as Pradhan Mantri Jeevan Jyothi Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) have been successfully implemented by us besides the Atal Pension Yojana (APY) and made available to the rural underprivileged poor, easy access to financial services.

The BC outlets are established with the help of technology "e -lounge", which caters to the need of the rural poor by facilitating easy financial access. The Bank also facilitates Aadhaar Enabled Payment System (AePS) which helps to reach the rural people for easy cash acceptance, transfer and withdrawal system. The Bank has already established 21 of such BC outlets and planning to increase to 50 in the current financial year. The Bank not only facilitates opening of savings bank account but also extend overdrafts besides creating awareness on pension schemes / other welfare schemes.

With the help of the Reserve Bank of India the Bank conducts financial literacy campaigns to promote banking habits in the vulnerable groups. The Bank also conducts with the help of Banking Correspondents frequent campaigns on an ongoing basis to further scale up financial inclusion.

EMPLOYEES STOCK OPTION SCHEME (ESOS)

The Bank implemented an Employee Stock Option Scheme CUB ESOS 2008 for grant of stock options to eligible employees of the Bank. The Shareholders of the Bank approved the scheme on 26 April, 2008 at an Extra Ordinary General meeting of the Bank. The maximum aggregate number of options that may be granted under this scheme is 5,00,00,000. As per the scheme, exercise price of the options shall be decided by the Compensation & Remuneration Committee at the time of grant of stock options. The Bank offers ESOS to its employees which vests over a period of five years from the date of grant of options i.e., 15% options each for first three years and 25% and 30% for fourth and fifth year respectively. The shares are offered at prevailing market prices at the time of grant to the employees, however the same shall vary pursuant to corporate action viz., Rights Issue, Bonus Issue etc. There were no material changes in the ESOS of the Bank during the period under review and the same is in compliance with the provisions of SEBI (Share Based Employee Benefits) Regulations, 2014. The disclosures pursuant to Regulation 14 of the SEBI (Share Based Employee Benefits) Regulations, 2014 have been set out in the website of the Bank (weblink: https:// www.cityunionbank.com/investor) and also the same is annexed hereto as Annexure I. In addition, the shareholders of the Bank at its meeting held on 23 August, 2017 approved new CUB ESOS Scheme 2017 for 3,00,00,000 options on terms and conditions similar to previous one. No options have been granted to any employees of the Bank during the reporting year under this scheme.

HUMAN RESOURCE DEVELOPMENT

The human resource agenda of the Bank aims at employee empowerment and orienting them towards the realization of the Banks vision. As usual during the year, the HR took steps towards learning & skill development, performance appraisal, job rotation, fast track promotions at junior management levels, senior management promotions and congenial working environment.

Creation of a work force with a pool of best talent is a challenging task and so also the maintaining of working standards over a period of time. In tune with the future expansion plans your Bank is constantly upgrading and revisiting its manpower resources. In this endeavor the Bank has recruited people taking into account the business requirements. The new recruits were given orientation programme which not only aimed at imparting knowledge to them but also ensured their harmonious integration with the organization.

There exists a good training infrastructure which seeks to upgrade the operational efficiency (functional / behavioral skill levels) across all grades through a combination of both in house and external programmes. The Bank continued to depute its employees to various training institutions like SIBSTC, NIBM, CAB, CAFRAL, IDRBT etc. Further, considering the need to equip employees in Technology matters in the given Digital Banking scenario, the Bank has during the year imparted Cyber Security Training to identified employees.

There exists a cordial relationship between the management and the employees. It is pertinent to mention here that there has not even been a single occasion of employee unrest in the Banking history of CUB.

As on 31 March, 2019, the Bank has 5,518 on roll employees comprising of 53 employees in Executive cadre, 2,070 in Management cadre, 3,126 in Clerical cadre and 269 in Sub-ordinate Staff cadre.

AUTOMATION

Technology plays a vital role in managing and fulfilling the current demand and enhanced quality service to the customers. Changes are happening in the Banking technology and in Digital Payments systems quite frequently. Digital Payment system is a second wave of automation in Banking which encourages self service in Banking system paving way to a transformation of Banking with huge gains. With this, the technical level employees can focus on higher value projects for delivering next wave of productivity to bring about an improvement in customer experiences. The Bank is deploying all possible technology enabled & digital payment systems to cater the needs of the customers. The Bank, as on 31 March, 2019, has put 991 Cash Dispenser Machines, 694 Bulk Note Recycling Machines (BRM), 420 Passbook Kiosks and 395 Cheque Deposit Kiosks to encourage self service customer transactions. The Bank has also been spreading its Self Service Bank branches (e-Lounge) to cater customer needs and enabling our ATMs / BRMs for cardless deposit and withdrawals. The Bank has deployed CBS BaNCS for transaction processing system developed by M/s. Tata Consultancy Services, covering 100% of its business, which is being used by many major & peer Banks. As on 31 March, 2019 the Banking transcations through Alternate Channels constitute around 91.84%.

Some of the recent technological initiatives/ advancements are as follows:

• CUB e-Wallet, Unified Payment Interface (UPI), BHIM and *99# a NUUP (National Unified USSD Platform) by taking part in Bharat Bill Payment System (BBPS) and Bharat QR - Scan & Pay made available in BHIM/UPI.

• Instant account opening through Welcome Kit, Selfie Banking using eKYC, enabling DBT, Aadhaar Enabled Payment System (AEPS).

• chat-bot service, powered by Artificial Intelligence that interact with the customers via chat interface either auditory (Ask Lakshmi) or textual (Chat-Box in website and social media) to facilitate general customer queries on Banking.

• FASTag facility for making payments by vehicles in Toll Plazas electronically through rechargeable prepaid instruments.

• Generation of ATM PIN for ATM cards via Green PIN option at the Banks ATMs with the help of OTP on customers registered mobile.

• Customers can apply for Virtual Credit Card through Internet / Mobile Banking just by choosing their fixed deposit account.

• Customers are provided the facility to block their Net-Banking / Mobile Banking / UPI by sending SMS to 9281056789 in the prescribed format – BLOCK {LOGINID} from their registered mobile number.

• Customers can now set their own limit for the ATM, POS and Ecomm Channel transactions. They can disable a particular channel and can enable whenever required from Mobile and Net Banking.

• EMV CHIP card to all its customers to enhance additional security for card based transactions. Also, the Bank has started accepting EMV CHIP cards by reading CHIP and process in secured manner.

• The Bank has initiated process for PCI DSS certification. The Bank has also implemented TSS and Anti-Skimming mechanism in all our ATMs to facilitate secure customer transactions.

A customer friendly Captive Contact Centre (Call Centre) with Interactive Voice Response System (IVRS), is put in place to promote customer support on multi-languages 24x7 basis.

During the year, the Board of Directors of your Bank, considering the business potential to earn income from Insurance and Mutual Fund sectors, has approved a business plan on marketing and distribution of Health Insurance and Mutual Fund products to offer additional services to all its stakeholders. The Bank is in the process of making necessary tie-ups / agreements with the Insurance and Mutual Fund Companies mentioned hereunder for marketing and distribution of their products subject to necessary regulatory approvals.

• Star Health and Allied Insurance Co. Ltd., for distribution of Health Insurance products.

• Integrated Enterprises India Ltd., for distribution of Mutual Fund products through online platform to our customers in Demat form and through branch network.

• BSE Star Mutual Fund to offer Mutual Fund products through web based platform and through branch network.

• Finwizard Technology Pvt. Ltd. (widely known as FISDOM) to offer Mobile based Mutual Fund Investment solution.

AWARDS & ACCOLADES

• IBA Banking technology award for Best use of Data and Analytics for Business Outcome.

• Aadhaar Excellence Award by UIDAI.

SUBSIDIARIES AND ASSOCIATES

Your Bank does not have any Subsidiaries or Associates to

report during the year under report.

BOARD MEETINGS

All Board meetings of the Bank were held in accordance with the Companies Act, 2013, the Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI) and SEBI (Listing Obligations and Disclosure Requirments) Regulations, 2015. During the year fourteen (14) meetings were held, the details of which are given under report on Corporate Governance forming part of this report.

BOARD OF DIRECTORS & KEY MANAGERIAL PERSONNEL

Appointment(s) / Re- Appointment(s)

Shri. R. Mohan (DIN: 06902614)

Pursuant to the provisions of Section 35B and Section 10B (1A) of the Banking Regulation Act, 1949, Shri. R. Mohan, Independent Director, was appointed as Part-Time

Chairman of the Bank for a period of three (3) years w.e.f 4 May, 2019. The Reserve Bank of India approved his appointment vide its letter No. DBR.Appt.No.863 08.42.001/2018-19 dt. 10 April, 2019. Shri. R. Mohan, B.Sc., CAIIB, MBA aged 63 years joined the Bank in the year 1975 as probationer and worked his way up in his long career with the institution. Shri. Mohan has worked at all level of Banking operations at Operational, Executive and Supervisory levels. In the year 2006, he was elevated to the position of General Manager and thereafter in the year 2011 he was promoted as the Chief General Manager of the Bank to oversee the entire Banking operations. After his retirement in May 2014, the Board of the Bank considering his proven competency, loyal service and his managerial skills offered him a seat in the Board to have his expert guidance in the areas of Banking, Agriculture and SSI.

In the opinion of the Board Shri. R. Mohan is a Banking veteran who can effectively lead the Board of the Bank and take it to greater heights. The Board recommends his appointment as the Chairman of the Bank for approval by shareholders in the Notice calling this Annual General Meeting. The relevant details of Shri. R. Mohan pursuant to SEBI (Listing Obligations and Disclosure Requirments) Regulations, 2015 and Secretarial Standard - 2 is disclosed separately in such Notice.

Shri. K. Vaidyanathan (DIN: 07120706)

Shri. K. Vaidyanathan was co-opted as an Additional Director into the Board of the Bank w.e.f., 3 May, 2019 to hold the office till the ensuing Annual General Meeting.

Shri. K. Vaidyanathan aged 67 years is a Fellow member of the Institute of Cost Accountants of India and also the Institute of Company Secretaries of India. He has over 40 years of rich domain experience in Financial and Management Accounting, Corporate Finance, Taxation, Auditing, Commercial, Regulatory Compliances, Secretarial Practice and Corporate Governance. Shri. Vaidyanathan has worked with the Govt. of India, Central Public Sector Enterprises (CPSEs) and various Private Companies of repute. During his professional journey he has held the position of Chief Finance Officer and Company Secretary in medium sized IT Services Company, General Manager in Reliance Industries Ltd., Dy. General Manager in Bharat Earth Movers Ltd., Dy. Director in the Oil Prices Review Committee constituted by Govt. of India and Managerial positions in Cochin Refineries Ltd., Bongaigaon Refinery and Petrochemicals Ltd., Indian Audit Department.

In the opinion of the Board Shri. K. Vaidyanathan is a competent professional who can effectively participate and represent in the Board of the Bank. The Board recommends his appointment as an Independent Director on the Board of the Bank (not liable to retire by rotation) for approval by shareholders in the Notice calling this Annual General Meeting. The relevant details of Shri. K. Vaidyanathan pursuant to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Secretarial Standard - 2 is disclosed separately in such Notice.

Shri. T. K. Ramkumar (DIN: 02688194)

Shri. T. K. Ramkumar was co-opted as an Additional Director into the Board of the Bank w.e.f., 17 June, 2019 to hold the office till the ensuing Annual General Meeting.

Shri. T.K. Ramkumar aged 63 years is an Advocate and Partner in M/s Ram and Rajan Associates, Chennai. He possess rich experience in Banking Law, Civil Law,

Intellectual Property Rights etc. Shri. T. K. Ramkumar was earlier in the Board of the Bank from 11 June, 2009 to 10 June, 2017. Pursuant to RBI circular No.DBOD.No.BC.94/16.13.100/92 dt. 9 March, 1992, he has been co-opted for a second term. Shri. Ramkumar is quite a knowledgeable person whose contribution in the first term was very much useful to the Bank, especially in the area of Law.

In the opinion of the Board Shri. T. K. Ramkumar is a competent professional who can effectively participate and represent in the Board of the Bank. The Board recommends his appointment as an Independent Director on the Board of the Bank (not liable to retire by rotation) for approval by shareholders in the Notice calling this Annual General Meeting. The relevant details of Shri. T. K. Ramkumar pursuant to SEBI (Listing Obligations and Disclosure Requirments) Regulations, 2015 and Secretarial Standard - 2 is disclosed separately in such Notice.

Retirement(s)

Shri. S. Mahalingam (DIN: 00121727)

Shri. S. Mahalingam, Part-Time Chairman of the Bank vacated his office from the close of business hours of 3 May, 2019 on account of completion of tenure as per his appointment terms approved by RBI vide letter No.DBR.APPT.No.13995/08.42.001/2015-16 dt. 6 May, 2016.

Prof. V. Kamakoti (DIN: 03537382)

Prof. V. Kamakoti, Independent Director on the Board of the Bank vacated his office of Director on the close of business hours of 26 April, 2019 on account of completion of tenure in terms of the provisions of Section 10A(2A)(i) of the Banking Regulation Act, 1949.

The Board hereby places on record its warm appreciation over the excellent services rendered by Shri. S. Mahalingam and Prof. V. Kamakoti during their tenure.

Directors to retire by Rotation - The application of provisions of Section 152(6) arises only when the Board of Directors of the public company comprises of such number of directors who are not prohibited or restricted by the Act to retire by rotation. All Directors on the Board, except the Managing Director and CEO of the Bank are Independent Directors. Hence the provisions of Section 152(6) of Companies Act, 2013 relating to retirement of directors by rotation do not apply considering the present composition of the Board of Directors. Independent Directors are not required to retire in terms of Section 149(13) of the said Act. Accordingly no director is required to retire by rotation at this Annual General Meeting.

The shareholders re-appointed Dr. N. Kamakodi as Managing Director & CEO for a period of 3 years w.e.f. 1 May, 2017 at the AGM held on 23 August, 2017. The Managing Director & CEO is not liable to retire by rotation at the ensuing AGM.

Declaration by Independent Directors

The Bank has received relevant declarations from all the Independent Directors under Section 149(6) and 149(7) of the Companies Act, 2013, notifications issued by the Ministry of Corporate Affairs and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Board is satisfied that the Independent Directors meet the criteria of independence as stipulated under the aforesaid provisions of Companies Act, 2013.

Familiarization program for Independent Directors

The details of programme for familiarization of Independent Directors with the Bank, their roles, rights and responsibilities in the Bank and related matters are provided separately under the Corporate Governance Report forming part of this Annual Report.

Performance Evaluation

In line with the provisions of the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and relevant notifications/ guidelines issued by SEBI in this regard, there exists a structured criterion as approved by the Nomination committee of the Board for carrying out the performance evaluation of the Board as a whole, its committees as well as Independent Directors.

The necessary evaluations / review were carried out by the Board and Independent Directors to determine the effectiveness of the Board, its Committees, Chairman and individual Directors. Additional information on performance evaluation is set out in Corporate Governance section forming part of this report.

Key Managerial Personnel

Dr. N. Kamakodi, Managing Director & CEO and Shri. V. Ramesh, CFO & Company Secretary, continue to be the "Key Managerial Personnel" of the Bank pursuant to the provisions of Section 2(51) read with Section 203 of the Companies Act, 2013.

AUDITORS

Statutory Auditor

M/s. Sundaram & Srinivasan, Chartered Accountants, Chennai was appointed as the Statutory Central Auditors of the Bank in the previous Annual General Meeting (AGM) held on 1 September, 2018. The term of the present Auditor will conclude at the conclusion of the Annual General Meeting of the Bank and being eligible has offered themselves for re-appointment. Consent has been received from the present Auditors for their reappointment and also a confirmation to the effect that they are not disqualified to be appointed as Statutory Central Auditors of the Bank in terms of Companies Act, 2013 & the rules made there under has also been received. An application has been made to the Reserve Bank of India seeking its approval for the appointment of M/s. Sundaram and Srinivasan, Chartered Accountants, Chennai to act as Statutory Central Auditors for the Financial Year 2019-20. Members are requested to consider and approve their appointment as Statutory Central Auditors of the Bank for FY 2019-20.

The Statutory Auditors have furnished their report for FY 2019 which forms part of this report and there are no qualifications, reservations or adverse remarks made by the Auditors in their report. Further, the Auditor of the Bank has not reported any fraud u/s 143(12) of the Companies Act , 2013.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013, read with Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Bank has appointed M/s. B. K. Sundaram & Associates, Practicing Company Secretaries, Tiruchirapalli as Secretarial Auditor to conduct the Secretarial Audit of the Bank for the Financial Year 2018-19. The report of Secretarial Auditor Secretarial Audit Report in the prescribed format is annexed to this report as Annexure II .

There are no observations, reservations or adverse remarks made by the Secretarial Auditor in their report except they have recorded a fact as to the levy of penalty by RBI on account of delay in implementation of time bound and strengthening of Swift Related Controls.

Cost Audit

The requirement of maintaining cost records u/s 148(1) of the Companies Act, 2013 is not applicable to the Bank.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with Section 134(5) of the Companies Act, 2013, the Board of Directors of the Bank hereby declares and confirms that :-

i) In the preparation of the annual accounts, the applicable Accounting Standards had been followed along with proper explanation relating to material departures.

ii) The Directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as the end of the financial year and of the Profit & Loss of the Bank for that period.

iii) The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing Banks in India for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

iv) The Directors had prepared the annual accounts on a going concern basis.

v) The Directors had laid down adequate internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively; and

vi) The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

INSIDER TRADING NORMS

The Bank has formulated / revised the Code of Conduct pursuant to SEBI (Prohibition of Insider Trading) Regulations, 2015 to regulate, monitor and ensure reporting of trading by the designated persons and other connected persons. The said code had been reviewed and amended by the Board of Directors of the Bank in accordance with the amendments notified by SEBI during January, 2019.

The code is adopted to maintain highest ethical standards in dealing with securities of the Bank by persons to whom it is applicable. The code of conduct and related policy are available in the Banks website. weblink: https://www.cityunionbank.com/downloads/Code%20for%20Prevention%20of%20Insider%20Trading.pdf

The Bank has taken necessary steps with RTA for incorporating the PAN in the database to facilitate reporting of trading by designated persons and other connected persons in accordance with SEBI (Prohibition of Insider Trading) Regulations, 2015.

MATERIAL CHANGES AND COMMITMENTS

AFFECTING THE FINANCIAL POSITION OF THE BANK

There are 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., 31 March, 2019 and the date of Directors Report i.e., 17 June, 2019.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY

THE REGULATORS

During the year under review, the Reserve Bank of India vide letter dt. 31 January, 2019 imposed a penalty of र30 million on the Bank for delay in adherence to its directives on "Time bound implementation and strengthening of Swift Related Controls" contained in the RBI circular of 20 February, 2018. Although the Bank complied with such directions in true letter and spirit, the RBI was not convinced with respect to implementation of few controls with in the prescribed time and imposed a penalty for the delay as aforesaid. As on date, the said Swift Related Control stands fully implemented.

POLICIES

Directors Appointments and Remuneration /

Compensation Policy

The Bank has formulated and adopted a policy on Board Diversity as per which the Nomination Committee of the Board of Directors of the Bank conduct the preliminary assessment for appointment of Directors on the Board of the Bank and make suitable recommendations to the Board for its consideration.

The Nomination Committee identifies and assesses the qualifications and positive attributes of the incumbent based on the disclosures / declarations received from such person under the Companies Act, 2013, the Banking Regulation Act, 1949 and also RBI guidelines. The Nomination Committee makes a thorough scrutiny of the prospective candidate and certifies the fit and proper status of the incumbent to the Board after exercising above due diligence process.

Apart from the above, the Nomination Committee while appointment of an Independent Director also considers the Declaration on Independence furnished by such incumbent u/s 149(6) of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Further, the Bank has Compensation Policy which is in accordance with the directives issued by the Reserve Bank of India. The Bank has constituted a Compensation & Remuneration Committee which oversees the framing, implementation and review of the Compensation Policy of the Bank. The Remuneration Policy of the Bank is briefed under Corporate Governance Report forming part of Annual Report.

RISK MANAGEMENT POLICY

The Bank has in place an Integrated Risk Management framework supported by detailed policies and processes for management of Credit Risk, Market Risk, Liquidity Risk, Operational Risk and various other Risks. The details on the Risk Management framework of the Bank is set out in the Management Discussion and Analysis section appended to this Report.

DIVIDEND DISTRIBUTION POLICY

Pursuant to an amendment notification issued by the Securities Exchange Board of India during the year 2016, the Bank has framed a policy on Dividend Distribution taking into account the guidelines prescribed by the Reserve Bank of India on Declaration of Dividend by Scheduled Commercial Banks. The same is in compliance with Regulation 43A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and is available at the website of the Bank weblink:

https://www.cityunionbank.com/downloads/DividendDistributionPolicy.pdf

BUSINESS RESPONSIBILITY REPORT

As per Regulation 34(2)(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all top 500 listed entities (as at the end of financial year based on market capitalization) shall report a Business Responsibility Report describing the Banks social, environmental and governance aspects. The same is set out as a separate report forming part of Annual Report.

DEPOSITS UNDER CHAPTER V OF COMPANIES ACT, 2013

Being a Banking company, the disclosures as required pursuant to Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Section 73 & 74 of the Companies Act, 2013 are not applicable to your Bank.

INTERNAL FINANCIAL CONTROLS SYSTEMS &

ADEQUACY

The Bank has put in place adequate internal financial controls commensurate with the size and scale of operations. The Bank has, in all material aspects, adequate Internal Control Systems over Financial Reporting and these controls have taken into consideration, the essential components of internal control stated in the guidance note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India. Such Internal Financial Controls over Financial Reporting were operating effectively as at the end of the financial year. More details have been set out in Management Discussion and Analysis Report which forms part of this report.

RELATED PARTY TRANSACTIONS

The Board of Directors of the Bank has adopted a policy on Related Party transactions which is in line with the Companies Act, 2013 and SEBI Listing Regulations, 2015. During the reporting year, no contracts or arrangements were made by the Bank attracting the provisions of Section 188 of the Companies Act, 2013 or SEBI Listing Regulations. A detailed policy on the Related Party Transaction is available at the Banks website weblink:

https://www.cityunionbank.com/downloads/documents/CUB_Related_Party_Transaction.pdf

LOANS, GUARANTEES OR INVESTMENTS

All loans, guarantees or investments made in securities by the Bank are exempt pursuant to the provisions of Section 186 (11) of the Companies Act, 2013 and hence does not attract any disclosure required under Section 134(3)(g) of the Companies Act, 2013.

ANNUAL RETURN u/s 92(3) of Companies Act, 2013

Pursuant to Section 134(3)(a), of the Companies Act, 2013 (the Act), read with Rule 12(1) of Companies (Management & Administration) Rules, 2014 an Annual Return in form MGT - 9 as provided under Sub-section (3) of Section 92 of the Act is set out as Annexure III.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

In compliance with the Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, and the related notifications / circulars / guidelines issued by MCA, the Bank has established Corporate Social Responsibility (CSR) Committee. The Bank has established CUB Foundation, a non-profit entity to identify, which recommends and oversee the CSR initiatives of the Bank.

A Report on CSR activities as required under Rule 9 of the Companies (Corporate Social Responsibility) Rules, 2014 is furnished under Annexure IV to this report.

DISCLOSURE TO BE MADE UNDER SECTION 177(8) OF

COMPANIES ACT, 2013

The Board of the Bank had constituted the Audit Committee under the extant guidelines of Reserve Bank of India, provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The details of the composition of the Audit Committee is furnished in the Corporate Governance Report.

CORPORATE GOVERNANCE

The Bank is committed to achieving the highest standards of Corporate Governance and also adheres to the Corporate Governance requirements set by the Regulators / applicable laws. The Corporate Governance practices followed by the Bank aims to ensure value creation for all its stakeholders through ethical decision making and maintaining transparency.

A detailed section on Corporate Governance standards followed by the Bank as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Companies Act, 2013 and rules made there under alongwith Certificate of Compliance from the Statutory Auditors are disclosed separately forming part of this Annual Report.

MANAGEMENT DISCUSSION & ANALYSIS

A detailed Management Discussion and Analysis Report for the year under review as stipulated in SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 is presented as a separate section forming part of this Annual Report.

OTHER DISCLOSURES

Conservation of Energy and Technology Absorption

In respect of the nature of activities carried out by the Bank, w.r.t. the provisions of Section 134(m) of the Companies Act, 2013 relating to conservation of energy and technology absorption the Bank has taken every effort to conserve energy. The Bank has been installing energy efficient equipments at all its branches including installation of power saving LED bulbs at majority of Branches and Central Office. Further, to make use of alternate source of energy, the Bank has installed solar power panels at some of its branches and has planned to implement the same at other branches too subject to feasibility.

On the technological front, the Bank continued to offer excellent Banking service by facilitating the latest customer friendly and secure technological solutions to its customers. The elaborate details on the same is provided under seperate head "Automation" in this Report.

Foreign Exchange Earnings and Outgo

The Bank continues to encourage countrys export promotion by lending to exporters and offering them forex transaction facilities.

EMPLOYEES / OTHER DISCLOSURES

Disclosures under Section 197 of the Companies Act, 2013

The disclosures pursuant to the provisions of Section 197 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are furnished as Annexure V.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is annexed as Annexure VI.

Disclosure under Section 22 of Sexual Harassment of women at workplace (Prevention, Prohibition and Redressal) Act , 2013.

The Bank gives utmost importance towards maintaining and upholding the dignity of each and every woman working in the Bank. The Bank has a policy on Prevention of Sexual Harassment at workplace which provides for adequate safeguards and protection for women employees working in the organization. The Bank has complied with the requirement of constitution of Internal Complaints Committee under the Sexual Harassment of

Women at work place (Prevention, Prohibition and Redressal) Act, 2013. No compliant was received in this regard during FY 2018-19.

Whistle Blower / Vigil Mechanism

Pursuant to the provisions of Section 177(9) and (10) of the Companies Act, 2013, a vigil mechanism for Directors and employees to report genuine concerns has been established. The Bank has a policy on whistle blower / vigil mechanism which is uploaded in the website of the Bank as well as intranet weblink:

https://www.cityunionbank.com/downloads/Whistleblower%20Policy.pdf

All employees and directors have access to the Chairman of the Audit Committee in appropriate and exceptional circumstances.

Compliance with Secretarial Standards and applicable laws

It is hereby confirmed that the Bank has complied with the Secretarial Standards issued by the Institute of Company Secretaries of India (SS-1 and SS-2) respectively relating to Meetings of the Board, its Committees and Shareholders. Further proper systems are in place to ensure compliance of all laws applicable to the Bank.

ACKNOWLEDGEMENT

The Board of Directors of the Bank would like to take this opportunity to thank all the Stakeholders and wish to place on record its sincere appreciation for the assistance and co-operation received from the Reserve Bank of India, NABARD, NHB, IDBI, SIDBI, EXIM BANK, ECGC, DICGC, SEBI, IRDA, Stock Exchanges, Depositories, Karvy Fintech Pvt. Ltd., Life Insurance Corporation of India, United India Insurance, New India Assurance, Tata Consultancy Services, CCIL, CIBIL, Correspondent Banks, Exchange Houses and other authorities.

Your Directors also place on record their warm appreciation for the committed services rendered by the Banks Executives, Staff and other employees.

For and on behalf of the Board
R. Mohan
Place : Chennai Chairman
Date : 17 June, 2019