City Union Bank Ltd Management Discussions

ECONOMIC SCENARIO

Global

In FY 2024-25, the Global economy demonstrated resilience in the face of several external pressures and challenges, ensuring stability in growth. The growth forecasts for FY 2024-25 and FY 2025-26 are 3.2% and 3.3% respectively, which is one of the lowest medium - term forecasts in a decade. The emerging market economies were confronted with structural challenges due to escalating trade tensions, protectionist policies, geo political tensions and decline in Chinese economy. The Advanced economies experienced modest acceleration (1.7% - 1.8%) during the year.

The world since the past few months has been gripped in the midst of a major tariff war. The world has witnessed a huge blow to the Multilateral Trading System and the concept of the Most Favoured Nations (MFN) on which the pillar of world trade rests has been eroded especially since the announcement of high reciprocal tariffs on imports from most countries of the world by the President Trump led US Administration. In response, China among other countries retaliated provoking a further dose of tariff leading to a full scale trade war with USA, bringing the rate of tariffs applied on imports from China to a staggering 145%. The current global environment is highly challenging with a new restricted and fragmented global trade taking shape amidst announcements of retaliatory tariffs. The broader implications of tariff war could result in prolonged uncertainty and paralyze world trade. Though the uncertainty around the global economic outlook has somewhat ebbed since April 2025, in the wake of temporary tariff reprieve and optimism around trade negotiations, the global economic landscape remains in a state of flux, amidst heightened geopolitical uncertainties, with attendant implications for economies across the world, posing complex challenges and tradeoffs in policy making.

Indian

The Indian economy ended FY 2024-25 on a positive note with real Gross Domestic Product (GDP) growth accelerating to 7.4% in Q4. The real GDP growth for FY 25 stood at 6.5% compared to 9.2% in 2023-24 in line with RBIs projections. India remained a bright spot in the global landscape despite the challenges faced, as a result of increased consumer expenditure and Government investments. In the near future sustained demand from rural areas, revival in urban consumption, increase in government capital expenditure, higher capacity utilization and healthy balance sheets of banks and corporates are expected to support growth. Agricultural prospects appear bright on the back of an above normal south-west monsoon forecast; Industrial sector is on a recovery path, while Services Sector is expected to maintain the growth momentum. Merchandise exports, on the back of a lackluster performance last year recorded a strong growth in April & May 25. Considering all these factors, real GDP growth for FY 2025-26 is now projected at 6.5%, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6% and Q4 at 6.3% with the risks being evenly balanced.

The inflation trajectory of India has considerably improved, with the Consumer Price Index (CPI) is projected at 4.6% in FY 2024-25 (RBI estimate) compared to 5.4% in FY 2023-24. The CPI headline inflation declined to a nearly six year low of 3.2% in April 2025. Fuel group continued an inflationary trend with a hike in LPG prices. Core Inflation increased to 4.1% in February 2025, driven primarily by a sharp rises in Gold prices. Assuming a normal monsoon, healthy reservoir levels, record wheat production, higher production of key pulses in the Rabi crop season and likelihood of good Kharif prospects, the CPI inflation for FY 2025-26 is projected at 3.7%, with Q1 at 2.9%, Q2 at 3.4%, Q3 at 3.9% and Q4 at 4.4% with the risks evenly balanced.

The Indian economy exhibited a picture of strength, stability and opportunity with strong balance sheets of five major sectors namely Corporates, Banks, Households, Government and the External sector. India continues to remain an attractive investment destination with robust flows in the form of FDI, FCB and NRI deposits. Foreign Exchange Reserves stood at US$ 691.5 Billion at the end of May 2025, sufficient to fund more than 11 months of goods imports and about 96% of outstanding external debt, providing the much needed buffer to tackle unforeseen global headwinds. The current economic environment in India amidst global uncertainties requires constant monitoring as well as promptness in policy actions to deal with any emerging risk to growth particularly on trade front. As US is Indias largest export destination, the exact impact of US Tariffs remains uncertain and could weigh heavily on trade, financial markets, and domestic economy. The Indian economy offers immense opportunities to investors through the 3DS i.e., demography, digitalization and domestic demand, and provides the necessary core strength to cushion the domestic economy against global spillovers and propel it to grow at a faster pace.

INDIAN BANKING SCENARIO

The Reserve Bank of India ("RBI") altered the monetary policy landscape towards the end of FY 2024-25 by adopting a pro-growth stance and reducing the repo rate by 25 basis points in February 2025. RBI has followed-up with two more repo rate cuts (cumulatively adding to 100 bps) in the two subsequent monetary policy announcement. The rate reduction combined with ample liquidity lowered borrowing costs, which in turn supported credit demand in sectors such as personal loans and services, which experienced resilient growth despite global uncertainties.

In the recent MPC meet of the RBI held in June 2025, it was noted that the Global Economic uncertainty has somewhat ebbed since its last meet in April 2025 in the wake of temporary tariff reprieve and optimism around trade negotiations. The Monetary Policy actions of the Central Banks across the globe faced with the uncertainty and the assessment of tariff war remain guarded with many countries reducing rates with caution. Amidst this, the RBI continued to focus on preserving price and financial stability, and ensuring adequate flow of financial resources to all the productive sectors of the economy.

The RBI at the recent MPC meeting held in June 2025, took the following important measures based on the assessment of the current and evolving macroeconomic situation:

• Policy Repo rate under Liquidity Adjustment Facility (LAF) reduced by 50 basis points from 6.00 per cent to 5.50 per cent with immediate effect.

• Standing Deposit Facility under Liquidity Adjustment Facility (LAF) adjusted to 5.25 per cent from 5.75 per cent.

• Bank Rate and Marginal Standing Facility Rate changed to 5.75 per cent from 6.25 per cent .

• CRR (Cash Reserve Ratio) for all Banks have been reduced by 100 basis points in four equal tranches of 25 basis points each to 3.0 per cent of net demand and time liabilities (NDTL). Accordingly Banks are required to maintain the CRR at 3.75 per cent, 3.50 per cent, 3.25 per cent and 3.00 per cent of NDTL effective from the reporting fortnight beginning September 06, October 04, November 01, and November 29, 2025 respectively

The MPC has revised the inflation outlook downwards for FY 2026 from the earlier forecast of 4.0 per cent to 3.7 per cent, supported by a sharp fall in food inflation. The overall growth is still on a recovery path after an underwhelming performance in the first half of FY 2024-25. Amidst the current global economic conditions, marked by benign inflation and moderate growth outlook, RBI MPC decided to support growth by cutting repo rate. The MPC changed its stance to Neutral from Accommodative and took timely measures to ensure adequate liquidity and transmission of rate cuts. The MPC noted that though the risks are evenly balanced around the baseline projections of growth, uncertainties remain high in the wake of global uncertainty.

YOUR BANKS PERFORMANCE

During the year FY 2025, the world economy at large was gripped by war and economic turmoil in the Middle-east and Russia-Ukraine region. Amidst this, our Bank adopted a cautious approach and recorded a reasonable growth rate during the year. Despite the various challenges, your Bank was able to post 14% growth in its total business with Deposits growing by 14% to Rs 63,525.95 crore and Advances growing by 14% to Rs 53,066.36 crore. The total Business of the Bank as on March 31, 2025 stood at Rs 1,16,592.31 crore, achieving a significant growth of 14%. After a few years of subdued progress in the wake of COVID, the Bank has entered a robust growth trajectory in its 121^st year of existence in FY 2025.

Financial Performance

The performance of the Bank during the financial year e nded March 31, 2025 largely remained stable with the Total Income of the Bank at Rs 6,732.11 crore as compared to Rs 6,012.22 crore last year recording a growth of 12%. The Net Interest Income stood at Rs 2,315.71 crore as compared to Rs 2,123.46 crore during the previous year.

As on March 31, 2025, the Deposits of the Bank increased to Rs 63,525.95 crore from Rs 55,656.64 crore as at March 31, 2024 registering a growth of 14%. The total CASA deposits stood at 18,118.88 crore as against Rs 17,050.16 crore last year recording a marginal growth of 6%. The proportion of CASA to total deposits was at 29% as on March 31, 2025. The cost of deposits increased to 5.85% in FY 2025 against 5.59% in FY 2024.

The Total Advances of the Bank increased by Rs 6,584.89 crore to Rs 53,066.36 crore from Rs 46,481.47 crore, posting a growth of 14% in FY 2025. The Net Interest Margin (NIM) of the Bank stood at 3.60% for the year ended March 31, 2025 as against 3.65% in the previous year. The yield on advances increased to 9.79% from 9.72% during the financial year. The Total Non Interest Income earned for the financial year ended March 31, 2025 stood at 898.06 crore as against 741.66 crore for March 31, 2024 recording a significant growth of 21%.

The Investment Portfolio of the Bank rose to Rs 17,346.13 crore in FY 2025 as against Rs 15,672.66 crore in FY 2024 recording a growth of 11%. During FY 2025, Operating expenses increased by 14% to Rs 1,535.15 crore from Rs 1,348.39 crore in FY 2024. The Other Operating expenses (other than Staff expenses) increased from Rs 734.58 crore to Rs 802.15 crore during FY 2025. The Cost to Income Ratio increased to 47.77% for the year ended March 31, 2025 as against 47.06% in the previous year ended March 31, 2024. The staff expenses increased from Rs 613.81 crore last year to Rs 733.00 crore for FY 2025.

The Banks Operating Profit increased to Rs 1,678.63 crore in FY 2025 from Rs 1,516.73 crore in FY 2024. The Operating Profit to Net Interest Income constitutes 72.49%. The total provision increased by Rs 54 crore to Rs 555.00 crore from Rs 501.00 crore in the previous year. The Bank recorded a Net Profit of Rs 1,123.63 crore as on March 31, 2025 as against Rs 1,015.73 crore in March 31, 2024 registering a growth of 11%.

Return on Assets of the Bank for the FY 2025 stood at 1.55% as against 1.52% last year and Return on Equity wa s at 12.63% for FY 2025 as against 12.86% for FY 2024. The basic earnings per share stood at Rs 15.17 per share as compared to Rs 13.72 per share last year.

Operational Performance

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

Particulars	Incremental Growth over Previous year
	FY 2025	FY 2024
Deposits (in crore)	7,869.31	3,258.78
Gross advances (in crore)	6,584.89	2,510.67
Profit after tax (in crore)	107.90	78.25
Number of Branches (in Nos.)	75	48

 

Particulars	FY 2025	FY 2024
Cost of Deposits (%)	5.85%	5.59%
Yield on Advances (%)	9.79%	9.72%
Total Yield on Investments (%)	6.50%	6.27%

Segment wise Performance

A. Deposits of the Bank comprise of the following :

Sl. No. Particulars	FY 2024-25		FY 2023-24
	Amount ( Rs in crore)	Percentage to total (%)	Amount ( Rs in crore)	Percentage to total (%)
1. Demand Deposit	6,073.74	9.56	5,488.84	9.86
2. Savings Deposit	12,045.14	18.96	11,561.32	20.77
3. Term Deposit	45,407.07	71.48	38,606.48	69.37
Total	63,525.95	100.00	55,656.64	100.00

B. Investments of the Bank consist of the following :

Sl. No. Particulars	Amount ( Rs in crore)	Percentage to total (%)
A. Investments in India	17,345.69	100%
1. Government Securities	17,185.54	99.07%
2. Other Approved Securities	NIL	NIL
3. Shares, Debentures / Bonds and Mutual funds	127.55	0.74%
4. Security Receipts	32.60	0.19%
B. Investments outside India	0.44	NIL
5. Investments in Equity Shares of SWIFT (Investment outside India)	0.44	NIL
C. Total Investments (C= A +B)	17,346.13	100.00%

The total Investments stood at Rs 17,346.13 crore as at March 31, 2025 against Rs 15,672.66 crore as at March 31, 2024. 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 ( Rs in crore)		Gross Profit ( Rs in crore)	Percentage to total G.P.
	FY 2025	FY 2024
Treasury	1,239.50	1,236.55	619.90	36.93
Corporate Banking	1,402.61	1,141.10	262.18	15.62
Retail Banking	3,971.61	3,558.38	687.69	40.97
Other Banking Operations	118.38	76.19	108.86	6.48
Total	6,732.10	6,012.22	1,678.63	100.00

ASSET QUALITY AND LOAN COMPOSITION

A. Asset Quality

The Gross NPA as at March 31, 2025 decreased to Rs 1,638.17 crore as against Rs 1,854.43 crore in the previous year. The percentage of Gross NPA has decreased to 3.09% in FY 2025 from 3.99% in FY 2024. The Net NPA has decreased to Rs 653.07 crore (1.25%) in FY 2025 as against Rs 898.68 crore (1.97%) in FY 2024. The Provision Coverage Ratio ("PCR") was 78% (with TW) as at March 31, 2025 (Previous Year - 72%) and PCR (without TW) was 60% as at March 31, 2025 (Previous Year - 52%).

Priority Sector Advances amounted to Rs 31,285.80 crore as on March 31, 2025 as compared to previous year amount of 26,914.66 crore. The total agricultural advances stood at Rs 8,787.16 crore as on

March 31, 2025 against Rs 8,351.51 crore as on March 31, 2024. 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 Rs 53,066.36 crore as at March 31, 2025 of which Rs 13,785.95 crore were directed to major industries and Rs 39,280.41 crore to other sectors. There has been a greater emphasis on Advances to MSME Sector by RBI & Government of India. As of March 31, 2025 our total credit to MSMEs amounts to 21,669.55 crore which constitute around 40% of Total Advances.

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

Industry Name	Amount (Rs in cr.)		% to Total Advances
	March 31, 2025	March 31, 2024	March 31, 2025	March 31, 2024
A. Major Industries	13,785.95	11,321.10	25.98%	24.36%
Textile	4,480.96	4,166.70	8.44%	8.96%
Metal	2,184.24	1,877.56	4.12%	4.04%
Paper & Paper Products	619.43	547.16	1.17%	1.18%
Food Processing	1,120.73	557.75	2.11%	1.20%
Chemicals	470.81	440.04	0.89%	0.95%
Rubber & Plastics	425.66	381.30	0.80%	0.82%
Engineering	955.79	620.38	1.80%	1.33%
Automobiles	158.66	203.17	0.30%	0.44%
Other Industries	3,369.67	2,527.04	6.35%	5.44%
B. All other Advances
(Agri., Trade Service, Gold Loan et	39,280.41	35,160.37	74.02%	75.64%
TOTAL (A + B)	53,066.36	46,481.47	100%	100%

Sectoral Deployment

Sector	Amount (Rs in cr.)		% to Total Advances
	March 31, 2025	March 31, 2024	March 31, 2025	March 31, 2024
Agriculture	8,787.16	8,351.51	16.56%	17.97%
MSME	21,669.55	17,649.19	40.83%	37.97%
Large Industries	477.18	484.93	0.90%	1.04%
Retail Traders	643.59	701.68	1.21%	1.51%
Wholesale Traders	897.60	1,119.41	1.69%	2.41%
Commercial Real Estate	3,651.30	2,728.81	6.88%	5.87%
JL Non Agriculture	6,645.30	4,857.93	12.52%	10.45%
Housing Loans	2,515.35	2,113.31	4.74%	4.55%
Other Personal Loan	1,213.69	1,363.34	2.29%	2.93%
Loans Collateralized by deposits	884.52	824.89	1.67%	1.77%
Infrastructure	337.07	303.24	0.64%	0.65%
NBFC	1,417.31	1,194.54	2.67%	2.57%
Others	3,926.74	4,788.69	7.40%	10.31%
TOTAL	53,066.36	46,481.47	100%	100%

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

OPPORTUNITIES AND THREATS

The Financial world in India of which Banking Sector is a primary component, is evolving rapidly. The new acronym "Banking 4.0" is gaining traction wherein technology transforms banking. India has already embarked onto Banking 4.0, making giant strides to digitally connect every citizen of the country by bringing him / her into the ambit of Digital Banking. Indias Banking Sector with its mix of Foreign, Private Sector, Public Sector Banks and Multi State Co-operative Banks, reflects the countrys diverse economy with the Scheduled Commercial Banks catering to the length and breadth of the country.

India has a strong Digital Infrastructure with a large young population of tech-savvy users, which has made the Banking Industry to go for adoption of new and latest technologies. UPI facility has been a major success in India and most of the countries are learning from India to make its implementation a success. The launch of Aadhar - enabled Payment System (AEPS) has made it possible for a large section of our population to conduct financial transactions using their Aadhar biometric ID. This has led to the development of banking services to the Unbanked and Underbanked population in India. The emergence of various digital wallets, such as Paytm, GPay, PhonePe, etc. which, though may look like posing a threat to banking sector, has made the people to people payment mechanism easier for the common man without the use of cash. The launch of our very own "Digital Rupee" under the Central Bank Digital Currency (CDBC) has led to a potential shift in how Financial Institutions handle and manage currency.

FINANCIAL INCLUSION

Financial Inclusion is a concept where the banking financial solution and services are offered to every individual without any forms of discrimination as well as to ensure even the under privileged get easy access to banking channels. The objectives of financial inclusion are to provide the following:

1. Basic Savings Bank Deposit Accounts

2. Servicing Products (including Investment and Pension)

3. Simple Credit Products and Overdrafts linked with No Frills Account

4. Remittance and Money Transfer Facilities

5. Pension and Insurance Products

Your Bank has witnessed tremendous progress in the successful implementation of financial inclusion, especially to the inhabitants in rural areas. The Bank has already implemented Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme and there are 2,17,858 accounts as on March 2025. The Bank has 3,16,103 Basic Savings Bank Deposit accounts, including 87,630 accounts sourced through Business Correspondents (BCs). To cater the needs of customers of unbanked areas, the Bank has established BC Outlets in those places and is providing Basic banking services through Business Correspondents (BCs). Your Bank has 138 BCs and 3 BC outlets for rendering services to the village level beneficiaries. The Business Correspondents of the bank make regular visits to the villages and provides doorstep banking services.

Your Bank is very keen in creating awareness on Financial Inclusion and also on the promotion of Government schemes for Social Welfare, Pension, Insurance viz Atal Pension Yojana (APY), MUDRA, PMJJBY, PMSBY etc., The Bank has 60,139 APY Accounts, 51,688 PMJJBY Accounts 1,23,784 PMSBY Accounts under the scheme.

Your Bank has got e-KYC facility and Aadhaar enabled Payment System (AePS), for rendering quick services to the rural public. Further, the Bank has deployed POS machines, at various locations, which are very helpful for doing merchant transactions. The Bank has continuously ensured uninterrupted Banking services in the un-banked areas with the help of Digital Banking Services. Your Bank is proud of extending contribution to the social welfare schemes of the Government, for our Nation building.

As done in the past, Financial Literacy Week is being conducted by the Bank with the aim of furthering financial literacy, developing credit discipline and encourage availing credit from formal financial institutions by the customers. As per the objectives of the National Strategy for Financial Education 2020-25, focus of the Bank will be on the following three topics with a view to promote digital transactions in a more secured manner:

1. Convenience of digital transactions

2. Security of digital transactions

3. Protection of customers

Your Bank has conducted campaigns more particularly in rural and semi-urban areas for creation of awareness about Financial Literacy in an effective manner and to educate its customers properly. The theme for this years Financial Literacy Week observed during 24^th February 2025 to 28^th February, 2025 was "Financial Literacy Womens Prosperity".

AUTOMATION

New Technology Initiatives

As part of Digital Lending, the Bank has implemented AI based system which assesses & reports the customers provisional credit eligibility which is sanctioned based on customers acceptance & approval. In line with this, the Bank has also launched sanctioning pre-approved personal loans to the customers in this segment. Our Bank has implemented a New Online platform for Loan Against Securities (Mutual Fund and Shares-LAS). New UPI Life service facility which enables small value transactions has been extended to customers to do offline payments to merchant or person without using MPIN. Our Bank has implemented the Robotic Process Automation (RPA) for generating periodic reports, removing manual intervention and facilitating error free reporting. Bank has expanded its Credit card initiatives by entering into Franchise Tie up with CSK Team as Exclusive Credit Card Partner & SRH Team as Banking partner, wherein Co-branded Credit cards are issued to eligible customers as per eligibility criteria. Our Bank has implemented Credit Line on UPI which allows customer to borrow money against Deposits as collateral. The Bank has implemented - OSPYN which is a comprehensive workflow solution leading to automatic initiation, verification and approval of office notes.

The concept of Decentralized Finance (DeFI) as part of Banking 4.0 is making huge inroads. Although it offers incredible opportunities, it faces immense challenges. It is built on Blockchain Technology and offers a number of benefits over traditional brick and mortar branches such as lower fees, faster transaction speeds and greater access to financial services for people in developing countries. It is used to offer new products and services to customers such as decentralized lending and borrowing. The growth of the credit both in Retail and Corporate emphasizes responsible lending with focus on credit growth and prudent risk management. The presence of various Small Finance Banks and Urban Co-Operative 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. The post offices with their vast network has been catering to the hinterlands since independence. All these leads to fierce competition in the retail banking space demanding better customer service.

RISK MANAGEMENT

The Bank is exposed to a variety of risks in the normal course of its business namely Credit Risk, Market Risk and Operational Risk. The main objective of Risk Management is to strike a proper balance between risk and return. The Bank operates within the Board approved risk policy, which is communicated to all the Departments. The Board approved risk policy encompasses identification, measurement, monitoring and management of risks.

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 implemented properly. It lays down 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 and Risk Management Committee of Directors (RMCD) of the Board on a quarterly basis. 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

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. 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 Regulation and has maintained a CRAR of 23.75% as on March 31, 2025 which is well above the minimum of 11.50% as prescribed by RBI. Tier I Capital and Tier II Capital is 9078.46 crore and 421.35 crore respectively as on March 31, 2025 and Shareholders may kindly refer to the "Capital Adequacy" para under the Directors Report.

The Bank presently adopts Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk. The Risk Management Department of the Bank effectively functions to measure, monitor and control all risks paving way for effective Enterprise-wide Risk Management. Further, RBI has advised the banks to get ready to migrate to the New Standardized Approach for calculation of Operational risk vide Master Direction on Minimum Capital Requirements for Operational Risk dated June 26, 2023. The Bank has computed the Operational Risk as per the new guidelines for June 31, 2024 and reported the same to RBI during February 2025.

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 2026, along with the plans and strategies for meeting the same. The purpose of the document is to seek the approval of the Board regarding the Banks Internal Capital Adequacy Assessment Process and the Banks approach to Capital and Risk Management and keep RBI informed of the same.

The document also endeavors to furnish detailed information on the Banks assessment of the risks in holistic manner, 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 Banks are expected to maintain a "Leverage Ratio" in excess of 3.50% (from 30.06.2019) 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. For the year ended March 31, 2025, Leverage Ratio of our Bank stood at 11.27%, well above the prescribed norm of 3.5%, the computation of which is duly disclosed in Templates DF 17 and DF 18 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 01, 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. During the year, based on assessment made by RBI on LCR, the computation was revised and the Bank has maintained the LCR above the prescribed norms. The LCR as of March 31, 2025 is at 134.61%, which is well above the minimum prescription.

The final guidelines on "Net Stable Funding Ratio" (NSFR) under the Basel III Framework on Liquidity Standards was issued by RBI on May 17, 2018 and stands implemented from FY 2021. 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 March 31, 2025 is at 156.94%.

C. Risk Management - Process

The overall risk of the Bank is being managed through RMCE which in turn is supported by the three committee of executives viz.

1. Credit Risk Management Committee (CRMC)

2. Asset-Liability Committee (ALCO) and

3. Operational Risk Management Committee (ORMC)

Further, 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.

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

2. Integrated Risk Management Policy

3. Credit Risk Management Policy

4. Asset and Liability Management Policy

5. Operational Risk Management Policy

6. Stress Testing Policy

7. Pillar 3 Disclosure Policy

8. Business Continuity Plan Policy

9. Internal Capital Adequacy Assessment Process (ICAAP) Policy

10. Credit Risk Mitigation and Collateral Management Policy

11. Integrated Treasury Policy

12. Policy on Unhedged Foreign Currency exposures of 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. Information Technology Risk Framework

19. Financing Framework for Green Deposits

20. Climate Risk Policy

21. Fraud Risk Management Policy

22. Model Risk Framework

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

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 on the various risk aspects, Bank has formulated RCSA (Risk Control Self-Assessment) standards. Workshops followed by questionnaires have been conducted on periodical basis highlighting the operational risks involved in these areas. During the period, RCSA had been conducted on the following areas:

1. Jewel Loan Operations

2. Assessment on Branch Management Operations

The operational risk management policy envisages a KRI framework to provide effective monitoring tool to track change in risk levels and minimize the occurrence of risk event/ loss and give the Bank a complete view of its operations. Key Risk Indicators (KRIs) are early warning signals, which enable management to monitor and mitigate operational risks that are beyond acceptable levels. These are metrics, which can provide insight into banks operational risk profile and its changes. Based on the metrics, a list of KRIs have been suggested along with threshold for review and the same to be done on a quarterly basis.

RBI in its circular dated 26.06.2023 on Master Direction on Minimum Capital Requirements for Operational Risk, came up with draft guidelines, with introduction of the new Standardized Approach replacing all existing approaches for Operational Risk with effective date to be announced later.

As per these guidelines, Operational Risk Loss events have to be recorded for minimum of past ten years. The Loss Data / events are classified as per the draft guidelines and Near Miss events are also captured. The Loss Data for the past years has been captured and was externally validated during the period through a qualified external consultant.

In the comprehensive circular issued by RBI dated Nov 7, 2012 on Liquidity Risk Management by Banks, detailed guidelines have been given in respect of Contingency Funding Plan (CFP). Accordingly, the Bank had formulated a CFP for responding to severe disruption which might affect the Banks ability to fund its activities in a timely manner and at a reasonable cost. Contingency plans envisage the Banks readiness to manage a range of Bank specific and as well as market wide liquidity stress scenarios, indicating the available sources and quantum of funds that can be drawn, besides clear escalation / prioritization procedures to tap funds from contingency sources. The CFP is being carried out on a half yearly basis during September / March every year besides making an annual review. The funding sources are reviewed on a quarterly basis.

The Bank has, over the years, fine-tuned its approach to detect and control risks. In general controls are exercised closest to the point of risk origination which will help establish a sound risk management 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, Board of Directors and those contained in the Internal Control Policy. Our Bank has always recognized the importance of strong internal control mechanism which is pivotal to long term sustainability of any organization.

The Inspection Department ensures the adherence to the laid down systems and procedures of the Bank. Moreover there exists a system of periodical Risk Based Inspection of the Branches, Concurrent Audit, Jewel Loan Inspection and Credit Inspection. 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. The Concurrent Audit serves as an early warning system to ensure detection of lapses, irregularities and as a tool to prevent frauds. 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 and also at Branch level to ensure the correctness of cash position of the Branches. Management Audit focuses on identifying the adequacy and effectiveness of processes adopted for decision making at various Departments in Head Office, Currency Chest, Computer System Department, Business Development Centre, International Banking Division, Central Processing Centers (CPCs) etc. The Information Systems Audit (ISA) focuses on the risks and assesses the adequacy of controls implemented for mitigating the risks.

The Audit Committee of the Board reviews the adequacy of internal audit function, including its reporting structure, coverage and frequency of audits and provides guidance and direction. Self-assessment audits are undertaken of the Banks internal financial controls, by testing and validating the effectiveness of controls on an on-going basis. The Inspection Department organizes incognito visits 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.

The Bank uses extensive technology to generate automated Early Warning System (EWS) alerts. A good system of internal control 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 play a prominent role in an organizations growth and our Bank is maintaining cordial relationship with its employees at all times. As a part of HR strategy, the Bank offers its employees various monetary and nonmonetary benefits, based on their performance in the form of ESOP, Performance Linked Pay (PLP) and Ex- gratia thereby ensuring that each employee feels himself / herself as part and parcel of the Bank and strives hard to deliver to the best of his / her abilities.

In line with the Banks expansion plans, 75 new branches were opened in various States during the year 2024-25 for which the Human Resources Department provided adequate manpower. During the current financial year, we have planned to open 125 new branches in various States. In order to identify the Right person for the Right Job, Psychometric test are also included in to the recruitment process of the Bank. 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 also being followed to ensure that each and every employee gains experience in all the areas of banking. We have also implemented National Pension System for our employees in phased manner.

In tune with the future expansion, the Bank is constantly upgrading and revisiting its manpower by developing a talent pool. The members of the talent pool are being groomed by giving those trainings in our staff college at Chennai and Kumbakonam and also training at various centers of excellence like SIBSTC, NIBM, CAFRAL, IDRBT, ASCI, FEDAI, FIMMDA, CAB RBI, NIBM, IIM, Great Lakes Chennai, IFMR, GSP, Lonavala, IIBF, IMAGE, NIBSCOM etc.

Continuous efforts are being made to enhance the quality of existing personnel and to attract new talent.

As on March 31, 2025, the Bank has 7,605 employees. The cadre wise details of them are given below:

Cadre	Number of Employee(s)
Managing Director and CEO	1
Executive Director	2
Executives cadre	115
Management cadre	3,588
Workmen cadre	3,899
TOTAL	7,605

It is pertinent to note here that there has not even been a single occasion of employees unrest in the Banking history of CUB.

POSH Act implementation mechanism in the Bank.

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.

OUTLOOK

Indias Digital Transformation, recognized worldwide has emerged as a significant enabler of ease of doing business and ease of living and an important driver of economic growth and innovation. Conducive Government and regulatory policies, increasing digital penetration and a young aspiring demography have fostered a vibrant ecosystem. The Government over the last decade has invested in a number of digital building blocks like JAM trinity, UPI, GSTN, Digilocker. Digitalization is improving efficiency, raising productivity, enhancing formalization and promoting growth. Indian economy of which Banking forms a significant part is supported by stable monetary policy, financial ecosystem and a stable government. Indias strong domestic demand and lower dependence on exports cushions the Indian economy from external spillovers. As one of the worlds fastest growing large economies, India remains a bright spot and is not only an investment destination but a partner in prosperity for the world at large.