Dhanlaxmi Bank Ltd Management Discussions.

Global Economy

The global economy is going through an extra ordinarily turbulent period, as the pandemic hit business, lives and livelihoods, Companies/firms have undergone a paradigm shift in the way they work, sell and service customers, Going digital and maintaining social distance have become the new normal, world over, The pandemic has brought greater synergy among countries across continents, and most countries are collaborating in order to fight the spread of the deadly disease, Global growth of 2021 is expected at 5,60%, Despite this years encouraging projections, the level of GDP in 2021 is likely to be 3,20% below the pre-pandemic projections, According to World Bank report, the growth in United States is pegged at 6,80% this year, the fastest pace since 1984, Chinas economy is expected to grow at 8,50%, Excluding China, the other countries may grow only at a combined rate of 4,40%, due to the lasting legacies of the pandemic, affected by uneven vaccination, erosion of skills from lost work and schooling, drop in investments, higher debt burden, and declining support from governments, Fragile and conflict affected low-income economies are the most affected as the pandemic has dragged them behind by a decade by reduction/loss of income, By the end of this year, around 10 Crore people have expected to have fallen back to extreme poverty and the impact is most severe in vulnerable population, especially children, women, unskilled labourers, etc,

A recovery in global trade after the recession in 2020-21 offers an opportunity for emerging markets and developing economies to bolster economic growth,

The expectation of growth in 2021-22 is higher for almost all regions, however many countries may have to grapple with the ill effects of COVID-19 and may take a longer time to come out of its long shadows,

The policies of governments should take a longer view, reinvigorating human capital, expanding access to digital connectivity, investing in green infrastructure, etc to ensure growth on a resilient, sustainable path, The requirement of global coordination to end the pandemic through widespread vaccination and careful economic steps is essential to avoid crisis and to achieve growth, The World is looking towards a rosy future, though the level of anxiety remains high,

Indian economy

Indian economy shrank by 7,30% during the FY 2020-21, on account of the COVID pandemic which ravaged the whole world, The sharp drop in GDP was the largest in the countrys history,

Even in the midst of the gloom, the reputation of the country got an upliftment on account of the exhibition of higher capability in manufacturing COVID vaccines and supplying it to various countries, helping them save millions of lives,

In the post-independence period, Indias national income declined only in 4 years, 1958, 1966, 1973 and 1980, In 1980, the decline was 5,20% and the dip in FY 2020-21 was the sharpest, It is estimated that during the nation-wide lockdown period, between April and May 2020, the national income dropped by a whopping 40%,

The quarter-wise change in GDP! as issued by National Statistical Office, is given below:

Quarter Q1 FY 2020-21 Q2 FY 2020-21 Q3 FY 2020-21 Q4 FY 2020-21 FY 2020-21
Growth Y-o-Y basis -24,40 -7,30 0,40 1,60 7.30

Indias gross domestic product (GDP) which was 145,695 lac Crore in FY 2019-20, contracted to 135,12 lac Crore in FY 2020-21, The country witnessed increase in poverty, higher unemployment and decline in savings during the FY 2020-21,

Though the GDP contracted to a significant extent in the previous FY, the statistics shows that the growth is picking up gradually, Q4 was the second quarter in a row in which the GDP recorded growth, According to NitiAyog, India may achieve double digit growth during the current fiscal, However, a few rating agencies have forecast growth of 9,50 percent, Organisation for Economic Cooperation and Development (OECD) has raised Indias growth forecast to 12,60% tagging it as the Worlds fastest growing economy during the fiscal 2021-22,

Kerala economy

Keralas growth rate in FY 2019-20, at 3.45%, was lower than the rate in FY 2018-19. The economy had grown by 6.49 percent in FY 2018-19.

Keralas Gross State Domestic Product (GSDP) in 2019-20 was 5.68 lac Crore against 5.49 lac Crore in FY 2018-19.

In terms of Gross State Value Added (GSVA), the growth rate was 2.58 percent in 2019-20 compared to 6.20 percent in 2018-19.

Keralas growth rates which were higher than national rates in earlier years saw a decline in FY 2019-20. The State was hit by cyclone Okhi in 2017, and by extreme rainfall events in 2018 and 2019 resulting in severe floods. The natural disasters ravaged the State economy affecting the lives and livelihoods of many and affected productive sectors of economy adversely, Covid pandemic also affected Keralas economy badly, It was estimated that in first quarter of FY 2020-21, the GSVA shrank by 26%.

The inflation increased during the period December 2019- February 2020 due to rising food prices. The inflation hovered around 6 to 7 percent in 2020.

The growth of valued added in agriculture and allied sectors in Kerala continued to remain negative for most period between 2011 and 2019. The decline in 2018-19 was 2.38 percent and that in 2019-20 was 6.62 percent.

The per capita income of Kerala continued to be one of the highest in the country at 1,49,563/- in FY 2019-20, much higher than the national average of 96,152/-.

The economy of Kerala is the 9th largest in India, with an annual Gross State Product (GSP) of 9.78 lac Crore in 2020-21. The per capita GSP of Kerala during the same period was 2,05,484/-, the sixth largest in the country,

Regulatory Measures and Monetary Policies

Banking regulation is a form of government regulation which subjects banks to certain requirements, restricts and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. As regulating focusing on key factors in the financial markets, it forms one of the three components of financial law, the other two being case law and self-regulating market practices.

It is important for regulatory agencies to maintain control over the standardized practices of financial institutions to hold control over the economy. This is the premise for government bailouts, in which governments financial assistance is provided to banks or other financial institutions that appear to be on the brink of collapse. The belief is that without this aid, the crippled banks would not only become bankrupt, but would create rippling effects throughout the economy leading to systemic failure.

Monetary Policies

Monetary policy is a policy formulated by the central bank, i.e. RBI (Reserve Bank of India) and relates to the monetary matter of the country, The policy involves measures taken for regulating the money supply, availability and cost of credit in the economy, The policy also oversees distribution of credit among users as well as borrowing and lending rates of interest. In a developing country like India, its significant in the promotion of economic growth.

The various Instruments of Monetary policy include variations in bank rates, other interest rates, selective credit controls, supply of currency, variations in reserve requirements and open market operations.

Financial Performance

The Bank declared a net profit of 37.19 Crore for the year ended March 31, 2021 as against 65.78 Crore during the previous year. Total business of the Bank as on 31.03.2021 stood at 18,834 Crore as against 17,703 Crore as on 31.03.2020. The total deposits of the Bank stood at 11,712 Crore and gross advance stood at 7,122 Crore as on 31.03.2021. Gross NPA and Net NPA percentage stood at 9.23% & 4.76% respectively in the current year against 5.90% to and 1.55% in the previous year. CRAR improved to 14.47% as on 31st March, 2021 against 14.41% as on 31st March, 2020. Book Value of the Shares stands at 34.15 as on 31st March, 2021.

Credit Sanction

A comprehensive Credit Policy has been put in place in the Bank with the following broad objectives:

• On board and maintain quality loan assets of acceptable risk profile.

• Secure a reasonable return on the assets.

• Achieve proper sectoral/geographical distribution of assets.

• Comply with regulatory norms in respect of exposure caps, pricing, IRAC guidelines, targeted credit etc.

Bank is adopting a careful assessment of risk-return trade-off, which is critical to its success. Bank has brought out new products and revamped existing products, retail loans processing structure as well, to ensure achievement of an enhanced assets portfolio.

Credit Cards

A robust system as per international standards is in place for credit card operations in the Bank. Bank is issuing globally valid Platinum credit cards in association with the Visa International Service Association (VISA). The end to end activity of credit card operations is managed by a well experienced staff.

Credit Monitoring

In order to ensure safety and quality of credit portfolio, Credit Monitoring Team plays a key role in the post sanction credit process such as, timely and orderly dispensation of credit, security creation, prevention account management, monitoring the conduct of the assets, quality of asset portfolio, safeguarding securities charged to the bank, reporting of irregularities and adherence to terms of sanction through continuous liaison with the branches. This team helps to strengthen the post sanction activities in the weak prone areas and plug the gaps. Remedial measures are taken proactively to prevent slippages. All Management Information systems are in place and the data automation is done in most of the critical areas.

Non-Performing Assets Management

Bank has an updated Board approved Recovery Policy in place revised during the FY to suit the changes in the economic scenario of our Country and certain regulatory changes in terms of NPA Management. Amid times of mounting bad loans in the country due to the outbreak of COVID-19 pandemic and the resultant fallout of economy, Bank had seen an exodus of accounts slipping into NPA. Bank, however, could recover a substantial amount from existing Non Performing Asset (NPA) accounts.

Bank had granted moratorium benefits to the borrowers twice during the FY 2020-21 following the directions of RBI, who could not fight against the damage caused by the pandemic. Bank had also extended the benefits of restructuring of loans to eligible borrowers to tide over the difficult situation imposed by COVID-19. There were certain accounts fallen into NPA following the Honble Supreme Court judgment dated 23.03.2021, which had asked lenders to classify the accounts as NPA with retrospective effect, which otherwise not in order. Pursuant to the order, which came in the fag-end of the FY, Bank had witnessed advances to the tune of t289.16 Crore turning into NPA. However, with concerted efforts, Bank was able to recover 55.10 Crore before the end of the FY.

During the year, the Gross NPA of the Bank has increased from 401.22 Crore as on March 31, 2020 to 657.21 Crore as on March 31,2021 and Net NPA increased from 100.94 Crore as on March 31, 2020 to 322.92 Crore as on March 31, 2021. In terms of percentages, the GNPA increased from 5.90% as on March 31, 2020 to 9.23% as on March 31, 2021 and Net NPA increased from 1.55% as on March 31, 2020 to 4.76% as on March 31,2021.

As a result of Banks strong focus on recovery as well as the initiatives taken in curtailing the fresh slippages, the NPA level is expected to moderate in the days to come.

Business Development and Planning

The department handles business development activities, introduction of new products & services, branch operations support, public relations and publicity measures, brand building initiatives and review of existing products and processes. The department is responsible to devise the business plan, fix budgets for the branches/regions and drive the business. The department also oversees the implementation of RBI guidelines on customer service and management of complaints. The department acts as an effective coordinator between the Management, various regional administrative offices and the branches which are business generating units.

Public Relations and Publicity

Bank continues its publicity and marketing efforts by way of Social Media, localized and regional initiatives in reaching out to its customers. As a part of its community involvement, Bank participated and encouraged local events and functions thereby growing with the society.

Banks Operations at Sabarimala

The Bank has been the principal bankers to Travancore Devaswom Board since 1970s. Bank had accepted to become the Banker to Lord Ayyappa and the temples administered by TDB in a spirit of public service. Since then the Bank has been extending the best of services to the TDB and other temples under TDB by establishing ATMs and branches in their premises. Bank also handles prasadam distribution counters at Sabarimala Sannidhanam, Pampa and Erumeli during the season.

Third Party Products Distribution

This department exclusively handles Third Party Products (TPP), its distribution, functioning and execution. Bank has entered into agreement with Leading Life Insurance, General Insurance and Mutual Fund Companies for distribution of their products.

Government Initiatives

Bank is actively participating in distribution of Government of India Sovereign Gold Bonds (SGB), Atal Pension Yojana (APY) to its customers apart from participating in Govt. driven initiatives to meet the objectives of Financial Inclusion.

Bank associated with Kerala State Welfare Corporation for Forward Communities for financing the poor and marginalized people among the forward communities of State of Kerala. It was one of the proud moment on 28th May 2021, when Kerala Governor, Sri. Arif Mohammad Khan mentioned Dhanlaxmi Bank for our services on women empowerment through SHG and JLG during his policy address at inaugural session of the 15th Kerala Legislative Assembly,

Forex Business

Forex Business is one of the most important focused areas of the Bank in deposit mobilization and exchange earnings. In foreign exchange business, the Bank had earned an exchange income of 1.96 Crore during the financial year ended 31.03.2021.

Treasury Department

The Banks gross Investment portfolio as on 31 March 2021 was 4,560.26 Crore - consisting of 3,953.80 Crore SLR instruments and 606.46 Crore non SLR instruments. In the SLR instruments, Treasury Bill is 973.35 Crore. In domestic treasury operation, the yield of investment portfolio was 5.57%. Additionally, the Bank had booked profit of 74.33 Crore by sale of Investments. During the year ended 31.03.2021, the aggregate book value of investments sold from Held to Maturity (HTM) category was 758.49 Crore. The sale is 37.57% of the book value at beginning of the Financial Year. The above sale is excluding sale under RBIs Open Market Operation (140.82 Crore) and one time shifting from HTM to Available for Sale category (615.29 Crore).

Central Processing Centre

Dhanlaxmi Bank has a full-fledged Central Processing Centre (CPC) to support branch operations and customer service across the Country. CPC takes care of account opening, loan setup, payments, service requests, other routine and time bound activities thereby enabling branches with sufficient time to interact with the customers and focus on business development.

Infrastructure Management

Infrastructure Department takes care of Management of Premises, Fixed Assets, Security & Communication equipment, etc. and getting infrastructure related works coordinated through various Regional Offices. Bank has adopted optimum measures to curtail rental and operational expenditure. Bank has undertaken shifting of branches to new premises as a part of rent reduction and facelift through renovation.

Currency Chests

Bank is having two Currency Chests, one at Pushpagiri, Thrissur and the other one at Attukal, Thiruvananthapuram. Both the Chests are equipped with state of the art machines for currency counting, sorting and counterfeit detection. The functioning of the currency chests are in accordance with the RBI guidelines.

Alternate Channels

Bank has 257 ATMs/CRs across the country to cater to the requirements of the customers and in the FY 2020-21 Bank deployed 16 cash recyclers (CR) for the first time facilitating the customers to deposit cash into their Dhanlaxmi Bank without visiting any of our branches which was approbating in the time of pandemic. Bank is also in the process of revamping its ATMs and its sites and as on 31st March 2021,219 ATM locations were revamped.

As per the RBI guidelines Bank has implemented enhanced security features in ATMs and in the debit cards issued by the Bank. Facility for the customers to enable/disable the card, payment channels like ATM, PoS and E-Commerce, manage the limits each payment channels etc. was introduced for mitigating the risk of loss in cases of any unauthorized transactions.

Banks green initiative of Green PIN facility for Debit cards was extended to Banks website and Retail Internet Banking. With this facility our customers can generate ATM/Debit Card PINs online at their convenience instantly on receipt of Debit Cards.

No. of Business Correspondents as on 31st March 2021 are 17. All the Business Correspondents have passed the BC certification Examination conducted by IIBF.

Information Technology Department

Technology has enormously played a dominant role in the functioning of banking institutions and the services extended. It is now transforming the way how banks are delivering services to their customers.

IT Department of our Bank plays a significant role in enabling best-in-class technology services to serve our Customers in an efficient and secured mode. Our systems showed good resilience against various vulnerabilities consequent to implementation of effective data security protection mechanisms, patch maintenance and pro-active end point protection.

The Financial Year 2020-2021 was a Technology Upscaling year for the Bank. The major IT Projects successfully initiated/up scaled by the IT Department are enumerated as under:

1. Core Banking Migration

One of the significant achievements of Bank was the seamless up-gradation of Banks Core Banking System (CBS) to latest version of Flexcube, a product of M/s Oracle Financial Services Software Ltd. Flexcube migration was completed along with integration of numerous peripheral/critical applications to the new version of Core Banking.

Bank has up-graded the infrastructure of Net/Mobile Banking platform to the next level which is highly secure and developed on latest technology to provide better service to customers with flexibility for Bank to offer more products on Net/Mobile Banking platform.

A New E-learning platform was utilized for imparting training to employees. Training programs were also held on thrust areas like digital products etc., to enhance the employee skills.

In order to make our systems more resilient, dual network bandwidth is made available from Network Service Providers including Airtel, BSNL, RCom, Vodafone, Sify, JIO and TCL.

Our Bank has been awarded the ISO 27001: 2013 for its IT Operations in August 2019. We are ensuring continued compliance & successfully completed the Surveillance Audit for the continuation of ISO 27001:2013 Certification for the year 2020-21 as well.

The Bank implemented LGMS-Lead Generation and Monitoring System. The LGMS is enhanced to perform the end to end loan processing and to monitor the turnaround time. The Gold Loan origination and disbursement system is upgraded to reduce Turn Around Time in Gold disbursement to 120 seconds.

2. Digital Products Enhancements

Enhancing Digital platforms continue to be Banks focus and we have done the following changes:

• Internet Banking & Mobile Banking - Debit Card and Credit Card Management - This feature helps the customers to enable/disable Card for use at ATM/POS/Online payment with limits, activate/deactivate international usage and generation of green PIN.

• UPI 2.0 - The iOS version of our UPI platform is migrated to UPI 2.0 for more feature enhancements.

1. UPI Mandate, with this feature our UPI user can preauthorise (Mandate) a transaction, for debiting from the bank account later. Additionally our Bank customer can use their BHIM DLB UPI ID as payment option while subscribing for IPO on National Stock Exchange (NSE) & Bombay Stock Exchange (BSE).

2. Signed QR (Certificate based QR generation), This feature helps the customers to check the authenticity of merchants while scanning QR or quick response code. This provides an additional security to the QR based transaction.

• Online eMandate Authentication - The Bank has enabled e-Mandate payment service initiated by RBI and the National Payments Corporation of India (NPCI) for businesses to collect recurring payments. With e-Mandate, our customers can easily simplify the recurring payments like telephone bills, insurance premiums, utility bills, SIPs, school fees etc. by using their Netbanking or Debit card credentials.

• Monitoring of Digital Transactions - As per the RBI regulatory guidelines, Bank has to monitor various financial and nonfinancial transactions initiated from digital channels. As a part to enhance the security measures of the digital channels and to safeguard digital payments the mobile banking, net banking and UPI applications are interfaced online with Fraud Risk Management application (FRM).

• RTGS 24x7 - RBI has introduced 24x7 RTGS vide circular -RBI/2020-21/70 DPSS (CO) RTGS No.750/04.04.016/2020-21 dated 4th December, 2020 with effect from 00:30 hours on December 14, 2020. As per the RBI direction, our Bank has enabled the 24x7 RTGS on 14th December 2020.

• Positive Pay in CTS - Reserve Bank of India (RBI) vide Circular No.: DPSS. CO. RPPD. No.309/04.07.005/2020-21 dated September 25,2020 directed all the clearing member banks to implement the Positive Pay System (PPS) in CTS Clearing so as to curb cheque related frauds. Our Bank has enabled the Positive Pay options in our Retail Internet Banking on 31st Dec. 2020. This facility is extended in Corporate Net banking also.

• Online Dispute Payments in the Corporate Website (ODRS) for Digital Payments - To facilitate the customer disputes related to the digital payments, our Bank has implemented Online Dispute Management Resolution System for Digital Payments in the Corporate Website.

• Call Center IVRS - The new features of the Interactive Voice Response System enable our customer to protect and manage their credit/debit card more effectively. The features include enabling/disable of Cards, modification of transaction limits and the restriction of cards for domestic/ international usages.

• Customer Grievance Module - The Bank has enabled a web-based application to address the grievance of customers regarding the loans sanctioned under RFCS.

• Offline EKYC - With an objective of delight customer satisfaction the Bank has enabled offline eKyc verification, by the way of collecting eKyc XML from the customers for verification.

• Disaster Recovery - The installed infrastructure is tested for its reliability and robustness by periodic audits. In addition, Periodic Disaster Recovery Tests are conducted to ensure the ability to move to the Disaster Recovery infrastructure in the event of downtime in the data centre capability, The Bank manages the state-of-the-art Data Centre, Near DR Site and Disaster Recovery Site.

Inspection Department

During the Financial Year 2020-21, Audit & Inspection Department conducted Risk based internal audit (RBIA) in 171 Branches and Business Units of the Bank. Risk Rating of 153 Branches were "Low". Branches categorized as Medium & High Risk category stands reduced to 18 from 28 in the previous year (FY 2019-20). Concurrent Audits were also conducted in 29 branches, 11 RPCs and 10 Business Units during the FY 2020-21. Credit Audits were conducted in 519 advance accounts in various branches during FY 2019-20 as against 314 advance accounts in FY 2019-20. Final Review/closure of RBIA reports of 248 branches were conducted during FY 2020-21 as against 207 branches in FY 2019-20.

Vigilance Department

Vigilance function of the Bank aims to attain high levels of integrity in Systems and Procedure by creating Awareness and developing Commitment and Probity at all levels, contributing high standards of efficiency and professionalism. Vigilance function is responsible to ensure that Public money is not misused by delinquent elements by using/misusing the loop holes in the systems and procedures.

Vigilance Department of the Bank is having a well-defined and comprehensive Board approved Policy, being reviewed annually by the Board of the Bank. Bank is having a Whistle Blower policy with an objective to conduct the affairs of the Bank in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. Whistle Blower Policy provides a mechanism for employees/ stakeholders to report the instances of corruption, misuse of Office, unethical behavior, actual or suspected fraud or violation of the Banks code of conduct, failure to comply with existing rules and regulations resulting in financial loss/operational risk, loss of reputation etc; detrimental to Depositors/Public Interest, Misappropriation Banks asset etc. The Department is responsible for conducting investigation, where ever necessary, based on the complaint/input from the Whistle Blowers. This is in addition to the Protected Disclosure Scheme framed in tune with the RBI directions.

All fraud related issues are handled by Vigilance Department as per regulatory norms, which includes Investigation on frauds/ serious irregularities and timely reporting of frauds to the RBI and the Board. The department conducts Root Cause Analysis of Frauds reported and wherever system flaws/control weakness are identified, control measures are suggested or taken up with concerned Department for its proper implementation, so as to avoid recurrence of such incidents.

Information Security

Rapid digitization of business, increasing transaction intensity and connectivity to networks and ecosystems has made cyber security increasingly important. The Bank needs to be prepared for cyber risk as we become more digital and maintain open and flexible platforms to encourage partnerships and innovation. Hence Bank has established a robust information security framework for securing its IT infrastructure and systems. The Bank has an Information Security Group (ISG) functioning at Corporate Office. ISG is primarily responsible for identifying, assessing and proposing mitigation for every information-security-related risk. This responsibility is carried out by interacting with various committees and stakeholders and preparing plans, proposals, policies, procedures and guidelines. ISG is also responsible for the Education, Awareness and Promotion of Information Security initiatives across the bank.

As per the RBI guideline on Cyber Security, Bank has formulated Cyber Security Policy, Information Security Policy and Cyber Crisis Management Plan which are reviewed on a periodic basis. Also Bank has established Security Operation Centre to detect and respond to Cyber incidents. The Bank has been implementing guidelines by RBI on Cyber Security Framework. The Bank also conducts and participates in cyber security drills to continuously fine tune its response mechanisms. The Bank also runs multiple awareness and internal simulation exercises to ensure high levels of employee awareness on information security, The Bank was certified with ISO/IEC 27001:2013 in the year 2019, for Information Security Management System. This certification is our assurance that we are in line with the cyber security standards for keeping the Information Systems secured. The certificate in revalidated yearly by the certifying authority and re-certification audit will be conducted post 3 years of certification.

Due to the advent of Digital Banking age, the approach of customers to avail banking services are changing at different scenarios. Presently, customers prefer to transact using the digital banking channels round the clock to perform their banking services. Diversified channels of banking like internet banking, mobile banking, ATM, POS pursue different types of frauds. Our Bank has implemented a Real time Fraud Monitoring mechanism to mitigate the fraud risk and reduce financial loss to bank by integrating all payment channels.

Legal

The Bank has its credit a well-defined Legal Policy, which defines and takes care of the functions of the Legal Department of the Bank inter-alia, the following:

• To devise the ways and means to suggest and implement preventive legal measures in tune with the statutory provisions, regulatory prescriptions and judicial expositions.

• To ensure proper due diligence and documentation in furthering the business of the Bank and initiating legal steps from time to time, to secure the interests of the Bank.

• To initiate legal steps from time to time to secure the interest of the Bank.

• To minimize the legal risks in the decision making process of the Bank and thus mitigating the legal and operational risks in a time bound manner.

• To take care of all suits filed by and against the Bank with scrupulous monitoring and timely steps.

The Bank is having a well-structured and defined Manual on Documentation to suit the loan products, updated from time to time, in tune with the statutory changes and judicial decisions.

Legal Department takes care of the updation of legal knowledge among the field functionaries by circulating an internal journal called "Legal PRO" which conveys latest judicial decisions and statutory changes affecting bankers.

Legal Department of the Bank is well equipped and has put in place all the necessary and statutory checks and balances to protect and safeguard the interest of the Bank.

KYC - "Know Your Customer" and AML - "Anti-Money Laundering"

The Bank has attached great importance to Know Your Customer and Anti-Money Laundering. All the transactions processed through the Core Banking Solution are monitored for identifying the transaction of suspicious nature, if any, using AML application, to discharge the obligation cast on the Bank under Prevention of Money Laundering Act.

Risk Management

Bank has adopted an integrated approach for the management of risk. The Banks risk management structure is overseen by the Board of Directors and the Risk Management Committee of the Board (RMCB) at the Board level. At the executive level Bank has like Asset Liability Management Committee (ALCO), Credit Risk Management Committee (CRMC), Operational Risk Management Committee (ORMC) and Market Risk Management Committee (MRMC) for Risk Management.

Bank has framed comprehensive risk management policies to manage various types of risks like ICAAP (Internal Capital Adequacy Assessment Process) Policy, Credit Risk Management Policy, Asset Liability Management Policy, Operational Risk Management Policy and Integrated Risk Management Policy, The Stress testing Policy of the bank was formulated to define different stress scenarios according to the RBI guidelines. The Bank has also developed various other risk Policies such as Stressed Industry Risk Management Policy, Fund Transfer Pricing Policy, Key Risk Indicator framework, Credit Pricing Policy and Risk Appetite Framework etc., for better monitoring of Risk management.

Credit Risk

The Bank assesses the credit risk at the portfolio level as well as at the exposure or counterparty level. It has a robust credit risk management framework comprising of the three distinct building blocks namely Policy & Strategy, Organizational structure and Operations/Systems.

Bank has a Board approved CRM Policy which deals with the various measures of Credit risks, goals to be achieved, current practices and future strategies.

The Credit Risk Management Committee of the Bank deals with issues relating to Credit Risk, which includes Rating standards and benchmarks, addressing issues in implementation of Rating, prudential limits on credit exposure etc.

The credit risk management aims at ensuring sustained growth of healthy credit portfolio. Exposure caps in terms of individual, group, industry/sector and segment level are defined to control risk concentrations and to ensure a fairly diversified spread of credit portfolio. Bank has developed comprehensive risk rating system that serves as a single point indicator of diverse risk factors of counterparty and for taking credit decisions in a consistent manner. All exposures of 2 lakhs and above will come under the purview of rating. The Bank has put in place Rating Migration Analysis of all credit exposures of 25 lakhs and above. Credit risks inherent in investments in non-SLR Bonds are being assessed independently by mid office treasury using the internal rating models.

Market Risk

Market Risk is defined as the possibility of loss to a bank caused by changes in the market variables. Liquidity risk is the risk to a banks earnings and capital arising from its inability to timely meet obligations when they come due without incurring unacceptable losses. The primary tool of monitoring liquidity is the mismatch/ gap analysis, which is monitored over successive time bands on a static basis. Moreover, the funds readily available as a back stop to meet contingency situations are measured and analyzed on a continuous basis.

Interest Rate Risk is another major risk involved in market risk. It is the exposure of a Bank to financial loss through movements in interest rates. The immediate impact of changes in interest rates is on banks earnings due to change in Net Interest Income (NII) and long term impact of changing interest rates is on banks market value of equity (MVE) or Networth as the economic value of banks assets, liabilities and off-balance sheet positions get affected due to variation in market interest rates. The Bank measures the impact on EVE on a monthly basis using Duration Gap Analysis. Bank uses VaR limits in the trading portfolios to determine the potential loss on a 10 day holding period basis with a 99% confidence level.

ALCO plays an important role in deciding the business strategy of the Bank in line with the Banks budget, Corporate Goals and risk tolerance levels decided by the Board having regard to the Capital Adequacy and Regulatory prescriptions. Bank has also a Market Risk Management Committee which is responsible for ensuring/adhering to the Market risk limits set by the Board and plays a major role in devising the market risk strategy of the Bank.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Bank has a comprehensive policy on Operational Risk Management to ensure that all the operational risks within the Bank are identified, monitored and reported in a structured manner. The Operational Risk Management Committee consisting of the Banks senior management including MD & CEO is responsible for the implementation of the Operational risk policy/strategy approved by the Board.

Bank had rolled out the Risk Control Self Assessment (RCSA) to pro-actively identify emerging risks at operational level for devising mitigants at source itself during 2010-11 and has successfully completed RCSAs in majority of the branches and other business functions. Collation of Loss Events is also being continued as a measure to move towards The Standardized Approach for capital calculation. Bank has also established a Key Risk Indicator Framework across the Bank which assists in identification assessment, monitoring and mitigation of operational risk.

Compliance

Compliance Department is the guardian to the rule books of the bank and regulator. It protects the Bank from taking excessive risks by ensuring that the business is within the regulatory parameters.

Compliance Department of your Bank is staying abreast of the changing regulatory requirements, expectations and industry practices. The Department is ensuring the best practice of compliance across various levels of your Bank. The Compliance Policy formulated by the Bank empowers the compliance function as an adequately enabled, strengthened and independent unit. The policy helps to ensure the effective monitoring and coordination of the compliance functions in the Bank. The policy is reviewed periodically and suitable changes are made to fall in line with the guidelines issued by the regulators from time to time.

The Compliance Manual which contains the compliance functions of each and every unit in your Bank serves as a guidance material for branches/offices. It is comprehensively updated to stay contemporary, Your Bank has a well laid-down procedure and online mechanism to monitor the compliance functions. A network of compliance team is available for overseeing the compliance functions at various levels. Compliance Monitoring Officers have been nominated in all units to monitor the compliance functions and to develop a robust compliance culture in the Bank.

Your Bank is focusing on employee education through circulars, frequent contact sessions, e-learning, online Tests etc., to sensitize them on the need for a strong compliance culture and also striving to develop a robust/ dynamic compliance culture in the Bank. For all matters related to compliance, the Department is functioning as a focal point for regulators like RBI, SEBI, IRDAI, etc. During this financial year, the Compliance function has been further strengthened by addition of specialized external talent, implementation of various regulations across the Bank and proactive detection of any compliance lapses coupled with quick remediation. To ensure compliance with all regulatory aspects and robustness of the controls, the Department has strengthened the monitoring and conducted thematic reviews.

Banks Compliance Department, consisting of experienced officers headed by Chief Compliance Officer, is setup at Corporate Office, Thrissur. The main function of Compliance Department is to ensure strict observance of all statutory provisions contained in various legislations such as Banking Regulation Act, Reserve Bank of India Act, Foreign Exchange Management Act, Prevention of Money Laundering Act, etc. as well as to ensure observance of other regulatory guidelines issued from time to time, standards and codes prescribed by IBA, FEDAI, FIMMDA, etc. and also Banks internal policies and fair practices code. The activities of Compliance function is based on a well-defined Compliance Framework approved by the Board of Directors. Compliance function conducts compliance testing at various functional units and failures, if any, are brought to the notice of the Board of Directors. The Compliance Department acts as the focal point for receipt and dissemination of all regulatory and internal guidelines/instructions. Compliance Department ensures that appropriate instructions get promptly percolated within the organization, the instructions are actually received at each office, and the instructions are implemented. Compliance Department plays the pivotal role in the area of identifying the level of compliance risk in each business line, products and processes and issue instructions to operational functionaries.

Human Resources

The Banks employee strength has come down to 1656 as on March 31,2021 from 1714 as on 31st March, 2020. The number of Sales Executives including Business Development Executives also reduced to 61 as on 31st March, 2021 from 65 as on 31st March, 2020.

Bank has provided training to the employees on various areas in order to improve their efficiency and to accelerate the growth. Majority of the employees had attended at least one training programme during the year. During the year, 1243 employees were trained through 116 programs. All programs are conducted through online mode except 1 7 programs (classroom small gathering), during the year adhering to the COVID-19 protocols. Bank has imparted special thrust to Information Security & cyber Security, Compliance, preventive vigilance, fraud awareness, KYC/AML and other programs related to regulatory guidelines. There were 830 employees trained with soft skills through 19 programs. The training programs helped to develop a learning culture among the employees as well as keep abreast of the current banking scenario. Bank also, as a regular practice, conducts online exams to the employees as a part of continuing knowledge enhancement and up skilling. The online tests are based on internal circulars/policies and pave way for imbibing the content.

Corporate Social Responsibility

Dhanlaxmi Bank Limited is grateful to the society for the support and encouragement in the Banks growth and development. The Bank believes that no organization can make sustainable development without the patronage from the society, The Bank is committed in the integration of social and environmental concerns in its business operations and also in the interactions with its stakeholders. The Bank shall continue to have among its objectives, the promotion and growth of the national economy and shall continue to be mindful of its social and moral responsibilities to customers, shareholders, employees and society. The Banks CSR mission is to contribute to the social and economic development of the community. Due to the COVID-19 Pandemic and regulatory restrictions imposed by the state authorities during the financial year, opportunities for on the spot assessment/evaluation of projects could not be undertaken. To the extent possible, projects were either implemented or identified as on-going projects for completion in the subsequent financial year.