dhanlaxmi bank Management discussions

Global Economy

While the global economy is recovering from the after effect of the COVID-19 pandemic, it continues to face another major challenge; the Russia-Ukraine war. The war has had a significant impact on the global economy, including:

Disrupted trade and supply chains: The war has disrupted trade and supply chains, which has led to higher prices for goods and services. This has had a negative impact on economic growth and inflation.

Inflation: Inflation has risen sharply in many countries in the wake of the war. This is due to higher energy and food prices, as well as supply chain disruptions. Inflation is squeezing household budgets and businesses and forcing central banks to raise interest rates to combat inflation.

Reduced policy space for governments: Governments have less policy space to stimulate the economy in the wake of the war and supply side disruptions. This is because they were already running large budget deficits to support their economies during the pandemic. They are also facing higher interest rates, which will make it more expensive to borrow money,

EMDEs more vulnerable to the impact of the war: EMDEs

(Emerging Market and Developing Economies) are more vulnerable to the impact of the war than developed economies. This is because they are more reliant on commodities and are more vulnerable to financial shocks. The war has already led to a decline in investment and growth in EMDEs and this trend is expected to continue in the coming years.

The war in Ukraine is a major setback for the global economy, It will take years for the world to recover from the damage that it has caused. In the meantime, policymakers need to carefully manage the trade-offs between supporting growth and controlling inflation. They will also need to provide support to EMDEs, which are more vulnerable to the impact of the war.

Indian economy

Indias economy is expected to grow by 6.0 to 6.8% in 2023-24, driven by strong credit growth to the micro, small and medium enterprises (MSME) sector, increased capital expenditure (capex) by the central government, a decline in inventory overhang in the housing market and a rebound in private consumption.

However, there are some risks to Indias economic growth, including the ongoing Russia-Ukraine war, rising inflation, and the after effect of the impact of COVID-19 pandemic. The

government needs to take steps to mitigate these risks and ensure that Indias economy continues to grow,

The MSME sector is a major driver of employment and growth in India. Strong credit growth to this sector in recent months is a positive sign for the economy. The Central Government has also increased its capital expenditure in recent months, which is a sign that it is committed to investing in infrastructure and other projects that will boost economic growth.

The inventory overhang in the housing market has declined in recent months, suggesting that demand for housing is increasing. Indias exports have also surged in recent months, a positive sign for the economy, Private consumption, which accounts for a large share of Indias GDP! has also rebounded in recent months.

The ongoing Russia-Ukraine war is causing global economic uncertainty, which could have a negative impact on Indias economy. Rising inflation is eroding consumer spending power and could also have a negative impact on economic growth. Overall, Indias economy is expected to grow at a healthy pace in 2023-24. However, there are some risks that could derail this growth. The government need to take steps to mitigate these risks and ensure that Indias economy continues to grow,

Kerala economy

Kerala has long been a leader in social and economic development. It has topped the SDG India Index for three years in a row and has the lowest multidimensional poverty index in the country, In 2021-22, the Kerala economy grew by 12%, despite the challenges posed by the COVID-19 pandemic. This growth was driven by strong performances in the agriculture, industry and tertiary sectors.

The government of Kerala is committed to further developing the states economy, In the 14th Five-Year Plan, the Government has set a target of achieving a high-income status for Kerala by 2030.

Here are some of the key factors that have contributed to Keralas economic growth:

• Strong public investment: The government of Kerala has made significant investments in infrastructure, education and healthcare. This has helped to create a skilled workforce and a conducive environment for businesses.

• High literacy rate: Kerala has one of the highest literacy rates in India. This has made the state a hub for knowledge-based industries.

• Favourable demographics: Kerala has a young population with a low dependency ratio. This is a major advantage for economic growth.

• Kerala Model of Development: Kerala has a unique development model that emphasizes social justice and equity, This has helped to create a stable and prosperous society.

The Kerala economy is expected to continue to grow in the coming years, The governments focus on education, healthcare and infrastructure will continue to drive growth, The states young population and favourable demographics will also be a major boost,

However, there are some risks to Keralas economic growth, The global economic slowdown and the rising cost of living are two major challenges that the state needs to address, The government needs to take steps to mitigate these risks and ensure that Kerala continues to grow at a healthy pace,

Regulatory Measures and Monetary Policies

Bank regulation refers to the formulation and implementation of rules and restrictions by the government or central bank to regulate banking institutions, The requirements, restrictions, and guidelines ensure consumer protection and operational transparency,

A healthy financial system is essential for a countrys economy, Banks are a major part of it, Regulations not only control the functions of these financial institutions but also provide a framework within which they have to work, Regulations explain how banks are regulated and supervised,

Financial Performance

The Bank declared a net profit of 49,36 Crore for the year ended March 31, 2023 as against 35,90 Crore during the previous year, Total business of the Bank as on 31,03,2023 stood at 23205,38 Crore as against 20846,47 Crore as on

31.03.2022, The total deposits of the Bank stood at 13351,65 Crore and gross advance stood at 9853,73 Crore as on

31.03.2023, Gross NPA and Net NPA percentage stood at 5,19% and 1,16% respectively in the current year against 6,32% and 2,85 % respectively in the previous year, CRAR as on 31^st March, 2023 was at 12,32% against 12,98% as on 31^st March, 2022, Book Value of the Shares as on March 31, 2023 improved to 37,99 from 35,57 as on 31^st March, 2022,

In terms of compliance with the SEBI (Listing Obligations & Disclosure Requirements) (Amendment) Regulations 2018, following ratios have changed by more than 25%, as per details given below:

Ratios	Mar-23	Mar-22	Variance
Net Profit Margin	4,31%	3,31%	30,21%
Return on Net worth	7,06%	5,31%	33,13%

Net profit Margin: Net profit registered Y-o-Y growth of 37,49% (from Net profit of 35,90 Crore in FY 2022 to net profit of 49,36 Crore in FY 2023) as against Y-o-Y growth of 5,53% in Total Income (from 1085,76 Crore in FY 2022 to 1145,75 Crore in FY 2023),

Return on Net worth: Net profit registered Y-o-Y growth of 37,49% (from Net profit of 35,90 Crore in FY 2022 to Net Profit of 49,36 Crore in FY 2023) as against Y-o-Y growth of 3,28% in net worth of the Bank (from 676,63 Crore in FY 2022 to 698,83 Crore in FY 2023),

Credit Approval

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,

• Ensure transparency in the process of sanctions,

Bank is adopting a careful assessment of risk-return trade-off, which is critical to its success, Transparency is ensured at all levels of processing, Bank is committed to meet its social responsibility goals, The bank aims to be a banking partner to its clients to provide sustainable competitive advantage in the medium to long term,

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), During the financial year Bank introduced various initiatives to enhance customer experience by offering value added services to credit card customers viz,, complementary airport lounge access, additional rewards points during festival seasons, special schemes in association with leading hospitality chain, attractive EMI options etc,

Credit Administration

In order to ensure safety and quality of credit portfolio, Credit Administration Team plays a key role in the post sanction credit process such as, timely and orderly dispensation of credit, security creation, account management, monitoring the conduct of the assets, ensuring 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 delinquency 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, There was a significant reduction in the SMA position of the Bank as on 31.03.2023 compared to the previous financial year FY 202122. The total SMA of the Bank reduced from 324.60 Crore to 223.54 Crore. The total SMA reduced by 31.13% and SMA 2 reduced by 15.56% compared to 2021-22.

Non-Performing Assets Management

The Bank has a Board approved Recovery Policy in place which underwent revision during the Financial Year to adapt to evolving economic conditions and regulatory modifications affecting Non-Performing Asset (NPA) management within the country.

Through a strategic and vigilant approach, the Bank was successful in preventing the migration of accounts into NPAs during the financial year. Moreover, commendable progress was made in recovering substantial amounts from existing NPA accounts.

Notably, to address unsecured small value loans in the loss category, the Bank introduced a specialized initiative named the "Dhan-Azadi” One Time Settlement (OTS) Scheme. This scheme aimed to enhance recovery efforts in small value accounts and incentives defaulters to engage in productive settlement negotiations. In alignment with the OTS Scheme, the Bank streamlined decision-making processes by empowering Branches and Regional Offices with the authority to sanction OTS under the Scheme. The introduction of the scheme yielded promising outcomes, fostering constructive dialogue with defaulters and facilitating successful settlements. The resounding success of this initiative prompted plans for its continuation into the next financial year.

Over the course of the financial year, the Bank achieved notable reductions in both Gross NPA and Net NPA figures. The Gross NPA decreased from 533.54 Crore as of March 31,2022, to 511.15 Crore as of March 31,2023. Similarly, the Net NPA figure declined from 232.16 Crore to 109.20 Crore during the same period.

The diligent efforts of the Bank are reflected in the percentage improvements of NPA figures. The Gross NPA percentage improved from 6.32% as of March 31, 2022, to 5.19% as of March 31, 2023. Similarly, the Net NPA percentage witnessed a significant reduction from 2.85% to 1.16% during the same time frame.

The banks unwavering focus on recovery, coupled with proactive measures to minimize fresh slippages, lays a strong foundation for moderating NPA levels in the foreseeable future. The positive trajectory observed in this reporting period underscores the Banks commitment to sound financial management and prudent risk mitigation.

Business Development and Planning

The department is responsible for devising the business plan, set budgets for the branches/regions, driving the business, oversee 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.

The department also handles business development activities such as branch expansions, introduction of new products & services, branch operations support, digital banking promotion, public relations and publicity measures, brand building initiatives and review of existing products and processes.

The department publishes various MIS to Management and Business units and runs campaigns as part of driving the Business.

Bank entered in to tie-up with Fintech partner for providing micro finance loans under priority sector. The end-to-end customer on boarding, credit underwriting and disbursement is automated. All the required documents are collected and signed digitally,

Government Initiatives

Bank entered into Memorandum of Understanding with Central Board of Direct Taxes and Central Board of Indirect Taxes for collection of direct and indirect Taxes. The online collection of Customs Duty through Retail Internet Banking is already commenced and collection of GST and Income Tax payments is in final stage of implementation.

Bank actively promotes the PMs social security schemes Atal Pension Yojana (APY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). APY provides Government backed pension scheme to the unorganised sector. The PMSBY scheme is a Personal Accident Insurance Scheme, offering protection against death or disability due to accident and PMJJBY schemes is a government backed insurance scheme offering 2 lakh life insurance cover for death due to any reason. Bank is also actively involved in promoting the Sovereign Gold Bond Scheme of Government of India.

Bank received the following awards for best performance in Atal Pension Yojana Scheme:

> Award of Excellence in APY " Circle of Excellence” Campaign.

> Award of Excellence in " APY Annual Award FY 2022-23”.

> Award of Appreciation in "APY Annual Awards for State Coordinators 2022-23 - Gujarat State”.

> Award of Excellence in "APY Annual Awards for State Coordinators 2022-23 - Kerala State”.

Bank is associated with Kerala State Welfare Corporation for Forward Communities for financing the poor and marginalized people among the forward communities of the State of Kerala. Government of Kerala empanelled the Bank for Contractors Bill discounting facility through Digital Platform.

Financial Inclusion

Financial Inclusion ensures availability of basic banking services and products to all, thereby reaching the un reached, unbanked and under-banked areas. Bank has engaged 4 Financial Literacy Centres in the state of Kerala and conducted 407 Financial Literacy awareness campaigns during the financial

year 2022-23, to provide basic banking knowledge to people across various part of the Society,

The Reserve Bank has been taking several initiatives to improve customer awareness on extant regulations to protect consumer interests, alternative grievance redress mechanisms, safe banking practices, etc, through various media and print campaigns, As a part of these initiatives, Nation-wide Awareness Programme was launched in November 2022, Bank had actively participated in the campaign by conducting training programmes at various branch locations,

Bank engaged 17 Business Correspondents for effective implementation of financial inclusion programme, to reach the banking services in sub service areas of a branch,

The Bank has opened 180543 BSBD accounts as on March 31, 2023 with an outstanding balance of 68,97 crore,

Pradhan Mantri Jan Dhan Yojana (PMJDY):

Pradhan Mantri Jan Dhan Yojana (PMJDY) is a National Mission on Financial Inclusion encompassing an integrated approach to bring about comprehensive financial inclusion of all the households in the country, The plan envisages universal access to banking facilities with at least one basic banking account for every household, As on March 31, 2023, Bank has opened 30481 PMJDY accounts,

Micro credit (SHGs Bank linkage):

Bank has established healthy business network with strong, viable and sustainable Non Govt Organisation (NGOs) to provide micro credit for economically weaker strata, especially women, The association enables the Bank to create a profitable lending platform with wide outreach and acceptance, In 2022-23, Bank entered business relation with NGOs like KAIROS, VISWASREE and CHETHANA to support and improve livelihood activities through SHG and JLG lending mechanism to bring the marginalized in socio-economic main stream, As on March 31, 2023, the Bank had 810 JLG loans with outstanding of 11,62 Crore and 14077 SHG loans with outstanding of 713,96 crore,

Aadhaar Enrolment Centres

Govt, of India, Department of Financial Services under Ministry of Finance had directed banks to become Enrolment Registrars with UIDAI so as to set up AADHAAR enrolment stations at branch premises, As on March 31,2023, Bank has 27 Aadhaar Enrolment centres across various states,

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 Sabarimala and other temples under TDB, Bank opens a seasonal branch at Sabarimala to facilitate banking services at Sabarimala and handles the prasadam distribution counters at Sannidanam and Pamba during Mandalam and Makaravilakku season and monthly poojas,

Third Party Products Distribution

Associate Products Division 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, Bank has arrangement with Bajaj Allianz Life Insurance Company and Canara HSBC Life Insurance Company for Life Insurance Products, Bajaj Allianz General Insurance Company Limited and SBI General Insurance Company Limited for general insurance products and HDFC Life Insurance for insurance of SHG Members, Bank tied up with SMC Global Securities Limited for providing share trading facilities to the customers,

Treasury Department

The Banks gross Investment portfolio as on 31 March 2023 was 4,036,62 Crore -consisting of 3339,13 Crore SLR instruments and 697,49 Crore non SLR instruments, In domestic treasury operation, the yield of investment portfolio was 5,65 %, During the year ended 31,03,2023, no investments were sold from Held to Maturity (HTM) category, Due to adverse market condition, Treasury booked loss of Rs 2,36 Crore during the Financial Year, Treasury office was moved to a prime location at Prabhadevi, Mumbai during the year,

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 various measures to curtail rental and operational expenditure, Bank has undertaken shifting of branches to new premises as a part of rent reduction and renovation as part of facelift,

Major activities taken up during the FY 2022-23 are as follows:

• Shifted 17 branches to new premises, bringing more facility and visibility to branches,

• Refurbishment undertaken in 25 branches to have more convenience for employees and customers,

• "Swachhata Drive 2022” undertaken during October to December 2022 towards Cleanliness Drive and upkeep of premises with active participation of all branches,

• Eight new branches were opened at various locations during the financial year

• Banks first branch at Thrissur was brought back to Bank owned premises which is located in the heart of the city,

• Steps taken for the utilisation and upkeep of all Bank owned premises,

• New software for processing and follow up of lease rentals implemented,

Operations Department

In order to ensure better efficiencies, control and integrity of data, Bank had set up an Operations Department at Corporate Office effective from July 1, 2021 and the following functions were brought under the control of Operations Department: -

• Cash Management and Currency Chests

• Regional Processing Centers,

• Central Processing Centre,

• Branch Banking Operations,

• Offsite Surveillance,

• Trade Finance Operations,

Cash Management and Currency Chest Operations:

• The average Cash to Deposit ratio of the Bank reduced significantly,

• Loss on account of idle cash reduced during the year 202223, through implementation of proper monitoring and cash management,

• Coins worth 15,95 crore were disposed of during FY 22-23,

• In view of huge accumulation of 10 coins at branches/ Chests, obtained separate RBI approval for storage of 10 coin in a separate vault room,

• During FY 2022-23, fresh chest linkage request for 17 branches were taken up with RBI and the same got approved, Temporary chest linkage facility for Pamba and Sabarimala Sannidhanam branches were also approved by RBI during the current FY,

• Compliance level of Currency Chest operations improved, Both Chests are rated as Low Risk by RBI, based on the inspection done by RBI officials at regular intervals,

• Soiled note of 296,18 crore was remitted at RBI by both Currency Chests during the FY 2022-23, Management of Regional Processing Centres: Rationalisation of the RPCs based on the functions handled were carried out and re-aligned the activities resulting in considerable saving in cost and resources, The overall volume of work handled at RPCs increased with the increase in deposits thereby supporting the business functions,

Central Processing Centre (CPC): Central Processing Centre (CPC) under the Operations Department is handling the following activities,

Payments & Settlements: Payments and settlement team in CPC handles electronic payment operations of the Bank including RTGS and NEFT operations, NACH operations, bulk transactions processing, etc, The team started automation

process of all the NACH products during the year and ensued that there are no rejections during the NACH file uploads, The team ensures timely passing on of DBT credits including Govt social security measures credits, to customer accounts, Complying with Regulators direction, not to return DBT credits related to the account holders, the team ensures DBT credits related to operations restricted accounts, Steps have taken to reduce the work load of branches by increasing the transaction file bulk upload facility through this team,

Depository Participant Operations: Bank is a depository participant of National Securities Depository Limited since last two decades, The DP operations of the Bank handles Depository participant activities in compliance with SEBI Regulations, NSDL Bye Laws and NSDL Compliance and Operations Manuals, Further, department handles operations like Insta Demat Account opening, bidding of IPO and right issue for the customers through BSE & NSE portals, Sovereign Gold Bonds related operations, etc,

Account Activation & maintenance of Central KYC (CKYC) division handles operations related to CASA account opening activation, Gift card account activation and uploading of individual new customer ID into the CKYC portal, A few of the achievements of this team are listed below:

S 116% growth in CASA account opening,

% 252% growth in Gift card account opening,

% 133% growth in Individual new customer id upload

Request Processing of Security deliverables and Logistics

team ensured increased safety of deliverables and to reduce the cost and TAT, National level Account Facility agreement has been executed with Speed Post Department, Started a process of sharing of data of expired cards to branches to enable them to contact customers to strengthen relationship, reactivation of SB accounts and Re-KYC compliances, Further, the team handles the activities such as Taxable ID linkage, management of Mobile Number Revocation List removal data for permanently disconnected mobile numbers which are published in TRAI web site,

Loans Team manages the opening and limit set up of all loans and advances other than Gold Loans and loan against deposits, Turnaround Time has considerably improved for Loan Account Opening, compared to previous years, Scaled up account opening process at par with the business requirements of different verticals, Training given to all Branches for preparation of sanction note and Limit Set-up by which TAT for Loan Account Opening has considerably improved compared to previous years,

Branch Banking Operations Division: Considerable

improvement in Re-KYC compliance levels (more than 50% completion of pending positions achieved), Video KYC process was implemented for Re-KYC, with a very low rejection percentage, Streamlining of many activities ensuring compliance to regulatory guidelines viz,, current account opening, routing account reconciliation etc, were done, To facilitate the smooth functioning of branches, Branch Banking Operations division issued Policies/Circulars/SOPs/Desk Cards/Learning series, etc., on Current Accounts, Video KYC, Record Maintenance, Mobile Number Revocation List, DEA fund, Recurring Deposit, Safe Deposit Locker Operations, Account Opening & Re-KYC Process, DD/BC Issuance, Recurring Deposit, etc.

Offsite Surveillance System (OSS) Team: Banks Offsite Surveillance System Team is functioning under Operations Department. Bank implemented an Offsite Surveillance System to implement an internal control system centrally to monitor the financial transactions on daily basis to analyses the exceptions and deviations. The scope of the Offsite Surveillance System covers monitoring of exceptional transactions in CBS and analysing them through reports generated. The rules are set to extract reports on exceptional and overriding transactions in CBS in alignment with the different policies and in compliance with the circulars of the Bank. The Offsite Surveillance System also monitors other alerts and exceptions, in order to prevent and detect any type of abnormal activity carried out by the branch, staff at department whenever Departments take up such requirements.

Trade Finance Central Processing Centre (TFCPC)

The TFCPC team was brought under Operations Department during the FY 2021-22. The Forex Business activities of the Bank Branches are coordinated by this team. TFCPC organizes trade- related workshops/Trainings to the stake holders by partnering with Trade bodies like ECGC, to provide a platform for networking with Exporters/Importers and other Trade/Regulatory Bodies.

Forex Business: Bank offers an array of Trade Finance products and services to exporters and importers through a well-equipped branch network that operates from 14 States and Union Territories. The entire back-end trade finance operations are centralized at Banks new Corporate Office at Thrissur, Kerala and are handled by a team which is well versed with these kinds of transactions and can handle any kind of complex products of Cross Border Transactions. The objective of Trade Finance Central Processing Centre (TFCPC) is to ensure error free & TAT based processing of transactions. Major products offered in Trade Finance are listed below:

• Pre-Shipment Advance - Packing Credit in Indian Rupees and Foreign Currency,

• Post Shipment Advance - Export Bills Negotiation/Discounting.

• Trade Credits- Suppliers Credit/Buyers Credit.

• Collection of Import/Export Documents.

• Remittance - Foreign Outward and Inward Remittance.

• Bank Guarantees - Inland and Foreign.

• Standby Letter of Credits.

• Letter of Credit - Inland and Foreign.

• Foreign Direct Investment and Overseas Direct Investment - Complete solutions including timely Reporting to RBI.

Alternate Channels

Bank has 270 ATM terminals across the country to cater to the requirement of the customers which includes 16 Cash Recyclers (CR) facilitating the customers to deposit cash into their Dhanlaxmi Bank Account without visiting any of the branches. During last year Bank installed 11 new onsite ATM machines in different new branch locations and 8 ATMs were shifted and the interiors are renovated along with the branch renovation activity, For customer convenience, selected ATMs were re-calibrated with smaller denomination currency,

As part of enhancing the customer experience and customer convenience, the Bank has introduced contact less debit card in association with RuPay, To comply with the RBI instruction, Bank incorporated Card on File Tokenization Facility (CoFT) for Online transactions.

The Bank has tied up with 3 service providers for providing EDC (PoS) machines and facilitating electronic transactions to its customers.

For customer convenience, the Bank has implemented new BBPS (Bharat Bill Pay System) in the upgraded Internet Banking and Mobile Banking application which facilitates Bill payments across a variety of billing categories.

Audit & Inspection Department

While the business continues to grow, with the advent of emerging technology, evolving business models, Cyber security, Data privacy, Dynamic regulatory environment and the changing needs of the customers, it is critical that a strong control framework is maintained across all functions of the Bank. Internal Audit function of the Bank plays a critical role in ensuring a strong control framework, thereby protecting and adding value to the organization. Internal Audit ensures prompt reporting of Internal control deficiencies and effectiveness of risk management functions.

The Reserve Bank of India has brought about continuous changes in the Internal Audit framework so as to align it with international practices and to build robust controls to enhance governance, regulation and supervision. Bank has implemented the directives of the regulator. Internal audit function of the Bank has sufficient authority, stature, independence, thereby enabling internal auditors to carry out their assignments with objectivity. Internal auditors of the Bank were given training from time to time at Southern India Banks Staff Training College, Bangalore. For the purpose of conducting concurrent audit as per the norms of the RBI, the Bank has appointed 63 experienced chartered accountant firms for auditing 55 Branches and 10 Business Units of the Bank during FY 2022-23. Besides, the Bank is also utilizing the service of the retired Officers of the Bank on a selective basis for the purpose of internal audit.

During FY 2022-23, internal audit department had conducted Risk Based Internal Audit (RBIA) in 183 Branches and 9 Business Units of your Bank. 55 Branches and 18 Business units were brought under concurrent audit coverage. Surprise check was conducted in 51 Branches. Surprise inspections were conducted in all the Branches with a frequency of once in a quarter. Currency chest inspections were conducted on a bi-monthly basis. Audit on outsourced activities is conducted once in three years. Information System audit was conducted on Digital Banking, SWIFT application, payment systems RTGS/NEFT, Data Centre, Disaster Recovery Centre and other critical applications in terms of the IS Audit plan.

Irregularities observed in the various audits are first reviewed by the Audit Committee of Executives (ACE). Significant audit findings are reviewed by the Audit Committee of Board (ACB). The Audit Committee of the Board provides directions and advises the audit team on corrective actions. ACB also reviews the adequacy of the internal audit function, including the reports and frequency of audits, etc.

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 loopholes 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 behaviour. Whistle Blower Policy provides a mechanism for employees/stakeholders to report the instances of corruption, misuse of Office, unethical behaviour, 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. The Department is responsible for conducting investigation, wherever 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.

Vigilance Department is committed to fight against corruption in all spheres of its operations, to uphold an honest, transparent and efficient organizational culture through awareness, system improvement and preventive measures. Department sensitises the officials about the need of a robust appraisal and effective credit monitoring mechanism during the entire cycle of the loan account and precaution to be taken while performing duties in day-to-day activities to avert the risk of fraud.

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.

For prevention of frauds, Vigilance Department has initiated the process for blocking of on-boarding customers, whose PAN number and names are reflected in CFR data, for fraud committed in other Banks. In respect of existing customers, whose name is reflected in CFR data, necessary due diligence and care is taken with regard to operation of the account.

Information Technology

Bank has made considerable progress on its digital banking strategy during the year with a focus on changing the core, reinventing whole customer journeys, and serving as ecosystem partners of choice. During the year, Bank launched digital journeys for micro lending and investment products like Sovereign gold bonds, and other digital platforms as well. To provide the retail customers with a world-class customer experience, the Bank has also made extensive changes to the online and mobile banking platforms.

The introduction of digital products has played a significant role in reducing turnaround times and streamlining documentation, ultimately leading to enhanced customer satisfaction.

Proactive measures are being made to increase operational effectiveness and productivity by leveraging the power of analytics. In this regard, different dashboards, such as the Branch Information System, and digital products have been introduced for day-to-day monitoring of key business parameters.

The Banks initiatives on the digital front have been widely recognized, providing an overarching view of the efforts and performance.

Awards & Recognitions on Technology front:

¦ IT PROJECT TEAM OF THE YEAR in the Technology Excellence Awards 2022, organised by M/s Quantic Business Media Pvt Ltd.

¦ BEST TECHNOLOGY BANK OF THE YEAR AWARD for the FY 2022-23 under BFSI Leadership Awards 2022 program on 15th September 2022, organized by M/s Quantic India.

¦ DIGITAL DISRUPTORS AWARD during the 3rd BFSI Gamechanger Summit by Elets Technomedia on 27th August 2022.

¦ We are the first Bank in India to offer API-based E-Mandate using AADHAAR authentication of recurring payment mandates and recognised by NPCI.

Key Initiatives implemented in Financial Year 2022-23: In continuation with Banks focus on optimizing business growth while providing best in industry services to our valued customers, Bank has introduced a host of products/services in the current financial year 2022-23 as listed below;

• To optimize the Digital banking offerings, Bank revamped the net banking DhanDelight and mobile banking platform DhanSmart with enhanced security via multifactor authentication, biometric login and Self-registration functionalities.

• Launch of all new revamped and improved corporate website.

• In-app authentication (Smart ID) mechanism to authenticate transactions without relying on SMS based OTP for digital transactions.

• API-based E-Mandate using AADHAAR authentication of recurring payment mandates to customers.

• The integration of the Bank with the Vahan portal for online addition, continuation, and termination of vehicle loan hypothecation is a significant step towards digitizing and streamlining the vehicle loan process. The Vahan portal is an initiative by the Ministry of Road Transport & Highways, Government of India, aimed at providing a centralized platform for various vehicle-related services.

• PFMS platform to access information and perform transactions related to government schemes

• QR Code Issuance. Bank has distributed 9827 QR stand to merchants during FY 2022-23.

• Monitoring the Availability of Cash in ATMs and ensuring availability of cash at all times.

• Bank has successfully implemented a software across all its branches for processing of loan proposals within expected TAT.

• Enabled indirect tax payment in retail net banking.

• End-to-End Digital Lending Platform for Micro loans, in which applying for loan, KYC validation, eligibility-based check on the scheme guidelines, sanction, digital document execution (e-stamping & e-signing) and disbursement of the loan are taken care of.

Compliance to International Standards: Bank has been recertified with ISO: 27001:2013 for Data Centre, Near Data Centre, Disaster Recovery centre and Department of Information Technology/Technology Operations and the certification is valid for a period of 3 years from 27/04/2022 till 26/04/2025. It is certified that the Information Security management system of the organization has been assessed and found to be in accordance with the requirements of the ISO 27001:2013 standard.

One of the key focus areas of the Digital strategy has been to increase efficiencies and deliver better cost income profile for the Bank by transforming the processes and operations.

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 it becomes 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, Digital Payment Security Policy, Business Continuity 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 finetune 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, for Information Security Management System. This certification is the assurance that this Bank is in line with the cyber security standards for keeping the Information Systems secured. In the year 2022, Bank got recertified on ISO/IEC 27001:2013 standard for another 3 years.

Bank has established Security Operation Centre (SOC) to detect and respond to Cyber incidents. Bank also conducts and participates in cyber security drills to continuously finetune its response mechanisms. Moreover, the Bank runs multiple awareness and internal simulation exercises to ensure high levels of employee awareness on information security. Bank has deployed Endpoint Detection and Response (EDR) solution to detect and respond against the advanced cyber-attacks like ransom ware attacks.

Bank has also established data governance policy & framework to effective handle risks pertaining to data handling Bank has deployed comprehensive Data leakage prevention solution to ensure sensitive data is protected.

Rewards & Recognitions: Bank has received CSO100 awards for 2022 by Foundry.

Legal

The Bank has to 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

• 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 is capable of supporting the Bank to understand legislative and regulatory change that may impact business model and operations. Legal Department takes care of prosecution of cases in courts and litigation management.

KYC - “Know Your Customer” and AML - “Anti Money Laundering”

KYC (Know Your Customer) and AML (Anti Money Laundering) are crucial practices in the financial industry to ensure the integrity of transactions and protect against illegal activities such as money laundering.

The AML function assesses customers identities and financial activities to detect suspicious behaviour that might indicate money laundering or other illicit financial activities. This assessment is based on various factors, including the nature of transactions.

To effectively carry out its AML responsibilities, the Bank has implemented a well-defined AML application. The AML application is designed to analyse transaction data and identify any potentially suspicious patterns or activities.

By diligently implementing AML measures, the Bank fulfils its responsibilities under the Prevention of Money Laundering Act, a legal framework to combat money laundering and related financial crimes.

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 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 counter party 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 counter party and for taking credit decisions in a consistent manner. All exposures of 2 lakh and above will come under the purview of rating. The Bank has put in place Rating Migration Analysis of all credit exposures of 25 lakh and above. Credit risks inherent in investments in non-SLR Bonds are being assessed independently by treasury mid office 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 analysed 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 Net worth 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, 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 and 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 Basel III 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 the 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 the 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 the Bank serves as a guidance material for branches/offices. It is comprehensively updated to stay contemporary, The 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.

The 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. The Compliance function has been further strengthened by 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.

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 was 1767 as on March 31, 2023 against 1724 as on March 31, 2022. Bank had recruited 107 employees in the FY 2022-23.

During the year, 1484 employees were trained through 162 programs. Bank has imparted special thrust on Credit, Information Security & Cyber Security, Compliance, Preventive Vigilance, Fraud Awareness, Digital Banking, Trade Finance, Selling Skills and other programs related to regulatory guidelines.

Corporate Social Responsibility

The Bank 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. During the financial year, to the extent possible, projects were either implemented or identified as on-going projects for completion in the subsequent financial year.