IndusInd Bank Ltd Management Discussions.

Macroeconomic Scenario &

Banking Environment

Financial year 2016-17 was a watershed year for the Indian economy. Major Government Policy reform initiatives were undertaken, which will have a significant and structural impact on the economic and business environment over the next 3-5 years. The most important of these measures was the passage of enabling legislations for the introduction of a nation-wide Goods and Services Tax (GST). The GST will create a common market in the country by reducing barriers to internal trade, making exports more competitive and can potentially raise growth by up to 2%.

The currency swap program (Demonetization) was the other major policy initiative, which is likely to have a long lasting impact on the economy. Demonetization, combined with GST, is expected to induce greater formalization of the economy. It is also likely to lead to a gradual shift in savings towards financial instruments, as against physical assets. The Government and the RBI also undertook complementary steps to reduce the reliance on cash for payments and other transactions, looking to leverage on technology and the unique identification system, Aadhaar. These measures would lead to greater formalization, financialization and digitization over the next 3 years.

Other major reforms announced during the year include the Bankruptcy Code, which once operational, would significantly reduce the time taken for bad debt resolution or liquidation, and will help in dealing with stressed assets in the Banking System. Several steps have also been taken to facilitate foreign investment, improve the ease of doing business and create an ecosystem for start-ups.

On the macro-economic front, developments during the year fostered stability, even though growth slowed down, in part reflecting the impact of demonetization. India remained among the worlds fastest growing large economies, helped by robust domestic consumption. Growth at an estimated 7.1% in FY 2016-17, however, slowed down from 7.9% in FY 2015-16, on weak investment activity and adverse transient impact on demonetization on consumption. The Services and Farm Sector activity supported the overall momentum, with foodgrains output touching a record level on a near-normal monsoon.

Inflation remained well under control with the headline CPI inflation easing to an average of 4.5% in FY 2016-17 from 4.9% in FY 2015-16. The receding of inflation allowed RBI to cut Repo Rate by 50 bps to 6.25%, during the first half of the year.

The RBI also changed its stance on liquidity in April 2016, with an endeavour to shift from deficit to neutral liquidity conditions, which saw the Central Bank inject liquidity until the demonetization announcement. However, the RBI changed its Policy stance to neutral from ‘accommodative in February, noting the upside risks to its inflation target of 4%, including that from a hardening profile of commodity prices, particularly Crude Oil.

The Central Bank also estimated that the adverse impact of demonetization on growth was restricted to about 33 bps and that economic activity would recover following remonetisation, Pay Commission-related increase in Salaries and Allowances, and softer lending rates. Lower Policy Rate and the demonetization- induced jump in Bank Deposits, saw banks reducing borrowing and lending rates during the year. Median 1-year MCLR across banks fell by 85 bps over the year. Yields on Government Bonds also eased, with the 10-year Yield falling by 79 bps during the year.

On the fiscal front, the Central Government continued with the fiscal consolidation process and met its Fiscal Deficit target for the year of 3.5% of GDP. For FY 2017-18, the increase in overall Budget spending has been pegged at 6.6% and the Fiscal Deficit has been projected at 3.2% of GDP. With an increase of 10.7% in the Capital Expenditure over FY 2017-18, focus is on strengthening the productive capacity of the economy. In pursuance of the Governments on-going push for better Railways and Roads, allocation to the Transport sector has been increased by 20% in FY 2017-18.

The external sector fundamentals of the economy improved, too. The Current Account Deficit (CAD) shrunk to 0.7% of GDP in the first 3 quarters of FY 2017, from 1.4% in the same period of FY 2016. FPIs appetite for Indian assets improved in Q4, adding to the steady FDI inflows during the year. Fll inflows rose to $12 billion in Q4, reversing sharply from Q3, which saw outflows of $11.3 billion. Helped by a smaller CAD and a pickup in capital inflows, the RBI added to the foreign exchange reserves, which went up by $14.4 billion during the year to $370 billion. Reflecting these improved fundamentals, the INR appreciated by 5.2% against the USD in Q4 and 2.2% over FY 2016-17. Global growth environment turned supportive too, with economic activity across major economies, gaining momentum in Q4.

The year also saw strengthening of challenges to growth. Slow resolution of banks NPAs and anaemic private sector investment activity emerged as major challenges on the domestic front. On the global front, heightened global policy uncertainty with trade protectionism and the Fed rate hikes stood out as key risks. Notable global events in that context included the UK deciding to exit from the European Union, and election of President Trump in the US with an inward looking agenda including immigration curbs. The US Federal Reserve hiked rates twice by 25 bps each during FY 2016-17, and signalled that rates would continue to be raised gradually until 2019.

The economic and policy developments over the year however, place India in a relatively strong position to deal with rising global policy uncertainties and tightening of global financial conditions.

Business Performance

The salient features of the Banks operating performance during the year 2016-17 are summarized in the table below:

Particulars FY 2016-17 (Actual) FY 2015-16 (Actual) Y-o-Y (Growth)
Interest Earned 14,405.67 11,871.74 21.34%
Interest Expended 8,343.07 7,355.17 13.43%
Net Interest Income 6,062.60 4,516.57 34.23%
Non-Interest Income 4,171.49 3,296.95 26.53%
Revenue 10,234.09 7,813.52 30.98%
Payment to Employees 1,521.02 1,236.09 23.05%
Other Expenses 3,262.06 2,436.01 33.91%
Operating Expenses 4,783.08 3,672.10 30.25%
Operating Profit (before Depreciation and Provisions and Contingencies) 5,641.71 4,297.94 31.27%
Operating Profit 5,451.01 4,141.42 31.62%
Provisions and Contingencies 1,091.33 672.16 62.36%
Profit Before Tax 4,359.68 3,469.26 25.67%
Provision for taxes 1,491.79 1,182.81 26.12%
Net Profit 2,867.89 2,286.45 25.43%

Despite the tough operating environment that prevailed through most part of the financial year, the Banks Net Profit, after considering all

expenses and Provisions and Contingencies, rose by 25.43% to Rs.2,867.89 crores as against Rs.2,286.45 crores. The Operating Profit (before

Depreciation and Provisions and Contingencies) rose robustly by 31.27% to Rs.5,641.71 crores, as compared to Rs.4,297.94 crores in the previous year.

The Net Interest Income of the Bank improved robustly by 34.23% to Rs.6,062.60 crores from Rs.4,516.57 crores. Yield on Advances dropped by 53 bps to 11.71 %, while the Cost of Deposits showed a drop of 84 bps at 6.41%. Net Interest Margin for the year improved to 3.99% as compared to 3.81% achieved in the previous year, mainly due to the composition of the Asset Portfolio, benign interest rates movements during the year and judicious mobilization of funding resources through deposits and borrowings, including overseas borrowings and refinance from institutions.

Fee and miscellaneous income at Rs.4,171.49 crores as compared to Rs.3,296.95 crores for the previous year, showed a strong growth of 26.53% y-o-y. Core Fee Income from revenue streams like Commission, Exchange, Fees on distribution of third party products and earnings from foreign exchange business, etc. rose to Rs.3,488.59 crores as against Rs.2,809.59 crores registering a growth of 24.17%.

The Bank expanded its branch network steadily to reach 1,200 branches, as against 1,000 branches at the beginning of the year. Revenue per employee remained steady at Rs.40.43 lakhs.

Though the economy in general and the corporate sector in particular were under severe stress, the asset quality at the Bank remained stable, with Net Non-Performing Assets (Net NPAs) at 0.39% at March 31, 2017 as against

0.36% a year ago. Provision Coverage Ratio (PCR) was maintained at 58% as compared to 59% in the previous year.

Return on assets (ROA) was placed at 1.86% for the current year as against 1.91% in the previous year.

During the year under review, the Bank allotted 31,62,370 equity shares, pursuant to the exercise of Options under its Employees Stock Option Scheme, 2007. An aggregate of 3,98,39,800 Options, comprising 6.66% of the Banks equity capital, have been granted under the Scheme.

Consumer Banking

Consumer Banking business exhibited healthy growth in revenue during FY 2016-17. All business segments of Consumer Bank continued to outperform, propelled by the objective of delivering best-in-class products and services to Retail clients. The Savings Account Balance Sheet witnessed robust growth of 57%, while funded assets showed 30% y-o-y growth.

The Bank continued with Digitalizing of businesses and ensured maximum usage of its Digital Initiatives by the clients. In line with the Governments digital push, the Bank laid special emphasis on promoting digital agenda across payments, deposits, lending and sourcing new clients.

To give further impetus around the Banks focus on Going Digital to ‘Fully Digital, various innovative and convenient approaches were introduced during FY 2016-17. Tablet-based Account Opening process was introduced, wherein an accounts gets opened and fully activated within ‘2 minutes.

The Bank has launched, a

one-stop portal for all foreign exchange needs of Indian consumers. With the help of this portal, one can buy multi-currency foreign exchange cards

and reload them anytime, anywhere in 8 different currencies. Consumers can also use the portal to send money abroad by Telegraphic Transfer in 16 currencies for all travel-related remittance such as, Education, Immigration, Tour Remittance, Employment, and for Family Maintenance. The Bank became the first to introduce Aadhaar-based e-KYC on Travel Cards at zero margin, thereby boosting customer convenience and enhancing digital experience.

Similarly, the Bank launched an instant and real-time Personal Loan portal branded as ‘Easy Loan, for catering to existing Account-holders displaying prudent credit behaviour. This contributed 24% to the Personal Loan business for the year.

To make banking easier for its customers, the Bank enabled its best-in-class fingerprint-based Mobile Banking App with new-age digital payment services, viz., UPI and Bharat QR. The Bank also went Live with Aadhaar Pay App for merchants and UPI @ USSD for Retail clients, to tap digital payments at the bottom of the pyramid. The Bank forged multiple relationships across the industry spectrum, including with Payments Banks, Merchant Aggregators, Business Correspondents, Mobile Wallet Providers, and leading financial portals. The purpose and strategy around the partnership is to acquire and diversify Banks customer base in a non-linear, B2B2C model.

With the objective of increasing penetration around branch catchments, Consumer Bank has launched first-of-its-kind Transaction Friendly Current Account ‘Indus Freedom. This is targeted towards The Shop Next Door, which are run by individuals or proprietors. Indus Freedom is a step towards digitization wherein, on doing one Mobile/ Net Banking / ATM transaction a month, the customer gets the ‘No AMB Maintenance advantage.

Business Banking Group was one of the major contributors to the topline of Consumer Bank. The strategy of adding new segments that had been implemented during the last financial year led to strong results in year 2016-17, with 37% y-o-y growth in acquisition of new customers. Branch-led assets presently constitute 33% of total Business Banking Assets. New customer sourcing for the year was evenly spread between branch (46%) and non-branch sources (54%), in line with the Assets philosophy of the Bank of leveraging branch distribution. Focus in FY18 would be on further synergising between various asset classes, such as cross-sell on Consumer Finance Division (CFD) assets, with target of 60% branch sourcing for new customer acquisition.

The ‘Loan Against Property business had one more year of consistent performance, displaying a healthy growth of 34% in the Loan Book, i.e., Rs.1,803 crores of addition to the Book. In line with the Banks focus on internal customers, the contribution from internal channels has now grown to 49% of the total number of loans originated. The Home Loans distribution tie-up with HDFC Limited remains one of the key Asset products distributed through the branch network.

The ‘Loans Against Card Receivables (LACR) product was launched in 2014, and in a small span of time has witnessed sharp growth of 119% y-o-y in the Expected Net Receivables and 116% in the number of Live accounts (y-o-y). The portfolio has helped in extending support to the concept of cashless economy. It has helped many Small and Medium Scale Enterprises such as restaurants, garment merchants, petrol pumps, consumer durables, etc., to achieve business growth and to cater to the day-to-day financial demands of business through Card swipes. To further expand the business footprint while strengthening relationships with existing customers, it has penetrated into newer locations and grown the quality portfolio. A healthy Book has been built in LACR, at a yield of more than 17%.

The Personal Loans business continued its measured growth strategy, while contributing a robust yield to the Assets portfolio. The performance of the Book continued to be robust, growing @ 70%, while exhibiting strong portfolio parameters. The product has a live portfolio of 35,000 customers, with 22,000 customers on-boarded in the year 2016-17. Cross-sell synergy with the Consumer Finance Team helped expand the footprint into new geographies.

The Business Loan product was launched in 2013, and completed almost the full cycle with creation of a healthy Asset Book of Rs.678 crores, with 4,400 live clients spread across the Micro, Small and Medium Enterprise segment.

Retail Agriculture

Retail Agri Business witnessed sturdy growth through expansion to key markets. Since its launch, the Bank has built a highly diversified portfolio, ranging from funding of traditional agricultural activities to high-tech farming / Agri-allied activities.

The Bank has emerged as a key player in the States of Punjab, Haryana, Rajasthan,

Maharashtra, Gujarat and Madhya Pradesh. The Bank penetrated into new rural / semi-urban locations in the State of Kerala in year 2016-17, and plans to aggressively cover more geographies. Loans have been extended to Weaker Sections, persons with disabilities, and Small and Marginal Farmers, helping the Bank strengthen its commitment to these segments. The Banks KCC Book now stands at Rs.700 crores, across about 3,700 farmer accounts across various geographies.

Client Experience

The Bank aims to go beyond client servicing, to provide best-in-class ‘experience to its clients.

During the year 2016-17, there has been a renewed thrust on client-centricity, which puts our customers at ‘the very heart of everything we do.

Transforming ‘Client Experience (CEX) has been identified as a key strategic imperative for the next few years. The Bank aspires to differentiate itself through such customer-centric initiatives and garner sustainable competitive advantage in the commoditized banking space. It corroborates the business objectives of retaining strong growth and attaining market leadership.

The Bank has taken steps in this direction, which includes developing better understanding of client needs, matching right capabilities with right clients, enhancing personalization, and revamping key customer journeys. These client-centric initiatives will be an extension to the Banks current themes of Responsiveness and Digitization. The Bank has retained the services of Business Consultants of global repute, to ensure rapid building of business vision and creating the right roadmap for transformation.


In line with the Banks theme of ‘responsive innovation, the all-new version of th^^j Mobile Banking App was launched during the year, with an innovative service‘Fingerprint Banking.

This service solves the key customer issue of having to remember Passwords. With this service, customers can do seamless and secure banking transactions via the Mobile Banking App by just using their fingerprints. A new feature ‘Shake-N-Pay has been added, which enables customers to transfer funds to other Induslnd Bank Account-holders by just waving the Mobile handset.


The Bank opened 200 new branches as part of the strategy of expanding its banking network to different locations in the country, taking the count to 1,200. The Bank also increased the ATM network to 2,036 by opening 236 new ATMs. The Bank has also partnered with White-Label ATM operators to set up co-branded ATMs.

Credit Cards

The Banks Credit Card business has continued to display strong performance, scaling up and growing distribution and profitability, while remaining focused on the quality of customer receivables. The business has crossed the half-million customers milestone driven by the cross-sell-centric distribution strategy. The business has significantly grown its digital capabilities and has enhanced its distribution infrastructure in branches while leveraging its online and digital presence. The branch infrastructure is being effectively leveraged towards new account bookings and cross-sell initiatives. Customer spends and loyalty have been driven by strong promotional offers, in partnership with leading brands across the country. The creation of strong propositions centred on the Dining and Wellness space has resonated well with customers. Strong

thematic promotions around the Holiday and Festive Seasons have also created customer preference, and have helped drive customer spends.

The Commercial Cards Business has added impetus to the product range in the Banks portfolio and has provided Corporate clients with elegant payment solutions for their spending needs, with integrated MIS solutions which have significantly simplified their expense management systems.

The Bank has tie-ups with all three leading network partners, Master Card, Visa and Amex. With the business now past the half-million customers mark, it now has scale in addition to profitability. With strong fundamentals in place, consumer confidence at high levels, and with the societal move towards preference in digital payments over cash, customer spends continue to be robust, driving growth and profitability.

Consumer Finance

The Consumer Finance Division (CFD) extends funding for a wide range of Vehicles / Equipments, which include Commercial Vehicles, viz., Heavy, Light and Small Vehicles used both for goods and passenger applications, Passenger Cars, Utility Vehicles, Two-Wheelers, and Construction Equipment such as Excavators, Loaders, Tippers, Cranes, etc. Finance is extended for both new and used assets in all the above segments. Tractor funding, a major initiative towards Priority Sector Lending and Financial Inclusion, was launched pan-India.

Aggregate disbursements made during the year rose to ^22,605 crores, as against Rs.20,369 crores in FY 2015-16, growing 11% over the previous year. New Loan accounts numbered 10.68 lakhs in 2016-17, as against 10.30 lakh loans boarded in FY 2015-16.

The focus during the year was optimizing the product mix to maximize yields, whilemaintaining portfolio quality despite the industry sluggishness.

During the year 2016-17, Used Vehicles disbursement was Rs.3,840 crores, up 10% from Rs.3,499 crore in 2015-16.

This Division also earned Commission Income of Rs.36.60 crores through distribution of various third-party insurance products of Cholamandam MS General Insurance, Banks strategic partner for bancassurance is the General Insurance segment.

The operations of this Division are solidly supported by the Document Storage and Retrieval Facility at the Banks Karapakkam Unit (near Chennai), which handles processing of Loan Documents and maintenance of records. This Unit handled nearly 2 million Loan bookings and closure transactions and over 35 million customer service / accounting transactions during the year 2016-17.

The Banks Processing and Vaulting facility at Karapakkam has state-of-the-art facilities in terms of data / equipment protection mechanisms and is equipped with access rights with sensors to facilitate monitoring of document movement within the Centre.

The Bank has a Data Centre within the Airtel Data Centre facility with state-of-the-art security systems with a backup at the Banks G. N. Chetty

Road premises, as part of Business Continuity Planning.

During the year, Tab-based Application for sourcing of Two-Wheeler loans was launched to improve Turn-Around-Time (TAT) in the Credit Delivery process.

Hand-Held Terminals have been deployed pan-India to handle CFDs collection activity. These initiatives have substantially enhanced process efficiencies.

Corporate and Commercial Banking Group

Corporate Banking

Corporate & Investment Banking provides Universal Banking Solutions to large Indian Groups and Multinational Corporates. The Business Unit has developed deep relationships with several large Indian Business Houses and over the years with continued addition to New-To-Bank clients, the unit has become a banker to almost all the large corporate houses and large market cap companies in India.

Investment Banking (IB)

• Debt Capital Markets (DCM), Advisory (M&A and Private Equity) and Structured & Project Finance are the three main businesses of the Investment Banking Unit. The Unit enables the Bank to partner with growth-oriented corporates throughout their lifecycles.

• During the year, the Bank successfully underwrote and sold down loans to various investors worth more than Rs.5,600 crores, and secured for itself a lead position amongst Private Sector banks in the Loan Underwriting League Tables.

• With strong domain expertise in Wind Energy, Solar Energy, Roads, Ports, Logistics and Power Transmission sectors, the Project Finance team was able to win Project Underwriting and Syndication mandates from several large reputed Indian corporates.

• The Real Estate Group set up last year for financing construction of Real Estate projects (Residential and Commercial) by developers grew modestly during the year. The Bank adopted a conservative approach in growing this book.

Public Sector Group

• This Group handles relationships with more than 150 Public Sector clients, including Maharatnas and Navratnas.

• It was successful in winning large collection mandates in Tax Free Bond issues of many esteemed Public Sector Units (PSUs). The Group successfully executed several e-Procurement mandates from key PSUs, by providing strong technology-based solutions.

Financial Institutions Group

Financial Institutions Group manages relationships with domestic and international Banks and Financial Institutions. The Group has intensified its geographical coverage and expanded Its network of Correspondent Banks across the globe, which helped in scaling up of the Trade and Treasury businesses of the Bank, and ensured seamless execution of cross-border deals.

The Group also successfully raised foreign currency resources from key correspondents which helped support the lending book in Foreign Currency, thus augmenting the Banks liquidity and facilitating reduction in costs.

Financial Services Group

• Financial Services Group was launched to handle the relationship of Financial Services players in India, i.e., NBFCs, Insurance Companies, Mutual Funds and other Financial Institutions in Public and Private Sector.

• The Group has achieved significant success by winning Escrow / CMS mandates from renowned names in the industry and establishing trade partnerships with NBFCs and FIs.

Capital & Commodities Markets Division

• The Capital and Commodity Markets Division focuses on servicing Capital and Commodity Exchanges and their Members.

• The Bank currently has membership with all large Stock and Commodity Exchanges in the country, and is a Clearing-cum-Settlement Banker to both NSE and BSE in the Capital and Futures Market segments.

International Financial Service Centre Banking Unit (IBU)

The International Financial Service Centre Banking Unit (IBU) has seen significant business in the first year itself, achieving Balance Sheet size of nearly USD 500 mn as on March 31,2017.

The product offering from IBU includes External Commercial Borrowings (ECBs), Trade Credits, Loans to Overseas Entities, and non-funded products. Having developed the product offerings that cover an area that the Bank was not able to address hitherto, the IBU is slated to be a significant contributor to the Banks Balance Sheet as well as profitability.

Environment & Social Management System Policy:

To ensure that the wider impact of our investment activities are positive and lie within a set of international and national standards, a Department-wide Environmental and SocialManagement System (ESMS) has beeninstituted.

This Policy is governed at the macro-level by key stakeholders across the Banks Management apparatus, including BoardMembers, the CEO, and Business Heads. At the micro-level, there is a grass-rootimplementation mechanism, which is the framework that Relationship Managers and Business Teams employ to perform in-depth evaluation to understand each clients impact on the key parameters as outlined in the Policy.

ESMS will be administered via an online portal, which in addition to screening proposals, will capture data on the volume of projectsfinanced, that have a positive impact on environmental and social considerations.

Commercial Banking Group Mid-Corporate Group (MCG)

Set up with a view to target the ‘sweet spot of the Indian corporate space, the Mid-Corporates Group focuses on companies in the fast growing Mid-Corporate segment.

Inclusive Banking Group

The Inclusive Banking Group within Commercial Banking is a market leader in providing microloans to the Weaker Sections of society through the ‘Business Correspondent model, while also engaging in term lending to Microfinance Institutions (MFI) and Securitisation of such assets.

Loans aggregating Rs.3,309.66 crores were disbursed during the year, a majority of them directly under the Business Correspondent model, actively working with 19,94,915 clients at the base of the pyramid. All borrowers are women, and are provided loans for productive purposes like agriculture / livestock, trading and repair shops, cottage industries, etc.

The Business Correspondent portfolio is geographically well-diversified and spread across 110 Districts in 14 States, with a network of 464 MFI branches. The Group proposes to deepen the engagement this year by digitising its service delivery, which would not only enhance partner synergies but also facilitate real-time understanding of customer needs, thereby driving product accessibility at minimal costs.

The range of financial services envisaged is as under:

• Basic Banking Services - Savings and Term Deposits facilitated through a strong Agent Network

• Full range of Credit products to the enterprising clientele - Microcredit, Home Improvement, Two-Wheeler, Micro, Small and

Medium Enterprise, and Agri Business (Dairy, Seed, Equipment, etc.)

Agricultural Business Group (ABG)

The Group offers products such as Pledge Finance and Agricultural Infrastructure Finance. Its presence is spread over 14 States and 59 locations. Engaged in the funding of pledged commodities, the Group has widespread relationships with Collateral Managers to handle commodity-related and associated risks.

ABG also provides specialized services in the Agriculture segment. It has a committed team of specialized Agriculture Finance professionals to cover all segments of the value chain. This Division has scaled up innovative products such as Agri Project Finance, Agri Trade Finance and Agri Infrastructure Finance. In its two years of operations, the vertical has been able to establish itself as a significant player in the Dairy and Agri Infrastructure segments.

Supply Channel Finance (SCF)

The vision of the group is to be the preferred Working Capital Banker to the Dealer and Vendor Community by providing not just Channel Finance and Vendor Finance limits, but also Working Capital Limits. The Group plans to expand briskly through collaborations with existing and new Corporate clients.

In line with the Digitization focus across the organization, the Group will participate on the TREDS platform and will launch the SCF online platform to enable straight-through funding and processing of transactions in the supply chain.

Global Markets Group

The Global Markets Group (GMG) comprises three main functions:

• Asset Liability Management (ALM);

• Trading (Rates, Foreign Exchange and Derivatives); and

• Client Sales, comprising the Client Risk Solutions (CRS) Team, which essentially provides hedging strategies to clients for their exposures across foreign exchange and interest rates, and the Credit Sales Team, which provides clients access to Debt Capital Markets.

The Asset Liability Management Unit manages various regulatory requirements including Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Liquidity Coverage Ratio (LCR), Intra-day Liquidity (IDL), High Quality Liquid Assets (HQLA), etc., as prescribed by the Central Bank and other governing bodies. In addition, the Desk manages day-to-day liquidity requirements of the Bank through appropriate funding avenues along with Transfer Pricing, involving both INR and Foreign Currency. The liquidity and resource mobilisation strategy proactively addressed the Structural Liquidity Risk conditions and achieved significant efficiency in the Banks sourcing of funds with an

optimal mix of Term Deposits, Market Borrowings and Refinance.

The Trading Desk trades in Rates, Foreign Exchange and Credit. It is instrumental in taking proprietary positions in Government Bonds, Corporate Debt, Interest Rates (INR and Foreign Currency), Interest Rate Futures and Currencies. The Trading desk also trades in Derivatives, and has executed Long-Term Currency and Interest Rate Swaps with established market counterparties.

The Client Risk Solutions (CRS) Team is instrumental in providing hedging solutions to clients across Corporates, Financial Institutions and Retail clients on their foreign exchange, and interest rate exposures. The Bank enters into these transactions based on a strict suitability and credit criteria. Besides the above OTC products, the Bank is also Trading-cum-Clearing Member in NSE, and offers a web-based platform across client segments for hedging of currency exposures by clients.

During the year, the Bank started operations at the IFSC Banking Unit established in GIFT City, Gandhinagar and commenced funding for financing, as well as offering hedging solutions to clients.

Transaction Banking Group

The Transaction Banking Group (TBG) offers products and services to customers across all Business Units in the areas of Cash Management, Trade Services, Supply Chain Financing, Global Remittances and Digital Banking.

The Bank continued to be one of the leading players in the Rupee Drawing Arrangements, being a preferred Bank for several partners worldwide. More partners were added for real-time cross-border payments using the NPCI-promoted IMPS facility.

Induslnd Bank is among the Top Banks for cross-border flows under IMPS.

The Bank offers customized and differentiated products to its Corporate and Consumer Banking customers for improving their Payables and Receivables Management. Another area of focus has been the proliferation of Escrow Services amongst the Banks clients. The Banks Cash Management Services have been enhanced by its four Currency Chests.

In line with the Governments agenda of promoting Digital Payments, the Bank introduced many such products and services. The Bank became one of the first to complete a pilot (with NPCI) for the Bharat Bill Payment System (BBPS), introduced the UPI Payments Platform for its Corporate Customers, and also launched its Corporate Mobile Banking App.

The Bank continued to play a significant role in working with various Government departments across India to provide e-Tendering, e-Procurement and e-Auction services, thereby partnering in the Governments agenda of increasing Digital Payments and enhancing transparency.

Induslnd Bank received multiple Awards from The Asset, an independent leading Asian Business Journal, under the following categories:

As a prominent Trade Services Bank, the Bank continues to innovate and has partnered with a RBI-approved TREDS platform, for providing affordable financing to MSME suppliers. In addition to that, the Bank has also raised our focus in providing cost-effective Trade Services and Financing Solutions for clients requirements of Domestic and Global Trade. Fee income in the Trade business grew by 35% during the year.

The Banks Supply Chain Finance Solutions continue to support and assist clients in negotiating preferential Trade terms and strengthening relationships with their strategic Supply Chain Partners. Banks solutions offer cost-effective financing of Trade receivables across multiple sectors through customized Supplier Financing and Dealer Financing Solutions.

Gems and Jewellery Group

The Gems and Jewellery Group caters mostly to Units manufacturing Diamonds in India, involving the livelihood of more than a million artisans, and export of polished diamonds to countries around the globe.

This fits into the Banks strategy of contributing to the livelihood of citizens, and catering to our nations need of higher exports and Foreign Exchange earnings.

Through expertise in this business, the Bank has been recognized by the Trade Council as a Centre of Excellence, and the same has been

acknowledged through continuous awards and recognitions, the latest J being the Gems and Jewellery Export ^ Promotion Council (GJEPC), sponsored by the Commerce Ministry of the Government of India, awarding us the Best Bank financing the Industry in the category of ‘Highest Limits Sanctioned. The sector provides large cross-sell opportunities and contributes to the Banks targets in j Priority Sector Lending.

Priority Sector Lending

The Bank has achieved the RBI-prescribed target for Priority Sector Advances, which aggregated Rs.36,764.32 crores at the end of March 2017, representing 41.29% of the Adjusted Net Bank Credit (ANBC) of the previous year, as against the prescribed target of 40%.

Advances to Agriculture

During the year, the Bank financed over 13,60,353 agriculturists, and Aggregate Agricultural Advances stood at Rs. 11,712.20 crores, representing 13.15% of ANBC at the end of March 2017. The target set by RBI is 18% of ANBC.

Advances to Other Segments of Priority Sector

The Banks finance to ‘Weaker Sections increased by X 527.59 crores and stood at Rs. 7,736.82 crores, representing 8.69% of ANBC as at the end of March 2017.

Effective FY 2016-17, RBI has stipulated furnishing of PSL data on a quarterly average basis for monitoring of compliance with targets. For this purpose, the achievement will be arrived at the end of financial year based on average of Priority Sector target / sub-target achievement as at the end of each quarter and the excess / shortfall in lending being monitored.

Accordingly, the average of all quarters for FY 2016-17 is represented in the table below:

As of Target Achieved % Achieved Excess / (Shortage)
PSL (40%) 31,596.12 33,166.72 41.99% 1,570.60
Agriculture 14,218.26 11,156.26 14.12% (3,061.99)
Small & Marginal Farmers 6,319.22 4,263.34 5.40% (2,055.88)
Micro Enterprises 5,924.27 6,440.55 8.15% 516.28
Weaker Section 7,899.03 7,428.42 9.40% (470.61)

Approach to Priority Sector Lending

The Bank continues to pursue Priority Sectoradvances, including those relating to Agriculture /Micro and Small Enterprises / Weaker Sections.

Various Business Units in Corporate,

Commercial and Consumer Banking Groups

• Financing farmers / JLGs against hypothecation of agricultural produce.

• Financing farmers for transport of their own agriculture produce.

• Financing farmers for supply of various Agri and Allied commodities, viz., Sugarcane, Oilseeds, Milk, Rubber, etc.

• Financing Agri and Allied Projects, viz., Horticulture, Dairy Farming, Poultry Farming, Bee-keeping, Aquaculture, Floriculture, etc.

• Financing Agri Infrastructure, viz., Warehouses, Cold Storages, Godowns, Market Yards, Silos, etc.

• Financing farmers / entities engaged in Coffee / Tea / Rubber industry and plantation for Paper Pulp

• Financing Dairy segment for expansion and working capital requirements.

• Investments in Rated Asset Pools meeting the eligibility criteria for Priority Sector.

• Direct Lending through Service Providers underhave built specialized teams to significantly enhance the Banks footprint in the PSL segments.

Specific plans and strategies for achieving targets and sub-targets under Priority Sector Lending have been formulated, some of which are indicated below:the Partnership Model for meeting the needs of Agri, Micro, Small and Medium Enterprises and Weaker Sections.

• Loans to MFIs for on-lending to farmers for agricultural and allied activities eligible for classification under Priority Sector.

• Loans to farmers under the Kisan Credit Card Scheme.

• Loans to Service Enterprises - Micro, Small and Medium Enterprises with investment in equipment of > Rs. 2 crores and < Rs. 5 crores.

• Loans to Manufacturing Enterprises - Micro, Small and Medium Enterprises with investment in Plant and Machinery of > Rs. 5 crores and < Rs.10 crores.

• Weaker Section Advances - Priority Sector Loans to Small / Marginal Farmers, persons from Scheduled Castes and Scheduled Tribes, Loans up to Rs. 1 lakh to Women Borrowers and Loans to Minority Communities as notified by the Government from time to time.

Banking business is exposed to a wide spectrum of risks, and it is imperative that the various risks faced by the Bank are effectively measured, monitored and managed.

A robust Enterprise-wide Risk Management (ERM) framework enables effective and proactive management of various risks, while supporting business growth. ERM helps reduce volatility in earnings and enhances Shareholder Value.

The Bank has an integrated Risk Management Department, independent of business functions, covering Credit Risk, Market Risk, Assets-Liabilities Management (ALM) and Operations Risk, including Information Security Risk functions. Risk management practices have been aligned with the best industry practices and are adaptable to a dynamic operating environment and market conditions.

Credit Risk Management

Credit Risk is managed both at transactions-level as well as at portfolio level.

The key objective of Credit Risk management is to maintain Credit Quality within the defined risk appetite, while achieving appropriate return in relation to risks assumed. Various measures adopted for management of Credit Risk are mentioned hereunder:

• Credit risk policies are aligned with business strategies and the risk appetite in line with RBI guidelines, the economic environment, and the operating outlook;

• Gauging Credit Risk at the time of credit assessment by means of risk-rating models designed for different segments of obligors;

• Credit Portfolio Management Analysis to monitor Credit Quality, composition of portfolios, concentration risk, yield monitoring and business growth;

• Measurement and monitoring of Weighted Average Credit Rating (WACR) of the Credit portfolio;

Despite the challenging environment, the Bank has been able to maintain the quality of its portfolio. The Banks restructured assets are among the lowest in the industry, with both, Corporate as well as the Retail Loan Books having remained resilient.

The Bank has been introducing wider range of Retail products, to have larger share of customers wallet and to meet their needs. Such products are governed by structured product programmes specific to the business, which details out the criteria on customer selection and underwriting standards.

Market Risk Management

Market Risk arises from changes in Interest Rates, Exchange Rates, Equity prices and risk-related factors such as market volatilities.

• Prudential internal limits prescribed for assuming exposures on counterparties, industries, sectors, etc.;

• Measurement of Credit Quality of Consumer Finance portfolios by means of Behaviour Modelling;

• Management of exposures to counterparty banks and countries by setting exposure limits on the basis of their risk profiles;

• Stress Testing of Credit Portfolios to measure shock-absorbing capacity under multiple stressed scenarios and assessment of impact of potential credit losses on profitability and capital adequacy.

The Bank manages Market Risk in Trading portfolios through a robust framework prescribed in its Market Risk Management Policy.

The Bank has implemented state-of-the-art Market Risk Management System, which enables adoption of Internal Model Approach for computation of Capital Charge towards Market Risk.

The Market Risk System supports VaR, Stress Testing, and Capital Computation Framework, helping manage Market Risk in volatile market conditions. The framework includes monitoring of Value-at-Risk (VaR) limits, PV01 limits for Forex, Investments, Equity and Derivatives portfolios, besides Stop-Loss limits, Exposure limits, Deal-size limits, etc.

Asset-Liability Management (ALM)

The Banks Asset-Liability Management System supports effective management of Liquidity Risk and Interest Rate Risk, covering all assets and liabilities.

• Liquidity Risk is managed through Structural Liquidity Gaps, Liquidity Simulation, Liquidity Coverage Ratio (LCR), Dynamic Liquidity monitoring, Liquidity Ratios analysis, Behavioural analysis of liabilities and assets, and prudential limits for negative gaps in various time buckets.

• Interest Rate Sensitivity is monitored through prudential limits for Rate Sensitive Gaps, Earning at Risk, Modified Duration of Equity and other risk parameters.

• Interest Rate Risk on Investment portfolios is monitored through, PV01, VaR and Modified Duration on a daily basis. Optimum risk is assumed through duration, to balance between risk containment and profit generation from market movements.

Detailed analysis of liquidity position, interest rate risks, product mix, business growth versus budgets, interest rate outlook, etc., is presented to Asset-Liability Management Committee (ALCO) which meets frequently and reviews business strategies.

ALCO provides directional guidance to Business Units towards effective management of liquidity position, while achieving Business goals. The Bank assesses its structural liquidity position on a daily basis for managing liquidity in a cost-effective manner.

Stress Testing - Liquidity Risk

The Bank carries out stress tests on liquidity position periodically to simulate impact of stressed liquidity scenarios on funding and liquidity position. Stress tests help to be better equipped to meet stressed situations and have contingency funding plans in place.

Contingency Funding Plan

Contingency Funding Plans have been developed to respond swiftly to any anticipated or actual stressed market conditions.

The Bank reviews its Contingency Plans considering the evolving market conditions. Contingency Funding Plan covers available sources of funds to supplement Cash Flow gaps in the event of stressed scenarios, roles and responsibilities of those involved in execution of Contingency Plans and the Contingency Triggers.

Interest Rate Risk on Banking Book (IRRBB)

Interest Rate Risk on Banking Book largely arises on account of: (i) Re-pricing Risk; (ii) Optionality;

(iii) Basis Risk; and (iv) Yield Curve Risk.

From an Economic Value perspective, the Bank minimises sensitivity to changes in Interest Rates on Assets and Liabilities. Interest Rate Risk is measured based on the re-pricing behaviour of each items under Asset, Liability and Off-Balance Sheet products.

The Banks Assets and Liabilities Management Policy has laid down tolerance limits based on the risk appetite and the impact on Nil and Economic Value of Equity (EVE) for a given change in Interest Rate.

The Framework measures and monitors Interest Rate Risk on Banking Book using the Duration Gap Approach, besides the Traditional Gap Approach.

Operational Risk Management

The Risk landscape for banks has been undergoing substantial changes.

Operational Risk is the risk of incurring loss due to failure of systems, technology, processes, employees, projects, disasters, external factors, frauds, etc., including Legal and Regulatory Risks.

Operational Risk arises on account of human error, failed processes, inadequate systems, frauds,

damage to physical assets, improper behaviour or external events. The Bank aims to ensure that key Operational Risks are managed in a timely and effective manner through a meticulous framework of policies, Standard Operating Processes, and procedures and tools to identify, assess, monitor and control such inherent risks in its businesses.

Banks today face an unprecedented number of new and emerging risks. The Banks Risk Management Department keeps a close watch on the operational and external risks and provides direction, and undertakes various initiatives under its Operational Risk Management (ORM) Framework for mitigation of such risks. The ORM Framework encompasses Policy Guidelines, Risk and Control Self-Assessment (ROSA), Loss Data Analysis, Key Risk Indicators (KRIs), implementation of Basel III Norms, RBI Guidelines, etc. The Bank constantly endeavours to enhance its ORM framework to ensure compliance with regulatory norms and generate greater strategic value.

RCSA of all major Operations functions have been carried out and appropriate risk mitigation plans have been designed and implemented. Loss Data Analysis, based on internal as well as external loss data, is carried out periodically to identify trends and reinforce operational controls. An Incident Reporting tool has been designed and implemented for reporting operational risk incidents across the Bank and monitoring actions thereon for mitigation of risks.

New products / processes are rated in a transparent manner so as to enable risk-based decision-making for introduction of the same. All new products / processes are approved by the Operational Risk Management Committee (ORMC), which identifies the risks inherent in the products and prescribes necessary controls to mitigate such risks. Products and processes risks are subjected to review to ensure adequate risk management.

The Banks Audit mechanism covers a gamut of activities such as periodical on-site audit, Concurrent Audits and Off-site Surveillance enabled by Banks advanced technology-driven processes and the Core Banking System.

The acceleration in unfolding events both domestic and global has further strengthened the Banks Business Continuity Framework. The Bank has implemented a comprehensive Bank-wide Business Continuity Plan to ensure functioning of its critical functions during disruption / disaster situations.

Systems Risk

The Banks Information Security Policy provides the framework upon which all subsequent security efforts are based, and to guide the development and maintenance of a comprehensive Information Security program. It deals with security of information in various forms like spoken, written, printed and electronic or any other medium and handling of information in terms of creation, viewing, transportation, storage or destruction.

It contains the principles that direct managerial decision-making and facilitates secure business operations. It is designed to enable the Management to ensure the security of information assets and maintain accountability. It also defines the appropriate and authorized behaviour for personnel approved to use the Banks information assets. The Banks Data Centre and operations are certified as per 27001:2013 ISMS standards. The Bank has Board-approved Cyber Security Policy in place. The policies and procedures are built around the following principles:

• Treat Information Security Risk in line with Business, Regulatory and Legal requirements;

• Ensure Availability, Integrity, Confidentiality of Information, establish Accountability and provide Assurance;

• Focus on People, Process and Technology for implementation;

• Apply least privilege, need to know / use principles;

• Promote Information Security Awareness to create Security-aware culture within employees, contractors, third parties and customers;

• Deal with exceptions and violations appropriately;

• Focus on Information Security Governance, Assurance and Evolution to ensure suitability, adequacy and effectiveness;

• Participation of Security Team during the initial stages of Systems acquisition and development;

• Structured approach towards Information Security Awareness.

Financial Restructuring and Reconstruction Group

All activities relating to recovery of non-performing loans and restructuring of stressed assets are handled by the Financial Restructuring and Reconstruction Group (FRRG).

The Bank has actively utilized the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for recovering its dues. During the year, the Insolvency and Bankruptcy Code 2016 has beennotified and it is aimed at making the resolution of non-viable entities possible in a time-bound manner.

During the year, the Bank recovered an amount of Rs. 32.30 crores in written-off accounts. The Net NPAs of the Bank stand at 0.39% of the Total Advances, while the ratio of Gross NPA as percentage of Total Advances amount is 0.93%.

General Banking Operations

The Bank has strengthened the policy framework on "Know Your Customer" (KYC) norms and "Anti Money Laundering" (AML) measures from time to time, in line with regulations. The Bank has implemented a simplified procedure of "Know Your Customer", which will benefit Lower Income Group persons to open accounts with minimal documentation.

The Bank had implemented a state-of-the-art Workflow and Imaging System for Account

Opening, booking Term Deposits, processing Trade Finance transactions, sale of Third-Party products and Branch Expenses processing.

The System enables faster turnaround times, and movement of work from branch locations across the country to the Central Operations Unit in real-time mode, thus cutting out the time that physical forms would take to arrive through courier. This has helped in freeing up manpower at the branches to tend to customer service.

The Bank is a member of the Banking Codes and Standard Board of India (BCSBI), which was set up to ensure that banks in India adhere to a voluntary Code, which sets minimum standards for fair treatment to customers availing of banking services.

The Bank is committed to adhere to all the provisions of the Code prescribed by BCSBI. The Bank has taken steps to implement the provisions of the Code of Commitment to Customers (Individuals). The Code is displayed at all the branches, and is also hosted on the Banks website in thirteen languages. The Code had been revised in January 2014, and was adopted by the Bank.

The Bank has also adopted the "Code of Commitment to Micro and Small Enterprises" (MSE Code) issued in June 2008 for customers belonging to the Micro and Small Enterprises segment. This Code was revised in 2015 by BCSBI, and was adopted by the Bank. It sets the minimum standards of banking practices.

The Bank has also formulated the Policy on ‘Financing to the Micro, Small and Medium Enterprises, and the same is hosted on the Banks website.

The Bank is participating in Clearing through Cheque Truncation System (CTS). As on March 31, 2017, the Bank had 165 locations covered under the Grid Clearing, through its three CTS Centres at Mumbai, Chennai and Delhi.

The Bank has also started participating in NACH (National Automated Clearing House) transactions both for Debit and Credit (ECS) at Mumbai, and for the Aadhaar-Based Payment System (ABPS) transactions through NPCI.

The Bank has adopted a "Comprehensive Policy", on settlement of claims in respect of deceased depositors. The Policy covers all types of deposits, and has simplified the procedure for settlement. The forms are also provided on the Banks website.

The Bank has put in place a "Deposit Policy" and a "Fair Practice Code". The former outlines theguiding principles in respect of various products of the Bank and the terms and conditions governing the operations of the accounts and the rights of depositors. The Fair Practice Code is a voluntary Code, establishing standards to be followed by all our branches in their dealings with the customers.

The Bank has framed the "Citizens Charter" to promote fair banking practices and to give information in respect of various activities relating to customer service.

The Bank has put in place "Customer Compensation Policy" as part of the commitment to customers for any direct and actual loss by way of internal loss / payment of charges by customer due to deficiency in service to the extent mentioned in the policy. The Policy is based on principles of transparency and fairness in dealings with customers.

The Bank has framed the "Unclaimed Deposit Policy" based on RBI guidelines with the objective of classification of unclaimed deposits and setting up the Grievance Redressal Mechanism for quick resolution of complaints and record-keeping. Further, in line with RBI directives, balances in unclaimed deposits and other accounts have been transferred to "Deposit Education and Awareness Fund" (DEAF), w.e.f., June 2014. Details relating to accounts unclaimed have been duly uploaded on the Banks website.

The Bank has also formulated the ‘Customer Rights Policy, and the same is hosted on the Banks website.

Corporate and Global Markets Operations (CGMO)

Corporate & Global Market Operations (CGMO) manages the operations related to Trade Services, Cross-Border Remittances, Supply Chain Finance, Treasury, Foreign Exchange and Derivatives, Cash Management Services, Payments, Depository and Capital Markets and Bullion Operations. CGMO services clients in both, the Corporate and the Retail segments for these products.

The primary focus of a majority of initiatives during the year was on providing improved Operational Efficiency, improving Client Experience and Proactive Risk Management.

The Bank further centralized processing of activities to build efficiencies of scale. Processing of Cross-Border Remittances (Trade Operations), review of transactional red flags (Depository Operations) and onboarding of clients on systems (Trade Operations and CMS) were centralized during the year.

The Operating Model was further strengthened during the year with enhanced focus on ensuring stability and Business Continuity during any unforeseen challenges. The resilience of the Trade Processing Model (independent hubs in Chennai and Mumbai) was once again put through the severest test during the challenges caused by cyclone Vardah that paralyzed Chennai during December 2016. It was ensured that there was minimal client impact during the BCP situation. Additionally, all critical processes were tested to ensure that they are BCP-ready.

The Bank implemented a state-of-the-art processing system for Trade Operations during the year. The system is expected to significantly improve operational efficiency, and provide clients with a superior experience, including facilitating digitization initiatives. The process for account reconciliation was improved through introduction of a Workflow Management System. As part of improving the operational controls, an

Audit Tracking system (ACE) was implemented to enhance control. Regulatory interface systems (IDPMS & EDPMS) were implemented to support automated reporting of all cross-border remittances, as required by RBI.

These state-of-the-art systems are capable of handling high volumes, will strengthen risk management and will offer clients with world-class products and services.

Client focus is another key focus area, and as one of the initiatives in this area, the Bank added 12 locations for providing customer support locally for CGMO products.

Increased centralized processing and increased footprint to provide client servicing at branches are expected to improve operational efficiency, significantly improved transaction turnaround times and promote world-class client experience.

The Bank continued with the "Voice of Customer" initiative for this year as well. Under this initiative, structured feedback is received from top clients across different client segments. The performance of the Client Servicing Team is measured through the dedicated Service Quality Unit.

Proactive Operational Risk Management has been a major focus area, and is embedded in the organization. The Analytics, Information and Metrics Unit within the CGMO Operational Risk team continues to deliver critical information and metrics that is used to identify potential risk events. A significant achievement was the completion of an end-to-end risk review of the (prevention of) Anti Money Laundering processes (AML) and the Enhanced Due Diligence (EDD) process. These reviews are expected to improve our risk profile in identification and mitigation of Trade-based Money Laundering risks.

During the year, the branch risk review was strengthened and all critical process documents were reviewed and made available on a specialized platform (ARIS). Intraday Liquidity reporting process was improved. Customized training was imparted, and improved controls were put in place to address risks.

People Development was another significant focus area. CGMO continued in its journey towards ‘Continuous Improvement with the objective of delivering client satisfaction and year-on-year efficiency benefits. This program focuses on increasing ‘Client Delight, ‘Empowerment and ‘Rewards & Recognition. As part of this initiative, over 825 Process Improvement Initiatives were implemented, resulting in efficiency improvement and risk reduction. An initiative to scientificallymanage the Operations capacity was completed during the year, for significant efficiencies in the next couple of years.

As part of People Development, over 22,000 man-hours of training were delivered during the year, aimed at creating a strong knowledge force within the Unit. Trainings delivered covered product features, risk awareness, regulatory requirements, continuous improvement and soft skills like communication, team effectiveness and leadership skills. Various other people-centric initiatives launched included job up-skilling, cross-functional training, and Family Day at Office. Various CSR events were also conducted during the year, encouraging staff to participate in planned community events.

Internal Control Systems and their Adequacy

Operational Controls

The Bank has laid down the Policy Framework related to "Know Your Customer" (KYC) norms, "Anti-Money Laundering Measures" (AML) and Combating of Financing Terrorism (CFT). The policy has been framed on the basis of recommendations of the Financial Action Task Force and the Paper issued on ‘Customer Due Diligence for Banks by the Basel Committee on Banking Supervision.

Customer Service

In accordance with RBIs recommendations, a Standing Committee on Customer Service (SCCS) comprising senior Functional Heads of the Bank and a few customers has been established.

The Bank has also constituted a Customer Service Committee of the Board of Directors (CSCB) to review the performance of the SCCS.

The Bank has constituted Branch-level Customer Service Committee (CSC) at all branches, comprising employees and customers. CSC meetings are convened every month to examine complaints / suggestions, cases of delay, difficulties faced / reported by customers / members of the Committee. Feedback and suggestions are submitted to SCCS.

SCCS examines and provides regular feedback to the Customer Service Committee of the Board for necessary policy / procedural actions.

The Bank implemented "Talisma", a ‘Customer Complaints and Requests Management System. The key objective of this solution is to have a single system to track requests, complaints and queries at customer level so that the service standards as set out by the Bank are managed and enhanced. The System has been implemented across all branches and the Banks Contact Centres in Mumbai and Chennai.

Grievance Redressal Mechanism

The Bank follows the Board-approved "Grievance Redressal Policy", which lays down a defined escalation process for all customer complaints received at branches and at Corporate Office, within the overall framework of RBI guidelines.

A Quarterly Report related to complaints received and redressed is placed before the Board of Directors. Based on the recurrence of complaints in specific areas, causative factors are identified and remedial measures are initiated.

The Bank maintains a dedicated page for lodging of complaints and the complaint redressal mechanism on its website contains information on the escalation process.

Details of the Nodal Officer / Regional Managers have been furnished.

These details are also displayed at the Banks branches. Details of the Banking Scheme, 2006 are also displayed at Branches and provided on the website.

A link has been created on the Banks website for a "Feedback Form", which gives opportunity to all customers to air their grievances, in a simplified way and get their complaints redressed without delay. Further, customers can contact their respective Branch Manager or call the Banks Contact Center on the toll-free number or send an email to the dedicated email IDs to lodge their grievances.

Internal Audit

The Banks Internal Audit function is adequately equipped to make an independent and objective evaluation of the adequacy and effectiveness of internal controls on an on-going basis to ensure that units adhere to compliance requirements and internal guidelines.

The Internal Audit function undertakes a comprehensive Risk-based Audit of all operating units. An Audit Plan is drawn up on the basis of risk-profiling of auditee units and audit of operating units is undertaken at a frequency synchronized to the risk profile of each unit in line with the guidelines relating to Risk-Based Internal Audit. The scope of risk-based internal audit, besides examining the adequacy and effectiveness of internal control systems and external compliance, includes evaluation of the risk residing at the auditee units. To complement the Internal Audit Function and have real time supervision and control, critical units of the Bank are covered under Concurrent Audit by reputed Audit Firms.

To ensure its independence, the Head - Internal Audit functionally reports to the Audit Committee of the Board, and for administrative purpose, reports to the Managing Director & CEO of the Bank. The Audit Committee of the Board reviews the performance of Internal Audit Department, the effectiveness of controls laid down by the Bank, and compliance with regulatory guidelines.


The Banks approach in compliance is not only to observe what is legally binding but also to embrace broader and high standards of integrity and ethical conduct.

The Bank has an extensive set-up for ensuring enterprise-wide compliance with various legal, regulatory and governance requirements.

The Compliance Function undertakes macro-level compliance activities including review of Compliance Policy and KYC Policy of the Bank, monitoring and testing of compliance related to various activities of the Bank covering branches, Corporate Office functions, and also various Associate concerns.

The Compliance Function is a mandatory stakeholder of the Operations Risk Management Committee (ORMC) and provides signoff for new products / processes routed through this channel.

To further strengthen the Compliance Culture in the Bank, the Compliance Function circulates short notes on significant compliance-related topics, cases based on default events, publishes Monthly Newsletter, etc., and conducts Seminars for frontline staff.

Vigilance Function

The Vigilance Department has been functional in the Bank since October 2008, and its objective is to enhance the level of managerial and operational efficiency & effectiveness. The aim is to prevent, detect and analyse corruption, wrongdoing / misdemeanours on the part of the employees and follow it up by deterrent / preventive action to ensure highest standards of integrity, governance and ethical practices.

Whistle Blower Policy was adopted by the Bank in 2009 as the Bank considers it appropriate to provide a channel to its various stakeholders, namely, the Banks employees, customers, suppliers, shareholders, etc., to bring to the notice of the Bank any issue involving compromise / violation of ethical norms, legal or regulatory provisions, etc., without any fear of reprisal, retaliation, discrimination or harassment of any kind.

The Banks Vigilance Manual / Whistle Blower Policy and practices are totally in sync with all statutory and regulatory guidelines on Vigil Mechanism to ensure a compliant, fraud-free and ethical work environment.

Induslnd Bank has been awarded the ‘Certificate of Commitment by the Central Vigilance Commission.

The Banks HR objectives were in synchrony with the Banks PC3 business objectives.

HR agenda is to be a strategic business partner by focussing on talent acquisition, talent development, talent management, retention and compliance.

The Bank believes that Human Capital is the key to business growth. The strategic intent of HR is to

• hire and retain quality talent, impart requisite knowledge, skills, and attitude, sustain a result-oriented culture, reward and recognize talent, offer meaningful career plans and build employee equity.

• Falling attrition across all employee levels, negligible attrition at strategic levels, and rising employee productivity indicate positive employee association with the Bank.

Key Highlights:

• Employee headcount of the Bank increased to 25,314 employees in FY17 from 23,060 employees in FY16.The Banks hiring was based on the Banks Annual Business Plan. The Bank used diversified hiring channels such as Employee Referral Schemes, Job Portals, Consultants, Campus Hiring, Social Media, Hire-Train-Deploy model, etc. for quality hiring. Social Media (Linkedln, Facebook) was leveraged for niche and leadership hiring. The Banks selection process comprised multi-layered interviews, competency assessment tests, background verification, reference checks to recruit the right candidates.

• The Bank continues to focus on developing diversified and multi-dimensional skills of its employees.

During FY 17, the Bank conducted 9,60,000 learning man-hours for over 3,40,000 participants through various classroom and e-learning initiatives. Several learning programs in areas of Leadership, Team-Building, Managerial Effectiveness, Internal Responsiveness, Innovation & Creativity, Banking Products, Banking Operational Processes, Credit, Induction and Compliance were conducted during the year. The Bank also conducted Management Trainee programs across Business Units to build entry-level talent with cross-functional skills.

The learning effectiveness was ensured through learning need assessment, well designed content, delivery by qualified internal & external subject matter experts and a feedback mechanism to improve learning efficacy.

• Performance Management Processes namely Goal Setting and Annual Performance Review helped to assign employee performance objectives through "SMARTS", review individual performance, provide performance counseling and developmental feedback, recognize and reward basis achievement of performance objectives, identify future leaders for driving the Banks business growth.

The Annual Performance Appraisal for FY16 was executed meticulously, and individual rewards were linked to performance.

The process of high potential and critical talent Identification progressed across various Business units of the Bank. Talent assessment on desired competencies is being undertaken with a view to create a resource pool with requisite levels of performance and potential. This exercise is helping build a talent pipe-line and potential successors for key supervisory and tactical roles.

• The Banks Compensation Policy is based on the philosophy of ‘Pay for Performance and Role criticality. The key objectives include linking the Banks compensation to business performance and market trends, offer differentiated reward and recognition measures based on performance, build long-term employee ownership and association, and be compliant with the compensation guidelines of RBI.

• The Bank continued to focus on Employee Engagement initiatives to connect and bond with the employees. Some of the key initiatives were Quarterly Webcasts by the MD & CEO, Annual Reward and Recognition Programs, Employee-connect by HR and Line Managers, etc. Employee recreation programs such as business off-sites, team get-togethers, sporting competitions, celebration of festivals helped to build a fun-filled work-place.

• Technology is being continuously leveraged to improve the HR Operational Processes for superior customer service. Pre-joining and on-boarding processes were shifted to Internet-based system for new joinees. Employee Lifecycle HR processes relating to Attendance, Leave, Payroll, Confirmations, Loans, Mediclaim, Gratuity, Exits, Full and Final Settlement were managed accurately and within the stipulated TATs.

• The Bank pursues "Discipline and Compliance" as its core values to create an amiable work environment. Every employee has to adhere to the Banks Code of Conduct and follow the Banks business processes. Any deviation or breach of the Code of Conduct is handled sternly by the Bank. The Bank also proactively meets the HR-related regulatory and statutory laws.

• The Bank strives to attract, develop and retain quality talent and to create a work culture where employees can contribute to the business growth of the Bank.

Employee Stock Option Scheme

The Bank had instituted an Employee Stock Option Scheme (ESOS- 2007) to enable its employees, including Whole time Directors, to participate in the future growth of the Bank. Under the Scheme, Options can be granted, which upon exercise could give rise to the issuance of a number of shares upto 7% of the Issued Equity Capital of the Bank from time to time. The eligibility and number of Options to be granted to an employee is determined on the basis of criteria laid down in the Scheme and is approved by the Compensation Committee of the Board of Directors.

An aggregate of 3,98,39,800 Options, comprising 6.66% of the Banks equity capital, have been granted under the Scheme. Statutory disclosures as required by SEBI (Share Based Employee Benefits) Regulations, 2014 are given at Annexure IV to the Directors Report.

Shareholders Satisfaction

Contact details of shareholders such as e-mail IDs, cell phone numbers and telephone numbers are obtained, so as to communicate to them about developments in the Bank. This direct communication is in addition to the regular dissemination of information through usual channels such as the Stock Exchanges, Press, Banks website, RTAs website, etc.

Shareholders of the erstwhile Induslnd Enterprises & Finance Umited (IEFL) who did not respond to earlier communications were contacted individually through Banks branches, with requests to exchange Share Certificates of IEFL for Certificates of the Bank.

Shareholders shall continue to receive best-of-class shareholder services and be promptly informed of the developments in the institution.

The Bank has been at the forefront in "Green Initiatives", and through this process aspires to graduate to paperless compliances.

Shareholders have been requested on several occasions to furnish their e-mail IDs at or inform telephonically on 022-66412487 to help accelerate the Banks migration to paperless compliances.

With the implementation of the Companies Act, 2013, companies can send Annual Reports and other communications through electronic mode to those shareholders who have registered their email addresses with the Company or made available by the Depository.

The full text of the Report shall also be made available in an easily navigable format on the website under the link ‘Investors Reports and Presentation/Annual Reports.

Shareholders have continually been informed about the easy process for claiming the dividend amounts lying unclaimed with the Bank.

As regards transmission of securities, in case of securities held in physical mode (in single name, without nomination), SEBI have prescribed a threshold limit ofRs. 2,00,000 (Rupees Two lakhs only),

i.e., market value of securities per folio, as on date of the application for transmission, for following simplified documentation. SEBI have, however, empowered Issuer Companies to enhance the value of such securities, at their discretion.

Considering the difficulties faced by the legal heirs in obtaining of Succession Certificate / Probate / Letters of Administration, the Board of Directors of the Bank have, for operational convenience, delegated the authority to the Share Transfer Committee for approving the transmission of securities held in physical mode, in case of market value of securities of up to Rs. 10,00,000 (Rupees Ten lakhs only) subject to simplified documentation procedure prescribed by SEBI.

Information Technology

Adopting Technology Trends

The Bank strives to generate value by identifying and implementing technological innovations.

The Banks Integrated Digital Strategy clearly focusses on how the digital success would be measured. The measurement has to be tangible like reducing TAT for auto loans or increase in number of personal loans by a considerable percentage through digital channels. The strategy has been aligned towards enhancements in customer reach and cost reduction by using myriad new technologies. Some key transformational areas are:

• Digital Applications and Portals - Over the last one year, the Bank has launched multiple customer acquisition and transaction fulfilment online applications and portals like FD Online for booking deposits, Forex Online, Tab Banking, pre-approved easy loan and pre-approved Credit Card portal, etc.

• ChatBots - The Bank has conducted proof of concepts with Chatbots for use in cases where significant enhancement in customer experience is foreseen. Project is underway to launch conversational Banking app which will be Banks new 24x7 Virtual Agents to provide human-like and consistent customer experience to all users at scale. It would be a state-of-the-art cognitive Virtual Assistant which will integrate Speech to Text and Text to Speech functionality to allow for voice input / output in addition to chat.

• Artificial Intelligence (Al) and Machine Learning (ML) - Besides Chatbots, the Bank is also evaluating Al and ML for its applicability in getting insights from the vast data residing in several systems.

• Application Program Interface (API) Management - The Bank has set-up Application

Program Interface Management for quickly on-boarding partners and easily integrating with Banks system without compromising on security.

• Cloud Adoption - The Bank has started aggressively using Cloud Infrastructure. New workloads for better Total Cost of Ownership are being developed as Cloud Native System. Few applications are also being migrated from on-premise to Cloud, after doing cost-benefit analysis and adhering to security controls and measures.

Customer Oriented - New Initiatives

National Payments Corporation of Indias (NPCIs) Unified Payment Interface (UPI):

NPCIs UPI is a unique payment solution which empowers a recipient to initiate the Payment Request from a smartphone. Early this year, the Bank had participated in the launch, and went live with the UPI Platform and the Payment Service Provide (PSP) App on December 17, 2016.

The interface is the advanced version IMPS which is a 24X7 Funds Transfer Service. UPI allows a customer to have multiple virtual addresses for multiple accounts in various banks. In order to ensure privacy of customers data, there is no account number mapper anywhere other than the customers own bank. This allows the customer to freely share the financial address with others.

It facilitates ‘Virtual Payment Address as a payment identifier for sending and collecting money and works on single click 2-factor authentication. It also provides an option for scheduling ‘push and ‘puli transactions for various purposes, like sharing bills among peers. One can use the UPI App instead of paying cash on delivery on receipt of product from online shopping websites and can pay for miscellaneous expenses like paying Utility Bills, Over-The-Counter Payments, Barcode (‘Scan and Pay) based payments, Donations, School Fees and other such unique tasks.

IMPS system for PPI Company:

Pre-paid instruments (PPI) is one of the fastest growing products in the Indian landscape, with banks and non-banks entering this space in a big way.

The Bank has entered this space with an in-house developed PPI IMPS hub to offer P2A (Person to Account payment). It will help the Bank to partner PPI players and offer banking services through them.

Indus Direct - Corporate Banking App offers the following:

• Account Summary and Balances;

• Payments - Inter-Bank and Intra-Bank payment initiation (NEFT, RTGS and IMPS);

• Payment authorization - Authorized signatories can authorize single or batch payments initiated by the company Executives as per the corporate mandate;

• Relationship Manager Connect - Tap to call Relationship Manager / Contact Centre;

• Biometric validation enabled for log-in and transactions in iOS and Android biometric- based devices.

Digital Initiatives

FD Opening portal:

The Online FD Opening portal enables Banks customers to select and book an FD from the Banks website. Existing customers (authenticated through registered mobile number) can open Term deposits through a microsite, by using funds either from Induslnd Bank or from any other bank account.

Forex Online Portal

As part of Digital Banking Initiatives, to scale up defined products, the Bank introduced Forex

Online Portal on November 18, 2016. It is an online portal for selling forex products - Forex Card, Currency and Funds Transfer abroad. It gives customers 24X7 access for these forex products. Customers can book the Rate online by paying part amount, and then the transaction is fulfilled within 24 - 48 hours. Some of the key features are:-

• Aadhaar / PAN-based verification

• Complete online process with no paper work

• Facility of multi payment options, viz., Debit Card, Credit Card, Net Banking

• Communication through mails and SMS at every stage

• Offers multiple delivery modes - Doorstep, Branch, Courier, etc.

• One-Time Password (OTP)-based verification details.

EasyLoan Portal

EasyLoan portal was launched to facilitate real-time, straight through digital fulfilment of pre-approved loans to existing Induslnd customers. The loan amount is credited to the customers Savings Account immediately. Buoyed by the success, Pre-approved Credit Card was made available on the common channel to customers without any documentation, with no manual interaction, and Card delivery within two days.

Tab Banking

Rolled out in February 2017, the application offers instant Account Opening. This is an Assisted Model, where a Bank Representative will use the Tablet provided by the Bank to open the account instantly.

The application captures all the fields required for Account Opening and supports biometric scan, Aadhaar-based e-KYC, Profile-based product selection, Choice Account Number selection, and initial Account funding via UPI. It has significantly lowered Turn-Around-Time (TAT) of Account Opening, servicing and channel activation. All accounts are opened by Straight-Through- Processing in Finacle with the data captured on Tab.

Application Program Interface (API) Management

API Management is a tool to expose various APIs to partners in a secured and controlled manner. This solution enables our channel partners to connect their applications easily to our services without extensive coding. API management platform has seen about 25-30% growth month on month (number of transactions processed). Earlier, on-boarding any of these partners would take more than a month, which is now reduced to less than a day.

Campaign Management

The Bank launched the Campaign Management System, which allows building and execution of personalized campaigns to be delivered across various channels like E-mail, SMS, Portal, Web, Branches, Phone Banking and ATMs. The solution has Analytics embedded at every stage, which has helped in promoting proactive engagement with customers, increasing customer loyalty and maximizing revenue.

Customer-oriented Enhancements

Mobile Banking enhancements:

IndusMobile has become the preferred channel, and the registration and transaction numbers are steadily increasing, with more than 90+ services available. With the addition of Bharat QR, the Mobile App has become the primary mode of payment without the need for physical Debit Card.

The App is rated 4.3 on Google Playstore, which is best-in-class amongst Indian banks.

The salient features include:

• Biometric validation enabled for login and transactions in iOS and Android biometric based devices.

• Enhanced Credit Card functionalities, beneficiary addition and few more service requests.

• Integration of couponDunia offers, basis location coordinates and customer type.

Government-led Initiatives Demonetization

On announcement of demonetization of high value notes, the Bank responded quickly by tuning the related IT Systems, to comply with the guidelines issued by RBI / Government of India.

Measures Implemented by the Bank for adherence of guidelines are:

• The Bank developed a module for recording the exchange of Specified Bank Notes (SBNs) which was effective from Day One, i.e., November 10, 2016. This module de-duped on the basis of the ID Proof document captured for any subsequent transaction by the same applicant. Details of SBNs were captured in the module.

• The Bank also developed a module for computing the permitted weekly withdrawals for SB accounts and Current accounts including ATM withdrawals. The system functionality was built for computing the amount permissible. PAN had been made mandatory for cash deposits above the limit, as directed.

• Finacle, the Banks Core Banking Solution, was further customized to handle restricted cash withdrawals to APMC and Farmers.

• Calibration was carried out for more than 2,000 ATMs for new notes.

Centralized KYC - CKYC

RBI has issued guidelines on operationalization of CKYC for new Individual accounts opened on or after July 15, 2016.

To fulfil the regulatory requirements, the Bank went live with C-KYC.

Security, Risk & Internal Efficiency

Netmonastery Tool has been implemented to monitor security incidents and events to identify and remediate weakness if any.

The tool reviews the secure configuration and hardening of the Servers based on security baselines.

The Rogue App Monitoring Device is a service similar to anti-phishing, to help detect and take down malicious / fraudulent mobile apps in stores that appear like the Banks Mobile App.

The SAS - Assets and Liabilities Management (ALM) system went live on December 20, 2016. The frameworks and reports are built to meet the regulatory requirements, including Basel-Ill Liquidity Standards and the Liquidity Risk and Interest Rate Risk Analysis.

MVS software enables ATMs to recognize customers, and provide them personalized banking services, targeted deals / offers and Service Mesh involving non-banking services.

Internal Efficiency

Business Flow Manager - Intellimatch

To reduce risk and improve process efficiency in reconciliation, the Bank has implemented Business Flow Manager (BFM) module of the Nostro Reconciliation software Intellimatch in the month of April 2016.

Vendor Management System

Bank has implemented Vendor Management System (VMS) having end to end vendor lifecycle management process. Some of the features of VMS are Centralized on-boarding, Online vendor evaluation, Service Level Agreements and Performance monitoring, Centralized contract management, Visibility on financial spends versus service delivery and Blacklisting of the vendor.

Insider Trading Application

This application has been implemented to help the Bank and the staff to comply with the SEBI directives for Insider Trading relating to sale and purchase of its shares. This application provides for placing online requests by the respective staff and subsequent approval by the Compliance Team. Against each approval, the employee can report online the sale of shares. This in turn helps consolidate and report the details to SEBI in a quick, easy and automated manner, thereby improving compliance besides enhancing efficiency.

Board Meet - iPad app

Some of the application features are: Viewing scheduled Meetings, notifications for new meeting / changes, availability of all meeting documents digitally, to join videoconference from the app, text search across meeting data, etc.

Exchange Online - 0365 implementation

Project to migrate mailboxes to the Microsoft 0365 Cloud Email Service has started successfully. Some of the highlights of Microsoft 0365 are higher mailbox capacity, Access - any device, anytime, anywhere, High availability, Better security.

Business Continuity / DR

The Bank has a Business Continuity Plan Document, which includes the backup strategies, archiving and data recovery in case of disasters. All the servers of the Bank are housed in Data Centres in Mumbai and Chennai.

During the year, Bank had rolled out DR automation tool, automating switchover and switchback process.


The important Legislative / Regulatory changes during the year impacting the Banking Industry were:

• Introduction of Insolvency and Bankruptcy Code, 2016;

• Introduction of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016.

Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code has been introduced with the intention to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.

The Insolvency and Bankruptcy Code covers insolvency resolution and liquidation for:

• Corporate Persons (Persons giving financial services are excluded from definition of "corporate debtor");

• Partnership Firms.

The said Code has been enacted by the Parliament in the year 2016 and provisions of the said Code shall come into force on such dates as the Central Government may, by notification in the Official Gazette, appoint. Through various notifications issued by the Central Government, many of the provisions of the said Code have become effective.

Impact on Banking Industry:

The Insolvency and Bankruptcy Code, 2016 identifies rights of creditors (including financial creditors) and in case of default on the part of debtor it enables the creditors to make an application in terms of provisions of this Code. The Code ensures time bound resolution or disposal of the applications made under the Code. The Code provides for detailed procedure to be followed in order to ensure that financial interest of all the stakeholders of the debtor is being taken care of.

The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016

The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 aims to provide legal backing to the Aadhaar Unique Identification Number Project and matters connected therewith or incidental thereto.

Important features of the Aadhaar (Targeted Delivery of Financial and Other Subsidies. Benefits and Services! Act. 2016:

• The Act provides for the properties / features of Aadhaar number and extent of rights / proofs conferred in respect of an Aadhaar number holder.

• The Act provides for establishment of the Unique Identification Authority of India which shall be responsible for the processes of enrolment and authentication and perform such other functions assigned to it under the said Act.

• The Act provides for the authentication process by which the Aadhaar number along with demographic information or biometric information of an individual is submitted by the concerned requesting entity to the Central Identities Data Repository for its verification and such Repository verifies the correctness, or the lack thereof, on the basis of information available with it. It enables the Banks to avail these authentication services by paying prescribed fees (with respect to the relevant information submitted by its customers) and in such case Bank shall comply with the applicable provisions of the said Act.

Information on important legal proceedings faced by the Bank:

There are certain legal proceedings in the context of banking business carried on by the Bank which are not unusual for a bank of comparable size. Otherwise the Bank is not involved in any legal proceedings and is not aware of any threatened legal proceedings, which if determined adversely, could result in a material adverse effect on the business.