The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements beginning on page 204. The Restated Financial Statements have been derived from audited financial statements prepared in accordance with Indian GAAP and restated as per the SEBIICDR Regulations.
Indian GAAP differs in certain material respects from Ind AS, U.S. GAAP and IFRS. See "Risk Factors — Banking companies in India, are currently required to report financial statements as per Indian GAAP. However, we may be required to prepare our financial statements in accordance with Ind AS in the future. Differences exist between Ind AS and Indian GAAP, which may be material to investors assessment of our financial condition. The Ind AS financial information that we may be required to prepare in the future may not be comparable to the Indian GAAP financial information we currently prepare " on page 39.
Some of the information in the following discussion, including information with respect to our plans and strategies, contain forward-looking statements that involve risks and uncertainties. Please read the section "Forward-Looking Statements" on page 18 for a discussion of the risks and uncertainties related to those statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. Also read "Risk Factors" and "— Factors affecting our Results of Operations and Financial Condition " beginning on pages 20 and 268, respectively, for a discussion of certain factors that may affect our business, financial condition or results of operations.
Our Banks Fiscal commences on April 1 and ends on March 31 of the immediately subsequent year, and references to a particular Fiscal are to the 12 months ended March 31 of that year. Unless otherwise indicated or the context otherwise requires, the financial information included herein is based on or derived from our Restated Financial Statements included in this Draft Red Herring Prospectus.
Unless otherwise indicated, industry and market data used in this section has been derived from the CRISIL Report prepared and released by CRISIL and commissioned and paid for by us for the purposes of understanding the industry in connection with the Offer. Unless otherwise indicated, all financial, operational, industry and other related information derived from the CRISIL Report and included herein with respect to any particular year refers to such information for the relevant Fiscal.
We are one of the oldest and leading old private sector banks in India with a history of almost 100 years (Source: CRISIL Report). We offer a wide range of banking and financial services primarily to micro, small and medium enterprises ("MSME"), agricultural and retail customers ("RAM"). As of June 30, 2021, we have 509 branches, of which 106 branches are in rural, 247 in semi-urban, 80 in urban and 76 in metropolitan centres. Our overall customer base is approximately 4.93 million as of June 30, 2021 and 3.45 million or 69.96% of our customers have been associated with us for a period of more than five years and have contributed to Rs 275,619 million or 67.02% to our deposits and Rs 179,638.99 million or 57.56% to our advances portfolios as of June 2021. As per the CRISIL Report, we had the second highest Net Profit for Fiscal 2021 amongst our Peers, and our Return on Assets was also higher at 1.3% compared to a median 0.7% for our Peers for Fiscal 2021.
We were incorporated as ‘Nadar Bank Limited in 1921 and our name was changed to ‘Tamilnad Mercantile Bank Limited in the year 1962. We received our license to carry on banking business from the Reserve Bank of India (the "RBI") in 1962. Since our incorporation, having head quartered at Thoothukudi, Tamil Nadu, India, we have built a strong presence in the state of Tamil Nadu, with 369 branches and 941 automated teller machines ("ATMs") and 238 cash recycler machines ("CRMs") as of June 30, 2021. Tamil Nadu, the fourth largest state of India, is one of the fastest growing states, with continued focus on MSME and textile industry. Tamil Nadus gross state value added ("GSVA") at current prices grew at a compounded annual growth rate ("CAGR") of 10% between Fiscal 2015 and 2021 against the country wide growth of 7% (Source: CRISIL Report). As per the CRISIL Report, Tamil Nadu ranked second in terms of state-wise contribution to GDP and has also grown at a faster rate as compared to the national GDP growth rate. Tamil Nadu is under penetrated which presents an opportunity for further growth in GDP funded by bank loans (Source: CRISIL Report). Its bank credit to GDP stood at 53% as compared to 89% in case Maharashtra and 37% for Gujarat during Fiscal 2020 (Source: CRISIL Report). Banks deposits have grown at a healthy pace of 8.0% CAGR (compared to median of its peers: 6.4%), while its advances grew at 8.3% CAGR (compared to median of its peers: 4.4%) as per the CRISIL Report. As of March 31, 2021, our deposits and advances portfolio in the state of Tamil Nadu
has contributed 76.33% to our Total Business. We also focus on diversifying our growth in other high growth regions of India which will help increase our network and client base. Other than Tamil Nadu, we are present in 15 other states and 4 union territories of India. Apart from Tamil Nadu, we have sizable presence in the states of Maharashtra, Gujarat, Karnataka, and Andhra Pradesh with presence across 90 branches and 123 ATMs and 15 CRMs as of June 30, 2021. We have also been consistently growing our customer base from approximately 4.42 million as of March 31, 2019, approximately 4.66 million as of March 31, 2020 to approximately 4.91 million as of March 31, 2021 at the CAGR of 5.38% from Fiscal 2019 to 2021. Our focus on quality of service and nurturing long term relationship with our customers has enabled us to develop a well-recognized and trusted brand in south India, particularly in Tamil Nadu, India.
We have built a strong portfolio of advances and deposits across our customer base.
Advances: Our advances portfolio primarily consists of lending to (a) Retail customers; (b) agricultural customers and (c) MSMEs ("RAM").
MSMEs: We primarily offer various loan products to our MSME customers operating in manufacturing, trading and services sector. During the Fiscals 2019, 2020 and 2021, MSMEs contributed 37.32%, 37.92%, and 39.08% respectively to our total advances with a CAGR of 10.56% from March 31, 2019 to March 31, 2021.
Agricultural customers: We primarily offer loan products to individual farmers, group of farmers and agricultural corporates. During the Fiscals 2019, 2020 and 2021, agricultural customers contributed 22.49%, 24.77%, and 27.41% respectively to our total advances with a CAGR of 19.27% from March 31, 2019 to March 31, 2021.
Retail customers: We primarily offer home loans, personal loans, auto loans, educational loans as well as security backed loans of various types to our retail customers. During the Fiscals 2019, 2020 and 2021, retail customers contributed 16.78%, 19.27%, and 20.60% respectively to our total advances with a CAGR of 19.68% from March 31, 2019 to March 31, 2021.
Corporate customers: We offer various kinds of loans to corporates, in textiles and other industries, with our assortment of banking products and services including working capital, term financial, trade financial, structured finance services, foreign exchange business funding in domestic and foreign currencies. During the Fiscals 2019, 2020 and 2021, corporate customers contributed 23.40%, 18.04%, and 12.92% respectively to our total advances with a CAGR of (19.74%) from March 31, 2019 to March 31, 2021. This is in line with our strategy to move focus away from corporate customers in favour of RAM.
From Fiscal 2019 to Fiscal 2021, our overall advances portfolio has increased at a CAGR of 8.05%.
• RAM portfolio: our lending products are primarily focussed on MSME, retail and agri-financing. Our RAM portfolio has increased at a CAGR of 15.21% over the last three Fiscals from Rs 206,951.77 million in Fiscal 2019 to Rs 274,673.88 million in Fiscal 2021.
• Secured and un-secured lending: with focus on keeping risk relatively lower, in addition to our strong underwriting processes, we have consistently maintained and further increased our secured lending from 98.28% of our overall advances in Fiscal 2019 to 99.31% of our overall advances in Fiscal 2021. Our unsecured lending portfolios contribution has steadily declined from 1.72% or Rs 4,644.97 million of overall advances as on March 31, 2019 to 1.18% or Rs 3,327.70 million as on March 31, 2020 to 0.69% or Rs 2,172.40 million as on March 31, 2021.
• Average ticket size of advances: with an aim to manage risk of concentration, we have increased our focus on lower ticket size loans. Our average ticket size of loans in our overall advances portfolio has grown in the following manner:
|(In Rs million)|
|Loan Category||Fiscal 2019||Fiscal 2021||CAGR|
|Up to Rs 1 lac||35,831.7||31,240.0||(6.63%)|
|Above Rs 1 lac and up to Rs 5 lacs||19,909.7||51,807.7||61.31%|
|Above Rs 5 lacs and up to Rs 10 lacs||16,699.8||22,919.2||17.15%|
|Above Rs 10 lacs and up to Rs 25 lacs||36,462.0||50,628.5||17.84%|
|Above Rs 25 lacs||1,61,278.4||1,58,809.6||(0.77%)|
Deposits: Our deposits portfolio consists of term deposits, recurring deposits, savings bank and current bank accounts amongst others. Total deposits of our Bank have increased at a CAGR of 8% from Rs 351,362.47 million in Fiscal 2019 to Rs 409,704.16 million in Fiscal 2021. During the Fiscals 2019 and 2021, our current account savings accounts ("CASA") contributed Rs 86,577.10 million or 24.64%, and Rs 116,852.65 million or 28.52% respectively to our total deposits and have grown with a CAGR of 16.18% from March 31, 2019 to March 31, 2021. Further, during the Fiscals 2019 and 2021, retail term deposits contributed Rs 223,725.90 million or 84.49%, and Rs 264,223.41 million or 90.22% respectively to our total deposits and have grown with a CAGR of 8.68% from March 31, 2019 to March 31, 2021. We also have healthy renewal rates across our term deposit categories. Our deposits growth rate has been one of the top five amongst our Peers in the industry with a growth rate of 8.00% for the year ended March 31, 2021 over Fiscal 2020 (Source: CRISIL Report).
The renewal rates of our term deposits have changed in the following manner across categories:
|Term Deposit Category||Fiscal 2019||Fiscal 2020||Fiscal 2021|
|Up to Rs 15 lacs||77.62%||79.86%||78.31%|
|Above Rs 15 lacs below Rs 100 lacs||71.87%||78.26%||79.09%|
|Above Rs 100 lacs||34.73%||32.96%||41.40%|
Our risk management processes are aimed at maximizing our Banks risk adjusted rate of return by maintaining credit exposure within acceptable parameters. Our gross non-performing assets ("GNPA") have reduced from Rs 11,681.12 million or 4.32% in Fiscal 2019 to Rs 10,209.77 million or 3.62% in Fiscal 2020 to Rs 10,847.78 million or 3.44% in Fiscal 2021. Our Bank has reported a relatively lower GNPA in Fiscal 2021 as compared to our Peers (Source: CRISIL Report). Our net non- performing assets ("NNPA") have reduced from Rs 6,365.19 million or 2.40% in Fiscal 2019 to Rs 4,974.66 million or 1.80% in Fiscal 2020 to Rs 6,138.26 million or 1.98% in Fiscal 2021. In Fiscal 2021, our GNPA as a percentage of overall advances in RAM portfolio was Rs 7,750.40 million or 2.82% and in corporate portfolio was Rs 3,097.37 million or 7.60 % respectively. Further, we have maintained a provision coverage ratio ("PCR") at 73.61%, 80.75% and 79.53% as of March 31, 2019, March 31, 2020 and March 31, 2021, respectively.
As on June 30, 2021, we had a network of 509 branches, 12 administrative offices, 1,131 ATMs, 262 CRMs, and 47 E-lobbies. Out of these 509 branches, 76 branches are in metropolitan areas, 80 branches are in urban areas, 247 branches are in semi-urban areas, and 106 branches are in rural areas. We have wide presence in south India and further diversifying our branches in other states of India, with 90 branches located in the states of Maharashtra, Gujarat, Karnataka and Andhra Pradesh respectively.
We are a professionally managed bank. Our Board of Directors and senior management consist of seasoned professionals with experience in banking, accounting and auditing. Our MD & CEO, K.V. Rama Moorthy, has more than 40 years of experience in the banking industry. Other members of our Board including our Independent Directors also have significant experience including experience in the banking and finance industry. Additionally, two Directors have been nominated to our board by the RBI. The experience of our Board and senior management team has enabled us to develop a strong understanding of industry-specific aspects of our business and operations. For details, see "Our Management" on page 160.
The following table sets forth certain information relating to our operations and financial performance in the periods specified:
|(In Rs million)|
|Metric||As of and for the years ended March 31, 2019||2020||2021|
|Credit to deposit ratio||75.39%||75.26%||75.83%|
|Cost of deposits||6.29%||6.27%||5.49%|
|Yield on advances||10.09%||10.19%||9.65%|
|Net interest income||12,301.6||13,195.1||15,375.3|
|Net interest margin(1)||3.65%||3.64%||3.77%|
|Metric||As of and for the years ended March 31,|
|Return on assets(2)||0.68%||0.99%||1.34%|
|Return on equity(3)||7.36%||10.73%||14.10%|
|CASA to total deposits ratio(4)||24.64%||25.85%||28.52%|
|Cost to income ratio(5)||46.23%||46.10%||44.90%|
(1 (Interest earned — Interest expended) / Average interest-earning assets calculated on the basis of quarterly average balances (2 Net Profit/average Total assets (fortnightly average)
(3 Net Profit/Net worth (average of opening + closing balance)
(4 Total Deposits held in current accounts and savings accounts/ total Deposits held in our Bank (5 Operating expenses / (Total income — Interest expenses)
(6) Sum of unpaid Advances/Gross Advances
(7 (Sum of unpaid Advances — provision for unpaid advances)/Gross Advances (8) Total provisions / unpaid advances
FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION The impact of COVID-19 on our results of operations andfinancial condition
On March 14, 2020, India declared COVID-19 as a "notified disaster" for the purposes of the Disaster Management Act, 2005 and imposed a nationwide lockdown beginning in March 2020. The initial lockdown lasted until the end of May 2020, and was extended periodically by varying degrees by state governments and local administrations. The lifting of the lockdown across various regions has been regulated with limited and progressive relaxations being granted for movement of goods and people, and calibrated re-opening of businesses and offices, in certain places. Recently, throughout March and April 2021, due to an increase in the number of daily COVID-19 cases, several state governments in India re-imposed lockdowns, curfews and other restrictions to curb the spread of the virus. As a result of the detection of new strains and subsequent waves of COVID-19 infections in several states in India as well as throughout various parts of the world, we may be subject to further reinstatements of lockdown protocols or other restrictions, which may adversely affect our business operations.
As a result, our financial results for Fiscal 2021 reflect the impact of COVID-19 and various regulatory measures in response to COVID-19, including moratorium availed by customers and may continue to affect our business, financial condition, results of operations and cash flows in a number of ways, including, among others, the following:
• it may lead to closure of our branches for unpredictable periods of time or require us to operate with limited personnel, all of which would restrict our ability to engage with existing and new customers to market our product and services offerings, carry out KYC and other customer due diligence processes, conduct loan applications and disbursements and collect loan repayments. Although, banks were declared essential services, some of our branches were temporarily closed during the initial wave of the COVID-19 pandemic, while others operated with reduced working hours and a limited workforce during this time as per instructions received from local authorities. While we were able to gradually resume operations, we have continued to implement and follow safety measures such as regular temperature checks, regular sanitization, and compulsory use of masks and hand sanitization. Following the second wave, although we have been able to keep our branches open, we have adjusted our operations to ensure the safety of our employees in line with the applicable local guidelines;
• it may lead to an overall deterioration in the economy with decreased business activity which could adversely affect our business as a whole, and in particular our revenue from fee based services;
• it may lead to a reduction in the value of collateral provided for our Banks loans, leading to higher Rs han anticipated losses on default;
• it may result in a decline in disbursements on account of our target customers (amongst others, daily wage earners, self-employed individuals and street vendors) operations being disrupted;
• there could be potential increase in our NPA levels due to possible deterioration in the credit quality of our customers;
• there could be uncertainty regarding the conditions that must be satisfied before government authorities completely lift "stay-at-home" orders and further imposition of such orders;
• the potential negative impact on the health and safety of our personnel, particularly because a number of them were and could in future be afflicted by COVID-19, could result in a deterioration in our ability to ensure business continuity during this disruption; and
• we may face increased risks emanating from an increase in number of individuals working from home such as issues relating to productivity, connectivity and oversight challenges.
The extent to which the COVID-19 pandemic impacts our business and results will depend on future developments, which are highly uncertain and cannot be predicted, such as new information which may emerge concerning the severity of the coronavirus, the actions taken globally to contain the coronavirus or treat its impact and vaccine distribution and effectiveness rates, among others. Further, the effect on our business, operations and financial performance may be difficult to predict and may vary significantly from that estimated by our management from time to time, and any action to contain or mitigate such effect, whether government- mandated or opted by us may not have the anticipated impact or may fail to achieve its intended purpose altogether. Existing insurance coverage may not provide protection for all costs that may arise from all such possible events.
Significant dependence on RAM customers
We have traditionally focused on small ticket size loan products to MSME customers, agricultural and retail ("RAM") customers for our growth. Our advances portfolio consists of a wide basket of retail finance and small ticket size MSME finance products. As at March 31, 2021, our advances to the RAM segment represent more than 88.41% of our net advances, with the MSME segment in particular representing 39.08%.
Our RAM Portfolio increased at a CAGR of 15.21% over the last three Fiscals from Rs 206,951.77 million in Fiscal 2019 to Rs 274,673.88 million in Fiscal 2021, whereas our total advances increased from Rs 270,186.6 million in Fiscal 2019 to Rs 315,410 million in Fiscal 2021 at a CAGR of 8.05%. Accordingly, our RAM customer base, is critical to our business and demand for our banking products from this segment affects our business, results of operations, financial condition and cash flows.
Diversification of product offerings and the success of fee based services
We offer a wide range of traditional banking, financial products and services primarily to retail, agricultural, MSME and corporates covering general banking segments. We also offer micro banking activities, i.e. providing loans of small amounts to low income individuals/groups. For instance, we provide loans of up to Rs 10,000 under PM Svanidhi scheme that are repayable in monthly instalments. Traditional banking and micro banking activities undertaken by us are exposed to different risks that may impact their operations and performance, including but not limited to regulatory requirements, geographic and industry concentration risks, varied customer demographics and borrower profiles, risks associated with secured and unsecured lending practices, and the ability to offer different types of financial products to attract customers. Our presence in each of the general banking and micro banking sectors uniquely exposes us overall to the risks present in each.
In addition, the primary drivers of our revenue are the fees that we charge for our products and services, and the volume of such fees. The fees we charge our customers can depend upon a number of factors that are, in part, within our control, which can include our overall business strategy, our expenses related to a particular transaction type, the volume of transactions for a product or service (where the greater the number of expected transactions will typically result in us getting a smaller fee, and vice versa), or promotions that we may be
running at any given time. Further, they are also dependent upon a number of external factors, which can include general macro-economic conditions, the supply or demand for a product and service, regulatory instructions (such as in the case of interchange fees), changes in general banking activity and competitive factors. Competitive factors in particular, have and may continue to have an adverse effect on our ability to charge higher fees to improve our margins.
In addition, as our fee charges are primarily on per transaction basis, the volume of transactions that we record is a primary driver of our revenue. The volume of transactions depend upon a number of factors that are, in part, within our control, which can include the number of and availability of customer touchpoints (i.e., ATMs, e- Lobbies, BCs, and POS, Mobile Banking, internet Banking in addition to our 509 branches as on June 30, 2021), the usability of our customer facing technology and the reliability and capacity of such technology to handle large volumes of transactions, our marketing efforts and customer care initiatives, and the extent to which our customer touchpoints represent our brand in a positive manner. Our Bank is continuously upgrading its technology platform to enhance user experience through alternate channel to facilitate to handle large volume of transactions and generate fee income through digital channels. For instance, our Bank has launched a mobile banking application "TMB MConnect" on June 23, 2016 and is in the process of launching our new mobile banking application "TMB MBank". Further, the volume of transactions also depends upon a number of external factors, which can include general macro-economic conditions, critical technology and power infrastructure, government initiatives regarding financial inclusion, digitization of transactions and payments in India, changes in general banking activity and competition.
Regional concentration in southern India, particularly in Tamil Nadu
As of March 31, 2019, 2020 and 2021, our deposits and advances in the state of Tamil Nadu contributed to 71.62%, 75.93%, and 76.33% of our Total Business. As of March 31, 2021, we had 4.18 million customers in the State of Tamil Nadu comprising 85.07% of our overall customer base. While we have a presence in the states of Gujarat, Maharashtra, Karnataka and Andhra Pradesh, we have an especially strong regional concentration in southern India, and in particular, in Tamil Nadu.
Our concentration in the southern India, and specifically in Tamil Nadu, exposes us to many adverse economic or political circumstances in the region as compared to other public and private sector banks that have a more diversified national presence. Any change in regulatory framework, political unrest, disruption, disturbance, or sustained downturn in the economy of Tamil Nadu and other states in southern India may impact our business, financial condition, and results of operations.
Banks in India, including our Bank, are subject to compliance with various circulars, guidelines and regulations prescribed by the RBI and the Banking Regulation Act. In particular, we are required to comply with prudential norms on income recognition, asset classification and provisioning pertaining to advances, prudential norms for classification, valuation and operation of investment portfolio by banks, regulations governing the opening of new branches, limits for shareholding, digital payment security controls directions and interest rate on deposits directions.
Under the Reserve Bank of India (Cash Reserve Ratio (CRR) and Statutory Liquidity Reserve Ratio (SLR)) Directions, 2021 dated July 20, 2021 and the notifications issued by the RBI, we are subject to a CRR requirement under which we are currently required to keep 4.00% of our net demand and time liabilities in current account with the RBI. We do not earn interest on cash reserves maintained with the RBI. In addition, under the RBIs regulations, our liabilities are subject to a SLR requirement, according to which 18.00% of our net demand and time liabilities need to be invested in government securities, treasury bills and other securities approved by the RBI from time to time. When the interest rate rises, the value of these fixed coupon securities depreciates.
The Reserve Bank of India (Priority Sector Lending - Targets and Classification) Directions, 2020 dated September 4, 2020 ("PSL Regulations") sets out the broad policy in relation to priority sector lending. The Priority Sector Lending Regulations apply to all commercial banks licensed to operate in India by the RBI. In terms of the PSL Regulations, the sectors categorised as priority sectors are agriculture, micro, small and medium enterprises ("MSME"), export credit, education, housing, social infrastructure, renewable energy and
other sectors. Further, the PSL Regulations stipulate that domestic commercial banks will have to allocate 40.00% of the adjusted net bank credit to PSL or credit equivalent of off-balance sheet exposures, whichever is higher. Further, for agriculture sector, micro enterprises and advance to weaker sections, the targets are 18.00%, 7.50% and 12.00% of the adjusted net bank credit or credit equivalent of off-balance sheet exposures, whichever is higher, respectively. It has also prescribed sub-targets for small and marginal farmers, micro-enterprises and weaker sections.
The RBI has issued guidelines based on the Basel III reforms on capital regulation on May 2, 2012, to the extent applicable to banks operating in India. The Basel III capital regulation was implemented from April 1, 2013 in India in a phased manner and was scheduled to be fully implemented by April 1, 2021. However, the last tranche of such implementation was further deferred until October 1, 2021. As of March 31, 2021, banks are required to maintain a common equity Tier 1 adequacy ratio of 5.50%, minimum Tier-1 capital ratio of 7.00%, minimum total capital ratio of 9.00%. In addition, banks are required to maintain a capital conservation buffer ("CCB") of 2.5%. However, the RBI through its notification dated January 10, 2019, deferred the implementation of the last tranche of 0.625% of CCB to October 1, 2021. Accordingly, minimum capital conservation ratios as applicable from March 31, 2018 (1.875%) continues to apply until the CCB attains the level of 2.50%.
For further details on the regulatory requirements, see "Key Regulations and Policies" on page 137.
Asset quality, NPAs and provisioning requirements
Our management of credit risk involves having appropriate credit policies, underwriting standards, approval processes, loan portfolio monitoring, collection and remedial management and an overall architecture for managing credit risk in our business. The credit quality of our borrowers, the growth of our loan portfolio and the health of our provisioning levels are important factors for our overall business, results of operations, financial condition, cash flows and prospects. Accordingly, we have credit monitoring and risk mitigation policies and procedures in place for our business.
For Fiscals 2019, 2020, and 2021, our net NPAs were Rs 6,365.19 million, Rs 4,974.66 million, and Rs 6,138.26 million, which represented 2.40%, 1.80%, and 1.98% of our net advances respectively. Our gross NPAs represented 4.32%, 3.62%, and 3.44% of our total advances for Fiscals 2019, 2020 and 2021, respectively. Our Bank makes efforts to improve collections and foreclose on existing impaired loans in a timely manner as controlling or reducing impaired loans, controlling increase in impaired loans and the quality of the assets that our Bank holds as security, are critical to our Banks future financial performance.
Provisions for NPAs are created by a charge to our profit and loss account and are currently subject to minimum provision requirements set by the RBI and our internal provisioning policies. The determination of an appropriate level of loan losses and provisions involves a degree of subjectivity and requires that we make estimates of current credit risks and future trends, all of which may be subject to material changes. Any incorrect estimation of risks may result in our provisions not being adequate to cover any further increase in the amount of NPAs or any further deterioration in our NPA portfolio.
Stress in certain sectors of the economy could impact our customers and result in higher levels of NPAs and restructured assets in the future. Further, certain assets classified as restructured may subsequently be classified as delinquent or non-performing in case borrowers fail to restore their financial viability and honour their loan servicing obligations. There can be no assurance that the debt restructuring criteria approved by us will be adequate or successful and that borrowers will be able to meet their obligations under restructured advances. Any resulting increase in delinquency levels may adversely impact our business, financial condition, and results of operations.
Interest rate volatility
Our results of operations depend substantially on our Income, which is driven by our interest earned. Interest earned is the largest component of our total income, and represented 84.85%, 86.81% and 88.61% of our total income in Fiscal 2021, 2020 and 2019. Our interest expense, which is largely dependent on our deposits and associated interest rates, represented 48.70%, 53.77% and 54.81%, of our total income in Fiscals 2021, 2020 and 2019, respectively. Accordingly, the magnitude and timing of interest rate changes in the asset and liability
markets as well as the relative gradient of the rate curves, have a significant impact on our margins and our profitability. Movements in short and long-term interest rates affect our interest earned and interest expended.
The banking industry in India is highly competitive and we face strong competition in all our principal lines of business. Our primary competitors are public sector banks and private sector banks. Many of our competitors have, over time, built extensive branch networks, providing them with the advantage of a low cost deposit base, and enabling them to lend at competitive rates. In addition, the extensive geographic reach of many of these institutions enables product delivery in remote parts of the country. Further, the Indian banking sector has undergone significant reforms over the last few years; there has been a significant increase in competition from the emergence of financial technologies companies and payment banks due to technological advancement and tech-savvy human resources. We seek to compete with these banks through value added services, faster customer service response, quality of service, a growing inter - connected branch network and delivery capabilities based on enhanced technology. Peers in the industry have been identified as all listed old private sector banks with Total Business size of at least Rs 200 billion. (Source: CRISIS Report) Other private sector banks also compete in the corporate banking market on the basis of pricing, efficiency, service delivery and technology. Our competition primarily entails issues of variety, pricing and quality of products and services, convenience of banking facilities, reach of distribution network and brand recognition, as well as information technology capabilities.
Transition to Ind AS and impact on preparation and presentation of our future financial statements
The Ministry of Corporate Affairs, in its press release dated January 18, 2016, issued a roadmap for implementation of Ind AS for scheduled commercial banks, insurance companies and NBFCs, which are applicable to us. Such roadmap provided that these institutions were required to prepare Ind AS financial statements for accounting periods commencing April 1, 2018 (including comparative financial statements for the corresponding periods in the previous year). The RBI, by its circular dated February 11, 2016, required all scheduled commercial banks to comply with Ind AS for financial statements commencing April 1, 2018 and also required such entities to prepare and submit proforma Ind AS financial statements to the RBI since the six months ended September 30, 2016. However, the RBI, through its notification dated March 22, 2019, decided to defer the implementation of Ind AS until further notice for all scheduled commercial banks (except regional rural banks). Under applicable regulations, scheduled commercial banks, are not permitted to undertake early adoption of Ind AS. Accordingly, we continue to prepare and present our financial statements under Indian GAAP.
We have not determined with any degree of certainty the impact that such adoption will have on our financial reporting. Furthermore, the new accounting standards will change, among other things, our methodology for estimating allowances for probable loan losses and for classifying and valuing our investment portfolio and revenue recognition policy. For estimation of probable loan losses, the new accounting standards may require us to calculate the present value of the expected future cash flows realizable from our loans, including the possible liquidation of collateral (discounted at the loans effective interest rate). This may result in us recognizing allowances for probable loan losses in the future which may be higher or lower than under current Indian GAAP.
Technology efficiency and digital business
We believe that the increased availability of internet access and connectivity across India requires a comprehensive technology-driven strategy to proactively develop new methods of reaching our customers and running our businesses. Our technology-driven strategy is focused on acquiring new customers by enhancing customer experience through our digital interfaces. Our technology focus is also intended to enhance our loan approval capabilities, reduce overall turnaround time, and facilitate maintaining and developing long-term customer relationships by allowing our customers to interact with us and access their accounts from the comfort of their personal space.
We are continuously investing in technology as a means of improving our customers experience, offering them a range of products tailored to their financial needs and making it easier for them to interact with us. While we have introduced internet and mobile banking to our customers around 10 years ago, we continue to launch better interfaces and platforms for ease of our customers to access and use our varied product portfolio and services. We have approximately 0.23 million customers using our internet banking facilities contributing to 9.45 million transactions, and approximately 0.68 million customers using our mobile banking facilities contributing to 20.16
million transactions, as of March 31, 2021. We constantly aim to upgrading our systems to match our customer demands and satisfy the needs of our diverse customer base.
Our aim is to foster continued investment and innovation towards improved network security technology and architecture by adopting the "phygital" approach to sustainable and scalable growth. Our focus is on the simplicity in product and service design and interface designed for ease of use of customers including in the rural and semi-urban regions, supported by strengthened and automated backend processes.
We currently provide a range of options for customers to access their accounts, including internet banking and mobile banking and we have also launched a mobile application. We offer a convenient and secure application, TMB DigiLobby, for our customers to view all their account balances & transactions on their mobile device for each customer id. Customers may also create a personal ledger using the application and transactions, which can be linked to the personal ledger to view the transactions breakup separately. We also have a comprehensive integrated online fee payment system, TMB Fee Pay, for educational institutions, which enables educational institutions to collect their fees from students through multiple modes. We are exploring investment in technology platforms which provide early warning signals for stressed assets, and in customer relationship management systems, peripheral systems which would integrate our systems with that of our various business partners for origination and other operational functions, and alternate channels such as corporate internet banking, Point of Sale ("POS") facility, and payment system interfaces. We will continue to focus in creating efficient Management Information Systems ("MIS") and data analytics practices to monitor our portfolio and get actionable insights to help drive efficient decision making. We are also continuing to invest in our cyber security network and privacy protection systems, in order to supplement our growth and increase the robustness of our data security framework. Our operational initiatives also provide us with insights into our customers, enabling us to cater to their needs in a customised manner.
Risk Management and liquidity management
Given our RAM portfolio focusing particularly on our MSME customers, we focus on selective lending and limit our exposure to certain industries and sectors as a part of our strategy to monitor concentration risk. Further, with an aim to maintain and improve our asset quality, we follow specific processes prior to loan approval and during the tenure of the loans depending on the ticket size of the loans. Our term loans are reviewed annually and higher value loans are reviewed periodically depending on the size of the loan products. This enables to us escalate any defaults at our regional offices in a timely manner. We also have a dedicated credit audit monitoring department which monitors our advances and avoid any downgrading in asset classification. We also have recovery champions at specific branches, regional offices and our head office to enable us to maintain our asset quality. We also have an early warning signals ("EWS") software to identify weaknesses in advances which is escalated to relevant officers and branches of our Bank. Our lending products are sanctioned basis standard operating procedures. Our advances with exposure of Rs 250.00 million or more are monitored on a daily basis. These prudent risk management controls, policies, and procedures that we currently have and continuously evaluate to improve, are critical for the long-term sustainable development of our business. We regularly assess and update these policies and procedures to align with statutory changes as well industry standards. We have implemented risk management procedures for our credit exposures, including credit scoring, risk based pricing models, risk monitoring and control mechanisms. As of March 31, 2021, we have 58.00% of our outstanding loan value with less than 12 month tenures including working capital facilities renewable annually, 18.00% of our outstanding loan value with a tenure of 12-60 months and 24.00% with a tenure of more than 60 months. As of March 31, 2021, our average loan outstanding per branch is Rs 606.53 million.
Operational Risk has been identified as one of the major risks faced by Banks in the wake of increasing complexities of operations. Managing risk effectively is fundamental to the way we manage our business. The RBI guidelines have mandated banks to implement the operational risk management requirements. We have adopted various risk management policies, including operational risk management policy, credit risk management policy, credit risk mitigation techniques and collateral management policy, foreign exchange risk management policy, market risk policy, fraud risk management policy and model risk policy.
Our operational risk management policy has been adopted to reduce the operational losses by adopting various mitigation techniques and enhancing stakeholder value by improving our Banks competitive strategies. The objective will be achieved by effectively identifying, assessing, monitoring and mitigating these risks. Our credit risk management policy provides for the effective management of credit risk, necessary for long term success of our Bank. It encompasses identification, measurement, monitoring and mitigating of credit risk exposure.
Our credit risk mitigation techniques and collateral management policy serves as the guideline for management of collaterals accepted/proposed to be accepted by our Bank, against an existing/proposed exposure, so that Banks interests, rights and capital are protected. It also serves as a guide for addressing and mitigating the various risks including Credit Risk and Residual risks arising out of collaterals accepted by our Bank. Our foreign exchange management risk policy pertains to the risks that our Bank may be exposed to in the conduct of foreign exchange business, such as, (i) operational risk; (ii) exchange rate risk; (iii) credit risk; (iv) country risk; (v) interest rate risk; and (vi) liquidity risk.
Our fraud risk management risk policy aims to protect/mitigate the loss/damage that may be caused to our Bank by an act of fraud. It seeks to strengthen the existing systems and procedures and also create awareness amongst the staff/office members of our Bank. Our Bank has a strong internal control system, by which all employees are made aware of best practices and shall recognize the need to communicate to the appropriate level of management any instances of non-compliance with policy violation or any illegal actions. Our Bank has also constituted a risk management committee to effectively take decisions for handling and mitigating any risks we may face.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Foreign Exchange Transactions
Accounting for transactions involving foreign exchange is done in accordance with accounting standard (AS11) issued by the Institute of Chartered Accountants of India and also as per the RBI Guidance circular no. 395 dated 15th March 2005. Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of transaction. Foreign currency liabilities such as FCNR/EEFC/RFC/MC prepaid card balances and Foreign currency assets such as Nostro bank balances, deposits and foreign currency loans availed by constituents, are translated at the Spot rates announced for quarter ends by FEDAI and the resultant profit / loss is shown as income / loss. In respect of outstanding forward contracts, the outstanding foreign currencies are translated at the quarter end rates announced by FEDAI discounted to arrive at Present value. The resultant profit / loss is shown as income / loss. Contingent liabilities on account of acceptances, endorsements and other obligations including guarantees and Letters of Credit denominated in foreign currencies are translated at year-end FEDAI rates.
Classification of investments is made as per the guidelines of Reserve Bank of India. The entire investment portfolio of our Bank is classified under three categories namely "Held to Maturity" ("HTM"); "Available for sale" ("AFS"); and "Held for Trading" ("HFT"). Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT Category. Investments that our Bank intends to hold till maturity are classified under the HTM category or as per RBI guidelines. Securities not classified in the above categories are classified under the AFS category.
Transfer between the categories or reclassification of investments from one category to other, if done, is in accordance with RBI guidelines. Transfer of securities from AFS/HFT Category to HTM category is made at book value or market value, whichever is lower. In case of transfer of securities from HTM to AFS/HFT category, the investments held under HTM at a discount are transferred to AFS/HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/HFT at amortized cost. Transfer of investments from AFS to HFT or vice versa is done at the book value. Depreciation carried if any on such investments is also transferred from one category to another. The investments are classified for the purpose of the balance sheet under five groups being: (i) government securities, (ii) other approved securities, (iii) shares, (iv) debentures and bonds and (v) others.
Brokerage/commission received on subscriptions is reduced from the cost. Brokerage, commission, securities transaction tax etc. paid in connection with acquisition of investments are expensed upfront and excluded from cost. Broken period interest paid / received on debt instruments is treated as interest expense / income and is excluded from cost / sale consideration.
Valuation of investments is done as follows:
Investments held under "Held to Maturity" are valued at cost price. Wherever the cost price is more than the face value, the premium paid is amortized over the remaining period of maturity and the amortisation expenses
is accounted on quarterly basis as per policy. Profit on sale of securities under "Held to Maturity" category is initially taken to the profit and loss account and then appropriated to Capital Reserve Account. The amount so appropriated would be net of taxes and the amount required to be transferred to statutory reserves. If there is a loss it is charged to the profit and loss account. Investments classified under "Available for Sale" category are marked to market on quarterly basis. Shares held under "Available for sale" are marked to market on weekly basis. Scrip wise appreciation / depreciation is segregated group-wise. The Net Depreciation category wise is charged to the profit and loss account. The Net Appreciation in any category is ignored. Investments classified under "Held for Trading" category except shares are marked to market scrip-wise on daily basis. Shares held under "Held for Trading" are marked to market on weekly basis. The net depreciation group wise is charged to the profit and loss account and the net appreciation is ignored. Investments received in lieu of restructured advances/under SDR scheme are valued in accordance with RBI guidelines.
Investments are valued at year-end as per RBI guidelines as follows: Central Government Securities are valued as per price list of RBI, prices declared by Primary Dealers Association of India ("PDAI") jointly with the Fixed Income Money Market and Derivatives Association of India ("FIMMDA") and published by the FIMMDA. State Government Securities and Other Approved Securities are valued after appropriate mark up over Yield to Maturity ("YTM") rates for Central Government securities declared by FIMMDA. Debenture and Bonds have been valued with appropriate mark up over the YTM rates for Central Government Securities declared by FIMMDA. Quoted shares are valued at market rates quoted on NSE. Unquoted shares are valued at book value ascertained from the latest available Balance Sheet and in case the latest Balance Sheet is not available, the same is valued at Re.1 per company. Preference shares are valued at YTM, if dividend is received regularly. Where dividend is in arrears, appropriate depreciation is provided based on the number of years for which dividend is in arrears as per RBI guidelines. Mutual Fund units are valued at market rates/NAV/repurchase price as applicable. Treasury bills, certificate of deposits and commercial papers are valued at carrying cost. Provisions for investments are made as per RBI prudential norms.
Securities guaranteed by the State Government where the principal / interest is due but not paid for a period of more than 90 days are treated as non performing investments and appropriate provision is made and interest in respect of such investments is recognized as income only on cash basis. In terms of the instructions of RBI, the excess of acquisition cost over face value of securities kept under "Held to Maturity" category is amortized up to the date of maturity and the amount amortized is reflected as a deduction in the profit and loss account. Brokerage / commission / stamp duty paid in connection with acquisition of securities are treated as revenue expenses.
Accounting for REPO Transactions
Repo and reverse Repo transactions are accounted in accordance with the extant RBI guidelines. Securities purchased/sold under Liquidity Adjustment Facility with the RBI are debited/credited to Investment account and reversed on maturity of the transaction. Interest expended /earned thereon is accounted for as expenditure/revenue.
Advances and Provisions
Advances are classified into Standard, Sub-standard, Doubtful and Loss Assets and provisions for possible losses on such advances are made as per prudential norms/directions of the Board of Directors/directions issued by Reserve Bank of India from time to time. With regard to the Standard Advances, Provisions are made as per extant RBI guidelines. In addition to the specific provision made towards identified NPAs, our Bank also holds floating provision. In addition, our Bank adopts an approach to provisioning that is based on past experience evaluation of security and other related factors.
Provisioning on categorized assets are made as follows:
|Doubtful 1||Secured 25%|
|Doubtful 2||Secured 40%|
|Doubtful 3||100% on outstanding|
|Loss||100% on outstanding|
|NCLT referred loans||As per RBI instruction|
Education loans were provided at 100% irrespective of NPA asset classification.
Our Bank, in respect of creation of provision for sub-standard assets or NPA, had previously been creating provision for such assets at the rate of 25%. With effect from October 1, 2020, our Bank has changed the said policy as approved by its Board on September 8, 2020. However as a matter procedure, our Bank is continuing to provide for sub standard assets or NPA at the rate of 25.00%.
Sufficient incremental provisioning for unhedged foreign currency exposure is made as per RBI guidelines. The RBI methodology to arrive at UFCE and for introduction of incremental provision and capital requirements is followed. Advances disclosed are net of provisioning made for non-performing assets and floating provisions, provisioning on diminution in fair value of assets on restructured accounts. In case of loan accounts classified as NPA, an account may be reclassified as per performing asset if it confirms to the guidelines prescribed by the RBI. Accounts are written off in accordance with banks policies. Recoveries from bad debts written off are recognized in profit and loss account and included under other income.
Fixed Assets and Depreciation
Fixed assets are carried at cost of acquisition less accumulated depreciation. Cost includes freight, applicable duties, taxes and incidental expense related to the acquisition and installation of the asset, except for items on which input credit is availed. Depreciation on fixed assets is provided in accordance with estimated useful lives as specified in Schedule II to the Companies Act, 2013, and reckoning the residual value at 5% of the original cost of the asset except for the following:
|Class of Asset||Rates of depreciation per annum|
|Computer Hardware & Software||33.33%|
|Furniture and Electrical Fittings||10.00%|
Depreciation on additions is pro rata basis, from the date of capitalization. Expenditure during construction/capital works pending completion is shown at cost.
Our Bank follows Accounting Standard 15 (Revised 2005) "Employee Benefits". In respect of contributory plans, namely, provident fund and contributory pension scheme, our Bank pays fixed contribution at predetermined rates to a separate entity, which invests in permitted securities. The obligation of our Bank is limited to such fixed contribution. In respect of defined benefit plans, namely, gratuity and pension as well as for leave encashment, provision has been made based on actuarial valuation as per the guidelines. The summarized position of post-employment benefits and long term employee benefits have been recognized in the profit and loss account and balance sheet, as required in accordance with the Accounting Standard 15. The actuarial gain / loss is recognized in the profit and loss account.
Taxes on Income
Income tax expense is the aggregate amount of current tax and deferred tax. Current taxes are determined in accordance with the provisions of tax laws prevailing in India. Deferred tax adjustments comprise changes in the deferred tax assets or liabilities during the period and Deferred Tax is determined in terms of Accounting Standard-22 issued by ICAI. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted prior to the balance sheet date. Deferred tax assets and liabilities are recognized on a prudent basis for future tax consequences of timing differences by adoption of Profit and Loss approach with their respective tax bases. The impact of changes in the deferred tax assets and liabilities is recognized in the profit and loss account. Deferred tax assets are recognized at each reporting date, based upon managements judgment as to whether realization is considered reasonably certain. Deferred tax assets are recognized on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty that such deferred tax assets can be realized against future profits. No withdrawal is made from the Special Reserve created and maintained under the provisions of Section 36(1)(viii) of the Income Tax Act, 1961.
Income and expenditure is generally accounted on accrual basis except in the following cases:
In the case of NPAs, S4A and SDR schemes, income is recognized on realization basis, in terms of guidelines of Reserve Bank of India. Where recovery is not adequate to upgrade the NPA accounts by way of regularization, such recovery is being appropriated towards interest in the first instance and towards the principal/book values thereafter, except in the case of suit filed accounts. In case of non-performing investments (NPIs), the same accounting treatment as above is followed except otherwise agreed. Dividend on investments in shares, units of mutual fund, income from sale of mutual fund products, locker rent, insurance claims, commission on LCs, income on auxiliary services and other sevices, overdue charges on bills, commission on Government business and insurance business are accounted on cash/realization basis. Income related to credit card is accounted on the basis of the bills raised. In the case of suit filed accounts, legal expenses are charged to the profit and loss account. Similarly, at the time of recovery of legal expenses, in respect of such suit filed accounts, the amount recovered is accounted as income. Funded Interest on Standard Restructured Advances and Interest on FITL are accounted as per the guidelines of Reserve Bank of India. Expenditure is charged on accrual basis.
Earnings per Share
Our Bank reports basic and diluted earnings per share in accordance with applicable Accounting Standard 20. For the year under reference, both basic and diluted earning per share being the same, is computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the period.
Cash Flow Statement
Our Bank has adopted the respective Accounting Standard prescribed under Companies (Accounting Standard) Rules, 2006 and follows the indirect method.
As per RBI guidelines on enhancement of disclosures relating to segment reporting under Accounting Standard 17, the reportable segments have been divided into treasury, corporate / wholesale, retail banking operations. Our Bank recognizes the business segment as the primary reporting segment and geographical segment as the secondary reporting segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17. The business Segment is classified into (i) treasury (ii) corporate / wholesale banking and (iii) retail banking and the geographical segment consists only of the domestic segment since our Bank does not have any foreign branches.
Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with AS 19 Leases.
Loss, if any from contingencies arising from claims, litigation, assessment, fines, penalties etc. are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Impairment of Assets
Impairment losses, if any, on fixed assets are recognized in accordance with the Accounting Standard 28 ‘impairment of assets and charged to the profit and loss account.
The net profit is arrived at after provisions for direct taxes, possible losses on standard assets, restructured advances, NPAs and other contingencies, depreciation / diminution on investments, employee retirement benefits and other usual and necessary provisions.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, balance with the RBI, balance with other banks and money at call at short notice including cash in ATMs, coin vending machine and cash deposit machines.
In respect of Intangible Assets, our Bank has adopted Accounting Standard 26.
Accounting for Provisions, Contingent Liabilities and Contingent Assets
As per the Accounting Standard 29, our Bank recognizes provisions only when it has a present obligation as a result of past event, it is probable that an outflow of resources is required to settle the obligation and when a reliable estimate of the amount can be made. The required disclosure for contingent liability is made on possible obligation that arises from past events, the existence of which depends on occurrence or non-occurrence of future event not under control. Contingent assets are not recognized in the financial statement since this may result in the recognition of income that may never be realized.
CHANGES IN ACCOUNTING POLICIES
With effect from October 1, 2020, our Bank modified the existing policy of 25.00% provision on all SubStandard (NPA) assets into 25.00% on unsecured portion and 15.00% on secured portion of such assets as approved by the Board on September 8, 2020. However, on a conservative basis, our Bank continued to provide 25.00% on all Sub-Standard assets for the year ended March 31, 2021 which is line with provisioning policy followed for Sub-standard (NPA) assets during the year ended March 31, 2020 and March 31, 2019. Therefore, no adjustments were made to the audited profit / equity for any of the three Fiscals.
Except as disclosed above, there have been no changes in our accounting policies during Fiscal 2019, 2020 and 2021.
PRINCIPAL COMPONENTS OF INCOME AND EXPENDITURE Income
Interest earned consists of interest on advances/bills, income on investments, interest on balances with Reserve Bank of India and other inter-bank funds, and other interest.
Other income consists principally of (i) commission, exchange and brokerage; (ii) profit (or loss) on the sale of investments; (iii) profit on revaluation of assets; (iv) profit (or loss) on sale of land, building and other assets; (v) profit on exchange transactions; and (vi) miscellaneous income, which includes income from processing charges, cheque return charges, minimum balance charges, jewel handling charges, cash handling charges, rent/GPRS for POS, recovery of bad debts, SMS alert charges, locker charges, card issuance and ATM charges and includes reversal of excess provision of expenses.
Interest expended include interest on deposits, interest on Reserve Bank of India/ inter-bank borrowings, and other interest such as interest on borrowings.
Our operating expenses, includes, (i) payments to and provision for employees, (ii) rent, taxes and lightings, (iii)
printing and stationery, (iv) advertisement and publicity, (v) depreciation on our Banks property, (vi) directors fees, allowances and expenses, (vii) auditors fee and expenses (including branch auditors), (viii) law charges, (ix) postages, telegrams, telephones, etc., (x) repairs and maintenance, (xi) insurance, and (xii) other expenditure, including professional fees, information technology expenses, security and housekeeping expenses, commission on BCs and ATM interchange fees.
Provisions and Contingencies
Our provisions and contingencies consist of diminution on investment, provision towards NPA, provision towards standard asset, floating provision for advances, provision made for taxation, deferred tax, provision for MSME advances, provision for restructured advances, provision for COVID-19 relief advances, and diminution in fair value for restructured advances.
RESULTS OF OPERATIONS
FISCAL 2021 COMPARED TO FISCAL 2020
The following table sets forth certain information with respect to our results of operations for Fiscal 2021 and 2020:
|Particulars||(Rs million)||Percentage of total income||(Rs million)||Percentage of total income|
|Provisions and contingencies||5,988.94||14.08%||5,873.32||14.71%|
|Net profit for the year||6,033.29||14.18%||4,076.94||10.21%|
Total income increased by Rs 2,608.73 million or by 6.53% from Rs 39,925.29 million in Fiscal 2020 to Rs 42,534.02 million in Fiscal 2021 primarily due to an increase in interest earned due to the reasons discussed below.
Interest earned increased by Rs 1,429.41 million or by 4.12% from Rs 34,661.12 million in Fiscal 2020 to Rs 36,090.53 million in Fiscal 2021, primarily due to an increase in interest on advances/bills by Rs 1,103.47 million or by 4.09% from Rs 27,010.95 million in Fiscal 2020 to Rs 28,114.42 million in Fiscal 2021, and an increase in income on investments by Rs 403.31 million or by 5.68% from Rs 7,100.83 million in Fiscal 2020 to Rs 7,504.14 million in Fiscal 2021.
Interest on balances with RBI and other inter-bank funds decreased by Rs 47.79 million or by 11.88% from Rs 402.29 million in Fiscal 2020 to Rs 354.50 million in Fiscal 2021, primarily due to decrease in such bank balance and withdrawal of funds for investment/credit deployment.
Other income increased by Rs 1,179.32 million or 22.40% from Rs 5,264.17 million in Fiscal 2020 to Rs 6,443.49 million in Fiscal 2021, primarily due to increase in commission exchange and brokerage income and profit on sale of investments.
Commission, exchange and brokerage increased by Rs 98.19 million or by 6.13% from Rs 1,601.81 million in Fiscal 2020 to Rs 1,700.00 million in Fiscal 2021 on account of increase in commission on guarantee, visa debit card annual fee, and a net increase in commission on master credit cards. Profit on sale of investments increased by Rs 889.17 million or by 128.41% from Rs 692.47 million in Fiscal 2020 to Rs 1,581.64 million in Fiscal 2021,
on account of sale of HTM and government securities, partially offset by loss on sale of investments of Rs 18.22 million and Rs 30.96 million in Fiscal 2020 and Fiscal 2021, respectively, due to market fluctuation during the normal course of business. Profit on sale of land, building and other assets increased by Rs 1.62 million or by 202.50% from Rs 0.80 million in Fiscal 2020 to Rs 2.42 million in Fiscal 2021 on account of the sale of old fixed assets such as vehicles /computers etc., which in Fiscal 2020 was entirely offset by a loss of on sale of land, building and other assets of Rs 1.09 million and partially offset by a loss of on sale of land, building and other assets of Rs 0.66 million in Fiscal 2021 due to a post sale write off of the balance in the asset account. Profit on exchange transactions increased by Rs 54.36 million or by 27.28% from Rs 199.30 million Fiscal 2020 to Rs 253.66 million in Fiscal 2021 due to merchant and trading profit and revaluation of foreign currency asset/liability.
Miscellaneous income, which includes income from processing charges, cheque return charges, minimum balance charges, jewel handling charges, cash handling charges, rent/GPRS for POS, recovery of bad debts, SMS alert charges and includes reversal of excess provision of expenses increased by Rs 148.29 million or by 5.32% from Rs 2,789.10 million in Fiscal 2020 to Rs 2,937.39 million in Fiscal 2021, primarily due to increase in income from handling charges on jewel loan accounts and reversal of provisions.
Total expenditure increased by Rs 652.38 million or by 1.82% from Rs 35,848.35 million in Fiscal 2020 to Rs 36,500.73 million in Fiscal 2021 for the reasons as listed below.
Interest expended decreased by Rs 750.67 million or by 3.50% from Rs 21,465.92 million in Fiscal 2020 to Rs 20,715.25 million in Fiscal 2021, primarily due to a decrease in interest on deposits. Specifically, interest on deposits decreased by Rs 909.06 million or by 4.24% from Rs 21,415.96 million in Fiscal 2020 to Rs 20,506.90 million in Fiscal 2021 due to a reduction in rates of interest. Interest on RBI and inter-bank borrowings increased by Rs 64.63 million or by 293.91% from Rs 21.99 million in Fiscal 2020 to Rs 86.62 million in Fiscal 2021 due to increase in borrowings, specifically the LTRO which was repaid in September 2020. Other interest expended comprising other interest on borrowing increased by Rs 93.76 million or by 335.22% from Rs 27.97 million in Fiscal 2020 to Rs 121.73 million in Fiscal 2021 following an increase in borrowing, specifically, CBLO/TREPS/REPO borrowings.
Operating expenses increased by Rs 1,287.43 million or by 15.13% from Rs 8,509.11 million in Fiscal 2020 to Rs 9,796.54 million in Fiscal 2021 due to an increase in salary expense, rent and lighting and other expenditure. Specifically, payments to and provisions for employees increased by Rs 1,249.57 million or by 28.69% from Rs 4,355.38 million in Fiscal 2020 to Rs 5,604.95 million in Fiscal 2021 following an increase in employee salary, including daily allowance, and other expenses such as contribution to pension fund.
Rent, taxes and lighting increased by Rs 13.14 million or by 1.63% from Rs 807.44 million in Fiscal 2020 to Rs 820.58 million in Fiscal 2021 primarily for the rent and lighting in respect of 24 new E-Lobbies. There was also a marginal increase in printing and stationery expenses by Rs 0.32 million or by 0.34% from Rs 93.61 million in Fiscal 2020 to Rs 93.93 million in Fiscal 2021. Advertisement and publicity decreased by Rs 26.83 million or by 37.41% from Rs 71.71 million in Fiscal 2020 to Rs 44.88 million in Fiscal 2021 as we undertook fewer advertising activities on account of COVID-19. Depreciation on our Banks property decreased by Rs 15.16 million or by 5.04% from Rs 300.80 million in Fiscal 2020 to Rs 285.64 million in Fiscal 2021. Directors fees allowances and expenses decreased by Rs 3.12 million or by 17.64% from Rs 17.69 million in Fiscal 2020 to Rs 14.57 million in Fiscal 2021 following a reduction in travel expenses. Auditors fees and expenses (including branch auditors) decreased by Rs 1.31 million or by 8.61% from Rs 15.22 million in Fiscal 2020 to Rs 13.91 million in Fiscal 2021 also following a reduction in travel expenses. Law charges decreased by Rs 1.92 million or by 20.69% from Rs 9.28 million in Fiscal 2020 to Rs 7.36 million in Fiscal 2021 as there was no increase in services sought. Postages, telegrams, telephones, etc. decreased by Rs 38.90 million or by 20.90% from Rs 186.12 million in Fiscal 2020 to Rs 147.22 million in Fiscal 2021 due to reduction in leased line charges. Repairs and maintenance decreased by Rs 54.78 million or by 34.05% from Rs 160.87 million in Fiscal 2020 to Rs 106.09 million in Fiscal 2021, as fewer repairs were required during the year. Insurance expense which includes insurance over our assets and DICGC insurance premium, increased by Rs 103.76 million or by 29.65% from Rs 349.91 million in Fiscal 2020 to Rs 453.67 million in Fiscal 2021 primarily due to an increase in DICGC insurance premium.
Other expenditure increased by Rs 62.66 million or by 2.93% from Rs 2,141.08 million in Fiscal 2020 to Rs
2,203.74 million in Fiscal 2021 primarily on account of a provision of Rs 169.90 million created for the penalty levied by the Enforcement Directorate, which was partially offset by a reduction in travelling expenses and outsourcing of ATM transactions.
Provisions and Contingencies
Provisions and contingencies increased by Rs 115.62 million or by 1.97% from Rs 5,873.32 million in Fiscal 2020 to Rs 5,988.94 million in Fiscal 2021 due to increase in provision for taxation and the additional provision made for standard assets on account of the COVID-19 pandemic. In accordance with RBI guidelines, our Bank was required to make provisions at the rate of 10.00% of the outstanding advances over two quarters in respect of such borrower accounts where asset classification benefit has been availed, for which Rs 70.10 million was provided as on June 30, 2020.
For the reasons discussed above, net profit for the year was Rs 6,033.29 million in Fiscal 2021 as compared to Rs 4,076.94 million in Fiscal 2020.
FISCAL 2020 COMPARED TO FISCAL 2019
The following table sets forth certain information with respect to our results of operations for Fiscal 2019 and 2020:
|Particulars||(Rs million)||Percentage of total income||(Rs million)||Percentage of total income|
|Provisions and contingencies||5,873.32||14.71%||6,256.87||17.19%|
|Net profit for the year||4,076.94||10.21%||2,585.8||7.11%|
Total income increased by Rs 3,537.31 million or by 9.72% from Rs 36,387.98 million in Fiscal 2019 to Rs 39,925.29 million in Fiscal 2020 primarily due to an increase in interest earned due to the reasons discussed below.
Interest earned increased by Rs 2,416.55 million or by 7.49% from Rs 32,244.57 million in Fiscal 2019 to Rs 34,661.12 million in Fiscal 2020, primarily due to an increase in interest on advances/bills by Rs 2,547.96 million or by 10.42% from Rs 24,462.99 million in Fiscal 2019 to Rs 27,010.95 million in Fiscal 2020 on account of an increase in advances, and increase in interest on balances with RBI and other inter-bank funds by Rs 292.62 million or by 266.82% from Rs 109.67 million in Fiscal 2019 to Rs 402.29 million in Fiscal 2020, primarily due to increased participation in call money lending.
Income on investments decreased by Rs 403.53 million or by 5.38% from Rs 7,504.36 million in Fiscal 2019 to Rs 7,100.83 million in Fiscal 2020 due to a decrease in average investments.
Other income increased by Rs 1,120.76 million or 27.05% from Rs 4,143.41 million in Fiscal 2019 to Rs 5,264.17 million in Fiscal 2020, primarily due to an increase in commission, exchange and brokerage and profit on sale of investments.
Commission, exchange and brokerage increased by Rs 114.74 million or by 7.72% from Rs 1,487.07 million in
Fiscal 2019 to Rs 1,601.81 million in Fiscal 2020 on account of increase in commission on UPI, ATMs and Visa debit cards. Profit on sale of investments increased by Rs 382.74 million or by 123.57% from Rs 309.73 million in Fiscal 2019 to Rs 692.47 million in Fiscal 2020, on account of sale of HTM and government securities, partially offset by loss on sale of investments of Rs 40.24 million due to a post sale write off of the balance in the asset account and Rs 18.22 million in Fiscal 2019 and Fiscal 2020, respectively, due to market fluctuation during the normal course of business. Profit on sale of land, building and other assets decreased by Rs 0.44 million or by 35.48% from Rs 1.24 million in Fiscal 2019 to Rs 0.80 million in Fiscal 2020 on account of the sale of old fixed assets such as vehicles /computers etc., which in Fiscal 2020 was entirely offset by a loss of on sale of land, building and other assets of Rs 1.09 million and partially offset by a loss of on sale of land, building and other assets of Rs 0.89 million in Fiscal 2019. Profit on exchange transactions increased by Rs 54.19 million or by 37.34% from Rs 145.11 million Fiscal 2019 to Rs 199.30 million in Fiscal 2020 due to merchant and trading profit and revaluation of foreign currency asset/liability.
Miscellaneous income, which includes income from processing charges, cheque return charges, minimum balance charges, jewel handling charges, cash handling charges, rent/GPRS for POS, recovery of bad debts, SMS alert charges and includes reversal of excess provision of expenses increased by Rs 547.71 million or by 24.44% from Rs 2,241.39 million in Fiscal 2019 to Rs 2,789.10 million in Fiscal 2020, primarily due to an increase in minimum balance charges, handling charges for jewel loan and MDR income on POS.
Total expenditure increased by Rs 2,046.17 million or by 6.05% from Rs 33,802.18 million in Fiscal 2019 to Rs 35,848.35 million in Fiscal 2020 for the reasons as listed below.
Interest expended increased by Rs 1,522.87 million or by 7.64% from Rs 19,943.05 million in Fiscal 2019 to Rs 21,465.92 million in Fiscal 2020, primarily due to an increase in interest on deposits which increased by Rs
I, 943.30 million or by 9.98% from Rs 19,472.66 million in Fiscal 2019 to Rs 21,415.96 million in Fiscal 2020. Interest on RBI and inter-bank borrowings decreased by Rs 158.78 million or by 87.84% from Rs 180.77 million in Fiscal 2019 to Rs 21.99 million in Fiscal 2020. Other interest expended comprising other interest on borrowing also decreased by Rs 261.65 million or by 90.34% from Rs 289.62 million in Fiscal 2019 to Rs 27.97 million in Fiscal 2020.
Operating expenses increased by Rs 906.85 million or by 11.93% from Rs 7,602.26 million in Fiscal 2019 to Rs 8,509.11 million in Fiscal 2020 due to an increase in staff expenses, advertisements, printing and stationery, postage and telegram expenses, repairs and maintenance, and insurance. Specifically, payments to and provisions for employees increased by Rs 602.32 million or by 16.05% from Rs 3,753.06 million in Fiscal 2019 to Rs 4,355.38 million in Fiscal 2020 due to an increase in provision for pension, salary arrear and gratuity premium.
Rent, taxes and lighting decreased by Rs 19.43 million or by 2.35% from Rs 826.87 million in Fiscal 2019 to Rs 807.44 million in Fiscal 2020 due to a reduction in lighting/electricity charges. There was a marginal decrease in printing and stationery expenses by Rs 0.77 million or by 0.82% from Rs 94.38 million in Fiscal 2019 to Rs 93.61 million in Fiscal 2020. Advertisement and publicity increased by Rs 6.21 million or by 9.48% from Rs 65.50 million in Fiscal 2019 to Rs 71.71 million in Fiscal 2020 with an increase in number of advertisements. Depreciation on our Banks property decreased by Rs 54.82 million or by 15.42% from Rs 355.62 million in Fiscal 2019 to Rs 300.80 million in Fiscal 2020 due to decrease in depreciation on networking hardware and software. Directors fees allowances and expenses increased by Rs 1.86 million or by 11.75% from Rs 15.83 million in Fiscal
2019 to Rs 17.69 million in Fiscal 2020 due to an increase in travel expenses. Auditors fees and expenses (including branch auditors) decreased by Rs 6.44 million or by 29.73% from Rs 21.66 million in Fiscal 2019 to Rs 15.22 million in Fiscal 2020 due to a reduction in travel expenses. Law charges increased by Rs 2.10 million or by 29.25% from Rs 7.18 million in Fiscal 2019 to Rs 9.28 million in Fiscal 2020 with an increase in services availed. Postages, telegrams, telephones, etc. increased by Rs 23.85 million or by 14.70% from Rs 162.27 million in Fiscal 2019 to Rs 186.12 million in Fiscal 2020 due to increase in leased line charges. Repairs and maintenance increased by Rs 49.74 million or by 44.76% from Rs 111.13 million in Fiscal 2019 to Rs 160.87 million in Fiscal
2020 following an overall increase in AMC, property tax, and repairs at branches/quarters. Insurance expense which includes insurance over our assets and DICGC insurance premium, increased by Rs 35.67 million or by
II. 35% from Rs 314.24 million in Fiscal 2019 to Rs 349.91 million in Fiscal 2020 primarily due to an increase in
DICGC insurance premium.
Other expenditure increased by Rs 266.56 million or by 14.22% from Rs 1,874.52 million in Fiscal 2019 to t
2.141.08 million in Fiscal 2020 on account of increased CSR expenditure, security guard wage expenses, incidental expenses on suit filed account and premium on group medical insurance.
Provisions and Contingencies
Provisions and contingencies decreased by Rs 383.55 million or by 6.13% from Rs 6,256.87 million in Fiscal 2019 to Rs 5,873.32 million in Fiscal 2020 due to a decrease in provision for NPA and depreciation on investments. In accordance with RBI guidelines, our Bank was required to make provisions at the rate of 10.00% of the outstanding advances over two quarters in respect of such borrower accounts where asset classification benefit has been availed, for which during the quarter ended March 31, 2020, Rs 70.10 million was provided.
For the reasons discussed above, net profit for the year was Rs 4,076.94 million in Fiscal 2020 as compared to t
2.585.8 million in Fiscal 2019.
FINANCIAL CONDITION Assets
The table below sets out the principal components of our assets as of the dates indicated:
|As of March 31,|
|Balances with Banks and Money at Call and Short Notice||10,247.86||23,221.45||11,850.13|
Total assets increased by 11.15% from Rs 427,587.97 million as of March 31, 2020 to Rs 475,271.69 million as of March 31, 2021. This increase was primarily due to an increase in advances and investments.
Total assets increased by 5.49% from Rs 405,327.96 million as of March 31, 2019 to Rs 427,587.97 million as of March 31, 2020. This increase was primarily due to an overall increase in lending and investments.
The following table sets forth a breakdown of total advances as of the dates indicated:
|As of March 31,|
|Bills, purchased and discounted||3,949.15||3,218.83||5,162.91|
|Cash credits, overdrafts and loans repayable on demand||207,411.50||193,339.56||184,083.34|
|Secured by tangible assets||307,181.04||272,688.78||260,394.22|
|Covered by bank/ government guarantees||1,810.40||1,638.33||693.77|
|Advances in India|
|As of March 31,|
Total advances increased by Rs 33,538.39 million or by 12.10% from Rs 277,157.64 million as of March 31, 2020 to Rs 310,696.03 million as of March 31, 2021. Total advances also increased by Rs 12,278.23 million or by 4.64% from Rs 264,879.41 million as of March 31, 2019 to Rs 277,157.64 million as of March 31, 2020 on account of an increase in priority sector lending.
Our investments represent investment in government securities, other approved securities, shares, debentures and bonds, as well as mutual funds and commercial paper.
Investments increased by 23.62% from Rs 94,673.30 million as of March 31, 2020 to Rs 117,032.09 million as of March 31, 2021, due to an increase in investments in government securities by 32.25% from Rs 79,483.27 million as of March 31, 2020 to Rs 105,119.99 million as of March 31, 2021. This increase was offset by a decrease in investment in shares by 43.20% from Rs 129.25 million as of March 31, 2020 to Rs 73.41 million as of March 31, 2021, a decrease in investment in debentures and bonds by 9.59% from Rs 13,094.76 million as of March 31, 2020 to Rs 11,838.69 million as of March 31, 2021 and the reduction of other investments (in mutual funds and commercial papers) to nil from Rs 19,66.02 million as of March 31, 2020.
Investments increased by 3.96% from Rs 91,065.86 million as of March 31, 2019 to Rs 94,673.30 million as of March 31, 2020 due to an increase in investment in government securities by 7.64% from Rs 73,843.75 million as of March 31, 2019 to Rs 79,483.27 million as of March 31, 2020. This increase was offset by a decrease in investment in shares by 23.18% from Rs 168.26 million as of March 31, 2019 to Rs 129.25 million as of March 31, 2020.
Balances with Banks and Money at Call and Short Notice
Balances with banks and money at call and short notice decreased by 55.87% from Rs 23,221.45 million as of March 31, 2020 to Rs 10,247.86 million as of March 31, 2021. This decrease was primarily driven by a decrease in balances in India with banks in current accounts and other deposits and money at call and short notice with banks by 67.58% from Rs 19,622.15 million as of March 31, 2020 to Rs 6,362.22 million as of March 31, 2021, which was partially offset by an increase in balances with banks outside India in current accounts and other deposits of 7.96% from Rs 3,599.3 million as of March 31, 2020 to Rs 3,885.64 million as of March 31, 2021.
Balances with banks and money at call and short notice increased by 95.96% from Rs 11,850.13 million as of March 31, 2019 to Rs 23,221.45 million as of March 31, 2020. This increase was primarily driven by an increase in balances in India with banks in current accounts and other deposits and money at call and short notice with banks by 232.16% from Rs 5,907.44 million as of March 31, 2019 to Rs 19,622.15 million as of March 31, 2020, which was partially offset by a decrease in balances with banks outside India in current accounts and other deposits of 39.43% from Rs 5,942.69 million as of March 31, 2019 to Rs 3,599.3 million as of March 31, 2020
Other assets include inter-office adjustments, interest accrued, tax paid in advance / tax deducted at source, stationery and stamps, non-banking assets acquired in satisfaction of claims, deferred tax asset and other assets.
Other assets increased by 11.77% from Rs 17,107.00 million as of March 31, 2020 to Rs 19,121.05 million as of March 31, 2021 primarily due to an increase in interest accrued from Rs 2,532.72 million as of March 31, 2020 to Rs 2,914.31 million as of March 31, 2021 and increase in taxes paid in advance from Rs 5,493.38 million as of March 31, 2020 to Rs 7,600.63 million as of March 31, 2021.
Other assets decreased by 8.98% from Rs 18,795.32 million as of March 31, 2019 to Rs 17,107.00 million as of March 31, 2020 due to a decrease in taxes paid in advance from Rs 8,052.48 million as of March 31, 2019 to Rs 5,493.38 million as of March 31, 2020 and a reduction in deferred tax asset from Rs 594.48 million as of March 31, 2019 to Rs 256.33 million as of March 31, 2020.
Capital and Liabilities
The table below sets out the principal components of our shareholders funds and liabilities as on the dates indicated:
|As of March 31,|
|Reserves and surplus||44,374.71||38,371.35||34,757.44|
|Other liabilities and provisions||19,767.71||16,301.24||17,782.94|
Total capital and other liabilities increased by 11.15% from Rs 427,587.97 million as of March 31, 2020 to Rs 475,271.69 million as of March 31, 2021; and by 5.49% from Rs 405,327.96 million as of March 31, 2019 to Rs 427,587.97 million as of March 31, 2020 primarily due to increase in deposits and reserves.
The following table sets forth a breakdown of our Banks deposits, as well as the percentage of total deposits that each item contributes, as of the dates indicated:
As of March 31,
|Amount (^million)||Percentage of total deposits (%)||Amount (^million)||Percentage of total deposits (%)||Amount (Rs million)||Percentage of total deposits (%)|
|(i) from banks||0.82||0.00%||1.34||0.00%||0.09||0.00%|
|(ii) from others||35,962.31||8.78%||29,945.37||8.14%||28,101.56||8.00%|
|Saving Bank Deposits||80,889.52||19.74%||65,233.79||17.71%||58,475.45||16.64%|
|(i) from banks||-||-||-||-||4,250.00||1.21%|
|(ii) from others||292,851.51||71.48%||273,069.77||74.15%||260,535.37||74.15%|
Deposits increased by 11.26% from Rs 368,250.27 million as of March 31, 2020 to Rs 409,704.16 million as of March 31, 2021; and by 4.81% from Rs 351,362.47 million as of March 31, 2019 to Rs 368,250.27 million as of March 31, 2020 primarily due to increase in CASA and term deposits.
Borrowings entirely comprised borrowings from the RBI. Our borrowings as of March 31, 2021 was nil upon repayment of LTRO to the RBI, and was Rs 3,240.00 million as of March 31, 2020. Our borrowing was also nil as of March 31, 2019.
Other Liabilities and Provisions
Other liabilities and provisions represent bills payable, interest accrued, others (including provisions) consisting of contingent provisions against standard assets, and other liabilities.
Other liabilities and provisions increased by 21.27% from Rs 16,301.24 million as of March 31, 2020 to Rs 19,767.71 million as of March 31, 2021, primarily due to an increase in bills payable from Rs 1,364.19 million as of March 31, 2020 to Rs 2,683.94 million as of March 31, 2021 and an increase in other provisions from Rs 11,944.81 million as of March 31, 2020 to Rs 14,094.55 million as of March 31, 2021.
Other liabilities and provisions decreased by 8.33% from Rs 17,782.94 million as of March 31, 2019 to Rs 16,301.24 million as of March 31, 2020, primarily due to a decrease in bills payable from Rs 1,651.20 million as of March 31, 2019 to Rs 1,364.19 million as of March 31, 2020, decrease in deferred tax liability from Rs 666.84 million as of March 31, 2019 to Rs 540.73 million as of March 31, 2020 and decrease in other provisions from Rs 13,006.56 million as of March 31, 2019 to Rs 11,944.81 million as of March 31, 2020.
LIQUIDITY AND CAPITAL RESOURCES
The purpose of the liquidity management function is to ensure that we have funds available to extend loans to our customers across our various products, to repay principal and interest on our borrowings and deposits and to fund our working capital requirements. As of March 31, 2019, March 31, 2020, and March 31, 2021, we had cash and cash equivalents available for use in our operations of Rs 29,203.56 million, Rs 37,365.50 million and Rs 27,050.76 million, respectively.
The following table sets forth certain information relating to our cash flows in the periods indicated:
|Net cash flow (used in)/ from operating activities||(6,703.63)||5,673.51||14,978.26|
|Net cash flow (used in) investing activities||(371.11)||(201.79)||(336.12)|
|Net cash flow (used in)/ from financing activities||(3,240.00)||2,690.22||(5,473.61)|
|Net increase/ (decrease) in cash and cash equivalents||(10,314.74)||8,161.94||9,168.53|
|Cash and cash equivalents as at the beginning of the period/ year||37,365.50||29,203.56||20,035.03|
|Cash and cash equivalents at the end of the period/ year||27,050.76||37,365.50||29,203.56|
Operating Activities Fiscal 2021
Net profit for the year was Rs 6,033.29 million in Fiscal 2021 and adjustments of Rs 12,306.11 million to reconcile net profit to cash flow from operating activities consisted of adjustments for net sale of assets, depreciation of fixed assets and provisions and contingencies (including deferred tax adjustment). Net cash flow used in operating activities was Rs 6,703.63 million in Fiscal 2021 after adjusting for net change in liabilities comprising deposits and other liabilities and provisions, and net change in assets comprising advances, investments and others.
Net profit for the year was Rs 4,076.94 million in Fiscal 2020 and adjustments of Rs 10,251.35 million to reconcile net profit to cash flow from operating activities consisted of adjustments for net sale of assets, depreciation of fixed assets and provisions and contingencies (including deferred tax adjustment). Net cash flow used in operating activities was Rs 5,673.51 million in Fiscal 2020 after adjusting for net change in liabilities comprising deposits and other liabilities and provisions, and net change in assets comprising advances, investments and others.
Net profit for the year was Rs 2,585.80 million in Fiscal 2019 and adjustments of Rs 9,197.94 million to reconcile net profit to cash flow from operating activities consisted of adjustments for net sale of assets, depreciation of fixed assets and provisions and contingencies (including deferred tax adjustment). Net cash flow used in operating activities was Rs 14,978.26 million in Fiscal 2019 after adjusting for net change in liabilities comprising deposits and other liabilities and provisions, and net change in assets comprising advances, investments and others.
Investing and Financing Activities
Net cash used in investing activities was Rs 371.11 million in Fiscal 2021, Rs 201.79 million in Fiscal 2020 and Rs 336.12 million in Fiscal 2019, primarily on account of sale and purchase of fixed assets. Net cash used in financing activities was Rs 3,240.00 million in Fiscal 2021 on account of repayment of LTRO borrowing from the RBI. Net cash from financing activities was Rs 2,690.22 million in Fiscal 2020 on account LTRO borrowing availed from the RBI which was partially offset by interim dividend of Rs 549.78 million paid out during the year. Net cash flow used in financing activities was Rs 5,473.61 million in Fiscal 2019 on account of interim dividend of Rs 343.61 million and borrowings.
Our Bank is subject to the CRAR requirements prescribed by the RBI. As of March 31, 2021 we were required to maintain a minimum CRAR of 10.875%, based on the total capital to risk-weighted assets. The following table sets forth certain information relating to the CRAR of our Bank as of the periods indicated:
As of and for the year ended March 31,
|Basel II||Basel III||Basel II||Basel III||Basel II||Basel III|
|Common Equity Tier-I||17.95||17.93||15.89||15.87||15.55||15.52|
|Tier-I Capital (%)||17.95||17.93||15.89||15.87||15.55||15.52|
|Tier-II Capital (%)||1.01||1.01||0.87||0.87||0.65||0.65|
|Total Capital Ratio||18.96||18.94||16.76||16.74||16.20||16.17|
For details of our credit rating see "Our Business - Credit Rating" on page 132.
As of March 31, 2021, our total borrowings were nil.
CONTINGENT LIABILITIES AND OTHER OFF-BALANCE SHEET ARRANGEMENTS
The following table sets forth certain information relating to our contingent liabilities as of March 31, 2021:
|Particulars||As of March 31, 2021|
|Claims against our bank not acknowledged as debts|
|Counter suits filed by the borrowers against which our Bank has initiated legal action||-|
|Cases filed in Consumer/Civil Courts for deficiency in services||17.18|
|Other claims against the bank not acknowledged as debts.||1,336.03|
|Foreign exchange contracts||91,886.91|
|Guarantees given on behalf of constituents||11,630.02|
|Acceptances, endorsements and other obligations||8,099.07|
|Other items for which our Bank is contingently liable||901.61|
Note: The Directorate of Enforcement vide its order dated August 14, 2020 had levied a penalty of Rs 169.90 million for recording share transfers, which took place on 13.05.2007, 26.12.2011 and 11.06.2012 in violation of the Regulation 4 of Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2000. Our Bank had made an application for compounding and post facto approval in this regard to RBI vide its letter dated October 12, 2020. Our Bank had also requested Directorate of Enforcement vide its letter dated 12.10.2020 and 24.11.2020 to keep in abeyance the order of penalty imposed on bank till the decision of the RBI regarding compounding application. RBI vide its letter dated 27.01.2021 returned Our Banks compounding application by stating that as the contravention sought to be compounded has been adjudicated by the order of the Special Director, Directorate of Enforcement dated August 14, 2020, the compounding application is not maintainable. On February 22, 2021, our Bank had once again, requested RBI to review their decision regarding its compounding application dated October 12, 2020. On April 5, 2021, our Bank had received a copy of appeal dated January 27, 2021 filed by the Deputy Legal Adviser, Directorate of Enforcement, Chennai before Appellate Tribunal, Foreign Exchange, New Delhi against the Order of the Special Director of Enforcement dated August 14, 2020. Further, on July 26, 2021, Our Bank had sent another letter to Foreign Exchange Department, Mumbai and Chennai requesting them to consider our compounding application favourably by reviewing their earlier decision in respect of the IPO process. Our Bank has not paid the penalty amount, but however, necessary provision for the amount has been made in the books of account.
Please also see "Risk Factors - 37.61% of our paid up equity share capital or 53.59 million Equity Shares are subject to outstanding legal proceedings which are pending at various forums and, in connection with which, proceedings against our Bank have been initiated by various regulatory authorities, including the RBI, the Directorate of Enforcement, some of whom have imposed and sought to impose penalties on us in the past. We cannot assure you that these matters will be resolved in a timely manner or at all and any adverse developments in such proceedings could result in the imposition of injunctions or penalties or require us to incur significant costs to contest any of which could have a material impact on our reputation, business, financial condition and results of operation" on page 21.
Except as disclosed in this Draft Red Herring Prospectus, there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors.
RELATED PARTY TRANSACTIONS
Our Bank enters into various transactions with related parties in the ordinary course of business. These transactions principally include remuneration and emoluments paid to KMPs. For further information relating to our related party transactions, see "Financial Statements on page 204.
There have been no reservations/ qualifications/ adverse remarks highlighted by our statutory auditors in their auditors reports on the audited financial statements as of and for the years ended March 31, 2019, 2020 and 2021. However, our statutory auditors noted that the following emphasis of matter paragraphs in the independent auditors report do not require any adjustments in the Restated Financial Statements:
(a) Emphasis of Matter Paragraph - Independent auditors report for the year ended March 31, 2020
We draw attention to Note No.5.J.(xii) of the accompanying financial Statements which describes the uncertainties due to the outbreak of novel corona virus (COVID-19). In view of these uncertainties, the impact on the Banks financial Statements is significantly dependent on future developments.
(b) Emphasis of Matter Paragraph - Independent auditors report for the year ended March 31, 2021
We draw attention to Note No.5J.(xii)(a) of the accompanying financial Statements which describes the uncertainties due to the outbreak of novel corona virus (COVID-19). In view of these uncertainties, the impact on the Banks financial Statements is significantly dependent on future developments.
(c) Emphasis of Matter Paragraph - Independent auditors report for the year ended March 31, 2021
We draw attention to Note No. 5.J.(ii)(b) of the accompanying financial statements where the Bank has accounted during the year, the penalty payable amounting to Rs 16.99 crores, as per the order of Directorate Of Enforcement, levied for recording share transfers during 2007, 2011 and 2012 in violation of the regulation 4 of Foreign Exchange Management (Transfer or Issue Of security by a person resident outside India) Regulations, 2000. While the Banks compounding application, being returned by RBI, the Bank has asked RBI to review their decision and the Bank is yet to pay the penalty but has made necessary provision for the penalty in the current year.
For further information, see "Financial Statements" on page 204.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various types of market risks during the normal course of business such as liquidity risk, market and interest rate risk, Forex Fluctuation Risk.
Liquidity risk arises out of maturity mismatch between its assets and liabilities. Our treasury operations focus on the management of our funds, maintenance of statutory reserves (cash reserve ratio and statutory liquidity ratio), asset liability gaps, interest rate risks, liquidity positions, investments and trading activities. They also manage trades in equity and forex instruments, utilize arbitrage opportunities available across markets and also provide crucial market related inputs in our asset liability management. We invest in various instruments such as treasury bills, commercial papers, certificate of deposits, mutual funds, debentures and other products. As a part of due diligence exercise, we review our investments based on disclosures to regulators and assess the internal rating. The external rating of these investment targets are also reviewed on a quarterly basis and migration in the rating are reported to Investment Committee of our Bank. A minimum external and internal rating of "A" (adequate safety) and "BBB" (medium risk) have been approved as entry level for investment in non-statutory liquidity ratio (SLR) bonds and debentures of public sector undertakings and private sector.
Under the SLR requirement, as of March 31, 2021, we are required to maintain 18.00% of our demand and time liabilities in approved securities such as GoI and state government securities and other approved securities as compared to 18.25% as of March 31, 2020.
Market and Interest Rate Risk
Market risk is the risk that earnings or capital will be adversely affected by adverse changes in market factors such as interest rates, volatilities, credit spreads, and equity prices. We are exposed mainly to interest rate risk and liquidity risk. While we do not have any exposure to equity or equity related instruments, any significant impact on the global capital markets can affect us through other markets. Interest rate risk is the exposure of our financial conditions to adverse movements in interest rates. Interest rate risk can pose a significant threat to earnings and capital base. Interest rate risk arises from mismatches in re-pricing of interest rate sensitive assets, rate sensitive liabilities and rate sensitive off-balance sheet items.
Forex Fluctuation Risk
Forex fluctuation risk is the risk that arises from turbulence in foreign exchange rates. Our foreign exchange management risk policy pertains to the risks that our Bank may be exposed to in the conduct of foreign exchange business, such as, (i) operational risk; (ii) exchange rate risk; (iii) credit risk; (iv) country risk; (v) interest rate risk; and (vi) liquidity risk.
TOTAL TURNOVER OF EACH MAJOR INDUSTRY SEGMENT IN WHICH OUR BANK OPERATED
We are primarily engaged in the banking business. For further information, see "Industry Overview" on page 88, and for information on segment reporting for Fiscal 2021, 2020 and 2019, see "Financial Statements - Segment Reporting on page 219.
UNUSUAL OR INFREQUENT EVENTS OR TRANSACTIONS
Except as described in this Draft Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have affected the business in the past or may in the future affect our business operations or future financial performance.
KNOWN TRENDS OR UNCERTAINTIES
Our business has been subject to, and we expect it to continue to be subject to, significant economic changes arising from the trends identified above in Factors Affecting our Results of Operations and Financial Condition" and the uncertainties described in "Risk Factors" on pages 20 and 268, respectively. To our knowledge, except as discussed in this Draft Red Herring Prospectus, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on our revenues or income.
SIGNIFICANT ECONOMIC CHANGES THAT MATERIALLY AFFECT OR ARE LIKELY TO AFFECT INCOME FROM CONTINUING OPERATIONS
Our business has been subject, and we expect it to continue to be subject, to significant economic changes that materially affect or are likely to affect income from continuing operations identified above in "- Factors Affecting our Results of Operations and Financial Condition" and the uncertainties described in "Risk Factors on pages 268 and 20, respectively.
NEW PRODUCTS OR BUSINESS SEGMENTS
Except as described in this Draft Red Herring Prospectus, we have not publicly announced any new products or business segments nor have there been any material increases in our revenues due to increased disbursements and introduction of new products.
FUTURE RELATIONSHIP BETWEEN COST AND INCOME
Other than as described elsewhere in the sections "Risk Factors, "Our Business" and "Managements Discussion and Analysis of Financial Condition and Results of Operations" on pages 20, 112 and 265, respectively, to our knowledge, there are no known factors that will have a material adverse impact on our operations and financial condition.
SIGNIFICANT DEPENDENCE ON A SINGLE OR FEW CUSTOMERS OR SUPPLIERS
We are not dependent on a limited number of customers for a substantial portion of our deposits. Our CASA portfolio is diversified and has low concentration with 5.07% of deposits from our top 20 deposit holders and 6.49% deposits from our top 50 depositors as of March 31, 2021.
However, we have regional concentration in southern India, especially Tamil Nadu. As of June 30, 2021, Tamil Nadu represents 72.50% of our Banks total number of branches and 83.00% ATMs. See, "Our Business - Description of our Business - Distribution and "Risk Factors - We have regional concentration in southern India, especially Tamil Nadu. Any adverse change in the economic, political, or geographical conditions of Tamil Nadu and other states in which we operate can impact our results of operations" on pages 130 and 28, respectively.
We operate in a competitive environment. See sections, "Our Business, "Industry Overview, "Risk Factors - Our industry is very competitive and our growth strategy depends on our ability to compete effectively." and "Factors Affecting our Results of Operations and Financial Condition - Competition" on pages 112, 88, 37 and 272, respectively.
SEASONALITY/ CYCLICALITY OF BUSINESS
Our business operations are not seasonal in nature.
SIGNIFICANT DEVELOPMENTS AFTER MARCH 31, 2021 THAT MAY AFFECT OUR FUTURE RESULTS OF OPERATIONS
Other than as disclosed in this Draft Red Herring Prospectus, to our knowledge no circumstances have arisen since March 31, 2021, that could materially and adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.