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Directors Report of DCB Bank Ltd.

Mar 31, 2015

Dear Members,

The Directors are pleased to present the Twentieth Annual Report of DCB Bank Ltd (hereinafter referred to as the Bank/Your Bank/DCB Bank) together with the audited accounts for FY 2015.

In FY 2015, the Bank has posted an Operating Profit of Rs. 277.45 crore (FY 2014Rs.187.96 crore) and a Net Profit of Rs. 191.18 crore (FY 2014 Rs. 151.36 crore).

Total Assets have increased by Rs. 3,209.17 crore and reached Rs.16,132.31 crore as on 31st March, 2015 (Rs.12,923.14 crore as on 31st March, 2014).

Customer Deposits have increased by Rs. 2,369.23 crore and Advances have increased by Rs. 2,324.87 crore. The Bank has achieved the overall Priority Sector Lending (PSL) target as required by the Reserve Bank of India (RBI).

The Net Interest Margin (NIM) has improved to 3.72% in FY 2015 from 3.56% in FY 2014 and the Current and Savings Accounts (CASA) ratio stood at 23.40% as on 31st March, 2015.

Cost to Income Ratio has decreased to 58.83% in FY 2015 from 62.93% in FY 2014. The Bank''s total cost increased due to increase in number of branches, higher business volumes and increase in number of staff.

Total Branch network stood at 154 as on 31st March, 2015 (130 as on 31st March, 2014) and ATM network increased to 328 as on 31st March, 2015 (238 as on 31st March, 2014).

Provisions Other Than Tax have increased to Rs. 69.42 crore in FY 2015 from Rs. 36.56 crore in FY 2014. The increase was due to provision for existing and fresh NPA slippages, higher Floating provision and Provision against Standard Assets.

Gross NPAs have increased to Rs. 186.07 crore as on 31st March, 2015 from Rs. 138.45 crore as on 31st March 2014. The overall NPA Provision Coverage Ratio as on 31st March, 2015 was 74.66%. Net NPAs have increased to Rs. 105.70 crore as on 31st March, 2015 as against Rs. 74.02 crore as on 31st March, 2014.

Capital Adequacy Ratio (CAR) under Basel III as on 31st March, 2015 stood at 14.95%. (13.71% under Basel III as on 31st March, 2014).

In October 2014, the Bank issued 30,432,136 shares through Qualified Institutional Placement (QIP) at Rs. 82.15 per share amounting to Rs. 250 crore.

Although the stock market sentiment has improved, the economic conditions continued to be difficult. The banking industry continues to be under pressure due to rising NPAs and restructured loans. In FY 2015, RBI maintained Cash Reserve Ratio (CRR) at 4% and reduced the Statutory Liquidity Ratio (SLR) requirement from 23% to 21.5% and Repo Rate from 8% to 7.5%. The Bank continued to embrace a cautious and conservative stance in managing liquidity.

The Bank opened 24 new branches in FY 2015 taking the total tally of branches to 154. Of these 24 new branches, 14 branches were established in semi urban and rural areas. In line with the strategy, the Bank aims to continue opening a number of branches mainly in Tier 2 to Tier 6 locations. This is likely to help the Bank grow its business, achieve PSL and enhance CASA Deposits.

FINANCIAL SUMMARY

(Rs. in crore)

As at As at Increase / March 31, March 31, (Decrease) 2015 2014

Balance Sheet

Customer Deposits 11,099.81 8,730.58 2,369.23

Inter Bank Deposits 1,509.32 1,594.58 (85.26)

Total Deposits 12,609.13 10,325.16 2,283.97

(Including Total CASA) (2,950.06) (2,581.27) 368.79

Advances 10,465.06 8,140.19 2,324.87

Non Performing Assets 186.07 138.45 47.62 (Gross)

Non Performing Assets 105.70 74.02 31.68 (Net)

Provision for Standard 51.04 34.22 16.82 Assets

Total Assets 16,132.31 12,923.14 3,209.17

Profit & Loss

Net Interest Income 508.22 368.39 139.83

Non Interest Income 165.72 138.66 27.06

Total Operating Income 673.94 507.05 166.89

Operating Cost 396.49 319.09 77.40

Operating Profit 277.45 187.96 89.49

Provisions 69.42 36.56 32.86

Profit Before Tax 208.03 151.40 56.63

Tax 16.85 0.04 16.81

Net Profit After Tax 191.18 151.36 39.82

DIVIDEND

In view of the provisions of Section 15 of the Banking Regulation Act, 1949, your Directors are not able to recommend payment of any dividend for FY 2015 (Previous year NIL).

PARTICULARS OF EMPLOYEES

The information required under Section 197(12) of the Companies Act, 2013 and the rules made thereunder, as amended, has been given in the annexure appended hereto and forms part of this report. The Bank had 14 employees who were employed throughout the year and were in receipt of remuneration of more than Rs.60.00 lakh per annum and 2 employee (s) were employed for part of the year and were in receipt of remuneration of more than Rs. 5.00 lakh per month.

EMPLOYEE STOCK OPTIONS

The information pertaining to the Employee Stock Options is given in an annexure to this Report.

g) Variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase or decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer:

h) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and any exceptional circumstances for increase in the managerial remuneration : Average increase in managerial remuneration is 10% for Employees other than Managerial Personnel & 9% for Managerial Personnel (KMP and Senior Management)

i) The key parameters for any variable component of remuneration availed by the directors: Except for the Chairman Mr. Nasser Munjee and the Managing Director & CEO (MD & CEO) Mr. Murali M Natrajan no directors have been paid any remuneration as only Sitting Fees are paid to them. Mr. Nasser Munjee is not paid any variable remuneration. However, with respect to MD & CEO variable component is paid in the form of Bonus, as per the Compensation Policy of the Bank which is based on Reserve Bank of India guidelines on the Compnsation Policy. Any payment of this nature is made only with the prior approval of the Reserve Bank of India and Board of Directors.

j) The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: Not Applicable

k) If remuneration is as per the remuneration policy of the company: Yes

PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The provisions of Section 134(3)(m) of the Companies Act, 2013 relating to conservation of energy and technology absorption do not apply to the Bank. However, as mentioned in the earlier part of the Report, the Bank has been continuously and extensively using technology in its operations. Foreign Exchange earnings and outgo are part of normal banking business of the Bank.

ESTABLISHMENT OF VIGIL MECHANISM

The Bank has in place a vigil mechanism pursuant to which a Whistle Blower Policy has been in vogue for the last several years. The policy was last reviewed in FY2015.This Policy inter alia provides a direct access to a Whistle Blower to the Chairman of ACB on his dedicated email-ID cacb@dcbbank.com. The Whistler Blower Policy covering all employees and directors is hosted on the Bank''s website at "http:// www.dcbbank.com/cms/showpage/page/whistle-blower-policy".

THE DETAILS IN RESPECT OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS

The Bank has designed and implemented a process driven framework for Internal Financial Controls ("IFC") within the meaning of the explanation to Section 134 (5) (e) IFC of the Companies Act, 2013. For the year ended 31st March, 2015, the Board is of the opinion that the Bank has sound IFC commensurate with the nature and size of its business operations; wherein controls are in place and operating effectively and no material weaknesses exist. The Bank has a process in place to continuously monitor the existing controls and identify gaps, if any, and implement new and /or improved controls wherever the effect of such gaps would have a material effect on the Bank''s operation.

DIRECTORS'' RESPONSIBILITY STATEMENT

In accordance with Section 134(5) of the Companies Act, 2013, your Board of Directors confirms that: a) in the preparation of the annual accounts, the applicable Accounting Standards have been followed and that there is no material departure; b) the directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for the year; c) proper and sufficient care has been taken for maintenance of adequate accounting records as provided in the Companies Act, 2013, for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities; d) the annual accounts of the Bank have been prepared on a "going concern" basis; e) the directors had laid down internal financial controls to be followed by the Bank and that such controls are adequate and were operating effectively; and f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively

EXTRACT OF THE ANNUAL RETURN

An extract of the Annual Return as of 31st March, 2015 pursuant to the sub-section (3) of Section 92 of the Companies Act, 2013 and forming part of the report is attached separately.

CORPORATE GOVERNANCE

The Bank has been observing the best corporate governance practices and benchmarks itself against each such practice on an on-going basis. A separate section on Corporate Governance and a Certificate from the Statutory Auditors M/s. B S R & Co., LLP, Chartered Accountants (Registration No.101248W/W-100022) regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges form part of this Annual Report.

DIRECTORS

During FY 2015, Mr. Sukh Dev Nayyar resigned from the Board of the Bank w.e.f. 13 th January, 2015 due to his personal reasons. The Board of Directors places on record its deep sense of appreciation of the valuable contributions made by Mr. Sukh Dev Nayyar during his association of more than 7 years as an Independent Director of the Bank.

The Board of Directors at the meeting held on 1st November, 2014 had approved appointment of Mr. Shaffiq Dharamshi (DIN- 06925633) as an Additional Non-Executive Non-Independent Director on the Board w.e.f. from the subsequent Board meeting. Accordingly, he joined the Board on 13th January, 2015. Notice as required under the Companies Act, 2013 has been received from a shareholder signifying his intention to propose Mr. Shaffiq Dharamshi as a Director of the Bank. The Board of Directors of the Bank recommend his appointment at the ensuing AGM.

In compliance with the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement with regard to appointment of atleast one woman director, the Board of Directors of your Bank at the meeting held on 13th January, 2015 had approved the appointment of Ms. Rupa Devi Singh (DIN-02191943) as an Additional

Non-Executive, Independent Director on the Board w.e.f. the subseqeunt Board meeting. Accordingly, she joined the Board on 22nd January, 2015. Notice as required under the Companies Act, 2013 has been received from a shareholder signifying his intention to propose Ms. Rupa Devi Singh as a Director of the Bank. The Board of Directors of the Bank recommend her appointment to the shareholders at the ensuing AGM.

With approval of the Reserve Bank of India, the Board of Directors of the Bank re-appointed Mr. Nasser Munjee as Part-time Chairman of the Bank for a period of three years from 19th August, 2014 on an honorarium of Rs. 18 lakh per annum and reimbursement of actual business related expenses and Annual Club Membership fees. The Board of Directors of the Bank recommend his re-appointment and payment of honorarium in the ensuing AGM.

With approval of the Reserve Bank of India, the Board of Directors re-appointed Mr. Murali M. Natrajan as MD & CEO of the Bank for a period of three years i.e. from 29th April, 2015 to 28th April, 2018 on his existing remuneration approved by RBI effective from 1st April, 2014. The Board of Directors of the Bank recommend his re-appointment and payment of remuneration at the ensuing AGM.

A brief resume relating to the persons who are to be appointed as Directors is furnished in the notice of the 20th AGM as well as in the report on Corporate Governance. Based on the Disclosures provided by them, none of the above mentioned persons are disqualified from being appointed as a Director as specified in terms of Section 164 of the Companies Act, 2013.

None of the Directors are related to each other per se.

During the year under review, in compliance with Section 203 of the Companies Act, 2013, Mr. Bharat Sampat — Chief Financial Officer was designated as a Key Managerial Personnel of the Bank in addition to the existing KMPs viz. Mr. Murali M. Natrajan — MD & CEO and Mr. Hemant V. Barve — Company Secretary.

A STATEMENT INDICATING THE MANNER IN WHICH FORMAL ANNUAL EVALUATION HAS BEEN MADE BY THE BOARD OF ITS OWN PERFORMANCE AND THAT OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS;

1. Nomination and Remuneration Committee of the Board had prepared and sent through its Chairman draft parameterized feed back forms for evaluation of the Board, Independent Directors and Chairman.

2. Independent Directors at a meeting without anyone from the non- independent directors and management, considered/evaluated the Board''s performance, performance of the Chairman and other non-independent Directors.

3. The Board subsequently evaluated performance of the Board, the Committees and Independent Directors (without participation of the relevant director)

THE DETAILS OF FAMILIARISATION PROGRAMME ARRANGED FOR INDEPENDENT DIRECTORS HAVE BEEN DISCLOSED ON WEBSITE OF THE BANK AND ARE AVILABLE AT THE FOLLOWING LINK:

http:/ / www. dcbbank. com/pdfs/Familarisation_Programme_for_lndependent_ Directors.pdf

STATUTORY AUDITORS

M/s. B S R & Co. LLP, Chartered Accountants (Registration No.101248W/W-100022), were re-appointed as Statutory Auditors at the last Annual General Meeting. They are eligible for re-appointment for the FY 2016. Section 139 of the Companies Act, 2013 and the Rules made there under provide that a company can appoint a firm as auditor for maximum two terms of five consecutive years. In other words, a company can make appointment of auditor for five years at a time. However, the Bank is also governed by the provisions of the Banking Regulation Act, 1949 and the circulars/notification/ guidelines issued by the Reserve Bank of India (RBI) from time to time. As per the extant provisions, RBI gives permission for appointment of auditor on year to year basis. Further, as per RBI''s directive, it is mandatory to rotate the Auditor after completion of four years. M/s. B S R & Co. LLP have already completed term of three years. Taking into consideration the mandatory rotation after four years, last year, appointment of the auditors was made for two years, subject to prior approval of the RBI and ratification of shareholders in the ensuing Annual General Meeting. The Reserve Bank of India has been approached for their re-appointment for FY 2016. Your Board recommends ratification of their appointment as the Statutory Auditors at the ensuing Annual General Meeting for a period of up to two financial years ending with FY 2016.

SECRETARIAL AUDIT REPORT

Pursuant to the requirements of the Companies Act, 2013, the Bank has appointed M/s Ananthasubramanian & Co., Practicing Company Secretaries (CoP 1774) as the Secretarial Auditor for FY 2015 whose report of 10th April, 2015 is attached separately to this report.

ACKNOWLEDGEMENTS

Your Board wishes to thank the principal shareholder and promoters, the Aga Khan Fund for Economic Development S.A. (AKFED), and all the other shareholders for the confidence and trust they have reposed in the Bank. Your Board also acknowledges with appreciation the Reserve Bank of India (RBI) for its valuable guidance and support to the Bank. Your Board similarly expresses gratitude for the assistance and co-operation extended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of various States , Union Territories and the National Capital Region of Delhi where the Bank has its branches.

Your Board acknowledges with appreciation, the invaluable support provided by the Bank''s auditors, lawyers, business partners and investors. Your Board is also thankful for the continued co-operation of various financial institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage. Your Board records with sincere appreciation the valuable contribution made by employees at all levels and looks forward to their continued commitment to achieve further growth and take up more challenges that the Bank has set for the future.

On behalf of the Board of Directors Place: Chennai Nasser Munjee

14th April, 2015 Chairman


Mar 31, 2014

The Directors are pleased to present the eighteenth Annual Report of your Bank together with the audited accounts for FY 2014.

In FY 2014, the Bank has posted an Operating Profit of Rs.187.96 crore (previous year Rs.126.13 crore) and a Net Profit of Rs.151.36 crore (previous year Rs.102.06 crore).

Total Assets have increased by Rs.1,644.32 crore and reached Rs.12,923.14 crore as on 31st March, 2014 (Rs.11,278.82 crore as on 31st March, 2013).

Customer Deposits have increased by Rs.1,178.23 crore and Advances have increased by Rs.1,554.10 crore. The Bank has achieved the overall Priority Sector Lending (PSL) target as required by Reserve Bank of India (RBI).

The Net Interest Margin (NIM) has improved to 3.56% in FY 2014 from 3.34 % in FY 2013 and the Current and Savings Accounts (CASA) stood at 25.00%.

Cost to Income Ratio has decreased to 62.93% in FY 2014 from 68.58% in FY 2013. This was, inter alia, on account of higher business volumes, better performance of existing branches, lower lease rentals, closure of low volume ATMs.

Provisions Other Than Tax have increased to Rs.36.56 crore in FY 2014 from Rs.24.04 crore in FY 2013. Part of the increase was due to increase in Floating Provision and Provision against Standard Assets.

Capital Adequacy Ratio (CAR) under Basel III as on 31st March, 2014 stood at 13.71%. (13.61% under Basel II as on 31st March, 2013).

Gross NPAs have decreased to Rs.138.45 crore as on 31st March, 2014 from Rs.214.98 crore as on 31st March 2013. The overall NPA Provision Coverage Ratio as on 31st March, 2014 was 80.54%. Net NPAs have increased to Rs.74.02 crore as on 31st March, 2014 as against Rs.49.13 crore as on 31st March, 2013.

The market conditions continued to be challenging. Inflation remained high for most of the year and liquidity remained tight. The banking industry came under pressure due to rising NPAs and restructured assets. The Reserve Bank of India (RBI) had maintained Cash Reserve Ratio (CRR) at 4% and Statutory Liquidity Ratio (SLR) at 23% through FY 2014. The Bank''s cautious and conservative stance on liquidity and investment portfolio enabled it to weather Q2 FY 2014 turbulence with limited adverse impact.

The Bank opened 36 new branches in FY 2014 taking the total tally of branches to 130. Of these 36 new branches, 34 branches are located at semi urban and rural centres. Going forward, the Bank aims to continue opening a number of branches mainly in Tier 2 to Tier 6. This is likely to help the Bank achieve PSL and grow Current Account and Savings Account (CASA) Deposits.

FINANCIAL SUMMARY

(Rs. in crore)

As at March As at March Increase / 31, 2014 31, 2013 (Decrease)

Balance Sheet

Deposits 10,325.16 8,363.84 1,961.32

Customer Deposits 8,776.05 7,597.82 1,178.23

(Including CASA) (2,581.27) (2,271.62) 309.65

Inter Bank Deposits 1,549.11 766.02 783.09

Advances 8,140.19 6,586.09 1,554.10

Non Performing 138.45 214.98 (76.53) Assets (Gross)

Non Performing 74.02 49.13 24.89 Assets (Net)

Provision for Standard 34.22 27.17 7.05 Assets

Total Assets 12,923.14 11,278.82 1,644.32

Profit & Loss

Net Interest Income 368.39 284.41 83.98

Non Interest Income 138.66 117.02 21.64

Total Operating 507.05 401.43 105.62 Income

Operating Cost 319.09 275.30 43.79

Operating Profit 187.96 126.13 61.83

Provisions 36.56 24.04 12.52

Net Profit Before Tax 151.40 102.09 49.31

Tax 0.04 0.03 0.01

Net Profit After Tax 151.36 102.06 49.30

DIVIDEND

In view of the provisions of Section 15 of the Banking Regulation Act, 1949, your Directors are not able to recommend payment of any dividend for FY 2014 (Previous year NIL)

MANAGEMENT DISCUSSION AND ANALYSIS

Vision

The Bank''s vision is to be the most innovative and responsive neighborhood community bank in India serving entrepreneurs, individuals and businesses. In line with our vision, we began implementing a new strategy in FY 2010. The Bank has now completed 4 years under the new strategy and has made substantial improvements.

Target Market

Keeping in view its inherent strengths, branch network and expertise, the Bank''s target market is the self-employed segment (traders, shop keepers, small businessmen, MSMEs and SMEs). The Bank has chosen to have a limited presence in the salaried segment. The MSME / SME sector plays a very important role in the growth of the Indian economy. It is estimated that MSME / SME contribute 17% to GDP and employs over 70 mn people in about 30 mn units. Further, MSME / SME is estimated to contribute 45% of India''s industrial output and 40% of exports.

Business Strategy

The Bank has followed a consistent business strategy since FY 2010. The same is re-iterated below:

- Rely on retail deposits (Term, CASA)

- Mainly expand branches in Tier 2 to Tier 6 locations

- Grow retail mortgages, MSME, SME, Commercial Vehicle, Tractors, Gold, mid Corporate and Agri loans

- Avoid unsecured lending especially big tickets. Create a diversified portfolio

- Increase fee income by cross selling insurance, wealth, trade and cash management

- Continuously strengthen credit processes, recoveries and portfolio management

- Relentlessly focus on Liquidity, Costs, Operational Risks, People and Customer Service. Improve continuously

Credit Rating

During the year, CRISIL reaffirmed the Bank''s A-/Stable rating for Long Term. CRISIL enhanced the rated amount from Rs.500 cr to Rs.1,000 cr for the Certificate of Deposits program at rating of A1 . The Bank also obtained a rating of A1 for Short Term Fixed Deposits program from CRISIL. The continued improvement is likely to help the Bank in increasing its funding resource pool for growth.

Research Coverage

The Bank''s management team continues to have meetings with the investor community and participate in select seminars. The research coverage on the Bank''s stock has now reached 36 in FY 2014.

Branch Expansion

During the year, the Bank increased its network by 36 branches. In the last many years, this is the highest number of new branches installed in one fi nancial year. The Bank now has 130 branches. New branches were opened in many locations including the states of Andhra Pradesh, Chattisgarh, Madhya Pradesh, Punjab, Odisha and Rajasthan. The branch expansion was in line with the Bank''s strategy and we expect the branches to break even over a period of 18 to 22 months. In order to increase business volumes and provide comprehensive service to customers, the Bank has embraced the concept of selling all products (relevant to the catchment area) at all branches. Accordingly, the Bank has enhanced the training of branch staff across all locations.

RETAIL BANKING

The Bank now operates a network of 130 branches across 80 locations with a strong presence in Maharashtra, Gujarat and Andhra Pradesh. The Bank has tie ups with Cash net and Infinet networks. This allows customers to access more than 35,000 ATMs across the country. The Bank has a comprehensive product range in both Deposits and Advances. There is a huge emphasis on up skilling branch staff on all products so that customers in the branch catchment area / neighborhood can be given complete "one-stop" service. One of the key tasks of Retail Banking is to generate CASA balances and Retail Term Deposits through its branches and outbound sales teams. Performance of Retail Banking frontline staff is managed using scorecards. The economy of India continues to be sluggish. Therefore, the CA balances growth was muted in FY 2014. However, the Bank was able to grow SA balances by 18.2% and overall CASA balances growth was 13.6%.

Commercial Vehicle (CV)

In order to meet the RBI PSL guidelines and reduce dependence on portfolio buyouts, the Bank re-started the CV business in FY 2013. In a short time, the Bank has met with reasonable success in growing the CV portfolio.

Loan Against Gold

DCB Loan Against Gold product offers a platform to broaden the Bank''s retail asset customer base (many of them are first-time borrowers. Gold Loans helps to deepen the existing branch deposit relationships. This product is suitable for both salaried and self-employed. The product team provided extensive training to all the branches. The application form was simplified to help the loan turnaround time. A sophisticated machine was employed to check the purity of gold on an ongoing basis. This technology is likely to help in avoiding fraudulent transactions.

Debit Cards

In FY 2014, the debit cards in force increased by 10.7% and the e-commerce volume went up by 81%. During FY 2014, the Bank launched domestic debit cards for NRE accounts.

DCB Payless Cards

In FY 2014, the Payless Cards in force increased by 32% and active cards in force increased by 42%.

DCB ITZ Cash Freedom Card

DCB ITZ Cash Freedom Card is a strategic initiative that supports financial inclusion for the urban under-banked population. The pilot program of ITZ Cash Freedom Card was run in Mumbai and then scaled up to select cities in India. This product now is offered at more than 1,500 outlets. In FY 2014, the cards in force went beyond the 84,000 mark.

DCB Janajeevan Prepaid Card

In FY 2014, the Bank launched India''s first co-branded prepaid card for disbursal of small loans by Janalakshmi Microfinance. The product is administered in association with Jana Urban Foundation. The initial customer feedback is encouraging.

Aadhaar

Aadhaar enrolment camps were arranged in many branches. We have established linkages with NPCI and the Bank is working with Visa, Euronet and Alpha Finsoft to enable electronic Know Your Customer (eKYC) on a pilot basis.

Mortgages

Mortgages are a lead product for the Bank and contribute 38.4% of the Bank''s Net Advances. The Bank offers both Home Loans and Loan Against Property. The target market is essentially self-employed segment. The pace of new loans origination was further built up in FY 2014 by increasing both Sales and Credit capacities. In the coming months, in a systematic manner, the Bank aims to expand Mortgages operations across its branch network.

Distribution of Mutual Funds and Banc assurance

The Bank distributes Mutual Funds, Life Insurance and General Insurance products to new and existing customers. This helps deepen the relationship with Deposit and Loan customers.

Traditional Community Banking

With a vision of strengthening neighborhood banking, the Bank set up a separate vertical in FY 2010 with the aim of providing personalized attention to the community customers and winning back lost relationships.

Non Resident Indian (NRI) business

The Bank continued to make good progress in NRI business in FY 2014. We leveraged on the relationship with Diamond Trust Bank Group (DTB) in East Africa. During the year, over 1,400 new customers were

Trade Finance Business – East Africa

The Bank has identified opportunities of growth in its trade finance business in association with DTB which has a strong presence in Kenya, Tanzania and Uganda. The Bank is also expanding its reach with tie ups with other regional banks in East Africa and intends to be a preferred banker for India''s trade and remittance business with these fast growing economies.

Cash Management Services (CMS)

The Bank provides Corporate, MSME / SMEs and Retail customers sophisticated and cost effective CMS. This helps customer to manage their payment logistics in a hassle free manner. In the last few years, the Bank has steadily increased CMS customers and as on end of FY 2014 the number of customers reached 2,207 (Previous Year 1,589 customers)

MSME and SME

The importance of MSME and SME to India''s economy and the Bank''s strategy of pursuing this segment have already been mentioned earlier in this discussion. The Bank has created robust sales, underwriting and portfolio monitoring capability for growing the MSME and SME business, offering a wide range of products and personalized services including Cash Management, Trade Finance and Internet Banking. The Bank has established many new branches in Tier 2 to Tier 6 locations to specially target MSMEs / SMEs. The Bank aims to become the business partner of this vibrant entrepreneurial segment of the economy. Indian economy is going through a tough period and MSMEs / SMEs are impacted. In view of the current situation, the Bank adopted a very cautious approach resulting in portfolio reduction in MSME / SME business in FY 2014.

CORPORATE BANKING

Corporate Banking is present across India with Regional offi ces at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. The main strategy is to provide complete range of commercial banking solutions including structured Trade Finance and Cash Management. The Bank has a strong underwriting and credit administration support to achieve sustainable growth in Corporate Banking business. The emphasis is on building a secured advances portfolio and building a long term relationship with high quality large and mid-corporate houses. Indian economy remained weak and growth opportunities were limited. The Bank adopted a cautious approach and yet managed to grow the book strongly in FY 2014.

AGRI AND INCLUSIVE BANKING (AIB)

India''s rural and semi urban areas have large untapped potential for banking opportunities. The Bank''s AIB business meets the objectives of business growth and financial inclusion. AIB is responsible for coordinating efforts to complete the PSL targets set by the RBI. AIB also is responsible for financial inclusion goals agreed with RBI and the Board. AIB offers a wide range of products to cater to the various needs of unbanked, under-banked, rural and semi urban population.

Basic Savings Bank Deposit Account (BSBDA)

BSBDA is the new name for "No frill account". This account majorly helps in financial inclusion especially for those who do not have full Identity, Signature and Address (ISA) proof. This account is basically for the lower income group that has limited transaction needs.

Kisan Mitra

"Kisan Mitra" as the name suggests, is a liability product which fulfils the requirement and enhances the saving habit in rural areas. It is a product specially designed for members of co-operative institutions (dairy co-operative, sugar co-operative, etc). It is a modified Classic Savings account with Zero Account opening amount and nil account balance non maintenance charges. The payments of the members made by the co-operative institution are routed through these accounts.

Micro Housing

Under Micro Housing the Bank provides both home loans and business loans to lower middle income group. The target segment can be both organized and un-organized sectors. The Bank aims to provide finance to people who find it otherwise difficult to obtain finance from the organized sector. The loan purpose can be home construction, home purchase, home repairs, business, marriage, education, consumption etc. The Bank is making a lot of efforts to improve the process of assessing the customers'' income and ability to repay.

Warehouse Construction Loan

There is a huge need in the country to provide farmers with scientific storage so that wastage and deterioration of agricultural produce can be reduced. Also, proper warehousing helps famers to retain their produce and obtain fair pricing instead of selling in distress. Grameen Bhandaran Yojana, a Capital Investment Subsidy Scheme for Construction / Renovation of Rural Godowns was introduced in FY 2002 under which the borrower will be benefiting by a subsidy amount.

Retail Agriculture Loan Products

In order to fulfill the credit needs of the farmers, the Bank has several retail agri products viz crop loan (for purchasing seeds, fertilizers, pesticides, manures, irrigation etc), animal husbandry loan, small business loan, artisan loan, self help group finance, joint liability group finance and hi-tech agri financing (for greenhouse projects).

Tractor Loans

In India, Tractors form an integral part of the total agricultural equipment sector and is an indirect indicator of growth in the agricultural sector. The Bank started tractor loans about a year ago and has steadily built up volumes across Tier 2 to Tier 6 branches.

In order to strengthen relationship with tractor dealers and tractor manufacturers, the Bank has introduced a new product viz trade advance to tractor dealers. This will help drive more retail tractor finance case leads from dealers to the Bank, over a period of time.

Microfinance

The Bank lends directly to SHGs and Micro Finance Institutions (MFIs) who in turn lend to end borrowers/ customers. Over a period of time, the Bank has created a strong network of MFI customers across India.

Commodity based Finance

The Bank is engaged in lending to farmers and agri processors against their products stored in the designated warehouses. The Bank has a list of approved commodities against which the funding is done.

Business Correspondent (BC)

The Bank has an approved product program for lending through the BC model. The Bank is actively exploring BCs in a few states for strategic tie up. This is expected to be completed in FY 2015.

TREASURY

Treasury actively manages liquidity, Fixed Income Securities Trading, Equity Investment IPOs, FX Trading and Customer Sales. Treasury ensures compliance with regulatory requirements such as CRR and SLR. In FY 2014, the Bank completed the implementation of an integrated new treasury system.

Money Market and Foreign Exchange

For most part of FY 2014, the market was turbulent and volatile owing to both domestic and international factors. In May 2013, RBI cut Repo rate by 25 basis points in order to support growth. However, due to US Fed''s planned tapering of its bond buying program, the market was rattled and there was sharp correction in equity markets worldwide. The US 10 year bond yields moved up to 3.00% and US dollar rose against major currencies. In India, both equity and debt saw large scale selling by FIIs. Owing to the Syrian crisis crude oil prices rose to $119 per barrel. On top of this the Current Account Deficit (CAD) remained high. Therefore the Indian Rupee depreciated sharply. On July 15, 2013, to arrest the fall in Indian Rupee and improve US dollar inflow, RBI took series of tough measures namely raising the Marginal Standing Facility (MSF) rates by 200 basis points to 10.25%, restricting banks access to Repo at 0.5% of NDTL and requiring CRR to be maintained at 99% on a daily basis. Overnight call rates jumped from 7.25% to 10.25%. The G-sec market saw unprecedented selling by FIIs which made the 10 year G-sec yield rise above 9.00%. The RBI took special measures to help the oil companies and mutual funds. The Bank weathered this storm successfully due to its conservative approach in Treasury operations. The Bank had ample liquidity and also avoided major losses on account of drop in the G-sec portfolio value due to sudden increase in the interest rates. To increase US dollar inflow, RBI created a special swap window for FCNR (B) deposits. This resulted in huge inflows of US dollar deposits from NRIs. Slowly, toward the end of the year the markets became a bit stable. The Indian Rupee appreciated somewhat against the US dollar. Given high inflation, RBI was unable to reduce the interest rates. India''s economy slowed down and industrial production contracted. Liquidity conditions remained tight.

CREDIT & RISK

Risk Management

The Bank has an independent Risk Management function. The Credit Committee of the Board (CCB) guides the direction for development of policies and procedures in managing credit risk and implementing the credit strategy. The objective of risk management is to have a dynamic and an optimum balance between risk and return and ensure regulatory compliance and conformity with the Board approved policies. It entails the identification, measurement and management of risks across the various businesses of the Bank. Risk is managed through defined policies and procedures approved by the Board of Directors and monitoring and corrective actions are taken on a continuous basis. The Bank has invested in building a strong talent base with solid risk expertise. The Risk Management function strives to anticipate vulnerabilities through reviews of quantitative and qualitative data / MIS analysis of both external and internal risks. The Bank''s risk management processes are guided by policies appropriate for the various risk categories namely Credit Risk, Market Risk (including asset liability management and liquidity risks) and Operational Risk. The Board sets the overall risk appetite and philosophy for the Bank. The Risk Management Committee (RMC), which is a committee of the Board, reviews various aspects of risk arising from the businesses undertaken by the Bank. At the operating level, risk committees viz Asset Liability Management Committee (ALCO), the Operational Risk Management Committee (ORCO) and the Credit Risk Management Committee (CRMC) oversee specific risk areas. These committees provide inputs for review by the Risk Management Committee (RMC) of the Board.

Collections and Recoveries

For the past many years, the Bank has had a separate Collections and Recoveries unit. In FY 2014, the Collections and Recoveries unit performed well and helped in containing the risk although economic conditions were weak throughout the year.

Credit Risk

The credit risk policy supports and is aligned with the Bank''s priority of achieving growth and at the same time maintaining asset quality to ensure long term sustainable profitability over business cycles. The Bank strives to maintain a healthy balance between risk and reward. The Bank also undertakes the exercise of measuring the credit risks involved in the composition of its present portfolio and realigning them to have a better risk-reward composition. The Bank endeavors to continuously enhance its internal risk assessment capabilities.

The Risk Function over time has developed capabilities to assess the risk associated with various products and business segments (MSME, SME, Mortgages, Corporate, AIB etc). The effort is to standardize the credit approval process so that the outcomes are predictable. The Bank has implemented a rating model for obligors. This model takes into account both quantitative and qualitative factors as inputs and produces a rating that becomes one of the key inputs to credit decisions.

The Credit Administration Department (CAD) is responsible for disbursement, documentation and security creation, database management and generating various advances related reports and MIS.

The Credit Risk Analytics & Monitoring (CRAM) unit reviews key customer exposures centrally to spot early warning signals based on the conduct of account and other qualitative inputs.

In FY 2014, the Bank made improvements in the Credit function. The Bank has sophisticated analytics that supports portfolio management and credit policy improvements. The Bank strengthened its business analytics function. The MSME / SME account renewal process was streamlined. A new credit training module was created to train the branch staff to help them identify potential business opportunities.

Concentration Risk

Concentration risk is monitored and managed both at the customer level and at the aggregate level. The Bank continuously monitors portfolio concentrations by segment, ratings, borrower, group, sensitive sectors, unsecured exposures, industry, geography, etc. The Bank adopts a conservative approach within the regulatory prudential exposure norms.

Market Risk

Besides the usual monitoring of Structural Liquidity, Interest Rate Sensitive Gap limits and Absolute Holding limits, the Bank also monitors interest rate risks using Value at Risk limits. Exposures to Foreign Exchange and Capital Markets are monitored within pre-set exposure limits, margin requirements and stop-loss limits.

Country Exposure Risk

The Bank has established specific country exposure limits which is capped at 1.5% of Total Assets. The limit also depends upon rating of individual countries. The Bank uses the litigant of insurance cover available through the Export Credit and Guarantee Corporation (ECGC), where appropriate.

Liquidity Risk

As part of the liquidity management and contingency planning, the Bank assesses potential trends, demands, events and uncertainties that could result in adverse liquidity conditions. The Bank''s Asset Liability Management (ALM) policy defines the gap limits for the structural liquidity and the liquidity profile is analyzed on both static and dynamic basis by tracking cash inflow and outflow in the maturity ladder based on the expected occurrence of cash flow. The Bank undertakes behavioral analysis of the non-maturity products, namely CASA, Cash Credit and Overdraft accounts on a periodic basis to ascertain the volatility of balances in these accounts. The renewal pattern and premature withdrawals of Term Deposits and drawdown’s of un-availed credit limits are also captured through behavioral studies. The liquidity profile is estimated on an active basis by considering the growth in Deposits, Advances and investment obligations. The concentration of large deposits is monitored on a periodic basis. Emphasis has been placed on growing Retail deposits and avoid as far as possible bulk deposits. The Bank periodically conducts liquidity stress testing.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or external events. The Bank''s operational risk management framework is defined in the Operational Risk Management Policy approved by the Board of Directors. While the policy provides a broad framework, ORCO oversees the operational risk management in the Bank. The policy specifies the composition, roles and responsibilities of the ORCO. The framework comprises identification, assessment, management and mitigation of risks through tools like incident reporting, loss reporting, Key Operational Risk Indicators (KORI), Risk and Control Self-Assessment (RCSA) and Periodic Risk Identification and Controls Evaluation (PRICE).

Each new product or service introduced is subject to a risk review and sign-off process so that relevant risks are identified and assessed independently from the unit proposing the product. There is a separate Process Management Team to document, maintain and conduct periodic review of processes. Management Committee for Approval of Process (MCAP) has been constituted to approve and review various processes in the Bank. The said committee consists of highly experienced bankers and subject matter experts. Internal Audit also reviews the processes that are implemented as part of the audit function.

Reputational Risk

The Bank pays special attention to issues that may create a Reputational risk. Events that can negatively impact the Bank''s position are handled cautiously ensuring utmost compliance and in line with the values of the Bank.

Implementation of Basel III Guidelines

The RBI has issued guidelines for implementation of Basel III capital adequacy framework. In accordance with its requirements, the Bank has migrated to Basel III capital adequacy disclosures with effect from Q1 FY 2014. The Bank continues to review and improve on its risk management systems and practices to align them with best international practices. The Bank has successfully implemented Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk. During FY 2014, the Bank has migrated to a new treasury system which has helped enhance and automate some of the Market Risk Management processes.

INFORMATION TECHNOLOGY (IT)

During the year, keeping in view the Bank''s strategy and growth, major technology initiatives were focused towards optimization of the infrastructure and applications. In FY 2014, the Bank implemented the Information Security Management Systems (ISMS) and the Bank was awarded ISO 27001:2005 certification for "Information Technology Department". The Bank implemented several new applications in FY 2014 namely, the new treasury system, NGRTGS module initiated by RBI, new middleware solution for Payment System, Automated Data Flow to RBI for over 60 reports, CTS implementation in the Western grid, two factor authentication for Personal and Business Internet Banking, Online Internet password generation, ATM PIN on IVR and Online Account Opening. Many of these new applications are designed to improve controls and provide superior service to customers. In terms of IT security, data center core firewall was upgraded. In order to provide faster service to existing customers, a comprehensive amendment request handling module was installed.

OPERATIONS

Operations unit is the backbone for processing of customer transactions. In FY 2014, part of new CASA customers'' account opening process has been relocated to Chennai. This move is expected to vastly improve turnaround time, create scale and reduce overall costs. Creation of Chennai operations unit also helps in providing a back-up for Mumbai in case of any business continuity issues. Every year, in order to improve customer experience and service, the Bank introduced a number of process improvements on a continuous basis. Besides improving service quality, these improvements help reduce operational errors as well. In FY 2014, the Operations team ensured smooth implementation of new branches and new business initiatives.

INTERNAL AUDIT (IA)

Internal Audit (IA) is an independent unit that performs regular audits to evaluate the adequacy and effectiveness of internal controls and overall risk management. IA is staffed by professionals with varied skills and expertise. The Audit Committee of the Board (ACB) provides direction and monitors the effectiveness of the IA function. IA uses a comprehensive risk based approach taking into account the guidelines of RBI and international best practices. In order to continuously innovate and keep a high vigil and enhanced risk management, IA uses innovative audits methodologies including optimum use of analytics and technology. In FY 2014, IA revamped the branch audit approach and tools. The continued use of specialized snap audits has provided management with quick and deep insights into weak links and ability to address the gaps promptly. As a result of its consistent inputs and value added observations, IA has become a value partner in improving the overall risk management and controls of various units of the Bank. Corrective Action Trackers are part of regular management updates and forms a basis of evaluating units'' performance. IA is playing an active role in providing inputs for enhancing the existing policies and procedures. IA also undertakes thematic reviews of key products and projects. It uses experienced audit firms for concurrent audits in line with ACB approved framework. IA continues to appraise the Board, the Audit Committee of the Board (ACB) and the Management teams in terms of newer emerging threats and recommend appropriate mitigating measures.

HUMAN RESOURCE (HR)

HR has been playing a key role in the journey of the Bank. This year, a lot of progress was made in enhancing people skills, providing career opportunities and caring of employees.

In a first of its kind, a promotion policy and process was introduced whereby all employees could self-nominate for promotion if they are eligible as per the published promotion policy. The whole idea was to increase transparency in the promotion process. In order to improve the quality of decisions and enhance skill levels, promotion tests and interviews were introduced at various levels.

The Bank''s foundation of customer service rests on three pillars namely Empathy, Speed and Quality (ESQ). The Bank continued to train employees on ESQ and so far 2,174 employees have gone through the

ESQ program. This year HR launched an advanced program called "Living out ESQ".

India has made a lot of progress in the last few years. Due to the hustle and bustle of modern life, people have to deal with a lot of challenges (work, commute, finance, family, etc.) and this creates a lot of pressure and stress. The Bank has a caring attitude for its employees and accordingly launched the initiative called Employee Assistance Program (EAP). In EAP the employees and their dependants can access professional counselors free of cost. They can obtain the counselors assistance to deal with their personal problems in a confidential manner. In addition to EAP, HR organized Annual Health Check-ups for employees and their families at a discounted pricing. Further, Health Week was celebrated to build awareness about various aspects of health, for example, bone density test, cancer awareness, stem cell awareness, nutrition workshop, health tips and stress management.

The Bank''s "Coffee with MD & CEO" series was organized which gave an opportunity to many frontline staff to directly interact with the MD & CEO and share their views and concerns.

The Bank conducted a Career Fair for employees which gave an opportunity to have one-on-one discussions with HR and senior team members.

Employee Benefits were enhanced in many ways. Medical claim and Personal Accident insurance limits were increased substantially. Employee Personal Loan program was launched providing loans at rates lower than market interest rates. Eligible employees were given leave encashment option up to 7 days.

In the true spirit of ESQ, HR has created a dedicated help desk to provide timely service to employee queries.

The Bank has created a Competency Model which is used in Hiring, Training and Promotions. The Competency Model is extremely helpful in standardizing competency alignment across all people related decisions.

In resourcing, the Bank has continued to develop innovative methods for accessing and attracting talent. The Bank increased its headcount by 21.7% in FY 2014. The Top Recruit program was a unique initiative to create an employer brand in business schools and to allow students to apply for jobs in different functions of the Bank. Social media was effectively used for this initiative and the response was overwhelming. The Campus Connect was another initiative for a more interactive dialogue with students. The Bank''s top team delivered lectures on important topics as requested by various top business schools. The above initiatives were instrumental in creating brand awareness among prospective candidates from campuses. Further, to infuse young talent in the Bank from business schools, the Bank recruited three batches of "fresher’s". In order to help them settle down properly in their respective jobs a 15 day induction program called "Velocity" was launched.

The Bank has created a learning culture and uses Individual Learning & Development Scorecard approach. In FY 2014, huge efforts have been made in providing training to employees. The new employee induction program was revamped and made more fun and interactive targeting younger employees. The basics of banking and AML/ KYC training was modified in line with the changing needs. A branch based loans credit module was created to improve branch staff understanding of credit.

A new sales coaching program called "Beat the Best" for enhancing the performance of front line sales executives was successfully conducted. In line with the new Risk Based Supervision Framework of RBI a risk training module was used to cover more than 800 employees across different units.

Apart from this, HR continued its well established and popular leadership and development programs namely LEAP, RISE (for developing leaders of tomorrow), ASPIRE (for providing skills to employees to deal with additional responsibilities) and PACE (for improving frontline sales capability).

The Bank adopted a unique approach to integrate different units across all the locations. Similar to schools, the Bank created the concept of Houses and all the employees were distributed across five houses which were given attractive names. The concept of house is designed to break the silos and create camaraderie across the Bank. In order to mix fun and work several employee engagement programs were conducted during the year for example cricket tournament, arm wrestling, etc. All the festivals of India were celebrated with enthusiasm and zeal. CSR activities such as Joy of Giving Week celebration, blood donation drives, donation of old computers, clothes and books, charity auction, etc. were conducted.

CUSTOMER SERVICE

Ensuring customer delight in every interaction remains the Bank''s core desire for growth and success. Customer complaints and satisfaction are closely monitored by the MD & CEO and senior management. An independent Service Quality team analyses customer complaints, identifies the root cause, makes suggestions for process improvements and follows up with the respective units for completion. The Bank has a "Centralised Complaint Management" system. Queries and complaints are vigorously followed up to ensure timely resolution. Strict quality standards are imposed on the Bank''s staff to ensure that customers are provided proper service.

In FY 2013, the Bank launched a massive service improvement program called the Power of Three – Empathy, Speed and Quality (ESQ). Over a period of time the Bank intends to install a caring culture in the Bank. The Bank''s ambition is to make ESQ the defining character of the Bank. The ESQ quotient displayed by the prospective employee is a key parameter for recruitment, just as demonstrated ESQ is a key ingredient of the performance appraisal of every employee.

The MD & CEO along with the senior management team has done extensive ESQ road shows and town halls in every DCB Bank location, addressing employees, sharing experiences, receiving questions and defining the way forward. So far, the Bank has conducted over 66 training programs on ESQ covering 2,174 employees.

Customer queries / complaint management lays emphasis on identifying trends, ensuring problem resolution and providing feedback for improving the existing processes. The root cause analyses of queries / complaints provide a broad framework for identifying key processes in the Bank that needs to be improved or changed. The process change may range from fine tuning to complete process revamping. The key process improvements that the Bank has undertaken in FY 2014 include CASA account opening, amendment requests from customers and gold loan processing.

Adoption of technology has been the key to providing superior customer convenience. The innovation of Debit Card PIN over the phone and the Internet PIN over the net are two significant examples of technology adoption breakthroughs achieved in FY 2014.

The Bank has a robust customer retention unit. This unit identifies and engages with customers who are inactive or who reduce their business with the Bank. This engagement has resulted in identification of service gaps, fine tuning of product offering and win backs. The Bank also conducted a series of customer meets labeled "Ek Mulaqat Kuch Batein" where senior management including the Chairman attended and obtained direct feedback from customers for improvement. Additionally, the customer service and complaints are monitored by the Customer Service Committee (CSC) of the Board.

Non-Branch Channels

Apart from branches, the Bank''s customers can access DCB 24 hour Customer Care Phone Banking, ATMs, Internet and Mobile Banking. The Bank strives to provide best-in-class technology and service platform. Customers can easily use these non-branch channels from the comfort of their home or office. DCB On The Go – Instant Mobile Banking provides freedom to customers to conduct anywhere banking. The Bank provides instant fund transfer facility through Inter Bank Mobile Payment System (IMPS). Recently, the Bank has upgraded to intelligent Interactive Voice Response (IVR) system enabling direct call routing through Caller Line Identification. What is more, apart from getting their queries resolved at phone banking, customers are also able to buy certain banking products (subject to terms and conditions) over the phone. This is seen as a big convenience by many customers. DCB Bank''s 24 Hour Customer Care Agents now directly deal with customers who call the Bank''s customer care telephone line, thus providing a personal touch. The service change was made based on customer feedback and focus group findings conducted by the Bank.

PARTICULARS OF EMPLOYEES

The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, as amended, are given in the annexure appended hereto and forms part of this report. In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. The Bank had nine (9) employees who were employed throughout the year and were in receipt of remuneration of more than Rs.60.00 lakh per annum and no employee was employed for part of the year and was in receipt of remuneration of more than Rs.5.00 lakh per month.

EMPLOYEE STOCK OPTIONS

The information pertaining to the Employee Stock Options is given in an annexure to this Report.

PARTICULARS REGARDING CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. However, as mentioned in the earlier part of the Report, the Bank has been continuously and extensively using technology in its operations.

DIRECTORS'' RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956, your Board of Directors confirms that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for that period; c) proper and sufficient care has been taken for maintenance of adequate accounting records as provided in the Companies Act, 1956, for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities; and d) the annual accounts of the Bank have been prepared on a "going concern" basis.

CORPORATE GOVERNANCE

The Bank has been observing the best corporate governance practices and benchmarking itself against each such practice on an ongoing basis. A separate section on Corporate Governance and a Certificate from the Statutory Auditors M/s. B S R & Co., LLP, Chartered Accountants (Registration No.101248W) regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges form part of this Annual Report.

DIRECTORS

During FY 2013-14, Mr. Darius Udwadia resigned from the Board of the Bank w.e.f. January 14, 2014. The Board of Directors places on record its deep sense of appreciation of the valuable contributions made by Mr.Darius Udwadia as Director of the Bank.

The Companies Act, 2013 has been notified on September 12, 2013 (98 sections), February 27, 2014 (1 Section) and March 27, 2014 (183 sections effective from April 1, 2014) and the Rules made there under on February 27, 2014, March 27, 2014, March 28, 2014, March 30, 2014 and March 31, 2014. Pursuant to Section 149(6) of the Companies Act, 2013, directors are required to inform their status as to ''Independent Director'' (ID) in the first meeting of the Board of Directors held from April 1, 2014. Accordingly 10 of the Directors of your Bank viz. (i) Mr. Sukh Dev Nayyar, (ii) Mr. Suhail Nathani, (iii) Mr. Amin Manekia, (iv) Mr. Altaf Jiwani, (v) Mr. Imran Contractor, (vi), Mr. Keki Elavia, (vii) Mr. C. Narasimhan, (viii) Mr. Nalin Shah (ix) Mr. S. Sridhar, and (x) Mr.Jamal Pradhan have declared their adherence to the criteria fi xed u/s 149(6) for ''Independent Directors''. The Nomination and Remuneration Committee of the Board (NRC) at its meeting perused their declarations and other requirements under the Companies Act, 2013 and the Rules made there under, as applicable, and found all of them to be meeting with the criteria for Independent Director. The Board of Directors at the meeting held on April 15, 2014 has, as recommended by NRC, taken the same on record. The relevant provisions of the Companies Act, 2013 also provide that the IDs shall be appointed as such within a period of 12 months from April 1, 2014. Your Board has deemed it prudent and recommended to the Shareholders their appointment as ID for a period up to 5 years at the ensuing Annual General Meeting (AGM). All IDs shall not be liable to retire by rotation. However pursuant to the provision of the Banking Regulation Act, 1949, no Director of a banking company, other than its Chairman or whole-time Director, by whatever name called, shall hold office continuously for a period exceeding eight years. A brief resume relating to the Directors who are to be appointed as Independent Directors is furnished in the report on Corporate Governance. None of the above mentioned persons is disqualified from being appointed as a Director as specified in terms of Section 164 of the Companies Act, 2013.

The Chairman Mr. Nasser Munjee and Managing Director and CEO Mr.Murali M. Natrajan who have been appointed with the approval of RBI, are ''Non-Independent'' Directors and by virtue of Article 113 of the Articles of Association of the Bank, are not liable to retire by rotation. In view of the above, your Bank does not have any Director who is liable to retire by rotation at the ensuing AGM of the Bank.

None of the Directors are related to each other per se.

STATUTORY AUDITORS

M/s. B S R & Co. LLP, Chartered Accountants (Registration No.101248W), were appointed as Statutory Auditors at the last Annual General Meeting. They are eligible for appointment for the FY 2014-15. Section 139 of the Companies Act, 2013 and the Rules made there under provide that a company can appoint a firm as auditor for maximum two terms of five consecutive years. In other words, company can make appointment of auditor for five years at a time. However the Bank is also governed by the provisions of Banking Regulation Act, 1949 and the circulars/notification/guidelines issued by Reserve Bank of India (RBI) from time to time. As per the extant provisions, RBI gives permission for appointment of auditor on year to year basis. Further as per RBI''s directive, it is mandatory to rotate the Auditor after completion of four years. M/s. B S R & Co. LLP has already completed term of two years. Taking into consideration the mandatory rotation after four years, appointment of the auditors has been recommended for up to two years which is also be subject to prior approval of RBI and ratification of shareholders in subsequent Annual General Meeting. The Reserve Bank of India has been approached for their re-appointment. Your Board recommends their appointment as Statutory Auditors at the ensuing Annual General Meeting for a period of up to two financial years, subject to RBI approval.

ACKNOWLEDGEMENTS

Your Board wishes to thank the principal shareholder and promoters Aga Khan Fund for Economic Development S.A. (AKFED), and all the other shareholders for the confidence and trust they have reposed in the Bank. Your Board also acknowledges with appreciation the Reserve Bank of India (RBI) for its valuable guidance and support to the Bank. Your Board similarly expresses gratitude for the assistance and co-operation extended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of various States where the Bank has its branches.

Your Board acknowledges with appreciation, the invaluable support provided by the Bank''s auditors, lawyers, business partners and investors. Your Board is also thankful for the continued co-operation of various financial institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage. Your Board records with sincere appreciation the valuable contribution made by employees at all levels and looks forward to their continued commitment to achieve further growth and take up more challenges that the Bank has set for the future.

On behalf of the Board of Directors

Place: Gurgaon Nasser Munjee

April 15, 2014 Chairman


Mar 31, 2013

The Directors are pleased to present the eighteenth Annual Report of your Bank together with the audited accounts for FY 2013.

In FY 2013, the Bank has posted an Operating Profit of Rs. 126.13 crore (previous year Rs. 83.82 crore) and a Net Profit of Rs. 102.06 crore (previous year Rs. 55.08 crore).

Total Assets have increased by Rs. 2,601.97 crore and reached Rs. 11,278.82 crore as on 31st March, 2013 (Rs. 8,676.85 crore as on 31st March, 2012).

Customer Deposits have increased by Rs. 1,483.03 crore and Advances have increased by Rs. 1,301.67 crore. The Bank has achieved the Priority Sector Lending (PSL) target as required by the Reserve Bank of India (RBI).

The Net Interest Margin (NIM) has improved to 3.34% in FY 2013 from 3.25% in FY 2012 and the Current and Savings Accounts (CASA) ratio has been maintained at 27.16%.

Cost to Income Ratio has decreased to 68.58% in FY 2013 from 74.45% in FY 2012. This was mainly on account of higher business volumes, better performance of existing branches, lower lease rentals and closure of low volume ATMs.

Provisions Other Than Tax have reduced to Rs. 24.04 crore in FY 2013 from Rs. 28.71 crore in FY 2012.

Capital to Risk Assets Ratio (CRAR) under Basel II as on 31st March, 2013 stood at 13.61% (15.41% as on 31st March 2012).

Gross NPAs have decreased to Rs. 214.98 crore as on 31st March, 2013 from Rs. 241.98 crore as on 31st March, 2012. The overall NPA Provision Coverage Ratio as on 31st March, 2013 was 85.71% (91.17% as on 31st March 2012). Net NPAs have increased to Rs. 49.13 crore as on 31st March, 2013 as against Rs. 30.24 crore as on 31st March, 2012.

The market conditions continued to be challenging. Inflation remained high for most of the year and liquidity remained tight. The banking industry came under pressure due to rising NPAs, especially from the airlines, telecom and infrastructure sectors. The Reserve Bank of India (RBI) reduced the Cash Reserve Ratio (CRR) by 75 bps in three tranches to improve liquidity. However, deposit interest rates remained very high and liquidity pressure continued unabated. Therefore, there was no opportunity to reduce the Base Rate. The situation required the Bank to remain cautious and be selective in pursuing Advances growth.

The Bank opened 10 new branches in FY 2013 taking the total tally of branches to 94. Of these 10 new branches, 7 branches are located at semi urban and rural centres. Going forward, the Bank plans to continue opening a significant number of branches in Tier 2 to Tier 6 locations covering semi urban and rural centres as part of the Bank''s thrust on originating PSL and growing CASA deposits.

In the third quarter of FY 2013, the Bank has raised Tier I Capital to the extent of Rs. 40.62 crore through Preferential Allotment.

FINANCIAL SUMMARY

(Rs. in crore)

As on 31st As on 31st Increase/ March, March, (Decrease) 2013 2012

Balance Sheet

Deposits 8,363.84 6,335.56 2,028.28

Customer Deposits 7,597.82 6,114.79 1,483.03

(Including CASA) (2,271.62) (2,034.67) 236.95

Inter Bank Deposits 766.02 220.77 545.25

Advances 6,586.09 5,284.42 1,301.67

Non Performing Assets (Gross) 214.98 241.80 (26.82)

Non Performing Assets (Net) 49.13 30.24 18.89

Provision for Standard Assets 27.17 25.25 1.92

Total Assets 11,278.82 8,676.85 2,601.97

Profit & Loss

Net Interest Income 284.41 227.70 56.71

Non Interest Income 117.02 100.37 16.65

Total Operating Income 401.43 328.07 73.36

Operating Cost 275.30 244.25 31.05

Operating Profit 126.13 83.82 42.31

Provisions 24.04 28.71 (4.67)

Net Profit Before Tax 102.09 55.11 46.98

Tax 0.03 0.03 -

Net Profit After Tax 102.06 55.08 46.98

DIVIDEND

In view of the provisions of Section 15 of the Banking Regulation Act, 1949, your Directors are not able to recommend payment of any dividend for FY 2013 (Previous year NIL).

RETAIL BANKING

The Bank now operates a network of 94 branches across 43 locations with a continued strong presence in Maharashtra, Gujarat and Andhra Pradesh. The Bank has tie ups with the Cashnet and Infinet networks. This allows customers to access more than 35,000 ATMs across the country. The Bank is a pioneer in providing free ATM access (VISA ATMs) to its customers with no limit on the number of transactions. The main task of Retail Banking is to generate CASA balances and Retail Term Deposits through its branches and outbound sales teams. Performance of Retail Banking frontline staff is managed using scorecards. The economy of India continues to be sluggish. Therefore, the Current Account (CA) balances growth was muted in FY 2013. However, the Bank was able to grow Savings Bank Accounts (SA) balances by 15% and overall CASA balances growth was 12%. In line with its philosophy of creating innovative products for the self-employed segment, the Bank launched DCB Business Saver Account in FY 2013. This is a unique Current Account proposition. It is available only for individuals and sole proprietors. The account holders can link their Savings Account to the Current Account and automatically transfer surplus funds from their Current Accounts to the linked Savings Accounts. This enables customers to earn interest on the surplus balances.

Loan Against Gold

DCB Loan Against Gold product offers a platform to broaden the Bank''s retail asset customer base (many of them are first-time borrowers) through a secured lending product. It also deepens the existing branch liability relationships. This product is suitable for both salaried and self-employed individuals. In order to compete with NBFCs and gold loan companies, the Bank is in the process of revamping the process to speed up the sanction and disbursal of gold loans.

Card Products

DCB ITZ Cash Freedom Card is a strategic initiative that supports financial inclusion for the urban under-banked population. The pilot program of ITZ Cash Freedom Card was run in Mumbai and then scaled up to select cities in India. This product now is offered at more than 1,000 outlets. The cards in force exceeded 10,000 nos. in FY 2013. The Bank has also enabled remittances on DCB ITZ Cash Freedom Card and is planning to offer the facility of opening Basic Savings Bank Deposit Accounts (BSBDAs) to this customer base. The Bank has another unique product called DCB Payless Card. This is a secured credit card issued against a term deposit which provides a host of benefits with more savings along with the convenience of a credit card like product. In the later part of FY 2013, the Bank launched its Gift Cards product. This will be ideal for existing customers for making gifts during all the important festivals and occasions such as birthdays and anniversaries.

Commercial Vehicles (CV)

In order to have less dependence on buyouts from NBFCs for meeting PSL, the Bank re-launched the CV business in FY 2013. This portfolio is expected to grow steadily over the next few years. The Bank is cautious in its approach to grow its CV business as the slow economic conditions are impacting sales which in turn is negatively impacting the portfolio quality of the banking industry.

Mortgages

Mortgages contribute approx. 36% of the Bank''s Net Advances. The Bank offers both Home Loans and Loan Against Property. These products are primarily targeted at self-employed customers. The pace of new loans origination was increased in FY 2013. Mortgages are offered in 12 locations including four new locations namely Ahmedabad, Coimbatore, Ludhiana and Surat which were opened during FY 2013.

Distribution of Mutual Funds and Bancassurance

The Bank distributes Mutual Funds, Life Insurance and General Insurance products to new and existing customers. The customers are offered mutual fund products based on their risk profile which inter alia depends on investment objectives and time horizon. The Bank has developed a financial planner with the help of ICRA online. The Bank has partnered with Birla Sunlife Insurance Company for distributing Life Insurance products, which include life covers, unit linked insurance plans, pensions and traditional plans. One of the innovations based on customer feedback has been the introduction of Group Life Insurance and Group Personal Accident Insurance which are available exclusively to the Bank''s customers. The Group Life Insurance program provides over-the-counter insurance cover upto Rs. 75 lakh with limited paper work and without any medical tests. Similarly, on the Group Personal Accident platform, the Bank''s customers can get an accident insurance cover ranging from Rs. 5 lakh to Rs. 30 lakh over- the-counter at an affordable price.

Non-Branch Channels

The Bank strives to provide best-in-class technology and service platform. It offers a number of innovative convenient facilities such as Phone Banking, Mobile Banking and Internet Banking free of charges. Customers can easily use these non-branch channels from the comfort of their home or office. DCB On The Go — Instant Mobile Banking provides freedom to customers to conduct anywhere banking including the instant fund transfer facility through Inter Bank Mobile Payment System (IMPS). DCB Bank''s 24 Hour Customer Care Agents now directly deal with customers who call the Bank''s customer care telephone line, thus providing a personal touch. This change has been made based on customer feedback and focus group findings conducted by the Bank. The Bank is equipped to provide services such as ATM PIN generation and authentication, telephone PIN generation and authentication, account enquiries like balance enquiry, last five transactions, cheque status, stop payment request, and card hot listing amongst other services.

Traditional Community Banking

With a vision of strengthening neighbourhood banking, the Bank set up a separate vertical in FY 2010 with the aim of providing personalized attention to the community customers and winning back lost relationships. In FY 2013, Traditional Community Banking deposits grew by 12% and Advances increased by 24%. The Bank plans to further strengthen this business in FY 2014.

Non Resident Indian (NRI) business

The Bank has made rapid progress in NRI business in FY 2013. The business continued to leverage on the relationship with Diamond Trust Bank Group (DTB) in East Africa to increase its presence in East Africa. During FY 2013, over 300 new customers were acquired and the remittance value increased by over 100%. The business is now exploring tie-ups with other banks in East Africa and the Middle East to offer correspondent banking facility to further increase remittances and trade finance business.

Trade Finance Business - East Africa

The Bank has identified opportunities of growth in its trade finance business in association with DTB which has a strong presence in Kenya, Tanzania, Uganda and Burundi. The Bank is also expanding its reach with tie-ups with other regional banks in East Africa and intends to be a preferred banker for India''s trade and remittance business with these fast growing economies.

MSME and SME

The importance of MSME and SME to India''s economy and the Bank''s strategy of pursuing this segment have already been emphasised earlier in this discussion. The Bank has created robust sales, underwriting and portfolio monitoring capability for growing the MSME and SME business, offering a wide range of products and personalized services including Cash Management, Trade Finance, Internet Banking and Bancassurance. The Bank has also started business in Tier II cities and opened SME-centric branches to cater to the growing business demands in this segment. The MSME and SME Unit is effectively supported by regional credit teams to understand and sanction business proposals seamlessly. The Bank aims to become the business partner of this vibrant entrepreneurial segment of the economy. In view of the weak economic conditions, the Bank decided to re-shape its approach in FY 2013. In terms of new loan originations, the Bank focussed more on small ticket MSME / SME instead of larger MSME / SME.

CORPORATE BANKING

Corporate Banking is present across India with Regional offices in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. The main strategy is to provide complete range of commercial banking solutions including structured Trade Finance and Cash Management Services. The Bank has a strong underwriting and credit administration support to achieve sustainable growth in Corporate Banking business. The emphasis is on building a secured advances portfolio and building a long-term relationship with high quality large and mid-corporate houses. The economic scenario in FY 2013 was weak with major industrial sectors being affected due to weak investment and reduced consumer demand. The Bank adopted a very cautious approach and despite limited opportunity for growth, Corporate Banking has shown good progress in FY 2013.

AGRI AND INCLUSIVE BANKING (AIB)

India''s rural and semi urban areas have large untapped potential for banking opportunities. The Bank has set up the AIB Business Unit with the objective of meeting PSL targets and financial inclusion. AIB is responsible for coordinating the efforts to complete the PSL targets set by the Reserve Bank of India (RBI). AIB is also responsible for financial inclusion goals agreed with RBI and the Board. Even under difficult market conditions, the Bank has been able to meet the PSL targets in FY 2013. AIB offers a wide range of products to cater to the various needs of rural and semi urban India for example, funding against pledge of stocks stored in warehouses, term loans and securitization transaction from Microfinance Institutions (MFIs) and NBFCs, working capital for agriculture product processors, term loans for warehouse construction and securitization of MFI portfolio. In FY 2013, retail agriculture and allied loans like crop loans, animal husbandry loans, land improvement loans and small business loans have grown through the existing branch network. Tractor loans were extended in Madhya Pradesh and Maharashtra in addition to Gujarat and Odisha . The Bank was able to avail NABARD refinance for the MFI, farm and non-farm sectors. In FY 2013, AIB opened 7 new branches, namely Kadodara, Songadh and Vasad (Gujarat), Pipariya & Gadarwara (Madhya Pradesh) and Hinjilicut & Dunguripali (Odisha).

TREASURY

Treasury actively manages liquidity, Fixed Income Securities Trading, Equity Investment IPOs, FX Trading and Customer Sales. Treasury ensures compliance with regulatory requirements such as CRR and SLR.

Foreign Exchange Treasury

Due to market conditions, the Bank adopted a cautious approach in FX business in FY 2013. A turbulent global financial market, interspersed with the domestic trinity of high inflation, high current account deficit and slow growth prevailed over the foreign exchange markets in FY 2013. The US Fiscal Cliff and the Eurozone risks dominated the global scenario with Quantitative Easing (QE) and insufficient investment opportunities propelling capital inflow into equity markets of emerging economies including India. The Japanese Yen also witnessed lot of volatility in pursuit for expansionary monetary policy by the Japanese government. The Indian Rupee has shown high volatility during FY 2013, moving to Rs. 57.30 in June 2012 from Rs. 50.50 in the beginning of April 2012. This was a result of high domestic inflation compounded with major risks emanating from the global economy and the rising oil prices. The third quarter of FY 2013 began with various reform measures including liberalized FDI limits for certain sectors and announcement of fiscal consolidation path, enhancing global investor confidence in the Indian economy. This, along with announcements of quantitative easing by the US Fed and the Bank of Japan, boosted capital inflows into India and aided some recovery of the rupee.

Money Market

The liquidity in the banking system remained in deficit mode throughout FY 2013. RBI cut Repo rate to 7.50% from 8.50% to induce growth and the overnight call rates remained around Repo rate and moved down to 7.50% from 8.50%. RBI also infused liquidity by way of OMOs and further reduced CRR by 75 basis points releasing large amount of liquidity in the system. The 10 year G-sec yields moved down to 7.80% from 8.50%, during FY 2013 with various measures taken by RBI to support growth. The Bank adopted a cautious approach and made regular gains in G-Sec trading.

CREDIT & RISK

Risk Management

The Bank has an independent Risk Management function. The objective of risk management is to have a dynamic and an optimum balance between risk and return and ensure regulatory compliance and conformity with the Board approved policies. It entails the identification, measurement and management of risks across the various businesses of the Bank. Risk is managed through defined policies and procedures approved by the Board of Directors and monitoring and corrective actions are taken on a continuous basis. The Bank has invested in building a strong talent base with deep risk expertise while also successfully recruiting and retaining that expertise. The Risk Management function strives to anticipate vulnerabilities through reviews of quantitative and qualitative data / MIS of both external and internal risks. The Bank''s risk management processes are guided by policies appropriate for the various risk categories, namely Credit Risk, Market Risk (including asset liability management and liquidity risks) and Operational Risk. The Board sets the overall risk appetite and philosophy for the Bank. The Credit Committee of the Board (CCB) guides the direction for development of policies and procedures in managing credit risk and implementing the credit strategy. The Risk Management Committee (RMC), which is a committee of the Board, reviews various aspects of risk arising from the businesses undertaken by the Bank. At the operating level, risk committees namely Asset Liability Management Committee (ALCO), the Operational Risk Management Committee (ORCO) and the Credit Risk Management Committee (CRMC) oversee specific risk areas. These committees provide inputs for review by the Risk Management Committee (RMC) of the Board.

In FY 2013, the Bank made many improvements in the Credit function. A simple scoring methodology was introduced for existing mortgages portfolio. All retail loans are now scored based on various parameters and the Bank has the capability to conduct migration analysis as well. The credit parameters of Tractor loans, Mortgages and CV were suitably amended based on business needs and portfolio performance. The Bank has sophisticated analytics that supports portfolio management and credit policy improvements. In line with the new guidelines, a securitization policy was introduced that helped to effect buyouts for meeting PSL target. The Bank further enhanced analytics by introducing "Through the Door" loans review. The portfolio stress testing was also strengthened by addition of new parameters. A risk based model for pricing was introduced for mortgage portfolio buyout. In order to avoid frauds and errors in title document checks by an in-house legal counsel was implemented. This is in addition to the checks done by empanelled lawyers. Credit appraisal, financial analysis and sanction letter formats were improved through standardization. This is likely to help enhance customer service. The Bank is ahead in terms of adhering to the time lines set by CERSAI for updation of mortgages data in the central system. Collections and Recoveries continue to deliver good performance in FY 2013.

Credit Risk

The credit risk policy supports and is aligned with the Bank''s priority of achieving growth and at the same time maintaining asset quality to ensure long-term sustainable profitability over business cycles. The Bank strives to maintain a healthy balance between risk and reward. The Bank also undertakes the exercise of measuring the credit risks involved in the composition of its present portfolio and realigning them to have a better risk-reward composition. The Bank endeavours to continuously enhance its internal risk assessment capabilities.

Over time, the Risk Function has developed capabilities to assess the risks associated with various products and business segments (MSME, SME, Mortgages, Corporate, etc.). The effort is to standardize the credit approval process so that the outcomes are predictable. The Bank has implemented a rating model for obligors. This model takes into account both quantitative and qualitative factors as inputs and produces a rating that becomes one of the key inputs to credit decisions.

The Credit Administration Department (CAD) is responsible for disbursement, documentation and security creation, database management and generating various advances related reports and MIS.

The Credit Risk Analytics & Monitoring (CRAM) Unit monitors key customer exposures centrally to spot early warning signals based on the conduct of account and other qualitative inputs which may affect credit quality of customer. The Bank has developed strong credit monitoring mechanisms by building a comprehensive Early Warning Process for account level monitoring.

Concentration Risk

Concentration risk is monitored and managed both at the customer level and at the aggregate level. The Bank continuously monitors portfolio concentrations by segment, ratings, borrower, group, sensitive sectors, unsecured exposures, industry, geography, etc. The Bank adopts a conservative approach within the regulatory prudential exposure norms.

Market Risk

Besides the usual monitoring of Structural Liquidity, Interest Rate Sensitive Gap limits and Absolute Holding limits, the Bank also monitors interest rate risks using Value at Risk limits. Exposures to Foreign Exchange and Capital Markets are monitored within pre-set exposure limits, margin requirements and stop-loss limits.

Country Exposure Risk

The Bank has established specific country exposure limits (capped at 1.5% of the Bank''s Total Assets), which are based on rating of individual countries. The Bank uses the mitigant of insurance cover available through the Export Credit and Guarantee Corporation (ECGC), where appropriate.

Liquidity Risk

As part of the liquidity management and contingency planning, the Bank assesses potential trends, demands, events and uncertainties that could result in adverse liquidity conditions. The Bank''s Asset Liability Management (ALM) policy defines the gap limits for the structural liquidity and the liquidity profile is analyzed on both static and dynamic basis by tracking cash inflow and outflow in the maturity ladder based on the expected occurrence of cash flow. The Bank undertakes behavioural analysis of the non-maturity products, namely CASA, Cash Credit and Overdraft accounts on a periodic basis to ascertain the volatility of balances in these accounts. The renewal pattern and premature withdrawals of term deposits and drawdowns of un-availed credit limits are also captured using behavioural studies. The liquidity profile is estimated on an active basis by considering the growth in Deposits, Advances and investment obligations for a short-term period of three months. The concentration of large deposits is monitored on a periodic basis. Emphasis has been placed on growing Retail deposits and to avoid as far as possible bulk deposits. The Bank periodically conducts liquidity stress testing.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or external events. The Bank''s operational risk management framework is defined in the Operational Risk Management Policy approved by the Board of Directors. While the policy provides a broad framework, Operational Risk Management Committee (ORCO) of Management oversees the operational risk management in the Bank. The policy specifies the composition, roles and responsibilities of the ORCO. The framework comprises identification, assessment, management and mitigation of risks through tools like incident reporting, loss reporting, Key Operational Risk Indicators (KORI), Risk and Control Self-Assessment (RCSA) and Periodic Risk Identification and Controls Evaluation (PRICE).

Each new product or service introduced is subject to a risk review and sign- off process so that relevant risks are identified and assessed independently from the unit proposing the product. There is a separate Process Management Team to document, maintain and conduct periodic review of all the processes for the Bank. Management Committee for Approval of Process (MCAP) has been constituted to approve and develop various processes in the Bank. The said committee consists of highly experienced bankers and subject matter experts. Internal Audit inspects the processes that are implemented.

Reputational Risk

The Bank pays special attention to issues that may create a Reputational risk. Events that can negatively impact the Bank''s position are handled cautiously ensuring utmost compliance and in line with the values of the Bank.

Implementation of Basel II guidelines

The Bank has taken the opportunity of implementation of the Basel II framework to systematically review and align its risk management systems and practices with best international practices. In accordance with the guidelines issued by RBI on Basel II, the Bank has successfully migrated to Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk from 31st March , 2009. The Bank adheres to the extant New Capital Adequacy Framework (NCAF) for computation of eligible capital, Risk Weighted Assets and Capital Adequacy Ratio (CRAR).

INFORMATION TECHNOLOGY (IT)

Keeping in view the Bank''s strategy and growth, during FY 2013, major technology initiatives were focused towards optimization of infrastructure and applications. The Bank implemented server virtualization for Windows based applications in production and test environments. This initiative, inter alia, helped to reduce physical servers which in turn reduced rack space and power requirements. Thus, the Bank took a few steps towards becoming a "green data centre". An enterprise storage solution has been implemented providing scalability and "storage to storage" data replication capabilities between Data Centre and Disaster Recovery databases. On the applications front, the Bank implemented a few key modules of a contemporary integrated Treasury Management system replacing a legacy system. The Bank also strengthened the mobile banking solution that has capabilities to handle the financial inclusion initiatives in addition to providing an efficient and convenient banking channel to the customers. With a view to improving customer service, a new Call Centre-IVR solution was implemented which provides customer convenience features such as change of ATM PIN through IVR using IPIN. The Bank has also provided a facility for "Online Savings Account Opening" convenience for existing and new customers. This feature is available to NRIs and will be extended to the domestic market in FY 2014. In order to strengthen the IT security to reduce the risk to customers particularly for "online" transactions, the network security architecture was revamped to enhance security of servers from internal as well as external unauthorized access. An automated Patch Management Solution was implemented to update patches in desktop environment. In- house developed Security Incident and Event Management solutions were implemented for constant monitoring of logs from security devices. The Bank also took steps towards ISO 27001 standards for strengthening its IT governance model.

OPERATIONS

The Operations Unit is the backbone for processing of customer transactions. The Operations Unit has been co-located in the same building as the Corporate Office. This is expected to vastly improve the coordination between business units and Operations. In FY 2013, the Bank has launched Cheque Truncation System (CTS) in Bangaluru, Hyderabad and Kochi and is in the process of launching the same for the Western region. In order to improve customer experience, the Bank introduced a number of process improvements on a continuous basis. This not only helped to improve customer satisfaction but also reduced Operations Risks. The Operations team ensured smooth implementation of new branches and new business initiatives.

INTERNAL AUDIT (IA)

Internal Audit (IA) is an independent unit that performs regular audits to evaluate the adequacy and effectiveness of internal controls and overall risk management. The Audit Committee of the Board (ACB) provides direction and monitors the effectiveness of the IA function. IA uses a comprehensive risk based approach taking into account the guidelines of RBI and international best practices. In order to continuously innovate and keep high vigil and enhanced risk management, IA introduced innovative audits during the year with significant leverage and use of technology. This approach in specialized snap audits has provided the Management with quick and deep insights into weak links and ability to address the gaps promptly. As a result of its consistent inputs and value added observations, IA has become a value partner in improving the overall risk management and controls of various units of the Bank. Corrective Action Trackers are part of regular management updates and form a basis of evaluating the units'' performance. IA is playing an active role in providing inputs for enhancing the existing policies and procedures. IA also undertakes thematic reviews of key products and projects. It uses experienced audit firms for concurrent audits in line with ACB approved framework. IA continues to appraise the Board, ACB and the Management teams in terms of newer emerging threats and recommends appropriate mitigating measures.

HUMAN RESOURCE (HR)

In FY 2013, HR once again played a key role in the transformation journey of the Bank. The main focus was on upgrading of skills, providing career progression, employee engagement to improve pride and belonging, talent hiring and nurturing.

The Bank was awarded as "Great Place to Work" in the study conducted by Great Place to Work Institute.

The Bank launched several unique developmental programs for employees which range from Leadership Development (LEAP), developing employees into complete bankers (RISE, Aspire), "Beat the Best" for frontline executives and career progression initiatives such as "Budding Branch Managers, "Budding ROMs", "Budding ACMs" and "Budding SME RMs". The Bank''s employees also took part in professional certification programs. In order to equip the employees in process improvement, Re-engineering, Six Sigma and Project Management certifications were also conducted.

In FY 2013, the Bank hired 18 freshers under the Budding Banker Program for Retail Banking. In a major move, the Bank invested in a competency framework creation which will ensure consistency in hiring parameters for various levels in the organization.

With a view to providing direct access to frontline employees and give them an opportunity to give feedback to the top team, "Coffee with MD & CEO" sessions were organized. In this forum, frontline employees could freely exchange ideas with the MD & CEO.

The Bank is committed to Corporate Social Responsibility. It is one of the best ways to increase employee engagement. In FY 2013, blood donation, clothes and books donation, visit to orphanage and charity auctions were conducted.

In terms of employee activities, throughout the year, several programs were undertaken. Employees participated enthusiastically in carrom, chess and cricket tournaments. Wellness, Breast Cancer Awareness Session, Healthy Heart Talk, Positive Thinking Workshop and Hair Treatment Camp were conducted to improve awareness amongst employees. Like in the previous year''s all important occasions and festivals were celebrated by the Bank. The Bank has an in-house employee magazine "High Decibel" which is published monthly. As per tradition, every year, the Bank conducted the "Movers & Shakers", its annual staff recognition and cultural event program.

CUSTOMER SERVICE

The Bank believes that customer satisfaction is at the core of its existence and customers must be served proactively beyond their expectations. The Bank has a dedicated Service Quality (SQ) team that is supervised by the MD & CEO along with Senior Management. The SQ team inter alia is responsible for identifying problems faced by customers, co-ordinating speedy rectification of issues, actively looking for process improvement opportunities, scientifically tracking customer satisfaction and facilitating implementation of customer friendly automation.

The Bank has installed "Centralized Complaint Management System" so that customer queries and complaints are not inadvertently missed out and also to provide uniform quality service. All complaints are tracked rigorously for timely closure and delays if any are escalated to the Senior Management.

The Bank offers personal and corporate Internet Banking services which are at par with the best in the industry. DCB Bank mobile alerts are considered to be one of the best in the industry. On an ongoing basis, more alerts are added to provide convenience that reduces the need for customers to visit a branch.

In FY 2013, the Bank launched a massive service improvement program called Power of Three — Empathy, Speed and Quality (ESQ). ESQ represents the three solid pillars of service philosophy of the Bank. The MD & CEO and the Management Team visited key locations in India and addressed the staff to emphasize the need for improving the service levels and the service culture. Over a period of time, the Bank aims to vastly improve the level of service provided to customers and set new industry benchmarks. The ESQ initiative is almost one year old and the Bank is seeing the values of ESQ slowly taking root in the entire organization. It is a long journey undertaken by the Bank to differentiate it from the competition.

A special training program was created called "ESQ Explored" and in FY 2013, more than 800 employees were covered by ESQ training.

As part of ESQ, on a regular basis, the MD & CEO and the Management Team go through a sample of customer complaints which is recorded in the Bank''s dedicated customer complaint system called Optilive. A detail root cause analysis is conducted for the complaints reviewed by the MD & CEO. This helps in identifying improvements that need to be implemented in Operations, Technology, Credit, Process, etc. so that similar complaints do not recur. Corrective actions are tracked rigorously by the Management Team for timely completion. In addition to sample customer complaints review, the Bank also conducted an independent internal customer satisfaction survey by sending a structured questionnaire to several customers. The feedback so received was shared with the Management Team. The Chairman of the Bank met with groups of customers along with the Senior Management team to solicit direct feedback on areas for improvement.

DCB 24 Hour Customer Care phone banking unit has been serving customers for a long time. The idea is to eliminate the need for customers to visit the branches for their banking needs. This unit handles approximately 55,000 calls per month. Incoming calls are monitored to provide regular feedback and training to the phone banking executives so that they can improve the quality of interaction with the customers.

The Customer Care Unit runs programs such as ''Voice of the Customer'' for effective complaint resolution and process improvement. In FY 2013, some key measures taken up by the Bank include a formation of customer first team which is designed to ensure end-to-end customer complaint resolution. A separate retention calling team has been created to call customers who have stopped banking with the Bank. The idea is to understand the issues and win back these customers. The retention calling team gives valuable feedback to various functions and the product team. The customer satisfaction and complaint levels are regularly reviewed by the Customer Service Committee (CSC) of the Board. The Bank has also set up a robust training mechanism; both on the online platform as well as using conventional class room sessions, to enable its employees to improve the quality of customer service.

PARTICULARS OF EMPLOYEES

The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, as amended, are given in the annexure appended hereto and forms part of this report. In terms of Section 219(1)(b) (iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. The Bank had 8 employees who were employed throughout the year and were in receipt of remuneration of more than Rs. 60 lakh per annum and no employee was employed for part of the year and was in receipt of remuneration of more than Rs. 5 lakh per month.

EMPLOYEE STOCK OPTIONS

The information pertaining to the Employee Stock Options is given in an annexure to this Report.

PARTICULARS REGARDING CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. However, as mentioned in the earlier part of the Report, the Bank has been extensively using technology in its operations.

DIRECTORS'' RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956, your Board of Directors confirms that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with no material departures; b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for the year; c) proper and sufficient care has been taken for maintenance of adequate accounting records as provided in the Companies Act, 1956, for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities; and d) the annual accounts of the Bank have been prepared on a "going concern" basis.

CORPORATE GOVERNANCE

The Bank has been observing the best corporate governance practices and benchmarking itself against each such practice on an ongoing basis. A separate section on Corporate Governance and a Certificate from the Statutory Auditors, M/s. B S R & Co., Chartered Accountants, regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges form part of this Annual Report.

DIRECTORS

In accordance with the Companies Act, 1956 and the Articles of Association of the Bank, Directors Mr. Suhail Nathani and Mr. Amin Manekia are retiring by rotation and, being eligible, offer themselves for reappointment. The Board recommends the re-appointments of Mr. Suhail Nathani and Mr. Amin Manekia as Directors at the ensuing Annual General Meeting. A brief resume relating to the Directors who are to be re-appointed is furnished in the report on Corporate Governance. None of the above mentioned persons is disqualified from being appointed as a Director as specified in terms of Section 274(1)(g) of the Companies Act, 1956.

Mr. Imran Contractor, Mr. Keki Elavia, Mr. C. Narasimhan, Mr. Nalin Shah and Mr. S. Sridhar were appointed by the Board as Additional Directors of the Bank on 12th October, 2012 and Mr. Jamal Pradhan was appointed as an Additional Director of the Bank on 15th January, 2013. Separate notices along with deposits of Rs. 500/- each have been received from six shareholders signifying their intention to propose Mr. Imran Contractor, Mr. Keki Elavia, Mr. C. Narasimhan, Mr. Nalin Shah, Mr. S. Sridhar and Mr. Jamal Pradhan as Directors of the Bank at the ensuing AGM. The Board of Directors of the Bank also has recommended their appointments.

During FY 2013, Mr. Narayan K. Seshadri and Mrs. Nasim Devji ceased to be Directors of the Bank, on their successful completion of 8 continuous years on the Board of the Bank, on 29th September, 2012 and 12th January, 2013 respectively. Mr. Amir Sabuwala and Mr. Rajabbhai Momin also resigned from the Board of the Bank on 12th October, 2012. The Board of Directors had placed on record its sincere appreciation of the valuable contributions made by Mr. Narayan K. Seshadri, Mrs. Nasim Devji, Mr. Amir Sabuwala and Mr. Rajabbhai Momin as Directors of the Bank.

STATUTORY AUDITORS

M/s. B S R & Co., Chartered Accountants, were appointed as the Statutory Auditors at the last Annual General Meeting. They are eligible for reappointment for the FY 2013-14 and the Reserve Bank of India has been approached for their reappointment. Your Board recommends their appointment as the Statutory Auditors at the ensuing Annual General Meeting.

ACKNOWLEDGEMENTS

Your Board wishes to thank the principal shareholder, the promoters Aga Khan Fund for Economic Development (AKFED), and all the other shareholders for the confidence and trust they have reposed in the Bank. Your Board also acknowledges with appreciation the Reserve Bank of India (RBI) for its valuable guidance and support to the Bank. Your Board similarly expresses gratitude for the assistance and co-operation extended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of various States where the Bank has its branches.

Your Board acknowledges with appreciation, the invaluable support provided by the Bank''s auditors, lawyers, business partners and investors. Your Board is also thankful for the continued co-operation of various financial institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage. Your Board records with sincere appreciation the valuable contribution made by employees at all levels and looks forward to their continued commitment to achieve further growth and take up more challenges that the Bank has set for the future.

For and on behalf of the Board of Directors

Hyderabad Nasser Munjee

12th April, 2013 Chairman


Mar 31, 2012

The Directors are pleased to present the seventeenth Annual Report of your Bank together with the audited accounts for FY 2012.

In FY 2012, the Bank has posted an Operating Profit of Rs 83.82 crore (Previous year: Rs 86.06 crore) and a Net Profit of Rs 55.08 crore (Previous year: Rs 21.43 crore).

Total Assets have increased by Rs 1,263.98 crore and reached Rs 8,676.85 crore as on 31st March 2012. (Rs 7,412.87 crore as on 31st March 2011). Customer Deposits have increased by Rs 764.77 crore and Advances have increased by Rs 1,002.73 crore. The Bank has achieved the Priority Sector Lending (PSL) target as required by Reserve Bank of India (RBI).

The Net Interest Margin (NIM) has improved to 3.25% in FY 2012 from 3.13% in FY 2011 and the CASA ratio remains high at 32.12%.

Cost to Income Ratio has increased to 74.63% in FY 2012 from 71.43% in FY 2011. This was on account of Staff Costs, ATM expansion, Service Tax and general inflation in cost of services.

Provisions Other Than Tax have reduced to Rs 28.71 crore in FY 2012 from Rs 56.81 crore in FY 2011.

Capital Adequacy Ratio (CAR) under Basel II as on 31st March 2012 stood at 15.41%.

Gross and Net NPAs have decreased to Rs 241.80 crore and Rs 30.24 crore respectively as on 31st March 2012 from Rs 263.57 crore and Rs 41.23 crore respectively as on 31st March 2011. The overall NPA Provision Coverage Ratio as on 31st March 2012 was 91.17%.

The market conditions continued to be challenging. Inflation remained high for most of the year and liquidity remained tight. Cost of Funds went up substantially and the Bank had to revise the Base Rate to partly offset the margin pressure. The banking industry came under pressure due to rising NPAs especially from airlines, telecom and infrastructure. Towards the end of third quarter of the year some relief was seen in inflation data. The Reserve Bank of India (RBI) reduced Cash Reserve Ratio (CRR) by 125 bps in two tranches to improve liquidity. However, deposit interest rates remained very high and liquidity pressure continued unabated. Therefore, there was no opportunity to reduce the Base Rate. The situation required the Bank to remain cautious and be selective in pursuing Advances growth.

The Bank opened 4 new branches in FY 2012 (Netrang, Mandvi, Bargarh and Itarsi) taking the total tally of branches to 84. The Bank received 2 branch licenses in FY 2011 and 10 in FY 2012. Out of these, 4 branches have been installed and the balance 8 will be completed in FY 2013. The Bank received a communication from RBI permitting the Bank to open branches in Tier 2 to Tier 6 locations without prior approval from RBI. This permission was not previously available to the Bank. Going forward, the Bank plans to periodically open branches especially in Tier 2 to Tier 6 locations. This will help in growing CASA deposits, retail loans and Priority Sector Lending (PSL).

The Bank embarked on ATM expansion plan in order to improve fee income, obtain more visibility for the Bank and support CASA growth. In FY 2012, the Bank installed 182 new ATMs taking the total tally to 320 by end of March 31, 2012.

The Management Team had been working for the past few months to raise Tier I capital to continue its growth journey as per new strategy. However, since September 2010, the market was not conducive and investors were generally risk averse. In the early part of the fourth quarter of FY 2012, there was a window of opportunity and the Bank has raised Tier I capital to the extent of Rs 94.01 crore through QIP and Rs 98.75 crore through Preferred Allotment. This capital raising has vastly improved the Capital Adequacy Ratio of the Bank.

FINANCIAL SUMMARY

(Rs in crore)

For the year For the year Increase/ ending 31 ending 31 (Decrease) March 2012 March, 2011

Balance Sheet

Deposits 6,335.56 5,610.17 725.39

Customer Deposits 6,114.79 5,350.02 764.77

(including CASA) (2,034.67) (1,975.46) 59.21

Inter Bank Deposits 220.77 260.15 (39.38)

Advances 5,284.42 4,281.69 1,002.73

Non Performing Assets (Gross) 241.80 263.57 (21.77)

Non Performing Assets (Net) 30.24 41.23 (10.99)

Provision for Standard Assets 25.25 25.31 (0.06)

Total Assets 8,676.85 7,412.87 1,263.98

Profit & Loss

Net Interest Income 227.70 189.14 38.56

Non-Interest Income 102.73 112.10 (9.37)

Total Operating Income 330.43 301.24 29.19

Operating Cost 246.61 215.18 31.43

Operating Profit 83.82 86.06 (2.24)

Provisions 28.71 56.81 (28.10)

Net Profit / (Loss) Before Tax 55.11 29.25 25.86

Tax 0.03 7.82 (7.79)

Net Profit / (Loss) After Tax 55.08 21.43 33.65

DIVIDEND

In view of the provisions of Section 15 of the Banking Regulation Act, 1949, your Directors are not able to recommend payment of any dividend for FY 2012 (Previous year NIL).

MSME and SME

The importance of MSME and SME to India's economy and the Bank's strategy of pursuing this segment have already been mentioned earlier in this discussion. The Bank has created robust sales, underwriting and portfolio monitoring capability for growing the MSME and SME business. It offers a wide range of products and personalized services including Cash Management, Trade Finance, Internet Banking and Bancassurance. The Bank aims to become the business partner of this vibrant entrepreneurial segment of the economy. Your Bank has again this year achieved strong growth in MSME and SME Advances. The MSME and SME sales teams have been continuously acquiring new relationships while the dedicated portfolio team has been deepening existing relationships. Over time with the opening of new branches, the Bank aims to be one of the best MSME and SME bank in India.

CORPORATE BANKING

Corporate Banking is present across India with Regional offices in Mumbai, Ahmedabad, Bengaluru, Chennai, Hyderabad, Delhi and Kolkata. The main strategy is to provide complete range of commercial banking solutions including structured Trade Finance and Cash Management Services. The Bank has a strong underwriting and credit administration support to achieve sustainable growth in Corporate Banking business. The emphasis is on building a secured advances portfolio and building a long term relationship with high quality large and mid-corporate houses. The business is being managed by a team of experienced Relationship Managers, Credit Analysts and Product Specialists in Trade Finance and Cash Management Services. The Bank targets emerging Corporates and in FY 2012 the unit added 32 new customers.

AGRI AND INCLUSIVE BANKING (AIB)

India's rural and semi urban areas have large untapped potential for banking opportunities. In order to meet the objectives of business growth and financial inclusion, the Bank has set up a separate unit named as Agri and Inclusive Banking (AIB). This unit is also responsible for coordinating the efforts to meet the Priority Sector Lending (PSL) targets set by RBI. As stated earlier in this report, the Bank met its PSL target prescribed by RBI in FY 2012.

AIB offers a wide range of products to cater to the various needs of rural and semi urban India for example funding against pledge of stocks mentioned in warehouses, term loans and portfolio buyout from Micro Finance Institutions (MFIs) and NBFCs, working capital for agri processors and term loans for warehouse construction.

In FY 2012, AIB launched Crop Loan, Animal Husbandry Loan, Land Improvement Loans, JLG Loans and Small Business Loans. AIB also launched Tractor Financing in a few locations. Your Bank was amongst the first banks to re-start lending to MFIs.

In FY 2012, AIB opened 4 new branches namely Netrang and Mandvi (Gujarat), Bargarh (Odisha) and Itarsi (Madhya Pradesh). These branches focus on products like Value Savings Account and Kisaan Mitra Account (mini recurring deposit scheme) besides providing Gold Loans and other Retail Agri loans.

TREASURY

Treasury actively manages liquidity, Fixed Income Securities Trading, Equity Investment IPOs, FX Trading and Customer Sales. Treasury ensures compliance with regulatory requirements such as CRR and SLR.

In FY 2012, the main focus of the Government and RBI was to ensure growth and simultaneously tame inflation. This was indeed a difficult task. While India has a strong vibrant domestic economy, still the country is strongly impacted by the situation prevailing in the West. Interest rates remained high and liquidity was tight. RBI increased the Repo rate from 6.75% to 8.50%. The high interest rate environment had an impact on economic growth.

The liquidity in the banking system remained in deficit mode throughout the year going up from Rs 50,000 crore to Rs 190,000 crore on account of Government borrowing and RBI intervention in the FX market. RBI hiked

Repo rate from 6.75% to 8.50% to contain inflationary pressure and the overnight call rates remained above Repo rate and moved up from 7.00% to 9.50%. RBI infused liquidity by way of Open Market Operations (OMOs) and reduced the Cash Reserve Ratio (CRR) by 125 bps. The 10 year G-sec yields moved up from 8.00% to 9.00% in the first half FY 2012 but fell towards the end of the year on account of regular OMOs. The GDP and IIP figures did not infuse much confidence and the markets remained volatile. The Sensex came down sharply until December 2012 and recovered somewhat from January 2012.

The Foreign Exchange (FX) market was extremely volatile. The INR weakened sharply against the US Dollar from around Rs 43.85 to Rs 54.30 requiring RBI intervention in the FX market. FIIs were also net sellers in the equity market till December 2011 before turning net buyers in January 2012. This has led to an inflow of US Dollars and slight strengthening of INR. However, given the fiscal deficit, high oil prices, inflation and global uncertainties, the situation looks weak.

The Bank remained cautious in trading both in FX and Money markets. Despite adverse liquidity situation in the system, the Bank's liquidity was managed well throughout the year. Taking advantage of rising yields, Treasury regularly invested in high yielding Government bonds and improved the yield from the previous year. In order to reduce the cost of funds on available excess liquidity created by funds flow mismatch, the Bank deployed the surplus funds in various money market instruments.

CREDIT & RISK

Risk Management

Your Bank has an independent Risk Management function. The Credit Committee of the Board (CCB) guides the direction for development of policies and procedures in managing credit risk and implementing the credit strategy. The objective of risk management is to have a dynamic and an optimum balance between risk and return and ensuring regulatory compliance and conformity with the Board approved policies. It entails the identification, measurement and management of risks across the various businesses of the Bank. Risk is managed through defined policies and procedures approved by the Board of Directors and monitoring and corrective actions are taken on a continuous basis. The Bank has invested in building a strong talent base with deep risk expertise while also successfully recruiting and retaining that expertise. The Risk Management function strives to anticipate vulnerabilities through reviews of quantitative and qualitative data / MIS of both external and internal risks.

The Bank's risk management processes are guided by policies appropriate for the various risk categories namely Credit Risk, Market Risk (including asset liability management and liquidity risks) and Operational Risk. The Board sets the overall risk appetite and philosophy for the Bank. The Risk Management Committee (RMC), which is a committee of the Board, reviews various aspects of risk arising from the businesses undertaken by the Bank. At the operating level, risk committees namely Asset Liability Management Committee (ALCO), the Operational Risk Management Committee (ORCO) and the Credit Risk Management Committee (CRMC) oversee specific risk areas. These committees provide inputs for review by the Risk Management Committee (RMC) of the Board.

Credit Risk

The credit risk policy supports and is aligned with the Bank's corporate priority of achieving growth and at the same time maintaining asset quality to ensure long term sustainable profitability over business cycles. The Bank strives to maintain a healthy balance between risk and reward. The Bank also undertakes the exercise of measuring the credit risks involved in the composition of its present portfolio and realigning them to have a better risk-reward composition. The Bank endeavors to continuously enhance its internal risk assessment capabilities.

The Risk Function over time has developed capabilities to assess the risk associated with various products and business segments (MSME, SME, Mortgages, Corporate etc). The effort is to standardize the credit approval process so that the outcomes are predictable. The Bank has implemented a rating model for obligors. This model takes into account both quantitative and qualitative factors as inputs and produces a rating that becomes one of the key inputs to credit decisions.

The Credit Administration Department (CAD) is responsible for disbursement, documentation and security creation, database management and generating various advances related reports and MIS.

The Credit Risk Analytics & Monitoring (CRAM) unit monitors key customer exposures centrally to spot early warning signals based on the conduct of account and other qualitative inputs which may affect credit quality of customer. The Bank has developed strong credit monitoring mechanisms by building a comprehensive Early Warning Process for account level monitoring.

Concentration Risk

Concentration risk is monitored and managed both at a customer level and at the aggregate level. The Bank continuously monitors portfolio concentrations by segment, ratings, borrower, group, sensitive sectors, unsecured exposures, industry, geography etc. Your Bank adopts a conservative approach within the regulatory prudential exposure norms.

Market Risk

Besides the usual monitoring of Structural Liquidity, Interest Rate Sensitive Gap limits and Absolute Holding limits, the Bank also monitors interest rate risks using Value at Risk limits. Exposures to Foreign Exchange and Capital Markets are monitored within pre-set exposure limits, margin requirements and stop-loss limits.

Country Exposure Risk

The Bank has established specific country exposure limits capped at 1.5% of Total Assets are based on rating of individual countries. The Bank uses the mitigant of insurance cover available through the Export Credit and Guarantee Corporation (ECGC), where appropriate.

Liquidity Risk

As part of the liquidity management and contingency planning, the Bank assesses potential trends, demands, events and uncertainties that could result in adverse liquidity conditions. The Bank's Asset Liability Management (ALM) policy defines the gap limits for the structural liquidity and the liquidity prof le is analyzed on both static and dynamic basis by tracking cash inflow and outflow in the maturity ladder based on the expected occurrence of cash flow. The Bank undertakes behavioral analysis of the non-maturity products, namely CASA, Cash Credit and Overdraft accounts on a periodic basis to ascertain the volatility of balances in these accounts. The renewal pattern and premature withdrawals of Term Deposits and drawdowns of un-availed credit limits are also captured through behavioral studies. The liquidity profile is estimated on an active basis by considering the growth in Deposits, Advances and investment obligations for a short-term period of three months. The concentration of large deposits is monitored on a periodic basis. Emphasis has been placed on growing Retail deposits and avoid as far as possible bulk deposits. The Bank periodically conducts liquidity stress testing.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or external events. The Bank's operational risk management framework is defined in the Operational Risk Management Policy approved by the Board of Directors. While the policy provides a broad framework, Operational Risk Management Committee (ORCO) of Management oversees the operational risk management in the Bank. The policy specifies the composition, roles and responsibilities of the ORCO. The framework comprises identification, assessment, management and mitigation of risks through tools like incident reporting, loss reporting, Key Operational Risk Indicators (KORI), Risk and Control Self-Assessment (RCSA) and Periodic Risk Identification and Controls Evaluation (PRICE). Each new product or service introduced is subject to a risk review and sign- off process so that relevant risks are identified and assessed independently from the unit proposing the product. There is a separate Process Management Team to document, maintain and conduct periodic review of all the processes for the Bank. Management Committee for Approval of Process (MCAP) has been constituted to approve and develop various processes in the Bank. The said committee consists of highly experienced bankers and subject matter experts. Internal Audit inspects the processes that are implemented.

Reputational Risk

The Bank pays special attention to issues that may create a Reputational risk. Events that can negatively impact the Bank's position are handled cautiously ensuring utmost compliance and in line with the values of your Bank.

Implementation of Basel II guidelines

The Bank has taken the opportunity of implementation of the Basel II framework to systematically review and align its risk management systems and practices with best international practices.

In accordance with the guidelines issued by the Reserve Bank of India on Basel II, the Bank has successfully migrated to Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk from March 31, 2009. The Bank adheres to the extant New Capital Adequacy Framework (NCAF) for computation of eligible capital, Risk Weighted Assets and CRAR.

INFORMATION TECHNOLOGY (IT)

The Bank continues to leverage technology for supporting its business strategy and to improve the level of customer service. The application landscape consists of a blend of packaged products as well as some home grown applications.

The Bank has created a robust infrastructure architecture with all the offices connected using Multi Protocol Label Switching (MPLS) technology backbone to provide a better, reliable and efficient network in line with business priorities.

With a view to strengthen information security, the Bank has implemented appropriate solutions, which are continually upgraded based on the periodic reviews, vulnerability analysis and penetration testing.

In order to reduce the number of ATM complaints and improve customer satisfaction, in FY 2012, IT completed the migration of card management and switch to Euronet from the existing vendor. It was a complex project which was smoothly completed with minimum errors. During FY 2012, the Bank's Disaster Recovery (DR) was relocated to Bengaluru in a much better facility.

As a part of the on-going upgrade of IT infrastructure, the Bank implemented an enterprise storage platform that is expected to provide efficient processing capabilities.

The IT operations are managed with a judicious mix of 'in-house' and 'outsourced' manpower, comprising a strong in-house team combined with outsourced resources.

The Bank will continue to implement appropriate, cost-efficient technologies to support the business plan in the coming financial year.

OPERATIONS

Operations is the backbone of the Bank's internal and external service delivery which is centralized at Vikhroli in Mumbai. Operations endeavors to adopt an empathetic approach to drive efficiencies and best-in-class customer service. Internal controls are constantly reviewed to ensure that risks are well managed. End to end process reviews are conducted periodically and automation is introduced wherever possible to reduce errors and cycle time.

INTERNAL AUDIT (IA)

Internal Audit is an independent unit that performs regular audits to evaluate the adequacy and effectiveness of internal controls and overall risk management. The Audit Committee of the Board (ACB) provides direction and monitors the effectiveness of the audit function. IA uses a comprehensive risk based approach taking into account the guidelines of RBI and international best practices. IA reviews include snap audits and thematic reviews of key functions and projects. IA also uses experienced audit firms for concurrent audits.

As a result of the improvements initiated last year, IA is continuously emerging as a unit providing valuable inputs for improving the overall risk management and controls. Corrective Action Trackers (CATs) have started showing results as they are now part of regular management updates and form a basis of tracking improvements. IA has initiated a few new improvements in FY 2012 that are expected to further assist in proactively identifying risks in changing business dynamics and assist in improving overall control environment. IA continues to appraise the Board, the Audit

Committee of the Board (ACB) and the Management teams in terms of newer emerging threats and recommend appropriate mitigating measures.

HUMAN RESOURCE (HR)

In FY 2012, once again HR played a key role in transformation journey of Your Bank. The main focus was on upgrading of skills, providing career progression, employee engagement to improve pride, belonging, talent hiring and nurturing. A lot of hard work went into developing and delivering functional training. The Bank continued to pay special attention to employee communication through High Decibel (in-house staff magazine), DCB facebook page for employees, 'Being DCBian' workshops, open forums, MD & CEO audio calls and skip level meetings.

HR launched "Career First", a career planning and development program for employees that provide them the opportunity to have a one-on-one discussion with the HR team who provide them with counseling and career planning. Psychometric tool was used to help the employee improve self- awareness. A unique panel discussion with the Management Committee was organized where a set of employees could directly get inputs from the management committee on how to build one's career and skill set. The Bank also initiated "Grow with us" program to prepare aspiring employees to fill up critical roles as and when the need arises.

In FY 2012, numerous employee activities and social events were conducted. This greatly helped improve team building and bonding. The Bank participated in the Mumbai marathon, celebrated the global 'Joy of Giving Week' through blood donation drives, visits to old age homes, donation of books, clothes and toys to the needy as well as auction of senior management memorabilia for charity. The annual 'Movers & Shakers' event to celebrate success, recognize the achievers and also give an opportunity to the Bank's talent was once again a remarkable success. Besides the annual event, HR conducted inter corporate photography competition, 'Biggest Loser' an in-house challenge for weight loss and getting fit and healthy, 'Rangoli' competition during Diwali, 'Carol singing' during Christmas and 'Antakshari' contests. DCB Bank Premier League - an annual cricket tournament was held across regions and the tournament was keenly contested amongst the various teams. HR organized 'bone density camp' for employees to help them understand early signs of osteoporosis, 'Nutrition Talk' and Yoga for employees to make them more ft in today's stressful life.

The Bank has a culture of learning through the Individual Learning & Development Scorecard (ILDS) and over 80% of the Bank's employees have undergone various training programs.

Our key area of concentration this year was to create cross functional synergies by sharing information on the functioning of select business units. A first of its kind cross functional learning program was "RISE" completed over a period of six months for 23 employees. This program would clearly help job mobility in the Bank for talent as it equips them with working knowledge of various functions. HR completed "LEAP - Season II" (Leadership Excellence and Acceleration Program) which was launched in FY 2010. In this program 20 employees go through training, project work and presentation.

In terms of resourcing, the Bank launched the "Budding Bankers" program by hiring fresh graduate trainees. These freshers will be provided on the job intensive training across various units for 6 months and will be deployed in suitable openings at the end of the training. The Bank expects to build a strong talent pool using this program.

CUSTOMER SERVICE

The Bank believes that customer satisfaction is at the core of its existence and customers must be served proactively beyond their expectations. The Bank has a dedicated Service Quality (SQ) team that is supervised by the MD & CEO along with Senior Management. The SQ team inter alia is responsible for - identifying problems faced by customers, coordinating speedy rectification of issues, actively looking for process improvement opportunities, scientifically tracking customer satisfaction and facilitating implementation of customer friendly automation.

The Bank has installed "Centralised Complaint Management" so that customer queries and complaints are not inadvertently missed out and also to provide uniform quality service. All complaints are tracked rigorously for timely closure and delays if any are escalated to the senior management.

The Bank offers personal and corporate Internet Banking services which are at par with the best in the industry. DCB Bank mobile alerts are considered to be one of the best in the industry. On an ongoing basis, more alerts are added to provide convenience that reduces the need for customers to visit a branch.

In FY 2012, a major revamp of the Account Opening process for Current and Savings Accounts was completed. The new process helped to improve frontline and customer satisfaction. The second process that is under improvement is the loan sanctioning and disbursal process for MSME and SMEs. Several areas for improvement across Credit, Operations and Sales have been identified and implementation of recommendations by the process improvement team has already begun.

DCB 24 Hour Customer Care phone banking unit has been serving customers for a long time. The idea is to eliminate the need for customers to visit the branches for their banking needs. This unit handles approximately 71,000 calls per month. Incoming calls are monitored to provide regular feedback and training to the phone banking executives so that they can improve the quality of interaction with the customers.

The Customer Care unit runs programs such as 'Voice of the Customer' for effective complaint resolution and process improvement. In FY 2012, some key measures taken up by the Bank include a formation of customer first team which is designed to ensure end-to-end customer complaint resolution. A separate retention calling team has been created to call customers who have stopped banking with the Bank. The idea is to understand the issues and win back these customers. The retention calling team gives valuable feedback to various functions and the product team. The customer satisfaction and complaint levels are regularly reviewed by the Customer Service Committee (CSC) of the Board. Your Bank has also set up a robust training mechanism; both on the online platform as well as using conventional class room sessions, to enable its employees improve the quality of customer service.

STATUTORY DISCLOSURES IN ANNUAL REPORT 2011-12 PARTICULARS OF EMPLOYEES

The particulars required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, as amended, are given in the annexure appended hereto and forms part of this report. In terms of Section 219(1)(b) (iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. The Bank had 7 (seven) employees who were employed throughout the year and were in receipt of remuneration of more than Rs 60.00 lakh per annum and 1 (one) employee who was employed for part of the year and was in receipt of remuneration of more than Rs 5.00 lakh per month.

EMPLOYEE STOCK OPTIONS

The information pertaining to the Employee Stock Options is given in an annexure to this Report.

PARTICULARS REGARDING CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. However, as mentioned in the earlier part of the Report, the Bank has been extensively using technology in its operations.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956, your Board of Directors confirms that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for that period; c) proper and sufficient care has been taken for maintenance of adequate accounting records as provided in the Companies Act, 1956, for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities; and d) the annual accounts of the Bank have been prepared on a "going concern" basis.

CORPORATE GOVERNANCE

The Bank continues to believe in observing the best corporate governance practices and benchmarking itself against each such practice on an ongoing basis. A separate section on Corporate Governance and a Certificate from the Statutory Auditors M/s. S. R. Batliboi & Co., Chartered Accountants regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges form part of this Annual Report.

DIRECTORS

In accordance with the Companies Act, 1956 and the Articles of Association of the Bank, Directors Mr. D.E. Udwadia and Mr. Sukh Dev Nayyar are retiring by rotation and, being eligible, offer themselves for reappointment. The Board recommends the re-appointments of Mr. D.E. Udwadia and

Mr. Sukh Dev Nayyar as Directors at this Annual General Meeting. A brief resume relating to the Directors who are to be re- appointed is furnished in the report on Corporate Governance. None of the above mentioned persons is disqualified from being appointed as a Director as specified in terms of Section 274(1)(g) of the Companies Act, 1956.

Mr. Amin Manekia and Mr. Altaf Jiwani were appointed by the Board as Additional Directors of the Bank on January 12, 2012. Separate notices alongwith deposits of Rs 500/- each have been received from two shareholders signifying their intention to propose Mr. Amin Manekia and Mr. Altaf Jiwani as Directors of the Bank at the ensuing AGM. The Board of Directors of the Bank also has recommended their appointments.

During FY 2011-12, Mr. Shabir Kassam has resigned from the Board of the Bank. The Board of Directors has placed on record its sincere appreciation of the valuable services rendered by Mr. Kassam as a Director of the Bank since January 2006.

STATUTORY AUDITORS

Messrs M/s. S.R. Batliboi & Co., Chartered Accountants, were appointed as Statutory Auditors at the last Annual General Meeting. They have completed a continuous term of four years as the Bank's Statutory Auditors and as required under the Banking Regulation Act, 1949 they cannot be reappointed at the ensuing Annual General Meeting.

The appointment of the Bank's Statutory Auditors requires prior approval of RBI. Accordingly, the approval of RBI for appointing M/s. BSR & Co., Chartered Accountants, as Statutory Auditors of the Bank has been received. Appointment of M/s. BSR & Co., Chartered Accountants, as Statutory Auditors of the Bank for FY 2012-13 has been included in the Agenda for the ensuing AGM.

ACKNOWLEDGEMENTS

Your Board wishes to thank the principal shareholder, the promoters Aga Khan Fund for Economic Development (AKFED), and all the other shareholders for the confidence and trust they have reposed in the Bank. Your Board also acknowledges with appreciation the RBI for its valuable guidance and support to the Bank. Your Board similarly expresses gratitude for the assistance and co-operation extended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of various States where the Bank has its branches.

Your Board acknowledges with appreciation, the invaluable support provided by the Bank's auditors, lawyers, business partners and investors. Your Board is also thankful for the continued co-operation of various financial institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage. Your Board records with sincere appreciation the valuable contribution made by employees at all levels and looks forward to their continued commitment to achieve ambitious organizational goals that the Bank has set for the future.

On behalf of the Board of Directors

Bengaluru Nasser Munjee

April 13, 2012 Chairman


Mar 31, 2011

The directors are pleased to present the sixteenth Annual Report of your Bank together with the audited accounts for FY 2011.

India faced many challenges during FY 2011. Tackling the problem of high infation has been a agenda for the Government and the Reserve Bank of India (RBI). The global economy is recovering but still weak and a few countries in Europe continue to be in a precarious financial condition. In India, the year started well with adequate liquidity and low interest rates, however, by the second half the situation was very different. The IIP data was not encouraging and liquidity became tight pushing up interest rates. RBI took special steps to improve the liquidity in the system and banks started offering customers high term deposit interest rates. As cost of funds increased, banks increased the Base Rate for lending. Due to uncertain conditions, the stock markets remained volatile.

Globally, towards the end of the year, there has been massive uprising of people in many of the Middle East countries demanding change. This has already pushed up the oil price to a great extent. The situation got worse in March 2011 when Japan was hit by a massive earthquake followed by a devastating tsunami. Japan and the world is still dealing with the fall out of the unprecedented natural disaster. While the Indian economy continues to be resilient and buoyant and is expected to grow at 8.0 to 8.5% per annum, oil price increase and infation are likely to take some shine off the growth story.

Against the above background, the shareholders will be pleased to know that in FY 2011, DCB has progressed further towards improving its business and financial performance. DCB returned to profits in the 2nd quarter of FY 2011 and thereafiter continued to improve step by step every quarter.

In FY 2011, DCB has posted an Operating Profit of Rs. 86.06 Crore (Previous year: Rs. 48.27 Crore) and a Net Profit of Rs. 21.43 Crore (Previous year: Net Loss of Rs. 78.45 Crore).

The Net Interest Margin (NIM) has improved from 2.79% in FY 2010 to 3.13% in FY 2011 and the CASA ratio remains high at 35.2%.

Cost to Income Ratio has decreased to 71.4% in FY 2011 from 80.6% in FY 2010.

Provisions other than tax has reduced to Rs. 56.81 Crore in FY 2011 from Rs. 121.01 Crore in FY 2010.

Capital Adequacy Ratio (CAR) under Basel II as on 31st March 2011 stood at 13.25%.

Total Assets have increased by Rs. 1,235.67 Crore and reached Rs. 7,372.34 Crore as on 31st March 2011. (Rs. 6,136.67 Crore as on 31st March 2010). Customer Deposits have increased by Rs. 721.69 Crore and Advances have increased by Rs. 811.74 Crore.

Gross and Net NPAs have decreased to Rs. 263.57 Crore and Rs. 41.23 Crore respectively as on 31st March 2011 from Rs. 319.18 Crore and Rs. 107.62 Crore as on 31st March 2010. The overall NPA Provision Coverage Ratio was 87.64% and 100% for unsecured personal loans NPAs.

FINANCIAL SUMMARY

(Rs. in Crore)

For the year For the year Increase/ ending ending (Decrease) 31 March, 2011 31 March, 2010

Balance Sheet

Deposits 5,610.17 4,787.33 822.84

Customer Deposits 5,350.02 4,628.33 721.69

(including CASA) (1,975.46) (1,692.76) 282.70

Inter Bank Deposits 260.15 159.00 101.15

Advances 4,271.45 3,459.71 811.74

Non Performing Assets (Gross) 263.57 319.18 (55.61)

Non Performing Assets (Net) 41.23 107.62 (66.39)

Provision for Standard Assets 25.31 25.25 0.06

Total Assets 7,372.34 6,136.67 1,235.67

Profit & Loss

Net Interest Income 189.14 141.55 47.59

Non-Interest Income 112.10 107.52 4.58

Total Operating Income 301.24 249.07 52.17

Operating Cost 215.18 200.80 14.38

Operating Profit 86.06 48.27 37.79

Provisions 56.81 121.01 (64.20)

Net Profit/(Loss) Before Tax 29.25 (72.74) 101.99

Tax 7.82 5.71 2.11

Net Profit/(Loss) 21.43 (78.45) 99.88

Afiter Tax

DIVIDEND

In view of the provisions of Section 15 of the Banking Regulation Act, 1949, your Directors are not able to recommend payment of any dividend for FY 2011 (Previous year NIL)

VISION

Our vision is to be the most innovative and responsive neighborhood community bank in India serving entrepreneurs, individuals and businesses. In line with our vision, we began implementing a new strategy, outlined below, in FY 2010. We have been operating under the new strategy for almost two years and we are clearly seeing an improvement in the business and financial performance of DCB.

Business Strategy

- Grow Retail Mortgages, MSME, SME and mid Corporate advances. The emphasis will be on creating a diversifed and secured portfolio.

- Focus on CASA and Retail Term Deposits to manage/improve the cost of funds. Retail Banking using branch banking and outbound sales team will be the key channels for CASA and Retail Term Deposits. Bancassurance and Trade Finance products will be actively cross sold to improve Fee income and customer loyalty.

- Treasury will be mainly responsible for liquidity and Balance Sheet management and will look for opportunities in fix and SLR trading gains within acceptable risk levels.

- Productivity across all units to be actively managed with a strong Cost discipline.

- Continue to strengthen Credit and Operational risks to support Balance Sheet growth.

- Using sophisticated process improvement techniques, at least 3 key processes to be improved every year which in turn will improve Service Quality.

- Focus on Training especially in Sales and Service to enhance frontline quality and effectiveness.

- Improve Human Resource processes to attract and retain talent.

Target Market

DCBs core target market will be MSME and SME sector. The Bank has chosen this strategy in line with its capital position, infrastructure, branch distribution, people capabilities and product strength. This sector plays an important role in the economy of any country. They are small and usually labor intensive. They cater to the needs of the market with limited and indigenous capital outlay. MSME and SME play a vital role in the growth of the Indian economy. It is estimated that MSME and SME segment contributes around 45% of the industrial output and 40% of exports. In India, at the end of year 2009, it was estimated that MSME and SME make up for around 28.5 million business units employing over 66 million people.

In FY 2011, DCB has grown Retail Mortgages, MSME and SME loans. A steady portfolio was maintained in Corporate Banking. DCB made special efforts to once again meet the Priority Sector Lending obligation.

DCB received 2 branch licenses from RBI. These branches are likely to be operational by June 2011. In Branch Banking, focus of attention on CASA and Retail Term Deposits yielded good results. Throughout the year, the Bank managed its liquidity position very well and did not have to over rely on bulk deposits and borrowings.

Costs increase was much slower than Income growth and were largely limited to salary increases for the existing workforce and hiring frontline sales staff for growing deposits and advances.

Provisions in FY 2011 were substantially lower than the previous year and the Provision Coverage Ratio was well above the guidelines set by RBI.

DCB has been able to return to profits in FY 2011. This has been possible due to systematic and disciplined execution of the new strategy while improving NPAs by concentrating on collections and recovery efforts.





PARTICULARS OF EMPLOYEES

The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, as amended, are given in the annexure appended hereto and forms part of this report. In terms of Section 219(1)(b)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Offce of the Bank. The Bank had 7 employees who were employed throughout the year and were in receipt of remuneration of more than Rs. 60.00 lacs per annum and 1 employee who was employed for part of the year and was in receipt of remuneration of more than Rs. 5.00 lacs per month.

EMPLOYEE STOCK OPTIONS

The information pertaining to the Employee Stock Options is given in an annexure to this Report.

PARTICULARS REGARDING CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION

The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to DCB. However, as mentioned in the earlier part of the Report, DCB has been extensively using technology in its operations.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956, your Board of Directors confrms that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for that period; c) proper and suffcient care has been taken for maintenance of adequate accounting records as provided in the Companies Act, 1956, for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities; and d) the annual accounts of the Bank have been prepared on a "going concern" basis.

CORPORATE GOVERNANCE

The Bank continues to believe in observing the best corporate governance practices and benchmarking itself against each such practice on an ongoing basis. A separate section on Corporate Governance and a Certifcate from M/s S. R. Batliboi & Co., Chartered Accountants regarding compliance of the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges form part of this Annual Report.

DIRECTORS

In accordance with the Companies Act, 1956 and the Articles of Association of DCB, Directors Mr. R. A. Momin, Mr. Narayan K. Seshadri and Mr. Suhail Nathani are retiring by rotation and, being eligible, offer themselves for reappointment.

The Board recommends the re-appointments of Mr. R. A. Momin, Mr. Narayan K. Seshadri and Mr. Suhail Nathani as Directors at this Annual General Meeting. A brief resume relating to the Directors who are to be re- appointed is furnished in the report on Corporate Governance.

None of the above mentioned persons is disqualifed from being appointed as a Director as specified in terms of Section 274(1)(g) of the Companies Act, 1956.

STATUTORY AUDITORS

Messers S. R. Batliboi & Co., Chartered Accountants were appointed as Statutory Auditors at the last Annual General Meeting as per Banking Regulation Act, 1949. They are eligible for re-appointment for FY 2011-12 and their appointment is subject to RBI approval. Your Board recommends their appointment as Statutory Auditors at the ensuing Annual General Meeting, subject to approval of RBI.

ACKNOWLEDGEMENTS

Your Board wishes to thank the principal shareholder, the promoters Aga Khan Fund for Economic Development (AKFED), and all the other shareholders for the confdence and trust they have reposed in DCB. Your Board also acknowledges with appreciation the RBI for its valuable guidance and support to DCB. Your Board similarly expresses gratitude for the assistance and co-operation extended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of various States where DCB has its branches.

Your Board acknowledges with appreciation, the invaluable support provided by DCBs auditors, lawyers, business partners and investors. Your Board is also thankful for the continued co-operation of various financial institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage. Your Board records with sincere appreciation the valuable contribution made by employees at all levels and looks forward to their continued commitment to achieve ambitious organizational goals that the Bank has set for the future.

On behalf of the Board of Directors

Mumbai Nasser Munjee

April 13, 2011 Chairman




Mar 31, 2010

The year 2009 was one of the most difficult years in living memory for most economies of the world. India, however, continued to remain robust recording the second highest rate of growth after China. Cautious monetary management in India helped steer the banking system away from the excesses witnessed elsewhere and though credit off-take weakened, the system remained in good shape.

DCB, for the first few months of FY 2010, continued to suffer from the impact of increase in Non Performing Advances (NPAs) in Unsecured Personal Loans. The Unsecured Personal Loans portfolio was impacted for the whote industry due to the severe economic slowdown. Commercial Vehicle and Construction Equipment also got impacted to some extent. DCB ceased advancing Unsecured Personal Loans, Commercial Vehicle and Construction Equipment in mid 2008 and since then these portfolios have steadily been run off. Vigorous efforts on timely collection and recoveries have been successful and this has helped to reduce the provisions and mitigate the losses. Provisions are lower in the financial year 2009-10 (FY 2010) than the previous financial year (FY 2009).

In FY 2010, DCB successfully dealt with many of the challenges faced by it. DCBs Balance Sheet was restructured substantially towards reducing dependence on unpredictable wholesale deposits in favour of more stable retail or customer deposits.

Having dealt with the rising NPA issue, the Bank has implemented a new strategy in FY 2010 for growth. Unlike the past years where DCB depended to a large extent on Unsecured Personal Loans, in the new strategy, the Bank is focusing on (a) Retail Mortgages (b) Micro Small & Medium Enterprise (MSME) (c) Small & Medium Enterprise (SME) (d) mid-Corporate (e) Agri, Microfinance and Rural Banking (AMRB) (to meet Priority Sector Lending (PSL) targets). The Bank is adopting a more customer centric approach to achieve business growth and create a diversified and secured portfolio. DCBs branch network will play a key role both for deposits and advances. Instead of funding the advances with bulk deposits, the Bank has changed its approach and has put a lot more effort in generating low cost deposits such as Current and Savings Accounts (CASA) and Retail Term Deposits. The focus of attention on retail CASA and Retail Term Deposits not only helped improve the cost of funds but also enabled DCB to strengthen the Balance Sheet by replacing volatile bulk deposits with more stable retail deposits.

DCB aims also to boost other sources of income by cross selling life insurance and general insurance, wealth advisory, cash management and trade products in order to improve customer loyalty as well increase non fund based income.

In the last few months, DCB has been successful in growing MSME, SME and Mortgage Advances. Corporate Banking delivered steady performance while Agri, Microfinance and Rural Banking witnessed substantial growth in FY 2010. DCB made special efforts to ensure that PSL regulatory obligations are fulfilled by it.

Continuously enhancing customer loyalty is critical for the Bank. Therefore, a lot of attention has been given to improving service at the branches and streamlining back office operations. Cross selling of life insurance, general insurance and trade business has helped to improve deepening relationships with our customers. New products such as wealth advisory (offered at no cost to our customers) have met with a strong positive response.

All this has been achieved with dramatic and universal cost cutting and enhancing the efficiency of operations. The twin result of the growth of business as well as dramatic cuts in costs has had the effect of lowering Net Loss for FY 2010 from the previous year. This has also been a year where it has been difficult to grow business as credit off-take in the banking industry as a whole has been weak owing to a slowing economy but your Directors expect this to change dramatically in FY 2011.

As the Bank continues to execute its strategy and business plans your Directors expect the Balance Sheet growth to continue which, in turn, should help achieve sustainable income growth. The fourth quarter Net Loss has improved in comparison to the previous three quarters and your Directors are confident of returning to profitability within a few months.

FINANCIAL SUMMARY

(Rs.in Cr.)

For the year For the year Increase/ ending ending (Decrease) 31 March 2010 31 March 2009 (%)

Balance Sheet

Parameters

Deposits 4,787.33 4,646.89 3.0%

Customer Deposits 4,626.61 4,248.23 7.0%

(including CASA) (1,691.04) (1,438.04) 17.6%

Inter Bank Deposits 160.72 398.66 (59.7%)

Advances 3,459.71 3.274.02 5.7%

Non Performing Assets 319.18 290.00 10.1% (Gross)

Non Performing Assets 107.61 126.99 15.3% (Net)

Provision for Standard 25.25 25.37 0.4% Assets

Total Assets 6,136.67 5,943.04 3.3%

Profit & Loss Parameters

Net Interest Income 141.99 197.26 (28.0%)

Non-Interest Income 107.09 120.06 (10.8%)

Total Operating 249.08 317.32 (21.5%) Income

Operating Cost 200.82 241.98 17.0%

Operating Profit 48.26 75.34 (35.9%)

Provisions 121.00 161.94 25.3%

Net Profit Before Tax (72.74) (86.60) (16.0%)

Tax 5.71 1.50 280.7%

Net Profit After Tax (78.45) (88.10) 11.0%

DCB strategy was to exit from Unsecured Personal Loans, Commercial Vehicle and Construction Equipmentand replace the portfolio by secured Advances in MSME, SME, Retail Mortgages, mid Corporate and Agri, Microfinance and Rural Banking.

Balance Sheet has begun to grow in the last few months. Balance Sheet as on March 31, 2010 was Rs. 6,137 Cr. as against Rs. 5,943 Cr. as on March 31, 2009.

Net Advances grew to Rs. 3,460 Cr. as on March 31, 2010 from Rs. 3,274 Cr, as on March 31. 2009.

CASA book grew by 18% year on year. CASA ratio as on March 31, 2010 stands at 35.3% as against 30.9% as on March 31, 2009.

Retail Deposits (Retail CASA and Retail Term Deposits) continued to show good results. Retail Deposits were at 81.5% of Total Deposits as on March 31, 2010 as against 67.9% as on March 31, 2009. Net Interest Margin was at 2.79% for FY 2010 as against 2.86% for FY 2009.

Unsecured Personal Loans portfolio reduced substantially and stood at Rs. 95 Cr. as on March 31, 2010 as against Rs. 330 Cr. as on March 31, 2009.

Gross and Net Non-Performing Advances as on March 31, 2010 was Rs. 319 Cr. and Rs, 108 Cr. respectively and have declined steadily in the last few months of FY 2010. DCBs overall NPA Coverage Ratio has improved to 70.0% as on March 31. 2010 from 56.2% as on March 31, 2009.

During FY 2010, DCB raised Capital in August 2009 by issuance of lower Tier II Subordinated Debt (Series IV) in the nature of promissory notes aggregating Rs. 65 Cr. and also in November 2009 issued 23,725,835 equity shares at the rate of Rs. 34,14 per share to Qualified Institutional Buyers (QIBs) and raised Rs. 81 Cr. of Tier I Capital.

DIVIDEND

In view of the performance for the Financial Year ended 31 March 2010, your Directors do not recommend payment of any dividend for FY 2009-2010. (Previous year: Nil)

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956, your Board of Directors confirms that: a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit or loss of the company for that period; c) proper and sufficient care has been taken for maintenance of adequate accounting records as provided in the Companies Act, 1956, for safeguarding the assets of DCB and for preventing and detecting frauds and other irregularities; and d) the annual accounts of DCB have been prepared on a "going concern" basis.

CORPORATE GOVERNANCE

The Bank continues to believe in observing the best corporate governance practices and benchmarking itself against each such practice on an ongoing basis. A separate section on Corporate Governance and a Certificate from M/s S.R. Batliboi & Co,, Chartered Accountants regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements with the Stock Exchanges form part of this Annual Report.

DIRECTORS

In accordance with the Companies Act, 1956 and the Articles of Association of DCB, Directors Mr. Amir A. Sabuwala, Ms. Nasim Devji and Mr. Shabir Kassam are retiring by rotation and, being eligible, offer themselves for re- appointment.

The Board recommends the re-appointments of Mr. Amir A. Sabuwala, Ms. Nasim Devji and Mr. Shabir Kassam as Directors at this Annua) Genera) Meeting. A brief resume relating to the Directors who are to be re- appointed is furnished in the report on Corporate Governance.

None of the above mentioned persons is disqualified from being appointed as a Director as specified in terms of Section 274(1 )(g) of the Companies Act, 1956.

Mr. Anuroop Singh ceased to be a Director w.e.f. August 31, 2009. Your Directors place on record their sincere appreciation of the services rendered by Mr, Anuroop Singh.

STATUTORY AUDITORS

Messers S. R. Batliboi & Co., Chartered Accountants were appointed as Statutory Auditors at the last Annual General Meeting as per Banking Regulation Act, 1949. They are eligible for re-appointment for FY 2010-2011 and their appointment is subject to RBI approval. Your Board recommends their appointment as Statutory Auditors at the ensuing Annual General Meeting, subject to approval of RBI.

ACKNOWLEDGEMENTS

Your Board wishes to thank the principal shareholder, the promoters Aga Khan Fund for Economic Development (AKFED), and all the other shareholders for the confidence and trust they have reposed in DCB. Your Board also thanks the RBI for its valuable guidance and support to DCB. Your Board acknowledges with gratitude, the assistance and co-operation extended bySEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of various States where DCB has its branches.

Your Board acknowledges withappreciation, the invaluable supportprovided by DCBs auditors, lawyers, business partners and investors. Your Board is also thankful for the continued co-operation of various financial institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage. Your Board records with sincere appreciation the valuable contribution made by employees at all levels and looks forward to their continued commitment to achieve ambitious organisational goals that the Bank has set for the future.

On behalf of the Board of Directors

Mumbai Nasser Munjoe

April 16, 2010 Chairman

 
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